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JTPY > SEC Filings for JTPY > Form 8-K on 7-May-2014All Recent SEC Filings

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Form 8-K for JETPAY CORP


7-May-2014

Entry into a Material Definitive Agreement, Unregistered Sale of Equity Securities, A


Item 1.01. Entry into a Material Definitive Agreement

On May 1, 2014, JetPay Corporation (the "Company") entered into a Securities Purchase Agreement with Ithan Creek Master Investors (Cayman) L.P.
("Wellington") pursuant to which the Company agreed to sell to Wellington, upon the satisfaction of certain conditions, up to 9,000 shares of Series A-1 Convertible Preferred Stock, par value $0.001 ("Series A-1Preferred") for an aggregate purchase price of up to $2,700,000. In addition, the Series A-1 Preferred will be convertible into shares of the Company's common stock, par value $0.001 ("Common Stock") or, in certain circumstances, Series A-2 Convertible Preferred Stock, par value $0.001 per share ("Series A-2 Preferred"). The conversion into Common Stock would be equal to the number of shares of Series A-1 Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which initially will be $3.00. The conversion price of the Series A-1 Preferred 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 and 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

Following the initial purchase and sale of 2,250 shares of Series A-1 Preferred, at any time when Flexpoint Fund II, L.P. ("Flexpoint") purchases Series A Preferred Stock, par value $0.001 per share ("Series A Preferred"), Wellington will have the option, but not the obligation, to purchase up to the number of shares of Series A-1 Preferred equal to 6.75% of the number of shares of Series A Preferred purchased by Flexpoint. All shares of Series A-1 Preferred Stock have a purchase price of $300 per share. As a result of the purchase by Flexpoint of $1.4 million of Series A Preferred on April 14, 2014, Wellington exercised its option to purchase an additional 315 shares of Series A-1 Preferred Stock at the initial closing, which such amount represented 6.75% of the Flexpoint's purchase on April 14, 2014.

Restrictions on Transfer

Subject to certain exceptions, Wellington is prohibited from transferring any shares of Series A-1 Preferred, shares of Series A-2 Preferred or shares of Common Stock, into which such shares of Series A-1 Preferred or Series A-2 Preferred 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.

Survival and Indemnification

Other than certain fundamental representations which survive for the applicable statute of limitations, Wellington's and the Company's representations and warranties survive for 18 months after the applicable closing in which such representations and warranties were made. The Company has agreed to indemnify Wellington for any breaches of the Company's representations and warranties, certain specified matters and for any breaches of the Company's covenants in the Securities Purchase Agreement. Other than with respect to breaches of certain fundamental representations, Wellington is only entitled to indemnification for breaches of the Company's representations and warranties if the cumulative damages from any breaches exceed greater of $100,000, and Wellington is not entitled to indemnification for any damages in excess of the aggregate purchase price for Series A-1 Preferred purchased pursuant to the Securities Purchase Agreement. Any amounts that Wellington is entitled to as a result of the Company's indemnification obligations are structured as a reduction in the conversion price of the Series A-1 Preferred based on the diminution in pre-money equity value of the Common Stock as a result of the breach, other than with respect to breaches of the Company's covenants, with respect to which Wellington can elect to receive in cash.

Registration Rights

In connection with the consummation of the Securities Purchase Agreement, the Company granted the holders of the Series A-1 Preferred unlimited "piggy-back" registration rights, subject to certain exceptions. In all cases, the Company is obligated to reimburse the holders of Series A-1 Preferred for their expenses incurred with such registration.

Certificate of Designation of Preferred Stock

General

The Series A-1 Preferred will be convertible into shares of the Company's Common Stock at the ratio described below. The Series A-1 Preferred has no stated maturity; however, the shares of Series A-1 Preferred are subject to redemption by the Company and may be required to be redeemed by the holders in certain circumstances as described below. The following description of the Certificate of Designation of Series A-1 Preferred Stock is qualified in its entirety by reference to the full text of the form of Certificate of Designation of Series A-1 Preferred Stock, which is attached as an Exhibit 3.1 and is incorporated by reference herein.

Ranking

The Series A-1 Preferred will have an initial liquidation preference of $600 per share and will rank senior to the Company's Common Stock and pari passu with the Series A Preferred purchased by Flexpoint with respect to distributions of assets upon the Company's liquidation, dissolution or winding up. The shares of Series A-1 Preferred will be equity interests and will not constitute indebtedness. In the event of bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to us, indebtedness will effectively rank senior to the Series A-1 Preferred, and the holders of indebtedness will be entitled to the satisfaction of any amounts owed to them prior to the payment of the then applicable liquidation preference of any capital stock, including the Series A-1 Preferred.

Liquidation Rights

If the Company voluntarily or involuntarily liquidates, dissolves or winds up its affairs or undergoes a change of control, each holder of the Series A-1Preferred will be entitled to receive out of the Company's assets available for distribution to stockholders, after satisfaction of liabilities to . . .



Item 3.02. Unregistered Sales of Equity Securities

On May 5, 2014, the Company issued 2,565 shares of Preferred Stock to Wellington for an aggregate of $769,500, less certain agreed-upon reimbursable expenses of Wellington. The information set forth in Item 1.01 above is incorporated by reference herein.

Based upon certain representations of Wellington made in the Securities Purchase Agreement, the issuance of the Series A-1 Preferred to Wellington was consummated in reliance upon Rule 506 of Regulation D of the Securities Act of 1933, as amended.



Item 5.03 Amendments to Articles of Incorporation or Bylaws

On May 5, 2014, the Company filed the Certificate of Designation of Series A-1 Convertible Preferred Stock and the Certificate of Designation of Series A-2 Convertible Preferred Stock with the Secretary of State of the State of Delaware, copies of which are attached hereto as Exhibits 3.1 and 3.2, respectively and incorporated herein by reference.



Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number      Description

3.1                 Certificate of Designation of Series A-1 Convertible Preferred
                    Stock

3.2                 Certificate of Designation of Series A-2 Convertible Preferred
                    Stock

4.1                 Securities Purchase Agreement, dated as of May 1, 2014, by and
                    between the Company and Wellington.

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