Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
On December 11, 2019, FTE Networks, Inc. (the "Company") notified the NYSE
American LLC (the "Exchange") that the Company was not in compliance with
Section 301 and Section 713(a) of the NYSE American Company Guide (the "Company
Guide") as a result of the Company's issuance of shares of its common stock, par
value $0.001 per share ("Common Stock"), without stockholder approval, in an
amount equal to more than 20% of its then-outstanding stock for less than the
greater of book or market value of the stock, and without submitting an
application for the listing of additional shares with the Exchange.
In October and November 2019, the Board of Directors of the Company (the
"Board") approved a transaction pursuant to which the Company would issue shares
of Common Stock, in an amount less than 20% of its then-outstanding Common
Stock, in exchange for the surrender and cancellation of four promissory notes
issued or guaranteed by the Company and held by TTP8, LLC ("TTP8") as assignee
(such notes, the "Promissory Notes") with aggregate principal and accrued
interest outstanding of approximately $3.9 million. On November 15, 2019, the
Company, for purposes of effecting the exchange of the Promissory Notes, issued
an aggregate of 5,468,379 shares of Common Stock to TTP8. Due to a
misunderstanding of the operation of Rule 713(a) of the Company Guide, the
number of shares of Common Stock issued to TTP8 in connection with the exchange
transaction amounted to 26% of the number of shares of Common Stock outstanding
prior to the transaction, corresponding to approximately 20% of the number of
shares of Common Stock outstanding after the issuance.
After the close of business on December 9, 2019, the Board became aware of the
error, and the Board immediately took steps to determine the details of the
transaction and to begin the process of rescinding the transaction. On December
11, 2019, the Board notified the Exchange of the Company's material
noncompliance with Section 713(a) and Section 301 of the Company Guide, and
informed the Exchange of its intention to rescind the transaction. Additionally,
the staff of the Exchange notified the Company that in the staff's view the
Company may not have been in compliance with the Company's notification
obligations in Part 4 of the Company Guide with respect to the error. On
December 13, 2019, the Company and TTP8 entered into a Rescission Agreement
pursuant to which the exchange of the Promissory Notes and the issuance of
shares of Common Stock were rescinded and the parties declared the exchange and
all transactions arising therefrom to be null and void. Further, pursuant to
such Rescission Agreement, the 5,468,379 shares of Common Stock issued to TTP8
were cancelled for no consideration other than the restoration of the Promissory
Notes to TTP8. As a result of the rescission, the shares were restored to the
status of authorized and unissued shares of the Company, and the number of
outstanding shares of the Company remains the same as it was prior to the
issuance.
Item 3.02 Unregistered Sales of Equity Securities.
Concurrently with the execution of the Rescission Agreement, on December 13,
2019 the Company and TTP8 entered into a Note Exchange Agreement pursuant to
which TTP8 agreed to surrender the Promissory Notes for cancellation in exchange
for the issuance by the Company of 4,193,684 shares of Common Stock (the
"Shares"), which is equal to 19.9% of the number of shares of Common Stock
outstanding prior to the transaction and represents an exchange rate of
approximately $0.9346 per share of Common Stock. Pursuant to the Note Exchange
Agreement, all indebtedness owed to the holder in connection with the Promissory
Notes, including any interest accrued and any fees, penalties or other amounts
accrued thereunder through the date of closing, shall be fully satisfied by the
issuance of the Shares to TTP8, and upon such issuance the Promissory Notes
shall be deemed automatically cancelled and of no further force or effect. The
closing of the exchange transaction is subject to certain customary conditions,
including Company's filing of an additional listing application with the
Exchange and the Exchange's approval of the listing of the Shares.
The information set forth in Item 3.01 of this Current Report on Form 8-K is
incorporated herein by reference. Both the rescinded issuance of 5,468,379
shares of Common Stock to TTP8 and the issuance of the Shares to TTP8 were
effected in reliance on Section 4(a)(2) and Regulation D of the Securities Act
of 1933, as amended (the "Securities Act"). The Company did not engage in
general solicitation or advertising and did not offer securities to the public
in connection with either such issuance. Among other things, TTP8 has
represented that (i) the Shares are to be acquired for investment for TTP8's own
account and without a view to the resale or redistribution thereof and (ii) it
is an accredited investor within the meaning of Rule 501(a) Regulation D
promulgated under the Securities Act.
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Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On December 11, 2019, Stephen M. Goodwin stepped down as the Company's Interim
Chief Executive Officer and was appointed as the Company's Executive Vice
President of Operations. Concurrently, the Board appointed Michael P. Beys as
the Company's new Interim Chief Executive Officer. Mr. Beys was appointed as a
director and a member of the Compensation Committee on October 18, 2019.
Mr. Beys, age 48, is a partner with the law firm Beys Liston & Mobargha LLP,
which he founded in 2009. He focuses his practice on federal criminal defense,
complex commercial litigation and real estate litigation. From 2000 to 2005, Mr.
Beys served as a federal prosecutor in the U.S. Attorney's Office for the
Eastern District of New York, where he was the lead counsel in over 100 federal
prosecutions and investigations involving racketeering, fraud, tax evasion,
money laundering, narcotics trafficking, violent crimes and terrorism. Mr. Beys
is also currently a director of Secure Property Development & Investment, PLC, a
publicly listed (London's AIM) owner and operator of commercial and industrial
properties in Eastern Europe. In 2005, he co-founded Aristone Capital, a real
estate investment firm which provided mezzanine debt financing to New York area
real estate developers. In 1999, he founded Cobblestone Ventures, Inc., a real
estate development business which has invested in, or actively managed, numerous
conversion and new construction projects in downtown Manhattan. Mr. Beys
received a B.A. from Harvard College and a J.D. from Columbia Law School.
In order to ensure that the Company's Compensation Committee consists solely of
independent directors in compliance with the requirements of Rule 805(a) of the
Company Guide, Mr. Beys was replaced on the Compensation Committee by Peter
Ghishan, who has been a member of the Board since October 18, 2019. The Board
has previously determined that Mr. Ghishan is "independent" under NYSE listing
standards and other governing laws and applicable regulations, including Rule
10A-3 under the Securities Exchange Act of 1934, as amended. Similarly, to
ensure that the Company's Nominating and Corporate Governance Committee consists
solely of independent directors in compliance with the requirements of Rule
804(a) of the Company Guide, Mr. Beys was replaced on the Nominating and
Corporate Governance Committee by Joseph Cunningham, who has been a member of
the Board since October 18, 2019. The Board has previously determined that Mr.
Cunningham is "independent" under NYSE listing standards and other governing
laws and applicable regulations, including Rule 10A-3 under the Securities
Exchange Act of 1934, as amended.
There is no arrangement or understanding between Mr. Beys and any other person
or persons pursuant to which he was selected as an officer of the Company. There
are no family relationships between Mr. Beys and any director or executive
officer of the Company. Other than as described below, there are no
transactions, since the beginning of the Company's last fiscal year, or any
currently proposed transaction, in which the Company was or is to be a
participant and the amount involved exceeds $120,000, and in which Mr. Beys had
or will have a direct or indirect material interest. Mr. Beys' law firm
represents the Company with respect to certain litigation and regulatory
enforcement matters, for which the firm has invoiced the Company or received
from the Company approximately $120,000 during 2019. Mr. Beys will continue as a
director of the Company.
Compensation arrangements with Mr. Beys for his service as Interim Chief
Executive Officer are under negotiation and will be announced when finalized.
The Company is actively seeking a permanent chief executive officer.
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