UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

  

FORM 8-K

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 18, 2016

 

JETPAY CORPORATION

(Exact Name of Registrant as Specified in Charter)

 

Delaware   001-35170   90-0632274

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

 

1175 Lancaster Avenue, Suite 200, Berwyn, PA 19312

(Address of Principal Executive Offices) (Zip Code)

 

(484) 324-7980

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e 4(c))

 

 

 

 

Item 1.01. Entry into a Material Definitive Agreement

 

Securities Purchase Agreement

 

On October 18, 2016, JetPay Corporation (the “ Company ”) entered into an Amended and Restated Securities Purchase Agreement (the “ A&R Purchase Agreement ”) by and among the Company, Flexpoint Fund II, L.P., a Delaware limited partnership (“ Flexpoint ”), and Sundara Investment Partners, LLC, a Delaware limited liability company controlled by Laurence L. Stone (“ LS Purchaser ”). The A&R Purchase Agreement amended that certain Securities Purchase Agreement, dated August 22, 2013, as amended (the “ Initial Purchase Agreement ”), by and between the Company and Flexpoint. The Initial Purchase Agreement provided for the Company’s issuance and sale to Flexpoint, subject to the satisfaction of certain conditions, of up to 133,333 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “ Series A Preferred ”), for up to $40,000,000. Pursuant to the Initial Purchase Agreement and the Certificate of Designation for the Series A Preferred (as amended, the “ Certificate of Designation ”), the shares of Series A Preferred are convertible into shares of the Company’s Common Stock, par value $0.001 per share (the “ Common Stock ”). The Initial Purchase Agreement was amended and restated to facilitate the Company’s issuance and sale to LS Purchaser of the shares of Series A Preferred that had not yet been purchased by Flexpoint. As described under Item 3.02 of this Current Report on Form 8-K, the Company issued and sold the Remaining Shares (as defined below) to LS Purchaser on October 18, 2016 (the “ LS Purchaser Closing ”).

 

Since the initial closing under the Initial Purchase Agreement on October 11, 2013, the Company had previously issued and sold to Flexpoint an aggregate of 99,666 shares of Series A Preferred for approximately $29,899,900. Flexpoint’s right to purchase the remaining 33,667 shares of Series A Preferred under the Initial Purchase Agreement (the “ Remaining Shares ”) was set to expire on October 11, 2016, but was extended until October 25, 2016 by Amendment No. 1 to the Initial Purchase Agreement, dated October 10, 2016, by and between the Company and Flexpoint. Pursuant to the A&R Purchase Agreement, the Company and Flexpoint provided LS Purchaser the sole right to purchase the Remaining Shares, in a single transaction consummated at the signing of the A&R Purchase Agreement, for a purchase price of $10,100,100. The A&R Purchase Agreement also reallocated certain rights held by Flexpoint under the Initial Purchase Agreement between Flexpoint and LS Purchaser.

 

Pursuant to the A&R Purchase Agreement, until the date on which LS Purchaser or its affiliates no longer hold 50% of the number of shares of Series A Preferred purchased by LS Purchaser at the LS Purchaser Closing and/or an equivalent number of shares of Common Stock issued upon conversion of the shares of Series A Preferred pursuant to the terms of the A&R Purchase Agreement and Certificate of Designation (the “ underlying shares ”):

 

- LS Purchaser is entitled to receive certain financial information, including but not limited to monthly and annual financial statements and annual budgets; and

 

- LS Purchaser is entitled to certain inspection rights.

 

In addition, until the date on which LS Purchaser no longer holds at least 33 1/3% of the Series A Preferred or the equivalent number of underlying common stock, neither the Company nor any of its affiliates may, without LS Purchaser’s consent, enter into, amend, supplement or modify any agreement, transaction or commitment with Flexpoint or any of its affiliates, subject to limited exceptions.

 

 

 

 

Provisions Relating to the Relationship between Flexpoint and LS Purchaser

 

In entering into the A&R Purchase Agreement, the Company, Flexpoint and LS Purchaser reallocated certain rights previously held by Flexpoint under the Initial Purchase Agreement. If Flexpoint desires to transfer shares of Series A Preferred to a third-party, the A&R Purchase Agreement requires Flexpoint to first offer such shares to LS Purchaser on substantially the same terms (the “ LS Purchaser ROFO ”). In addition, the A&R Purchase Agreement gives Flexpoint the right to require LS Purchaser to participate in certain transfers of shares of Series A Preferred by Flexpoint (“ Drag-Along Rights ”) and gives LS Purchaser the right to require Flexpoint to permit it to participate in certain other transfers of shares of Series A Preferred by Flexpoint (“ Tag-Along Rights ”). Moreover, the A&R Purchase Agreement provides LS Purchaser with the ability to require Flexpoint to purchase the shares of Series A Preferred then held by LS Purchaser at a price of $300 per share (subject to certain exceptions) if the Company consummates certain strategic transactions on or prior to June 14, 2017 (the “ LS Purchaser Put Right ”).

 

Restrictions on Transfer

 

Subject to certain exceptions, LS Purchaser is prohibited from transferring any shares of Series A Preferred or underlying common stock prior to the five year anniversary of the LS Purchaser Closing. Exceptions include transfers by LS Purchaser to its Permitted Transferees (as defined in the A&R Purchase Agreement) and transfers by LS Purchaser in connection with the exercise of the LS Purchaser ROFO, Drag-Along Rights, Tag-Along Rights or the LS Purchaser Put Right.

 

Representations and Warranties

 

The A&R Purchase Agreement contains representations and warranties by the Company substantially similar to those contained in the Initial Purchase Agreement. The representations and warrants relate to, among other things, the Company’s corporate organization and capitalization, the due authorization of the A&R Purchase Agreement and the transactions contemplated thereby, the Company’s filings with the Securities and Exchange Commission, including the financial statements included therein, litigation, environmental compliance, taxes, insurance, employee benefits, the absence of undisclosed liabilities, the absence of a material adverse change in the Company’s business, internal controls, compliance with laws and permits and the absence of conflicts and third party approval rights in connection with the transactions contemplated by the A&R Purchase Agreement.

 

Survival and Indemnification

 

Under the A&R Purchase Agreement, the survival and indemnification provisions that applied to Flexpoint under the Initial Purchase Agreement have been extended to apply to LS Purchaser.

 

Registration Rights

 

In connection with its entry into the A&R Purchase Agreement, the Company granted LS Purchaser “piggyback” registration rights in respect of the shares of Series A Preferred purchased by LS Purchaser at the LS Purchaser Closing, subject to certain exceptions. In all cases, the Company is obligated to reimburse LS Purchaser for its expenses incurred with such registration. In addition, the A&R Purchase Agreement provides that, upon LS Purchaser’s written request after the five year anniversary of the LS Purchaser Closing, the Company shall use its reasonable efforts to prepare and file with the Securities and Exchange Commission a registration statement covering the underlying common stock held by LS Purchaser, unless at such time all of such shares have been registered for resale or are otherwise eligible for sale pursuant to Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), without volume or manner of sale restrictions.

 

 

 

 

The foregoing description of the A&R Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the A&R Purchase Agreement, which is attached as Exhibit 4.1 hereto and is incorporated by reference herein.

 

Certificate of Amendment to Certificate of Designation of Series A Preferred

 

On October 18, 2016, in connection with its entry into the A&R Purchase Agreement, the Company filed a Certificate of Amendment to the Certificate of Designation (the “ Certificate of Amendment ”) with the Secretary of State of the State of Delaware. The Certificate of Amendment contemplates that prior to the five year anniversary of the LS Purchaser Closing, LS Purchaser shall be required to participate on a pro rata basis in any redemption of shares of Series A Preferred initiated by Flexpoint based on its ownership of Series A Preferred at the then-applicable liquidation preference which, as of the LS Purchaser Closing, was $600 per share of Series A Preferred. The Certificate of Amendment also contemplates that LS Purchaser has the right to request the redemption of its shares of Series A Preferred following the five year anniversary of the LS Purchaser Closing. In addition, the Certificate of Amendment provides that for so long as LS Purchaser owns at least 50% of the shares of Series A Preferred purchased at the LS Purchaser Closing, LS Purchaser shall have the right to appoint one Preferred Director (as defined in the Certificate of Designation) to the board of directors of the Company (the “ Board ”).

 

The foregoing description of the Certificate of Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Certificate of Amendment, which is attached as Exhibit 3.1 hereto and incorporated by reference herein.

 

Loan and Security Agreement

 

On October 18, 2016, in connection with the LS Purchaser Closing, A. D. Computer Corporation, a Pennsylvania corporation and a direct subsidiary of the Company (“ ADC ”), and Payroll Tax Filing Services, Inc., a Pennsylvania corporation and a direct subsidiary of ADC (“ PTFS ”), as borrowers (the “ Borrowers ”), entered into a Loan and Security Agreement (the “ Loan Agreement ”) with LHLJ, Inc., a Delaware corporation controlled by Laurence L. Stone, as lender, for a term loan in the principal amount of $9,500,000 (the “ LS Purchaser Debt Investment ”). Amounts outstanding under the Loan Agreement and the underlying promissory note will accrue interest at a rate of 8% per annum. The loan matures on October 18, 2021 and is payable in equal monthly installments of principal and interest of $128,677 with a final payment of $4,750,000 at maturity.

 

The obligations of the Borrowers under the Loan Agreement are guaranteed by the Company and JetPay Payment Services, FL, LLC (f/k/a CollectorSolutions, LLC), a Delaware limited liability company and a direct subsidiary of the Company (“ CSI ”), and are secured by all of the assets of ADC, PTFS and CSI, as well as a pledge by the Company of its ownership interests in ADC, PTFS and CSI. The Loan Agreement contains affirmative and negative covenants, including limitations on the incurrence of indebtedness, liens, transactions with affiliates and other customary restrictions for loans of this type and size. The Borrowers are also subject to financial covenants relating to their debt coverage ratio and total leverage ratio during the term of the loan. The loan may be prepaid in whole or in part with a prepayment premium of 5% on or prior to October 18, 2017, 3% if prepaid after October 18, 2017 but on or prior to October 18, 2018, and 1% if prepaid after October 18, 2018 but on or prior to October 18, 2021. There will be no prepayment premium for a prepayment of the loan in connection with a change of control of the Company consented to in writing by Laurence L. Stone as a stockholder, director or officer of the Company. In addition, if any prepayment of the loan is made in connection with a refinancing transaction to which Laurence L. Stone consents in writing in his capacity as a stockholder, director or officer of the Company, the then-applicable prepayment premium will be reduced by one quarter. The loan is subject to mandatory prepayment upon certain asset sales, casualty events and the incurrence by Borrowers of indebtedness and the issuance by Borrowers of capital stock.

 

 

 

 

A portion of the proceeds of the LS Purchaser Debt Investment was used to satisfy in full the obligations of the Borrowers under that certain Loan and Security Agreement, dated as of December 28, 2012, as amended (the “ Prior ADC Credit Facility ”), by and between the ADC, PTFS and First National Bank of Pennsylvania (f/k/a Metro Bank) (“ FNB ”). In connection with the satisfaction of the Borrower’s obligations under the Prior ADC Credit Facility, ACI Merchant Systems, LLC, a Pennsylvania limited liability company (“ ACI ”), ADC, the Company and FNB entered into the Second Amendment to that certain Loan Agreement and Security Agreement, dated as of November 7, 2014, as amended (the “ ACI Credit Facility ”), by and among ACI, the Company and FNB in order to release ADC’s guaranty of the obligations of ACI under the ACI Credit Facility and to eliminate provisions relating to the cross-collateralization of the ACI Credit Facility and the Prior ADC Credit Facility.

 

The foregoing description of the Loan and Security Agreement and the transactions contemplated thereby do not purport to be complete and are qualified in their entirety by reference to the Loan and Security Agreement attached hereto as Exhibit 10.2 and the Term Loan Note attached hereto as Exhibit 10.3, which exhibits are incorporated by reference herein.

 

Item 1.02. Termination of a Material Definitive Agreement

 

As noted above, on October 18, 2016, the Company satisfied in full its obligations under the Prior ADC Credit Facility with proceeds from the LS Purchaser Debt Investment.

 

In addition, on October 21, 2016, the Company used a portion of the proceeds of the LS Purchaser Debt Investment to satisfy in full its obligations under that previously disclosed Promissory Note, dated July 26, 2016, by the Company in favor Merrick Bank Corporation (“ Merrick ”) in the original principal amount of $3,850,000 pursuant to the terms of that previously disclosed Settlement Agreement and Release, dated July 26, 2016, by and among Merrick, JetPay Merchant Services, LLC, JetPay ISO Services, LLC, JetPay, LLC, WLES, L.P. and the Company. Additionally, on October 21, 2016, the Company used the proceeds of the LS Purchaser Debt Investment to satisfy in full its obligations under that previously disclosed Promissory Note, dated January 15, 2016, as amended, by the Company in favor of Flexpoint in the principal amount of $1,400,000 and that previously disclosed Promissory Note, dated January 15, 2016, as amended, by the Company in favor Jonathan M. Lubert in the original principal amount of $500,000.

 

The information set forth above in Item 1.01 under the heading “Loan and Security Agreement” is incorporated by reference herein.

 

Item 2.03. Creation of a Direct Financial Obligation

 

The information required to be disclosed by this Item 2.03 is set forth above in Item 1.01 under the heading “Loan and Security Agreement” and is incorporated by reference herein.

 

Item 3.02. Unregistered Sales of Equity Securities

 

On October 18, 2016, the Company issued and sold the Remaining Shares to LS Purchaser for a purchase price of $10,100,100. The information set forth in Item 1.01 above is incorporated by reference herein.

 

Based upon certain representations of LS Purchaser made in the A&R Purchase Agreement, the issuance of the Series A Preferred to LS Purchaser was consummated in reliance upon Section 4(a)(2) of the Securities Act and/or Regulation D.

 

Item 3.03. Material Modification to the Rights of Security Holders

 

The information required to be disclosed by this Item 3.03 is set forth above in Item 1.01 under the heading “Certificate of Amendment to Certificate of Designation of Series A Preferred” and is incorporated by reference herein.

 

 

 

 

 

Item 5.02. Election of Directors

 

Pursuant to the A&R Purchase Agreement and the Certificate of Amendment, LS Purchaser is entitled to appoint one director to the Board as a Preferred Director (as defined in the Certificate of Designation). LS Purchaser designated Laurence L. Stone as its nominee to the Company’s Board. Flexpoint, as the sole holder of shares of Series A Preferred, designed Laurence L. Stone as a Preferred Director by written consent on October 14, 2016 and the Board appointed Mr. Stone as a director on the Board at a meeting of the Board held on October 14, 2016, in each case contingent upon the consummation of the LS Purchaser Closing. The appointment of Mr. Stone as a Preferred Director became effective as of the LS Purchaser Closing.

 

Mr. Stone is party to an Indemnification Agreement with the Company, dated as of October 18, 2016, which provides Mr. Stone with certain indemnification rights in his capacity as a member of the Board. The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Indemnification Agreement, which is attached as Exhibit 10.1 hereto and incorporated by reference herein. Other than the Indemnification Agreement, A&R Purchase Agreement and the Loan Agreement and the agreements and transactions contemplated thereby, Mr. Stone is not a party to any transaction with the Company in which Mr. Stone has a direct or indirect interest.

 

Item 7.01. Regulation FD Disclosure

 

On October 19, 2016, the Company issued a press release announcing the LS Purchaser Closing and the LS Purchaser Debt Investment. A copy of the press release is attached to this report as Exhibit 99.1.

 

The information in this Item 7.01 (including Exhibit 99.1) is being furnished pursuant to Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit
Number 		  Description
     
3.1   Certificate of Amendment to Certificate of Designation of Series A Convertible Preferred Stock
     
4.1   Amended and Restated Securities Purchase Agreement, dated as of October 18, 2016, by and among JetPay Corporation, Flexpoint Fund II, L.P. and Sundara Investment Partners, LLC
     
10.1   Indemnification Agreement, dated as of October 18, 2016, by and among JetPay Corporation and Laurence L. Stone
     
10.2   Loan and Security Agreement, dated as of October 18, 2016, by and among A. D. Computer Corporation, Payroll Tax Filing Services, Inc., JetPay Corporation, CollectorSolutions, LLC and LHLJ, Inc.
     
10.3   Term Loan Note, dated as of October 18, 2016, by A. D. Computer Corporation and Payroll Tax Filing Services, Inc. in favor LHLJ, Inc.
     
99.1   Press Release

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: October 24, 2016      
  JETPAY CORPORATION  
       
  By: /s/ Gregory M. Krzemien  
    Name: Gregory M. Krzemien  
    Title: Chief Financial Officer  

 

 

 

 

Exhibit Index

 

Exhibit
Number 		   
     
3.1   Certificate of Amendment to Certificate of Designation of Series A Convertible Preferred Stock
     
4.1   Amended and Restated Securities Purchase Agreement, dated as of October 18, 2016, by and among JetPay Corporation, Flexpoint Fund II, L.P. and Sundara Investment Partners, LLC
     
10.1   Indemnification Agreement, dated as of October 18, 2016, by and among JetPay Corporation and Laurence L. Stone
     
10.2   Loan and Security Agreement, dated as of October 18, 2016, by and among A. D. Computer Corporation, Payroll Tax Filing Services, Inc., JetPay Corporation, CollectorSolutions, LLC and LHLJ, Inc.
     
10.3   Term Loan Note, dated as of October 18, 2016, by A. D. Computer Corporation and Payroll Tax Filing Services, Inc. in favor LHLJ, Inc.
     
99.1   Press Release

 

 

 

 

Exhibit 3.1

 

CERTIFICATE OF AMENDMENT

TO

CERTIFICATE OF DESIGNATION OF

SERIES A CONVERTIBLE PREFERRED STOCK

OF

JETPAY CORPORATION

 

JETPAY CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), does hereby certify as follows:

 

FIRST: That on October 18, 2016, the Corporation, Flexpoint Fund II, L.P., a Delaware limited partnership (“ Purchaser ”), and Sundara Investment Partners, LLC, a Delaware limited liability company (“ LS Purchaser ”) entered into that certain Amended and Restated Securities Purchase Agreement, which amended that certain Securities Purchase Agreement, dated as August 22, 2013 (the “ Securities Purchase Agreement” ), by and between the Corporation and the Purchaser to facilitate an investment by LS Purchaser in the Corporation in exchange for certain rights under the Securities Purchase Agreement.

 

SECOND: That on October 18, 2016, the Board of Directors of the Corporation duly adopted resolutions approving and adopting the amendments to the Certificate of Designation of Series A Convertible Preferred Stock (the “ Certificate of Designation ”) set forth below, and that such amendments have been approved in writing by the holders of a majority of the shares of Series A Convertible Preferred Stock outstanding.

 

THIRD: That the amendments set forth below have been duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

FOURTH: That the Certificate of Designation is hereby amended as follows:

 

A. Section 3 of the Certificate of Designation is hereby amended by inserting the following definitions in the locations sets forth below.

 

(a) immediately prior to the definition of “ Affiliate ”:

 

“ Additional Redemption Request ” shall have the meaning ascribed to it in Section 6(a).

 

“ Additional Requested Redemption Amount ” shall have the meaning ascribed to it in Section 6(a).

 

(b) immediately prior to the definition of “ Junior Securities ”:

 

“ Initial Requested Redemption Amount ” shall have the meaning ascribed to it in Section 6(a).

 

(c) immediately prior to the definition of “ Minimum Ownership Condition ”:

 

“ LS Purchaser ” means Sundara Investment Partners, LLC, a Delaware limited liability company.

 

“ LS Purchaser Ownership Condition ” means fifty percent (50%) of the Series A Preferred Shares purchased by LS Purchaser under the Securities Purchase Agreement.

 

“ LS Purchaser Shares ” means the Series A Preferred Shares held by LS Purchaser from time to time.

 

 

 

 

(d) immediately prior to the definition of “ Redemption Date ”:

 

“ Redemption Amount ” shall have the meaning ascribed to it in Section 6(a).

 

(e) immediately prior to the definition of “ Securities and Exchange Commission ”:

 

“ Redemption Request ” shall have the meaning ascribed to it in Section 6(a).

 

“ Restatement Date ” means October 18, 2016.

 

B. Sections 6(a) and (b) of the Certificate of Designation are hereby amended by replacing them in their entirety as follows:

 

(a) Redemptions at the Option of the Holder .

 

(i)           Requests for Redemption .  Any holder of Series A Preferred may, at any time and from time to time, request redemption of all or any portion of the Series A Preferred Shares held by such holder that were originally issued not less than five years prior to such redemption request (“ Eligible Shares ”) by delivering written notice of such request to the Corporation specifying the number of Eligible Shares to be so redeemed (such amount, the “ Initial Requested Redemption Amount ”) and the date of such redemption (which may not be earlier than 30 days after delivery of such Redemption Request) (each such request, a “ Redemption Request ”). Within five days after the receipt of a Redemption Request, the Corporation shall give written notice to all other holders of Series A Preferred Shares, and such holders may request redemption of all or any portion of their Eligible Shares (such amount, the “ Additional Requested Redemption Amount ” and together with the Initial Requested Redemption Amount, the “ Redemption Amount ”) by delivering written notice to the Corporation within ten days after receipt of the Corporation’s notice (the “ Additional Redemption Request ”). The Corporation shall be required to redeem on the date so specified in the Redemption Request all of the Eligible Shares (and subject to Section 6(a)(ii), LS Purchaser Shares, as applicable) with respect to which such redemption requests have been made at a price per Series A Preferred Share in cash equal to the Liquidation Value thereof.

 

(ii)           Redemption Mechanics .  After the Restatement Date but prior to the fifth anniversary of the Restatement Date, LS Purchaser shall be required to participate in any redemption of Series A Preferred Shares (regardless of whether the LS Purchaser Shares are Eligible Shares), such that when a Redemption Request is made, the number of Series A Preferred Shares LS Purchaser shall be required to sell to the Corporation, and which the Corporation shall be required to purchase, shall be equal to the Redemption Amount multiplied by a fraction, the numerator of which is the number of LS Purchaser Shares at the time the Redemption Request is made and the denominator of which is the aggregate number of Series A Preferred Shares then outstanding (the “ LS Redemption Amount ”). The Initial Requested Redemption Amount shall be reduced by a number of shares equal to the LS Redemption Amount multiplied by a fraction, the numerator of which is the original Initial Requested Redemption Amount and the denominator of which is the Redemption Amount. The Additional Requested Redemption Amount shall be reduced by a number of shares equal to the LS Redemption Amount multiplied by a fraction, the numerator of which is the original Additional Requested Redemption Amount and the denominator of which is the Redemption Amount. In the event that Purchaser makes a Redemption Request that would result in Purchaser owning less than 5,000 Series A Preferred Shares in the aggregate, such Redemption Request shall be deemed to be a Redemption Request for each of the remaining Series A Preferred Shares held by Purchaser and LS Purchaser, collectively, and after the redemption of such Series A Preferred Shares, neither Purchaser nor LS Purchaser shall own any Series A Preferred Shares. For the avoidance of doubt, all Series A Preferred Shares that are included by any holder of Series A Preferred Shares in a Redemption Request or Additional Redemption Request but, for whatever reason, are not redeemed in connection therewith, shall remain redeemable in the future pursuant to this Section 6(a).

 

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(iii)         Waiver of Redemption Requests . Notwithstanding the foregoing provisions, the Series A Preferred Majority Holders may, on behalf of all holders of Series A Preferred Shares, waive a Redemption Request initiated by any holder of the Series A Preferred Shares other than LS Purchaser upon written notice to the Corporation prior to the consummation of such redemption. For the avoidance of doubt, the Series A Preferred Majority Holders shall not be entitled to waive a Redemption Request initiated by the LS Purchaser with respect to any Eligible Shares held by LS Purchaser.

 

(b) Redemption Payments .  For each Series A Preferred Share to be redeemed hereunder, the Corporation shall be obligated on the date specified in the Redemption Request to pay to the holder thereof (upon surrender by such holder at the Corporation’s principal office of the certificate representing such Series A Preferred Share) in immediately available funds the amount required pursuant to Section 6(a). If the funds of the Corporation legally available for redemption of Series A Preferred Shares pursuant to Section 6(a), and if applicable any shares of Series A-1 Preferred on any Redemption Date are insufficient to redeem the total number of shares of Series A Preferred and Series A-1 Preferred to be redeemed on such date, then without limiting any rights or remedies herein or otherwise, those funds which are legally available shall be used to redeem the maximum possible number of Series A Preferred Shares and Series A-1 Preferred, pro rata, among the holders of the Series A Preferred and Series A-1 Preferred to be redeemed pursuant to Section 6(a) based upon the aggregate Liquidation Value of such shares of Series A Preferred and Series A-1 Preferred held by each such holder. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Series A Preferred Shares pursuant to Section 6(a), and Series A-1 Preferred, as applicable, such funds shall immediately be used to redeem the balance of the Series A Preferred Shares and Series A-1 Preferred which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. For the avoidance of doubt, references to “legally available” funds herein shall mean the amount of assets of the Corporation that may be used for a redemption of shares under Section 160 of the DGCL. For the avoidance of doubt, the Corporation shall be in breach of its obligations under this Certificate of Designation if it fails to pay in cash all amounts required to be paid by the Corporation pursuant to Section 6(a) on the redemption date specified in any Redemption Request delivered by the holder of Series A Preferred in accordance with Section 6(a).

 

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C.           Section 10(b) of the Certificate of Designation is hereby amended by replacing it in its entirety as follows:

 

In the election of directors of the Board, the holders of the Series A Preferred Shares, in addition to the other voting rights set forth herein, shall be entitled to elect that number of directors equal to the quotient (rounded up to the next highest whole number) of (i) (A) the number of directors seats on the Board that are not for appointment by the holders of the Series A Preferred Shares (which shall be equal to five director seats as of the date hereof) multiplied by  (B) the Preferred Percentage,  divided by  (ii) the result of one  minus  the Preferred Percentage. Each such director shall be referred to herein as a “ Preferred Director .” The holders of Series A Preferred Shares shall have the special right, voting separately as a single class (with each share being entitled to one vote) and to the exclusion of all other classes of the Corporation’s stock, to elect individuals to fill such directorships or vacancies thereof; provided, however, that for so long as LS Purchaser satisfies the LS Purchaser Ownership Condition, LS Purchaser shall have the right to fill one (but no more than one) such directorship. The special right of the holders of Series A Preferred Shares to elect members of the Board may be exercised at the special meeting called pursuant to  Section 12(c) , at any annual or other special meeting of stockholders and pursuant to a written consent in lieu of a stockholders meeting as set forth in  Section 12(c) . Each Preferred Director appointed pursuant to this  Section 10(b)  shall continue to hold office until such Preferred Director is removed from office by the affirmative vote of the Series A Preferred Majority Holders (and, with respect to any Preferred Director designated by LS Purchaser pursuant to this Section 10(b) , the consent of LS Purchaser, for so long as LS Purchaser satisfies the LS Purchaser Ownership Condition) or at such time as such Preferred Director’s death, resignation, retirement or disqualification. Any vacancy created by the removal, death, resignation, retirement or disqualification of a Preferred Director shall be filled by the affirmative vote of the Series A Preferred Majority Holders. If the holders of the Series A Preferred Shares for any reason fail to elect anyone to fill any such directorship or vacancy, such position shall remain vacant until such time as such holders elect a director to fill such position and shall not be filled by resolution or vote of the Board or the Corporation’s other stockholders. The Corporation and the Board shall take all such action as may be reasonably requested by such holders to effect this  Section 10(b)  (including nominating and recommending the designees of the holders of the Series A Preferred Shares for election and calling a special meeting of the holders of Series A Preferred Shares).

 

[ Signature Page Follows ]

 

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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to Certificate of Designation to be duly executed and acknowledged by its undersigned duly authorized officer this 18th day of October, 2016.

 

  JETPAY CORPORATION
   
  By: /s/ Diane (Vogt) Faro
  Name: Diane (Vogt) Faro
  Title: Chief Executive Officer

 

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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

 

- i -

 

 

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

 

- ii -

 

 

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

 

- iii -

 

 

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, Carte Blanche 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 .

 

  1  

 

 

“ 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 Merrick 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 Merrick 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 Merrick 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).

 

  2  

 

 

“ 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 Jonathan Lubert 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.

 

  3  

 

 

“ 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 Merrick, 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 Trent Voigt.

 

“ Knowledge ” of the Company and its Subsidiaries shall mean the actual knowledge or awareness of Diane (Vogt) Faro, Peter Davidson, Nick Antich, Trent Voigt and Gregory Krzemien 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.

 

  4  

 

 

“ 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.

 

  5  

 

 

“ 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.

 

  6  

 

 

“ 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.

 

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“ 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) .

 

“ Sarbanes-Oxley 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.

 

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“ 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.

 

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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 Kirkland & Ellis LLP located at 300 North LaSalle Street, Chicago, Illinois 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 Kirkland & Ellis LLP located at 300 North LaSalle Street, Chicago, Illinois 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.

 

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(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 Kirkland & Ellis LLP located at 300 North LaSalle Street, Chicago, Illinois 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.

 

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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 Bipin C. Shah, Jonathan M Lubert, Frederick S. Hammer, Arthur Ryan, Richard S. Braddock, Robert B. Palmer, Donald J. Edwards and Steven M. Michienzi.

 

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 Donald J. Edwards and Steven M. Michienzi 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);

 

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(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.

 

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(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);

 

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(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 Merrick Bank Corporation or any of its Affiliates (collectively, “ Merrick ”) 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 Merrick) or Merrick 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 Merrick 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 Merrick 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 Diane (Vogt) Faro, Bipin C. Shah, Jonathan M. Lubert, Robert B. Palmer, Donald J. Edwards, Steven M. Michienzi and Larry Stone.

 

(b)           Indemnification Agreements . The Company shall have entered into an Indemnification Agreement with Larry Stone 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.

 

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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;

 

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(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:

 

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(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 Moody’s 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, grant a Lien 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;

 

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(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 Merrick 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 Merrick) or Merrick 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;

 

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(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.

 

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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.

 

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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.

 

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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.

 

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(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 ”).

 

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(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 S-4, S-8 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.

 

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(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 Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (or any successor act, rules or regulations).

 

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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 Kirkland & Ellis 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 Kirkland & Ellis 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.

 

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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.

 

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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 Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley 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 Sarbanes-Oxley 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.

 

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(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.

 

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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.

 

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(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.

 

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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.

 

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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 Sarbanes-Oxley 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.

 

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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.

 

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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).

 

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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 Merrick 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.

 

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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 Merrick 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 Merrick) or Merrick 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 Merrick 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 Merrick 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.

 

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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:

 

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If to the Company :

 

JetPay Corporation
1175 Lancaster Avenue, Suite 200
Berwyn, Pennsylvania 19312
Attention: Chief Executive Officer
Facsimile: (877) 861-8488

 

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

 

Dechert LLP
Cira Centre
2929 Arch Street
Philadelphia, PA 19104
Attention: James A. Lebovitz
Facsimile: (215) 994-2222

 

If to Purchaser :

 

Flexpoint Fund II, L.P.
c/o Flexpoint Ford, LLC
676 N. Michigan Ave., Suite 3300
Chicago, Illinois 60611
Attention: Charles E. Glew
Steven M. Michienzi
Facsimile: (312) 327-4525

 

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

 

Kirkland & Ellis LLP
300 North LaSalle
Chicago, IL 60654
Attention: Sanford E. Perl, P.C.
Mark A. Fennell, P.C.
Facsimile: (312) 862-2200

 

If to LS Purchaser

 

LS Purchaser
725 Eagle Farm Road
Villanova, PA 19085
Attention: Laurence L. Stone
Facsimile:

 

With a copy to :

 

Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178-0060
Attention: Eric Tajcher
Facsimile: (212) 309-6001

 

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.

 

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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.

 

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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.

 

* * * * *

 

  42  

 

 

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

 

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

 

  43  

 

 

 

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/ Donald J. Edwards
  Name: Donald J. Edwards
  Its: Manager

 

  44  

 

 

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

 

  Sundara Investment Partners, LLC
     
  By: /s/ Laurence L. Stone
  Name: Laurence L. Stone
  Its: Chief Executive Officer

 

  45  

 

   

Exhibit 10.1

 

INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (this " Agreement ") is made and entered into as of October 18, 2016, between JetPay Corporation, a Delaware corporation (the " Company "), and Laurence L. Stone (" Indemnitee "). Except as otherwise indicated herein, capitalized terms used herein are defined in Section 23 hereof.

 

WITNESSETH THAT:

 

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors, officers or in other capacities unless they are provided with adequate protection through insurance and/or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

 

WHEREAS, the Board of Directors of the Company (the " Board ") has determined that officers, directors and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or the business enterprise itself;

 

WHEREAS, the uncertainties relating to indemnification have increased the difficulty of attracting and retaining such persons;

 

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the Amended and Restated Certificate of Incorporation of the Company adopted August 2, 2013 (as the same may be amended from time to time in accordance with its terms, the " Certificate of Incorporation ") and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder or under the laws of State of Delaware;

 

WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be provided adequate protection with respect to indemnification;

 

WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by Sundara Investment Partners, LLC, a Delaware limited liability company (“ LS Purchaser ”), which Indemnitee and LS Purchaser intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Company's acknowledgement and agreement to the foregoing being a material condition to Indemnitee's willingness to serve on the Board; and

 

NOW, THEREFORE, in consideration of Indemnitee's agreement to serve as a director and/or officer of the Company from and after the date hereof, the parties hereto agree as follows:

 

1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by Delaware Law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:

 

(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Company Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, unless it has been finally adjudicated by a court of competent jurisdiction that, in connection with such specific claim, issue or matter, Indemnitee failed to act (i) in good faith and (ii) in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

 

 

 

(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Company Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee's behalf, in connection with such Proceeding, unless it has been finally adjudicated by a court of competent jurisdiction that, in connection with such specific claim, issue or matter, Indemnitee failed to act (i) in good faith and (ii) in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful. Notwithstanding anything herein to the contrary, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

 

(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Company Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

2. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Company Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company's obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.

 

3. Contribution .

 

(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) to a third party, and subject to Section 10 , the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such Proceeding without requiring Indemnitee to contribute to such payment and the Company hereby irrevocably waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

 

(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided , however , that the proportion determined on the basis of relative benefit may, or to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary in the degree to which their conduct is active or passive.

 

 

 

 

(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by directors, officers, employees or other agents or representatives of the Company, other than Indemnitee, who may be jointly liable with Indemnitee, for amounts in excess of Indemnitee’s pro rata portion of the amount for which all of the foregoing persons are jointly liable.

 

(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding and/or (ii) the relative fault of the Company (and its directors, officers, employees, agents and representatives) and Indemnitee in connection with such event(s) and/or transactions, for amounts in excess of Indemnitee's pro rata portion of the amount for which all of the foregoing persons are jointly liable.

 

4. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Company Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

 

5. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee's Company Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.

 

6. Procedures and Presumptions for Determination of Entitlement to Indemnification; Limitations Period . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under Delaware Law. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

 

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless the Company is materially prejudiced by such failure.

 

 

 

 

(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitee's entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (i) by a majority vote of the Disinterested Directors, even though less than a quorum, (ii) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (iii) if there are no Disinterested Directors or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee or (iv) if so directed by the Board, by the stockholders of the Company; provided that from and after the date that a Change of Control occurs, a determination with respect to Indemnitee's entitlement thereto shall be made in the specific case by Independent Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld) in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee.

 

(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b)(iii) hereof, the Independent Counsel shall be selected as provided in this Section 6(c) . The Independent Counsel shall be selected by the Board. Indemnitee may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of " Independent Counsel " as defined in Section 23 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 5(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware   or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c) , regardless of the manner in which such Independent Counsel was selected or appointed.

 

(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(e) Indemnitee shall be deemed to have acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee's action is based on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to Indemnitee by the directors, officers, employees, agents or representatives of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant, appraiser or other expert or advisor selected by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, employee, agent or representative of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. It shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

 

 

 

(f) If the person, persons or entity empowered or selected under Section 6(b) to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after the later of (i) receipt by the Company of the request therefor or (ii) selection of Independent Counsel pursuant to Section 6(c) hereof, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (x) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (y) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.

 

(g) Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance written request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee's entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, solely with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

 

 

(j) No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of 1 year from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such 1 year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

 

7. Remedies of Indemnitee .

 

(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within ninety (90) days after the time periods set forth in Section 6(f) delivery to the Company of the request for indemnification or (iv) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement or by a court of competent jurisdiction, as applicable, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee's entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within two (2) years following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a) . The Company shall not oppose Indemnitee's right to seek any such adjudication.

 

 

 

 

(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b) .

 

(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d) To the fullest extent allowable under applicable law, in the event that Indemnitee, pursuant to this Section 7 , seeks a judicial adjudication of his rights hereunder, recovery of damages for breach of this Agreement, or recovery under any directors' and officers' liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all Expenses actually and reasonably incurred by Indemnitee in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery; provided , that in the event Indemnitee is ultimately determined not to be entitled to such indemnification or insurance recovery, as the case may be, then all amounts advanced pursuant to this Section 7(d) shall be repaid to the Company by Indemnitee.

 

(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after delivery to the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors' and officers' liability insurance policies maintained by the Company.

 

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

 

8. Defense of Underlying Proceedings .

 

(a) Indemnitee agrees to notify the Company promptly upon being served with any summons, citation, subpoena, complaint, indictment, information, or other document relating to any Proceeding which may result in the payment of indemnifiable amounts or the advancement of Expenses hereunder; provided , however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to receive indemnification or advancements of Expenses unless the Company’s ability to defend in such Proceeding is materially and adversely prejudiced thereby.

 

(b) Subject to the provisions of the last sentence of this Section 8(b) and of Section 8(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to the payment of indemnifiable amounts hereunder; provided , however that the Company shall notify Indemnitee of any such decision to defend within ten (10) calendar days of receipt of notice of any such Proceeding under Section 8(a) above. The Company shall not, without the prior written consent of Indemnitee, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee. This Section 8(b) shall not apply to a Proceeding brought by Indemnitee.

 

(c) Notwithstanding the provisions of Section 8(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Company Status, (i) Indemnitee reasonably concludes that he or she may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with the position of other defendants in such Proceeding, (ii) a conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice at the expense of the Company.

 

 

 

 

9. Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification .

 

(a) The rights of indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation or bylaws (or any similar governing documents), certificate of designation or otherwise of any Enterprise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Company Status prior to such amendment, alteration or repeal. To the extent that a change in the Delaware Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, officers, employees or agents or fiduciaries of any Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c) The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by LS Purchaser. The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of LS Purchaser to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of Expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Certificate of Incorporation (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against LS Purchaser, and (iii) that it irrevocably waives, relinquishes and releases LS Purchaser from any and all claims against LS Purchaser for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by LS Purchaser on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing, and LS Purchaser shall have a right of contribution and/or be subrogated to the extent of any such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that LS Purchaser is an express third party beneficiary of the terms of this Section 8(c) .

 

(d) Except as provided in Section 8(c) , in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (other than against LS Purchaser or its insurers), who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(e) Except as provided in Section 8(c) , the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

 

(f) Except as provided in Section 8(c) , the Company's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

 

 

 

10. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to indemnify any Indemnitee in connection with any claim made against Indemnitee:

 

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision provided , however, that the foregoing shall not affect the rights of Indemnitee or LS Purchaser set forth in Section 8(c) ;

 

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, any successor statute or any similar provisions of state statutory law or common law;

 

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents, representatives or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or

 

(d) if such indemnification is prohibited by applicable law.

 

11. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as a director, manager, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise) and for a period of six (6) years thereafter and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his Company Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

 

12. Successors . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

 

 

13. Enforcement . The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 

14. Entire Agreement . This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

15. Severability . Whenever possible, each provision of this Agreement will 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 invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws.

 

16. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. The failure of any party 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 party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

 

 

 

 

17. Notices . All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given or made (i) when delivered personally to the recipient, (ii) when sent by confirmed facsimile or email 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 communications shall be sent:

 

(a) To Indemnitee at the address set forth below Indemnitee signature hereto.

 

(b) To the Company at:

 

JetPay Corporation

1175 Lancaster Avenue, Suite 200

Berwyn, Pennsylvania 19312

Email: gkrzemien@jetpaycorp.com

 

with copies to (which shall not constitute notice to) :

 

Dechert LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104

Attention: James A. Lebovitz

Facsimile: (215) 994-2222

Email: james.lebovitz@dechert.com

 

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

 

18. Counterparts; Electronic Delivery . This Agreement may be executed in multiple counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument. 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 signed 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 as required by any such agreement or instrument, each other party hereto or thereto shall 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.

 

19. Headings . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement.

 

 

 

 

20. Governing Law and Consent to Jurisdiction. This Agreement 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. The Company and Indemnitee each hereby irrevocably submits to the nonexclusive jurisdiction of the United States District Court for the State of Delaware and the state courts of the State of Delaware for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each party hereto further agrees that service of any process, summons, notice or document by United States certified or registered mail to such party's address set forth in Section 17 or such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party shall be effective service of process in any action, suit or proceeding in Delaware with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each party hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the United States District Court for the State of Delaware or the state courts of the State of Delaware and hereby irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in such court has been brought in an inconvenient forum.

 

21. MUTUAL WAIVER OF JURY TRIAL . BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, EACH PARTY TO THIS AGREEMENT (INCLUDING THE COMPANY) HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE BETWEEN OR AMONG ANY OF THE PARTIES HERETO, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE RELATIONSHIPS ESTABLISHED AMONG THE PARTIES HEREUNDER.

 

22. Further Action . The parties shall execute and deliver all documents, provide all information, and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement.

 

23. Definitions . For purposes of this Agreement:

 

(a) " Beneficial Owner " with respect to any securities means a person having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act, including without limitation, the 60-day provision in paragraph (d)(1)(i) thereof).

 

(b) “ 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.

 

(c) " Capital Stock " shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (in each case, however designated) stock issued by the Company.

 

(d) " Change of Control " shall mean (a) any sale or other disposition of all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis in any transaction or series of related transactions, (b) any sale, transfer or issuance or series of related sales, transfers and/or issuances of shares of the Capital Stock by the Company or any holder thereof, other than as a result of the transactions contemplated by the Securities Purchase Agreement, which results in any single Person or group (as defined in Rule 13d-5 of the Securities Exchange Act of 1934) becoming the Beneficial Owners of Capital Stock of the Company representing (x) 50% or more of the voting power of all outstanding voting Capital Stock of the Company or (y) the power to elect a majority of the Board (under ordinary circumstances, by contract or otherwise), or (c) any merger or consolidation to which the Company is a party; provided that the foregoing clause (c) shall not apply to any merger in which (i) the Company is the surviving entity and (ii) the holders of the Company's outstanding Capital Stock possessing the voting power (under ordinary circumstances) to elect a majority of the Company's Board immediately prior to the merger continue to own the Company's outstanding Capital Stock possessing the voting power (under ordinary circumstances) to elect a majority of the Company's Board immediately after the merger.

 

(e) " Company Status " describes the status of a person who is or was a manager, director, officer, employee, agent or fiduciary of the Company or of any other limited liability company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company.

 

(f) " Delaware Law " shall mean the laws of the State of Delaware, each as amended from time to time.

 

 

 

 

(g) " Disinterested Directors " means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(h) " Enterprise " shall mean the Company and any other limited liability company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a manager, director, officer, employee, agent or fiduciary.

 

(i) " Expenses " shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

(j) " Independent Counsel " means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(k) " Person " or " person " shall mean an individual, corporation, limited liability company, association, partnership, group (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), trust, joint venture, business trust or unincorporated organization, or a government or any agency or political subdivision thereof.

 

(l) " Proceeding " includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 6 of this Agreement to enforce such Indemnitee’s rights under this Agreement.

 

(m) " Securities Purchase Agreement " shall mean that certain Amended and Restated Securities Purchase Agreement by and among the Company, Flexpoint Fund II, L.P. and LS Purchaser dated as of the date hereof.

 

SIGNATURE PAGE TO FOLLOW

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

 

  COMPANY
   
  JETPAY CORPORATION
     
  By:  /s/ Gregory M. Krzemien
  Name:  Gregory M. Krzemien
  Title:  Chief Financial Officer
     
  INDEMNITEE
     
   /s/ Laurence L. Stone
  Name: Laurence L. Stone
   
  Address:
  725 Eagle Farm Road
  Villanova, PA 19085
   
  with a copy (which shall not constitute notice) to:
   
  Morgan, Lewis & Bockius LLP
  101 Park Avenue
  New York, NY 10178-0060
  Attention: Eric Tajcher
  Facsimile: (212) 309-6001
  Email: eric.tajcher@morganlewis.com

 

[Signature Page to Indemnification Agreement]

 

 

 

 

Exhibit 10.2

 

LOAN AND SECURITY AGREEMENT

 

A. D. COMPUTER CORPORATION,

 

PAYROLL TAX FILING SERVICES, INC.

 

AND

 

ALL OTHER PERSONS JOINED HERETO AS A

BORROWER FROM TIME TO TIME, as Borrowers

 

WITH

 

JETPAY CORPORATION and COLLECTORSOLUTIONS, LLC,
each as a Guarantor

 

AND

 

LHLJ, INC., as Lender

 

Dated as of October 18, 2016

 

 

 

 

Table of Contents

 

    Page
     
SECTION I. DEFINITIONS AND INTERPRETATION 1
1.1. Terms Defined 1
1.2. Accounting Principles 13
1.3. Construction 13
     
SECTION II. THE LOAN 13
2.1. [Reserved]. 13
2.2. Term Loan: 13
2.3. [Reserved]. 13
2.4. [Reserved]. 13
2.5. Interest 13
2.6. Additional Interest Provisions 14
2.7. Fees and Charges 14
2.8. Voluntary and Mandatory Prepayments 15
2.9. Use of Proceeds 16
2.10. [Reserved]. 16
2.11. Joint and Several Liability 16
2.12. Taxes 17
     
SECTION III. COLLATERAL 17
3.1. Collateral 17
3.2. Lien Documents 19
3.3. Other Actions 19
3.4. Searches, Certificates: 19
3.5. Landlord’s and Warehouseman’s Waivers; Access Agreements 20
3.6. Filing Security Agreement 20
3.7. Power of Attorney 20
     
SECTION IV. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES 20
4.1. Resolutions, Opinions, and Other Documents 20
4.2. Absence of Certain Events 21
4.3. Warranties and Representations at Closing 22
4.4. Compliance with this Agreement 22
4.5. Officers’ Certificate 22
4.6. Closing 22
4.7. Waiver of Rights 22
     
SECTION V. REPRESENTATIONS AND WARRANTIES 22
5.1. Organization and Validity 22
5.2. Places of Business 23
5.3. Pending Litigation 23
5.4. Title to Properties 23
5.5. Consent 23
5.6. Taxes 23

 

i  

 

 

5.7. Financial Statements and Projections 24
5.8. Full Disclosure 24
5.9. Subsidiaries 25
5.10. Investments, Guarantees, Contracts, etc. 25
5.11. Government Regulations, ERISA, etc. 25
5.12. Business Interruptions 26
5.13. Names and Intellectual Property 27
5.14. Other Associations 27
5.15. Environmental Matters 27
5.16. Investment Company Act 28
5.17. Capital Stock 28
5.18. Solvency 28
5.19. Perfection and Priority 28
5.20. Commercial Tort Claims 29
5.21. Letter of Credit Rights 29
5.22. Deposit Accounts 29
5.23. Anti-Terrorism Laws 29
5.24. [Reserved] 29
5.25. Management Agreements 29
     
SECTION VI. AFFIRMATIVE COVENANTS 30
6.1. Payment of Taxes and Claims 30
6.2. Maintenance of Properties and Corporate Existence 30
6.3. Business Conducted 31
6.4. Litigation Notices 31
6.5. Issue Taxes 31
6.6. Deposit Accounts 31
6.7. ERISA Notices 32
6.8. Financial Covenants 32
6.9. Financial and Business Information 33
6.10. Officers’ Certificates 35
6.11. Audits and Inspection; Appraisals 35
6.12. Material Adverse Developments 36
6.13. Places of Business 36
6.14. Commercial Tort Claims 36
6.15. Letter of Credit Rights 36
6.16. Lockbox 36
     
SECTION VII. NEGATIVE COVENANTS: 36
7.1. Merger, Consolidation, Dissolution or Liquidation 36
7.2. Acquisitions 37
7.3. Liens and Encumbrances 37
7.4. Transactions With Affiliates or Subsidiaries 37
7.5. Guarantees 37
7.6. Other Indebtedness 38
7.7. Loans and Investments 38
7.8. Use of Lenders’ Name 38
7.9. Miscellaneous Covenants 38

 

ii  

 

 

7.10. Jurisdiction of Organization 38
7.11. Distributions 38
7.12. [Reserved] 38
7.13. Management Arrangements 38
7.14. Tax Consolidation 39
7.15. Compliance with ERISA 39
     
SECTION VIII. DEFAULT 40
8.1. Events of Default 40
8.2. Cure 42
8.3. Rights and Remedies on Default 42
8.4. Nature of Remedies 44
8.5. Set-Off 44
     
SECTION IX. MISCELLANEOUS 44
9.1. Governing Law 44
9.2. Integrated Agreement 44
9.3. Waiver 44
9.4. Indemnity 45
9.5. Time 45
9.6. Expenses of Lender 45
9.7. Brokerage 46
9.8. Notices 46
9.9. Headings 47
9.10. Survival 47
9.11. Successors and Assigns 47
9.12. Duplicate Originals 48
9.13. Modification 48
9.14. Signatories 48
9.15. Third Parties 48
9.16. Discharge of Taxes, Borrower’s Obligations, Etc. 48
9.17. Consent to Jurisdiction 48
9.18. Additional Documentation 48
9.19. Advertisement 49
9.20. Waiver of Jury Trial 49
9.21. Consequential Damages, etc. 49
9.22. Nonliability of Lender 49
9.23. Confidentiality 49
9.24. Patriot Act Notice 49

 

iii  

 

 

LOAN AND SECURITY AGREEMENT

 

This Loan and Security Agreement (“Agreement”) is dated this 18 th day of October, 2016, by and among A. D. COMPUTER CORPORATION , a Pennsylvania corporation (“ADC”), Payroll Tax Filing Services, Inc. , a Pennsylvania corporation (“Payroll”), each other Person joined hereto as a borrower from time to time (ADC, Payroll and each other Person so joined hereto, each a “Borrower” and collectively, “Borrowers”), CollectorSolutions, LLC , a Delaware limited liability company (“CSI”), JETPAY CORPORATION , a Delaware corporation (“Parent”), and LHLJ, INC. (“Lender”).

 

BACKGROUND

 

A.           Borrowers desire to establish financing arrangements with Lender and Lender is willing to make loans and extensions of credit to Borrowers under the terms and provisions hereinafter set forth.

 

B.            The parties desire to define the terms and conditions of their relationship in writing.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

SECTION I.            DEFINITIONS AND INTERPRETATION

 

1.1.          Terms Defined : As used in this Agreement, the following terms have the following respective meanings:

 

Account – All of the “accounts” (as that term is defined in the UCC) of each Borrower, whether now existing or hereafter arising.

 

Account Debtor – Any Person obligated on any Account owing to a Borrower.

 

Accumulated Funding Deficiency – Any accumulated funding deficiency as defined in Section 302(a) of ERISA.

 

Affiliate – With respect to any Person, (a) any Person which, directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person, or (b) any Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 10% or more of the Capital Stock having ordinary voting power for the election of directors (or comparable equivalent) of such Person, or (y) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. Control may be by ownership, contract, or otherwise.

 

Anti-Terrorism Laws – Any statute, treaty, law (including common law), ordinance, regulation, rule, order, opinion, release, injunction, writ, decree or award of any Governmental Authority relating to terrorism or money laundering, including Executive Order No. 13224 and the USA Patriot Act.

 

 

 

 

Approved Management Fees – For each Borrower, a payment of a monthly management fee of $30,000 to Parent pursuant to Section 3 of the Management Agreement in effect as of the Closing; provided, however, that the payment of such Approved Management Fees shall, at all times, be subject to the terms of the Management Fee Subordination Agreement.

 

Asset Sale – The sale, transfer, lease, license or other disposition (whether voluntary or involuntary), by Borrower, to any Person other than a Borrower, of any Property now owned, or hereafter acquired, of any nature whatsoever in any transaction or series of related transactions. An Asset Sale includes, but is not limited to, a merger, consolidation, division, conversion, dissolution or liquidation.

 

Authorized Officer – Any officer of any Borrower authorized by specific written resolution of such Borrower to execute Compliance Certificates.

 

Bankruptcy Code – Title 11 of the United States Code entitled “Bankruptcy”, as now or hereinafter in effect, or any successor statute.

 

Blocked Person – Section 5.23.

 

Borrowing Agent – ADC.

 

Business Day – A day other than Saturday, Sunday or national holiday on which banks in the Commonwealth of Pennsylvania are closed for business.

 

Capital Expenditures – For any period, the aggregate of all expenditures (including that portion of Capitalized Lease Obligations attributable to that period) made in respect of the purchase, construction or rehabilitation of fixed or capital assets, determined in accordance with GAAP.

 

Capital Stock – Any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all other ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing.

 

Capitalized Lease Obligations – Any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, consistently applied but excluding lease obligations which would be classified as operating lease obligations in accordance with GAAP as in effect on the date hereof.

 

Change of Control – The occurrence of any event which results in Parent ceasing to beneficially own, directly or indirectly, 100% of the total outstanding Capital Stock of each other Loan Party and their respective Subsidiaries.

 

Closing – Section 4.6.

 

Closing Date – Section 4.6.

 

  2

 

 

Closing Date Indebtedness – Indebtedness of Borrowers due and owing to First National Bank (f/k/a Metro Bank) pursuant to that certain Loan and Security Agreement, dated December 28, 2012, among Borrowers, Parent, First National Bank, as amended from time to time.

 

Closing Fee – Section 2.7(a).

 

COBRA – The group health plan continuation coverage requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA.

 

Code – The Internal Revenue Code of 1986, as amended, or its predecessor or successor, as applicable, and any United States Treasury regulations, revenue rulings or technical information releases issued thereunder.

 

Collateral – All of the Property and interests in Property described in Section 3.1 of this Agreement and all other Property and interests in Property that now or hereafter secure payment of the Obligations and satisfaction by Borrowers of all covenants and undertakings contained in this Agreement and the other Loan Documents.

 

Commodity Exchange Act – the Commodity Exchange Act (7 U.S.C. § 1 et. seq.), as amended from time to time, and any successor statute.

 

Compliance Certificate – Section 6.10.

 

Consolidated Amortization Expense – For any period, the aggregate consolidated amount of amortization expenses of the Borrowers as determined in accordance with GAAP.

 

Consolidated Depreciation Expense – For any period, the aggregate, consolidated amount of depreciation expenses of the Borrowers, as determined in accordance with GAAP.

 

Consolidated EBITDA – For any period, Consolidated Net Income (or deficit) plus the sum of the following to the extent deducted in calculating Consolidated Net Income for such period (i) Consolidated Interest Expense, plus (ii) Consolidated Tax Expense, plus (iii) Consolidated Depreciation Expense, plus (iv) Consolidated Amortization Expense, plus (v) other non-cash charges (excluding reserves for future cash charges) of Borrowers for such period minus (vi) non-cash charges previously added back to Consolidated Net Income in determining Consolidated EBITDA to the extent such non-cash charges have become cash charges during such period, minus (vii) to the extent included in calculating Consolidated Net Income, any other non-recurring cash or non-cash gains during such period, all as determined in accordance with GAAP.

 

Consolidated Interest Expense – For any period (without duplication), the aggregate, consolidated amount of interest expense required to be paid or accrued during such period on all Indebtedness of the Borrowers outstanding during all or any part of such period, as determined in accordance with GAAP.

 

Consolidated Net Income – For any period, aggregate consolidated net income after taxes of the Borrowers (excluding extraordinary losses and gains and all non-cash income, interest income and tax credits, rebates and other benefits), as determined in accordance with GAAP.

 

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Consolidated Tax Expense – For any period, the aggregate consolidated amount of income tax expenses of the Borrowers, as determined in accordance with GAAP

 

Consolidated Total Indebtedness – At any time, the aggregate consolidated Indebtedness of the Borrowers, as determined in accordance with GAAP.

 

“ Control Agreement ” – Section 6.6.

 

Debt Coverage Ratio – For any period, the ratio of (i) the sum of Consolidated Net Income of Borrowers for such period plus Consolidated Interest Expense for such period plus Consolidated Depreciation Expense for such period plus Consolidated Amortization Expense for such period to (ii) without duplication, the sum of scheduled principal payments on account of long term Indebtedness of Borrowers made during such period plus the sum of scheduled lease payments on account of Capitalized Lease Obligations of Borrowers made during such period plus Consolidated Interest Expense for such period, all as determined in accordance with GAAP.

 

Default – Any event, act, condition or occurrence which with notice, or lapse of time or both, would constitute an Event of Default hereunder.

 

Default Rate – Section 2.6(b).

 

Disqualified Stock – Any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable for any reason, (ii) is convertible or exchangeable for Indebtedness or Capital Stock that meets the requirements of clauses (i) and (ii), or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the date that is ninety-one (91) days after the Term Loan Maturity Date.

 

Distribution –

 

a.           Cash dividends or other cash distributions (including tax distributions) on any now or hereafter outstanding Capital Stock of any Loan Party;

 

b.           The redemption, repurchase, defeasance or acquisition of such Capital Stock or of warrants, rights or other options to purchase such Capital Stock; and

 

c.           Any loans or advances (other than salaries), to any shareholder or other holder of Capital Stock of any Loan Party.

 

DOL – United States Department of Labor, or any governmental agency or instrumentality succeeding to the functions thereof.

 

Dollar, Dollars and U.S. Dollars and the Symbol $ – Lawful money of the United States of America.

 

Earn Out Payments – Cash payments made by a Borrower pursuant to earn out liabilities incurred in connection with the acquisition of all or a substantial part of the assets or Capital Stock of a Person.

 

  4

 

 

Employee Pension Plan – Any Plan which is subject to Part 3 of Subtitle B of the Title 1 of ERISA.

 

Environmental Laws – Any and all Federal, foreign, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees and any and all common law requirements, rules and bases of liability regulating, relating to or imposing liability or standards of conduct concerning pollution, protection of the environment, or the impact of pollutants, contaminants or toxic or hazardous substances on human health or the environment, as now or may at any time hereafter be in effect from time to time.

 

ERISA – The Employee Retirement Income Security Act of 1974, as amended, and any regulations issued thereunder by the DOL or PBGC.

 

ERISA Affiliate – (i) Any corporation included with any Loan Party in a controlled group of corporations within the meaning of Section 414(b) of the Code, (ii) any trade or business (whether or not incorporated) which is under common control with any Loan Party within the meaning of Section 414(c) of the Code; or (iii) any member of an affiliated service group of which any Loan Party is a member within the meaning of Section 414(m) of the Code.

 

Event of Default – Section 8.1.

 

Excluded Equity Issuance – Any issuance of (or capital contribution to any Loan Party in respect of any such issuance) (i) Capital Stock (other than Disqualified Stock) by a Borrower to management, employees, directors or other service providers of such Borrower under any employee stock option or stock purchase plan or agreement or other employee benefits plan (including, without limitation, the repayment of any loan made to such management or employee in connection with such issuance), or (ii) Capital Stock by a Loan Party to a Loan Party; provided that no issuance of Capital Stock that gives rise to a Change of Control shall be included in the definition of Excluded Equity Issuance.

 

Excluded Property – With respect to a Borrower, (i) any “intent-to-use” trademark until such time as such Borrower begins to use such trademark, (ii) any Property now or hereafter held by such Borrower to the extent (but only to the extent) such item is subject to an agreement which contains a term or is subject to a rule of law, statute or regulation that restricts, prohibits, or requires a consent (that has not been obtained) of a Person (other than any Loan Party) to, the creation, attachment or perfection of the security interest granted herein, and in each case solely to the extent that such restriction, prohibition and/or requirement of consent is effective and enforceable under applicable law and is not rendered ineffective by applicable law (including, without limitation, pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC), and (iii) any Trust Account; provided, however that (x) Excluded Property shall not include any proceeds of any such item, and (y) any item of Excluded Property that at any time ceases to satisfy the criteria for Excluded Property (whether as a result of the applicable Loan Party obtaining any necessary consent, any change in any rule of law, statute or regulation, or otherwise), shall no longer be Excluded Property.

 

Executive Order No. 13224 – The Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced and as may be in effect from time to time.

 

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Expenses – Section 9.6.

 

GAAP – Generally accepted accounting principles as in effect on the Closing Date applied in a manner consistent with the most recent audited financial statements of Borrowers furnished to Lender and described in Section 5.7 herein.

 

General Intangibles – All “general intangibles” as defined in the UCC, and without limitation of the foregoing, also all designs, patents, patent rights and applications therefor, trademarks and registrations and applications therefor, trade names, inventions, copyrights and all registrations and applications therefor, license right, trade secrets, methods, know how, specifications, customer lists, franchises, tax refunds and unearned insurance premiums.

 

Governmental Authority – Any federal, state or local government or political subdivision, or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury, or arbitration.

 

Guarantors – Collectively, Parent, CSI, and any other Person who may hereafter guaranty, as surety, the Obligations.

 

Hazardous Substances – Any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance or similar term, under any Environmental Law.

 

Hedging Agreements – Any interest rate protection agreement, foreign currency exchange agreement, commodity purchase or option agreement, or any other interest rate hedging device or swap agreement (as defined in 11 U.S.C. § 101 et seq.).

 

Indebtedness – Of any Person at any date, without duplication, (i) all indebtedness of such Person for borrowed money (including with respect to Borrowers, the Obligations) or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (ii) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (iii) all Capitalized Lease Obligations of such Person, (iv) the face amount of all letters of credit issued for the account of such Person and all drafts drawn thereunder, (v) all obligations of other Persons which such Person has guaranteed, (vi) Disqualified Stock, (vii) all net obligations of such Person under Hedging Agreements, (viii) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof and (ix) all obligations to make Earn Out Payments to the extent such obligation is required to be included as a liability on the balance sheet of such Person in accordance with GAAP.

 

Intellectual Property – Property constituting under any applicable law a patent, patent application, copyright, trademark, service mark, trade name, mask work, trade secret or license or other right to use any of the foregoing.

 

Inventory – All of the “inventory” (as that term is defined in the UCC) of each Borrower, whether now existing or hereafter acquired or created.

 

IRS  – Internal Revenue Service.

 

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Lender Affiliate – With respect to Lender, any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with Lender. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 25% or more of any class of Capital Stock having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for any such Person, or (y) to direct or cause the direction of the management and policies of such Person whether by ownership of Capital Stock, contract or otherwise.

 

Lien – Any interest of any kind or nature in property securing an obligation owed to, or a claim of any kind or nature in property by, a Person other than the owner of the Property, whether such interest is based on the common law, statute, regulation or contract, and including, but not limited to, a security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt, a lease, consignment or bailment for security purposes, a trust, or an assignment. For the purposes of this Agreement, each Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes.

 

Liquidity – The amount of cash on deposit in a Deposit Account with respect to which Lender has a first priority Lien and “control” as such term is used in the UCC pursuant to a deposit account control agreement entered into pursuant to Sections 6.6 or 6.9(f) of this Agreement.

 

Loan Parties – Collectively, Guarantors and Borrowers.

 

Loan Documents – Collectively, this Agreement, the Term Loan Note, the Surety Agreements, the Perfection Certificate, the Pledge Agreement, the Trademark Security Agreement and all agreements, instruments and documents executed and/or delivered in connection therewith, all as may be supplemented, restated, superseded, amended or replaced from time to time.

 

Management Agreement – That certain Advisory Agreement dated as of December 28, 2012 by and between Parent and ADC.

 

Management Fee Subordination Agreement – That certain Management Fee Subordination Agreement executed by Parent in favor of Lender, in the form and substance satisfactory to Lender, on or prior to the Closing Date.

 

Material Adverse Effect – A material adverse effect with respect to (a) the business, assets, properties, financial condition, stockholders’ equity, contingent liabilities, material agreements or results of operations of Borrowers on a consolidated basis, or (b) Borrowers’ ability (on a consolidated basis) to pay the Obligations in accordance with the terms hereof, or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights and remedies of Lender hereunder or thereunder or (d) the validity, perfection, priority or enforceability of the Liens granted to Lender in respect of the Collateral.

 

Multiemployer Plan – A “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which any Loan Party, any Loan Party’s Subsidiaries or any ERISA Affiliate is required to contribute.

 

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Net Proceeds – With respect to (a) an Asset Sale, the cash proceeds of such sale less (i) the reasonable direct cost relating to such (including sales commissions and legal, accounting and investment banking fees, commissions and expenses and taxes paid); (b) an issuance of Capital Stock of any Loan Party or a Subsidiary thereof, the aggregate amount received in cash in connection with such issuance minus the reasonable and customary fees, commissions and other out-of-pocket expenses incurred by Loan Parties in connection with such issuance; (c) property or casualty insurance proceeds or condemnation award proceeds, the amount of such proceeds minus the reasonable and customary fees and other out-of-pocket expenses and taxes paid incurred by the Loan Parties in connection with recovering such proceeds; and (d) the issuance or incurrence of additional Indebtedness, the aggregate amount received in cash in connection with such issuance or incurrence minus the reasonable and customary fees, commissions and other out-of-pocket expenses incurred by Loan Parties in connection with such issuance.

 

Note – The Term Loan Note.

 

Obligations – All existing and future debts, liabilities and obligations of every kind or nature at any time owing by any Loan Party to Lender or any other subsidiary of Lender or Lender Affiliate, whether under this Agreement, or any other existing or future instrument, document or agreement, between a Loan Party and Lender or any other subsidiary of Lender or Lender Affiliate, whether joint or several, related or unrelated, primary or secondary, matured or contingent, due or to become due (including debts, liabilities and obligations obtained by assignment), and whether principal, interest, fees, indemnification obligations hereunder or Expenses (specifically including interest accruing after the commencement of any bankruptcy, insolvency or similar proceeding with respect to any Loan Party, whether or not a claim for such post-commencement interest is allowed), including, without limitation, debts, liabilities and obligations in respect of the Term Loan and any extensions, modifications, substitutions, increases and renewals thereof; the payment of all amounts advanced by Lender or any other subsidiary of Lender or Lender Affiliate to preserve, protect and enforce rights hereunder and in the Collateral; and all Expenses incurred by Lender or any other subsidiary of Lender or Lender Affiliate.

 

Organizational Documents – With respect to any Person (other than an individual) the documents by which such Person was organized (such as a certificate of incorporation or organization) and which relate to the internal governance of such Person (such as bylaws, partnership agreement or an operating or limited liability agreement).

 

Parent – As defined in the recitals.

 

PBGC – Pension Benefit Guaranty Corporation, or any governmental agency or instrumentality succeeding to the functions thereof.

 

Perfection Certificate – The Perfection Certificate provided by the Loan Parties to Lender on or prior to the Closing Date in form and substance satisfactory to Lender.

 

Permitted Closing Date Distribution – A distribution by ADC to Parent on or following the Closing Date in an amount not to exceed the difference between (x) the original principal amount of the Term Loan, minus (y) the amount repaid in respect of the Closing Date Indebtedness, provided that, before and after giving effect to such distribution, (A) Borrowers shall be in compliance with Section 6.8 hereof, and (B) no Default or Event of Default shall have occurred and be continuing or would result therefrom.

 

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Permitted Distributions – Collectively, (i) the Permitted Closing Date Distribution, (ii) Permitted Tax Distributions, (iii) Distributions from one Borrower to another Borrower, and (iv) other Distributions from ADC to Parent so long as (A) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur as a result of, such Distribution, (B) Borrowers shall demonstrate that Borrowers would have been in compliance with Section 6.8 hereof as of the end of the immediately preceding fiscal quarter if such Distribution had been made in such fiscal quarter, and (C) Borrowers shall have Liquidity of not less than $750,000 after giving effect to such Distribution.

 

Permitted Indebtedness – (i) Indebtedness to Lender in connection with the Term Loan or otherwise pursuant to the Loan Documents; (ii) Indebtedness under Hedging Agreements entered into for the sole purpose of hedging in the normal course of business and not for speculative purposes; (iii) purchase money Indebtedness (including Capitalized Lease Obligations) hereafter incurred by any Borrower to finance the purchase of fixed assets; provided that, (a) such Indebtedness incurred in any fiscal year shall not exceed in the aggregate $250,000, (b) such Indebtedness shall not exceed the purchase price of the assets funded and (c) no such Indebtedness may be refinanced for a principal amount in excess of the principal amount outstanding at the time of such refinancing, (iv) Indebtedness existing on the Closing Date that is identified and described on Schedule “1.1(a)” attached hereto and made part hereof, including refinancing, replacement and renewals of such Indebtedness, provided that any refinancing shall not exceed the amount then outstanding, (v) Indebtedness incurred in the ordinary course of business for surety bonds and performance bonds obtained in connection with workers’ compensation, unemployment insurance and other social security legislation, (vi) Indebtedness representing deferred compensation or reimbursable expenses owed to officers, directors, employees or agents of any Borrower in the ordinary course of business, and (vii) other unsecured Indebtedness, of a type not described above, not to exceed $500,000 in the aggregate at any time outstanding.

 

Permitted Investments – (i) investments and advances existing on the Closing Date that are disclosed on Schedule “5.10(a)”; (ii) cash and cash equivalent investments, and Accounts and trade credit created in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) bank deposits in the ordinary courts of business; (iv) investments in securities of Account Debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such Account Debtors or acquired in connection with the settlement of delinquent Accounts in the ordinary courts of business; (v) deposits, prepayments and other credits to suppliers and deposits in connection with lease obligations, taxes, insurance and similar items, in each case made in the ordinary course of business and securing contractual obligations of a Loan Party; (vi) investments in prepaid expenses, utility and workers’ compensation, performance and other similar deposits, each as entered into in the ordinary course of business; (vii) hedging agreements entered into for the sole purpose of hedging in the normal course of business and not for speculative purposes; (viii) obligations issued or guaranteed by the United States of America or any agency thereof; (ix) commercial paper with maturities of not more than 180 days and a published rating of not less than A-1 or P-1 (or the equivalent rating) by a nationally recognized investment rating agency; (x) certificates of time deposit and bankers’ acceptances having maturities of not more than 180 days and repurchase agreements backed by United States government securities of Lender or another commercial bank if (A) such bank has a combined capital and surplus of at least $500,000,000, or (B) its debt obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating) by a nationally recognized investment rating agency; (xi) U.S. money market funds that invest solely in obligations issued or guaranteed by the United States of America or an agency thereof; (xii) loans and advances to employees not to exceed $100,000 in the aggregate outstanding at any time; (xiii) investments consisting of loans or advances made to another Loan Party or a Subsidiary thereof in an aggregate amount not to exceed $250,000 in the aggregate outstanding at any time; and (xiv) other Investments, which together with any investments described in clause (xv) of this definition, shall not exceed $300,000 in the aggregate outstanding at any time.

 

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Permitted Liens – (i) Liens securing taxes, assessments or governmental charges or levies for amounts that are not yet due and payable, (ii) Liens of suppliers, carriers, materialmen, warehousemen, workmen or mechanics and other similar Liens, in each case imposed by law or arising in the ordinary course of business and for amounts that are not yet due and payable; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance, social security and other like laws (excluding Liens arising under ERISA); (iv) pledges or cash deposits made in the ordinary course of business (a) to secure the performance of bids, tenders, leases, sales or other trade contracts (other than for the repayment of borrowed money or the payment of a deferred purchase price for property or services, ) or (b) made in lieu of, or to secure the performance of, surety, customs, reclamation or performance bonds (in each case not related to judgments or litigation); (v) Liens of landlords and mortgagees of landlords (a) with respect to any landlord, solely arising by statute or, with respect to any mortgagee arising by statute or under any contractual obligations entered into in the ordinary course of business, (b) on fixtures and movable tangible property located on the real property leased or subleased from such landlord, (c) for amounts not yet due or that are being contested in good faith by appropriate proceedings diligently conducted and (d) for which adequate reserves or other appropriate provisions are maintained on the books of such Person in accordance with GAAP; (vi) non-exclusive Intellectual Property licenses granted in the ordinary course of business; (vii) Liens in favor of collecting banks arising under Section 4-210 of the UCC and other banker’s liens arising by operation of law; (viii) Liens on fixed assets securing purchase money Indebtedness permitted under Section 7.6; provided that, (a) such Lien attached to such assets concurrently, or within 20 days of the acquisition thereof, and only to the assets so acquired, and (b) a description of the asset acquired is furnished to Lender; (ix) Liens existing on the Closing Date and shown on Schedule “1.1(b)” attached hereto and made part hereof; and (x) Liens securing appeal bonds and judgments with respect to judgments that do not otherwise result in or cause an Event of Default.

 

Permitted Tax Distributions – Distributions from ADC to Parent that meet each of the following conditions: (i) the amount of such Distributions for each fiscal quarter, and for each fiscal year on an aggregate basis, shall not exceed (without duplication) the lesser of (A) the aggregate income tax liability for the applicable period of an affiliated, combined, consolidated or unitary group that includes Parent, ADC or any Subsidiary of ADC (or both ADC and one of more such Subsidiaries) and (B) the aggregate income tax liability that would be determined for the applicable period if ADC filed tax returns as the common parent of an affiliated, combined, consolidated or unitary group that included only ADC and its Subsidiaries, provided, however that reasonable estimates of such amounts in (A) or (B) for each fiscal quarter with respect to estimated income taxes shall not violate this clause (i), (ii) Borrowers have not made any payment directly to the applicable Government Authority Person attributable to or in connection with the income tax liability to be paid by the proceeds of such Distributions, (iii) Parent shall actually use such Distributions to pay the income tax liabilities of an affiliated, combined, consolidated or unitary group that includes Parent and one or more of the Borrowers within five (5) Business Days of receipt, and (iv) Parent shall promptly, but in no event more than five (5) Business Days of determining than an excess exists, refund to ADC the excess of the amount of Distributions made for each such fiscal quarter and fiscal year on aggregate basis over the income tax liability that would have been determined for each such period it Parent had filed tax returns as the common parent of an affiliated, combined, consolidated or unitary group that included only Parent and Borrowers.

 

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Person – An individual, partnership, corporation, trust, limited liability company, limited liability partnership, unincorporated association or organization, joint venture or any other entity.

 

Plan – An “Employee Pension Benefit Plan” (as defined in Section 3(2) of ERISA), a “voluntary employees’ beneficiary association” (within the meaning of Section 501(a)(9) of the Code, or a “welfare benefit fund” (within the meaning of Section 419 of the Code), which is maintained, or to which contributions are, or are required to be, made, by any Loan Party, any Loan Party’s Subsidiaries or any ERISA Affiliate, except a Multiemployer Plan.

 

Pledge Agreement – That certain collateral pledge agreement executed by Parent and ADC in favor of Lender on or prior to the Closing Date, in form and substance satisfactory to Lender.

 

Prepayment Premium – For any prepayment of the Term Loan (i) occurring on or before October 18, 2017, an amount equal to five percent (5%) of the principal amount of such prepayment, (ii) occurring after October 18, 2017, but on or before October 18, 2018, an amount equal to three percent (3%) of the principal amount of such prepayment, (iii) occurring after October 18, 2018, but on or before October 18, 2021, an amount equal to one percent (1%) of the principal amount of such prepayment; provided , however , (x) that for any prepayment occurring as a result of a refinancing of all or a part of the Term Loan as to which Laurence L. Stone, acting solely as holder of Capital Stock of Parent (or as a director, officer or principal thereof) has provided his prior written consent, the applicable prepayment premium shall be reduced by one quarter (1/4) and (y) that the applicable prepayment premium shall be reduced to zero dollars ($0) with respect to any prepayment occurring as a result of a Change of Control as to which Laurence L. Stone, acting solely as a holder of Capital Stock of Parent (or as a director, officer or principal thereof), has provided his prior written consent.

 

Prohibited Transaction – The meaning given to such term in Section 406 of ERISA, Section 4975(c) of the Code and any Treasury regulations issued thereunder.

 

Property – Any interest of any Loan Party in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

 

Related Party – With respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

 

Reorganization – Any reorganization as defined in Section 4241(a) of ERISA.

 

Reportable Event – With respect to any Employee Pension Plan, as event described in Section 4043(c) of ERISA.

 

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Requirement of Law – Collectively, all international, foreign, federal, state and local laws, statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

 

SEC – The U.S. Securities and Exchange Commission.

 

Subsidiary – With respect to any Person at any time, (i) any corporation more than fifty percent (50%) of whose voting stock is legally and beneficially owned by such Person or owned by a corporation more than fifty percent (50%) of whose voting stock is legally and beneficially owned by such Person; (ii) any trust of which a majority of the beneficial interest is at such time owned directly or indirectly, beneficially or of record, by such Person or one or more Subsidiaries of such Person; and (iii) any partnership, joint venture, limited liability company or other entity of which ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at such time owned directly or indirectly, beneficially or of record, by, or which is otherwise controlled directly, indirectly or through one or more intermediaries by, such Person or one or more Subsidiaries of such Person.

 

Surety Agreement – That certain surety agreement to be executed by each Guarantor in favor of Lender, in form and substance satisfactory to Lender, on or prior to the Closing Date.

 

Swap Obligation – Any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.

 

Term Loan – Section 2.1(a).

 

Term Loan Maturity Date – October 18, 2021.

 

Term Loan Note – Section 2.1(b).

 

Total Leverage Ratio – The ratio of Borrowers’ (i) Consolidated Total Indebtedness as of the date of determination, to (ii) Consolidated EBITDA for the preceding four (4) fiscal quarters.

 

Trademark Security Agreement – That certain trademark security agreement to be executed by each Borrower in favor of Lender, in form and substance satisfactory to Lender, on or prior to the Closing Date.

 

Trust Account – Those certain accounts established from time to time for the benefit of a Borrowers’ customers for the payment of payroll tax and other employment tax obligations of such customers.

 

UCC – The Uniform Commercial Code as adopted in the Commonwealth of Pennsylvania, as in effect from time to time.

 

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Withdrawal Liability – Any withdrawal liability as defined in Section 4201 of ERISA.

 

Other Capitalized Terms – Any other capitalized terms used without further definition herein shall have the respective meaning set forth in the UCC.

 

1.2.          Accounting Principles : Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with GAAP as in effect on the Closing Date, to the extent applicable, except as otherwise expressly provided in this Agreement. If there are any changes in GAAP after the Closing Date that would affect the computation of the financial covenants in Section 6.8, such changes shall only be followed, with respect to such financial covenants, from and after the date this Agreement shall have been amended to take into account any such changes.

 

1.3.          Construction : No doctrine of construction of ambiguities in agreements or instruments against the interests of the party controlling the drafting shall apply to any Loan Documents.

 

SECTION II.           THE LOAN

 

2.1. [Reserved] .

 

2.2. Term Loan :

 

a.           Lender hereby agrees to advance to Borrowers, subject to the terms and conditions of this Agreement, the sum of Nine Million Five Hundred Thousand Dollars ($9,500,000) (“Term Loan”). At Closing, Borrowers shall execute and deliver a promissory note to Lender in the original principal amount of the Term Loan (“Term Loan Note”). The Term Loan Note shall evidence Borrowers’ joint and several, unconditional obligation to repay to Lender the Term Loan with interest as herein provided. The Term Loan Note shall be in form and substance reasonably satisfactory to Lender. Borrowers shall pay principal and interest in respect of the Term Loan in equal, consecutive monthly installments of $128,677.18, commencing on November 30, 2016, and continuing on the last day of each calendar month thereafter through and including the last day of the calendar month immediately preceding the Term Loan Maturity Date. A final installment of all unpaid principal and all accrued and unpaid interest outstanding under the Term Loan shall be due and payable on the Term Loan Maturity Date.

 

2.3. [Reserved] .

 

2.4. [Reserved] .

 

2.5. Interest :

 

a.           [Reserved].

 

b.           The unpaid principal balance of the Term Loan shall bear interest, subject to the terms hereof, at eight percent (8.00%) per annum.

 

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c.           Interest shall be payable monthly, in arrears, on the last day of each month beginning on the last day of the first full calendar month after the Closing Date, and on the Term Loan Maturity Date.

 

2.6. Additional Interest Provisions :

 

a.           All computations of interest on the Loans shall be made on the basis of a three hundred sixty (360) day year and the actual number of days elapsed.

 

b.           After the occurrence and during the continuance of an Event of Default hereunder, the per annum effective rate of interest on all outstanding principal under the Loans, shall at the option of Lender, be increased by five hundred (500) basis points (“Default Rate”). All such increases may be applied retroactively to the date of the occurrence of the Event of Default. Borrowers agree that the Default Rate payable to Lender is a reasonable estimate of Lender’s damages and is not a penalty and that interest accruing at the Default Rate is payable on demand.

 

c.           All contractual rates of interest chargeable on outstanding principal under the Loans shall continue to accrue and be paid even after Default, an Event of Default, maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.

 

d.           Borrowers shall not be obligated to pay and Lender shall not collect interest at a rate higher than the maximum permitted by law or the maximum that will not subject Lender to any civil or criminal penalties. If, because of the acceleration of maturity the payment of interest in advance or any other reason, Borrowers are required, under the provisions of any Loan Document or otherwise, to pay interest at a rate in excess of such maximum rate, the rate of interest under such provisions shall immediately and automatically be reduced to such maximum rate and any payment made in excess of such maximum rate, together with interest thereon at the rate provided herein from the date of such payment, shall be immediately and automatically applied to the reduction of the unpaid principal balance of the Term Loan as of the date on which such excess payment was made. If the amount to be so applied to reduction of the unpaid principal balance of the Term Loan exceeds the unpaid principal balance, the amount of such excess shall be refunded by Lender to Borrowers.

 

2.7. Fees and Charges :

 

a.           At Closing, Lender shall have fully earned and Borrowers shall be unconditionally obligated to pay to Lender, a non-refundable fee (“Closing Fee”) with respect to the Term Loan in the amount of One Hundred Ninety Thousand Dollars ($190,000), due and payable in full on the Closing Date.

 

b.           Borrowers shall unconditionally pay to Lender a late charge equal to five percent (5%) of any and all payments of principal or interest on the Loans that are not paid within fifteen (15) days of the due date. Such late charge shall be due and payable regardless of whether Lender has accelerated the Obligations. Borrowers agree that any late fee payable to Lender is a reasonable estimate of Lender’s damages and is not a penalty. The imposition of such late fee shall not be deemed a waiver of any Event of Default.

 

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2.8. Voluntary and Mandatory Prepayments :

 

a.           [Reserved].

 

b.           Borrowers may prepay the Term Loan in whole or in part at any time or from time to time, provided that any prepayment shall be accompanied by: (i) all accrued and unpaid interest; and (ii) the applicable Prepayment Premium. Without limiting the foregoing, each Borrower hereby agrees that promptly upon demand (and in any event within ten (10) Business Days of such demand) by Lender (which demand shall be accompanied by a statement setting forth the basis for the amount being claimed), Borrowers will, jointly and severally, indemnify Lender against any net loss or expense which Lender may sustain or incur as a result of any such prepayment, including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Lender to fund or maintain the Term Loan, as reasonably determined by Lender.

 

c.           Upon any Asset Sale by any Borrower (other than the sale of Inventory in the ordinary course of business), Borrowers shall prepay the Term Loan in an amount equal to the Net Proceeds upon any Loan Party’s receipt thereof; provided, however, that no such prepayment shall be required to be made if (i) no Event of Default exists and the Net Proceeds from such Asset Sale are less than $100,000 in the aggregate or (ii) (A) no Event of Default then exists, (B) Borrowers reinvest such Net Proceeds prior to the date that is one hundred and eighty (180) days after the receipt of such Net Proceeds in assets of comparable or superior quality and value to those sold and used or useful in the business of Borrowers within one hundred and eighty (180) days following the receipt of such Net Proceeds, and (C) the Net Proceeds from such Asset Sale are less than $100,000 in the aggregate with the Net Proceeds from all other Asset Sales which were not applied as a prepayment pursuant to this Section 2.8(c) during the applicable fiscal year of Borrowers. The provisions of this Section 2.8(c) shall not be deemed to be implied consent to any such disposition otherwise prohibited by the terms and conditions of this Agreement.

 

d.           Upon the incurrence by any Borrower of any Indebtedness (other than Permitted Indebtedness), Borrowers shall prepay the outstanding principal amount of the Term Loan in an amount equal to 100% of the Net Proceeds received by such Person in connection with such incurrence within five (5) Business Days of the date of such receipt. The provisions of this Section 2.88(d) shall not be deemed to be implied consent to any such incurrence otherwise prohibited by the terms and conditions of this Agreement.

 

e.           If any Borrower or any Subsidiary thereof issues any Capital Stock (other than Excluded Equity Issuances), Borrowers shall prepay the Term Loan in an amount equal to the Net Proceeds of such issuance within five (5) Business Days of receipt thereof.

 

f.            Upon the receipt by any Borrower of any property or casualty insurance proceeds or condemnation award proceeds, Borrowers shall prepay the Term Loan in an amount equal to the Net Proceeds of such proceeds within five (5) Business Days of receipt; provided, however, that no such repayment shall be required if, and to the extent that, (i) no Event of Default then exists, and (ii)  Borrowers reinvest such Net Proceeds for the repair, replacement or restoration of the damaged or condemned property within one hundred and eighty (180) days following the receipt of such proceeds.

 

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g.           [Reserved].

 

h.           [Reserved].

 

i.            Any prepayments on account of the Loan pursuant to this Section 2.8 shall first be applied to accrued and unpaid interest on the Term Loan, and then to the principal balance of the Term Loan in the inverse order of maturity.

 

2.9.          Use of Proceeds : The extensions of credit under and proceeds of the Term Loan shall be used solely to repay in full the Closing Date Indebtedness, to pay the Permitted Closing Date Distribution, and for other working capital and general corporate purposes.

 

2.10. [Reserved].

 

2.11. Joint and Several Liability .

 

a.           Each Borrower hereby irrevocably designates Borrowing Agent to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower or Borrowers, and hereby authorizes Lender to pay over or credit all loan proceeds hereunder in accordance with the request of Borrowing Agent.

 

b.           The handling of this credit facility as a co-borrowing facility with a borrowing agent in the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their request. Lender shall not incur liability to Borrowers as a result thereof. To induce Lender to do so and in consideration thereof, each Borrower hereby indemnifies Lender and holds Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against Lender by any Person arising from or incurred by reason of the handling of the financing arrangements of Borrowers as provided herein, reliance by Lender on any request or instruction from Borrowing Agent or any other action taken by Lender with respect to this Section 2.11 except due to willful misconduct or gross negligence by the indemnified party (as determined by a court of competent jurisdiction in a final and non-appealable judgment).

 

c.           All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted by Lender to any Borrower, failure of Lender to give any Borrower notice of borrowing or any other notice, any failure of Lender to pursue or preserve its rights against any Borrower, the release by Lender of any Collateral now or thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Lender to the other Borrowers or any Collateral for such Borrower’s Obligations or the lack thereof. Each Borrower waives all suretyship defenses.

 

d.           Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other Person directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers’ Property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations.

 

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2.12. Taxes .

 

a.           All payments made by Borrowers hereunder or under the Note shall be, except as provided in Section 2.12(b), made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any Governmental Authority or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or profits of Lender (including franchise taxes imposed in lieu thereof) pursuant to the laws of the jurisdiction in which Lender is organized or the jurisdiction in which the principal office or applicable lending office of Lender is located or any subdivision thereof or therein and any branch profit taxes imposed by the United States or any similar tax imposed by any jurisdiction described above) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as “ Taxes ”). If any Taxes are so levied or imposed, except as provided in Section 2.12(b), Borrowers agree to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under the Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. Borrowers will furnish to Lender as soon as practicable after the date the payment of any Taxes is due pursuant to any Requirement of Law, certified copies (to the extent reasonably available and required by any Requirement of Law) of tax receipts evidencing such payment by Borrowers. Borrowers agree to indemnify and hold harmless Lender, and reimburse Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by Lender.

 

b.           Lender agrees to use reasonable efforts to avoid or to minimize any amounts that might otherwise be payable pursuant to this Section 2.12; provided however, that such efforts shall not cause Lender to incur any additional costs or legal or regulatory burdens deemed by Lender in its reasonable discretion to be material.

 

c.           If any Borrower pays any additional amount pursuant to this Section 2.12, Lender shall use reasonable efforts to obtain a refund of tax or credit against its tax liabilities on account of such payment; provided that, Lender shall have no obligation to use such reasonable efforts if either (i) it is in an excess foreign tax credit position or (ii) it believes in good faith, in its reasonable discretion, that claiming a refund or credit would cause materially adverse tax consequences to it.

 

d.           The agreements in this Section 2.12 shall survive the termination of this Agreement and the payment of the Obligations.

 

SECTION III.          COLLATERAL

 

3.1.           Collateral : As security for the payment of the Obligations, and satisfaction by each Borrower of all covenants and undertakings contained in this Agreement and the other Loan Documents:

 

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a.            Personal Property : Each Borrower hereby assigns and grants to Lender, a continuing Lien on and security interest in, upon and to all assets of such Borrower, including but not limited to the following Property, all whether now owned or hereafter acquired, created or arising and wherever located:

 

(i)           Accounts – All Accounts;

 

(ii)          Chattel Paper – All Chattel Paper;

 

(iii)         Documents – All Documents;

 

(iv)         Instruments – All Instruments;

 

(v)          Inventory – All Inventory;

 

(vi)         General Intangibles – All General Intangibles;

 

(vii)        Equipment – All Equipment,

 

(viii)       Fixtures – All Fixtures;

 

(ix)          Deposit Accounts – All Deposit Accounts (including any Permitted Investments that constitute Deposit Accounts, but excluding any Trust Accounts);

 

(x)           Goods – All Goods;

 

(xi)          Letter of Credit Rights – All Letter of Credit Rights;

 

(xii)         Supporting Obligations – All Supporting Obligations;

 

(xiii)        Investment Property – All Investment Property (including any Permitted Investments that constitute Investment Property);

 

(xiv)       Commercial Tort Claims – All Commercial Tort Claims identified and described on Schedule “5.20” (as amended or supplemented from time to time);

 

(xv)        Property in Lender’s Possession – All Property of such Borrower, now or hereafter in Lender’s possession;

 

(xvi)       Books and Records – All of Borrower’s present and future business records and information, including, but not limited to, manual records, computer runs, print outs, tapes, disks, software, programs, source codes and any other computer prepared information and equipment of any kind; and

 

(xvii)      Proceeds – All products of and Accessions to any of the foregoing and all Proceeds (including, without limitation, insurance policies and proceeds), whether cash or non-cash, of all of the foregoing property described in clauses (i) through (xvi);

 

provided, however, that the Collateral shall not include any Excluded Property.

 

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3.2.          Lien Documents : At Closing and thereafter as Lender deems necessary, each Loan Party shall execute and/or deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender and its counsel):

 

a.           Financing statements pursuant to the UCC, which Lender may file in the jurisdiction where such Loan Party is organized and in any other jurisdiction that Lender deems appropriate;

 

b.           Any certificates evidencing the Capital Stock pledged to Lender pursuant to the Pledge Agreement, duly indorsed in blank; and

 

c.           Any other agreements, documents, instruments and writings, including, without limitation, intellectual property security agreements, required by Lender to evidence, perfect or protect the Liens and security interests in the Collateral or as Lender may reasonably request from time to time.

 

3.3. Other Actions :

 

a.           In addition to the foregoing, each Borrower shall do anything further that may be reasonably required by Lender to secure Lender and effectuate the granting and perfection of Liens under this Agreement, including, without limitation, the execution and delivery of security agreements, contracts and any other documents required hereunder and the delivery of motor titles with Lender’s lien noted thereon. At Lender’s reasonable request, each Borrower shall also promptly deliver (with execution by such Borrower of all necessary documents or forms to reflect, implement or enforce the Liens described herein), or cause to be delivered to Lender all items for which Lender must receive possession to obtain a perfected security interest, including without limitation, all notes, stock powers, letters of credit, certificates and documents of title, Chattel Paper, Warehouse Receipts, Instruments, and any other similar instruments constituting Collateral.

 

b.           Lender is hereby authorized to file financing statements and amendments to financing statements without any Borrower’s signature, in accordance with the UCC. Each Borrower hereby authorizes Lender to file all such financing statements and amendments to financing statements describing the Collateral in any filing office as Lender, in its sole discretion may determine, including financing statements listing “All Assets” in the collateral description therein. Each Borrower agrees to comply with the requests of Lender in order for Lender to have and maintain a valid and perfected first security interest in the Collateral including, without limitation, executing and using commercially reasonable efforts to cause any other Person to execute such documents as Lender may require to obtain Control (as defined in the UCC) over all Deposit Accounts (other than Trust Accounts), Letter of Credit Rights and Investment Property.

 

3.4. Searches, Certificates:

 

a.           Lender shall, prior to or at Closing, and thereafter as Lender may reasonably determine from time to time, at Borrowers’ expense, obtain the following searches (the results of which are to be consistent with the warranties made by Loan Parties in this Agreement):

 

(i)          UCC searches with the Secretary of State and local filing office of each state where each Loan Party is organized, maintains its executive office, a place of business, or assets; and

 

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(ii)         Judgment, state and federal tax lien and corporate tax lien searches, in all applicable filing offices of each state searched under subparagraph (i) above.

 

b.           Each Loan Party shall, prior to or at Closing and at its expense, obtain and deliver to Lender good standing certificates showing such Loan Party to be in good standing in its state of organization and in each other state in which it is doing and presently intends to do business for which qualification is required.

 

3.5.           Landlord’s and Warehouseman’s Waivers; Access Agreements : Each Borrower will use its commercially reasonable efforts to cause each owner of any premises occupied by such Borrower or to be occupied by such Borrower and each warehouseman of any warehouse, where, in either case Collateral is held, to execute and deliver to Lender an instrument, in form and substance satisfactory to Lender, under which such owner(s) or warehouseman subordinates its/his/their interests in and waives its/his/their right to distrain on or foreclose against the Collateral and agrees to allow Lender to enter into and remain on such premises to dispose of or deal with any Collateral located thereon.

 

3.6.           Filing Security Agreement : A carbon, photographic or other reproduction or other copy of this Agreement or of a financing statement is sufficient as and may be filed in lieu of a financing statement.

 

3.7.           Power of Attorney : Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring any of them to act as such) with full power of substitution to do the following: (a) endorse the name of such Borrower upon any and all checks, drafts, money orders and other instruments for the payment of monies that are payable to such Borrower and constitute collections on such Borrower’s Accounts or proceeds of other Collateral; (b) execute and/or file in the name of each Borrower any financing statements, schedules, assignments, instruments, documents and statements that such Borrower is obligated to give Lender hereunder or is necessary to perfect (or continue or evidence the perfection of such security interest or Lien) Lender’s security interest or Lien in the Collateral including without limitation, the notification of Account Debtors of Lender’s security interest in any such Collateral; and (c) upon the occurrence of an Event of Default which is continuing do such other and further acts and deeds in the name of each Borrower that Lender may reasonably deem necessary or desirable to enforce any Account or other Collateral.

 

SECTION IV.           CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

 

Closing under this Agreement is subject to the following conditions precedent (all instruments, documents and agreements to be in form and substance satisfactory to Lender and Lender’s counsel):

 

4.1.          Resolutions, Opinions, and Other Documents : Each Loan Party shall have delivered, or caused to be delivered to Lender the following:

 

a.           this Agreement, the Term Loan Note and each of the other Loan Documents to be executed and/or delivered by each Borrower or any other Person pursuant to this Agreement, all properly executed;

 

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b.           financing statements, certificates evidencing the Capital Stock pledged to Lender under the Pledge Agreement, duly indorsed in blank, and each of the other Loan Documents;

 

c.           the landlord’s and warehouseman’s waivers required under Section 3.5;

 

d.           certified copies of (i) resolutions of each Loan Party’s board of directors, authorizing the execution, delivery and performance of this Agreement, the Term Loan Note to be issued hereunder and each of the other Loan Documents required to be delivered by any Section hereof and (ii) each Loan Party’s Organizational Documents (certified by the applicable secretary of state), as applicable;

 

e.           an incumbency certificate for each Loan Party identifying all Authorized Officers, with specimen signatures;

 

f.            a written opinion of each Loan Party’s independent counsel addressed to Lender and opinions of such other counsel as Lender deems reasonably necessary;

 

g.           such financial statements, reports, certifications and other operational information as Lender may reasonably require, satisfactory in all respects to Lender;

 

h.           certification by an Authorized Officer of the Borrowers that there has not occurred any material adverse change in the operations and condition (financial or otherwise) of the Borrowers, taken as a whole, since December 31, 2015;

 

i.            certification by an Authorized Officer of Parent that there has not occurred any material adverse change in the operations and condition (financial or otherwise) of Parent since December 31, 2015;

 

j.            payment by Borrowers of all fees including, without limitation, the Closing Fee and all Expenses associated with the Term Loan required to be paid hereunder;

 

k.          searches and certificates required under Section 3.4;

 

l.            insurance certificates and policies as required under Section 6.2;

 

m.           copies of Borrowers’ material contracts with their Affiliates, which Lender shall have reviewed to its satisfaction;

 

n.           the Management Fee Subordination Agreement, duly executed by all parties thereto; and

 

o.           such other documents reasonably required by Lender.

 

4.2.          Absence of Certain Events : At the Closing Date, no Default or Event of Default hereunder shall have occurred and be continuing.

 

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4.3.          Warranties and Representations at Closing : The warranties and representations contained in Section 5 as well as any other Section of this Agreement shall be true and correct in all respects on the Closing Date with the same effect as though made on and as of that date, except to the extent such warranties and representations relate to an earlier date, in which case such warranties and representations shall be true and correct in all respects as of such earlier date. No Loan Party shall have taken any action or permitted any condition to exist which would have been prohibited by any Section hereof.

 

4.4.          Compliance with this Agreement : Each Loan Party shall have performed and complied with all agreements, covenants and conditions contained herein including, without limitation, the provisions of Sections 6 and 7 hereof, which are required to be performed or complied with by the Loan Parties before or at the Closing Date.

 

4.5.          Officers’ Certificate : Lender shall have received a certificate dated the Closing Date and signed by the chief financial officer of each Loan Party certifying that all of the conditions specified in this Section 4 have been fulfilled.

 

4.6.          Closing : Subject to the conditions of this Section, the Term Loan shall be made available on such date (the “Closing Date”) and at such time as may be mutually agreeable to the parties contemporaneously with the execution hereof (“Closing”) at such place as may be mutually agreeable to the parties.

 

4.7.          Waiver of Rights : By completing the Closing hereunder, Lender does not thereby waive a breach of any warranty or representation made by any Loan Party hereunder or under any agreement, document, or instrument delivered to Lender or otherwise referred to herein, and any claims and rights of Lender resulting from any breach or misrepresentation by any Loan Party are specifically reserved by Lender.

 

SECTION V.         REPRESENTATIONS AND WARRANTIES

 

To induce Lender to complete the Closing and make the Term Loan to Borrowers, each Loan Party warrants and represents to Lender that:

 

5.1.          Organization and Validity :

 

a.           Each Loan Party (i) is a corporation or limited liability company, as applicable, duly organized and validly existing under the laws of the state of its organization, (ii) has the appropriate power and authority to operate its business and to own its Property and (iii) is duly qualified, is validly existing and in good standing and has lawful power and authority to engage in the business it conducts in each state where the nature and extent of its business requires qualification, except where the failure to so qualify does not and could not have a Material Adverse Effect. A list of all states and other jurisdictions where each Loan Party is qualified to do business on the Closing Date is shown on Schedule “5.1” attached hereto and made part hereof.

 

b.           The making and performance of this Agreement and the other Loan Documents will not (i) violate any Requirement of Law or decree, award, injunction, judgment by which such Loan Party is bound, (ii) violate the Organizational Documents of any Loan Party, (iii) cause or result in the imposition or creation of any lien upon any property of any Loan Party, (iv) or violate or result in a default or breach (immediately or with the passage of time) under any contract, agreement, indenture or instrument to which such Loan Party is a party, or by which such Loan Party is bound, including the Material Agreements. No Loan Party is in violation of any term of any contract, agreement, indenture or instrument to which it is a party or by which it may be bound which violation has or could have a Material Adverse Effect, or of its Organizational Documents.

 

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c.           Each Loan Party has all requisite power and authority to enter into and perform this Agreement and each other Loan Document to which it is party and to incur the obligations herein and therein provided for, and has taken all proper and necessary action to authorize the execution, delivery and performance of this Agreement, and the other Loan Documents as applicable.

 

d.           This Agreement, the Term Loan Note to be issued hereunder, and all of the other Loan Documents, when delivered, will be valid and binding upon each Loan Party, as applicable, and enforceable in accordance with their respective terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

 

5.2.          Places of Business : The only places of business of each Borrower, and the places where such Borrower keeps and intends to keep its Property as of the Closing Date, are at the addresses shown on Schedule “5.2” attached hereto and made part hereof.

 

5.3.          Pending Litigation : Other than as set forth on Schedule 5.3 hereto or otherwise disclosed in Parent’s filings with the SEC, there are no suits, claims, judgments or judicial or administrative orders or proceedings pending, or to the knowledge of any Loan Party, threatened, against any Loan Party in any court or before any Governmental Authority which (i) individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect, or (ii) allege the invalidity of or dispute any of the terms of this Agreement or any Loan Document. No Loan Party is in violation of any order, writ, injunction or decree of any Governmental Authority. To the knowledge of each Loan Party, there are no investigations (civil or criminal) pending or threatened against such Loan Party in any court or before any Governmental Authority.

 

5.4.          Title to Properties : Each Borrower has good and marketable title in fee simple (or its equivalent under applicable law) to all the Property it purports to own, free from Liens and free from the claims of any other Person, except for Permitted Liens.

 

5.5.          Consent : No consent, approval, license or authorization of any Person, or recording, registration or filing with any Person is required by any Requirement of Law or any agreement in connection with any Loan Party’s execution, delivery and performance of this Agreement or any other Loan Documents, other than (a) the filings and other actions required to be taken by the terms of the Loan Documents to perfect the Liens created by the Loan Documents, and (b) the filings to be made by Parent with the SEC to applicable securities laws.

 

5.6.          Taxes : All tax returns required to be filed by any Loan Party in any jurisdiction have been filed. All taxes, assessments, fees and other governmental charges upon any Loan Party, or upon any of its Property, income or franchises, which are shown to be due and payable on such returns have been paid, except for those taxes being contested in good faith with due diligence by appropriate proceedings for which appropriate reserves have been maintained under GAAP and as to which no Lien has been entered. As of the Closing Date, no Loan Party is aware of any proposed additional tax assessment or tax to be assessed against or applicable to any Loan Party.

 

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5.7. Financial Statements and Projections :

 

a.           The annual audited consolidated financial statements of Parent, which include the financial statements of the Borrowers, from Parent’s independent certified public accountants (complete copies of which have been delivered to Lender), and the interim reviewed balance sheet of each Borrower as of June 30, 2016, and the related statements of profit and loss, stockholder’s equity and cash flow as of such date have been prepared in accordance with GAAP and present fairly the financial position of each Borrower as of such date and the results of its operations for such periods, subject to lack of footnotes and year-end adjustments for interim financial statements.

 

b.           The annual audited balance sheet of Parent as of December 31, 2015, and the related statements of profit and loss, stockholder’s equity and cash flow as of such date accompanied by reports thereon from Parent’s independent certified public accountants (complete copies of which have been delivered to Lender), and the interim internally prepared balance sheet of Parent as of June 30, 2016, and the related statements of profit and loss, stockholder’s equity and cash flow as of such date have been prepared in accordance with GAAP and present fairly the financial position of Parent as of such date and the results of its operations for such periods, subject to lack of footnotes and year-end adjustments for interim financial statements.

 

c.           The fiscal year for each Loan Party currently ends on December 31. Each Loan Party’s federal tax identification number and each Borrower’s state organizational identification number for UCC purposes are as shown on Schedule “5.7” attached hereto and made part hereof.

 

d.           As of the Closing Date, no Loan Party has any material liabilities, contingent or otherwise, other than as disclosed in the financial statements referred to in Section 5.7(a)and (b) or set forth on Schedule “5.7” and there are not now and not anticipated any material unrealized losses of any Loan Party.

 

e.           The operating projections that have been previously submitted to Lender and that will be submitted to Lender pursuant to Section 6.9, present, to each Loan Party’s knowledge and belief based on the assumptions set forth in such projections, the expected results of operations and sources and uses of cash of Borrowers for the periods covered by such projections (it being recognized by Lender that any projections and forecasts provided by the Loan Parties are based on estimates and assumptions believed by the Loan Parties to be reasonable as of the date of the projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ from projected or forecasted results).

 

5.8.          Full Disclosure : The financial statements referred to in Section 5.7 of this Agreement do not, nor does any other written statement of any Loan Party to Lender in connection with the negotiation of the Term Loan, contain any untrue statement of a material fact in light of the circumstances under which such statements were made as of the time when such statements were made. Such statements, taken as a whole, do not omit a material fact, the omission of which would make the statements contained therein misleading in light of the circumstances under which such statements were made as of the time when such statements were made. As of the Closing Date, there is no fact known to any Loan Party which has not been disclosed in writing to Lender which has or could have a Material Adverse Effect.

 

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5.9.          Subsidiaries : As of the Closing Date, no Borrower has any Subsidiaries, except as shown on Schedule “5.9” attached hereto and made part hereof, which Schedule shows such Subsidiary’s or Affiliate’s name, jurisdiction of organization, classes of Capital Stock and the holders of such Capital Stock.

 

5.10. Investments, Guarantees, Contracts, etc. :

 

a.           As of the Closing Date, no Loan Party owns or holds equity or long term debt investments in, or has any outstanding advances to, any other Person, except as shown on Schedule “5.10(a),” attached hereto and made part hereof.

 

b.           As of the Closing Date, no Borrower has entered into any leases for real or personal Property (whether as landlord or tenant or lessor or lessee), except as shown on Schedule “5.10(b),” attached hereto and made part hereof.

 

c.            As of the Closing Date, no Loan Party is a party to any contract or agreement, or subject to any restriction under any Organizational Document, which, assuming compliance with such contract, agreement or restriction, has or could reasonably be expected to have a Material Adverse Effect.

 

d.            Except as otherwise specifically provided in this Agreement, no Loan Party has agreed or consented to, or is party to any agreement, restricting, directly or indirectly, the granting of a Lien with respect to any Loan Party’s Property.

 

5.11. Government Regulations, ERISA, etc. :

 

a.            The use of the proceeds of the Term Loan will not directly or indirectly violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations U, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. No Borrower owns or intends to carry or purchase any “margin stock” within the meaning of said Regulation U.

 

b.            Each Loan Party has obtained all licenses, permits, franchises or other governmental authorizations necessary for the ownership of its Property and for the conduct of its business.

 

c.            (i)          No Loan Party, no Subsidiary of any Loan Party and no ERISA Affiliate maintains or contributes to any Employee Pension Plan or Multiemployer Plan, except as disclosed on Schedule 5.11(c) attached hereto.

 

(ii)         Each Plan, which is intended to be qualified within the meaning of Section 401(a) of the Code, has received a favorable determination, opinion or advisory letter from the IRS with respect to all plan document qualification requirements for which the remedial amendment period under Section 401(b) of the Code has closed, any plan document amendments required by such determination letter were made as and when required by such determination letter, and nothing has occurred, whether by action or failure to act, since the date of such letter which would reasonably be expected to prevent any such plan from remaining so qualified.

 

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(iii)        Each Plan has been operated in all material respects in compliance with the requirements of the Code and ERISA and the terms of each Plan.

 

(iv)        Except as specifically disclosed on Schedule 5.11(c): (a) with respect to any Plan, there has been no transaction in connection with which any Loan Party, its Subsidiaries or their respective ERISA Affiliates could be subject to either a material civil penalty assessed pursuant to Section 502(i) of ERISA or a material tax penalty imposed pursuant to Section 4975 of the Code; (b) there has been no failure by any Employee Pension Plan to satisfy the Minimum Funding Standards applicable to such Employee Pension Plan, whether or not waived, or an unfulfilled obligation to contribute to any Multiemployer Plan; (c) no liability to the PBGC has been or is reasonably expected to be incurred with respect to any Employee Pension Plan except for required premium payments to the PBGC; (d) there has been (1) no Reportable Event with respect to any Employee Pension Plan, and (2) no event or condition which presents a material risk of termination of any Employee Pension Plan by the PBGC, in either case involving conditions which could result in any liability to the PBGC; (e) neither any Loan Party, its Subsidiaries nor any ERISA Affiliate (1) has incurred or reasonably expects to incur Withdrawal Liability with respect to any Multiemployer Plan, (2) has received any notification that a Multiemployer Plan is in Reorganization, or (3) reasonably expects any Multiemployer Plan to be in Reorganization; (f) there is no material liability, and no circumstances exist pursuant to which any such material liability could reasonably be imposed on any Loan Party, any of its Subsidiaries or any ERISA Affiliate under Sections 4980B, 4980D or 5000 of the Code or Sections 409 and 502(l) of ERISA, with respect to any Plan; (g) there is no Plan (that is an “employee welfare benefit plan,” as defined in Section 3(1) of ERISA) (1) providing for retiree health and/or life insurance or death benefits, other than for continuation coverage described under COBRA (or similar state law) or (2) having unfunded liabilities; (h) neither any Loan Party, its Subsidiaries nor any ERISA Affiliate is subject to the Early Warning Program of the PBGC (as described in PBGC Technical Update 00-3) or has been contacted by the PBGC in connection with the PBGC’s Early Warning Program; and (i) there is no outstanding material liability attributable to any Employee Pension Plan subject to Title IV of ERISA or any Multiemployer Plan which was previously maintained by or to which contributions were made or required to be made by any Loan Party, any of its Subsidiaries or any ERISA Affiliate, or any entity that heretofore was an ERISA Affiliate.

 

d.           No Loan Party is in violation of, or in receipt of written notice that it is in violation of, any Requirement of Law (including, without limitation, Environmental Laws), a violation of which causes or could reasonably be expected to cause a Material Adverse Effect.

 

5.12.         Business Interruptions : Within five (5) years prior to the date hereof, none of the business, Property or operations of any Borrower has been materially and adversely affected in any way by any casualty, strike, lockout, combination of workers, order of the United States of America, or any state or local government, or any political subdivision or agency thereof, directed against such Borrower. There are no pending or, to any Loan Party’s knowledge, threatened labor disputes, strikes, lockouts or similar occurrences or grievances affecting any Borrower. No labor contract of any Borrower is scheduled to expire prior to the Term Loan Maturity Date.

 

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5.13. Names and Intellectual Property :

 

a.           Within five (5) years prior to the Closing Date, no Borrower has conducted business under or used any other name (whether corporate or assumed) except for the names shown on Schedule “5.13(a)” attached hereto and made part hereof. Each Borrower is the sole owner of all names listed on such Schedule “5.13(a)” and any and all business done and all invoices issued in such trade names are such Borrower’s sales, business and invoices. Each trade name of each Borrower represents a division or trading style of such Borrower and not a separate Subsidiary or Affiliate or independent entity.

 

b.           All trademarks, service marks, patents or copyrights which each Borrower uses, plans to use or has a right to use as of the Closing Date are shown on Schedule “5.13(b)” attached hereto and made part hereof and such Borrower is the sole owner of such Property except to the extent any other Person has claims or rights in such Property, as such claims and rights are shown on Schedule “5.13(b)”. All material copyrights have been registered with the United States Copyright Office. No Borrower is in violation of any rights of any other Person with respect to such Property.

 

c.           Except as shown on Schedule “5.13(c)” attached hereto and made part hereof, (i) no Borrower requires any copyrights, patents, trademarks or other intellectual property, or any license(s) to use any patents, trademarks or other intellectual property in order to provide services to its customers in the ordinary course of business; and (ii) Lender will not require any copyrights, patents, trademarks or other intellectual property or any licenses to use the same in order to provide such services after the occurrence of an Event of Default.

 

5.14.         Other Associations : As of the Closing Date, no Loan Party is engaged and has any interest in any joint venture or partnership with any other Person except as shown on Schedule “5.14,” attached hereto and made part hereof.

 

5.15. Environmental Matters : Except as shown on Schedule “5.15,” attached hereto and made part hereof:

 

a.           To the best of each Loan Party’s knowledge after due inquiry, no Property presently owned, leased or operated by any Borrower contains, or has previously contained, any Hazardous Substances in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could give rise to liability under, any Environmental Law.

 

b.           To the best of each Loan Party’s knowledge after due inquiry, each Loan Party is in compliance, and, for the duration of all applicable statutes of limitations periods, has been in compliance with all applicable Environmental Laws, and there is no contamination at, under or about any properties presently owned, leased, or operated by any Borrower or violation of any Environmental Law with respect to such properties which could reasonably be expected to interfere with any of their continued operations or reasonably be expected to impair the fair saleable value thereof.

 

c.           No Loan Party has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance assessment with Environmental Laws and no Loan Party has any knowledge that any such notice will be received or is being threatened.

 

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d.           Hazardous Substances have not been transported or disposed of in a manner or to a location which are reasonably likely to give rise to liability of any Borrower under any Environmental Law.

 

e.           No judicial proceeding or governmental or administrative action is pending, or to the knowledge of any Loan Party, threatened under any Environmental Law to which any Borrower is, or to any Loan Party’s knowledge will be, named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding, the implementation of which is reasonably likely to have a Material Adverse Effect on any natural resources or on any Borrower’s business, financial condition, Property or prospects under any Environmental Law.

 

5.16.         Investment Company Act : No Loan Party is an “investment company” or a company “controlled by an investment company” within the meaning of the Investment Company Act of 1940.

 

5.17.         Capital Stock : The authorized and outstanding Capital Stock of each Borrower as of the Closing Date is as shown on Schedule “5.17” attached hereto and made part hereof. All of the Capital Stock of each Loan Party has been duly and validly authorized and issued and is fully paid and non-assessable and has been sold and delivered to the holders thereof in compliance with, or under valid exemption from, all Federal and state laws and the rules and regulations of all Governmental Authorities governing the sale and delivery of securities. There are no subscriptions, warrants, options, calls, commitments, rights or agreements by which any Borrower or any of the shareholders of any Borrower is bound relating to the issuance, transfer, voting or redemption of shares of its Capital Stock or any pre-emptive rights held by any Person with respect to the shares of Capital Stock of such Loan Party. No Borrower has issued any securities convertible into or exchangeable for shares of its Capital Stock or any options, warrants or other rights to acquire such shares or securities convertible into or exchangeable for such shares.

 

5.18.         Solvency : After giving effect to the transactions contemplated under this Agreement, each Loan Party is solvent, is able to pay its debts as they become due, and has capital sufficient to carry on its business and all businesses in which it is about to engage, and now owns Property having a value both at fair valuation and at present fair salable value greater than the amount required to pay such Loan Party’s debts. No Loan Party will be rendered insolvent by the execution and delivery of this Agreement or any of the other Loan Documents executed in connection with this Agreement or by the transactions contemplated hereunder or thereunder.

 

5.19.         Perfection and Priority : This Agreement and the other Loan Documents are effective to create in favor of Lender legal, valid and enforceable Liens in all right, title and interest of each Loan Party in the Collateral, and when financing statements have been filed in the offices of the jurisdictions shown on Schedule “5.19,” attached hereto and made part hereof under such Loan Party’s name and control is taken with respect to such Collateral where control is necessary to perfect such security interest, such Loan Party will have granted to Lender, and Lender will have perfected first priority Liens (subject to Permitted Liens) in the Collateral, to the extent a security interest therein can be perfected by filing a financing statement or obtaining control, superior in right to any and all other Liens, existing or future other than Permitted Liens.

 

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5.20.        Commercial Tort Claims : As of the Closing Date, no Borrower is a party to any Commercial Tort Claims, except as shown on Schedule “5.20” attached hereto and made part hereof.

 

5.21.        Letter of Credit Rights : As of the Closing Date, no Borrower has any Letter of Credit Rights, except as shown on Schedule “5.21,” attached hereto and made part hereof.

 

5.22.        Deposit Accounts : As of the Closing Date, all Deposit Accounts (excluding all Trust Accounts) of each Borrower are shown on Schedule “5.22,” attached hereto and made part hereof.

 

5.23.        Anti-Terrorism Laws :

 

a.            General . No Loan Party nor any Subsidiary of a Loan Party is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

 

b.            Executive Order No. 13224 . Neither any Loan Party nor any Subsidiary of a Loan Party, or to any Loan Party’s knowledge, any of its respective agents acting or benefiting in any capacity in connection with the Term Loan or other transactions hereunder, is any of the following (each a “Blocked Person”):

 

(i)          a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

 

(ii)         a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

 

(iii)        a Person with which Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

 

(iv)        a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

 

(v)         a Person that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list; or

 

(vi)        a Person who is affiliated with a Person listed above.

 

5.24. [Reserved] .

 

5.25.         Management Agreements : Except for the Management Agreement, no Borrower is a party to any management, employment, consulting or other similar agreement or arrangement (whether oral or written) respecting the management of their respective businesses except for usual and customary employment agreements.

 

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SECTION VI.           AFFIRMATIVE COVENANTS

 

Each Loan Party covenants that until all of the Obligations are paid and satisfied in full (excluding contingent indemnification and expense reimbursement obligations to the extent no claim giving rise thereto has been asserted), that:

 

6.1.           Payment of Taxes and Claims : Each Loan Party shall pay, before they become delinquent, all federal and other material taxes, assessments and governmental charges, or levies imposed upon it, or upon such Loan Party’s Property, and all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons, entitled to the benefit of statutory or common law Liens which, in any case, if unpaid, would result in the imposition of a Lien upon its Property; provided however, that each Loan Party shall not be required to pay any such tax, assessment, charge, levy, claim or demand if the amount, applicability or validity thereof, shall at the time, be contested in good faith and by appropriate proceedings by such Loan Party, and if such Loan Party shall have set aside on its books adequate reserves in respect thereof, if so required in accordance with GAAP; which deferment of payment is permissible so long as no Lien other than a Permitted Lien has been entered and such Loan Party’s title to, and its right to use, its Property are not materially adversely affected thereby.

 

6.2. Maintenance of Properties and Corporate Existence :

 

a.            Property – Each Borrower shall maintain its Property in good condition (normal wear and tear excepted), make all necessary renewals, replacements, additions, betterments and improvements thereto and will pay and discharge when due the cost of repairs and maintenance to its Property, and will pay all rentals when due for all real estate leased by such Loan Party.

 

b.            Property Insurance, Public and Products Liability Insurance – Each Borrower shall maintain insurance (i) on all insurable tangible Property against fire, flood, casualty and such other hazards (including, without limitation, extended coverage, workmen’s compensation, boiler and machinery, with inflation coverage by endorsement) and (ii) against public liability, product liability and business interruption, in each case in such amounts, with such deductibles and with such insurers as are customarily used by companies operating in the same industry as such Loan Party. At or prior to Closing, each Borrower shall furnish Lender with duplicate original policies of insurance or such other evidence of insurance as Lender may require, and any certificates of insurance shall be issued on Acord Form 25 or 27 (or 28), as applicable. In the event any Borrower fails to procure or cause to be procured any such insurance or to timely pay or cause to be paid the premium(s) on any such insurance, Lender may do so for such Borrower but such Borrower shall continue to be liable for the same. The policies of all such casualty insurance shall contain standard Lender’s Loss Payable Clauses (and, with respect to liability and interruption insurance, additional insured clauses) issued in favor of Lender under which all losses thereunder shall be paid to Lender as Lender’s interest may appear. Such policies shall expressly provide that the requisite insurance cannot be altered or canceled without thirty (30) days prior written notice to Lender and shall insure Lender notwithstanding the act or neglect of any Loan Party. Each Borrower hereby appoints Lender as such Borrower’s attorney-in-fact, exercisable at Lender’s option to endorse any check which may be payable to such Borrower in order to collect the proceeds of such insurance and any amount or amounts collected by Lender pursuant to the provisions of this Section may be applied by Lender, in its sole discretion, to any Obligations or to repair, reconstruct or replace the loss of or damage to Collateral as Lender in its discretion may from time to time determine; provided that so long as no Event of Default shall have occurred and be continuing, Borrower’s consent shall be required prior to any repair, reconstruction or replacement by Lender. Each Borrower further covenants that all insurance premiums owing under its current policies have been paid. Each Borrower shall notify Lender, immediately, upon such Loan Party’s receipt of a notice of termination, cancellation, or non-renewal from its insurance company of any such policy.

 

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c.            Financial Records – Each Loan Party shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. No Loan Party shall change its fiscal year end date without the prior written consent of Lender.

 

d.            Corporate Existence and Rights – Each Loan Party shall do (or cause to be done) all things necessary to preserve and keep in full force and effect its existence, good standing, rights and franchises. Each Loan Party shall obtain and maintain any and all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its Property or the conduct of its businesses.

 

e.            Compliance with Laws – Each Loan Party shall be in compliance in all material respects with any and all Requirements of Law to which it is subject, including without limitation, Environmental Laws. Each Loan Party shall timely satisfy all assessments, fines, costs and penalties imposed (after exhaustion of all appeals, provided a stay has been put in effect during such appeal) by any Governmental Authority against Loan Party or any Property of such Loan Party.

 

6.3.           Business Conducted : Each Borrower shall continue in the business presently operated by it using its commercially reasonable efforts to maintain its customers and goodwill. No Borrower shall engage, directly or indirectly, in any material respect in any line of business substantially different from the businesses conducted by such Borrower immediately prior to the Closing Date. Parent shall not engage, directly or indirectly, in any material respect in any line of business that is not either related, ancillary or complementary to the business of Parent as of the Closing Date, or to the businesses conducted by Borrowers.

 

6.4.           Litigation Notices : Each Loan Party shall give prompt notice to Lender of any litigation claiming in excess of One Hundred Thousand Dollars ($100,000) from such Loan Party, or which may otherwise have a Material Adverse Effect.

 

6.5.           Issue Taxes : Each Loan Party shall pay all taxes (other than taxes based upon or measured by any Lender’s income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of any lien documents. The obligations of each Loan Party hereunder shall survive the payment of Loan Party’s Obligations hereunder and the termination of this Agreement.

 

6.6.           Deposit Accounts : Except as set forth in Section 6.17, Borrowers shall negotiate and execute deposit account control agreements, in form and content satisfactory to Lender, among the applicable Borrower, Lender and the institution with which the applicable Deposit Account is maintained (“Control Agreements”), in respect of each of the Deposit Accounts identified on Schedule “5.22” within ninety (90) days after Closing. No Borrower shall open and maintain any Deposit Accounts other than (a) as maintained on the date hereof and set forth on Schedule “5.22” attached hereto or (b) a Deposit Account as to which such Borrower has complied with the terms and conditions set forth in Section 6.9(f) hereof.

 

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6.7.           ERISA Notices : Each Loan Party shall deliver to Lender (i) promptly, and in any event within ten (10) Business Days, after the receipt thereof, copies of all reports and notices which any Loan Party, any of its Subsidiaries or any ERISA Affiliate receives from PBGC, IRS or the DOL, and at the request of Lender, copies of all annual reports for Employee Pension Plans filed with the DOL or IRS, and (ii) as soon as possible and in any event within ten (10) Business Days after any Loan Party knows or has reason to know that (A) any Reportable Event has occurred or is reasonably expected to occur with respect to any Employee Pension Plan, (B) an Accumulated Funding Deficiency has been incurred or an application has been made to the Secretary of the United States Treasury for a waiver or modification of the minimum funding standard or an extension of any amortization period under Section 412 of the Code with respect to an Employee Pension Plan, (C) proceedings have been instituted or are reasonably expected to be instituted under Title IV of ERISA to terminate any Employee Pension Plan, (D) any Withdrawal Liability from a Multiemployer Plan has been or will be incurred by any Loan Party, any of its Subsidiaries or any ERISA Affiliate, (E) any Multiemployer Plan is or is reasonably expected to be in Reorganization, terminated, partitioned or declared insolvent, (F) an action has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Multiemployer Plan, (G) any event, transaction or condition has occurred or will occur that could reasonably be expected to result in the imposition of a lien under Part 3 of Subtitle B of Title I of ERISA or Title IV of ERISA, (H) any Prohibited Transaction or other transaction, event or condition has occurred or will occur with respect to a Plan that could reasonably be expected to result in any Loan Party, any of its Subsidiaries or any ERISA Affiliate incurring a material liability or becoming subject to a material penalty or excise tax, or (I) the PBGC has contacted any Loan Party, any of its Subsidiaries or any ERISA Affiliate with respect to the PBGC’s Early Warning Program, a certificate of an Authorized Officer of Borrowing Agent setting forth the details as to such event, transaction or condition and the action any Loan Party has taken, is taking or proposes to take with respect thereto and with respect to (A) and (B) above, with copies of any notices and applications.

 

6.8.          Financial Covenants : Loan Parties shall maintain and comply with, and cause to be maintained and complied with, the following financial covenants:

 

a.            Debt Coverage Ratio – Borrowers shall maintain a Debt Coverage Ratio of not less than (i) 1.20 to 1.00 as of the end of each fiscal quarter through and including the fiscal quarter ending September 30, 2017, and (ii) 1.30 to 1.00 as of the end of each fiscal quarter thereafter, measured on a trailing four fiscal quarter basis.

 

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b.            Total Leverage Ratio – Borrowers shall maintain a Total Leverage Ratio of not more than the following amounts as of the end of the following fiscal quarters, measured on a trailing four fiscal quarter basis:

 

Total Leverage Ratio   Fiscal Quarters Ending
     
4.50 to 1:00   December 31, 2016, and March 31, June 30, and September 30, 2017
     
4.25 to 1.00   December 31, 2017, and March 31, June 30, and September 30, 2018
     
3.55 to 1.00   December 31, 2018, and March 31, June 30, and September 30, 2019
     
3.25 to 1.00   December 31, 2019, and March 31, June 30, and September 30, 2020
     
2.75 to 1.00   December 31, 2020, and March 31, June 30, and September 30, 2021
     
2.25 to 1.00   Measured as of December 31, 2021, and as of the last day of each fiscal quarter thereafter

 

6.9.          Financial and Business Information : Each Loan Party shall deliver or cause to be delivered to Lender the following:

 

a.           Financial Statements and Collateral Reports: such data, reports, statements and information, financial or otherwise, as Lender may reasonably request, including, without limitation:

 

(i)          within thirty (30) days after the end of each calendar month of Borrowers, the consolidated and consolidating income and cash flow statements of each Borrower and its Subsidiaries for such month and for the expired portion of the fiscal year ending with the end of such month prepared in accordance with GAAP (without footnotes and subject to year-end adjustments and setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, and the consolidated and consolidating balance sheet of each Borrower and its Subsidiaries as at the end of such month, setting forth in comparative form the corresponding figures as at the end of the corresponding periods of the previous fiscal year, all prepared in accordance with GAAP (without footnotes and subject to year-end adjustments) and in reasonable detail and certified by Borrowing Agent’s chief financial officer to have been prepared from the books and records of Borrowers;

 

(ii)         within sixty (60) days after the end of each fiscal quarter of Borrowers, the consolidated and consolidating income and cash flow statements of each Borrower and its Subsidiaries for such quarter and for the expired portion of the fiscal year ending with the end of such quarter, prepared in accordance with GAAP (without footnotes and subject to year-end adjustments and setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, and the consolidated and consolidating balance sheet of each Borrower and its Subsidiaries as at the end of such quarter, setting forth in comparative form the corresponding figures as at the end of the corresponding periods of the previous fiscal year, all prepared in accordance with GAAP (without footnotes and subject to year-end adjustments) and in reasonable detail and certified by Borrowing Agent’s chief financial officer to have been prepared from the books and records of Borrowers;

 

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(iii)        within sixty (60) days after the end of each fiscal quarter of Parent (excluding the last fiscal quarter of such calendar year), the consolidated and consolidating income and cash flow statements of Parent and its Subsidiaries for such quarter and for the expired portion of the fiscal year ending with the end of such quarter, prepared in accordance with GAAP (without footnotes and subject to year-end adjustments and setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year), and the consolidated and consolidating balance sheet of Parent and its Subsidiaries as at the end of such quarter, setting forth in comparative form the corresponding figures as at the end of the corresponding periods of the previous fiscal year, all prepared in accordance with GAAP (without footnotes and subject to year-end adjustments) and in reasonable detail and certified by Parent’s chief financial officer to have been prepared from the books and records of Parent and its subsidiaries;

 

(iv)        within one hundred twenty (120) days after the end of each fiscal year of Parent, the consolidated and consolidating income and cash flow statements of Parent and its Subsidiaries (including each Borrower) for such year, and the consolidated and consolidating (if applicable) balance sheet of Parent and its Subsidiaries (including each Borrower) as at the end of such fiscal year, setting forth in each case in comparative form the corresponding figures as at the end of and for the previous fiscal year, all in reasonable detail, including all supporting schedules, and audited by Marcum LLP or another independent public accounting firm reasonably acceptable to Lender, and unqualifiedly certified to have been prepared in accordance with GAAP, together with copies of any management letters provided by such accountants to management of Parent and all regular schedulers to be provided by such independent public accountants as part of the audit of Parent;

 

(v)         no later than sixty (60) days after the commencement of each fiscal year, Borrowers’ annual consolidated and consolidating financial statement projections for the upcoming fiscal year and including, without limitation, a balance sheet, income statement and cash flow statement, all shown on a fiscal quarter basis. Such projections shall be consistent in format with the historical financial statements and shall include disclosure of all significant assumptions used in preparing the projections; and

 

(vi)        within thirty (30) days after filing with the Internal Revenue Service, the federal income tax returns of the Loan Parties.

 

b.            Notice of Event of Default – promptly upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default under this Agreement, a written notice specifying the nature and period of existence thereof and what action Loan Parties are taking (and propose to take) with respect thereto.

 

c.            Notice of Claimed Default – promptly upon receipt by any Loan Party, notice of default, oral or written, given to any Loan Party by any creditor for Indebtedness of any Borrower in excess of One Hundred Thousand Dollars ($100,000).

 

d.            [Reserved] .

 

e.            Notice of Breach of Governmental Order – promptly upon any Loan Party’s violation of any order, writ, injunction or decree of any Governmental Authority applicable to it, a written notice specifying the nature thereof and what action Loan Parties are taking (and propose to take) with respect thereto.

 

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f.             Notice of Deposit Account . Notice of any Borrower’s establishment of a new Deposit Account (other than a Trust Account), to be delivered not later than ten (10) Business Days prior to establishment of such Deposit Account. A Borrower shall negotiate and execute a Control Agreement for any new Deposit Account promptly after the establishment of any new Deposit Account (other than a Trust Account).

 

6.10.        Officers’ Certificates :

 

a.           Along with the set of financial statements delivered to Lender at the end of each fiscal quarter pursuant to Section 6.9(a)(ii) hereof and the annual financial statements delivered pursuant to Section 6.9(a)(iv) hereof, Borrowers shall deliver to Lender a certificate (“Compliance Certificate”) (in the form of Exhibit “A,” attached hereto and made part hereof) from the chief financial officer, chief executive officer or president of Borrowing Agent certifying:

 

(i)           Event of Default – that the signer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his/her supervision) a review of the transactions and conditions of each Borrower from the beginning of the accounting period covered by the financial statements being delivered therewith to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes a Default or an Event of Default or, if any such condition or event exists, specifying the nature and period of existence thereof and what action Borrowers have taken or propose to take with respect thereto.

 

(ii)          Covenant Compliance – the information (including detailed calculations) required in order to establish that Borrowers are in compliance with the requirements of Section 6.8(a) and (b) of this Agreement, as of the end of the period covered by the financial statements delivered.

 

b.            [Reserved] .

 

c.            Covenant Compliance – the information (including detailed calculations) required in order to establish that Borrowers are in compliance with the requirements of Section 6.8(a) and (b) of this Agreement, as of the end of the period covered by the financial statements delivered.

 

6.11.        Audits and Inspection; Appraisals : Loan Parties shall permit any of Lender’s officers or other representatives to visit and inspect upon reasonable notice during business hours any of the locations of Borrowers (provided that, while an Event of Default exists, Lender may make such visits and inspections at any time without prior notice) to examine and audit all of Borrowers’ Collateral, books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss its affairs, finances and accounts with its officers, employees and independent certified public accountants. Lender may also conduct, at Borrowers’ expense for Lender’s reasonable out-of-pocket expenses (all of which amounts shall be Expenses), field examinations with respect to the Collateral; provided that, Lender shall not, unless an Event of Default occurs, conduct more than two (2) field examinations per year.

 

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6.12.         Material Adverse Developments : Each Loan Party agrees that promptly upon becoming aware of any development or other information outside the ordinary course of business and excluding matters of a general economic, financial or political nature which would reasonably be expected to have a Material Adverse Effect it shall give to Lender telephonic notice specifying the nature of such development or information and such anticipated effect. In addition, such verbal communication shall be confirmed by written notice thereof to Lender on the same day such verbal communication is made or the next Business Day thereafter.

 

6.13.         Places of Business : Each Borrower shall give thirty (30) days prior written notice to Lender of any changes in the location of any of its respective places of business, of the places where records concerning its Accounts or where its Inventory are kept, or the establishment of any new, or the discontinuance of any existing place of business; provided that no Borrower may establish any place of business outside of the United States.

 

6.14.         Commercial Tort Claims : Each Borrower will promptly notify Lender in writing in the event that any Borrower becomes a party to or obtains any rights with respect to any Commercial Tort Claim. Such notification shall include information sufficient to describe such Commercial Tort Claim, including, but not limited to, the parties to the claim, the court in which the claim was commenced, the docket number assigned to such claim, if any, and a detailed explanation of the events that gave rise to the claim. Each Borrower shall execute and deliver to Lender all documents and/or agreements necessary to grant Lender a security interest in such Commercial Tort Claim to secure the Obligations. Each Borrower authorizes Lender to file (without such Borrower’s signature) initial financing statements or amendments, as Lender deems necessary to perfect its security interest in the Commercial Tort Claim.

 

6.15.         Letter of Credit Rights : Each Borrower shall provide Lender with written notice of any letters of credit for which such Borrower is the beneficiary. Each Borrower shall execute and deliver (or cause to be executed or delivered) to Lender, all documents and agreements as Lender may require in order to obtain and perfect its security interest in such Letter of Credit Rights.

 

6.16.         Lockbox : Upon Lender’s request at any time after the occurrence and during the continuance of an Event of Default, each Borrower shall establish a lockbox through which each Borrower shall instruct all Account Debtors to make payment on Accounts. Each Borrower shall execute such agreements as Lender may require to establish the lockbox.

 

6.17.         Liquidity : Commencing on a date no more than sixty (60) days after Closing, Borrowers shall maintain not less than $375,000 in a Deposit Account that is subject to a Control Agreement in favor of Lender.

 

SECTION VII.          NEGATIVE COVENANTS:

 

Each Loan Party covenants that until all of the Obligations are paid and satisfied in full (excluding contingent indemnification and expense reimbursement obligations to the extent no claim giving rise thereto has been asserted), that:

 

7.1.           Merger, Consolidation, Dissolution or Liquidation :

 

a.           No Borrower shall engage in any Asset Sale other than (i) the sale of Inventory in the ordinary course of business, (ii) equipment that is replaced by other equipment of comparable or superior quality and value within ninety (90) days of such Asset Sale, (iii) licenses, sublicenses, leases or subleases of Property granted to third parties in the ordinary course of business and not interfering with the business of the Loan Parties; (iv) sales, forgiveness or discounting, on a non-recourse basis and in the ordinary course of business, of past due accounts in connection with the collection or compromise thereof or the settlement of delinquent accounts or in connection with the bankruptcy or reorganization of suppliers or customers; (v) disposition of obsolete equipment; (vi) disposition of cash and cash equivalents; (vii) dispositions to another Borrower; (viii) issuances of capital stock to Parent; and (ix) dispositions resulting from any casualty events, provided the proceeds thereof are applied in accordance with the terms of this Agreement.

 

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b.           No Loan Party shall merge or consolidate with any other Person or commence a dissolution or liquidation, other than (i) the merger of a Subsidiary of a Borrower into such Borrower (where such Borrower is the surviving Person) or (ii) the merger of one Borrower with another.

 

7.2.           Acquisitions : No Borrower shall acquire all or a material portion of the Capital Stock or assets of any Person in any transaction or in any series of related transactions or enter into any sale and leaseback transaction.

 

7.3.           Liens and Encumbrances : No Borrower shall: (i) execute a negative pledge agreement with any Person covering any of its Property other than property subject to purchase money indebtedness permitted hereunder, or (ii) cause or permit or agree or consent to cause or permit in the future (upon the happening of a contingency or otherwise), its Property (including, without limitation, the Collateral), whether now owned or hereafter acquired, to be subject to a Lien except for Permitted Liens.

 

7.4.           Transactions With Affiliates or Subsidiaries :

 

a.           No Borrower shall enter into any transaction with any Subsidiary or other Affiliate, including, without limitation, the purchase, sale, or exchange of Property, or the loaning or giving of funds to any Affiliate or any Subsidiary unless: (i) the transaction is in the ordinary course of and pursuant to the reasonable requirements of such Loan Party’s business and upon terms substantially the same and no less favorable to such Loan Party as it would obtain in a comparable arm’s length transactions with any Person not an Affiliate or a Subsidiary, and so long as such transaction is not prohibited hereunder; (ii) such transaction is intended for incidental administrative purposes; or (iii) pursuant to the Management Agreement.

 

b.           No Borrower shall create any Subsidiary unless (i) such Subsidiary becomes a borrower party to this Agreement and the Loan Documents pursuant to documents in form and substance satisfactory to Lender, including the granting by such Subsidiary of security interests in all of its assets, subject to no Lien other than Permitted Liens, (ii) the Capital Stock of such Subsidiary is pledged to Lender and (iii) copies of such Subsidiary’s Organizational Documents are delivered to Lender together with such other proof as to the incumbency of officers and corporate actions as Lender may reasonably require.

 

7.5.           Guarantees : Excepting the endorsement in the ordinary course of business of negotiable instruments for deposit or collection, no Borrower shall become or be liable, directly or indirectly, primary or secondary, matured or contingent, in any manner, whether as guarantor, surety, accommodation maker, or otherwise, for the existing or future Indebtedness of any kind of any Person, except for Permitted Indebtedness of another Borrower.

 

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7.6.           Other Indebtedness : No Borrower shall: (a) hereafter incur, become liable for, or permit to exist any Indebtedness other than Permitted Indebtedness; or (b) make any prepayments on any existing or future Indebtedness (other than the Obligations).

 

7.7.           Loans and Investments : No Borrower shall make or have outstanding loans, advances, extensions of credit or capital contributions to, or investments in, any Person other than Permitted Investments.

 

7.8.           Use of Lenders’ Name : No Loan Party shall use Lender’s name in connection with any of its business operations. Nothing contained in this Agreement is intended to permit or authorize any Loan Party to make any contract on behalf of Lender.

 

7.9.           Miscellaneous Covenants :

 

a.           No Loan Party shall become or be a party to any contract or agreement which at the time of becoming a party to such contract or agreement materially impairs such Loan Party’s ability to perform under this Agreement.

 

b.           No Loan Party shall carry or purchase any “margin stock” within the meaning of Regulations U, T or X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II.

 

7.10.         Jurisdiction of Organization : No Loan Party shall change its jurisdiction of organization or, without fifteen (15) days prior written notice to Lender, change its name; provided, however, that no advance notice will be required to effectuate the name changes described on Schedule “7.10” hereto. No Loan Party shall amend its Organizational Documents in a manner adverse to Lender.

 

7.11.         Distributions :

 

a.           No Borrower shall declare, pay or make, any Distributions other than Permitted Distributions.

 

b.           No Borrower shall declare or pay any bonus compensation to its officers if an Event of Default exists or would result from the payment thereof .

 

7.12.         Parent/CSI Contracts : Neither Parent nor CSI will amend, modify, restate, replace or otherwise supplement any agreement (including, without limitation, any processing agreement) between those parties in a manner which would affect any of the payment terms thereof, or forgive or waive any of such payment terms, or redirect, assign or otherwise transfer such payments or any rights with respect thereto to any other Person, without the prior written consent of Lender.

 

7.13.         Management Arrangements :

 

a.           No Loan Party shall amend or modify the terms of the Management Agreement in a manner that would be adverse to Lender.

 

b.           No Borrower shall pay any management, monitoring, consulting, advisory fees or other similar fees except for Approved Management Fees.

 

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c.           No Borrower shall enter into or remain bound by any management, employment or consulting agreement with any Person that gives such Person the right to manage its business, except for the Management Agreement and usual and customary employment agreements and consulting agreements consistent with past practice.

 

7.14.         Tax Consolidation :

 

a.           Other than as required by Requirements of Law, no Loan Party shall elect to file any income tax return on behalf of an affiliated, combined, consolidated or unitary group that includes a Borrower, except that Parent may elect to file a consolidated federal income tax return that includes the Borrowers.

 

b.           No Loan Party shall, and will not permit any of its Subsidiaries to, enter into any agreement with any Person which would cause any Borrower or any of Borrowers’ Subsidiaries to bear more than the amount of taxes to which such Person would have been subject had it separately filed (or filed as part of an affiliated, combined, consolidated or unitary tax return solely among Borrowers and their eligible Subsidiaries under federal, state or local law), except for agreements entered into in the ordinary course of business with Persons that are not Affiliates that include provisions relating to the underlying transaction for the sharing or allocation of taxes that are not based on the net income or net profits of either party to the agreement. If any Borrower enters into any tax sharing or tax allocation agreement, Loan Parties shall promptly deliver a copy of such agreement to Lender.

 

c.           If the IRS seeks to collect any taxes or otherwise impose any tax liability on any Borrower as a result of the Loan Parties’ filing affiliated, combined, consolidated or unitary income tax returns with such Borrower in excess of the income tax liability that such Borrower would have if it had filed tax returns as the common parent of an affiliated, combined, consolidated or unitary group that included only such Borrower and its Subsidiaries (an “Excess Tax Liability”), Parent shall use reasonable good faith efforts to contest such collection or imposition and cause such Excess Tax Liability to be paid by Parent or by a Subsidiary of Parent that is not a Loan Party. In any case, Parent shall, and cause its Subsidiaries that are not Loan Parties to defend, indemnify and hold harmless each Borrower for the full amount of any such Excess Tax Liability. Further, in the event that any Borrower ceases to be a member of the consolidated federal income tax group with respect to which collection of an Excess Tax Liability is being sought, Parent (or its successor in interest) shall cooperate with such Borrower in requesting the IRS to exercise its discretion under Treasury Regulation Section 1.1502-6(b) to assess and collect from the Borrower only such Borrower’s allocable portion of any federal income tax deficiency that is imposed on the consolidated federal income tax group; provided, that the requirements of this sentence shall expire upon the payment of the Obligations.

 

7.15.         Compliance with ERISA : Each Loan Party shall not, and shall not permit any of its Subsidiaries or any of its ERISA Affiliates to, take, or fail to take, any of the following actions or permit any of the following events to occur if such action or event individually or together with all other actions or events would subject any Loan Party, any of its Subsidiaries or any of its ERISA Affiliates to any material tax, penalty, or other liabilities:

 

a.           engage in or knowingly consent to any “party in interest” or any “disqualified person,” as such terms are defined in Section 3(14) of ERISA and Section 4975(e)(2) of the Code respectively, engaging in any Prohibited Transaction in connection with which any Loan Party, any of its Subsidiaries or any ERISA Affiliate could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code;

 

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b.           terminate any Employee Pension Plan in a manner, or take any other action, which could result in any material liability of any Loan Party, any of its Subsidiaries or any ERISA Affiliate to the PBGC;

 

c.           fail to make full payment when due of all amounts which, under the provisions of any Plan or any Multiemployer Plan, any Loan Party, any of its Subsidiaries or any ERISA Affiliate is required to pay as contributions thereto, or fail to satisfy the Minimum Funding Standards, whether or not waived, with respect to any Employee Pension Plan or fail to pay PBGC premiums when due;

 

d.           permit the current value of all vested accrued benefits under all Employee Pension Plans which are subject to Title IV of ERISA to exceed the current value of the assets of such plans allocable to such vested accrued benefits, except as may be permitted under actuarial funding standards adopted in accordance with Section 412 of the Code;

 

e.           withdraw from any Multiemployer Plan, if such withdrawal would result in the imposition of Withdrawal Liability;

 

f.            fail to comply in all material respects with the requirements of COBRA regarding continued health coverage, of the Health Insurance Portability and Accountability Act of 1996, and of Section 1862(b) of the Social Security Act, with respect to any Plans subject to the requirements thereof; or

 

g.           fail to comply in all other material respects with the provisions of ERISA and the Code with respect to any Plan.

 

As used in this Section 7.15, the term “accrued benefit” has the meaning specified in Section 3(23) of ERISA and the term “current value” has the meaning specified in Section 4001(a)(18)(B) of ERISA.

 

SECTION VIII.          DEFAULT

 

8.1.           Events of Default : Each of the following events shall constitute an event of default (“Event of Default”):

 

a.            Payments – if any Borrower fails to make any payment of principal or interest under the Obligations on the date such payment is due and payable; or

 

b.            Other Charges – if any Borrower fails to pay any other charges, fees, Expenses or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement within five (5) days of the date such payment is due and payable; or

 

c.            Particular Covenant Defaults – if any Loan Party fails to perform, comply with or observe any covenant or undertaking contained in this Agreement and (other than with respect to the covenants contained in Sections 6.2(b), 6.2(d) (solely with regard to existence), 6.8, 6.9, 6.10, 6.11, 6.18 and 6.19, and Section 7 for which no cure period shall exist), such failure continues for thirty (30) days after the occurrence thereof; or

 

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d.            Financial Information – if any statement, report, financial statement, or certificate made or delivered by any Loan Party or any of its officers, employees or agents, to Lender is not true and correct, in all material respects, when made; or

 

e.            Uninsured Loss – if there shall occur any uninsured damage to or loss, theft, or destruction in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate with respect to any portion of any Property of any Borrower; or

 

f.             Warranties or Representations – if any warranty, representation or other statement by or on behalf of any Loan Party contained in or pursuant to this Agreement, the other Loan Documents or in any certificate, document, agreement or instrument furnished in compliance with, relating to, or in reference to this Agreement, is false, erroneous, or misleading in any material respect when made; or

 

g.            Agreements with Others – (i) if any Loan Party shall default beyond any grace period in the payment of principal or interest of any Indebtedness of any Loan Party in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate; or (ii) if any Loan Party otherwise defaults under the terms of any such Indebtedness if the effect of such default is to enable the holder of such Indebtedness to accelerate the payment of any Loan Party’s obligations, which are the subject thereof, prior to the maturity date or prior to the regularly scheduled date of payment;

 

h.            Other Agreements with Lender – if any Loan Party breaches or violates the terms of, or if a default (and expiration of any applicable cure period), or an Event of Default, occurs under any other existing or future agreement (related or unrelated) (including, without limitation, the other Loan Documents) between any Loan Party and Lender; or

 

i.             Judgments – if any final judgment for the payment of money in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate (i) which is not fully and unconditionally covered by insurance or (ii) for which any Loan Party has not established a cash or cash equivalent reserve in the full amount of such judgment, shall be rendered by a court of record against any Loan Party and such judgment shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or bonded pending appeal; or

 

j.             Assignment for Benefit of Creditors, etc . – if any Loan Party makes or proposes in writing, an assignment for the benefit of creditors generally, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter owned or conducted by any Loan Party; or

 

k.           Bankruptcy, Dissolution, etc. – upon the commencement of any action for the dissolution or liquidation of any Loan Party, or the commencement of any proceeding to avoid any transaction entered into by any Loan Party, or the commencement of any case or proceeding for reorganization or liquidation of any Loan Party’s debts under the Bankruptcy Code or any other state or federal law, now or hereafter enacted for the relief of debtors, whether instituted by or against any Loan Party; provided however, that any Loan Party shall have thirty (30) days to obtain the dismissal or discharge of involuntary proceedings filed against it, it being understood that during such thirty (30) day period, Lender may seek adequate protection in any bankruptcy proceeding; or

 

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l.             Receiver – upon the appointment of a receiver, liquidator, custodian, trustee or similar official or fiduciary for any Loan Party or for any Loan Party’s Property; or

 

m.            Execution Process, etc. – the issuance of any execution or distraint process against any Property of any Loan Party; or

 

n.            Termination of Business – if any Loan Party ceases any material portion of its business operations as presently conducted; or

 

o.            Pension Benefits, etc. – if any Loan Party fails to comply with ERISA so that proceedings are commenced to appoint a trustee under ERISA to administer any Loan Party’s employee plans or the PBGC institutes proceedings to appoint a trustee to administer such plan(s), or a Lien is entered to secure any deficiency or claim under Sections 303(k) or 4068 of ERISA, or a Reportable Event occurs (where such event could reasonably be expected to result in a loss to Loan Parties in excess of $100,000); or

 

p.            Investigations – any evidence is received by Lender that Lender reasonably determines in good faith is evidence that any Loan Party may have directly or indirectly been engaged in any type of activity which would be reasonably likely to result in the forfeiture of any material property of any Loan Party to any Governmental Authority; or

 

q.            Change of Control – if there shall occur a Change of Control; or

 

r.             Surety Agreement – if any breach or default occurs under any Surety Agreement, or if any Surety Agreement, or any obligation to perform thereunder, is terminated; or

 

s.            Liens – if any Lien in favor of Lender shall cease to be valid, enforceable and perfected and prior to all other Liens other than Permitted Liens (except solely as a result of any action or inaction of Lender) or if any Loan Party or any Governmental Authority shall assert any of the foregoing; or

 

t.             Material Adverse Effect – if there is any change in any Borrower's financial condition which, in Lender's reasonable opinion, has or would be reasonably likely to have a Material Adverse Effect, or

 

u.            Other Loan Documents – if any other Person (other than Lender) party to a Loan Document, breaches or violates any term, provision or condition of such Loan Document.

 

8.2.           Cure : Nothing contained in this Agreement or the Loan Documents shall be deemed to compel Lender to accept a cure of any Event of Default hereunder.

 

8.3.           Rights and Remedies on Default :

 

a.           [Reserved].

 

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b.           In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), or otherwise available at law or in equity, upon or at any time after the occurrence and during the continuance of an Event of Default Lender may, in its discretion, declare the Obligations immediately due and payable, all without demand, notice, presentment or protest or further action of any kind (it also being understood that the occurrence of any of the events or conditions set forth in Sections 8.1(j),(k) or (l) shall automatically cause an acceleration of the Obligations.

 

c.           In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), or otherwise available at law or in equity, upon or at any time after the acceleration of the Obligations following the occurrence of an Event of Default (other than the rights with respect to clause (iv) below which Lender may exercise at any time after an Event of Default and regardless of whether there is an acceleration), Lender may, in its discretion, exercise all rights under the UCC and any other applicable law or in equity, and under all Loan Documents permitted to be exercised after the occurrence of an Event of Default, including the following rights and remedies (which list is given by way of example and is not intended to be an exhaustive list of all such rights and remedies):

 

(i)          The right to take possession of, send notices regarding and collect directly the Collateral, with or without judicial process (including without limitation the right to notify the United States postal authorities to redirect mail addressed to any Borrower to an address designated by Lender); or

 

(ii)         By its own means or with judicial assistance, enter any Borrower’s premises and take possession of the Collateral, or render it unusable, or dispose of the Collateral on such premises in compliance with subsection (e) below, without any liability for rent, storage, utilities or other sums, and such Borrower shall not resist or interfere with such action; or

 

(iii)        Require each Borrower at such Borrower’s expense to assemble all or any part of the Collateral (other than real estate or fixtures) and make it available to Lender at any place designated by Lender; or

 

(iv)        The right to enjoin any violation of Section 7.1, it being agreed that Lender’s remedies at law are inadequate.

 

d.           Each Borrower hereby agrees that a notice received by it at least seven (7) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable inventory or Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to such Borrower. Each Loan Party covenants and agrees not to interfere with or impose any obstacle to Lender’s exercise of its rights and remedies with respect to the Collateral, after the occurrence of an Event of Default hereunder. Lender shall have no obligation to clean up or prepare the Collateral for sale. If Lender sells any of the Collateral upon credit, each Loan Party will only be credited with payments actually made by the purchaser thereof, that are received by Lender. Lender may, in connection with any sale of the Collateral specifically disclaim any warranties of title or the like.

 

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8.4.           Nature of Remedies : All rights and remedies granted Lender hereunder and under the Loan Documents, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until all Obligations are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon or at any time after the occurrence and during the continuance of an Event of Default, may proceed against each Loan Party, at any time, under any agreement, with any available remedy and in any order.

 

8.5.           Set-Off : In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), upon or at any time after the occurrence and during the continuance of an Event of Default, Lender (and any participant) shall have and be deemed to have, without notice to any Loan Party, the immediate right of set-off against any bank account of any Loan Party with Lender, or of any Borrower with any other subsidiary of Lender or Lender Affiliate or any participant and may apply the funds or amount thus set-off against any Obligations hereunder. Each Loan Party specifically waives any right to require Lender to exercise other rights, options and remedies prior to exercising any such set-off rights. If any bank account of any Loan Party with Lender, any other subsidiary of Lender or Lender Affiliate or any participant is attached or otherwise liened or levied upon by any third party, Lender (and such participant) shall have and be deemed to have, without notice to any Loan Party, the immediate right of set-off and may apply the funds or amount thus set-off against any Obligations hereunder.

 

SECTION IX.           MISCELLANEOUS

 

9.1.           Governing Law : THIS AGREEMENT, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT.

 

9.2.           Integrated Agreement : The Notes, the other Loan Documents, all related agreements, and this Agreement shall be construed as integrated and complementary of each other, and as augmenting and not restricting Lender’s rights and remedies. If, after applying the foregoing, an inconsistency still exists, the provisions of this Agreement shall constitute an amendment thereto and shall control.

 

9.3.           Waiver : No omission or delay by Lender in exercising any right or power under this Agreement or any related agreements and documents will impair such right or power or be construed to be a waiver of any Default, or Event of Default or an acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise thereof or the exercise of any other right, and as to any Loan Party no waiver will be valid unless in writing and signed by Lender and then only to the extent specified.

 

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9.4.           Indemnity :

 

a.           Each Loan Party releases and shall indemnify, defend and hold harmless Lender and each Related Party of Lender (each, an “Indemnitee”) of and from any and all claims, demands, liabilities, losses, damages and costs and expenses (including, without limitation, reasonable legal fees), penalties and fines resulting from (i) the execution, delivery and performance of this Agreement or any other Loan Document or any acts or conduct of any Loan Party under, pursuant or related to this Agreement and the other Loan Documents, (ii) any Loan Party’s breach or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents, (iii) any Loan Party’s failure to comply with any Requirement of Law (including, without limitation, Environmental Laws), and (iv) any claim by any other creditor of any Loan Party against Lender arising out of any transaction whether hereunder or in any way related to the Loan Documents; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such claims, demands, liabilities, losses, damages, costs, expenses, penalties and fines are determined by a court of competent jurisdiction by final nonappealable judgment to have resulted from acts or conduct of such Indemnitee constituting willful misconduct or gross negligence.

 

b.           Promptly after receipt by an Indemnitee under subsection (a) above of notice of the commencement of any action by a third party, such Indemnitee shall, if a claim in respect thereof is to be made against the applicable Loan Party or Loan Parties under such subsection, notify the applicable Loan Party or Loan Parties in writing of the commencement thereof. The omission so to notify the applicable Loan Party or Loan Parties shall relieve the applicable Loan Party or Loan Parties from any liability which it may have to any Indemnitee under such subsection only if the applicable Loan Party or Loan Parties is unable to defend such actions as a result of such failure to so notify. In case any such action shall be brought against any Indemnitee and it shall notify the applicable Loan Party or Loan Parties of the commencement thereof, the applicable Loan Party or Loan Parties shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other applicable Loan Party or Loan Parties similarly notified, to assume the defense thereof, with counsel satisfactory to such Indemnitee (who shall not, except with the consent of the Indemnitee, be counsel to the Indemnitee), and, after notice from the applicable Loan Party or Loan Parties to such Indemnitee of its election so to assume the defense thereof, the applicable Loan Party or Loan Parties shall not be liable to such Indemnitee under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnitee, in connection with the defense thereof other than reasonable costs of investigation.

 

9.5.           Time : Whenever any Loan Party shall be required to make any payment, or perform any act, on a day which is not a Business Day, such payment may be made, or such act may be performed, on the next succeeding Business Day. Time is of the essence in each Loan Party’s performance under all provisions of this Agreement and all related agreements and documents.

 

9.6.           Expenses of Lender : At Closing and from time to time thereafter, each Loan Party will pay upon demand of Lender all reasonable and documented out-of-pocket costs, fees and expenses of Lender in connection with (i) the analysis, negotiation, preparation, execution, administration, delivery and termination of this Agreement, and other Loan Documents and the documents and instruments referred to herein and therein, and any amendment, amendment and restatement, supplement, waiver or consent relating hereto or thereto, whether or not any such amendment, amendment and restatement, supplement, waiver or consent is executed or becomes effective, search costs, the reasonable and documented out-of-pocket fees, expenses and disbursements of outside counsel for Lender, any reasonable and documented out-of-pocket fees or expenses incurred by Lender under Section 6.11 for which each Loan Party is obligated thereunder, and reasonable charges of any expert consultant to Lender, (ii) the enforcement of Lender’s rights hereunder, or the collection of any payments owing from, each Loan Party under this Agreement and/or the other Loan Documents or the protection, preservation or defense of the rights of Lender hereunder and under the other Loan Documents, and (iii) any refinancing or restructuring of the credit arrangements provided under this Agreement and other Loan Documents in the nature of a “work-out” or of any insolvency or bankruptcy proceedings, or otherwise (including in all cases the reasonable fees and disbursements of counsel for Lender and reasonable allocated costs of internal counsel) (collectively, the “Expenses”).

 

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9.7.           Brokerage : Each Loan Party represents that it has not committed Lender to the payment of any brokerage fee, commission or charge in connection with this transaction. If any such claim is made on Lender by any broker, finder or agent or other person, each Loan Party hereby indemnifies, defends and saves such party harmless against such claim and further will defend, with counsel satisfactory to Lender, any action or actions to recover on such claim, at such Loan Party’s own cost and expense, including such party’s reasonable counsel fees. Loan Party further agrees that until any such claim or demand is adjudicated in such party’s favor, the amount demanded shall be deemed an Obligation of each Loan Party under this Agreement.

 

9.8.           Notices :

 

a.           Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed given if delivered in person to the person listed below or if sent by first class mail, telecopy or by nationally recognized overnight courier, as follows, unless such address is changed by written notice hereunder:

 

If to Lender to: LHLJ, Inc.
  725 Eagle Farm Road
  Villanova, PA 19085
  Attention: Laurence L. Stone
   
With copies to: Stradley Ronon Stevens & Young, LLP
  2600 One Commerce Square
  Philadelphia, PA  19103
  Attention: Richard Zucker
  Telecopy No.:  215-564-8120
   
If to any Loan Party to: A. D. Computer Corporation
  3939 West Drive
  Center Valley, PA 18034
  Attention:  Gregory M. Krzemien
  Telecopy No.:  610-797-9520

 

  46

 

 

With copies to: Dechert LLP
  Cira Center
  2929 Arch Street
  Philadelphia, PA 19104
  Attention:  James A. Lebovitz
  Telecopy No.:  (215) 994-4000
   
  JetPay Corporation
  1175 Lancaster Avenue, Suite 200
  Berwyn, PA 19312
  Attention:  Chief Executive Officer
  Telecopy No.:  484-318-8370

 

b.           Any notice sent by Lender, or any Loan Party by any of the above methods shall be deemed to be given when so received.

 

c.           Lender shall be fully entitled to rely upon any telecopy or electronic mail transmission or other writing purported to be sent by any Authorized Officer as being genuine and authorized.

 

9.9.           Headings : The headings of any paragraph or Section of this Agreement are for convenience only and shall not be used to interpret any provision of this Agreement.

 

9.10.          Survival : All warranties, representations, and covenants made by any Loan Party herein, or in any agreement referred to herein or on any certificate, document or other instrument delivered by it or on its behalf under this Agreement, shall be considered to have been relied upon by Lender, and shall survive the delivery to Lender of the Notes, regardless of any investigation made by Lender or on its behalf. All statements in any such certificate or other instrument prepared and/or delivered for the benefit of Lender shall constitute warranties and representations by any Loan Party hereunder. Except as otherwise expressly provided herein, all covenants made by any Loan Party hereunder or under any other agreement or instrument shall be deemed continuing until all Obligations are satisfied in full. All indemnification obligations under this Agreement, including under Section 2.12, 6.5, 9.4 and 9.7, shall survive the termination of this Agreement and payment of the Obligations for a period of two (2) years.

 

9.11.          Successors and Assigns : This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. No Loan Party may transfer, assign or delegate any of its duties or obligations hereunder. Each Loan Party acknowledges and agrees that Lender may at any time, and from time to time, (a) sell participating interests in the Loan, and Lender’s rights hereunder to other financial institutions, and (b) sell, transfer, or assign the Loan and Lender’s rights hereunder, subject (as to Lender’s rights under this clause (b)) to each Loan Party’s written consent, which consent shall not be unreasonably withheld; provided that, no consent under this clause (b) shall be required if an Event of Default exists at the time of such sale, transfer or assignment; provided, that in effecting any sale, transfer or assignment hereunder, the Lender shall maintain the status of the Term Loan and Term Loan Note as an obligation in “registered form” with the meaning of Sections 163(f), 871(h)(2) and 881(e)(2) of the Code. Subject to Section 9.23, Lender may divulge to any participant, assignee or co-lender or prospective participant, assignee or co-lender it may obtain in any Loan or any portion thereof, all information, and furnish to such Person copies of any reports, financial statements, certificates, and documents obtained under any provision of this Agreement, or related agreements and documents.

 

  47

 

 

9.12.          Duplicate Originals : Two or more duplicate originals of this Agreement may be signed by the parties, including in counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument.

 

9.13.          Modification : No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed by each Loan Party party thereto and Lender.

 

9.14.          Signatories : Each individual signatory hereto represents and warrants that he is duly authorized to execute this Agreement on behalf of his principal and that he executes the Agreement in such capacity and not as a party.

 

9.15.          Third Parties : No rights are intended to be created hereunder, or under any related agreements or documents for the benefit of any third party donee, creditor or incidental beneficiary of any Loan Party. Nothing contained in this Agreement shall be construed as a delegation to Lender of any Loan Party’s duty of performance, including, without limitation, any Loan Party’s duties under any account or contract with any other Person.

 

9.16.          Discharge of Taxes, Borrower’s Obligations, Etc. : Lender, in its sole discretion, shall have the right at any time, and from time to time, with at least ten (10) days prior notice to Borrowing Agent if any Borrower fails to do so, to: (a) pay for the performance of any Borrower’s obligations hereunder, and (b) discharge taxes or Liens, at any time levied or placed on any Borrower’s Property in violation of this Agreement unless such Borrower is in good faith with due diligence by appropriate proceedings contesting such taxes or Liens and maintaining proper reserves therefor in accordance with GAAP. Expenses and advances shall bear interest at the rate applicable hereunder, until reimbursed to Lender. Such payments and advances made by Lender shall not be construed as a waiver by Lender of a Default or Event of Default under this Agreement.

 

9.17.          Consent to Jurisdiction : Each Loan Party and Lender each hereby irrevocably consent to the non-exclusive jurisdiction of the Courts of the Commonwealth of Pennsylvania or the United States District Court for the Eastern District of Pennsylvania in any and all actions and proceedings whether arising hereunder or under any other agreement or undertaking. Each Loan Party waives any objection which such Loan Party may have based upon lack of personal jurisdiction, improper venue or forum non conveniens . Each Loan Party irrevocably agrees to service of process by certified mail, return receipt requested to the address of the appropriate party set forth herein.

 

9.18.          Additional Documentation : Each Loan Party shall execute and/or re-execute, and cause any other Person party to any Loan Document, to execute and/or re-execute and to deliver to Lender or Lender’s counsel, as may be deemed appropriate, any document or instrument signed in connection with this Agreement which was incorrectly drafted and/or signed, as well as any document or instrument which should have been signed at or prior to the Closing, but which was not so signed and delivered. Each Loan Party agrees to comply with any written request by Lender within ten (10) days after receipt by such Loan Party of such request.

 

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9.19.          Advertisement : Lender, in its sole discretion, shall have the right to announce and publicize the financing established hereunder, as it deems appropriate, by means and media selected by Lender.

 

9.20.          Waiver of Jury Trial : EACH LOAN PARTY AND LENDER EACH HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO ANY CLAIMS ARISING OUT OF ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE, FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS.

 

9.21.          Consequential Damages, etc .: Neither Lender nor agent or attorney of Lender, shall be liable for any special, indirect, exemplary, punitive or consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Obligations.

 

9.22.          Nonliability of Lender : The relationship between Borrowers on the one hand and Lender on the other hand shall be solely that of borrower and lender. Lender shall have no fiduciary relationship with, or fiduciary responsibility to, any Loan Party.

 

9.23.          Confidentiality : Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to Lender’s and Lender’s Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) with the consent of Borrowing Agent or (f) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to Lender or any of Lender’s respective Affiliates on a nonconfidential basis from a source other than a Loan Party. Notwithstanding the foregoing, Lender may disclose Information, without notice to a Loan Party, to Governmental Authorities in connection with any regulatory examination of Lender or in accordance with Lender’s regulatory compliance policy. For purposes of this Section 9.23, “ Information ” means all information received from any Loan Party relating to any Loan Party or any Loan Party’s respective businesses, other than any such information that is available to Lender on a non-confidential basis prior to disclosure by any Loan Party. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

9.24.          Patriot Act Notice : To help fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each Person who opens an account. For purposes of this Section 9.24, account shall be understood to include loan accounts.

 

[SIGNATURES TO FOLLOW ON SEPARATE PAGE]

 

  49

 

 

WITNESS the due execution of this Agreement as a document under seal as of the date first written above.

 

  A. D. COMPUTER CORPORATION
     
  By: /s/ Gregory M. Krzemien
  Name: Gregory M. Krzemien
  Title:   Treasurer
   
  PAYROLL TAX FILING SERVICES, INC.
     
  By: /s/ Gregory M. Krzemien
  Name: Gregory M. Krzemien
  Title:   Treasurer
   
  COLLECTORSOLUTIONS, LLC
     
  By: /s/ Gregory M. Krzemien
  Name: Gregory M. Krzemien
  Title:   Treasurer
   
  JETPAY CORPORATION
     
  By: /s/ Gregory M. Krzemien
  Name: Gregory M. Krzemien
  Title:   Chief Financial Officer
   
  LHLJ, INC.
     
  By: /s/ Laurence L. Stone
  Name: Laurence L. Stone
  Title:   President

 

(Signature Page to Loan and Security Agreement) 

 

 

 

 

EXHIBIT “A”

 

COMPLIANCE CERTIFICATE

 

LHLJ, Inc. _____________, 201__

725 Eagle Farm Road

Villanova, PA 19085

Attention: Laurence L. Stone

 

The undersigned, the _______ of ______ and _______ (collectively “Borrowers”), gives this certificate to LHLJ, Inc. (“Lender”), in accordance with the requirements of Section 6.10 of that certain Loan and Security Agreement, dated as of October 18, 2016, by and among Borrowers, Guarantors, and Lender (“Loan Agreement”). Capitalized terms used in this Certificate, unless otherwise defined herein, shall have the meanings ascribed to them in the Loan Agreement.

 

1.          Based upon my review of the consolidated balance sheets and statements of income of Borrowers / Parent for the fiscal quarter ending _________________ ____, 20__, copies of which are attached hereto, I hereby certify that:

 

a.           The Debt Coverage Ratio is _________________.

 

b.           The Total Leverage Ratio is __________________.

 

Attached as Schedule “A” are the details underlying such financial covenant calculations.

 

2.          No Default exists on the date hereof, other than: ____________________ [if none, so state]; and

 

3.          No Event of Default exists on the date hereof, other than: __________________ [if none, so state].

 

  Very truly yours,
     
  By:  
  Name:  
  Title:  

 

 

 

 

Exhibit 10.3

 

TERM LOAN NOTE

 

$9,500,000.00 October 18, 2016

 

FOR VALUE RECEIVED and intending to be legally bound, the undersigned, A. D. COMPUTER CORPORATION , a Pennsylvania corporation, and PAYROLL TAX FILING SERVICES, INC. , a Pennsylvania corporation (individually and collectively, jointly and severally, the “Borrower”), promises to pay, in lawful money of the United States of America, to the order of LHLJ, INC. (“Lender”), at the address set forth in Section 9.8 of the Loan Agreement, the original principal sum of Nine Million Five Hundred Thousand and 00/100 Dollars ($9,500,000) under the Term Loan established pursuant to the provisions of that certain Loan and Security Agreement, of even date herewith, by and among Borrower, Guarantors and Lender (as it may be supplemented, restated, superseded, amended or replaced from time to time, the “Loan Agreement”). All capitalized terms used herein without further definition shall have the respective meanings ascribed thereto in the Loan Agreement.

 

The principal balance of the Term Loan shall be paid in accordance with the terms of the Loan Agreement. Borrower further agrees to pay interest on the outstanding principal balance hereunder from time to time at the per annum rates set forth in the Loan Agreement. Interest shall be calculated on the basis of a year of 360 days but charged for the actual number of days elapsed, and shall be due and payable as set forth in the Loan Agreement.

 

This Term Loan Note is that certain Term Loan Note referred to in the Loan Agreement.

 

If an Event of Default occurs and is continuing under the Loan Agreement, the unpaid principal balance of this Term Loan Note along with all accrued and unpaid interest and unpaid Expenses shall become, or may be declared, immediately due and payable as provided in the Loan Agreement. The obligations evidenced by this Term Loan Note are secured by the Collateral.

 

This Term Loan Note may be prepaid only in accordance with the terms and conditions of the Loan Agreement.

 

Borrower hereby waives protest, demand, notice of nonpayment and all other notices in connection with the delivery, acceptance, performance or enforcement of this Term Loan Note.

 

This Term Loan Note shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Pennsylvania. The provisions of this Term Loan Note are to be deemed severable and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions of this Term Loan Note which shall continue in full force and effect. No modification hereof shall be binding or enforceable against Lender unless approved in writing by Lender.

 

BORROWER (AND LENDER BY ITS ACCEPTANCE HEREOF) HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO ANY CLAIMS ARISING OUT OF ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE, FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER THE LOAN DOCUMENTS.

 

 

 

 

THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST BORROWER. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST BORROWER, BORROWER, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT WITH) SEPARATE COUNSEL FOR BORROWER, AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS BORROWER HAS, OR MAY HAVE, TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING BEFORE ENTRY OF JUDGMENT UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA. BORROWER ACKNOWLEDGES THAT PURSUANT TO THIS WARRANT OF ATTORNEY, LENDER IS AUTHORIZED TO ENTER A JUDGMENT AGAINST BORROWER WHICH WILL GIVE LENDER A LIEN AGAINST REAL PROPERTY AND WHICH MAY PERMIT LENDER TO, UTILIZING THE POWER OF STATE GOVERNMENT, SEIZE PERSONAL PROPERTY INCLUDING BORROWER'S DEPOSIT ACCOUNTS. BORROWER SPECIFICALLY ACKNOWLEDGES THAT LENDER HAS RELIED ON THIS WARRANT OF ATTORNEY IN GRANTING THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN.

 

BORROWER HEREBY EMPOWERS ANY CLERK, OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR BORROWER AFTER ANY EVENT OF DEFAULT IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER IN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AND CONFESS JUDGMENT AGAINST BORROWER FOR ALL, OR ANY PART OF, THE UNPAID PRINCIPAL BALANCE HEREUNDER AND ACCRUED INTEREST, TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS’ FEES OF FIFTEEN PERCENT (15%) OF THE AMOUNT DUE ON THIS REVOLVING CREDIT NOTE, BUT IN NO EVENT LESS THAN THREE THOUSAND DOLLARS ($3,000), AND FOR SUCH PURPOSE THE ORIGINAL OR ANY PHOTOCOPY OF THIS TERM LOAN NOTE AND AN AFFIDAVIT OF LENDER OR LENDER'S COUNSEL AVERRING TO THE EVENT OF DEFAULT SHALL BE A GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORIZATION SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME. BORROWER HEREBY WAIVES ALL ERRORS AND RIGHTS OF APPEAL, AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY, IN ANY ACTION TO ENFORCE ITS LIABILITY HEREON.

 

 

 

 

BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT BORROWER’S REASONABLE EXPECTATION WITH RESPECT TO THE AUTHORIZATION GRANTED PURSUANT TO ANY WARRANT OF ATTORNEY OR POWER OF ATTORNEY HEREUNDER, IS THAT LENDER OR ITS ATTORNEY MAY CONFESS JUDGMENT AS SET FORTH HEREIN, SEEK TO FORECLOSE ON COLLATERAL AND TAKE ALL OTHER ACTIONS WITH RESPECT TO THE EXERCISE OF LENDER'S RIGHTS HEREUNDER.  BORROWER HEREBY WAIVES ALL OTHER DUTIES OF LENDER THAT MAY ARISE UNDER 20 PA. C.S.A. §5601.3(b). BORROWER HEREBY REMISES, RELEASES, AND FOREVER DISCHARGES, AND WAIVES ALL CLAIMS, CAUSES OF ACTION AND ANY OTHER RIGHTS AGAINST, TD BANK, N.A. AND ITS PREDECESSORS, LEGAL REPRESENTATIVES, PAST AND PRESENT PARENT COMPANIES, SUBSIDIARIES, AGENTS, EMPLOYEES, SERVANTS, INSURERS, ATTORNEYS, OFFICERS, DIRECTORS, STOCKHOLDERS, AFFILIATES, AFFILIATE COUNTERPARTIES, SUCCESSORS IN INTEREST, AND ASSIGNS  OF AND FROM ANY AND ALL CLAIMS, DEMANDS, DAMAGES, FEES, AND COSTS, SUMS OF MONEY, RIGHTS, CAUSES OF ACTIONS, OBLIGATIONS AND LIABILITIES OF ANY KIND OR NATURE WHATSOEVER INCLUDING ATTORNEYS’ FEES, ARISING UNDER OR RELATING TO ANY DUTIES OF AN AGENT UNDER 20 PA. C.S.A. §5601.3 OR OTHERWISE.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower has executed these presents the day and year first above written.

 

  A. D. COMPUTER CORPORATION
     
  By: /s/Gregory M. Krzemien
  Name: Gregory M. Krzemien
  Title: Chief Financial Officer
     
  PAYROLL TAX FILING SERVICES, INC.
     
  By: /s/Gregory M. Krzemien
  Name: Gregory M. Krzemien
  Title: Chief Financial Officer

 

[NOTARY PAGES FOLLOW]

 

 

 

 

COMMONWEALTH OF PENNSYLVANIA   )
  )  ss.:
COUNTY OF LEHIGH )

 

On this, this 18 day of October, 2016, before me, the undersigned officer, personally appeared Gregory M. Krzemien, who acknowledged himself to be the Chief Financial Officer of A. D. COMPUTER CORPORATION , a Pennsylvania corporation, and that he, as such Chief Financial Officer, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation, being authorized so to do, and received a true and correct copy of this instrument and of all other documents referred to therein.

 

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

 

  /s/ Lisa J. Sell
  Notary Public
  My Commission Expires: 8/26/2019

 

COMMONWEALTH OF PENNSYLVANIA   )
  )  ss.:
COUNTY OF LEHIGH )

 

On this, this 18 th day of October, 2016, before me, the undersigned officer, personally appeared Gregory M. Krzemien, who acknowledged himself to be the Chief Financial Officer of PAYROLL TAX FILING SERVICES, INC. , a Pennsylvania corporation, and that he, as such Chief Financial Officer, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation, being authorized so to do, and received a true and correct copy of this instrument and of all other documents referred to therein.

 

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

 

  /s/ Lisa J. Sell [
  Notary Public  
  My Commission Expires: 8/26/2019  

 

 

 

 

Exhibit 99.1

 

 

 

JetPay Corporation Announces Investment and Board
Appointment of Industry Veteran Larry Stone

 

Berwyn, PA - October 19, 2016 - JetPay Corporation ("JetPay" or the "Company") (NASDAQ: JTPY), a leading provider of debit and credit card processing services, payroll and human capital management services, and prepaid card services, announced today that payments industry veteran Larry Stone has made a significant investment in JetPay and will join the Company’s Board of Directors.

 

Mr. Stone is investing $19.6 million into JetPay through a combination of debt and equity. The debt investment of $9.5 million is in the form of a senior secured loan at JetPay’s HR & Payroll Services subsidiary. The equity investment of $10.1 million is in shares of previously authorized convertible preferred stock alongside JetPay’s existing investor, Flexpoint Ford, a Chicago-based private equity firm. The proceeds from the investment will be used to repay existing debt and provide working capital to support JetPay’s growth strategy.

 

Bipin Shah, Chairman of JetPay’s Board of Directors, commented, “I welcome Larry to the Board of Directors of JetPay. I have known Larry for over 25 years and have great respect for his accomplishments in the industry. Larry is an incredibly successful payments executive with a long track record, and I believe that his investment and participation on our Board will further our goal of building a world-class company.”

 

Larry Stone brings over 27 years of executive experience in the payment processing industry. Most recently, Mr. Stone was a Principal and Director of Mercury Payment Systems prior to its sale to Vantiv, Inc. in 2014 and to Silver Lake Partners in 2010. Prior to Mercury Payment Systems, Mr. Stone served as the Founder and CEO of Card Payment Systems, a merchant credit card processing company he founded and sold to Concord EFS in 2000. Mr. Stone started his payment processing career at CitiCorp Card Acceptance Services in 1989 and graduated from the Wharton School of Business at the University of Pennsylvania in 1987.

 

Mr. Stone stated, “I am excited to join JetPay as both an investor and board member, and I look forward to helping management execute on the vision for the Company. JetPay’s processing technology and the quality of its service offerings are tremendous strengths that I believe form a solid foundation for much future success.”

 

Diane (Vogt) Faro, Chief Executive Officer of JetPay, added, “I echo Bipin’s comments and, along with the rest of our management team, am pleased to have Larry join as a member of the JetPay Board. His proven leadership and reputation in the industry will be an incredible asset as we continue to build a market-leading company.”

 

 

 

 

About JetPay Corporation

 

JetPay Corporation, based in Berwyn, PA, is a leading provider of vertically integrated solutions for businesses including card acceptance, payment processing, payroll processing, payroll tax filing, human capital management and other financial transactions. JetPay provides a single vendor solution for payment services, debit and credit card processing, ACH services, and payroll and human capital management needs for businesses throughout the United States. The Company also offers low-cost payment choices for the employees of these businesses to replace costly alternatives. The Company's vertically aligned services provide customers with convenience and increased revenues by lowering payments-related costs and by designing innovative, customized solutions for internet, mobile, and cloud-based payments. Please visit www.jetpay.com for more information on what JetPay has to offer or call 866-4JetPay (866-453-8729).

 

Forward-Looking Statements

 

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. JetPay’s actual results may differ from its expectations, estimates and projections and consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside JetPay’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to, our continued compliance with the financial and other covenants of the instruments governing our indebtedness and those described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2015 and the Company’s subsequent Quarterly Reports on Forms 10-Q.

 

JetPay cautions that the foregoing list of factors is not exclusive. Additional information concerning these and other risk factors is contained in JetPay’s most recent filings with the SEC. All subsequent written and oral forward-looking concerning JetPay or other matters and attributable to JetPay or any person acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. JetPay cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. JetPay does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements  to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

 

Contacts

 

JetPay Corporation JetPay Corporation
Peter B. Davidson Gregory M. Krzemien
Vice Chairman and Corporate Secretary Chief Financial Officer
(484) 324-7980 (484) 324-7980
peter.davidson@jetpaycorp.com gkrzemien@jetpaycorp.com