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
”):
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LS Purchaser is entitled to receive certain financial information, including but not limited to monthly and annual financial
statements and annual budgets; and
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LS Purchaser is entitled to certain inspection rights.
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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.