Item 1.01. Entry into a Material Definitive Agreement
.
On January 16, 2019, LM Funding America, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Craven House North America, LLC, a Virginia limited liability company (the “Seller”) and IIU, Inc., a
Virginia corporation (“IIU”) pursuant to which the Company purchased all of the issued and outstanding capital stock of IIU (the “Acquired Shares” and such sale and purchase of the Acquired Shares, the “Transaction”). The purchase price paid by the Company for the Acquired Shares consisted of (1) the Company’s cancellation of all principal and interest outstanding under Seller’s promissory note in the aggregate principal amount of $1,500,000, dated November 3, 2018 (the “Seller Note”), payable to the Company and (2) the Company’s issuance of a convertible promissory note to Seller, dated January 16, 2019, in the aggregate principal amount of $3,581,982.16 (the “Convertible Note”). The aggregate principal and interest outstanding under the Seller Note on January 16, 2019 was $1,507,643.84. The Purchase Agreement contains customary representations, warranties and covenants by, among and for the benefit of the parties. The closing of the Transaction also occurred on J
anuary 16, 2019.
The Convertible Note bears interest at 3% per annum, with principal and accrued interest payable at maturity 360 days after the closing of the Transaction, unless converted earlier pursuant to the terms of the Convertible Note. The Convertible Note is secured by all of the assets of the Company. The Convertible Note cannot be prepaid by the Company prior to maturity or conversion. On the maturity date, if the Company has obtained Stockholder Approval (as defined below), the Seller shall have the right, but not the obligation, to convert the outstanding principal balance of the Convertible Note and accrued interest then due into shares of common stock of the Company at a conversion price of $2.41 per share, subject to adjustment for stock dividends, stock splits and similar events (the “Conversion Price’). In addition, from and after Stockholder Approval and so long as there is no event of default under the Convertible Note, the Company may effect the conversion of all, but not less than all, of the outstanding principal balance of the Convertible Note and accrued interest then due at the Conversion Price. “Stockholder Approval” is defined under the Convertible Note as such approvals by the Company’s stockholders of the transactions contemplated by the Purchase Agreement and the Convertible Note as shall be required by Nasdaq Listing Rule 5635 (or any successor rule or provision).
The obligations under the Convertible Note may be accelerated upon the occurrence of specified events of default including (a) the Company’s failure to pay any amount payable under the Convertible Note on the date due and payable; (b) the occurrence of an event of default under, redemption of or acceleration prior to maturity of indebtedness of the Company exceeding $100,000, in the aggregate, or notice from a lender of a financial covenant default under any of the Company’s loan documents that is not cured within 20 business days; (c) commencement of certain specified dissolution, liquidation, insolvency, bankruptcy, reorganization, or similar cases or actions by or against the Company or any of its subsidiaries, in specified circumstances unless, if instituted against the Company or any subsidiary by a third party, it is not dismissed within 30 days; (d) the entry of a final judgment for the payment of money against the Company or any of its subsidiaries in excess of $50,000, unless covered by insurance or an indemnity the proceeds of which are received within 30 days; (e) the Company’s or any subsidiary’s failure to pay when due, subject to any applicable grace period, indebtedness exceeding $25,000; (f) the Company’s failure to perform or observe any material representation, warranty, covenant or other term of condition in the Convertible Note, Purchase Agreement or related documents, subject to a five-day cure period; (g) the occurrence of a change in control (as defined in the Convertible Note) and (h)
the Company’s issuance, offer, sale, grant of any option or right to purchase, or other disposition (or any announcement in connection with any of the foregoing) of any equity security or any equity-linked or related security, or any convertible securities, without the prior written consent of the holder of the Convertible Note, except to the extent allowed under any existing agreements of the Company
.
As long as the Convertible Note is outstanding, the Company may not enter into
a Fundamental Transaction
(as defined in the Convertible Note)
unless the
holder of the Convertible Note
approves the Fundamental Transaction and the
s
uccessor
e
ntity assumes in writing all of the obligations of the Company under
the Convertible Note, the Purchase Agreement and any other documents entered into by the parties in
connection with the Transaction
in form and substance satisfactory to the
h
older
of the Convertible Note.
The foregoing descriptions of the Purchase Agreement and Convertible Note do not purport to be complete and the terms of the Purchase Agreement and Convertible Note are subject to, and qualified in their entirety by reference to, the Purchase Agreement or the Convertible Note, as applicable, which are filed herewith as Exhibit 2.1 and Exhibit 10.1, respectively, and are incorporated herein by reference.
The Purchase Agreement contains representations and warranties made by the parties as of specific dates and solely for their benefit. The representations and warranties reflect negotiations between the parties and are not intended as statements of fact to be relied upon by the Company’s stockholders or any other person or entity other than the parties to the Purchase Agreement and, in certain cases, represent allocation decisions among the parties and may be subject to important qualifications and limitations agreed to by the parties in connection with the negotiation of the Purchase Agreement (which disclosures are not reflected in the Purchase Agreement itself, may not be true as of any date other than the date made, or may apply standards of materiality in a way that is different from what may be viewed as material by stockholders). Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and stockholders should not rely on them as statements of fact. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement.