Exhibit 10.1

 

INVESTOR RIGHTS AGREEMENT

 

THIS INVESTOR RIGHTS AGREEMENT, dated as of June 10, 2016 (this “Agreement”), by
and among FlexShopper, Inc., a Delaware corporation (the “Company”), the
Management Stockholder and the Investors listed on the signature pages hereto
(each an “Investor”, and together, the “Investors”). Each of the Investors, the
Company and the Management Stockholder are from time to time referred to herein
as a “Party” and collectively as the “Parties”.

 

RECITALS

 

WHEREAS, B2 FIE V LLC (“B2 FIE”) and the Company have entered into that certain
Subscription Agreement, dated as of June 10, 2016 (the “Subscription
Agreement”), pursuant to which B2 FIE has agreed to purchase 20,000 shares of
newly issued Series 2 convertible preferred stock, par value $0.001 per share,
of the Company (the “Preferred Stock”); and

 

WHEREAS, MCP-FS, L.P. and the Company may, within ten (10) Business Days of the
date hereof, enter into a subscription agreement pursuant to which MCP-FS, L.P.
may agree to purchase up to 5,000 shares of Preferred Stock (if executed, such
agreement the “Middlemarch Subscription Agreement”).

 

WHEREAS, it is a condition precedent to the Investors’ obligation to purchase
such Preferred Stock that the Company enter into this Agreement with the
Investors to provide for certain rights and obligations of the Parties following
the closing of the transactions contemplated by the Subscription Agreement (the
“Closing”).

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties, intending to be legally bound, hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

SECTION 1.1. Definitions. The following terms shall have the meanings ascribed
to them below:

 

“Affiliate” of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For purposes of this definition, “control” when used with respect
to any Person has the meaning specified in Rule 12b-2 under the Exchange Act;
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.

 

“Agreement” means this Agreement, as amended, modified or supplemented from time
to time, in accordance with the terms hereof, together with any exhibits,
schedules or other attachments hereto.

 

 

 

“Beneficially Own” with respect to any securities means having “beneficial
ownership” of such securities (as determined pursuant to Rule 13d-3 under the
Exchange Act, including without limitation, the 60-day provision in paragraph
(d)(1)(i) thereof). The terms “Beneficial Ownership” and “Beneficial Owner” have
correlative meanings.

 

“Bravo Investor Parties” means B2 FIE and its Affiliate transferees.

 

“Business Day” means any day other than (i) any Saturday or Sunday or (ii) any
other day on which banks located in New York, New York are authorized or
required by Law to be closed.

 

“Capital Stock” means 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.

 

“Closing” has the meaning ascribed thereto in the recitals of this Agreement.

 

“Common Stock” means the Company’s common stock, par value $0.0001 per share.

 

“Company” has the meaning set forth in the preamble of this Agreement.

 

“Electronic Delivery” has the meaning set forth in Section 4.8.

 

“Equity Securities” means any Common Stock, Preferred Stock, Options or any
securities convertible, exchangeable or exercisable for or into such securities.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“FINRA” means the U.S. Financial Industry Regulatory Authority.

 

“GAAP” means generally accepted accounting principles in the United States as in
effect from time to time.

 

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

 

“Indemnified Party” has the meaning set forth in Section 2.6(c).

 

“Indemnifying Party” has the meaning set forth in Section 2.6(c).

 

“Investor” has the meaning set forth in the preamble of this Agreement.

 

“Investor Director” has the meaning set forth in Section 3.3(a).

 

“Investor Parties” means the Investors and their Affiliate transferees.

 

“Investor Party Indemnitees” has the meaning set forth in Section 2.6(a).

 

 2 

 

 

“Law” means any applicable federal, state, local or foreign law, statute,
ordinance, rule, guideline, regulation, order, writ, decree, agency requirement,
license or permit of any Governmental Entity.

 

“Losses” has the meaning set forth in Section 2.6(a).

 

“Management Stockholder” means Brad Bernstein and his Affiliates.

 

“Middlemarch Investor Parties” means MCP-FS, L.P. and its Affiliate transferees.

 

“Notice and Questionnaire” means a written notice executed by the Investor
Parties and delivered to the Company containing the information required by Item
507 of Regulation S-K to be included in any Shelf Registration Statement
regarding the Investor Parties seeking to sell Preferred Stock (or the
underlying Common Stock) pursuant thereto.

 

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock or any securities convertible, exchangeable or exercisable for or
into Common Stock.

 

“Other Securities” means the Common Stock or other securities of the Company
which the Company is registering pursuant to a Registration Statement covered by
Section 2.2.

 

“Ownership Percentage” has the meaning ascribed thereto in Section 3.3(a) of
this Agreement.

 

“Parties” has the meaning ascribed thereto in the recitals of this Agreement.

 

“Permitted Issuance” means any issuance by the Company of Equity Securities (1)
to the Company or a Subsidiary of the Company, (2) to officers, employees,
directors or consultants of the Company and its Subsidiaries pursuant to the
Company’s Board-approved equity incentive plans and the securities issued upon
exercise of such grants, (3) as consideration in a merger or acquisition of the
stock or assets of another Person, (4) upon the occurrence of a stock split,
stock dividend or any subdivision of the Common Stock, or any other
reclassification, reorganization or other similar recapitalization, (5) pursuant
to the conversion or exchange of any securities of the Company into Capital
Stock, or the exercise of any warrants or other rights to acquire Capital Stock;
(6) pursuant to a bona fide firm commitment underwritten public offering; (7) in
connection with any private placement of warrants to purchase Capital Stock to
lenders or other institutional investors (excluding the Company’s stockholders)
in any arm’s length transaction approved by the Board in which such lenders or
investors provide debt financing to the Company or any Company Subsidiary; (8)
in connection with a joint venture, strategic alliance or other commercial
relationship with any Person (including Persons that are customers, suppliers
and strategic partners of the Company or any Subsidiary) relating to the
operation of the Company’s or any Subsidiary’s business and for which a primary
purpose thereof is not raising capital; or (9) in connection with any office
lease or equipment lease or similar equipment financing transaction approved by
the Board in which the Company or any Subsidiary obtains from a lessor or vendor
the use of such office space or equipment for its business.

 

“Permitted Investor Transferee” has the meaning set forth in Section 4.2.

 

 3 

 

 

“Permitted Transferee” means any Affiliate or family member of a Management
Stockholder.

 

“Person” means any individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, Governmental Entity or other
entity.

 

“Piggyback Notice” has the meaning set forth in Section 2.2(a).

 

“Piggyback Registration” has the meaning set forth in Section 2.2(a).

 

“Pro Rata Share” means, for any Investor Party at any time of determination, the
quotient of (i) the number of shares of (w) Common Stock issuable upon the
conversion of the Preferred Stock plus (x) Common Stock issued upon the
conversion of the Preferred Stock, each Beneficially Owned by such Investor
Party, divided by, (ii) the number of shares of (y) Common Stock issuable upon
the conversion of the Preferred Stock plus (z) Common Stock issued upon the
conversion of the Preferred Stock, each Beneficially Owned by all Investor
Parties at such time of determination.

 

“Proposed Transfer” has the meaning set forth in Section 3.5(a).

 

“Proposed Transferee” has the meaning set forth in Section 3.5(a).

 

“Prospectus” means the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such prospectus.

 

“Purchase Rights” has the meaning set forth in Section 3.2.

 

“Registrable Securities” means shares of Preferred Stock issued by the Company
at the Closing, as well as any shares of Common Stock issuable upon the
conversion of the Preferred Stock and any shares of Common Stock or other
securities issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange generally for, or in replacement
generally of, such Preferred Stock or other Registrable Securities and any
securities issued in exchange for such Preferred Stock or other Registrable
Securities in any merger, reorganization, consolidation, share exchange,
recapitalization, restructuring or other comparable transaction of the Company.
As to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a Registration Statement with
respect to the sale by the Investor Parties holding such securities has been
declared effective by the SEC and such securities have been disposed of pursuant
to such effective Registration Statement, (b) such securities shall have been or
could be sold by the holder, without being subject to any holding period or
volume limitations pursuant to Rule 144, under circumstances in which all of the
applicable conditions (including any holding period or volume limitations) of
Rule 144 (or any similar provisions then in force) under the Securities Act are
met, (c) such securities have been otherwise transferred and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend and not subject to any stop order, and such
securities may be publicly resold by the Person receiving such certificate
without restriction, or (d) such securities shall have ceased to be outstanding.

 

 4 

 

 

“Registration Statement” means any registration statement of the Company under
the Securities Act which permits the public offering of any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Shelf Demand Notice” has the meaning set forth in Section 2.1(a).

 

“Shelf Filing Date” has the meaning set forth in Section 2.1(a).

 

“Shelf Registration Statement” has the meaning set forth in Section 2.1(a).

 

“Shelf Take-Down Notice” has the meaning set forth in Section 2.1(b).

 

“Subscription Agreement” has the meaning ascribed thereto in the recitals of
this Agreement.

 

“Subsidiary” means, when used with respect to any Person, any other Person of
which (a) in the case of a corporation, at least (i) a majority of the equity
and (ii) a majority of the voting interests are owned or controlled, directly or
indirectly, by such first Person, by any one or more of its Subsidiaries, or by
any combination of such first Person and one or more of its Subsidiaries or (b)
in the case of any Person other than a corporation, such first Person, one or
more of its Subsidiaries, or such first Person and one or more of its
Subsidiaries combined (i) owns a majority of the equity interests thereof and
(ii) has the power to elect or direct the election of a majority of the members
of the governing body thereof. As used in this Agreement, unless the context
requires otherwise, references to a Subsidiary or Subsidiaries shall mean a
Subsidiary or the Subsidiaries of the Company.

 

“Tag-Along Notice” has the meaning set forth in Section 3.5(b).

 

“Tagging Stockholder” has the meaning set forth in Section 3.5(a).

 

“Transaction Documents” means this Agreement together with any other documents
referred to in this Agreement and any other agreements entered into or to be
entered into between the Company on the one hand, and the Investor Parties on
the other hand, on or after the effective date pursuant to or in connection with
this Agreement.

 

“Transfer” means, with respect to any shares of Preferred Stock (or the
underlying Common Stock), a direct or indirect transfer, sale, exchange,
assignment, pledge, hypothecation or other encumbrance or other disposition of
such shares, including the grant of an option or other right, whether directly
or indirectly, whether voluntarily, involuntarily or by operation of Law; and
“Transferred” shall have a correlative meaning.

 

 5 

 

 

“Transferring Stockholder” has the meaning set forth in Section 3.5(a).

 

“Voting Stock” means Capital Stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances
(determined without regard to any classification of directors).

 

“Waterfall Rights Agreement” means that certain Investor Rights Agreement by and
among the Company, Waterfall Asset Management, LLC and the other parties
thereto, dated March 6, 2015.

 

SECTION 1.2. General Interpretive Principles. Unless the context otherwise
requires: (i) words in the singular include the plural, and in the plural
include the singular; (ii) “including” means including without limitation; (iii)
references to any Section or clause refer to the corresponding Section or
clause, respectively, of this Agreement; (iv) any reference to a day or number
of days, unless expressly referred to as a business day shall mean the
respective calendar day or number of calendar days; (v) references to Sections
of or Rules under the Exchange Act shall be deemed to include substitute,
replacement or successor Sections or Rules, and any term defined by reference to
a Section of or Rule under the Exchange Act shall include SEC and judicial
interpretations of such Section or Rule; and (vi) headings are for convenience
of reference only.

 

ARTICLE II
REGISTRATION RIGHTS

 

SECTION 2.1. Shelf Registration.

 

(a) At any time following the six month anniversary of the date hereof , the
Investor Parties holding a majority of the Registrable Securities held by all
Investor Parties shall have the right, by delivering a written notice to the
Company (a “Shelf Demand Notice”), to require the Company to file a registration
statement to register for resale, on a continuous or delayed basis pursuant to
Rule 415 under the Securities Act, as such rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the SEC, of all of
the Registrable Securities (the “Shelf Registration Statement”). The Company
shall use its reasonable best efforts to prepare and file with the SEC the Shelf
Registration Statement within 60 days after receipt of the Shelf Demand Notice,
if filing on Form S-1, and within 30 days after receipt of the Shelf Demand
Notice if filing on Form S-3 (the “Shelf Filing Date”). The Shelf Registration
Statement shall be on Form S-1 (or any comparable or successor form or forms)
or, if eligible, on Form S-3 (or any comparable or successor form or forms)
under the Securities Act. The Company shall use its reasonable best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act by the SEC within 45 days after the Shelf Filing Date. The
Company shall use its reasonable best efforts to keep the Shelf Registration
Statement (or any successor Shelf Registration Statement) continuously effective
under the Securities Act until the earlier of (i) the date when all of the
Registrable Securities covered by such Shelf Registration Statement have been
sold and (ii) the date on which the Investor Parties cease to own any
Registrable Securities.

 

 6 

 

 

(b) If any Investor Party wishes to sell Registrable Securities pursuant to a
Shelf Registration Statement and related Prospectus, it will do so in accordance
with this Section 2.1(b) and Section 2.4. Any Investor Party wishing to sell
Registrable Securities pursuant to a Shelf Registration Statement and related
Prospectus, whether in an underwritten offering or otherwise, shall notify the
Company of such intent (a “Shelf Take-Down Notice”) and shall deliver a Notice
and Questionnaire to the Company at least five (5) Business Days prior to any
intended distribution of Registrable Securities under the Shelf Registration
Statement, it being agreed that if any such Investor Party intends to distribute
any Registrable Securities by means of an underwritten offering it shall
promptly so advise the Company and the Company shall take all reasonable steps
to facilitate such distribution, including the actions required pursuant to
Section 2.4(a)(vii). From and after the date the Shelf Registration Statement is
declared effective, the Company shall, as promptly as practicable after the date
a Notice and Questionnaire is delivered to it in connection with a Shelf
Take-Down Notice:

 

(i) if required by applicable Law, file with the SEC a post-effective amendment
to the Shelf Registration Statement or prepare and, if required by applicable
Law, file a supplement to the related Prospectus or a supplement or amendment to
any document incorporated therein by reference or file any other required
document so that the Investor Parties are named as a selling security holder in
the Shelf Registration Statement and the related Prospectus in such a manner as
to permit the Investor Parties to deliver such Prospectus to purchasers of
Registrable Securities in accordance with applicable Law and, if the Company
shall file a post-effective amendment to the Shelf Registration Statement, use
its reasonable best efforts to cause such post-effective amendment to be
declared effective under the Securities Act as promptly as is practicable;

 

(ii) provide the Investor Parties copies of any documents to filed pursuant to
Section 2.1(b)(i) a reasonable period of time prior to such filing and allow the
Investor Parties to provide comments; and

 

(iii) notify the Investor Parties as promptly as practicable after the
effectiveness under the Securities Act of any post-effective amendment filed
pursuant to Section 2.1(b)(i).

 

Notwithstanding anything contained herein to the contrary, the Company shall be
under no obligation to name any Investor Party as a selling security holder in
any Shelf Registration Statement or related Prospectus if such Investor Party
has not delivered a Notice and Questionnaire to the Company.

 

 7 

 

 

(c) If any of the Registrable Securities to be sold pursuant to a Shelf
Registration Statement are to be sold in a firm commitment underwritten offering
which underwritten offering was initially requested by any Investor Party
pursuant to a Shelf Take-Down Notice, the Investor Party making the demand shall
select the underwriters, who shall be reasonably acceptable to the Company. If
the managing underwriter(s) of such underwritten offering advise the Investor
Parties in writing that it is their good faith opinion that the total number or
dollar amount of Registrable Securities proposed to be sold in such offering,
together with any Other Securities proposed to be included by holders thereof
which are entitled to include securities in such Registration Statement, exceeds
the total number or dollar amount of such securities that can be sold without
having an adverse effect on the price, timing or distribution of the Registrable
Securities to be so included, together with all such Other Securities, then
there shall be included in such firm commitment underwritten offering the number
or dollar amount of Registrable Securities and such Other Securities that in the
opinion of such managing underwriter(s) can be sold without so adversely
affecting such offering, and such number of Registrable Securities and Other
Securities shall be allocated for inclusion as follows:

 

(i) first, the Registrable Securities for which inclusion in such underwritten
offering was requested by any Investor Party based on the number of Registrable
Securities Beneficially Owned by such Investor Party; and

 

(ii) second, among any holders of Other Securities, pro rata, based on the
number of Other Securities Beneficially Owned by each such holder of Other
Securities.

 

SECTION 2.2. Piggyback Registration.

 

(a) At any time after the Closing if, other than pursuant to Sections 2.1, the
Company proposes to file a registration statement under the Securities Act with
respect to an offering by the Company for its own account (other than a
registration statement (a) on Form S-4, Form S-8 or any successor forms thereto,
(b) filed solely in connection with any employee benefit or dividend
reinvestment plan or (c) for the purpose of effecting a rights offering relating
to the Common Stock) or for the account of any of its security holders, the
Company will give to the Investor Parties written notice of such filing at least
fifteen (15) days prior to the anticipated filing date (the “Piggyback Notice”).
The Piggyback Notice shall offer the Investor Parties the opportunity to include
in such registration statement the number of Registrable Securities as it may
request (a “Piggyback Registration”). Subject to Section 2.2(b), the Company
shall include in each such Piggyback Registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within seven (7) days after notice has been given to the Investor
Parties. The Company shall be required to maintain the effectiveness of the
Registration Statement for a Piggyback Registration for a period of 360 days
after the effective date thereof or such shorter period in which all Registrable
Securities included in such Registration Statement have actually been sold.

 

 8 

 

 

(b) If any of the securities to be registered pursuant to the registration
giving rise to the Investor Parties’ rights under this Section 2.2 are to be
sold in an underwritten offering, the Investor Parties shall be permitted to
include all Registrable Securities requested to be included in such registration
in such offering on the same terms and conditions as any other shares of Capital
Stock (other than terms and conditions that differ solely as a result of being a
different class of Capital Stock) , if any, of the Company included therein;
provided, however, that if such offering involves a firm commitment underwritten
offering and the managing underwriter(s) of such underwritten offering advise
the Investor Parties in writing that it is their good faith opinion that the
total number or dollar amount of Registrable Securities proposed to be sold in
such offering, together with all Other Securities that the Company and any other
Persons having rights to participate in such registration intend to include in
such offering, exceeds the total number or dollar amount of such securities that
can be sold without having an adverse effect on the price, timing or
distribution of the Registrable Securities to be so included together with all
such Other Securities, then there shall be included in such firm commitment
underwritten offering the number or dollar amount of Registrable Securities and
such Other Securities that in the opinion of such managing underwriter(s) can be
sold without so adversely affecting such offering, and such number of
Registrable Securities and Other Securities shall be allocated for inclusion as
follows:

 

(i) first, by any Person, if any, (other than the Investor Parties) exercising a
contractual right to demand registration pursuant to which such registration
statement was filed; and

 

(ii) second, all Other Securities being sold by the Company or by any other
holders of Registrable Securities or Other Securities requesting such
registration, pro rata, based on the aggregate number of Registrable Securities
and Other Securities Beneficially Owned by each such holder.

 

(c) The Company shall have the right to terminate or withdraw any registration
initiated by it under this Section 2.2 prior to the effectiveness of the related
Registration Statement and shall have no obligation to register any Registrable
Securities in connection with such registration, except to the extent provided
herein.

 

(d) Each Investor Party shall have the right to withdraw its request for
inclusion of its Registrable Securities in any Piggyback Registration by giving
written notice to the Company of its request to withdraw at least two (2)
Business Days prior to the planned effective date of the related Registration
Statement. Notwithstanding Section 2.3, the Company shall not be required to pay
for the expenses of any Investor Party in connection with any registration
proceeding begun pursuant to this Section 2.2 from which the Investor Parties
has subsequently withdrawn pursuant to this Section 2.2(d), unless such Investor
Party’s withdrawal is based upon material adverse information concerning the
Company that the Company had not publicly disclosed at least two (2) Business
Days prior to the request for such withdrawal.

 

SECTION 2.3. Registration Expenses. In connection with registrations pursuant to
Sections 2.1, and 2.2 (including any subsequently abandoned or withdrawn
registration statement), the Company shall pay all of the registration expenses
incurred in connection with the registration thereunder, including, without
limitation, all: (a) registration and filing fees, (b) fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (c) processing, duplicating and printing expenses, (d)
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (e) fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange or quotation system, (f)
reasonable fees and disbursements of counsel for the Company, reasonable fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters or costs associated with
the delivery by any registered public accounting firms of a comfort letter or
comfort letters requested but not the cost of any audit other than a year end
audit) and reasonable fees and expenses of one counsel (and applicable local
counsel as necessary) for the Investor Parties and (g) reasonable fees and
expenses of any special experts retained by the Company in connection with such
registration. Notwithstanding the foregoing, the Investor Parties shall be
responsible for (i) any underwriting fees, discounts or commissions, (ii) any
commissions of brokers and dealers, and (iii) capital gains, income and transfer
taxes, if any, relating to the sale of Registrable Securities of the Investor
Parties.

 

 9 

 

 

SECTION 2.4. Registration Procedures.

 

(a) In connection with the registration of any Registrable Securities pursuant
to this Agreement:

 

(i) The Company shall prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities as provided herein, make all
required filings with FINRA and use its reasonable best efforts to keep each
Registration Statement continuously effective during the period such
Registration Statement is required to remain effective pursuant to the terms of
this Agreement; upon the occurrence of any event that would cause the
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Registrable Securities during the period such Registration Statement
is required to remain effective pursuant to the terms of this Agreement, the
Company shall file promptly an appropriate amendment to the Registration
Statement, a supplement to the Prospectus or a report filed with the SEC
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case
of clause (A), correcting any such misstatement or omission, and, in the case of
either clause (A) or (B), the Company shall use its reasonable best efforts to
cause such amendment to be declared effective and the Registration Statement and
the related Prospectus to become usable for their intended purposes as soon as
practicable thereafter.

 

(ii) The Company shall prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement effective during the periods provided herein.

 

(iii) The Company shall advise the Investor Parties promptly (which notice
pursuant to clauses (B) through (D) below shall be accompanied by an instruction
to suspend the use of the Prospectus until the Company shall have remedied the
basis for such suspension):

 

(A) when the Prospectus or any Prospectus supplement or post-effective amendment
is proposed to be or has been filed, and, with respect to the Registration
Statement or any post-effective amendment thereto, when the same has become
effective;

 

(B) of any request by the SEC or any other Governmental Entity for amendments to
the Registration Statement or amendments or supplements to the Prospectus or for
additional information relating thereto;

 

 10 

 

 

(C) of the issuance by the SEC of any stop order suspending the effectiveness of
the Registration Statement under the Securities Act or of the suspension by any
state securities commission of the qualification of the Registrable Securities
for offering or sale in any jurisdiction, or the threatening or initiation of
any proceeding for any of the preceding purposes;

 

(D) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose; or

 

(E) when the Company becomes aware of the happening of any event as a result of
which the applicable Registration Statement or the Prospectus included in such
Registration Statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein (in the case of such Prospectus or any preliminary Prospectus, in light
of the circumstances under which they were made) not misleading, when any Issuer
Free Writing Prospectus includes information that may conflict with the
information contained in the Registration Statement, or, if for any other reason
it shall be necessary during such time period to amend or supplement such
Registration Statement or Prospectus in order to comply with the Securities Act.
The Company shall, unless any Registrable Securities shall be in book-entry form
only, cooperate with the Investor Parties to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends (unless required by applicable securities
Laws), and enable such Registrable Securities to be in such denominations and
registered in such names as the Investor Parties may request at least two (2)
Business Days before any sale of Registrable Securities. In connection
therewith, if reasonably required by the Company’s transfer agent, the Company
shall promptly deliver any authorizations, certificates and directions required
by the transfer agent which authorize and direct the transfer agent to issue
such Registrable Securities without legend upon sale by the holder of such
shares of Registrable Securities under the Registration Statement.

 

(iv) The Company shall use its reasonable best efforts to promptly register or
qualify any Registrable Securities under such other securities or blue sky laws
of such jurisdictions within the United States as any Investor Party reasonably
requests and which may be reasonably necessary or advisable to enable such
Investor Party to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Investor Parties, keep such registrations
or qualifications in effect for so long as the Registration Statement remains in
effect and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Investor Parties to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
Investor Parties; provided, however, that the Company will not be required to
(A) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Agreement, (B) subject itself to
taxation in any jurisdiction where it would not otherwise be subject to taxation
but for this Agreement or (C) consent to general service of process in any
jurisdiction where it would not otherwise be subject to such service but for
this Agreement.

 

 11 

 

 

(v) The Company shall use its reasonable best efforts to promptly cause any
Registrable Securities covered by a Registration Statement to be registered with
or approved by such other Governmental Entity within the United States as may be
necessary to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities in accordance with the intended methods of
disposition set forth in such Registration Statement.

 

(vi) The Company shall, in the event that any Investor Party advises the Company
that the Investor Party intends to distribute any Registrable Securities by
means of an underwritten offering, whether pursuant to Sections 2.1, or 2.2,
enter into an underwriting agreement in customary form, scope and substance and
take all such other actions reasonably requested by such Investor Party or by
the managing underwriter(s), if any, to expedite or facilitate the underwritten
disposition of such Registrable Securities and deliver such documents and
certificates as may be reasonably requested by such Investor Party, its counsel
and the managing underwriter(s), if any.

 

(b) No Investor Party by acquisition of a Registrable Security shall be entitled
to sell any of such Registrable Securities pursuant to a Registration Statement,
or to receive a Prospectus relating thereto, unless it has furnished the Company
with a Notice and Questionnaire (including the information required to be
included in such Notice and Questionnaire) and the information set forth in the
next sentence. The Company may require the Investor Parties selling Registrable
Securities pursuant to a Registration Statement to furnish to the Company such
information regarding the Investor Parties and the distribution of such
Registrable Securities as the Company may from time to time reasonably require
for inclusion in such Registration Statement. The Investor Parties shall
promptly furnish to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by the
Investor Parties not misleading. Any sale of any Registrable Securities by such
Investor Parties shall constitute a representation and warranty by such Investor
Party that the information relating to the Investor Party and its plan of
distribution is as set forth in the Prospectus delivered in connection with such
disposition, that such Prospectus does not as of the time of such sale contain
any untrue statement of a material fact relating to or provided by such Investor
Party or its plan of distribution and that such Prospectus does not as of the
time of such sale omit to state any material fact relating to or provided by the
Investor Party or its plan of distribution necessary to make the statements in
such Prospectus, in light of the circumstances under which they were made, not
misleading. The Company may exclude from such Registration Statement the
Registrable Securities of any Investor Party that fails to furnish such
information within a reasonable time after receiving such request. The Company
shall not include in any Registration Statement any information regarding,
relating to or referring to such Investor Party or its plan of distribution
without the approval of such Investor Party in writing.

 

(c) No Investor Party shall use any free writing prospectus (as defined in Rule
405 under the Securities Act) in connection with the sale of Registrable
Securities without the prior written consent of the Company (which consent shall
not be unreasonably withheld, conditioned or delayed).

 

 12 

 

 

SECTION 2.5. Lock-Up Agreement. In connection with each registration or sale of
Registrable Securities pursuant to Section 2.1 or 2.2 conducted as an
underwritten offering, each Management Stockholder agrees, if requested, to
become bound by and to execute and deliver a lock-up agreement with the
underwriter(s) of such underwritten offering restricting such Management
Stockholder’s right to (a) Transfer, directly or indirectly, any equity
securities of the Company held by such Management Stockholder and (b) enter into
any swap or other arrangement that transfers to another any of the economic
consequences of ownership of such securities during the period commencing on the
date of the final Prospectus relating to the underwritten offering and ending on
the date specified by the underwriters (such period not to exceed one hundred
twenty (120) days plus, in each case, such additional period as may be requested
by the Company or an underwriter to accommodate regulatory restrictions on the
publication or other distribution of research reports and analyst
recommendations and opinions, if applicable).

 

SECTION 2.6. Indemnification.

 

(a) The Company shall indemnify and hold harmless, to the fullest extent
permitted by Law, the Investor Parties, the officers, directors, partners
(limited and general), members, managers, representatives, agents and employees
of the Investor Parties, each Person who could be deemed to control (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
the Investor Parties, each underwriter (including the Investor Parties if they
are deemed to be an underwriter pursuant to any SEC comments or policies), if
any, and each Person who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) such underwriter
(collectively, the “Investor Party Indemnitees”), from and against all losses,
claims, damages, liabilities and expenses (collectively, “Losses”) in connection
with any sale of Registrable Securities pursuant to a Registration Statement
arising out of or based upon (i) any violation or alleged violation of the
Securities Act or any rule or regulation promulgated thereunder by the Company
or any of its Affiliates, employees, officers, directors or agents or (ii) any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement or preliminary or final Prospectus relating to the
registration of such Registrable Securities or any amendment or supplement
thereto or any document incorporated by reference therein or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that the Company shall
not be liable to such Investor Party Indemnitee in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon (A) an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, including any such
preliminary or final Prospectus contained therein or any such amendments or
supplements thereto, or contained in any free writing prospectus (as such term
is defined in Rule 405 under the Securities Act) prepared by the Company or
authorized by it in writing for use by such Investor Party Indemnitee (or any
amendment or supplement thereto), in reliance upon and in conformity with
information regarding such Investor Party Indemnitee or its plan of distribution
or ownership interests which was furnished in writing to the Company by the
Investor Party expressly for inclusion in such Registration Statement, including
any such preliminary or final Prospectus contained therein or any such
amendments or supplements thereto, unless the Company failed to correct such
information to make it not misleading following notification by the Investor
Party prior to the filing of such Registration Statement or Prospectus, (B)
offers or sales effected by or on behalf of such Investor Party Indemnitee “by
means of” (as defined in Rule 159A under the Securities Act) a “free writing
prospectus” (as defined in Rule 405 under the Securities Act) that was not
authorized in writing by the Company or (C) the failure of any Investor Party
Indemnitee to deliver or make available to a purchaser of Registrable Securities
a copy of any Registration Statement, including any preliminary or final
Prospectus contained therein or any amendments or supplements thereto (if the
same was required by applicable Law to be delivered or made available); provided
that the Company shall have delivered to such Investor Party Indemnitee such
Registration Statement, including such preliminary or final Prospectus contained
therein and any amendments or supplements thereto.

 

 13 

 

 

(b) In connection with any Registration Statement in which an Investor Party is
participating by registering Registrable Securities, such Investor Party shall
indemnify and hold harmless, to the fullest extent permitted by Law, severally
and not jointly, the Company, the officers, directors, agents, representatives
or other employees of the Company, each Person who controls (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) the
Company, each underwriter, if any, and each Person who controls (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
such underwriter, from and against all Losses, as incurred, arising out of or
based on any untrue or alleged untrue statement of a material fact contained in
any such Registration Statement or preliminary or final Prospectus relating to
the registration of such Registrable Securities or any amendment or supplement
thereto or any document incorporated by reference therein, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case solely to the extent that
such untrue or alleged untrue statement or omission or alleged omission is made
in such Registration Statement or in any preliminary or final Prospectus
contained therein or any such amendments or supplements thereto or contained in
any free writing prospectus (as such term is defined in Rule 405 under the
Securities Act) in reliance upon and in conformity with written information
furnished to the Company by the Investor Parties expressly for inclusion in such
document, provided, that that this Section 2.6(c) will not apply to any untrue
statements or omissions that the Investor Party gave notice of such fact to the
Company prior to filing of such Registration Statement or Prospectus.

 

(c) If any Person shall be entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall give prompt notice to the party from which
such indemnity is sought (the “Indemnifying Party”) of any claim or of the
commencement of any action with respect to which such Indemnified Party seeks
indemnification or contribution pursuant hereto; provided, however, that the
delay or failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from any obligation or liability except to the extent that
the Indemnifying Party has been actually prejudiced by such delay or failure.
The Indemnifying Party shall have the right, exercisable by giving written
notice to an Indemnified Party promptly after the receipt of written notice from
such Indemnified Party of such claim or action, to assume, at the Indemnifying
Party’s expense, the defense of any such action, with counsel reasonably
satisfactory to such Indemnified Party; provided, however, that an Indemnified
Party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless: (i) the Indemnifying
Party agrees to pay such fees and expenses; (ii) the Indemnifying Party fails
promptly to assume, or in the event of a conflict of interest cannot assume, the
defense of such action or fails to employ counsel reasonably satisfactory to
such Indemnified Party, in which case the Indemnified Party shall also have the
right to employ counsel and to assume the defense of such action or (iii) in the
Indemnified Party’s reasonable judgment a conflict or potential conflict of
interest between such Indemnified Party and Indemnifying Party may exist in
respect of such action; provided, further, that the Indemnifying Party shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction, arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one firm of attorneys (together with appropriate local counsel) at any
time for all of the Indemnified Parties. Whether or not such defense is assumed
by the Indemnifying Party, neither the Indemnifying Party nor the Indemnified
Party will be subject to any liability for, or otherwise effect, any settlement
made without the consent of the other (but such consent shall not be
unreasonably withheld, conditioned or delayed).

 

 14 

 

 

(d) Neither Party shall settle, compromise, discharge or consent to an entry of
judgment with respect to a claim or liability subject to indemnification under
this Section 2.5 without the other Parties’ prior written consent (which consent
shall not be unreasonably withheld, conditioned or delayed); provided that the
Indemnifying Party may agree without the prior written consent of the
Indemnified Party to any settlement, compromise, discharge or consent to an
entry of judgment, in each case that relates only to money damages and by its
terms obligates the Indemnifying Party to pay the full amount of the liability
in connection with such claim and which unconditionally releases the Indemnified
Party from all liability in connection with such claim.

 

(e) If the indemnification provided for in this Section 2.5 is unavailable to
hold harmless each of the Indemnified Parties against any losses, claims,
damages, liabilities and expenses to which such parties may become subject under
the Securities Act, then the Indemnifying Party shall, in lieu of indemnifying
each party entitled to indemnification hereunder, contribute to the amount paid
or payable by such party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and such Indemnified
Parties on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of such parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact, or omission or alleged omission to state a
material fact, relates to information supplied by or concerning the Indemnifying
Party on the one hand, or by such Indemnified Party on the other, and such
party’s relative intent, knowledge, access to information and opportunity to
have corrected or prevented such statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of the Securities Act) shall be
entitled to contribution from any Person that is not guilty of such fraudulent
misrepresentation.

 

SECTION 2.7. Miscellaneous.

 

(a) With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration, the Company agrees, so long as
there are outstanding Registrable Securities, to use its reasonable best efforts
to:

 

(i) make and keep public information available, as those terms are understood
and defined in Rule 144 under the Securities Act or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of this Agreement;

 

 15 

 

 

(ii) file with the SEC in a timely manner all reports and other documents as the
SEC may prescribe under the Exchange Act at any time while the Company is
subject to such reporting requirements of the Exchange Act; and

 

(iii) furnish to the Investor Parties upon a reasonable request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 and of the Exchange Act; a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as any Investor
Party may reasonably request in availing itself of any rule or regulation of the
SEC allowing it to sell any such Registrable Securities without registration.

 

(b) Subject to the provisions hereof, in the event the Company proposes to enter
into an underwritten public offering, the Investor Parties shall enter into a
customary agreement with the managing underwriters not to effect any sale or
distribution of equity securities of the Company, or any securities convertible,
exchangeable or exercisable for or into such securities, during the period
beginning up to two (2) days prior to the date of such offering and extending
for up to 180 days following the effective date of such offering if so requested
by the underwriters. The Company may impose stop-transfer restrictions with
respect to the securities subject to the foregoing restriction until the end of
the required stand-off period and shall lift such stop-transfer restrictions
immediately upon the end of such period.

 

ARTICLE III
OTHER RIGHTS

 

SECTION 3.1. Board Observation Rights.

 

(a) For so long as the Ownership Percentage (calculated as described in Section
3.3(a) below) of the Bravo Investor Parties equals or exceeds five percent (5%),
and provided that the Bravo Investor Parties shall not have two nominees serving
on the Company’s Board of Directors, the Bravo Investor Parties shall be
entitled to designate a representative who the Company shall permit to attend
all meetings of its Board of Directors in a nonvoting observer capacity and, in
this respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors at the same time
and in the same manner as provided to such directors; provided, however, that
such representative shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so provided; and provided
further, that the Company reserves the right to withhold any information and to
exclude such representative from any meeting or portion thereof if access to
such information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel or result in
disclosure of trade secrets or a conflict of interest.

 

 16 

 

 

(b) For so long as the Ownership Percentage (calculated as described below) of
the Middlemarch Investor Parties equals or exceeds two and one-quarter percent
(2.25%) and the Bravo Investor Parties retain the right to appoint an observer
under Section 3.1(a), the Middlemarch Investor Parties shall be entitled to
designate a representative who the Company shall permit to attend all meetings
of its Board of Directors in a nonvoting, nonparticipating observer capacity
and, in this respect, shall give such representative copies of all notices,
minutes, consents, and other materials that it provides to its directors at the
same time and in the same manner as provided to such directors; provided,
however, that such representative shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information so provided;
and provided further, that the Company reserves the right to withhold any
information and to exclude such representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or result in disclosure of trade secrets or a conflict of interest or
otherwise be detrimental to the Company. For purposes of this Agreement,
“Ownership Percentage” of the Middlemarch Investor Parties shall mean, at any
time of determination, the percentage equal to (i) the number of shares of (w)
Common Stock issuable upon the conversion of the Preferred Stock plus (x) Common
Stock issued upon the conversion of the Preferred Stock, each that the
Middlemarch Investor Parties Beneficially Own, divided by (ii) the total number
of shares of (x) Common Stock issued and outstanding plus (y) Common Stock
issuable upon the conversion of the Preferred Stock then outstanding plus (z)
Common Stock issuable upon the conversion of the Series 1 Preferred Stock then
outstanding.

 

SECTION 3.2. Right of First Offer; Certain Approval Rights. If at any time the
Company proposes to grant, issue or sell any Equity Securities (in each case,
other than any Permitted Issuances) to any Person (the “Purchase Rights”) then
it shall give the Investor Parties written notice of its intention to do so,
describing the Equity Securities and the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor Party shall be
entitled to acquire, upon the terms applicable to such Purchase Rights and
subject to the preemptive rights of Waterfall Asset Management LLC set forth in
the Waterfall Rights Agreement, its Pro Rata Share of the Equity Securities
proposed to be granted, issued or sold by the Company triggering the Purchase
Rights. Each Investor Party shall have fifteen (15) Business Days from the
giving of such notice to agree to purchase its Pro Rata Share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of such Equity Securities to be purchased. If not all of the Investor Parties
elect to purchase their Pro Rata Share of the Equity Securities subject to the
Purchase Rights, then the Company shall promptly notify in writing the Investor
Parties who have elected to purchase their full Pro Rata Share of such Equity
Securities and shall offer such Investor Parties the right to acquire such
unsubscribed shares on a pro rata basis (based on Pro Rata Shares). The Investor
Parties shall have five (5) Business Days after receipt of such notice to notify
the Company of their election to purchase all or a portion thereof of the
unsubscribed shares. If the Investor Parties have, in the aggregate elected to
purchase more than the number of unsubscribed shares being offered in such
notice, then the unsubscribed shares shall be allocated according to each
Investor Party’s Pro Rata Share up to the number of unsubscribed shares set
forth in the notice to the Investor Parties. If the Investor Parties fail to
exercise in full the Purchase Rights, the Company shall have no obligation to
sell the Equity Securities subject to Purchase Rights to the Investor Parties
and shall have ninety (90) days thereafter to sell the Equity Securities subject
to Purchase Rights at a price and upon terms and conditions no more favorable to
the purchasers thereof than specified in the Company’s notice to the Investor
Parties pursuant to this Section 3.2. If the Company has not sold such Equity
Securities subject to Purchase Rights within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities (other than Permitted
Issuances) without first again complying with this Section 3.2. The provisions
of this Section 3.2 shall terminate if the Ownership Percentage of the Bravo
Investor Parties falls below twenty percent (20%).

 

 17 

 

 

SECTION 3.3. Investor Director.

 

(a) Investor Party Nomination. For so long as the Ownership Percentage of the
Bravo Investor Parties equals or exceeds ten percent (10%), the Bravo Investor
Parties shall be entitled to nominate one (1) director to the Board (the
“Investor Director”). For purposes of this Agreement, “Ownership Percentage” of
the Bravo Investor Parties shall mean, at any time of determination, the
percentage equal to (i) the number of shares of (w) Common Stock issuable upon
the conversion of the Preferred Stock plus (x) Common Stock issued upon the
conversion of the Preferred Stock, each that the Bravo Investor Parties
Beneficially Own, divided by (ii) the total number of shares of (x) Common Stock
issued and outstanding plus (y) Common Stock issuable upon the conversion of the
Preferred Stock then outstanding plus (z) Common Stock issuable upon the
conversion of the Series 1 Preferred Stock then outstanding. For the avoidance
of doubt, the calculation of “Ownership Percentage” for the purposes of this
Agreement shall be made without regard to the 45 day delay in the grant of
voting rights and conversion rights set forth in Sections 4 and 5, respectively,
of the Certificate of Designations of the Preferred Stock. For so long as the
Ownership Percentage of the Bravo Investor Parties equals or exceeds twenty two
percent (22%), the Bravo Investor Parties shall be entitled to nominate a second
director to the Board, so long as such nomination is consistent with the
independence and other applicable requirements of the principal trading market
of the Company’s Common Stock or under applicable Law. The Company will use
commercially reasonable efforts to ensure that the Board has a sufficient number
of independent directors such that the Bravo Investor Parties’ nomination of a
second director to the Board is not inconsistent with the independence and other
applicable requirements of the principal trading market of the Company’s Common
Stock or under applicable Law.

 

(b) Company Nomination. In accordance with the provisions of Section 3.3(a), at
each meeting of the Company’s stockholders at which the election of directors is
to be considered, the Company shall nominate the Investor Director(s) designated
by the Bravo Investor Parties for election to the Board by the holders of Voting
Stock and solicit proxies from the Company’s stockholders in favor of the
election of the Investor Director(s). The Company shall use reasonable best
efforts to cause each Investor Director to be elected to the Board (including
voting all unrestricted proxies in favor of the election of such the Investor
Director and including recommending approval to the stockholders of the Company
of such Investor Director’s appointment to the Board) and shall not take any
action designed to diminish the prospects of such Investor Director of being
elected to the Board.

 

(c) Removal. Each Investor Director appointed pursuant to this Section 3.3 shall
continue to hold office until the next annual meeting of the stockholders of the
Company and until his or her successor is elected and qualified in accordance
with this Section 3.3 and the Bylaws, unless such Investor Director is earlier
removed from office or at such time as such Investor Director’s death,
resignation, retirement or disqualification. The Company shall use reasonable
best efforts to ensure that an Investor Director is removed only if so directed
in writing by the Bravo Investor Parties, unless otherwise required by this
Section 3.3 or applicable Law.

 

 18 

 

  

(d) Vacancies. In the event of a vacancy on the Board resulting from the death,
disqualification, resignation, retirement or termination of the term of office
of an Investor Director, the Company shall use reasonable best efforts to cause
the Board to fill such vacancy or new directorship with a representative
designated by the Bravo Investor Parties as provided hereunder, in either case,
to serve until the next annual or special meeting of the stockholders (and at
such meeting, such representative, or another representative designated by such
holders, will be nominated to be elected to the Board in the manner set forth in
Section 3.3(b)). If the Bravo Investor Parties fail or decline to fill the
vacancy, then the directorship shall remain open until such time as the Bravo
Investor Parties elect to fill it with a representative designated hereunder.

 

SECTION 3.4. Director Fees and Expenses. Each Investor Director shall be
entitled to reimbursement of expenses incurred in such capacities on the same
basis as the Company provides such reimbursement to the other non-management
members of its Board but such Investor Directors shall not otherwise be entitled
to compensation for their service on the Board.

 

SECTION 3.5. Tag-Along Rights.

 

(a) Subject to the tag-along rights set forth in Section 3.5 of the Waterfall
Rights Agreement, if a Management Stockholder (the “Transferring Stockholder”)
proposes to Transfer all or any portion of its shares of Common Stock (a
“Proposed Transfer”) (other than (i) to a Permitted Transferee, (ii) pursuant to
Rule 144, or (iii) pursuant to a offering registered under the Securities Act),
each Investor Party shall have the right to participate in the Transferring
Stockholder’s Transfer by Transferring up to a pro rata portion of its shares
(determined by multiplying (a) the number of shares owned by such Tagging
Stockholder (as defined below) plus (b) the number of shares of Common Stock
issuable upon conversion of the Preferred Stock owned by such Tagging
Stockholder by a fraction, the numerator of which is the number of shares
proposed to be sold by the Transferring Stockholder and the denominator of which
is the total number of shares owned by the Transferring Stockholders and the
Investor Parties) to the proposed transferee (the “Proposed Transferee”) (each
Investor Party that exercises its rights under this Section 3.5, a “Tagging
Stockholder”).

 

 19 

 

 

(b) The Transferring Stockholder shall give written notice (a “Tag-Along
Notice”) to each Investor Party of a Proposed Transfer, setting forth the number
of shares of Common Stock proposed to be so Transferred, the name and address of
the Proposed Transferee, the proposed amount and form of consideration and other
terms and conditions of payment offered by the Proposed Transferee. The
Transferring Stockholder shall deliver or cause to be delivered to each Investor
Party copies of all Transaction Documents relating to the Proposed Transfer as
the same become available. The tag-along rights provided by this Section 3.5
must be exercised by an Investor Party within a period of ten (10) days from the
date of the Tag-Along Notice, by delivery of a written notice to the
Transferring Stockholder indicating its desire to exercise its rights and
specifying the number of shares of Common Stock it desires to Transfer. If the
Transferring Stockholder is unable to cause the Proposed Transferee to purchase
all the shares of Common Stock proposed to be Transferred by the Transferring
Stockholder and the Tagging Stockholders, then the number of shares of Common
Stock that each such stockholder is permitted to sell in such Proposed Transfer
shall be reduced pro rata based on the number of shares of Common Stock proposed
to be Transferred by such stockholder relative to the aggregate number of shares
of Common Stock proposed to be Transferred by all stockholders participating in
such Proposed Transfer. The Transferring Stockholder shall have a period of
ninety (90) days following the expiration of the three (3) Business Day period
mentioned above to enter into a definitive agreement to sell all the shares of
Common Stock agreed to be purchased by the Proposed Transferee on the terms
specified in the notice required by the first sentence of this Section 3.5(b).
If the Proposed Transferee agrees to purchase more shares of Common Stock than
specified in the Tag-Along Notice in the Proposed Transfer, the Investor Parties
shall also have the same right to participate in the Transfer of such shares of
Common Stock that are in excess of the amount set forth on the Tag-Along Notice
in accordance with this Section 3.5.

 

(c) Any Transfer of shares of Common Stock by a Tagging Stockholder to a
Proposed Transferee pursuant to this Section 3.5 shall be on the same terms and
conditions (including, without limitation, price, time of payment and form of
consideration) as to be paid to the Transferring Stockholder; provided that in
order to be entitled to exercise its tag-along right pursuant to this Section
3.5, each Tagging Stockholder must agree to make to the Proposed Transferee
representations, warranties, covenants, indemnities and agreements the same
mutatis mutandis as those made by the Transferring Stockholder in connection
with the Proposed Transfer (other than any non-competition, non-solicitation or
similar agreements or covenants that would bind the Tagging Stockholder or its
Affiliates), and agree to the same conditions to the Proposed Transfer as the
Transferring Stockholder agrees, it being understood that all such
representations, warranties, covenants, indemnities and agreements shall be made
by the Transferring Stockholder and each Tagging Stockholder severally and not
jointly and that the aggregate amount of the liability of the Tagging
Stockholder shall not exceed, except with respect to individual representations,
warranties, covenants, indemnities and other agreements of the Tagging
Stockholder as to the unencumbered title to its shares of Common Stock and the
power, authority and legal right to Transfer such Common Stock, such Tagging
Stockholder’s pro rata share of any such liability to be determined in
accordance with such Tagging Stockholder’s portion of the total number of shares
of Common Stock included in such Transfer; provided that, in any event the
amount of liability of any Tagging Stockholder shall not exceed the proceeds
such Tagging Stockholder received in connection with such Transfer. Each Tagging
Stockholder shall be responsible for its proportionate share of the costs of the
Proposed Transfer to the extent not paid or reimbursed by the Proposed
Transferee or the Company.

 

 20 

 

 

SECTION 3.6. Matters Requiring Investor Party Approval. For so long as the
Ownership Percentage (calculated as described above) of the Bravo Investor
Parties equals or exceeds twenty percent (20%), the Company hereby covenants and
agrees that it shall not, without prior written approval of the Bravo Investor
Parties holding at least a majority of the number of shares of (i) Common Stock
issuable upon the conversion of the Preferred Stock plus (ii) Common Stock
issued upon the conversion of the Preferred Stock, Beneficially Owned by all
Bravo Investor Parties, take any of the following actions:

 

(a) Sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of the Company to another Person at a valuation
below the per share valuation paid by the Investors for the Preferred Stock
pursuant to the Subscription Agreement;

 

(b) Consummate a stock purchase, merger, consolidation or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than fifty percent (50%) of the of the total voting power or
economic interests of the Common Stock on a fully diluted basis at a valuation
below the per share valuation paid by the Investors for the Preferred Stock
pursuant to the Subscription Agreement; and

 

(c) Increase the size of the Board beyond nine (9) members.

 

SECTION 3.7. Insurance. The Company has in place as of the date hereof, with
financially sound and reputable insurers, Directors and Officers liability
insurance and will use commercially reasonable efforts to cause such insurance
policies to be maintained, in an amount and on terms and conditions satisfactory
to the Board of Directors until such time as the Board of Directors determines
that such insurance should be discontinued.

 

ARTICLE IV
MISCELLANEOUS

 

SECTION 4.1. Amendment and Modification. No term of this Agreement may be
amended or modified without the prior written consent of the Company and
Investor Parties holding a majority of the Registrable Securities held by all
Investor Parties. 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. Any amendment or waiver effected in accordance with this Section
4.1 shall be binding upon the Investor Parties and the Company.

 

SECTION 4.2. Successors and Assigns; Binding Effect. The provisions of this
Agreement shall be binding upon and inure to the benefit of the Investor Parties
and their respective successors and assigns. This Agreement may not be assigned
by any Party hereto without the prior written consent of the Company and the
Investor Parties, except that (1) in connection with the transfer of its shares
of Preferred Stock (or underlying Common Stock) to an Affiliate any Investor
Party may transfer or assign, its rights hereunder to such Permitted Investor
Transferee and (2) in connection with the sale of its shares of Preferred Stock
(or underlying Common Stock) to a Person that together with its Affiliates is
acquiring from the Investor Parties Registrable Securities which together
represent at least five percent (5%) of the total voting power of the Company,
any Investor Party may transfer or assign its rights with respect to such
Registrable Securities under Article II hereof to such purchaser (any such
transferees under the forgoing clause (1) or (2), a “Permitted Investor
Transferee”); provided that (a) such Investor Party complies with all Laws
applicable thereto and provides written notice of assignment to the Company
promptly after such assignment is effected, and (b) the transferee agrees in
writing to be bound by this Agreement as if it were a party hereto and an
Investor Party hereunder. For the avoidance of doubt, the rights set forth
herein applicable to any Investor Party shall, as contemplated by this Section
4.2, inure to any Permitted Investor Transferee of an Investor Party.

 

 21 

 

 

SECTION 4.3. Confidential Information; Public Announcements.

 

(a) No public announcement or disclosure (including any general announcements)
will be made by any member of the Company or its Affiliates or the Investor
Parties with respect to this Agreement, the subject matter of this Agreement, or
otherwise communicate with any news media regarding this Agreement or the
subject matter of this Agreement without the prior written consent of the
Company and the Bravo Investor Parties. The Company agrees that no member of the
Company or its Affiliates may, directly or indirectly, use in advertising,
publicity or otherwise the name of the Bravo Investor Parties, any partner or
employee of the Bravo Investor Parties or any member of the Bravo Investor
Parties without the prior written consent of Bravo Investor Parties in each
instance.

 

(b) Each of the parties shall treat as strictly confidential this Agreement and
not disclose or use any information received or obtained as a result of entering
into or performing this Agreement or any Transaction Document which relates to:
(i) the provisions or subject matter of any Transaction Document or any document
referred to therein; (ii) the negotiations relating to any Transaction Document;
and (iii) the business, financial or other affairs (including future plans and
targets) of any member of the Company or its Affiliates or the Investor Parties.

 

(c) Nothing in this Section 4.3 shall restrict or prohibit any disclosure by the
Investor Parties or the Company (i) to their respective representatives, (ii) if
required to do so by any law, court, regulation, subpoena or other legal
process, (iii) if its attorneys advise it that it has a legal obligation to do
so under Applicable Law or (iv) to implement or enforce this Agreement;
provided, that in the event of any disclosure contemplated by (ii) or (iii)
above, to the extent permitted by Applicable Law, the disclosing or announcing
party will give the non-disclosing party reasonable prior notice and the
opportunity to review and comment upon such disclosure, to the extent
practicable, in advance of making any such disclosure or announcement. In
addition, this Section 4.3 shall not restrict or prohibit any disclosure by any
member of the Investor Parties to its or its Affiliates’ actual or prospective
investors who are bound by confidentiality undertakings restricting disclosure
regarding this Agreement or the transactions contemplated hereby.

 

SECTION 4.4. Severability. If any provision of this Agreement or the application
of any such provision to any Person or circumstance shall be declared by any
court of competent jurisdiction to be invalid, illegal, void or unenforceable in
any respect, all other provisions of this Agreement, or the application of such
provision to Persons or circumstances other than those as to which it has been
held invalid, illegal, void or unenforceable, shall nevertheless remain in full
force and effect and will in no way be affected, impaired or invalidated
thereby. Upon such determination that any provision, or the application of any
such provision, is invalid, illegal, void or unenforceable, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible to the fullest extent permitted by
Law in an acceptable manner.

 

 22 

 

  

SECTION 4.5. Notices and Addresses. Unless otherwise provided, any notice or
request required or permitted to be delivered under this Agreement shall be
given in writing and shall be deemed effectively given as hereinafter described
(a) if given by personal or Electronic Delivery, upon delivery provided that no
undeliverable message is promptly received back, (b) if given by facsimile, upon
receipt of confirmation of a completed transmittal, (c) if given by mail, upon
the earlier of (i) actual receipt of such notice by the intended recipient or
(ii) three (3) Business Days after such notice is deposited in first class mail,
postage prepaid, and (d) if by an internationally recognized overnight air
courier, one (1) Business Day after delivery to such carrier. 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 ten (10) days’ advance written
notice to the other Party:

 

If to the Company or the Management Stockholder:

FlexShopper, Inc.
2700 North Military Trail, Ste. 200

Boca Raton, FL 33431 

Attention: Chief Executive Officer
Email:       brad.bernstein@flexshopper.com

 

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

K&L Gates, LLP

214 N. Tryon Street, 47th Floor

Charlotte, NC 28202
Attention: Mark Busch
Email: mark.busch@klgates.com
Facsimile:  704-353-3694

  

If to the Investor Parties:

BRAVO Strategies II LLC
650 Newport Center Drive
Newport Beach, CA 92660

 

Attention:  Elena Branzburg
Email:        Elena.Branzburg@pimco.com
and:

 

Attention: Daniel Ballen
Email:       Daniel.Ballen@pimco.com

 

and:

 

MCP-FS, L.P.
c/o Middlemarch Partners
125 Park Avenue, Suite 1700
New York, NY, 10017
Attention: Demetris Papademetriou
Email: dpapademetriou@middlemarchllc.com

 

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

Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
Attention: Robb Tretter
Email:       robb.tretter@ropesgray.com
Facsimile: 646-728-2679

 

 23 

 

 

SECTION 4.6. Governing Law; Consent to Jurisdiction. This Agreement and any
action or dispute arising under or related in any way to this Agreement, the
relationship of the Parties, the transactions leading to this Agreement or
contemplated hereby and/or the interpretation and enforcement of the rights and
duties of the Parties hereunder or related in any way to the foregoing, shall be
governed by and construed in accordance with the internal, substantive Laws of
the State of New York applicable to agreements entered into and to be performed
solely within such state without giving effect to the principles of conflict of
Laws thereof. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES THAT
JURISDICTION AND VENUE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY AY PARTY
ARISING OUT OF OR RELATING TO THIS AGREEMENT (INCLUDING ANY SUIT, ACTION OR
PROCEEDING SEEKING EQUITABLE RELIEF) SHALL PROPERLY AND EXCLUSIVELY LIE IN THE
COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY OR, TO THE EXTENT THE
COURTS OF NEW YORK DO NOT HAVE SUBJECT MATTER JURISDICTION, THE UNITED STATES
DISTRICT COURT LOCATED IN NEW YORK CITY. EACH PARTY HERETO FURTHER AGREES NOT TO
BRING ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY COURT OTHER THAN THE COURTS
IDENTIFIED IN THE FOREGOING SENTENCE. BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS IN
NEW YORK CITY 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 EACH OF THE FOREGOING COURTS, AND HEREBY WAIVE ANY OBJECTION
THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF
SUCH SUIT, ACTION OR PROCEEDING.

 

SECTION 4.7. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF
ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR
INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING.
EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES
HERETO THAT THIS SECTION 4.9 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY
ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.

 

 24 

 

 

SECTION 4.8. Headings. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.

 

SECTION 4.9. Counterparts; Electronic Delivery. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
and any signed agreement or instrument entered into in connection with this
Agreement, and any amendments hereto or thereto, to the extent delivered by
means of a telecopy machine or electronic mail (any such delivery, an
“Electronic Delivery”), 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 (a) the use of Electronic Delivery to
deliver a signature or (b) the fact that any signature or agreement or
instrument was transmitted or communicated through the use of Electronic
Delivery, as a defense to the formation of a contract, and each such party
forever waives any such defense, except to the extent such defense related to
lack of authenticity.

 

SECTION 4.10. Further Assurances. Each Party shall cooperate and take such
action as may be reasonably requested by another Party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.

 

SECTION 4.11. Remedies. Each Party hereby acknowledges and agrees that the
failure of the other Party to perform its respective agreements and covenants
hereunder, including any failure to take all actions as are necessary by such
Party to consummate the transactions contemplated hereby (to the extent required
to be taken by such Party under this Agreement), will cause irreparable injury
to the other Party, for which damages, even if available, will not be an
adequate remedy. Accordingly, each Party hereby agrees that any other Party is
entitled to equitable relief by any court of competent jurisdiction to compel
performance of such Party’s obligations without the need to prove actual damages
or post a bond or other security.

 

SECTION 4.12.No Third Party Beneficiaries. This Agreement shall be binding upon
and inure to the benefit of each party hereto and to their respective successors
and permitted assigns, and, except as provided in Section 2.5 and Section 4.5,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other Person any other right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.

 

SECTION 4.13.Entire Agreement. This Agreement (including any Schedules and
Exhibits hereto) constitutes the full and entire understanding and agreement
among the parties with respect to the subject matter hereof, and any other
written or oral agreement relating to the subject matter hereof existing between
the parties is expressly canceled.

 

SECTION 4.14 Middlemarch Effectiveness. Middlemarch shall become a party to this
Agreement upon MCP-FS, L.P.’s execution of the Middlemarch Subscription
Agreement, the consummation of the transactions therein and the execution by
MCP-FS, L.P. of a counterpoint signature page hereto.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 25 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date and year first above written.

 

  FLEXSHOPPER, INC.         By: /s/ Brad Bernstein   Name: Brad Bernstein  
Title:   Chief Executive Officer

 

The undersigned hereby execute this Agreement solely to agree to be bound by the
provisions of Sections 2.5 and 3.5 hereof.

 

  MANAGEMENT STOCKHOLDER       /s/ Brad Bernstein   Name: Brad Bernstein

 

Signature Page to the Investor Rights Agreement

 

 26 

 

 

Investor:

  

B2 FIE V LLC

 

By: /s/ Harin De Silva  

Name: Harin De Silva
Title: Authorized Signatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to the Investor Rights Agreement

 

 

 

 

27