JETPAY CORPORATION AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT October 18, 2016

 

Exhibit 4.1

 

JETPAY CORPORATION

 

AMENDED AND RESTATED

 

SECURITIES PURCHASE AGREEMENT

 

October 18, 2016

 

 

Table of Contents

 

		Page
Section 1.	Definitions	1
Section 2.	Authorization and Closing	10
Section 2.1.	Authorization of the Preferred Stock and the Common Stock	10
Section 2.2.	Purchase and Sale of the Preferred Stock	10
Section 2.3.	The Closings	10
Section 3.	Conditions of Purchaser’s Obligation at the Initial Closing	11
Section 3.1.	Representations and Warranties; Covenants	11
Section 3.2.	Certificate of Designation	11
Section 3.3.	Amendment of the Company’s Bylaws	12
Section 3.4.	Registration Agreement	12
Section 3.5.	Board of Directors	12
Section 3.6.	Indemnification Agreements	12
Section 3.7.	Securities Law Compliance	12
Section 3.8.	Opinion of the Company’s Counsel	12
Section 3.9.	Closing Documents	12
Section 3.10.	Proceedings	13
Section 3.11.	Expenses	13
Section 3.12.	No Material Adverse Effect	13
Section 3.13.	Compliance with Applicable Laws; Card Association	13
Section 3.14.	Authorization; Listing	13
Section 3.15.	Stockholder Consent	13
Section 4.	Conditions of Purchaser’s and LS Purchaser’s Obligations at the Tranche B Closing and Tranche C Closing	13
Section 4.1.	Representations and Warranties; Covenants	13
Section 4.2.	Certificate of Designation	14
Section 4.3.	Company Documents	14
Section 4.4.	Securities Law Compliance	14
Section 4.5.	Opinion of the Company’s Counsel	14
Section 4.6.	Closing Documents	14
Section 4.7.	Expenses	15
Section 4.8.	No Material Adverse Effect	15
Section 4.9.	Compliance with Applicable Laws	15
Section 4.10.	No Judgments or Settlements	15
Section 4.11.	Authorization; Listing	15
Section 4.12.	Additional Conditions to LS Purchaser’s Obligations at the LS Purchaser Closing	15
Section 5.	Conditions to the Company’s Obligations at Closing	16
Section 5.1.	Representations and Warranties	16
Section 5.2.	Performance	16
Section 6.	Covenants	16
Section 6.1.	Financial Statements and Other Information	16
Section 6.2.	Inspection Rights	17
Section 6.3.	Designation of Directors	17
Section 6.4.	Restrictions	17
Section 6.5.	Compliance with Agreements	20
Section 6.6.	Reservation of Common Stock	20
Section 6.7.	Use of Proceeds	20

 

 

Table of Contents

(continued) 

 

		Page
Section 6.8.	Issuance of New Securities	21
Section 6.9.	Listing	21
Section 6.10.	Section 203 of the Delaware General Corporation Law	22
Section 6.11.	Conversion of Preferred Stock	22
Section 6.12.	Filing of Information Statement	22
Section 6.13.	Public Disclosures	22
Section 6.14.	Transfers	23
Section 6.15.	Piggyback Registrations	25
Section 6.16.	Further Assurances; Cooperation	26
Section 7.	Transfer of Restricted Securities	27
Section 7.1.	General Provisions	27
Section 7.2.	Opinion Delivery	27
Section 7.3.	Legend; Legend Removal	27
Section 7.4.	Rule 144A	27
Section 8.	Representations and Warranties of the Company	28
Section 8.1.	Organization and Corporate Power	28
Section 8.2.	Capital Stock and Related Matters	28
Section 8.3.	Subsidiaries; Investments	28
Section 8.4.	Authorization	29
Section 8.5.	No Breach	29
Section 8.6.	Licenses	29
Section 8.7.	Company Filings; Financial Statements	29
Section 8.8.	Internal Controls	30
Section 8.9.	Absence of Undisclosed Liabilities	30
Section 8.10.	No Material Adverse Change	30
Section 8.11.	Absence of Certain Developments	31
Section 8.12.	Property	31
Section 8.13.	Tax Matters	31
Section 8.14.	Contracts and Commitments	32
Section 8.15.	Intellectual Property Rights	32
Section 8.16.	Litigation, etc.	33
Section 8.17.	Brokerage	33
Section 8.18.	Governmental Consent, etc.	33
Section 8.19.	Insurance	33
Section 8.20.	Employees	33
Section 8.21.	Employee Benefits	33
Section 8.22.	Compliance with Laws; Card Associations	34
Section 8.23.	Affiliated Transactions	34
Section 8.24.	Private Placement	34
Section 8.25.	Application of Takeover Protections	34
Section 8.26.	Customers and Suppliers	34
Section 8.27.	Closing Date	35
Section 8.28.	Certain Representations	35
Section 9.	Representations and Warranties of Purchasers	35
Section 9.1.	Organization and Existence	35
Section 9.2.	Authorization	35
Section 9.3.	Private Placement	35
Section 9.4.	No Conflict, Breach, Violation or Default	36
Section 9.5.	No Reliance	36

 

 

Table of Contents

(continued) 

 

		Page
Section 9.6.	Financial Capability	36
Section 9.7.	Brokers and Finders	36
Section 10.	Survival of Representations and Warranties; Indemnification	36
Section 10.1.	Survival of Representations and Warranties	36
Section 10.2.	Indemnification	37
Section 11.	Termination Prior to the Initial Closing	38
Section 12.	General Provisions	38
Section 12.1.	Expenses	38
Section 12.2.	Amendments and Waivers	39
Section 12.3.	Severability	39
Section 12.4.	Remedies	39
Section 12.5.	Successors and Assigns	39
Section 12.6.	Notices	39
Section 12.7.	Business Days	40
Section 12.8.	Governing Law	40
Section 12.9.	Mutual Waiver of Jury Trial	41
Section 12.10.	CONSENT TO JURISDICTION AND SERVICE OF PROCESS	41
Section 12.11.	Effective Date	41
Section 12.12.	Descriptive Headings; Interpretation	41
Section 12.13.	No Strict Construction	41
Section 12.14.	Electronic Delivery	41
Section 12.15.	Entire Agreement	42
Section 12.16.	Counterparts	42
Section 12.17.	Capital and Surplus; Special Reserves	42
Section 12.18.	Treatment of the Preferred Stock	42
Section 12.19.	Generally Accepted Accounting Principles	42
Section 12.20.	Third-Party Beneficiaries	42

 

 

LIST OF EXHIBITS

 

Exhibit A	-	Certificate of Designation
Exhibit B	-	Bylaws
Exhibit C	-	Registration Agreement
Exhibit D	-	Indemnification Agreement
Exhibit E	-	Opinion of Counsel
Exhibit F	-	Form of Stockholder Consent
Exhibit G	-	Amendment No. 1 to Certificate of Designation

 

 

LIST OF SCHEDULES

 

Capitalization Schedule

Subsidiary Schedule

Restrictions Schedule

Liabilities Schedule

Adverse Change Schedule

Developments Schedule

Contracts Schedule

Leased Real Property Schedule

Taxes Schedule

Litigation Schedule

Brokerage Schedule

Consents Schedule

Insurance Schedule

Employees Schedule

Employee Benefits Schedule

Compliance Schedule

Affiliated Transactions Schedule

Customers Schedule

 

 

JETPAY CORPORATION

 

AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT

 

THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made as of October 18, 2016 (the “Restatement Date”), by and among JetPay Corporation, a Delaware corporation (the “Company”), Flexpoint Fund II, L.P., a Delaware limited partnership (“Purchaser”) and Sundara Investment Partners, LLC, a Delaware limited liability company (“LS Purchaser”). Except as otherwise indicated herein, all capitalized terms used are defined in Section 1.

 

WHEREAS, on August 22, 2013 (the “Initial SPA Date”), the Company and Purchaser entered into that certain Securities Purchase Agreement (the “Initial SPA”) pursuant to which the Company agreed to issue and sell to Purchaser, upon the satisfaction of certain conditions, 133,333 shares of Series A Convertible Preferred Stock, par value $0.001 per share (“Preferred Stock”), for an aggregate purchase price of up to $40,000,000.

 

WHEREAS, on October 10, 2016, the Company and Purchaser entered into Amendment No. 1 to the Initial SPA, pursuant to which Section 2.3(c) of the Initial SPA was revised to extend the expiration date of Purchaser’s Tranche C Purchase Right (as defined in the Initial SPA) from the third anniversary of the Initial Closing to October 25, 2016.

 

WHEREAS, the parties to the Initial SPA have agreed to amend and restate the Initial SPA to facilitate an investment by LS Purchaser in the Company in exchange for certain rights under the Initial SPA.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:

 

Section 1.          Definitions. For the purposes of this Agreement, the following capitalized terms have the meanings set forth below:

 

“Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.

 

“Agreement” has the meaning set forth in the preamble.

 

“Amendment No. 1” has the meaning set forth in Section 2.1.

 

“Board” means the board of directors of the Company.

 

“Business Day” means any day, other than a Saturday, Sunday, or any other date in which banks located in Philadelphia, Pennsylvania are closed for business as a result of federal, state or local holiday.

 

“Capital Stock” means (i) with respect to any Person that is a corporation, any and all shares, interests or equivalents in capital stock of such corporation (whether voting or nonvoting and whether common or preferred) and (ii) with respect to any Person that is not a corporation, individual or governmental entity, any and all partnership, membership, limited liability company or other equity interests of such Person that confer on the holder thereof the right to receive a share of the profits and losses of, or the distribution of assets of, the issuing Person, including in each case any and all warrants, rights or options to purchase any of the foregoing.

 

“Card Association” means MasterCard International, Inc., VISA U.S.A., Inc., VISA International, Inc., Discover, JCB, American Express, Diners Club, Voyager, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and any other material card association, debit card network or similar entity with whom the Company and/or any of its Subsidiaries may directly or indirectly have a sponsorship agreement.

 

“Certificate of Designation” has the meaning set forth in Section 3.2.

 

 

“Certificate of Incorporation” means the Company’s Amended and Restated Certificate of Incorporation dated as of December 28, 2012, as amended.

 

“Closing” has the meaning set forth in Section 2.3(c).

 

“Closing Price” means the closing price published by NASDAQ.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any reference to any particular Code section shall be interpreted to include any revision of or successor to that section regardless of how numbered or classified.

 

“Common Stock” has the meaning set forth in Section 2.1.

 

“Company” has the meaning set forth in the preamble.

 

“Company Filings” has the meaning set forth in Section 8.7(a).

 

“Company Funding Right” has the meaning set forth in Section 2.3(b).

 

“Company Funding Right Expiration” has the meaning set forth in Section 2.3(b).

 

“Co-Sale Right” has the meaning set forth in Section 6.14(d)(i).

 

“Deemed Common Equity Value” means $34,587,282.

 

“Designated Assets” means those funds held as of the Initial SPA Date by ▇▇▇▇▇▇▇ belonging to the Company’s JetPay, LLC Subsidiary in each case in the amounts and pursuant to the agreements as set forth on Schedule 1 hereto.

 

“Direct Air Matter” means the cessation of operations of Southern Sky Air & Tours, LLC d/b/a Direct Air and a/k/a Myrtle Beach Direct Air and Tours and any chargebacks from customers arising therefrom or related thereto and any obligations or liabilities to ▇▇▇▇▇▇▇ Bank Corporation or its Affiliates or insurers arising therefrom or related thereto (whether pursuant to a sponsorship agreement or otherwise), together with all costs, expenses and fees arising out of, related to, or sustained in connection with any of the foregoing, including, without limitation any fees and expenses incurred by ▇▇▇▇▇▇▇ Bank Corporation and any fees and expenses of counsel related thereto.

 

“Disclosure Schedules” shall mean, collectively, the Capitalization Schedule, the Subsidiary Schedule, the Restrictions Schedule, the Liabilities Schedule, the Adverse Change Schedule, the Developments Schedule, the Contracts Schedule, the Leased Real Property Schedule, the Taxes Schedule, the Intellectual Property Schedule, the Litigation Schedule, the Brokerage Schedule, the Consents Schedule, the Insurance Schedule, the Employees Schedule, the Employee Benefits Schedule, the Compliance Schedule, the Affiliated Transactions Schedule and the Customers Schedule.

 

“Drag-Along Right” has the meaning set forth in Section 6.14(c)(ii).

 

“Employee Benefit Plan” has the meaning set forth in Section 8.21.

 

“Environmental and Safety Requirements” means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of Law, all judicial and administrative orders and determinations, all contractual obligations and all common law, in each case concerning public health and safety, worker health and safety and pollution or protection of the environment (including, without limitation, all those relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, Release, threatened Release, control or cleanup of any hazardous or otherwise regulated materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation).

 

 

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974 and the rules and regulations promulgated thereunder, in each case as amended from time to time, and judicial rulings and interpretations thereof.

 

“Escrowed Shares” means 3,333,333 shares of the Company’s Common Stock held as of the Initial SPA Date in escrow pursuant to the JetPay Escrow Agreement.

 

“Event of Noncompliance” has the meaning set forth in the Certificate of Designation.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal Law then in force.

 

“Existing Promissory Notes” means each of the Promissory Note of the Company payable to the Purchaser dated as of January 15, 2016 (as amended prior to the Restatement Date), and the Promissory Note of the Company payable to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ dated as of January 15, 2016 (as amended prior to the Restatement Date).

 

“Existing Secured Convertible Notes” means the Company’s secured convertible promissory notes issued pursuant to that certain Secured Convertible Note Agreement, dated as of December 28, 2012, by and among the Company and the purchasers of such notes.

 

“Fundamental Representations” means the representations and warranties set forth in Sections 8.1, 8.2, 8.4, 8.5, 8.25, 9.1, 9.2, 9.3(a) and 9.4.

 

“GAAP” means United States generally accepted accounting principles, consistently applied.

 

“Governmental Entity” means a domestic (federal, state, municipal or local) or foreign government or governmental, regulatory, political, judicial or quasi-judicial authority or administrative subdivision, department, agency, commission, board, bureau, court or instrumentality thereof.

 

“Implied Value” means as to each Escrowed Share, the deemed value of such share used by the parties to the JetPay Escrow Agreement for purposes of satisfying a claim thereunder; provided, however, that, if such parties do not specify or otherwise agree upon a deemed value of such share, the deemed value for purposes of this Agreement shall be the fair market value.

 

“Incentive Plan” means any stock option plan, employee stock ownership plan, stock appreciation plan or phantom stock plan of the Company that is approved by the Board.

 

“Indebtedness” means at a particular time, without duplication, (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money; (ii) any indebtedness evidenced by any note, bond, debenture or other debt security; (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business which are not more than six months past due); (iv) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit); (v) any indebtedness guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse); (vi) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or with respect to which obligations a Person assures a creditor against loss; (vii) any indebtedness secured by a Lien on a Person’s assets and (viii) any unsatisfied obligation for “withdrawal liability” to a “multiemployer plan” as such terms are defined under ERISA.

 

“Indemnification Agreement” has the meaning set forth in Section 3.6.

 

“Indemnified Liabilities” means any and all actions, causes of action, suits, claims, losses, diminutions in value, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements.

 

 

“Indemnitees” has the meaning set forth in Section 10.2(a).

 

“Information Statement” has the meaning set forth in Section 6.12.

 

“Initial Closing” has the meaning set forth in Section 2.3(a).

 

“Initial SPA Date” has the meaning set forth in the preamble.

 

“Intellectual Property Rights” means all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, logos and corporate names and registrations and applications for registration thereof together with all of the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software, data, databases and documentation thereof, (vi) trade secrets and other confidential information (including, without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial and marketing plans and customer and supplier lists and information) and (vii) copies and tangible embodiments thereof (in whatever form or medium).

 

“Investment” as applied to any Person means (i) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership interest (including partnership interests and joint venture interests) of any other Person and (ii) any capital contribution by such Person to any other Person.

 

“IRS” means the United States Internal Revenue Service.

 

“Issuance Closing” has the meaning set forth in Section 6.8(c).

 

“Issuance Notice” has the meaning set forth in Section 6.8(b).

 

“JetPay Escrow Agreement” means that certain Escrow Agreement, dated as of December 28, 2012, by and among ▇▇▇▇▇▇▇, the Company, JetPay, LLC, WLES and JPMorgan Chase Bank, N.A., as may be amended from time to time.

 

“JetPay Merger Agreement” means that certain Agreement and Plan of Merger, dated as of July 6, 2012, by and among the Company, JP Merger Sub, LLC, JetPay, LLC, WLES and ▇▇▇▇▇ ▇▇▇▇▇.

 

“Knowledge” of the Company and its Subsidiaries shall mean the actual knowledge or awareness of ▇▇▇▇▇ (▇▇▇▇) Faro, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ after due inquiry of their direct reports who would reasonably be expected to have knowledge of the relevant subject matter.

 

“Latest Balance Sheet” means the Company’s unaudited consolidated balance sheet included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

 

“Law” shall mean any national, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, order, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity.

 

“Leased Real Property” means all leasehold or subleasehold estates and all other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by the Company or any of its Subsidiaries pursuant to any Lease.

 

“Leases” means all leases, subleases, licenses, concessions and other contracts pursuant to which the Company or any of its Subsidiaries holds any Leased Real Property (including the rights to all security deposits and other amounts and instruments deposited by or on behalf of the Company and/or and of its Subsidiaries thereunder) and all material amendments, extensions, renewals, guaranties and other agreements with respect thereto.

 

 

“Liens” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Company, any Subsidiary or any Affiliate, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to the Company or any Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, any subordination arrangement in favor of another Person (other than any subordination arising in the ordinary course of business) or any restriction on transfer.

 

“LS Purchaser” has the meaning set forth in the preamble.

 

“LS Purchaser Closing” has the meaning set forth in Section 2.3(c)(2).

 

“LS Purchaser Ownership Condition” means that number of shares of Preferred Stock and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) equal to fifty percent (50%) or more of the shares of Preferred Stock purchased by LS Purchaser at the LS Purchaser Closing.

 

“LS Purchaser Sale Amount” has the meaning set forth in Section 6.14(c)(ii).

 

“Material Adverse Effect” means any change, event, development or effect that is, has been or would reasonably be expected to be materially adverse to the business, assets, liabilities, operations, condition (financial or otherwise), operating results, employee relations, customer relations or supplier relations of the Company and its Subsidiaries, taken as a whole, or on the ability of the Company to consummate timely the transactions contemplated hereby (regardless of whether or not such adverse change, event, development or effect can be or has been cured at any time or whether Purchaser has knowledge of such change, event, development or effect on the date hereof); provided, however, that the term “Material Adverse Effect” shall not include, alone or in combination, and no change, event, development or effect arising from or relating to any of the following shall be taken into account in determining whether there has been a “Material Adverse Effect”: (i) general conditions affecting the industries in which the Company or any of its Subsidiaries operates or participates, the U.S. economy or financial markets or any foreign markets or any foreign economy or financial markets in any location where the Company or any of its Subsidiaries has material operations or sales; (ii) any national or international political or social conditions, including an outbreak or escalation of hostilities, acts of terrorism, military acts or other national or international calamity, crisis or emergency, or any governmental or other response to the foregoing, in each case whether or not involving the United States; (iii) the public announcement or pendency of this Agreement or any transactions contemplated by this Agreement; (iv) changes in GAAP or applicable Law after the date of this Agreement; (v) any hurricane, earthquake, flood or other natural disaster; (vi) actions or omissions of the Company and its Subsidiaries taken with Purchaser’s express written consent; or (vii) any failure, in and of itself, by the Company or any of its Subsidiaries to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of this Agreement; provided, further, that any effect, change, event, occurrence, circumstance, state of facts or development arising from or relating to the matters set forth in clauses (i), (ii), (iv) and (v) may be taken into account in determining whether a “Material Adverse Effect” has occurred or would reasonably be expected to occur to the extent that such matter has had or would reasonably be expected to have, individually or in the aggregate, a disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other similarly situated entities in the industries in which the Company and its Subsidiaries operate; provided, further, that the underlying causes of any failure described in clause (vii), to the extent not otherwise excluded from the definition of “Material Adverse Effect” shall be taken into account in determining whether a “Material Adverse Effect” has occurred or would reasonably be expected to occur.

 

 

“Material Contract” means any (i) pension, profit sharing, stock option, employee stock purchase or other plan or arrangement providing for deferred or other material compensation to employees, or any collective bargaining agreement or any other agreement with any labor union, or severance agreements, programs, policies or arrangements, in each case, other than an employment or consulting agreement; (ii) agreement for the employment of any officer, employee or other individual on a full-time, part-time, consulting or other basis providing annual compensation in excess of $100,000 or agreement relating to loans to officers, directors or Affiliates; (iii) agreement under which the Company or Subsidiary has advanced or loaned any other Person amounts in the aggregate exceeding $100,000; (iv) agreement or indenture relating to borrowed money or other Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any material asset or material group of assets of the Company and its Subsidiaries; (v) agreement with any holder of Existing Secured Convertible Notes; (vi) agreement with any current or, within the past three years, prior sponsoring bank; (vii) agreement with any Card Association; (viii) guarantee of any obligation (other than by the Company of a Wholly-Owned Subsidiary’s debts or a guarantee by a Subsidiary of the Company’s debts or another Subsidiary’s debts); (ix) lease or agreement under which the Company or any Subsidiary is lessee of or holds or operates any personal property, owned by any other party, except for any lease of personal property under which the aggregate annual rental payments do not exceed $100,000; (x) lease or agreement under which the Company or any Subsidiary is lessor of or permits any third party to hold or operate any personal property, owned or controlled by the Company or any Subsidiary; (xi) agreement or group of related agreements with the same party or group of affiliated parties the performance of which involves consideration in excess of $500,000; (xii) assignment, license, indemnification or agreement with respect to any intangible property (including, without limitation, any Intellectual Property Rights); (xiii) software license with an annual license or maintenance fee in excess of $100,000; (xiv) except for the Registration Agreement, agreement under which it has granted any Person any registration rights (including, without limitation, demand and piggyback registration rights); (xv) agreement with a term of more than six months which is not terminable by the Company or any Subsidiary upon less than thirty (30) days’ notice without penalty greater than $250,000; (xvi) agreement prohibiting it from freely engaging in any business or competing anywhere in the world; or (xvii) any other agreement which is material to its operations or business prospects or the listing of its securities on NASDAQ or involves a consideration in excess of $250,000 annually.

 

“Minimum Ownership Condition” means the lesser of (i) 50% of the number of shares of Preferred Stock purchased by Purchaser as of such date and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) and (ii) 33,333 shares of Preferred Stock and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable).

 

“NASDAQ” means The NASDAQ Stock Market LLC.

 

“New Securities” means any Capital Stock of the Company or any of its Subsidiaries, whether or not presently authorized, and any rights, options and warrants to purchase any Capital Stock of the Company or any of its Subsidiaries, and securities of any type whatsoever which are, or may become, convertible or exchangeable into Capital Stock of the Company or any of its Subsidiaries; provided that the term “New Securities” shall not include: (i) securities offered to the public pursuant to a registration statement filed by the Company or any of its Subsidiaries under the Securities Act; (ii) to the extent otherwise permitted by this Agreement, securities issued as consideration for the acquisition of assets or securities of another business or Person by the Company or any of its Subsidiaries by means of merger, purchase of securities, purchase of all or substantially all of the assets of such business or Person or reorganization resulting in the ownership by the Company or such Subsidiary of not less than a majority of the voting power of such business or Person and, in the case of rights, options or warrants, the securities issued or issuable upon exercise thereof and, in the case of convertible or exchangeable securities, the securities issued or issuable upon the conversion or exchange thereof; (iii) securities issued to directors or employees of or consultants or other service providers to the Company or any of its Subsidiaries pursuant to any Qualified Incentive Plan and, in the case of rights, options or warrants, the securities issued or issuable upon exercise thereof and, in the case of convertible or exchangeable securities, the securities issued or issuable upon the conversion or exchange thereof; (iv) securities issued as a result of any stock split, stock dividend, capital reorganization, recapitalization or reclassification of the Company’s or such Subsidiary’s Capital Stock, distributable on a pro rata basis to all holders of the applicable class of the Company’s or such Subsidiary’s Capital Stock; and (v) securities issued or issuable upon the conversion or exchange of any securities, options, warrants or convertible notes that are outstanding as of the date hereof and listed on the Capitalization Schedule.

 

“Officer’s Certificate” means a certificate signed by the Company’s president or its chief financial officer, stating that (i) the officer signing such certificate has made or has caused to be made such investigations as are reasonably necessary in order to permit him to verify the accuracy of the information set forth in such certificate and (ii) such certificate does not misstate any material fact and does not omit to state any fact necessary to make the certificate not misleading.

 

“Organizational Documents” means, with respect to any entity, (i) the certificate or articles of incorporation and the bylaws, the certificate of formation and partnership agreement or operating agreement, as applicable, and (ii) any documents comparable to those described above as may be applicable to such entity pursuant to any applicable Law or by contract.

 

 

“Permitted Liens” means (a) mechanics’, materialman’s, workmens’, repairmen’s, warehousemen’s, supplier’s, vendor’s, carrier’s and other similar Liens arising or incurred in the ordinary course of business by operation of Law securing amounts that are not yet due and payable, (b) Liens for Taxes, assessments and other charges of Governmental Entities not yet due and payable or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP on the books and financial statements of the Company and its Subsidiaries, (c) pledges or deposits to secure obligations under workers or unemployment compensation Laws or to secure other statutory obligations, (d) easements, covenants, conditions and restrictions of record affecting Leased Real Property which do not or would not materially impair the use or occupancy of any Leased Real Property in the operation of the business conducted thereon, and (e) any zoning, or other governmentally established restrictions of encumbrances which are not violated by the current use or occupancy of any Leased Real Property or the operation of the business of the Company or any of its Subsidiaries conducted thereon.

 

“Permitted Transferee” means, with respect to any Person, (a) any partner or Affiliate, (b) any member of such Person’s immediate family and (c) any trust solely for the benefit of such Person and/or a member of such Person’s immediate family and of which such Person and/or any member or members of such Person’s immediate family is the trustee or are trustees. In determining whether a Person is a “Permitted Transferee,” “immediate family” shall include a Person’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Entity.

 

“Per Share Purchase Price” has the meaning set forth in Section 2.2

 

“Piggyback Registration” has the meaning set forth in Section 6.15(a).

 

“Preferred Director” has the meaning set forth in Section 6.3.

 

“Preferred Stock” has the meaning set forth in the preamble.

 

“Purchaser” has the meaning set forth in the preamble.

 

“Purchaser Co-Sale Right” has the meaning set forth in Section 6.14(e).

 

“Purchaser Divestiture” means either (i) the sale by Purchaser of shares of Preferred Stock in connection with a Change of Control (as defined in the Certificate of Designation) or (ii) the sale by Purchaser of shares of Preferred Stock at a price per share that equals or exceeds the Liquidation Value (as defined in the Certificate of Designation) of such shares.

 

“Purchaser Offer” has the meaning set forth in Section 6.14(c)(i).

 

“Purchaser Offer Notice” has the meaning set forth in Section 6.14(c)(i).

 

“Purchasers” shall mean collectively Purchaser and LS Purchaser.

 

“Qualified Holder” has the meaning set forth in Section 6.8(a).

 

“Qualified Incentive Plan” means any Incentive Plan that is (i) in existence as of the date hereof and listed on the Capitalization Schedule and has not been modified or amended, except as approved by the Board after the Initial Closing, including by at least one director appointed by Purchaser or (ii) approved by the Board after the Initial Closing, including by at least one director appointed by Purchaser.

 

 

“Registration Agreement” has the meaning set forth in Section 3.4.

 

“Restatement Date” has the meaning set forth in the preamble.

 

“Release” has the meaning set forth in the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

 

“Restricted Securities” means (i) the Preferred Stock issued hereunder, (ii) the Common Stock issued upon conversion of Preferred Stock and (iii) any securities issued with respect to the securities referred to in clauses (i) or (ii) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) been sold pursuant to Rule 144 under the Securities Act or become eligible for sale pursuant to Rule 144 under the Securities Act without volume or manner of sale restrictions or (c) been otherwise transferred and new certificates for them not bearing a restrictive Securities Act legend have been delivered by the Company. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing such restrictive Securities Act legend.

 

“ROFO Offer” has the meaning set forth in Section 6.14(b)(i).

 

“ROFO Period” has the meaning set forth in Section 6.14(b)(ii)(2).

 

“▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act” has the meaning set forth in Section 8.7(a).

 

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal Law then in force.

 

“Securities and Exchange Commission” means the United States Securities and Exchange Commission, or any Governmental Entity succeeding to the functions thereof.

 

“Series A-1 Preferred Stock” has the meaning set forth in Section 8.2(a).

 

“Series A-2 Preferred Stock” has the meaning set forth in Section 8.2(a).

 

“Stockholder Consent” has the meaning set forth in Section 8.4.

 

“Subsequent Closing” has the meaning set forth in Section 2.3(c)(3).

 

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall control any board of managers, managing member, managing director or general partner or similar governing body of such limited liability company, partnership, association or other business entity.

 

“Tax” or “Taxes” means federal, state, county, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, Capital Stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated, unclaimed property or escheatment, and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not, and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

 

 

“Tag-Along Notice” has the meaning set forth in Section 6.14(d)(ii).

 

“Tax Return” means any return, claim or refund, declaration, information report or filing with respect to Taxes, filed or required to be filed with any Governmental Entity or taxing authority, including any schedules attached thereto and including any amendment thereof.

 

“Termination Date” has the meaning set forth in Section 11(b).

 

“Trading Day” means any Business Day on which the Common Stock is traded, or able to be traded, on NASDAQ.

 

“Tranche B Closing” has the meaning set forth in Section 2.3(b).

 

“Tranche B Preferred Stock” has the meaning set forth in Section 2.3(b).

 

“Tranche C Closing” has the meaning set forth in Section 2.3(c)(3).

 

“Tranche C Preferred Stock” has the meaning set forth in Section 2.3(c)(1).

 

“Tranche C Purchase Obligation” has the meaning set forth in Section 2.3(c)(1).

 

“Transaction Agreements” means, collectively, the Registration Agreement, the Certificate of Designation, the Indemnification Agreements and all other agreements entered into by the Company in connection with the transactions contemplated by this Agreement.

 

“Treasury Regulations” means the United States Treasury Regulations promulgated under the Code, and any reference to any particular Treasury Regulation section shall be interpreted to include any final or temporary revision of or successor to that section regardless of how numbered or classified.

 

“Underlying Common Stock” means (i) the Common Stock issued or issuable upon conversion of the Preferred Stock and (ii) any Common Stock or other securities issued or issuable with respect to the securities referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, any Person who holds Preferred Stock shall be deemed to be the holder of the Underlying Common Stock obtainable upon conversion of the Preferred Stock in connection with the transfer thereof or otherwise regardless of any restriction or limitation on the conversion of the Preferred Stock, such Underlying Common Stock shall be deemed to be in existence, and such Person shall be entitled to exercise the rights of a holder of Underlying Common Stock hereunder. As to any particular shares of Underlying Common Stock, such shares shall cease to be Underlying Common Stock when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in force) or (c) repurchased by the Company or any Subsidiary.

 

“Updated Disclosure Schedules” means, with respect to each Subsequent Closing, Disclosure Schedules dated as of such Subsequent Closing, which reflect only changes that have occurred in the ordinary course of the Company’s and its Subsidiaries business (and none of which relate to any breach of contract, violation of Law or tort that is, individually or in the aggregate, material) since the date of the prior Disclosure Schedules or Updated Disclosure Schedules, as applicable, relating to such prior Closing, in a form reasonably acceptable to Purchaser or LS Purchaser, as applicable. The foregoing to the contrary notwithstanding, any update to any Disclosure Schedule will not cure or remedy the effect of any prior untrue statement or omission of fact nor shall any such Disclosure Schedule update have the effect of amending or modifying this Agreement.

 

“Wholly-Owned Subsidiary” means, with respect to any Person, a Subsidiary of which all of the outstanding Capital Stock or other ownership interests are owned by such Person or another Wholly-Owned Subsidiary of such Person.

 

 

Section 2.          Authorization and Closing.

 

Section 2.1.          Authorization of the Preferred Stock and the Common Stock. The Company shall authorize the issuance and sale of up to an aggregate of 134,000 shares of its Preferred Stock, having the terms and relative rights and preferences set forth in the Certificate of Designation attached hereto as Exhibit A as amended by Amendment No. 1 to the Certificate of Designation, in the form set forth in Exhibit G (“Amendment No. 1”). The Preferred Stock is convertible into shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), at the conversion price set forth in the Certificate of Designation, as may be adjusted from time to time, including pursuant to Section 10.2(d) hereof. In addition, the Company shall authorize the issuance of the shares of Common Stock that are issuable upon the conversion of the Preferred Stock.

 

Section 2.2.          Purchase and Sale of the Preferred Stock. At each Closing, the Company shall sell to Purchaser (or, on or after the Restatement Date, LS Purchaser) and, subject to the terms and conditions set forth herein, Purchaser (or, on or after the Restatement Date, LS Purchaser) shall purchase from the Company the number of shares of Preferred Stock to be purchased by Purchaser (or, on or after the Restatement Date, LS Purchaser) at such Closing pursuant to Section 2.3(a), (b) or (c), as applicable, in each case, at a price of $300.00 per share (subject to appropriate adjustments for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) (the “Per Share Purchase Price”).

 

Section 2.3.          The Closings.

 

(a)          The Initial Closing. The initial closing of the purchase and sale of the Preferred Stock (the “Initial Closing”) shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ at 10:00 a.m. local time on the second Business Day following full satisfaction or due waiver of all of the closing conditions set forth in Section 3, or at such other place or on such other date as may be mutually agreeable to the Company and Purchaser. At the Initial Closing, the Company shall cause its transfer agent to deliver to Purchaser stock certificates evidencing 33,333 shares of Preferred Stock to be purchased by such Purchaser, registered in such Purchaser’s or its nominee’s name, upon payment of the purchase price in the aggregate amount of $9,999,900 by wire transfer of immediately available funds to the Company’s account specified in writing by the Company which such account shall be specified not less than two Business Days prior to the Initial Closing.

 

(b)          Tranche B Closing. After the Initial Closing, the Company shall have the right (the “Company Funding Right”) to require Purchaser, subject to Section 4 hereof, to purchase up to that number of newly issued shares of Preferred Stock having an aggregate purchase price (based on the Per Share Purchase Price) of $10,000,000 (the “Tranche B Preferred Stock”); provided, however, that the Company Funding Right shall not be exercisable by the Company earlier than December 1, 2014, nor later than December 29, 2014 (and no Tranche B Closing may take place thereafter), and then only to the extent that the holders of the Existing Secured Convertible Notes have not given and do not give notice of conversion to the Company pursuant to Section 3(b) of the Existing Secured Convertible Notes; provided, further, that the Company’s right to exercise the Company Funding Right is contingent upon the Company using the proceeds of such issuance and sale solely for purposes of redeeming the Company’s outstanding Existing Secured Convertible Notes. The Company Funding Right shall expire upon the earlier of (i) December 29, 2014, and (ii) the date that the Existing Secured Convertible Notes are no longer outstanding (the “Company Funding Right Expiration”). The Closing described in this Section 2.3(b), shall be referred to herein as the “Tranche B Closing.” The Tranche B Closing shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ at 10:00 a.m. local time on the second Business Day following full satisfaction or due waiver of all of the closing conditions set forth in Section 4 hereof, or at such other place or on such other date as may be mutually agreeable to the Company and Purchaser. At the Tranche B Closing, the Company shall cause its transfer agent to deliver to Purchaser stock certificates evidencing the Tranche B Preferred Stock to be purchased by Purchaser, registered in Purchaser’s or its nominee’s name, upon payment of the purchase price thereof by wire transfer of immediately available funds to the Company’s account, which such account shall be specified in writing by the Company not less than two Business Days prior to such Tranche B Closing, in the aggregate amount equal to the number of shares of Tranche B Preferred Stock purchased by Purchaser at the Tranche B Closing times the Per Share Purchase Price.

 

 

(c)          Tranche C Closing.

 

(1)         Tranche C Closings Involving Purchaser. After the Initial Closing and ending on the Restatement Date, and regardless of whether or not the Company has exercised the Company Funding Right but subject to Section 4 hereof, Purchaser shall have the right to purchase in one or more Tranche C Closings (as defined herein), upon written notice to the Company of its intent to exercise such right, and the Company shall have the obligation to issue and sell to Purchaser, up to that number of newly issued shares of Preferred Stock set forth in Purchaser’s notice of exercise having an aggregate purchase price (based on the Per Share Purchase Price) of up to an aggregate of (i) $20,000,000, plus (ii) after the Company Funding Right Expiration, the amount by which the purchase price (based on the Per Share Purchase Price) (when issued) of Tranche B Preferred Stock issued to Purchaser pursuant to the Company’s exercise of the Company Funding Right is less than $10,000,000 (the “Tranche C Preferred Stock”) (such Purchaser right being referred to herein as the “Tranche C Purchase Obligation”). The Tranche C Purchase Obligation shall expire on the Restatement Date.

 

(2)         Tranche C Closings Involving LS Purchaser. On the Restatement Date, and regardless of whether or not the Company has exercised the Company Funding Right but subject to Section 4 hereof, LS Purchaser shall purchase in one Tranche C Closing (the “LS Purchaser Closing”), and the Company shall issue and sell to LS Purchaser, that number of newly issued shares of Preferred Stock having an aggregate purchase price (based on the Per Share Purchase Price) of $10,100,100.

 

(3)         Tranche C Closings Generally. Any closing described in this Section 2.3(c), shall be referred to herein as a “Tranche C Closing.” Each Tranche C Closing shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ at 10:00 a.m. local time on the second Business Day following full satisfaction or due waiver of all of the closing conditions set forth in Section 4 hereof, or at such other place or on such other date as may be mutually agreeable to the Company and Purchaser or the Company and LS Purchaser, as applicable. At each Tranche C Closing, the Company shall cause its transfer agent to deliver to Purchaser or LS Purchaser, as applicable, stock certificates evidencing the Tranche C Preferred Stock to be purchased by Purchaser or LS Purchaser, as applicable, registered in Purchaser’s or its nominee’s or LS Purchaser’s or its nominee’s name, as applicable, upon payment of the purchase price thereof by wire transfer of immediately available funds to the Company’s account, which such account shall be specified in writing by the Company not less than two Business Days prior to such Tranche C Closing, in the aggregate amount equal to the number of shares of Tranche C Preferred Stock purchased by Purchaser or LS Purchaser, as applicable, at such Tranche C Closing times the Per Share Purchase Price. The term “Closing” shall refer to the Initial Closing, the Tranche B Closing and any Tranche C Closing, as the context requires, and the term “Subsequent Closing” shall refer to the Tranche B Closing or any Tranche C Closing, as the context requires.

 

Section 3.          Conditions of Purchaser’s Obligation at the Initial Closing. The obligation of Purchaser to purchase and pay for the Preferred Stock at the Initial Closing is subject to the satisfaction as of the Initial Closing of the following conditions:

 

Section 3.1.          Representations and Warranties; Covenants.

 

(a)          Other than with respect to the Fundamental Representations, the representations and warranties contained in Section 8 shall be true, complete and correct in all material respects at the Initial Closing (without giving effect to any references to Material Adverse Effect other than with respect to Section 8.10) as though such representation or warranty had been made at the Closing (except that those representations and warranties which address matters only as of a particular date shall remain true, complete and correct as of such date).

 

(b)          The Fundamental Representations applicable to the Company and its Subsidiaries shall be true and correct in all material respects at and as of the Initial Closing as though then made, except to the extent of changes caused by the transactions expressly contemplated herein.

 

(c)          The Company shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by it as of the Initial Closing.

 

Section 3.2.          Certificate of Designation. The Company shall have duly adopted, executed and filed with the Secretary of State of Delaware a Certificate of Designation of Rights and Preferences establishing the terms and the relative rights and preferences of the Preferred Stock in the form set forth in Exhibit A (the “Certificate of Designation”), and the Company shall not have adopted or filed any other document designating terms and relative rights and preferences of its preferred stock. The Certificate of Designation shall be in full force and effect as of the Initial Closing under the Laws of the State of Delaware and shall not have been amended or modified.

 

 

Section 3.3.          Amendment of the Company’s Bylaws. The Company’s bylaws shall have been duly amended in form and substance as set forth in Exhibit B. The Company’s bylaws shall be in full force and effect as of the Initial Closing as so amended and shall not have been further amended or modified.

 

Section 3.4.          Registration Agreement. The Company and Purchaser shall have entered into a registration agreement in form and substance as set forth in Exhibit C (the “Registration Agreement”), and the Registration Agreement shall be in full force and effect as of the Initial Closing.

 

Section 3.5.           Board of Directors. As of the Initial Closing, the authorized size of the Board shall be eight directors, and the Board shall be comprised of ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.

 

Section 3.6.          Indemnification Agreements. The Company shall have entered into an indemnification agreement, in form and substance as set forth in Exhibit D (an “Indemnification Agreement”), with each of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and each such Indemnification Agreement shall not have been amended or modified and shall be in full force and effect as of the Initial Closing.

 

Section 3.7.          Securities Law Compliance. The Company shall have made all filings under all applicable federal and state securities Laws necessary to consummate the issuance of the Preferred Stock pursuant to this Agreement in compliance with such Laws, except to the extent such filings may properly be made subsequent to the Initial Closing.

 

Section 3.8.          Opinion of the Company’s Counsel. Purchaser shall have received from Dechert LLP, counsel for the Company, an opinion with respect to the matters set forth in Exhibit E, which shall be addressed to Purchaser, dated the date of the Initial Closing and in form and substance reasonably satisfactory to Purchaser.

 

Section 3.9.          Closing Documents. The Company shall have delivered to Purchaser all of the following documents:

 

(a)          an Officer’s Certificate, dated the date of the Initial Closing, stating that the conditions specified in Section 2 and Sections 3.1 through 3.7, inclusive, and Sections 3.9 through 3.13, inclusive, have been fully satisfied;

 

(b)          certified copies of the resolutions duly adopted by the Board authorizing the execution, delivery and performance of this Agreement and each of the other Transaction Agreements, the filing of the Certificate of Designation referred to in Section 3.2, the amendment to the Company’s bylaws referred to in Section 3.3, the issuance and sale of the Preferred Stock, the reservation for issuance upon conversion of the Preferred Stock of an aggregate of 15,000,000 shares of Common Stock and the consummation of all other transactions contemplated by this Agreement and each of the other Transaction Agreements;

 

(c)          certified copies of the Certificate of Incorporation, the Certificate of Designation and the Company’s bylaws, each as in effect at the Initial Closing;

 

(d)          certificates of good standing for the Company and each of its Subsidiaries from the respective jurisdictions of their organization;

 

(e)          an affidavit, under penalties of perjury, stating that the Company is not and has not been a United States real property holding corporation, dated as of the Closing Date and in form and substance required under Treas. Reg. Section 1.897-2(h);

 

(f)           copies of all third-party and governmental consents, approvals and filings required in connection with the consummation of the transactions hereunder (including, without limitation, all federal securities Law and blue sky Law filings and waivers of all preemptive rights, anti-dilution rights and rights of first refusal);

 

 

(g)          a duly and validly executed waiver by WLES, L.P. (“WLES”) waiving WLES’s right to any vesting, inuring or acceleration of payment of the Contingency Merger Consideration (as defined in the JetPay Merger Agreement) pursuant to Section 2.9 of the JetPay Merger Agreement as a result of the execution, delivery or performance or the consummation of the transactions contemplated by this Agreement, in a form reasonably acceptable to Purchaser;

 

(h)          copies of all other agreements, documents and materials contemplated by this Section 3; and

 

(i)          such other documents relating to the transactions contemplated by this Agreement as Purchaser may reasonably request.

 

Section 3.10.         Proceedings. All corporate and other proceedings taken or required to be taken by the Company in connection with the transactions contemplated hereby to be consummated at or prior to the Initial Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser.

 

Section 3.11.         Expenses. At the Initial Closing, the Company shall reimburse Purchaser for the fees and expenses as provided in Section 12.1.

 

Section 3.12.         No Material Adverse Effect. From the Initial SPA Date, there shall not have been a Material Adverse Effect.

 

Section 3.13.         Compliance with Applicable Laws; Card Association. The purchase of Preferred Stock by Purchaser hereunder shall not be prohibited by any applicable Law or governmental rule or regulation and shall not subject Purchaser to any penalty, liability or, in Purchaser’s reasonable judgment, other onerous condition under or pursuant to any applicable Law or governmental rule or regulation, and the purchase of the Preferred Stock by Purchaser hereunder shall be permitted by Laws, rules and regulations of the jurisdictions and Governmental Entities to which Purchaser is subject. The Company’s and its Subsidiaries’ participation in any of the Card Association networks shall not, either directly or indirectly including, without limitation through any sponsoring banks, be prohibited or materially and adversely restricted.

 

Section 3.14.         Authorization; Listing. The Common Stock issuable upon conversion of the Preferred Stock, whether issued on the date hereof or in the future, shall have been duly authorized and reserved for issuance and such Common Stock shall have been approved for listing on the NASDAQ Capital Market, subject to official notice of issuance.

 

Section 3.15.         Stockholder Consent. The Stockholder Consent shall have become effective in accordance with the Laws of the State of Delaware and Section 14(c) and Regulation 14C of the Exchange Act.

 

Any condition specified in this Section 3 may be waived if consented to by Purchaser; provided that no such waiver shall be effective against Purchaser unless it is set forth in a writing executed by Purchaser; provided, further, that the condition specified in Section 3.15 may not be waived by Purchaser prior to the date that is 75 days following the date of this Agreement.

 

Section 4.          Conditions of Purchaser’s and LS Purchaser’s Obligations at the Tranche B Closing and Tranche C Closing. The obligation of Purchasers to purchase and pay for the Tranche B Preferred Stock and Tranche C Preferred Stock at the Tranche B Closing and Tranche C Closing, as applicable, is subject to the satisfaction as of such Closing of the following conditions:

 

Section 4.1.          Representations and Warranties; Covenants. Upon delivery to Purchaser or LS Purchaser, as applicable, of Updated Disclosure Schedules dated as of such Subsequent Closing:

 

(a)          (i) in the case of the Tranche B Closing, other than with respect to the Fundamental Representations, the representations and warranties contained in Section 8 shall be true, complete and correct in all material respects at such Tranche B Closing (without giving effect to any references to Material Adverse Effect other than with respect to Section 8.10) as though such representation or warranty had been made at such Tranche B Closing (except that those representations and warranties which address matters only as of a particular date shall remain true, complete and correct as of such date) and (ii) in the case of a Tranche C Closing, the representations and warranties contained in Section 8 shall be true, complete and correct in all respects at such Tranche C Closing (without giving effect to any references to Material Adverse Effect other than with respect to Section 8.10) as though such representation or warranty had been made at such Tranche C Closing (except that those representations and warranties which address matters only as of a particular date shall remain true, complete and correct as of such date); provided, however, that the conditions set forth in this Section 4.1(a)(ii) shall be deemed satisfied unless the effect of all such failures of such representations and warranties to be true, complete and correct, taken together, has had, or would reasonably be expected to have, a Material Adverse Effect.

 

 

(b)          (i) in the case of a Tranche B Closing, the Fundamental Representations applicable to the Company and its Subsidiaries shall be true and correct in all material respects at and as of such Tranche B Closing as though then made and (ii) in the case of a Tranche C Closing, the Fundamental Representations shall be true and correct in all material respects at and as of such Tranche C Closing as though then made.

 

(c)          The Company shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by it as of such Subsequent Closing.

 

Section 4.2.          Certificate of Designation. The Certificate of Designation shall be in full force and effect as of such Subsequent Closing (other than the LS Purchaser Closing) under the Laws of the State of Delaware and shall not have been amended or modified. With respect to the LS Purchaser Closing, the Certificate of Designation, as amended by Amendment No. 1, shall be in full force and effect under the Laws of the State of Delaware and shall not have been otherwise amended or modified.

 

Section 4.3.          Company Documents. Each of the Company’s bylaws, Registration Agreement and Indemnification Agreements shall be in full force and effect as of such Subsequent Closing as were in effect at the Initial Closing.

 

Section 4.4.          Securities Law Compliance. The Company shall have made all filings under all applicable federal and state securities Laws necessary to consummate the issuance of the Preferred Stock pursuant to this Agreement in compliance with such Laws, except to the extent such filings may properly be made subsequent to such Subsequent Closing.

 

Section 4.5.          Opinion of the Company’s Counsel. Purchaser or LS Purchaser, as applicable, shall have received from Dechert LLP, counsel for the Company, an opinion with respect to the matters set forth in Exhibit E, which shall be addressed to Purchaser or LS Purchaser, as applicable, dated the date of such Subsequent Closing and in form and substance reasonably satisfactory to Purchaser.

 

Section 4.6.          Closing Documents. The Company shall have delivered to Purchaser or LS Purchaser, as applicable, all of the following documents:

 

(a)          an Officer’s Certificate, dated the date of such Subsequent Closing, stating that the conditions specified in Section 2 and Sections 4.1 through 4.4, inclusive, and Sections 4.6 through 4.10, inclusive, have been fully satisfied;

 

(b)          certificates of good standing for the Company and each of its Subsidiaries from the respective jurisdictions of their organization;

 

(c)          certified copies of the resolutions duly adopted by the Board authorizing the execution, delivery and performance of this Agreement and each of the other Transaction Agreements and the filing of the Certificate of Designation or Amendment No. 1, as applicable;

 

(d)          certified copies of the Certificate of Incorporation, the Certificate of Designation (as amended by Amendment No.1) and the Company’s bylaws, each as in effect on the Restatement Date;

 

(e)          an affidavit, under penalties of perjury, stating that the Company is not and has not been a United States real property holding corporation, dated as of the Closing Date and in form and substance required under Treas. Reg. Section 1.897-2(h);

 

 

(f)          copies of all third-party and governmental consents, approvals and filings required in connection with the consummation of the transactions hereunder (including, without limitation, all federal securities Law and blue sky Law filings and waivers of all preemptive rights, anti-dilution rights and rights of first refusal); and

 

(g)          such other documents relating to the transactions contemplated by this Agreement as Purchaser may reasonably request.

 

Section 4.7.          Expenses. At such Subsequent Closing, the Company shall reimburse Purchaser or LS Purchaser, as applicable, for the fees and expenses as provided in Section 12.1.

 

Section 4.8.          No Material Adverse Effect. From the date of the Initial Closing until such Subsequent Closing, there shall not have been a Material Adverse Effect.

 

Section 4.9.          Compliance with Applicable Laws. The purchase of Preferred Stock by Purchaser or LS Purchaser hereunder shall not be prohibited by any applicable Law or governmental rule or regulation and shall not subject Purchaser or LS Purchaser, as applicable, to any penalty, liability or, in the reasonable judgment of Purchaser or LS Purchaser, as applicable, other onerous condition under or pursuant to any applicable Law or governmental rule or regulation, and the purchase of the Preferred Stock by Purchaser or LS Purchaser hereunder shall be permitted by Laws, rules and regulations of the jurisdictions and Governmental Entities to which Purchaser is subject. All consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any Governmental Authority shall have been obtained or made and no such consent, approval, order or authorization shall have been revoked.

 

Section 4.10.         No Judgments or Settlements. From the date of the Initial Closing until such Subsequent Closing, neither the Company nor any of its Subsidiaries shall (a) become subject to any judgment, order, ruling or verdict, or settle or agree to settle any claim, dispute or litigation, in each case that results in the Company or any of its Subsidiaries becoming liable, net of any insurance proceeds actually received, (i) with respect to ▇▇▇▇▇▇▇ Bank Corporation or any of its Affiliates (collectively, “▇▇▇▇▇▇▇”) and arising out of or related to the Direct Air Matter, for an amount that, individually or in the aggregate, is not solely satisfied out of the Escrowed Shares (and without the payment of cash by the Company or any of its Subsidiaries) and/or the Designated Assets or (ii) in the case of any other third-party (including, without limitation, any sponsoring bank other than ▇▇▇▇▇▇▇) or ▇▇▇▇▇▇▇ for any matter not arising out of or related to the Direct Air Matter, for an amount, individually or in the aggregate, equal to or exceeding $2,500,000 or (b) become subject to any claim made by any sponsoring bank or other third party which would reasonably be expected to cause the Company or its Subsidiaries to be liable, individually or in the aggregate, for an amount that is not solely satisfied out of the Escrowed Shares (and without the payment of cash by the Company or any of its Subsidiaries) and/or the Designated Assets (in the case of any claims by ▇▇▇▇▇▇▇ arising out of or related to the Direct Air Matter) or $2,500,000 (in the case of any other claim by any third party, including by ▇▇▇▇▇▇▇ for any claim not arising out of or related to the Direct Air Matter), as applicable.

 

Section 4.11.         Authorization; Listing. The Common Stock issuable upon conversion of the Preferred Stock shall have been duly authorized and reserved for issuance and such Common Stock shall have been approved for listing on the NASDAQ Capital Market, subject to official notice of issuance.

 

Section 4.12.         Additional Conditions to LS Purchaser’s Obligations at the LS Purchaser Closing

 

(a)          Board of Directors. As of the LS Purchaser Closing, the authorized size of the Board shall be eight directors, and the Board shall be comprised of ▇▇▇▇▇ (▇▇▇▇) Faro, ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇.

 

(b)          Indemnification Agreements. The Company shall have entered into an Indemnification Agreement with ▇▇▇▇▇ ▇▇▇▇▇ and such Indemnification Agreement shall not have been amended or modified and shall be in full force and effect as of the LS Purchaser Closing.

 

Any condition specified in this Section 4 may be waived if consented to by Purchaser or LS Purchaser, as applicable; provided that no such waiver shall be effective against Purchaser or LS Purchaser unless it is set forth in a writing executed by Purchaser or LS Purchaser, as applicable.

 

 

Section 5.          Conditions to the Company’s Obligations at Closing. The obligation of the Company to issue and sell the Preferred Stock at each Closing is subject to the satisfaction as of each such Closing of the following conditions:

 

Section 5.1.          Representations and Warranties. Each of (i) representations and warranties of Purchaser or LS Purchaser, as applicable, contained in Section 9 shall be true and correct as of the date hereof and as of the Closing as though made on and as of the Closing (other than representations and warranties that by their terms speak as of a certain date, which shall continue to be true and correct as of such certain date) except where the failure of any of such representations and warranties to be so true and correct, individually or in the aggregate, would not reasonably be expected to materially delay or impair Purchaser’s or LS Purchaser’s, as applicable, ability to effect the Closing or to perform its obligations under this Agreement and the Transaction Documents and (ii) the Fundamental Representations applicable to Purchaser or LS Purchaser, as applicable, shall be true and correct in all respects on and as of the Closing.

 

Section 5.2.          Performance. Purchaser shall have performed and complied in all material respects with all agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Initial Closing. LS Purchaser shall have performed and complied in all material respects with all agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Restatement Date.

 

Section 6.          Covenants.

 

Section 6.1.          Financial Statements and Other Information. (x) For so long as Purchaser holds at least the number of shares of Preferred Stock and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) equal to the Minimum Ownership Condition, the Company shall deliver to Purchaser and to each holder of at least 10% of the outstanding Preferred Stock and each holder of at least 10% of the Underlying Common Stock, and (y) for so long as LS Purchaser satisfies the LS Purchaser Ownership Condition, the Company shall deliver to LS Purchaser:

 

(a)          as soon as available but in any event within 35 days (or with respect to monthly accounting periods coinciding with the Company’s fiscal quarter- or year-ends, within 45 days) after the end of each monthly accounting period in each fiscal year, unaudited consolidating and consolidated statements of income and cash flows of the Company and its Subsidiaries for such monthly period and for the period from the beginning of the fiscal year to the end of such month, and unaudited consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the end of such monthly period, and shall be certified by the Company’s chief financial officer that such financial statements present fairly in all material respects the financial condition and results of operations of the Company and its Subsidiaries in accordance with GAAP, consistently applied (excluding non-recurring adjustments, including intangible asset valuation or derivative valuation adjustments, that will be made on a quarterly basis), subject to the absence of footnote disclosures and to normal quarter-end adjustments for recurring accruals which are not, individually or in the aggregate, materially adverse to the financial condition, operating results, assets, operations or business prospects of the Company and its Subsidiaries taken as a whole);

 

(b)          within 30 days after the end of each quarterly accounting period in each fiscal year, an Officer’s Certificate stating that there is no Event of Noncompliance in existence and that neither the Company nor any of its Subsidiaries is in default under any of its other material agreements or, if any Event of Noncompliance or any such default exists, specifying the nature and period of existence thereof and what actions the Company and its Subsidiaries have taken and propose to take with respect thereto;

 

(c)          within 90 days after the end of each fiscal year, consolidating and consolidated statements of income, cash flows and stockholders’ equity of the Company and its Subsidiaries for such fiscal year, and consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, all prepared in accordance with GAAP, consistently applied, and accompanied by (i) with respect to the consolidated portions of such statements, an opinion of an independent accounting firm registered with the Public Company Accounting Oversight Board that is unqualified with respect to the scope of such firm’s examination and the Company’s status as a going concern and (ii) a copy of such firm’s annual management letter to the Board, it being understood that the obligations under this subsection (c) with respect to a particular fiscal year shall be deemed to be satisfied as to that fiscal year if the Company files its Annual Report on Form 10-K through the Electronic Data-Gathering, Analysis, and Retrieval system within the time periods prescribed by the Securities and Exchange Commission and such Annual Report contains the information required to be set forth therein;

 

 

(d)          promptly upon receipt thereof, any additional reports, management letters or other detailed information concerning significant aspects of the Company’s or its Subsidiaries’ operations or financial affairs given to the Company by its independent accountants (and not otherwise contained in other materials provided hereunder);

 

(e)          beginning with the fiscal year ending in the 2014 calendar year, at least 15 days but not more than 90 days prior to the beginning of each fiscal year, an annual budget prepared on a monthly basis for the Company and its Subsidiaries for such fiscal year (displaying anticipated statements of income and cash flows and balance sheets); and

 

(f)          promptly (but in any event within five Business Days) after the discovery or receipt of notice of any Event of Noncompliance, any default under any material agreement, including but not limited to any agreement related to any material indebtedness, to which it or any of its Subsidiaries is a party or any Material Adverse Effect affecting the Company or any Subsidiary (including, without limitation, the filing of any material litigation against the Company or any Subsidiary or the existence of any dispute with any Person which involves a reasonable likelihood of such litigation being commenced), a written notice specifying the nature and period of existence thereof and what actions the Company and its Subsidiaries have taken and propose to take with respect thereto; and

 

(g)          with reasonable promptness, such other information and financial data concerning the Company and its Subsidiaries as any Person entitled to receive information under this Section 6.1 may reasonably request and which would not be unduly burdensome for the Company to provide.

 

Section 6.2.          Inspection Rights. (x) For so long as Purchaser holds at least the number of shares of Preferred Stock and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) equal to the Minimum Ownership Condition, the Company shall permit any representatives designated by Purchaser to, and (y) for so long as LS Purchaser satisfies the LS Purchaser Ownership Condition, the Company shall permit any representatives designated by LS Purchaser to: (i) visit and inspect any of the properties of the Company and its Subsidiaries, (ii) examine the corporate and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the affairs, finances and accounts of any such company with the directors, officers, key employees and independent accountants of the Company and its Subsidiaries; provided, however, that such investigation and preparation of responses shall not unreasonably interfere with the operations of the Company or its Subsidiaries, as applicable. The presentation of an executed copy of this Agreement by Purchaser or LS Purchaser to the Company’s independent accountants shall constitute the Company’s permission to its independent accountants to participate in discussions with such Persons. Inspections by representatives designated by Purchaser or LS Purchaser shall be made only at such representatives’ sole expense, upon reasonable advance notice to the Company and during normal business hours

 

Section 6.3.          Designation of Directors. The holders of shares of Preferred Stock, in addition to any other voting rights available to such holders, shall be entitled to elect the number of directors to the Board as provided in Sections 10(b) and 12(c) of the Certificate of Designation (each a “Preferred Director”). Each Preferred Director shall be entitled to receive the same directors’ fees or stipends as are paid by the Company to any other non-employee director of the Company. In addition, all reasonable and documented out-of-pocket expenses of each Preferred Director incurred in connection with attending regular and special board meetings, any meeting of any board committee, and any other meeting or activity attended or taken on behalf of or for the benefit of the Company or its Subsidiaries shall be promptly paid by the Company upon request by such Preferred Director (or Purchaser).

 

Section 6.4.          Restrictions.

 

(a)          Purchaser Consent Rights. From (x) the Initial SPA Date until the earlier of (1) the termination of this Agreement in accordance with Section 11 and (2) the Initial Closing and (y) the Initial Closing until the date upon which Purchaser no longer holds at least the number of shares of Preferred Stock and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) equal to the Minimum Ownership Condition, neither the Company nor any of its Subsidiaries shall, without the prior written consent of Purchaser:

 

 

(i)          declare, set aside or pay any dividends on, or make any other distributions (whether in cash, securities or other property) in respect of, any of its Capital Stock (other than dividends and distributions by a direct or indirect Wholly-Owned Subsidiary of the Company to its parent); (ii) adjust, split, combine or reclassify any of its Capital Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its Capital Stock or any of its other equity securities; or (iii) purchase, redeem or otherwise acquire any shares of its Capital Stock or any other of its equity securities or any rights, warrants or options to acquire any such shares or other equity securities, other than repurchases of Common Stock pursuant to existing compensation, benefits, option, restricted share or employment agreements or plans existing on the date of this Agreement and disclosed in the Disclosure Schedules hereto or any employment or consulting agreements entered into after the date of this Agreement in the ordinary course of business and approved by the Board;

 

(ii)         except as expressly contemplated by this Agreement, authorize, issue, create, assume or enter into any agreement providing for the authorization, issuance (contingent or otherwise), creation or assumption of (i) any Indebtedness or debt securities (including, without limitation, any debt securities convertible into or exchangeable for Capital Stock or other equity securities, issued in connection with the issuance of Capital Stock or other equity securities or containing profit participation features), in all such cases in excess of $2,500,000 in aggregate loan amount or purchase price in any consecutive twelve-month period or (ii) any Capital Stock or other equity securities (or any securities convertible into or exchangeable for any Capital Stock or other equity securities), other than any issuance of (A) Common Stock upon exercise of any stock options or warrants outstanding on the date of this Agreement and set forth on the Capitalization Schedule or upon conversion of any of the Existing Secured Convertible Notes, (B) Common Stock or compensatory stock options to employees or directors of the Company or any of its Subsidiaries in accordance with any Qualified Incentive Plan or (C) in any consecutive twelve-month period, Common Stock not in excess of the lesser of $2,500,000 in aggregate purchase price and 7.5% of the issued and outstanding Common Stock as of the beginning of such period; provided, however, that no such issuance described in the foregoing clauses (i) or (ii) shall be permitted if the result of such issuance would, directly or indirectly, cause the number of directors which the holders of Preferred Stock are entitled to elect pursuant to Section 10(b) of the Certificate of Designation to be fewer than two.

 

(iii)        make, or permit any Subsidiary to make, any loans or advances to, guarantees for the benefit of, or Investments in, any Person (other than a Wholly-Owned Subsidiary), except for (i) reasonable advances to employees in the ordinary course of business, and (ii) Investments having a stated maturity no greater than one year from the date the Company or any Subsidiary makes such Investment in (A) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (B) certificates of deposit of commercial banks having combined capital and surplus of at least $100,000,000 or (C) commercial paper with a rating of at least “Prime-1” by ▇▇▇▇▇’▇ Investors Service, Inc. (or the analogous rating by any other nationally recognized rating agency);

 

(iv)        merge or consolidate with any Person or permit any Subsidiary to merge or consolidate with any Person (other than a merger of a Wholly-Owned Subsidiary with another Wholly-Owned Subsidiary), the result of which would reasonably be expected to result in the holders of Preferred Stock receiving as consideration in such transaction proceeds in an aggregate amount less than the Liquidation Preference (as defined in the Certificate of Designation);

 

(v)         sell, lease, mortgage, pledge, ▇▇▇▇▇ ▇ ▇▇▇▇ on, or otherwise dispose of any of its properties or assets, except in the ordinary course of business and in an aggregate amount not exceeding $1,500,000;

 

(vi)        other than with respect to Enzo Merger Sub, Inc., liquidate, dissolve or effect a recapitalization or other exchange of the Company’s Capital Stock or reorganization in any form of transaction (including, without limitation, any reorganization into a limited liability company, a partnership or any other non-corporate entity which is treated as a partnership for federal income Tax purposes);

 

(vii)       acquire, or permit any Subsidiary to acquire, any interest in any entity or business (whether by a purchase of assets, purchase of stock, merger or otherwise), or enter into, or permit any Subsidiary to enter into, any joint venture in all such cases, involving an aggregate consideration by the Company and its Subsidiaries (including, without limitation, the assumption of liabilities whether direct or indirect) exceeding $2,500,000 in any consecutive twelve-month period;

 

 

(viii)      enter into any line of business other than the lines of business in which the Company and/or its Subsidiaries are engaged as of the date of this Agreement and other activities or lines of business reasonably related thereto;

 

(ix)         become subject to, or permit any of its Subsidiaries to become subject to, any agreement or instrument (including, without limitation, by way of amendment thereto or modification, extension or renewal thereof) which by its terms would (under any circumstances) restrict the Company’s right or ability to perform the provisions of this Agreement, any of the Transaction Agreements or the Certificate of Designation (including, without limitation, provisions relating to the declaration and payment of dividends on and the making of redemptions of the Preferred Stock and conversions of the Preferred Stock), unless the consummation or effectiveness of such agreement or instrument is conditioned upon receipt of written consent of Purchaser pursuant to this Agreement;

 

(x)          except as expressly contemplated by this Agreement, alter, amend, modify or repeal (including, without limitation, by merger, consolidation or otherwise) the Certificate of Incorporation, the Certificate of Designation or the Company’s bylaws, or file any resolution of the board of directors with the Secretary of State of the State of Delaware creating any new class or series of preferred stock or modifying any existing class or series of preferred stock or containing any provisions, which would increase the number of authorized shares of the Preferred Stock or adversely affect or otherwise impair the rights or the relative preferences and priorities of the holders of the Preferred Stock or the Underlying Common Stock under this Agreement, the Certificate of Incorporation, the Certification of Designation, the Company’s bylaws, or the Registration Agreement;

 

(xi)         enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary’s officers, directors, employees, stockholders or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person or individual owns a beneficial interest, except for customary employment arrangements and benefit programs on reasonable terms and except as otherwise expressly contemplated by this Agreement;

 

(xii)        establish, acquire or permit to exist (i) any Subsidiaries other than Wholly-Owned Subsidiaries or (ii) any Subsidiaries organized outside of the United States and its territorial possessions;

 

(xiii)       enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement the Existing Secured Convertible Notes or the related purchase agreement, other than with respect to the redemption of such Existing Secured Convertible Notes so long as the consideration payable by the Company in such redemption is in cash and in an amount no greater than is necessary to pay the outstanding principal and accrued interest thereon;

 

(xiv)      except as contemplated pursuant to Section 6.3 hereof, increase the authorized size of its board of directors;

 

(xv)       except as required by applicable Law, materially amend or modify any stock option plan, employee stock ownership plan, stock appreciation plan or phantom stock plan as in existence as of the Initial Closing, adopt any new stock option plan, employee stock ownership plan, stock appreciation plan or phantom stock plan or issue any shares of Common Stock to its or its Subsidiaries’ employees other than pursuant to the Company’s existing stock option and employee stock ownership plans;

 

(xvi)      settle or agree to settle any claim, dispute or litigation, in each case that results in the Company or any of its Subsidiaries becoming liable, net of any insurance proceeds actually received, (i) with respect to ▇▇▇▇▇▇▇ and arising out of or related to the Direct Air Matter, for an amount that, individually or in the aggregate, is not solely satisfied out of the Escrowed Shares (and without the payment of cash by the Company or any of its Subsidiaries) and/or the Designated Assets or (ii) with respect to any other third-party (including, without limitation any sponsoring bank other than ▇▇▇▇▇▇▇) or ▇▇▇▇▇▇▇ but not arising out of or related to the Direct Air Matter, for an amount, individually or in the aggregate, equal to or exceeding $2,500,000;

 

 

(xvii)     (i) file, or consent by answer or otherwise to the filing against the Company or any of its Subsidiaries of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, insolvency, reorganization, moratorium or other similar Law of any jurisdiction, (ii) make an assignment for the benefit of the creditors of the Company or any of its Subsidiaries, (iii) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any of its Subsidiaries or with respect to any substantial part of its or their property, or (iv) take any corporate action for the purpose of any of the foregoing;

 

(xviii)    voluntarily delist from any trading market; or

 

(xix)       authorize, or commit to agree to take, any of the foregoing actions.

 

(b)          LS Purchaser Consent Rights. From the date of the LS Purchaser Closing until the date upon which LS Purchaser no longer holds at least thirty-three and one-third percent (33.33%) of the Preferred Stock and/or equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) purchased by LS Purchaser at the LS Purchaser Closing, neither the Company nor any of its Subsidiaries shall, without the prior written consent of LS Purchaser (not to be unreasonably withheld, delayed or conditioned), enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with Purchaser or any of its Affiliates, except for (x) de minimis transactions at arm’s length, (y) as otherwise expressly contemplated by this Agreement and (z) extensions of the maturity date of the Existing Promissory Notes.

 

Section 6.5.          Compliance with Agreements. The Company shall perform and observe all of its obligations to each holder of the Preferred Stock and all of its obligations to each holder of the Underlying Common Stock set forth in the Certificate of Incorporation, the Certificate of Designation, the Company’s bylaws and the Transaction Agreements.

 

Section 6.6.          Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock, such number of shares of Common Stock issuable upon the conversion of all outstanding Preferred Stock and all Preferred Stock at any time issuable pursuant to Section 2.3 of this Agreement. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all Taxes, Liens and charges. The Company shall take all such actions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable Law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance and change in the number of shares of Common Stock outstanding, each of which shall be immediately transmitted by the Company upon issuance). The Company shall not take any action which would cause the number of authorized but unissued shares of Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock.

 

Section 6.7.          Use of Proceeds. Unless otherwise consented to in writing by Purchaser, the Company shall use the proceeds from the sale of the Preferred Stock to Purchaser for no purpose other than as follows: (a) from the proceeds of the sale of Preferred Stock to Purchaser at the Initial Closing, (i) up to $6,000,000 shall be used to redeem in full for cash that certain promissory note payable to Ten Lords, Ltd. pursuant to the Loan Agreement, dated as of May 31, 2010 by and among Ten Lords, Ltd., certain predecessors-in-interest of the Company and/or its Subsidiaries and certain other parties and (ii) the remainder (but in no event less than $4,000,000) shall be used for general corporate purposes; (b) the entirety of the proceeds of the sale of Preferred Stock to Purchaser at the Tranche B Closing shall be used to redeem the Existing Secured Convertible Notes; and (c) the proceeds of the sale of Preferred Stock to Purchaser or LS Purchaser at the Tranche C Closing shall be used for acquisitions or general corporate purposes.

 

 

Section 6.8.          Issuance of New Securities.

 

(a)          Offer to Qualified Holders. For so long as Purchaser holds at least the number of shares of Preferred Stock and/or an equivalent number of shares of Underlying Common Stock (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Preferred Stock, as applicable) equal to the Minimum Ownership Condition, if the Company or any of its Subsidiaries authorizes the issuance or sale of any New Securities (other than (i) pursuant to the granting or exercise of stock options or other equity-based awards pursuant to any Qualified Incentive Plan, (ii) issuances made as consideration in the acquisition of assets or securities of another unaffiliated business or Person approved by the Board by means of merger, purchase of securities, purchase of all or substantially all of the assets of such business or Person or reorganization resulting in the ownership by the Company directly or indirectly of not less than a majority of the voting power of such business or Person, (iii) issuances upon conversion of, or as a dividend on, any convertible or exchangeable securities of the Company issued either (A) pursuant to the transactions contemplated hereby or (B) prior to the date hereof and (iv) issuances as part of a bona fide public offering pursuant to a registration statement under the Securities Act underwritten on a firm commitment basis), the Company shall first offer to sell to each holder of Underlying Common Stock (a “Qualified Holder”) such Qualified Holder’s pro rata allotment of such New Securities equal to the number of New Securities to be issued or sold multiplied by the quotient determined by dividing (i) the number of shares of Underlying Common Stock held by such holder at such time, by (ii) the number of shares of Common Stock then issued and outstanding (assuming conversion of all outstanding shares of Preferred Stock). Each Qualified Holder shall be entitled to purchase all or any portion of such Qualified Holder’s pro rata allotment of such New Securities on the same price and same terms and conditions as such New Securities are to be offered to other Persons; provided that if other Persons acquiring the New Securities are also required to purchase other securities of the Company, the Qualified Holders exercising their rights pursuant to this Section 6.8 shall also be required to purchase the same strip of securities (on the same terms and conditions) that such other Persons are required to purchase. The purchase price payable for the New Securities offered to the Qualified Holders hereunder shall be payable in cash by wire transfer of immediately available funds to an account designated by the Company or, to the extent otherwise permitted by the Company, by notes issued by such holders.

 

(b)          Issuance Notice. At least 15 days prior to any issuance by the Company of any New Securities, the Company shall give written notice (the “Issuance Notice”) to each Qualified Holder specifying in reasonable detail the total amount of New Securities to be issued, the purchase price thereof, the other material terms and conditions of the issuance and such Qualified Holder’s pro rata allotment of the New Securities. In order to exercise such holder’s purchase rights hereunder, each Qualified Holder must, within ten days after the Issuance Notice has been given to the Qualified Holders, give written notice to the Company describing such holder’s election to purchase all or any portion of the amount of New Securities available for purchase by such Qualified Holder. The failure of a Qualified Holder to respond within 15 days of its receipt of the Issuance Notice shall be deemed a waiver of such Qualified Holder’s rights under this Section 6.8, only with respect to the offering described in the applicable Issuance Notice.

 

(c)          Issuance Closing. Within 15 days after the Issuance Notice has been given, the Company shall sell, and each Qualified Holder electing to participate in such issuance shall purchase, the amount of New Securities determined pursuant to this Section 6.8 at a mutually agreeable place and time (the “Issuance Closing”). At the Issuance Closing, the Company shall deliver to each such participating Qualified Holder the certificates or other instruments representing the issued New Securities (if certificated), free and clear of all Liens, and each such participating Qualified Holder shall deliver the purchase price for such New Securities to the Company and shall make customary investment representations to the Company.

 

(d)          Sale to Other Persons. To the extent that the Qualified Holders have not elected to purchase all of the New Securities being offered, the Company may, within 90 days after the Issuance Notice was given, sell such New Securities to one or more third parties at a price no less than the price per share, and on other material terms and conditions no more favorable to such third-party purchaser(s) than the material terms and conditions, offered to the Qualified Holders in the Issuance Notice. Notwithstanding the foregoing, if such sale of New Securities is subject to the receipt of any regulatory or stockholder approval or consent or the expiration of any waiting period, the time period during which such sale may be consummated shall be extended until the expiration of five business days after all such approvals or consents have been obtained or waiting periods expired, but in no event shall such time period be extended for more than 30 additional days from the expiration of the initial 90-day period. Any New Securities not sold within such 90-day period (or 120-day period, as applicable) shall be reoffered to the Qualified Holders under this Section 6.8 prior to any subsequent sale.

 

Section 6.9.          Listing. The Company shall use reasonable best efforts to continue to have its Common Stock listed on the NASDAQ Capital Market or other national securities exchange so long as any Preferred Stock is outstanding. Prior to the Initial Closing, the Company shall prepare and submit to NASDAQ an application to list additional shares covering the shares of Common Stock issuable upon the conversion of the Preferred Stock purchased by Purchaser at the Initial Closing. Prior to each Subsequent Closing, the Company shall prepare and submit to NASDAQ an application to list additional shares covering the shares of Common Stock issuable upon conversion of the Preferred Stock purchased by Purchaser and LS Purchaser at such Subsequent Closing, if required by applicable NASDAQ rules.

 

 

Section 6.10.         Section 203 of the Delaware General Corporation Law. The Company shall not adopt any resolution containing any provisions relating to the exemption from Section 203 of the Delaware General Corporation Law granted to Purchaser, LS Purchaser or their respective Affiliates which would adversely affect or otherwise impair the rights of Purchaser, LS Purchaser or their respective Affiliates thereunder.

 

Section 6.11.         Conversion of Preferred Stock. The Company shall not take any action that would adversely affect or limit the rights of Purchasers to convert the Preferred Stock in accordance with the terms hereof.

 

Section 6.12.         Filing of Information Statement. Promptly, but in any event within twenty days after the Initial SPA Date, the Company shall file with the Securities and Exchange Commission an information statement pursuant to Section 14(c) and Regulation 14C of the Exchange Act (an “Information Statement”) regarding the Stockholder Consent. The Company shall comply with all of its obligations pursuant to Section 14(c) and Regulation 14C of the Exchange Act in connection with the Stockholder Consent. The Company will cause the Information Statement, at the time of the mailing of the Information Statement or any amendments or supplements thereto to not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that no representation or warranty is made by the Company with respect to information supplied by Purchaser in writing specifically for inclusion in the Information Statement. The Company shall respond reasonably promptly to any comments received from the Securities and Exchange Commission with respect to the Information Statement, and the Company shall cause the Information Statement (containing the recommendation described above) to be mailed to the Company’s stockholders at the earliest reasonably practicable date. The Company shall notify Purchaser, as promptly as reasonably practicable after receipt thereof, of any comments from the Securities and Exchange Commission or any request from the Securities and Exchange Commission or its staff for amendments or supplements to the Information Statement (and shall provide copies of any such written comments or requests to Purchaser) and shall provide Purchaser with copies of all correspondence between the Company, its Subsidiaries or any of their respective directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives, on the one hand, and the Securities and Exchange Commission or the staff of the Securities and Exchange Commission, on the other hand, relating to the Information Statement. Purchaser shall reasonably cooperate with the Company in the preparation of the Information Statement and any amendment or supplement thereto. Notwithstanding anything to the contrary herein, prior to filing or mailing the Information Statement (or, in each case, any amendment or supplement thereto) or responding to any comments of the Securities and Exchange Commission or its staff with respect thereto, the Company shall provide Purchaser with a reasonable opportunity to review and comment on such document or response and the Company shall consider any reasonable comments provided by Purchaser or its representatives. If at any time any event or circumstance relating to the Company or any of its Subsidiaries or its or their respective officers or directors should be discovered by the Company which, pursuant to the Securities Act or Exchange Act, should be set forth in an amendment or a supplement to the Information Statement, the Company shall promptly inform Purchaser. Each party agrees to promptly correct any information provided by it for use in the Information Statement which shall have become false or misleading and shall cause all documents that such party is responsible for filing with the Securities and Exchange Commission in connection with transactions contemplated hereby to comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act and, as applicable, not to contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

Section 6.13.         Public Disclosures. Other than with respect to the Information Statement and any required filings with the Securities and Exchange Commission, the Company shall not, nor shall it permit any Subsidiary to, disclose Purchaser’s or LS Purchaser’s name or identity as an investor in the Company in any press release or other public announcement or in any document or material filed with any Governmental Entity, without the prior written consent of Purchaser or LS Purchaser, as applicable (which shall not be unreasonably withheld, conditioned or delayed) , unless such disclosure is required by applicable Law or governmental regulations or by order of a court of competent jurisdiction, in which case, prior to making such disclosure, the Company shall give written notice to Purchaser or LS Purchaser, as applicable, describing in reasonable detail the proposed content of such disclosure and shall permit Purchaser or LS Purchaser, as applicable, to review and comment upon the form and substance of such disclosure.

 

 

Section 6.14.         Transfers.

 

(a)          Restrictions on Transfer. Purchaser shall not sell, transfer or otherwise dispose any shares of Preferred Stock or Underlying Common Stock prior to January 1, 2015. Thereafter, any sale, transfer or other disposition by Purchaser shall be subject to the provisions of this Section 6.14. During the period commencing on the Restatement Date and ending on the fifth anniversary of the Restatement Date, LS Purchaser shall not sell, transfer or otherwise dispose of any shares of Preferred Stock or Underlying Common Stock other than pursuant to Sections 6.14(c), 6.14(d) or 6.14(f) hereof; provided, that nothing in this Section 6.14 shall restrict Purchaser or LS Purchaser from transferring any shares of Preferred Stock or Underlying Common Stock to any Permitted Transferee; provided, that such Permitted Transferee agrees in writing to be bound by the terms of this Agreement. Notwithstanding the foregoing, Purchaser and LS Purchaser shall not be restricted from selling, transferring or otherwise disposing of any shares of Preferred Stock or Underlying Common Stock in connection with or at any time following the occurrence of a Change of Control or Event of Noncompliance (each as defined in the Certificate of Designation), in connection with Purchaser’s participation in a Piggyback Registration (as set forth in the Registration Agreement) or in connection with LS Purchaser’s participation in a Piggyback Registration (as set forth in Section 6.15 hereof).

 

(b)          Right of First Offer

 

(i)          ROFO Offer. Subject to the restrictions contained in Section 6.14(a), at any time, if Purchaser wishes to transfer shares of Preferred Stock or Underlying Common Stock (other than a sale of Underlying Common Stock on the open market pursuant to Rule 144 of the Securities Act), then held by Purchaser other than in the context of a Purchaser Divestiture, Purchaser shall first offer such shares of Preferred Stock or Underlying Common Stock for sale to LS Purchaser pursuant to an offer in writing (the “ROFO Offer”) delivered to LS Purchaser which shall set forth the terms and conditions of such sale (including the shares of Preferred Stock proposed to be sold, the price per share of Preferred Stock and any other material terms) and shall be irrevocable for a period of 20 days from the date of receipt of the ROFO Offer by LS Purchaser. The right of first offer held by LS Purchaser pursuant to this Section 6.14(b) shall be a personal and non-transferable right and shall apply to LS Purchaser only (and not to any of its successors or assigns).

 

(ii)         Exercise of Right of First Offer. LS Purchaser shall have the right, by written notice to Purchaser within 20 days from the date of receipt of the ROFO Offer, to:

 

(1)         acquire all of the shares of Preferred Stock or Underlying Common Stock subject to the ROFO Offer from Purchaser for the price per share and upon the terms and conditions set forth in the ROFO Offer; or

 

(2)         decline the ROFO Offer, in which case, Purchaser may sell its shares of Preferred Stock or Underlying Common Stock subject to the ROFO Offer upon the same (or better, from the perspective of Purchaser) terms of payment (including a price per share of Preferred Stock or Underlying Common Stock that is at least equal to the price set forth in the ROFO Offer) and other material terms and conditions as those set forth in the ROFO Offer to any independent third party within the ensuing 120 days (the “ROFO Period”); provided, however, that if Purchaser fails to consummate such third-party sale within the ROFO Period, each of the provisions of this Section 6.14(b) shall apply again to any proposed transfer of such shares of Preferred Stock.

 

(iii)        Failure to Notify. In the event that LS Purchaser fails to notify Purchaser pursuant to Section 6.14(b)(ii) within the ROFO Period, LS Purchaser shall be deemed to have elected to decline the ROFO Offer.

 

(iv)        Sale to a Third Party. In the event that LS Purchaser does not exercise the ROFO Offer pursuant to Section 6.14(b)(ii), then as a condition of Purchaser selling shares of Preferred Stock or Underlying Common Stock to a third party pursuant to Section 6.14, Purchaser shall send a Tag-Along Notice to LS Purchaser pursuant to Section 6.14(d) hereof.

 

(v)         Closing. The purchase and sale of shares of Preferred Stock pursuant to Section 6.14(b)(ii)(1) shall take place as promptly as reasonably practicable following the date of LS Purchaser’s receipt of the ROFO Offer and the receipt of all necessary regulatory approvals and required consents but in no event later than the date which is 120 days after the date LS Purchaser received the ROFO Offer.

 

 

(vi)        Application and Exclusion of Other Rights. For the avoidance of doubt, the right of first offer provided in this Section 6.14(b) shall not apply to any transfer of shares of Preferred Stock to a Permitted Transferee.

 

(c)          Drag-Along Rights.

 

(i)          If at any time Purchaser desires to accept a bona fide offer (a “Purchase Offer”) from any Person or Persons other than a Permitted Transferee of Purchaser to purchase any shares of Preferred Stock or Underlying Common Stock held by Purchaser, then Purchaser shall promptly deliver to LS Purchaser a written notice which shall state Purchaser’s intention to engage in such sale transaction and set forth the terms and conditions of such transaction, including (a) the number of shares of Preferred Stock or Underlying Common Stock to be sold, (b) the identity of the proposed purchaser and (c) the proposed amount of consideration and terms and conditions of payment offered by such proposed purchaser (a “Purchaser Offer Notice”). LS Purchaser hereby agrees not to disclose the existence or substance of any Purchaser Offer Notice delivered to it to any other Person (other than to LS Purchaser’s legal, tax, accounting and financial advisers, who shall agree prior to such disclosure to be bound by such non-disclosure obligation).

 

(ii)         In connection with a Purchaser Divestiture, Purchaser shall have the right to require LS Purchaser to participate in such sale by Purchaser by selling as part of the Purchaser Divestiture that number of shares of Preferred Stock or Underlying Common Stock held by LS Purchaser equal to the product of (y) the number of shares of Preferred Stock or Underlying Common Stock held by LS Purchaser multiplied by (z) a fraction, the numerator of which is the number of shares of Preferred Stock or Underlying Common Stock that Purchaser proposes to sell in the applicable sale transaction and the denominator of which is the total number of shares of Preferred Stock or Underlying Common Stock held by Purchaser (the “LS Purchaser Sale Amount”), on the terms and subject to the conditions set forth in the Purchaser Offer Notice (a “Drag-Along Right”); provided, however, that in the event the sale of the LS Purchaser Sale Amount would cause LS Purchaser to no longer satisfy the LS Purchaser Ownership Condition (other than in the context of a Change of Control (as defined in the Certificate of Designation) or any other Purchaser Divestiture that results in LS Purchaser no longer holding any shares of Preferred Stock), the LS Purchaser Sale Amount shall be equal to the number of shares of Preferred Stock or Underlying Common Stock held by LS Purchaser that may be sold while still satisfying the LS Purchaser Ownership Condition. Each Drag-Along Right shall be exercisable by Purchaser by including in the Purchaser Offer Notice applicable to a Purchaser Divestiture a statement that Purchaser elects to exercise its Drag-Along Right. At any time prior to the closing of such Purchaser Divestiture, Purchaser may withdraw its election to exercise its Drag-Along Right upon written notice to LS Purchaser.

 

(iii)        Purchaser’s exercise of its Drag-Along Right shall be subject to the following limitations: (u) the representations required to be made by LS Purchaser in the sale of shares of Preferred Stock in connection therewith shall be limited to those related to the ownership of shares of Preferred Stock; (v) terms of the sale do not include any indemnification, guaranty or similar undertaking that is not made or given on a several (and not a joint and several basis); (w) the sale does not result in liability to LS Purchaser that exceeds the fair market value of the consideration to be received by LS Purchaser in connection with the sale; (x) the terms of the sale do not impose any restriction on the ongoing business activities of LS Purchaser, such as non-compete restrictions, unless consented to by LS Purchaser; (y) the form of consideration to be received by Purchaser, or the election to receive any form of consideration offered to Purchaser, shall, in either case, be the same consideration or election offered to LS Purchaser; and (z) if the consideration offered is neither cash nor a publicly-traded security, LS Purchaser shall be entitled to receive registration rights vis-a-vis Purchaser that are no less favorable than the registration rights provided to LS Purchaser under this Agreement.

 

(iv)        The closing of the purchase and sale of any shares of Preferred Stock or Underlying Common Stock to be sold by LS Purchaser pursuant to Purchaser’s exercise of the Drag-Along Right shall occur concurrently with the closing of the corresponding Purchaser Divestiture, which shall be on a date not less than one hundred and eighty (180) days, unless otherwise waived by LS Purchaser, after the giving of the Purchaser Offer Notice.

 

(d)          LS Purchaser Tag-Along Rights

 

(i)          Without limiting the applicability of Sections 6.14(b) and 6.14(c) above, Purchaser may not commence or close any sale of shares of Preferred Stock or Underlying Common Stock to any Person or Persons other than to a Permitted Transferee of Purchaser or pursuant to the Purchaser Co-Sale Right unless LS Purchaser is first afforded the opportunity to participate in such transaction or transactions by selling up to that number of shares of Preferred Stock or Underlying Common Stock held by LS Purchaser equal to the LS Purchaser Sale Amount on identical terms as Purchaser (the “Co-Sale Right”).

 

 

(ii)         Prior to any sale of shares of Preferred Stock or Underlying Common Stock subject to these provisions (but following compliance with the requirements of Sections 6.14(b) and 6.14(c) above), Purchaser shall deliver a Purchaser Offer Notice to LS Purchaser in writing of the proposed sale (subject to the same conditions prescribed by Section 6.14(c)(i) hereof). LS Purchaser may then exercise the Co-Sale Right set forth above by delivering a written notice specifying the number of shares of Preferred Stock or Underlying Common Stock to be sold by LS Purchaser (the “Tag-Along Notice”) to Purchaser within twenty (20) days of the date Purchaser delivered a Purchaser Notice to LS Purchaser. The Tag-Along Notice shall state LS Purchaser has elected to participate in the sale transaction. In connection with LS Purchaser’s exercise of the Co-Sale Right, Purchaser shall reduce the number of shares of Preferred Stock or Underlying Common Stock to be sold by it in the proposed sale by that number of shares of Preferred Stock or Underlying Common Stock to be sold by LS Purchaser as a result of LS Purchaser’s exercise of its Co-Sale Right. At any time prior to the closing of the applicable sale transaction, LS Purchaser may withdraw its election to exercise its Co-Sale Right upon written notice to Purchaser.

 

(iii)        If no Tag-Along Notice is received by Purchaser by the end of the twenty (20) day period referred to above, Purchaser shall have the right to effect the proposed sale of shares of Preferred Stock or Underlying Common Stock within one hundred eighty (180) days of the expiration of the twenty (20) day period referred to above at a price not less than, and on terms and conditions no more favorable in any respect to Purchaser than those stated in the applicable Purchaser Officer Notice.

 

(iv)        The closing of the purchase and sale of any shares of Preferred Stock or Underlying Common Stock to be sold by LS Purchaser pursuant to LS Purchaser’s exercise of the Co-Sale Right shall occur concurrently with the closing of the corresponding sale of shares of Preferred Stock or Underlying Common Stock by Purchaser, which shall be on a date not less than one hundred eighty (180) days, unless otherwise waived by LS Purchaser, after the giving of the applicable Purchaser Offer Notice.

 

(e)          Purchaser Tag-Along Rights. LS Purchaser may not commence or close any sale of shares of Preferred Stock or Underlying Common Stock to any Person or Persons other than to a Permitted Transferee of LS Purchaser or pursuant to the Drag-Along Right or Co-Sale Right unless Purchaser is first afforded the opportunity to participate in such transaction or transactions by selling up to that number of shares of Preferred Stock or Underlying Common Stock held by Purchaser equal to Purchaser’s pro rata share of Series A Preferred Stock then outstanding on identical terms as LS Purchaser (the “Purchaser Co-Sale Right”). The provisions of Section 6.14(d) shall apply to the Purchaser Co-Sale Right mutatis mutandis.

 

(f)          LS Purchaser Put Right. If the Company consummates a transaction (whether by way of merger, asset acquisition, stock acquisition, or otherwise, a “Put Transaction”) prior to June 14, 2017 which results in the Company and its Subsidiaries generating on a pro-forma basis greater than 15% of its annual revenues on a consolidated basis from providing credit and debit card processing services to merchants in the United States and its territories (including Puerto Rico) or Canada through point-of-sale dealers and developers who either (i) act as a sales or referral agents or (ii) otherwise receive compensation in connection with such credit and debit card processing services, LS Purchaser shall have the right to sell to Purchaser (in which case Purchaser shall be required to purchase from LS Purchaser) all of the shares of Preferred Stock then held by LS Purchaser at a price per share equal to the Per Share Purchase Price upon delivery of written notice thereof to Purchaser at least five days prior to the consummation of the Put Transaction. The closing of such sale of Preferred Stock shall occur contemporaneously with the consummation of the Put Transaction.

 

Section 6.15.         Piggyback Registrations.

 

(a)          Right to Piggyback. Whenever the Company proposes to register any of its equity securities (including any proposed registration of the Company's equity securities by any third party) under the Securities Act (other than (i) in connection with registrations on Form ▇-▇, ▇-▇ or any successor or similar forms or (ii) to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable) and the registration form to be used may be used for the registration of shares of Underlying Common Stock (each, a "Piggyback Registration"), the Company shall give prompt written notice (and in any event within three Business Days after its receipt of notice of any exercise of demand registration rights) to LS Purchaser of its intention to effect such a registration and shall include in such registration all shares of Underlying Common Stock with respect to which the Company has received written requests for inclusion therein within twenty (20) days after the receipt of the Company's notice. The Company may postpone or withdraw the filing or the effectiveness of a Piggyback Registration at any time in its sole discretion.

 

 

(b)          Piggyback Expenses. The registration expenses (excluding discounts and commissions) of LS Purchaser shall be paid by the Company in all Piggyback Registrations, whether or not any such registration is consummated.

 

(c)          Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that, in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, then the Company shall include in such registration, (i) first, the securities the Company proposes to sell that, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering, (ii) second, the securities held by Purchaser and/or LS Purchaser requested to be included in such registration, that in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering (if any), by and between the Company and Purchaser, pro rata among the holders of such securities on the basis of the number of shares of securities of the Company owned by each such holder, and (iii) third, the other securities requested to be included therein (including, for the avoidance of doubt, securities of the Company held by Purchaser or LS Purchaser) that, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering (if any), pro rata among the holders of such securities on the basis of the number of shares of securities of the Company owned by each such holder.

 

(d)          Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that, in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders requesting such registration, then the Company shall include in such registration, (i) first, the securities requested to be included therein by the holders requesting such registration that, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering (if any), pro rata among the holders of such securities on the basis of the number of shares of securities of the Company owned by each such holder; provided, that for the purposes of this clause (i) if the registration has been requested by Purchaser then LS Purchaser shall be deemed to also be a “holder requesting such registration” regardless of whether LS Purchaser was included in the original request delivered by Purchaser to the Company, (ii) second, the securities held by Purchaser and/or LS Purchaser requested to be included in such registration, that in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering (if any), in accordance with the provisions set forth in that certain Registration Rights Agreement, dated as of October 11, 2013, by and between the Company and Purchaser, pro rata among the holders of such securities on the basis of the number of shares of securities of the Company owned by each such holder and (iii) third, the other securities requested to be included in such registration (including, for the avoidance of doubt, securities of the Company held by Purchaser or LS Purchaser) that, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering (if any), pro rata among the holders of such securities on the basis of the number of shares of securities of the Company owned by each such holder.

 

(e)          Shelf Registration. Upon the written request of LS Purchaser delivered to the Company at any time following the fifth (5^th) anniversary of the Restatement Date, the Company shall use its reasonable efforts to prepare and file with the Securities and Exchange Commission, within 75 days of the Company’s receipt of such written request, a Registration Statement covering the Underlying Common Stock held by LS Purchaser, unless at such time all Underlying Common Stock held by LS Purchaser has been registered for resale pursuant to a Piggyback Registration or is eligible for sale pursuant to Rule 144 under the Securities Act without volume or manner of sale restrictions. For the purposes of this clause (e), the provisions of Section 1 of the Registration Agreement shall apply mutatis mutandis.

 

Section 6.16.         Further Assurances; Cooperation. The Company shall take, or cause to be taken, all actions, and do, or cause to be done, all things reasonably necessary, proper or advisable to obtain satisfaction of all conditions precedent to Purchaser or LS Purchaser, as applicable, to, or otherwise to effectuate, the consummation of any of the transactions contemplated hereby, including, without limitation, reasonably cooperating with Purchaser or LS Purchaser, as applicable, in connection with any filing or approval required to be made or obtained by Purchaser pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (or any successor act, rules or regulations).

 

 

Section 7.          Transfer of Restricted Securities.

 

Section 7.1.          General Provisions. Restricted Securities are transferable only pursuant to (a) public offerings registered under the Securities Act, (b) Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar rule or rules then in force) if such rule is available and (c) subject to the conditions and restrictions specified in Section 7.2 and in the other Transaction Agreements, any other legally available means of transfer.

 

Section 7.2.          Opinion Delivery. In connection with the transfer of any Restricted Securities under Section 7.1, the holder thereof shall deliver written notice to the Company describing in reasonable detail the transfer or proposed transfer, together with an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP or other counsel which (to the Company’s reasonable satisfaction) is knowledgeable in securities Law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the Securities Act; provided, however, that no such opinion need be delivered by such holder for any transfer of any Restricted Securities under Section 7.1 to any Affiliate of such holder or any of its limited partners. In addition, if the holder of the Restricted Securities delivers to the Company an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP or such other counsel that no subsequent transfer of such Restricted Securities shall require registration under the Securities Act, promptly upon such contemplated transfer the Company shall cause its transfer agent to deliver new certificates for such Restricted Securities which do not bear the Securities Act legend set forth in Section 7.3(a). If the Company is not required to cause its transfer agent to deliver new certificates for such Restricted Securities not bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this Section 7.

 

Section 7.3.          Legend; Legend Removal.

 

(a)          Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form:

 

“THE SECURITIES EVIDENCED HEREBY WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN A TRANSACTION NOT INVOLVING A PUBLIC OFFERING, (II) PURSUANT TO ANY OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (IV) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL NOTIFY ANY SUBSEQUENT PURCHASER OF SUCH SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. SUCH SECURITIES MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF THE AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT, DATED AS OF OCTOBER 18, 2016, BETWEEN JETPAY CORPORATION AND THE PURCHASERS IDENTIFIED THEREIN.”

 

(b)          If any Restricted Securities become eligible for sale pursuant to Rule 144 under the Securities Act, the Company shall, upon the request of the holder of such Restricted Securities, cause its transfer agent to remove the legend set forth in Section 7.3(a) from the certificates for such Restricted Securities.

 

Section 7.4.          Rule 144A. Upon the request of Purchaser or LS Purchaser, the Company shall promptly supply to Purchaser, LS Purchaser or their prospective transferees all information regarding the Company required to be delivered in connection with a transfer pursuant to Rule 144A of the Securities and Exchange Commission.

 

 

Section 8.          Representations and Warranties of the Company. As a material inducement to Purchaser and LS Purchaser to enter into this Agreement and purchase the Preferred Stock hereunder, the Company hereby represents and warrants that:

 

Section 8.1.          Organization and Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and is duly qualified as a foreign corporation to do business in every jurisdiction in which the failure to so qualify has had or would reasonably be expected to have a Material Adverse Effect. The copies of the Company’s and each Subsidiary’s Organizational Documents which have been furnished to Purchaser reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete.

 

Section 8.2.          Capital Stock and Related Matters.

 

(a)          As of the Restatement Date and immediately thereafter, the authorized Capital Stock of the Company shall consist of (i) 1,000,000 shares of preferred stock, 134,000 of which are designated as Series A Convertible Preferred Stock, 9,000 of which are designated as Series A-1 Preferred Stock, par value $0.001 (the “Series A-1 Preferred Stock”) and 9,000 of which are designated as Series A-2 Preferred Stock, par value $0.001 (the “Series A-2 Preferred Stock”), and (ii) 100,000,000 shares of Common Stock, of which 17,682,903 shares shall be issued and outstanding, 15,000,000 shares of Common Stock shall be reserved for issuance upon conversion of the Preferred Stock and 1,200,000 shares of Common Stock shall be reserved for issuance upon conversion of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock. As of the Restatement Date, neither the Company nor any Subsidiary shall have outstanding any stock or securities convertible or exchangeable for any shares of its Capital Stock or other equity securities or containing any profit participation features, nor shall it have outstanding any warrants, options or other rights to subscribe for or to purchase its Capital Stock or other equity securities or any stock or securities convertible into or exchangeable for its Capital Stock or other equity securities or any stock appreciation rights or phantom stock plans, except for the Preferred Stock issued to Purchaser and LS Purchaser and except as set forth on the attached Capitalization Schedule. The Capitalization Schedule accurately sets forth the following information with respect to all outstanding warrants, options and other rights to acquire the Company’s Capital Stock and other equity securities: the holder, the number of shares covered, the issuance date, the exercise price, any applicable vesting schedule and the expiration date. As of the Restatement Date, neither the Company nor any Subsidiary shall be subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its Capital Stock or other equity securities or any warrants, options or other rights to acquire its Capital Stock or other equity securities, except as set forth on the Capitalization Schedule and except pursuant to the Certificates of Designation with respect to the Preferred Stock, the Series A-1 Preferred Stock and the Series A-2 Preferred Stock. As of the Restatement Date, all of the outstanding shares of the Company’s Capital Stock shall be validly issued, fully paid and nonassessable and shall be free and clear of any Lien (other than pursuant to the Transaction Agreements), and the Common Stock issuable upon conversion of the Preferred Stock has been duly and validly authorized and reserved for issuance and, when issued in compliance with the provisions of the Certificate of Designation, shall be validly issued, fully paid and nonassessable and shall be free and clear of any Lien (other than pursuant to the Transaction Agreements); provided that the Company’s Capital Stock shall be subject to restrictions on transfer under applicable state and/or federal securities Laws. The Capitalization Schedule accurately sets forth the Closing Price of the Common Stock as of the Trading Day immediately prior to the date of this Agreement.

 

(b)          There are no statutory or contractual stockholders’ preemptive rights or rights of refusal with respect to the issuance of the Preferred Stock hereunder or the issuance of the Common Stock upon conversion of the Preferred Stock. The Company has not violated any applicable federal or state securities Laws in connection with the offer, sale or issuance of any of its Capital Stock. The Company is not party to any agreement, and to the Company’s Knowledge, there are no agreements between the Company’s stockholders with respect to the voting or transfer of the Company’s Capital Stock or with respect to any other aspect of the Company’s affairs, except for the Transaction Agreements.

 

Section 8.3.          Subsidiaries; Investments. The attached Subsidiary Schedule correctly sets forth the name of each Subsidiary, the jurisdiction of its organization and the Persons owning the outstanding Capital Stock or other equity securities of such Subsidiary. Each Subsidiary is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, possesses all requisite corporate or other applicable entity power and authority. All of the outstanding shares of Capital Stock or other equity securities of each Subsidiary are validly issued, full paid and nonassessable, and all such shares or securities are owned by the Company or another Subsidiary free and clear of any Lien and are not subject to any option or right to purchase any such shares or securities, except as set forth on the Subsidiary Schedule. Except as set forth on the Subsidiary Schedule, neither the Company nor any Subsidiary owns or holds the right to acquire any shares of stock or any other security or ownership interest in any other Person.

 

 

Section 8.4.          Authorization. The execution, delivery and performance of this Agreement and all other Transaction Agreements, the filing of the Certificate of Designation and the amendment of the Company’s bylaws have been duly authorized by all necessary corporate action on the part of the Company. This Agreement, the Certificate of Designation and all other Transaction Agreements each constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar Laws affecting creditors’ rights generally or general equitable principles. A majority of the holders of the Company’s issued and outstanding Common Stock have executed an action by written consent in form and substance as set forth in Exhibit F (the “Stockholder Consent”) approving the issuance of the Common Stock issuable upon conversion of all the shares of Preferred Stock and the Company has delivered such executed consent to Purchaser.

 

Section 8.5.          No Breach. The Company is not in violation or default of any provision of its Certificate of Incorporation or other Organizational Documents, each as in effect as of the Closing. Except as set forth on the Restrictions Schedule, the execution, delivery, and performance of and compliance with this Agreement and the Transaction Agreements and the offering, issuance and sale of the Preferred Stock and the conversion of the Preferred Stock into shares of Common Stock and the fulfillment of and compliance with the respective terms hereof and thereof by the Company do not and shall not (a) conflict with or violate any provision of the Certificate of Incorporation (including the Certificate of Designation) or other Organizational Documents, (b) conflict with or violate any applicable Law (which conflict or violation would be material to the Company and its Subsidiaries taken as a whole) or any applicable judgment, order or decree of any Governmental Authority, (c) conflict with or result in any breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right to termination, acceleration or cancellation under any Material Contract or result in the creation of any material mortgage, pledge, Lien, encumbrance, or charge upon any of the Capital Stock, properties or assets of the Company, or the suspension, revocation, impairment or forfeiture of any material permit, license, authorization, or approval applicable to the Company, its business or operations, or any of its assets or properties or (d) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any Governmental Entity pursuant to, the Certificate of Incorporation or the other Organizational Documents of the Company or any Subsidiary, or any Law to which the Company or any Subsidiary is subject, or any material agreement, instrument, order, judgment or decree to which the Company or any Subsidiary is subject. Except as set forth on the Restrictions Schedule, none of the Subsidiaries are subject to any restrictions upon making loans or advances or paying dividends or distributions to, transferring property to, or repaying any Indebtedness owed to, the Company or another Subsidiary.

 

Section 8.6.          Licenses. The Company and its Subsidiaries possess all requisite corporate power and authority, and all licenses, permits and authorizations, necessary to own and operate their respective properties, to carry on their respective businesses as now conducted and presently proposed to be conducted and to carry out the transactions contemplated by this Agreement, except where the failure to so possess would not individually, or in the aggregate, be reasonably expected to have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with the terms and conditions of such licenses and neither the Company nor any of its Subsidiaries has received written or, to the Company’s Knowledge, oral notices from any Governmental Entity that it is in violation of any of the terms or conditions of such licenses, except where the failure to so comply would not individually, or in the aggregate, be reasonably expected to have Material Adverse Effect.

 

Section 8.7.          Company Filings; Financial Statements.

 

(a)          Company Filings. Since December 22, 2010, the Company has filed all reports, schedules, forms, statements and other documents with the Securities and Exchange Commission required to be filed by the Company pursuant to the Securities Act and the Exchange Act, together with all certifications required pursuant to the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (the “▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act”) (collectively, the “Company Filings”). As of their respective effective dates (in the case of Company Filings that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective dates of filing (in the case of all other Company Filings), the Company Filings complied in all material respects with the requirements of the Securities Act, the Exchange Act and/or the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, as the case may be, and the rules and regulations promulgated thereunder applicable thereto, and except to the extent amended or superseded by a subsequent filing with the Securities and Exchange Commission prior to the date of this Agreement, as of such respective dates, none of the Company Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the Company’s Subsidiaries is subject to the periodic reporting requirements of the Exchange Act. As of the date hereof, except with respect to the Company’s Registration Statement on Form S-3, Reg. No. 333-187339, there are no outstanding or unresolved comments in comment letters from the Securities and Exchange Commission staff with respect to any of the Company Filings. To the Company’s Knowledge, as of the date hereof, none of the Company Filings is the subject of ongoing Securities and Exchange Commission review or outstanding Securities and Exchange Commission investigation.

 

 

(b)          Financial Statements. Each of the audited consolidated financial statements and the unaudited quarterly financial statements (including, in each case, the notes thereto) of the Company included in the Company Filings when filed complied as to form in all material respects with the published rules and regulations of the Securities and Exchange Commission with respect thereto, have been prepared in all material respects in accordance with GAAP (except as may be disclosed therein or in the notes thereto, and, in the case of unaudited quarterly statements, to the extent permitted by Form 10-Q of the Securities and Exchange Commission or other rules and regulations of the Securities and Exchange Commission) and fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end adjustments and the absence of footnotes). Neither the Company nor any of its Subsidiaries has or is subject to any “Off-Balance Sheet Arrangement” (as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act), other than as disclosed in the Company Filings.

 

Section 8.8.          Internal Controls. The Company and its Subsidiaries have established and maintained a system of internal control over financial reporting (as defined in Rule 13a-15 under the Exchange Act) that are reasonably designed to ensure that material information relating to the Company, including its Subsidiaries, is made known to the individuals responsible for the preparation of the Company’s filings with the Securities and Exchange Commission and other public disclosure documents, and have disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Board any known (A) significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and, (B) fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. The Company has provided to Purchaser copies of any material written materials relating to each of the foregoing.

 

Section 8.9.          Absence of Undisclosed Liabilities. Except as set forth on the attached Liabilities Schedule, there are no material liabilities or obligations of the Company or any of its Subsidiaries of any kind whatsoever (whether known, unknown, accrued, contingent, absolute, determined, determinable or otherwise) other than liabilities or obligations: (i) reflected in the financial statements included or otherwise disclosed in the Latest Balance Sheet, (ii) incurred since the date of the Latest Balance Sheet in the ordinary course of business consistent with past practice (other than any such liabilities related to any breach of contract, violation of Law or tort), (iii) transaction expenses incurred in connection with the Transaction Documents or (iv) that would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. Except as set forth in the attached Liabilities Schedule, neither the Company nor any of its Subsidiaries has any liability or obligation arising out of, related to, or in connection with, any contingent consideration or any broker fees or claims therefore.

 

Section 8.10.         No Material Adverse Change. Except as set forth on the attached Adverse Change Schedule, since December 31, 2012, there has been no Material Adverse Effect.

 

 

Section 8.11.         Absence of Certain Developments. Except (a) as expressly contemplated by this Agreement, (b) as specifically disclosed in the Company Filings filed with respect to periods ended on or after December 28, 2012 or (c) as set forth on the attached Developments Schedule, since December 28, 2012, neither the Company nor any Subsidiary has: (i) issued any notes, bonds or other debt securities or any Capital Stock or other equity securities or any securities convertible, exchangeable or exercisable into any Capital Stock or other equity securities; (ii) borrowed any amount or incurred or become subject to any material liabilities, except current liabilities incurred in the ordinary course of business and liabilities under contracts entered into in the ordinary course of business; (iii) discharged or satisfied any material Lien or paid any material obligation or liability, other than current liabilities paid in the ordinary course of business; (iv) declared or made any payment or distribution of cash (other than a distribution from a Subsidiary of the Company to the Company) or other property to its equityholders with respect to its Capital Stock or other equity securities or purchased or redeemed any shares of its Capital Stock or other equity securities (including, without limitation, any warrants, options or other rights to acquire its Capital Stock or other equity securities), other than repurchases of Common Stock pursuant to Qualified Incentive Plans or employment agreements existing on the date of this Agreement and disclosed in the Disclosure Schedules hereto or any employment or consulting agreements entered into in the ordinary course of business thereafter and approved by the Board; (v) mortgaged or pledged any of its properties or assets or subjected them to any Lien, except for Permitted Liens; (vi) sold, assigned or transferred any of its tangible assets, except in the ordinary course of business, or canceled any material debts or claims; (vii) suffered any extraordinary losses or waived any rights of material value, whether or not in the ordinary course of business or consistent with past practice; (viii) made any loans or advances to, guarantees for the benefit of, or any Investments in, any Persons in excess of $50,000 in the aggregate; (ix) made any charitable contributions or pledges in excess of $50,000 in the aggregate; (x) suffered any damage, destruction or casualty loss exceeding in the aggregate $50,000, whether or not covered by insurance; (xi) terminated, amended or modified any agreement or other contract which would be required to be set forth on the Contracts Schedule if it were in effect on the date of this Agreement (ignoring, if applicable, any such termination, amendment or modification); (xii) made any material change in the accounting principles utilized by the Company in connection with the business of the Company and its Subsidiaries, made any change in the Company’s independent public accounting firm, had any disagreement with its independent public accounting firm over the Company’s and its Subsidiaries’ application of accounting principles or with the preparation of any of their financial statements that was required to be disclosed in such Company Filings, or, given notification to the Company’s audit committee of any facts with respect to the Company’s or its Subsidiaries’ financial statements or methods of accounting that could reasonably be expected to result in a restatement of or amendment to the Company’s or its Subsidiaries’ financial statements; (xiii) made or changed any Tax election, changed an annual accounting period for Tax, adopted or changed any Tax accounting method, filed any amended Tax Return, entered into any closing agreement, settled any Tax claim or assessment relating to the Company or any of its Subsidiaries, surrendered any right to claim a refund of Taxes, consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company or any of its Subsidiaries, or took any other similar action relating to the filing of any Tax Return or the payment of any Tax; (xiv) received any written notice from the Securities and Exchange Commission in connection with any investigation or action by the Securities and Exchange Commission; (xv) experienced any resignation or termination of employment of any of the Company’s executive officers or (xvi) entered into any other material transaction, whether or not in the ordinary course of business.

 

Section 8.12.         Property. The Leased Real Property Schedule attached hereto sets forth the address of each Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property. The Company has delivered to Purchaser a true and complete copy of each such Lease. With respect to each of the Leases: (i) neither the Company nor any of its Subsidiaries has subleased, licensed or otherwise granted any Person the right to use or occupy such Leased Real Property or any material portion thereof other than as set forth on the Leased Real Property Schedule; and (ii) there are no Liens (other than Permitted Liens) on the estate or interest created by such Lease. The Company and its Subsidiaries have good and valid title to, or a valid license to use or leasehold interest in, all of their respective material assets, free and clear of all Liens (other than Permitted Liens), except as would not materially impair ability of the Company and its Subsidiaries to conduct their businesses in the ordinary course of business consistent with past practices.

 

Section 8.13.         Tax Matters.

 

(a)          Each of the Company and its Subsidiaries has timely prepared and filed all income and other material Tax Returns required to have been filed by the Company or any of its Subsidiaries with all appropriate Governmental Entities and timely paid all Taxes (whether or not shown thereon) otherwise owed by it. All such Tax Returns are true, correct and complete in all material respects. Except as set forth on the attached Taxes Schedule, all Taxes that the Company or any of its Subsidiaries is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper Governmental Entity or third party when due (or set aside for payment when due). No claim has ever been made by a Governmental Entity in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction.

 

 

(b)          Neither the Company nor any Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Initial Closing as a result of any: (A) change in method of accounting for a taxable period ending on a period to the Initial Closing; (B) use of an improper method of accounting for a taxable period ending on or prior to the Initial Closing; (C) “closing agreement” as described in Code §7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Initial Closing; or (D) election by the Company or any Subsidiary under Code §108(i).

 

(c)          Neither the Company nor any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated, combined, or unitary federal, state, local, or foreign income Tax Return (other than a group the common parent of which was the Company) or (ii) has any material liability for the Taxes of any Person (other than the Company or any of its Subsidiaries) under U.S. Treas. Reg. § 1.1502-6 (or any similar provision of state, local, or non-U.S. Law), as a transferee or successor, by contract, or otherwise.

 

(d)          Neither the Company nor any of its Subsidiaries is a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Code §280G (or any corresponding provision of state, local, or non-U.S. Tax Law).

 

(e)          Neither Target nor any of its Subsidiaries is or has been a party to any “reportable transaction,” as defined in Code §6707A(c)(1) and Reg. §1.6011-4(b).

 

(f)          The unpaid Taxes of the Company and its Subsidiaries (A) did not, as of the date of the most recent Company Filings, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Company Filings (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Initial Closing in accordance with the past custom and practice of the Company and its Subsidiaries in filing their Tax Returns. Since the date of the Latest Company Filings, neither the Company nor any of its Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom practice.

 

Section 8.14.         Contracts and Commitments.

 

(a)          Except as expressly contemplated by this Agreement or as set forth on the attached Contracts Schedule or the attached Employee Benefits Schedule, neither the Company nor any Subsidiary is a party to or bound by any written or oral Material Contracts.

 

(b)          All of the contracts, agreements and instruments required to be set forth on the Contracts Schedule are valid, binding and enforceable in accordance with their respective terms. The Company and each Subsidiary have performed all obligations required to be performed under the contracts, agreements and instruments required to be listed on the Contracts Schedule and are not in default under or in breach of nor in receipt of any claim of default or breach under any contract, agreement or instrument required to be listed on the Contracts Schedule, nor, to the Company’s or any Subsidiary’s Knowledge, has such notice been threatened; no event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance by the Company or any Subsidiary under any contract, agreement or instrument required to be listed on the Contracts Schedule.

 

(c)          Purchaser has been supplied with a true and correct copy of each of the written instruments, plans, contracts and agreements and an accurate description of each of the oral arrangements, contracts and agreements which are listed on the Contracts Schedule or the Employee Benefits Schedule, together with all amendments, waivers or other changes thereto.

 

Section 8.15.         Intellectual Property Rights. Except as would not, individually or in the aggregate, reasonably be expected to be material, neither the Company’s nor any of its Subsidiaries’ use of any Intellectual Property Rights used in or necessary for the conduct of their respective businesses as currently conducted (collectively, the “Company Intellectual Property”), nor the operation of the Company’s or any of its Subsidiaries’ respective businesses, infringes, misappropriates or otherwise violates any Intellectual Property Rights of any other Person (and no actions, suits or claims are pending or threatened alleging any of the foregoing). To the Company or any Subsidiary’s Knowledge, no Person is infringing, misappropriating or violating the Intellectual Property Rights of the Company or any of its Subsidiaries, except as would not, individually or in the aggregate, reasonably be expected to be material.

 

 

Section 8.16.         Litigation, etc. Except as set forth on the attached Litigation Schedule, there are no, and for the past three years there has not been any, actions, suits, proceedings, orders, investigations or claims pending or, to the Company’s Knowledge, threatened by or against or affecting the Company or any Subsidiary (or to the Company’s Knowledge, pending or threatened by or against or affecting any of the officers, directors or employees of the Company and its Subsidiaries with respect to their businesses or proposed business activities) at law or in equity, or before or by or against any Governmental Entity (including, without limitation, any actions, suits, proceedings, orders, investigations or claims with respect to the transactions contemplated by this Agreement). Except as set forth on the attached Litigation Schedule, there are no, and for the past three years there has not been any judgment, order or decree of any Governmental Entity in effect against the Company or any of its Subsidiaries.

 

Section 8.17.         Brokerage. Except as set forth on the attached Brokerage Schedule, there are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement binding upon the Company or any Subsidiary.

 

Section 8.18.         Governmental Consent, etc. No permit, consent, approval or authorization of, or declaration to or filing with, any Governmental Entity is required in connection with the execution, delivery and performance by the Company of this Agreement or the other Transaction Agreements, or the consummation by the Company of any other transactions contemplated hereby or thereby, except as set forth on the attached Consents Schedule or as otherwise expressly contemplated herein.

 

Section 8.19.         Insurance. The attached Insurance Schedule contains a description of each insurance policy maintained by the Company and its Subsidiaries with respect to its properties, assets and businesses or otherwise, and each such policy is in full force and effect as of the Initial Closing. Except as set forth on the Insurance Schedule, the Company and its Subsidiaries do not have any self-insurance or co-insurance programs, and the reserves set forth on the Latest Balance Sheet are adequate to cover all anticipated liabilities with respect to any such self-insurance or co-insurance programs.

 

Section 8.20.         Employees. Except as set forth on the attached Employees Schedule, to the Company’s Knowledge, no executive or key employee of the Company or any Subsidiary or any group of employees of the Company or any Subsidiary has any plans to terminate employment with the Company or any Subsidiary. Neither the Company nor any of its Subsidiaries have any unions or, to the Company’s Knowledge, any material labor related problems. Neither the Company, its Subsidiaries nor, to the Company’s Knowledge, any of their employees is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or similar agreements relating to, affecting or in conflict with the present or proposed business activities of the Company and its Subsidiaries, except for agreements between the Company or a Subsidiary and its present and former employees.

 

Section 8.21.         Employee Benefits. The attached Employee Benefits Schedule sets forth a complete and correct list of all “employee benefit plans” (as such term is defined in Section 3(3) of ERISA) and any other material employee benefit plan, program, policy or arrangement that is maintained, sponsored or contributed to by the Company or any Subsidiary or with respect to which the Company or any Subsidiary has any liability or potential liability (each an “Employee Benefit Plan” and collectively, “Employee Benefit Plans”). The Company has delivered or made available to Purchasers complete and correct copies, as applicable, of the plan documents, the most recent determination letter received from the IRS, the most recent annual report (Form 5500, with all applicable attachments) and all other material documents pursuant to which each Employee Benefit Plan is maintained, funded and administered. Each Employee Benefit Plan (and each related trust, insurance contract or fund) has been maintained, funded and administered in all material respects in accordance with its terms and complies in all material respects in form and in operation with the applicable requirements of ERISA, the Code and other applicable Laws. Each Employee Benefit Plan that is intended to meet the requirements of a “qualified plan” under Section 401(a) of the Code has received a favorable determination letter (or may rely on a favorable opinion letter) from the IRS, and nothing has occurred that could reasonably be expected to cause the disqualification of such Employee Benefit Plan. Neither the Company nor any of its Subsidiaries maintains, sponsors, contributes to, has any obligation to contribute to, or has any current or potential liability or obligation under or with respect to (i) a “defined benefit plan” (as such term is defined in Section 3(35) of ERISA) or (ii) a “multiemployer plan” as defined in Section 3(37) of ERISA. Neither the Company nor any of its Subsidiaries has any current or potential obligation to provide post-employment health, life or other welfare benefits other than as required under Section 4980B of the Code or any similar applicable Law and there do not exist any pending or threatened claims (other than routine undisputed claims for benefits) or Actions with respect to any Employee Benefit Plan. The transactions contemplated by the this Agreement and the Transaction Agreements will not cause the acceleration of vesting in, or payment of, any benefits or compensation under any Employee Benefit Plan and will not otherwise accelerate or increase any liability or obligation under any Employee Benefit Plan.

 

 

Section 8.22.         Compliance with Laws; Card Associations. Except as set forth on the attached Compliance Schedule, neither the Company nor any Subsidiary has violated any Law or any governmental regulation or requirement (including the applicable provisions of the Securities Act, the Exchange Act, the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act and the applicable listing and corporate governance rules and regulations of NASDAQ) in any material respect, and neither the Company nor any Subsidiary has received any written notice of any such violation. Neither the Company nor any Subsidiary is subject to, or has reason to believe it may become subject to, any liability (contingent or otherwise) or corrective or remedial obligation arising under any Environmental and Safety Requirements. The Company and each of its Subsidiaries is registered by a member of and is in good standing with the Card Associations, and is in compliance in all material respects with the rules of, the Card Associations, except to the extent (and only to the extent) such Person’s business does not require such registration or where the failure to be so registered or in good standing would not be material. The Company’s and its Subsidiaries’ participation in any of the Card Association networks is not, either directly or indirectly including, without limitation through any sponsoring banks, prohibited or materially and adversely restricted. To the Company’s Knowledge, there is no investigation, proceeding or disciplinary action, including fines (other than any investigation, proceeding or disciplinary action involving a maximum potential fine of less than $5,000, excluding any late fees or other penalties if such fine is not timely paid), currently pending, or to the Knowledge of the Company, threatened in writing against the Company or any of its Subsidiaries by a Card Association or its applicable agent.

 

Section 8.23.         Affiliated Transactions. Except as set forth on the attached Affiliated Transactions Schedule, no officer, director, employee, stockholder or Affiliate of the Company or any Subsidiary, nor any individual related by blood, marriage or adoption to any such individual nor any entity in which any such Person or individual owns any beneficial interest, is a party to any agreement, contract, commitment or transaction with the Company or any Subsidiary or has any material interest in any material property used by the Company or any Subsidiary.

 

Section 8.24.         Private Placement. Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D promulgated under the Securities Act) in connection with the offer or sale of any of the Preferred Stock.

 

Section 8.25.         Application of Takeover Protections. The Company and the Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, bylaws or the Laws of the State of Delaware (including, without limitation, Section 203 of the Delaware General Corporation Law) that is or could become applicable to Purchaser, LS Purchaser and/or their respective Affiliates as a result of Purchaser and the Company fulfilling their respective obligations or exercising their respective rights under this Agreement and the Transaction Agreements, including as a result of the issuance or ownership of the Preferred Stock and the Underlying Common Stock which such shares of Preferred Stock are convertible into, as the case may be, contemplated by this Agreement.

 

Section 8.26.         Customers and Suppliers. The Customers and Suppliers Schedule attached hereto sets forth (a) a list of the Company’s and its Subsidiaries’ ten largest customers for the twelve-month period ended June 30, 2013, and sets forth opposite the name of each such customer the percentage of consolidated gross revenues attributable to such customer and (b) a list of the Company’s and its Subsidiaries’ material suppliers, which includes (but is not limited to) (i) sponsoring banks, (ii) Card Associations and (iii) key providers of software or other services used by the Company and its Subsidiaries in connection with the operation of their respective businesses. Since December 30, 2012, neither the Company nor any of its Subsidiaries has received any oral or written notice from any such customer to the effect that, and neither the Company nor any of its Subsidiaries has any Knowledge that, any such customer will stop, decrease the rate of, or change the terms (whether related to payment, price or otherwise) with respect to, buying products and/or services from the Company or any of its Subsidiaries (whether as a result of the consummation of the transactions contemplated hereby or otherwise). Since December 30, 2012, neither the Company nor any of its Subsidiaries has received any oral or written notice from any such supplier to the effect that, and neither the Company nor any of its Subsidiaries has any Knowledge that, any such suppler will stop, decrease the rate of, or change the terms (whether related to payment, price or otherwise) with respect to, supplying materials, products or services to the Company or any of its Subsidiaries (whether as a result of the consummation of the transactions contemplated hereby or otherwise). There are no suppliers of products or services to the Company or its Subsidiaries that are material to the Company’s business with respect to which practical alternative sources of supply are not generally available on comparable terms and conditions in the marketplace.

 

 

Section 8.27.         Closing Date. The representations and warranties of the Company contained in this Section 8 and elsewhere in this Agreement and all information contained in any exhibit, schedule or attachment hereto or in any certificate or other writing delivered by, or on behalf of, the Company to Purchaser at the Initial Closing shall be true and correct in all material respects on the date of such Initial Closing as though then made, except as affected by the transactions expressly contemplated by this Agreement.

 

Section 8.28.         Certain Representations. As of the Restatement Date, the Conversion Price (as defined in the Certificate of Designation) is equal to $2.90 per share and the Liquidation Value (as defined in the Certificate of Designation) is equal to $600.00 per share. Copies of each Officer’s Certificate delivered to Purchaser on or prior to the Restatement Date pursuant to Section 6.1(b) hereof have been delivered to LS Purchaser.

 

Section 9.          Representations and Warranties of Purchasers. As a material inducement to the Company to enter into this Agreement and issue the Preferred Stock hereunder, each of the Purchasers, severally with respect to itself, hereby represents and warrants that:

 

Section 9.1.          Organization and Existence. Each of Purchaser or LS Purchaser, as applicable, has been duly formed and is validly existing and in good standing in the State of Delaware and has all requisite limited partnership power and authority to consummate the transactions contemplated by this Agreement.

 

Section 9.2.          Authorization. The execution, delivery and performance by each of Purchaser or LS Purchaser, as applicable, of this Agreement and the other Transaction Agreements to which Purchaser or LS Purchaser, as applicable, is a party have been duly authorized by Purchaser or LS Purchaser, as applicable, and will each constitute the valid and legally binding obligation of Purchaser or LS Purchaser, as applicable, enforceable against Purchaser or LS Purchaser, as applicable, in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar Laws affecting creditors’ rights generally or general equitable principles.

 

Section 9.3.          Private Placement.

 

(a)          The Preferred Stock to be acquired by Purchaser or LS Purchaser hereunder will be acquired for Purchaser’s or LS Purchaser’s own account, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act or any applicable state securities Laws, and each of Purchaser and LS Purchaser, as applicable, have no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act or any applicable state securities Laws, without prejudice, however, to Purchaser’s and LS Purchaser’s right at all times to sell or otherwise dispose of all or any part of such Preferred Stock (or Underlying Common Stock into which such Preferred Stock may be converted) in compliance with applicable securities Laws. Nothing contained herein shall be deemed a representation or warranty by Purchaser or LS Purchaser to hold the Preferred Stock (or Underlying Common Stock into which such Preferred Stock may be converted) for any period of time. Each of the Purchasers is an “accredited investor” as defined in Rule 501(a) of Regulation D under the Securities Act.

 

(b)          Purchaser and LS Purchaser, as applicable, each acknowledge that it: (i) is able to conduct its own evaluation of the transactions contemplated by this Agreement; (ii) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment contemplated hereunder; and (iii) has the ability to bear the economic risks of its prospective investment and can afford the complete loss of such investment. Purchaser and LS Purchaser, as applicable, each acknowledge that it (x) has conducted its own investigation of the Company and its Subsidiaries and the terms of the Preferred Stock and (y) has been offered the opportunity to conduct such review and analysis of the business, assets, condition, operations and prospects of the Company and its Subsidiaries and to ask questions of the Company and received answers thereto, each as it deemed necessary in connection with the decision to purchase the Preferred Stock. Purchaser and LS Purchaser, as applicable, each further acknowledge that it has had such opportunity to consult with its own counsel, financial and tax advisors and other professional advisers as it believes is sufficient for purposes of the purchase of the Preferred Stock.

 

 

Section 9.4.          No Conflict, Breach, Violation or Default. The execution, delivery and performance by Purchaser and LS Purchaser, as applicable, of this Agreement and the Transaction Agreements to which it is a party and the purchase of the Preferred Stock contemplated hereby will not: (i) conflict with or result in a violation of the certificate of incorporation (or other governing documents) of Purchaser or LS Purchaser, as applicable, (ii) result in any material violation of any Law to which Purchaser or any of its assets or LS Purchaser or any of its assets, as applicable, are subject, or (iii) result in a material breach or a material violation of any of the terms and provisions of, or constitute a default under, any material contract to which Purchaser or LS Purchaser, as applicable, is a party. Neither the execution, delivery or performance by Purchaser or LS Purchaser, as applicable, of this Agreement or any Transaction Agreement to which it is a party, nor the consummation by Purchaser or LS Purchaser, as applicable, of the obligations and transactions contemplated thereby, in each case at the Initial Closing, requires any consent of, authorization by, exemption from, filing with or notice to any Governmental Entity or any other Person, other than filings required under applicable U.S. federal and state securities Laws.

 

Section 9.5.          No Reliance. Except for the representations and warranties contained in Section 8 of this Agreement and in any certificate delivered hereunder, each of Purchaser and LS Purchaser, as applicable, acknowledges that neither the Company, its Subsidiaries nor any Person on behalf of the Company or its Subsidiaries has made or makes, and each of Purchaser or LS Purchaser, as applicable, has not relied upon, any other express or implied representation or warranty with respect to the Company or any of its Subsidiaries or with respect to any other information provided to Purchaser or LS Purchaser, as applicable, in connection with the transactions contemplated by this Agreement. The foregoing, however, does not limit or modify the representations and warranties contained in Section 8 of this Agreement, any certificate or schedule delivered hereunder or the right of Purchaser or LS Purchaser, as applicable, to rely thereon.

 

Section 9.6.          Financial Capability. Each of Purchaser or LS Purchaser, as applicable, currently has or will have available at the applicable Closing the funds necessary to consummate such Closing on the terms and conditions contemplated by this Agreement.

 

Section 9.7.          Brokers and Finders. Neither Purchaser nor any of its Affiliates nor LS Purchaser nor any of its Affiliates, as applicable (other than, in each case, the Company and its Subsidiaries) or any of their respective officers or directors has employed any broker or finder or incurred any liability for any financial advisory fee, brokerage fee, commission or finder’s fee, and no broker or finder has acted directly or indirectly for Purchaser or any of its Affiliates or LS Purchaser or any of its Affiliates (other than the Company and its Subsidiaries) or any of their respective officers or directors in connection with this Agreement or the transactions contemplated hereby.

 

Section 10.         Survival of Representations and Warranties; Indemnification.

 

Section 10.1.          Survival of Representations and Warranties. All of the representations and warranties (i) of the Company contained in Section 8 above (other than the Fundamental Representations applicable to the Company and the representations set forth in Section 8.13), (ii) of Purchasers contained in Section 9 (other than the Fundamental Representations applicable to Purchasers) and (iii) of the Company or Purchasers contained in any Transaction Agreements or in any certificate, schedule or other agreement delivered in connection with the transactions contemplated hereby or thereby shall survive the applicable Closing hereunder (even if Purchasers knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of eighteen months thereafter from the date made. All of the Fundamental Representations of the parties contained in this Agreement and the representations of the Company set forth in Section 8.13 shall survive the applicable Closing (even if the damaged party knew or had reason to know of any misrepresentation or breach of warranty at the time of applicable Closing) and continue in full force and effect from the date made until 30 days following the expiration of the applicable statutes of limitations (including any extension thereto).

 

 

Section 10.2.          Indemnification.

 

(a)          General. In consideration of Purchasers’ execution and delivery of this Agreement and acquiring the Preferred Stock hereunder and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless each of the Purchasers and each other holder of Preferred Stock and all of their officers, directors, managers, stockholders, partners, members, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against Indemnified Liabilities, incurred directly or indirectly by the Indemnitees or any of them as a result of, or arising out of, or relating to (i) any claims by any third party relating to (x) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Preferred Stock or (y) the execution, delivery, performance or enforcement of this Agreement and any other instrument, document or agreement executed pursuant hereto by any Indemnitee, (ii) a breach of a representation or warranty by the Company or any Subsidiary hereunder, under any Transaction Agreements or in any certificate or other agreement delivered in connection with the transactions contemplated hereby or thereby, (iii) a breach of a covenant by the Company or any of its Subsidiaries under this Agreement, the Certificate of Designation or any instrument, certificate or other document executed in connection with the transactions contemplated hereby, (iv) the Direct Air Matter, including, without limitation any amounts set-off, seized or claimed by ▇▇▇▇▇▇▇ out of the Designated Assets, net of any recovery actually received in cash by the Company or any of its Subsidiaries from a third party or by WLES’ forfeiture to the Company of Escrowed Shares, provided that for purposes of this Section 10.2(a)(iv), the value of each Escrowed Share shall be deemed to be the lesser of (1) the Implied Value and (2) $3.00 (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting such Escrowed Shares, as applicable) or (v) any of the Company’s or any of its Subsidiary’s dealings, transactions, agreements, arrangements or disputes with EarlyBirdCapital, Inc. or any of its Affiliates but only to the extent in excess of the amounts expensed and accrued in connection with the contingencies related to the dispute with EarlyBirdCapital, Inc. as set forth in the financial statements of the Company and set forth on Schedule 10.2(a) hereto; it being acknowledged and agreed that the amount of any Indemnified Liabilities sustained by the Company or any of its Subsidiaries related to the matters referenced in the foregoing clauses (i) through (v) (or any facts and circumstances underlying such matters) shall constitute indirect losses to the Indemnitees for which the Indemnitees are indemnified.

 

(b)          Limitations on Indemnification. Notwithstanding Section 10.2(a), other than with respect to any breach of any Fundamental Representations or Section 8.13, (i) no claims by the Indemnitees pursuant to Section 10.2(a)(ii) may be payable unless and until the aggregate amount of Indemnified Liabilities that would otherwise be payable hereunder when claimed exceeds on a cumulative basis an amount equal to the greater of (i) one percent of the aggregate purchase price of all Preferred Stock purchased by Purchasers pursuant to this Agreement and (ii) $200,000 (the “Deductible”), and then only to the extent such Indemnified Liabilities exceed the Deductible and (ii) the aggregate amount of payments to which the Indemnitees shall be entitled in satisfaction of claims for Indemnified Liabilities pursuant to Section 10.2(a)(ii) shall in no event exceed the aggregate purchase price of all Preferred Stock purchased by Purchasers pursuant to this Agreement.

 

(c)          Materiality. Notwithstanding anything contained herein to the contrary, for purposes of this Section 10 of determining whether there has been a breach and the amount of Indemnified Liabilities, each representation and warranty in this Agreement, and any other instrument, certificate document or agreement executed pursuant hereto shall be read without regard and without giving effect to the terms “material” or “Material Adverse Effect” or similar phrases contained in such representation or warranty (as if such words or phrases were deleted from such representation and warranty).

 

(d)          Subject to Section 10.2(b), in the event of an indemnification claim by any Indemnitee pursuant to Section 10.2(a), the then applicable conversion price with respect to the Preferred Stock set forth in the Certificate of Designation (as the same may have been adjusted from time to time) shall be automatically reduced by an amount equal to the product of (i) $3.00 (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting the Preferred Stock, as applicable), which is the conversion price in effect as of the date of this Agreement multiplied by (ii) the result of (A) the amount of Indemnified Liabilities subject to such indemnification claim divided by (B) the Deemed Common Equity Value (for illustrative purposes, if the Company has agreed to pay $5,000,000 to settle the Direct Air Matter (ignoring for purposes of this illustration any related costs and expenses), then the amount of Indemnified Liabilities is $5,000,000 and the Deemed Common Equity Value is $34,587,282, which would result in a conversion price adjustment equal to $3.00 X ($5,000,000/$34,587,282), which equals a reduction in the conversion price of ~$0.437 per share); provided, however, that if the foregoing conversion price adjustment would cause the adjusted conversion price to be zero or a negative number, then the adjusted conversion price shall be deemed to be $0.001 (as adjusted for stock splits, reverse stock splits, stock dividends, and similar actions affecting the Preferred Stock, as applicable); provided, further, that if the indemnification claim is for Indemnified Liabilities relating to or arising out of a breach of a covenant by the Company or any of its Subsidiaries under this Agreement, the Certificate of Designation or any instrument, certificate or other document executed in connection with the transactions contemplated hereby, then Purchaser or LS Purchaser may, at its sole option, elect to be paid in cash, by wire transfer of immediately available funds, for such Indemnified Liabilities.

 

 

Section 11.         Termination Prior to the Initial Closing. Notwithstanding any other provision of this Agreement, this Agreement may be terminated at any time prior to the Initial Closing:

 

(a)          by the mutual written consent of Purchaser and the Company;

 

(b)          by Purchaser or the Company, upon written notice to the other party, if the Initial Closing shall not have been consummated on or prior to November 22, 2013 (the “Termination Date”); provided, however, that the right to terminate this Agreement pursuant to this Section 11(b) shall not be available to any party whose breach of any provision of this Agreement results in or causes the failure of the Initial Closing to occur by such time;

 

(c)          by Purchaser or the Company, upon written notice to the other party, if a Governmental Entity of competent jurisdiction has issued a decision, injunction, judgment, order, ruling, verdict, writ or any other action permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement or the other Transaction Documents, and such decision, injunction, judgment, order, ruling, verdict, writ or any other action has become final and non-appealable; provided, however, that the right to terminate this Agreement pursuant to this Section 11(c) shall not be available to any party whose breach of any provision of this Agreement results in or causes such decision, injunction, judgment, order, ruling, verdict, writ or other action;

 

(d)          by Purchaser, upon written notice to the Company, if (i) there has been a breach of any representation, warranty, covenant or agreement made by the Company in this Agreement, such that the conditions to the Initial Closing set forth in Section 3 would not be satisfied and (ii) such breach is not cured (if curable) within thirty days after delivery of such notice; provided that this Section 11(d) shall only apply if Purchaser is not in material breach of any of its obligations under this Agreement; or

 

(e)          by Purchaser, upon written notice to the Company, in the event the Company or any of its Subsidiaries, (a) become subject to any judgment, order, ruling or verdict, or settle or agree to settle any claim, dispute or litigation, in each case that results in the Company or any of its Subsidiaries becoming liable, net of insurance proceeds actually received (i) with respect to ▇▇▇▇▇▇▇ and arising out of or related to the Direct Air Matter, for an amount that, individually or in the aggregate, is not solely satisfied out of the Escrowed Shares (and without the payment of cash by the Company or any of its Subsidiaries) and/or the Designated Assets or (ii) in the case of any other third-party (including, without limitation, any sponsoring bank other than ▇▇▇▇▇▇▇) or ▇▇▇▇▇▇▇ for any matter not arising out of or related to the Direct Air Matter, for an amount, individually or in the aggregate, equal to or exceeding $2,500,000 or (b) become subject to any claim made by any sponsoring bank or other third party which would reasonably be expected to cause the Company or its Subsidiaries to be liable, individually or in the aggregate, for an amount that is not solely satisfied out of the Escrowed Shares (and without the payment of cash by the Company or any of its Subsidiaries) and/or the Designated Assets (in the case of any claims by ▇▇▇▇▇▇▇ arising out of or related to the Direct Air Matter) or $2,500,000 (in the case of any other claim by any third party, including by ▇▇▇▇▇▇▇ for any claim not arising out of or related to the Direct Air Matter), as applicable.

 

In the event this Agreement is terminated pursuant to this Section 11, such termination shall not relieve any party of liability for any breaches of this Agreement that occurred prior to such termination and notwithstanding any such termination, the provisions of Section 12 shall not terminate and shall be deemed to survive any such termination.

 

Section 12.         General Provisions.

 

Section 12.1.          Expenses. Except as set forth on Schedule 12.1, the Company shall pay, and hold Purchaser and all holders of Preferred Stock and Underlying Common Stock harmless against liability for the payment of, (a) Purchaser’s and LS Purchaser’s reasonable and documented out-of-pocket expenses incurred in connection with the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of Purchaser’s and LS Purchaser’s legal counsel and accounting advisor arising in connection with the negotiation and execution of this Agreement, the Transaction Agreements and the consummation of the transactions contemplated by this Agreement which shall be paid at the Initial Closing or Subsequent Closing, as applicable, or, if the Initial Closing does not occur, paid upon demand, (b) the reasonable fees and expenses incurred with respect to any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement, the Transaction Agreements, the Certificate of Incorporation or the Certificate of Designation, (c) stamp and other taxes which may be payable in respect of the execution and delivery of this Agreement or the issuance, delivery or acquisition of any shares of Preferred Stock or any shares of Common Stock issuable upon conversion of Preferred Stock and (d) the reasonable fees and expenses incurred with respect to the enforcement of the rights granted under this Agreement, the Transaction Agreements, the Certificate of Incorporation and the Certificate of Designation. In addition, the Company shall promptly reimburse Purchaser, LS Purchaser and their directors, officers, managers, employees, agents and representatives for all reasonable and documented out-of-pocket expenses of such Persons incurred in connection with attending regular and special board meetings, any meeting of any board committee, and any other meeting or activity attended or taken on behalf of or for the benefit of the Company or its Subsidiaries; provided, however, that the expenses of LS Purchaser reimbursed pursuant to this Agreement shall not exceed $50,000 in the aggregate.

 

 

Section 12.2.          Amendments and Waivers. Except as otherwise provided herein, no term of this Agreement may be amended or modified without the prior written consent of the Company and Purchasers. No provision of this Agreement may be waived except in a writing executed and delivered by the party against whom such waiver is sought to be enforced. The failure or delay of any Person to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such Person thereafter to enforce each and every provision of this Agreement in accordance with its terms. A waiver of consent to or of any breach or default by any Person in the performance by that Person of his, her or its obligations under this Agreement shall not be deemed to be a consent or waiver to or of any other breach or default in the performance by that Person of the same or any other obligations of that Person under this Agreement. For purposes of this Agreement and the Transaction Agreements, shares of Preferred Stock or Underlying Common Stock held by the Company or any Subsidiaries shall not be deemed to be outstanding.

 

Section 12.3.          Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited, invalid, illegal or unenforceable in any respect under applicable Law in any jurisdiction, such provision shall be affected only to the extent of such prohibition, illegality, unenforceability or invalidity, without invalidating the remainder of this Agreement.

 

Section 12.4.          Remedies. Each holder of Preferred Stock and Underlying Common Stock shall have all rights and remedies set forth in this Agreement, the Certificate of Incorporation and the Certificate of Designation and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any Law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that a breach of this Agreement would cause irreparable harm and money damages would not be an adequate remedy for any such breach and that, in addition to any other rights and remedies existing hereunder, any party shall be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.

 

Section 12.5.          Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for Purchasers’ benefit as a purchaser or holder of Preferred Stock or Underlying Common Stock are also for the benefit of, and enforceable by, any subsequent holder of such Preferred Stock or such Underlying Common Stock.

 

Section 12.6.          Notices. Any notice, demand or other communication to be given under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (i) when delivered personally to the recipient, (ii) when sent by confirmed facsimile if sent during normal business hours of the recipient; but if not, then on the next Business Day (provided that any such notice under this clause (ii) shall not be effective unless within one Business Day after the notice is sent, a copy of such notice is sent to the recipient by first-class mail, return receipt requested, or reputable overnight courier service (charges prepaid)), (iii) one Business Day after it is sent to the recipient by reputable overnight courier service (charges prepaid) or (iv) three Business Days after it is mailed to the recipient by first-class mail, return receipt requested. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by five days’ advance written notice to the other party:

 

 

If to the Company:

 

JetPay Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇

 

With a copy to (which shall not constitute notice to the Company):

 

Dechert LLP
▇▇▇▇ Centre
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇

 

If to Purchaser:

 

Flexpoint Fund II, L.P.
c/o Flexpoint Ford, LLC
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇

 

With a copy to (which shall not constitute notice to Purchaser):

 

▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Perl, P.C.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, P.C.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇

 

If to LS Purchaser

 

LS Purchaser
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile:

 

With a copy to:

 

▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇

 

Section 12.7.          Business Days. If any time period for giving notice or taking action under this Agreement expires on a day that is not a Business Day, the time period shall automatically be extended to the Business Day immediately following such Saturday, Sunday or legal holiday.

 

Section 12.8.          Governing Law. The corporate Law of the State of Delaware shall govern all issues and questions concerning the relative rights and obligations of the Company and its stockholders. All other issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Delaware.

 

 

Section 12.9.          Mutual Waiver of Jury Trial. As a specifically bargained inducement for each of the parties hereto to enter into this Agreement (with each party having had opportunity to consult counsel), each party hereto expressly and irrevocably waives the right to trial by jury in any lawsuit or other legal proceeding relating to or arising in any way from this Agreement, the other Transaction Agreements or the transactions contemplated herein, and any lawsuit or other legal proceeding relating to or arising in any way to this Agreement, the other Transaction Agreements or the transactions contemplated herein shall be tried in a court of competent jurisdiction by a judge sitting without a jury.

 

Section 12.10.         CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES HERETO AGREE THAT JURISDICTION AND VENUE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY ANY PARTY PURSUANT TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT SHALL PROPERLY AND EXCLUSIVELY LIE IN THE CHANCERY COURT OF THE STATE OF DELAWARE AND ANY STATE APPELLATE COURT THEREFROM WITHIN THE STATE OF DELAWARE (OR, IF THE CHANCERY COURT OF THE STATE OF DELAWARE DECLINES TO ACCEPT JURISDICTION OVER A PARTICULAR MATTER, ANY STATE OR FEDERAL COURT WITHIN THE STATE OF DELAWARE). BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO SUCH SUIT, ACTION OR PROCEEDING. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH SUIT, ACTION OR PROCEEDING. EACH OF THE PARTIES FURTHER IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.6. Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by law.

 

Section 12.11.         Effective Date. This Agreement shall become effective immediately upon execution and delivery thereof by the parties hereto.

 

Section 12.12.         Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. The use of the word “including” in this Agreement shall be by way of example rather than by limitation.

 

Section 12.13.         No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or non-U.S. statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word ‘‘including’’ shall mean including without limitation. For purposes of Sections 6.1, 6.4 and 6.8, the definition of “Minimum Ownership Condition” and the definition “LS Purchaser Ownership Condition,” the terms “Purchaser” and “LS Purchaser” shall include any Permitted Transferee of Purchaser or LS Purchaser, as applicable, who has received shares of Preferred Stock or Underlying Common Stock pursuant to a direct or indirect distribution or transfer from, or a liquidation of, Purchaser or LS Purchaser, as applicable. For purposes of this Agreement and the Transaction Agreements, all holdings of Preferred Stock and Underlying Common Stock by Persons who are Affiliates of each other shall be aggregated for purposes of meeting any threshold tests under this Agreement and the Transaction Agreements.

 

Section 12.14.         Electronic Delivery. This Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent executed and delivered by means of a photographic, photostatic, facsimile, or similar reproduction of such signed writing using a facsimile machine or electronic mail shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or electronic mail to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or electronic mail as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.

 

 

Section 12.15.         Entire Agreement. Except as otherwise provided herein, this Agreement and the other agreements and instruments referred to herein contain the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede and preempt any prior understandings, agreements and representations by or among the parties hereto (whether written or oral) which may have related to the subject matter hereof or thereof in any way.

 

Section 12.16.         Counterparts. This Agreement may be executed simultaneously in multiple counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.

 

Section 12.17.         Capital and Surplus; Special Reserves. The Company agrees that the capital of the Company (as such term is used in Section 154 of the General Corporation Law of Delaware) in respect of the Preferred Stock issued pursuant to this Agreement shall be equal to the aggregate par value of such shares and that it shall not increase the capital of the Company with respect to any shares of the Company’s Capital Stock at any time on or after the date of this Agreement. The Company also agrees that it shall not create any special reserves under Section 171 of the General Corporation Law of Delaware without the prior written consent of the holders of at least 50% of the outstanding Preferred Stock.

 

Section 12.18.         Treatment of the Preferred Stock. The Company covenants and agrees that (a) so long as federal income Tax Laws prohibit a deduction for distributions made by the Company with respect to equity interests, it shall treat all distributions paid by it on the Preferred Stock as Non-deductible dividends on all of its Tax Returns and (b) it shall treat the Preferred Stock as equity interests in all of its financial statements and other reports and shall treat all distributions paid by it on the Preferred Stock as dividends on equity interests in such statements and reports. The Company and Purchasers mutually agree that the Preferred Stock is stock which participates in corporate growth to a significant extent within the meaning of Treasury Regulations Section 1.305-5(a), and hence will not be treated as preferred stock for purposes of Code Section 305 and the regulations thereunder.

 

Section 12.19.         Generally Accepted Accounting Principles. When any accounting determination or calculation is required to be made under this Agreement or the exhibits hereto, such determination or calculation (unless otherwise provided) shall be made in accordance with GAAP, consistently applied, except that if because of a change in GAAP the Company would have to alter a previously utilized accounting method or policy in order to remain in compliance with GAAP, such determination or calculation shall continue to be made in accordance with the Company’s previous accounting methods and policies, unless otherwise directed by the holders of at least 50% of the outstanding Preferred Stock.

 

Section 12.20.         Third-Party Beneficiaries. Nothing in this Agreement (implied or otherwise) is intended to confer upon any Person other than the parties or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

 

* * * * *

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

 

	JETPAY CORPORATION
	By:	/s/ ▇▇▇▇▇ (▇▇▇▇) Faro
	Name:	▇▇▇▇▇ (▇▇▇▇) Faro
	Its:	Chief Executive Officer

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

 

	FLEXPOINT FUND II, L.P.
	By:	Flexpoint Management II, L.P.
	Its:	General Partner
	By:	Flexpoint Ultimate Management II, LLC
	Its:	General Partner
	By:	/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
	Name:	▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
	Its:	Manager

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

 

	Sundara Investment Partners, LLC
	By:	/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
	Name:	▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
	Its:	Chief Executive Officer