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JTPY > SEC Filings for JTPY > Form 8-K on 23-Aug-2013All Recent SEC Filings

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Form 8-K for JETPAY CORP


23-Aug-2013

Entry into a Material Definitive Agreement, Amendments to Articles of Inc. or Bylaws;


Item 1.01. Entry into a Material Definitive Agreement

On August 22, 2013, JetPay Corporation (the "Company") entered into a Securities Purchase Agreement with Flexpoint Fund II, L.P. ("Flexpoint") pursuant to which the Company agreed to sell to Flexpoint, upon the satisfaction of certain conditions, up to approximately 133,333 shares of Series A Convertible Preferred Stock, par value $0.001 ("Preferred Stock") for an aggregate purchase price of up to $40,000,000. In addition, the Preferred Stock will be convertible into shares of the Company's common stock, par value $0.001 (the "Common Stock"). The initial conversion ratio will be set at $100 per share, and is subject to downward adjustment in the future upon the occurrence of certain dilutive events, should they occur. The following discussion of the Securities Purchase Agreement provides only a summary of the material terms and conditions of the Securities Purchase Agreement. The following description of the Securities Purchase Agreement and the exhibits thereto is qualified in its entirety to the full text of the Securities Purchase Agreement Company which is attached hereto as Exhibit 4.1 and is incorporated herein by reference.

The Preferred Stock Purchase

The Company's obligation to issue and sell, and Flexpoint's obligation to purchase, the Preferred Stock is divided into three separate tranches: Tranche A, Tranche B and Tranche C. Tranche A consists of $10 million worth of shares of Preferred Stock and will be issued at the initial closing of the transactions contemplated by the Securities Purchase Agreement (the "Initial Closing"), which such date will be no sooner than 20 days after the date of an Information Statement that the Company will file on Schedule 14C. Tranche B consists of up to $10 million worth of shares of Preferred Stock, which Flexpoint will be obligated to purchase, subject to satisfaction of certain conditions, from the Company if the Company is able to consummate a redemption any time after December 1, 2014 of the secured convertible notes that were issued pursuant to aSecured Convertible Note Agreement (the "Note Agreement"), dated December 28, 2012, the Company entered into with Special Opportunities Fund, Inc., R8 Capital Partners, LLC, Bulldog Investors General Partnership, Ira Lubert, Mendota Insurance Company and American Services Insurance Company, Inc. Such obligation to purchase will expire on the earlier to occur of (i) December 29, 2014 and
(ii) the date on which such secured convertible notes are no longer outstanding. Tranche C consists of up to $20 million worth of shares of Preferred Stock, plus any amounts not purchased under Tranche B, which Flexpoint has the option to purchase at any time until the third anniversary of the Initial Closing. The shares of Preferred Stock issuable with respect to Tranche A, Tranche B and Tranche C all have a purchase price of $300.00 per share.

Governance Arrangements

Pursuant to the Securities Purchase Agreement and the Certificate of Designation of Series A Convertible Preferred Stock (the "Certificate of Designation"), Flexpoint will be entitled to appoint the number of directors proportionate to its percentage ownership of the total number of shares of Common Stock, on an as-converted basis. At the Initial Closing, Flexpoint will be entitled to designate two individuals to the Company's Board of Directors (the "Board"). Flexpoint intends to appoint Donald J. Edwards and Steven M. Michienzi, as its initial designees.

In addition, until the date on which Flexpoint or its affiliates no longer collectively hold the lesser of (i) 50% of the number shares of Preferred Stock purchased by Flexpoint as of such date and/or an equivalent number of shares of Common Stock issued upon conversion of the Preferred Stock and (ii) 33,333 shares of Preferred Stock and/or an equivalent number of shares of Common Stock issued upon conversion of the Preferred Stock:

Flexpoint is entitled to receive certain financial information, including but not limited to monthly and annual financial statements and annual budgets.

Flexpoint is entitled to certain inspection rights.

Without Flexpoint's consent, the Company cannot take certain actions, including, but not limited to, paying dividends, selling or disposing of assets in excess of $1.5 million, acquiring any business for consideration exceeding $2.5 million, incurring certain indebtedness in excess of $2.5 million in any consecutive 12 month period, merging with any entity the result of which is that the holders of the Preferred Stock would receive less in transaction proceeds than the then-applicable liquidation preference, amending the Company's bylaws, certificate of incorporation or the Certificate of Designation; modifying the secured convertible notes issued pursuant to the Note Agreement, settling certain litigation, amending any employee incentive plans or increasing the size of the Board.

Prior to selling any of the Company's capital stock to a third party, the Company must first offer Flexpoint the opportunity to purchase such securities on the same terms as offered to such third party.

Restrictions on Transfer

Subject to certain exceptions, Flexpoint is prohibited from transferring any shares of Preferred Stock or shares of Common Stock into which such shares of Preferred Stock are converted until January 1, 2015.

Representations and Warranties

The Securities Purchase Agreement contains representations and warranties by the Company relating to, among other things, the Company's corporate organization and capitalization, the due authorization of the Securities 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 since December 31, 2012, 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 Securities Purchase Agreement.

Conditions to Closing

Closing of the transactions contemplated by the Securities Purchase Agreement is subject to certain conditions, including:

the accuracy of certain representations and warranties made by the Company;

effectiveness of the Registration Rights Agreement (as defined herein);

appointment of Flexpoint's designees to the Board;

effectiveness of Indemnification Agreements with Flexpoint's designees to the Board; and

certain other customary closing conditions.

Termination

The Securities Purchase Agreement may be terminated at any time prior to closing in certain circumstances, including:

by mutual written consent;

by either the Company or Flexpoint if the Initial Closing has not occurred prior to November 22, 2013;

. . .



Item 5.03. Amendments to Articles of Incorporation or Bylaws.

In connection with the Company's entry into the Securities Purchase Agreement, the Company adopted Amended and Restated Bylaws of the Company (the "Bylaws"). Changes were made to the Bylaws to reflect the Company recent name change from "Universal Business Payment Solutions Acquisition Corporation" to "JetPay Corporation" and to reflect certain rights of the Preferred Stock once issued. The foregoing description of the Bylaws is qualified in its entirety by reference to the full text of Bylaws, which is attached as Exhibit 3.2 and is incorporated by reference herein.



Item 8.01. Other Events

On August 21, 2013, the Company issued a standby letter of credit in favor of Wells Fargo Bank, N.A. in the amount of $1,900,000. The letter of credit is collateralized by the assets of Trent Voigt, the chief executive officer of JetPay, LLC, a wholly-owned subsidiary of the Company.

On August 23, 2013 the Company received notice that JetPay Merchant Services, LLC was a party in a lawsuit brought MSC Cruises, a former customer. Merrick Bank is a co-defendant in the lawsuit. MSC Cruises is claiming approximately $2 million in damages and alleges that JetPay Merchant Services, LLC breached its agreement with MSC by charging fees not specified in the agreement. The Company believes that the basis of the suit regarding JetPay Merchant Services, LLC is groundless and intends to defend it vigorously.



Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number      Description

3.2                 Amended and Restated Bylaws of JetPay Corporation

4.1                 Securities Purchase Agreement, dated as of August 22, 2013, by
                    and between Flexpoint and the Company

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