Item
1.01
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Entry
into a Material Definitive Agreement.
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As
previously reported, on October 12, 2017, FC Global Realty Incorporated (the “
Company
”) issued to Dr. Dolev
Rafaeli, Dennis M. McGrath and Yoav Ben-Dror (the “
Note Holders
”) Secured Convertible Promissory Notes in the
principal amounts of $3,133,934, $977,666 and $1,515,000, respectively (the “
Notes
”). Pursuant to the terms
of the Notes, the principal was to convert to shares of the Company’s common stock at maturity at the lower of (i) $2.5183
or (ii) the volume-weighted average price with respect to on-exchange transactions in the Company’s common stock executed
on The Nasdaq Stock Market (“
Nasdaq
”) (or such other market on which the Company’s stock may then trade)
during the thirty (30) trading days prior to the maturity date, as reported by Bloomberg L.P.; provided, however, that there was
a conversion floor of $1.75 per share (the “
Floor Price
”).
As
previously reported, on December 22, 2017, the Company and the Note Holders entered into a stock grant agreement (the “
Stock
Grant Agreement
”) to, among other things, cause the early conversion of the Notes into an aggregate of 5,628,291 shares
of the Company’s common stock (the “
Payout Shares
”), resulting in a conversion price of $0.9997, which
is less than the Floor Price. In addition, pursuant to the Stock Grant Agreement, the Company agreed to (i) issue an additional
1,857,336 shares of common stock to the Note Holders as consideration for the various agreements of the Note Holders contained
in the Stock Grant Agreement, including the Note Holders’ agreement to give up their first priority security interest and
convert the Notes to equity and (ii) provide the Note Holders with certain cash payments in consideration for services to be provided
by the Note Holders, in an amount equal to the amount of interest foregone by the Note Holders as a result of the conversion of
the Notes.
As
previously reported, on December 22, 2017, the Company entered into a securities purchase agreement (the “
Purchase Agreement
”)
with Opportunity Fund I-SS, LLC (“
OFI
”), pursuant to which OFI could invest up to $11,000,000 in the Company
in a series of closings, in exchange for which OFI would receive shares of the Company’s Series B Preferred Stock at a purchase
price of $1.00 per share. As of September 24, 2018, the Company and OFI completed the three closing under the Purchase Agreement,
pursuant to which OFI provided, in the aggregate, $3,825,000 to the Company in exchange for an aggregate of 3,825,000 shares of
Series B Preferred Stock.
As
previously reported, on April 20, 2018, the Company and OFI entered into a cancellation and exchange agreement (the “
Exchange
Agreement
”), pursuant to which OFI agreed to provide an additional $2,000,000 to the Company in exchange for 2,000,000
shares of Series B Preferred Stock, subject to certain conditions set forth in the Exchange Agreement, including, among other
things, the cancellation of 95,770 shares of the Company’s Series A Preferred Stock held by OFI in exchange for 5,382,274
shares of the Company’s common stock. Under the Exchange Agreement, closing of this additional investment was to occur following
stockholder approval, which was not obtained.
Pursuant
to the terms of the Certificate of Designation for the Series B Preferred Stock, the Series B Preferred Stock, which votes on
an as-converted basis, was issued to OFI with a conversion price that constitutes a discount to the market price of the common
stock at the date of issuance of the Series B Preferred Stock, resulting in the Series B Preferred Stock having a greater voting
rights than the existing shares of common stock, which violates the Nasdaq’s voting rights rule. As previously reported,
on April 20, 2018, the Company and OFI entered into a supplemental agreement (the “
Supplemental Agreement
”),
pursuant to which (i) OFI agreed to limit the voting power of the Series B Preferred Stock to address this violation and (ii)
the parties thereto corrected a violation of Nasdaq’s Listing Rules that require approval from stockholders prior to the
issuance of common stock upon conversion of the Series B Preferred Stock issued under the Purchase Agreement that are in excess
of 19.99% of the Company’s issued and outstanding common stock on the date of initial issuance of the Series B Preferred
Stock to OFI, which resulted from a provision in the Purchase Agreement that incorrectly stated that such percentage is to be
calculated as of the applicable conversion date of the Series B Preferred Stock instead of the date of initial issuance thereof.
As
previously reported, the Company was notified by letter from Nasdaq on April 10, 2018 that the Company was not in compliance with
Nasdaq’s Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2.5 million in stockholders’
equity.
Remediation
Agreement
In
order to comply with Listing Rule 5550(b)(1) and address the concerns of the staff of Nasdaq regarding the stockholder approval
violations described above, on September 24, 2018, the Company entered into a remediation agreement with OFI and the Note Holders
(the “
Remediation Agreement
”).
Pursuant
to the Remediation Agreement, the Stock Grant Agreement was terminated, the Payout Shares were cancelled, and the Company issued
to the Note Holders an aggregate of 7,485,627 shares of newly-designated Series C Preferred Stock. In addition, the resignations
of Dr. Rafaeli and Mr. McGrath from the Company’s board of directors, which were previously effective upon certain events
set forth in the Stock Grant Agreement, will now become effective upon the last to occur of (i) receipt of all of the shares of
common stock underlying the Series C Preferred Stock and (ii) the date that the shares of common stock underlying the Series C
Preferred Stock are registered for re-sale in accordance with the Registration Rights Agreement (as defined below).
In
addition, the Purchase Agreement (subject to the survival of certain provisions identified in the Remediation Agreement), the
Supplemental Agreement and the Exchange Agreement were terminated, the Series B Preferred Stock issued to OFI was cancelled and
the Company issued to OFI 6,217,490 shares of newly-designated Series D Preferred Stock. In addition, OFI agreed to purchase $100,000
of shares of Series D Preferred Stock for a purchase price of $0.65 per share on the last day of each month, commencing on September
30, 2018, until it has purchased an aggregate of $500,000 of shares of Series D Preferred Stock; provided that, upon closing of
any material business combination involving the Company that is approved by OFI, OFI agreed to purchase an additional $1,500,000
of shares of Series D Preferred Stock at a price of $0.65 per share. Notwithstanding the foregoing, from and after the date that
stockholder approval of the Remediation Agreement has been obtained, instead of purchasing shares of Series D Preferred Stock,
OFI agreed to purchase shares of common stock at a price of $0.65 per share.
The
Remediation Agreement also terminated two voting agreements, dated December 22, 2017, among OFI, the Note Holders and certain
other security holders, the registration rights agreement, dated December 22, 2017, between the Company and OFI (the “
OFI
Registration Rights Agreement
”), and the registration rights agreement, dated December 22, 2017, between the Company
and the Note Holders (the “
Note Holder Registration Rights Agreement
”).
The
terms of the Series C Preferred Stock are governed by a certificate of designation (the “
Series C Certificate of Designation
”)
filed by the Company with the Nevada Secretary of State on September 24, 2018. Pursuant to the Series C Certificate of Designation,
the Company designated 7,485,627 shares of its preferred stock as Series C Preferred Stock. Following is a summary of the material
terms of the Series C Preferred Stock:
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Dividends
.
Except for stock dividends or distributions for which adjustments are to be made pursuant
to the Series C Certificate of Designation, holders of Series C Preferred Stock shall
be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred
Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as
dividends actually paid on shares of common stock when, as and if such dividends are
paid on shares of common stock. No other dividends shall be paid on shares of Series
C Preferred Stock.
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Liquidation
.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary (a “
Liquidation
”), holders of Series C Preferred Stock
shall be entitled to receive out of the assets, whether capital or surplus, of the Company
the same amount that a holder of common stock would receive if the Series C Preferred
Stock were fully converted to common stock immediately prior to such Liquidation, which
amount shall be paid to the holders of Series C Preferred Stock
pari passu
with
all holders of Series D Preferred Stock and in preference to the holders of common stock.
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Voting
Rights
. Except as provided by law or by the other provisions of the Series C Certificate
of Designation, the holders of Series C Preferred Stock have no voting rights.
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Conversion
.
On the date on which stockholder approval with respect to the Remediation Agreement and
the transactions contemplated thereby has been obtained (the “
Conversion Date
”),
each share of Series C Preferred Stock shall be automatically converted into such number
of fully paid and non-assessable shares of common stock as is determined by dividing
$1.00 by the conversion price in effect on the Conversion Date. The conversion price
is initially equal to $1.00, subject to adjustment as described in the Series C Certificate
of Designation.
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Redemption
.
The Series C Preferred Stock is not redeemable.
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The
terms of the Series D Preferred Stock are governed by a certificate of designation (the “
Series D Certificate of Designation
”)
filed by the Company with the Nevada Secretary of State on September 24, 2018. Pursuant to the Series D Certificate of Designation,
the Company designated 9,294,414 shares of its preferred stock as Series D Preferred Stock. Following is a summary of the material
terms of the Series D Preferred Stock:
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Dividends
.
Holders of shares of Series D Preferred Stock shall receive cumulative dividends, pro
rata among such holders, prior to and in preference to any dividend on outstanding common
stock at the per annum rate of 8% of the Stated Value (as defined below). Dividends on
each share of Series D Preferred Stock will accrue daily and be cumulative from and including
the date of issuance thereof and shall be payable upon the occurrence of a Liquidation
or a conversion. The “
Stated Value
” shall mean $1.00 per share, subject
to appropriate adjustment in the event of any stock dividend, stock split, combination
or other similar recapitalization with respect to the Series D Preferred Stock. Holders
shall also be entitled to receive dividends on shares of Series D Preferred Stock equal
(on an as-if-converted-to-common-stock then convertible) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares
of the common stock.
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Liquidation
.
Upon a Liquidation, holders of Series D Preferred Stock shall be entitled to receive
out of the assets, whether capital or surplus, of the Company the same amount that a
holder of common stock would receive if the Series D Preferred Stock were fully converted
to common stock immediately prior to such Liquidation, which amount shall be paid to
the holders of Series D Preferred Stock
pari passu
with all holders of Series
C Preferred Stock and in preference to the holders of common stock.
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Voting
Rights
. Except as provided by law or by the other provisions of the Series D Certificate
of Designation, the holders of Series D Preferred Stock have no voting rights. However,
as long as any shares of Series D Preferred Stock are outstanding, the holders of Series
D Preferred Stock shall have the right to prohibit or veto the Company from entering
into any agreement or taking any action with respect to (i) a Change in Control Transaction
(as defined below) or (ii) the issuance any equity securities or equity-linked securities
at a price per share below $0.6505, subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization with respect
to the common stock. The Company must notify the holders of Series D Preferred Stock
at least twenty (20) days in advance of the events described above and the holder shall
exercise its veto right by notifying the Company in writing within fifteen (15) days
after the receipt of such notice that it is exercising its veto right to prohibit such
agreement from being entered into or action from being taken. A “
Change in Control
Transaction
” means the acquisition by any person of beneficial ownership of
more than 50% (on a fully diluted basis) of either (i) the then outstanding shares of
common stock, taking into account as outstanding for this purpose such common stock issuable
upon the exercise of options or warrants, the conversion of convertible stock or debt,
and the exercise of any similar right to acquire such common stock or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors.
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Conversion
.
On the Conversion Date, each share of Series D Preferred Stock, plus accrued, but unpaid,
dividends thereon (the “
Aggregate Preference Amount
”), shall be automatically
converted into such number of fully paid and non-assessable shares of common stock as
is determined by a formula (computed on the Conversion Date) (i) the numerator of which
is equal to the Aggregate Preference Amount and (ii) the denominator of which is equal
to the conversion price. The conversion price is initially equal to $1.00, subject to
adjustment as described in the Series D Certificate of Designation.
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Redemption
.
The Series D Preferred Stock is not redeemable.
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As
promptly as possible following the date of the Remediation Agreement (and in no event later than 30 days thereafter), the Company
is required to prepare and file a preliminary proxy statement relating to stockholder approval of (i) the Remediation Agreement
and the transactions contemplated thereby and (ii) the issuance of common stock upon conversion of all shares of Series C Preferred
Stock and Series D Preferred Stock issued under the Remediation Agreement. The Company is required to call, give notice of and
hold a stockholders meeting relating to such stockholder approval reasonably promptly after the date that any comments from the
Securities and Exchange Commission (the “
SEC
”) on the proxy statement have been resolved or the final proxy
statement is otherwise ready for dispatch.
Registration
Rights Agreement
On
September 24, 2018, in connection with the Remediation Agreement, the Company entered into a registration rights agreement (the
“
Registration Rights Agreement
”) with OFI and the Note Holders, pursuant to which the Company agreed to register
all shares of common stock that may be issued upon conversion of the Series C Preferred Stock and Series D Preferred Stock issued
pursuant to the Remediation Agreement, as well as all other shares of the Company’s capital stock held by OFI (the “
Registrable
Securities
”), under the Securities Act of 1933, as amended (the “
Securities Act
”). The Company agreed
to file a registration statement covering the resale of such Registrable Securities within 30 days of the date of the Registration
Rights Agreement and cause such registration statement to be declared effective under the Securities Act as soon as possible but,
in any event, no later than 120 days following the filing date if such registration statement is filed on Form S-3 or 150 days
if such registration statement is filed on Form S-1. If such registration statement is not filed or declared effective by the
SEC on or prior to such dates, or if after such registration statement is declared effective, without regard for the reason thereunder
or efforts therefor, such registration statement ceases for any reason to be effective for more than an aggregate of 30 trading
days during any 12-month period, which need not be consecutive, then in addition to any other rights the holders of Registrable
Securities may have under the Registration Rights Agreement or under applicable law, the Company shall pay to each holder an amount
in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the product obtained by multiplying (x) $1.00 by
(y) the number of shares of Registrable Securities held by the holder (the “
Investment Amount
”); provided that,
in no event will the Company be liable for liquidated damages in excess of 1.0% of the Investment Amount in any single month and
that the maximum aggregate liquidated damages payable to the holders under the Registration Rights Agreement shall be ten percent
(10%) of the Investment Amount. Notwithstanding the foregoing, the filing and effective date deadlines above shall be tolled (i.e.,
extended), during such time as the Company is actively pursuing a business combination involving the Company that is approved
by each of OFI and the Note Holders.
Services
Agreement
On
September 24, 2018, in connection with the Remediation Agreement, the Company entered into a services agreement (the “
Services
Agreement
”) with the Note Holders, pursuant to which each of the Note Holders agreed to provide certain services to
the Company and/or its subsidiaries in exchange for certain cash payments set forth in the Services Agreement. Under the Services
Agreement, the Company agreed to make payments to Dr. Dolev Rafaeli, Dennis M. McGrath and Yoav Ben-Dror in the amount of $21,328.16,
$6,653.56, and $10,310.42, respectively, per month (collectively, the “
Cash Payments
”) until December 31, 2018,
provided that Cash Payments to Dr. Rafaeli and Mr. McGrath shall be made bi-monthly in accordance with the Company’s payroll
practices. The Company may, at its option, prepay the Cash Payments at any time without any penalty or premium. The Company and
the Note Holders agreed that if the Company instructs the Note Holders to cease providing the services or otherwise attempts to
or does terminate the Note Holders as service providers for any reason, such cessation of services or termination will not affect
the Company’s obligation to make the Cash Payments.
In
addition to the Cash Payments, the Services Agreement provides that Dr. Dolev Rafaeli and Dennis M. McGrath will continue to receive
the employee benefits that they are currently receiving through December 31, 2018, including existing health and disability benefits,
and for so long after December 31, 2018 as they continue to provide the services described in the Services Agreement. After December
31, 2018 and once Dr. Dolev Rafaeli and Dennis M. McGrath no longer provide such services, as previously agreed in their employment
agreements with the Company, they will receive COBRA coverage for a period of 18 months, to be fully paid for, or reimbursed to
Messrs. Rafaeli and McGrath, by the Company.
The
foregoing summary of the terms and conditions of the Remediation Agreement, the Series C Certificate of Designation, the Series
D Certificate of Designation, the Registration Rights Agreement and the Services Agreement does not purport to be complete and
is qualified in its entirety by reference to the full text of those documents filed as exhibits to this report, which are incorporated
herein by reference.