Item
1.01 Entry into a Material Definitive Agreement.
Foreclosure
by Senior Secured Lenders
As
previously disclosed in the Current Report on Form 8-K of FTE Networks, Inc. (the “Company”) that was filed with the
Securities and Exchange Commission on September 6, 2019, the failure of the Company to satisfy, vacate or stay certain judgments
entered against the Company in favor of six holders of convertible notes of the Company constituted an event of default under
that certain Amended and Restated Credit Agreement dated as of July 2, 2019 (the “Credit Agreement”) among the Company
and its subsidiaries, Jus-Com, Inc. (“Jus-Com”) and Benchmark Builders, LLC (“Benchmark”), as borrowers,
Lateral Juscom Feeder LLC, as Administrative Agent (“Lateral”), and the several lenders party thereto (together with
Lateral, the “Lenders”). In connection with such event of default, on October 10, 2019, the Company, together
with Jus-Com, Benchmark, Focus Venture Partners, Inc., FTE Holdings, LLC, Optos Capital Partners, LLC, Focus Fiber Solutions,
LLC, Crosslayer, Inc., UBIQ Communications, LLC and Focus Wireless, LLC (together with the Company, the “Credit Parties”),
consented to a Proposal for Surrender of Collateral and Strict Foreclosure (the “Foreclosure Proposal”), from
Lateral, Lateral Builders LLC (“Lateral Holdings”) and Benchmark Holdings, LLC (“Benchmark Holdings” and
together with Lateral Holdings, the “Foreclosing Lenders”), and the other Lenders, pursuant to which, effective on
October 10, 2019, the Lenders took possession and ownership of the Subject Collateral (defined below) by means of a strict
foreclosure by the Foreclosing Lenders.
The total debt relief
provided pursuant to the Foreclosure Proposal and the related agreements and arrangements equals an aggregate of $80,667,314,
or as much as $108,667,314 if the proposed business combination described below is not consummated prior to December 31, 2019.
Pursuant
to the Foreclosure Proposal, the Company transferred (i) to Benchmark Holdings all of its (a) equity interests in
Benchmark, which was the Company’s principal operating subsidiary, and (b) cash on hand at FTE in excess of levels
specified in the Foreclosure Proposal and (ii) to Lateral Holdings all of the Credit Parties’ interests in
certain commercial tort litigation claims, fraud claims, and insurance claims as specified in the Foreclosure Proposal
(collectively, the “Subject Collateral”), in each case free and clear of all liens, claims, interests and
encumbrances to the full extent provided under applicable law, pursuant to Article 9-620 of the UCC, as adopted in the State
of New York (the “New York UCC”). The Agent, at the direction of the Foreclosing Lenders, accepted the foregoing
transfers of all of each Credit Party’s right, title and interest in and to the Subject Collateral pursuant to Article
9-620 of the New York UCC and other applicable laws in full satisfaction of the Company’s obligations under the Credit
Agreement. As a result, the Company was relieved of an aggregate of $56.8 million of indebtedness owed to the Lenders under
the Credit Agreement, and this indebtedness was fully discharged and released.
On the effective
date of the foreclosure, pursuant to the Foreclosure Proposal, Benchmark transferred $3.0 million of cash to the Company.
In addition, Benchmark has agreed to make a monthly cash payment to the Company, in the amount of $300,000 per month (the “Working
Capital Cash Payments”), for purposes of funding certain remaining obligations of the Company related to accounts payable,
indebtedness for borrowed money, convertible note obligations and other matters specified in the Foreclosure Proposal (the
“Remainder Obligations”), which Working Capital Cash Payments will continue until the earlier of (i) October 10,
2021, (ii) the repayment in full of the Remainder Obligations, and (iii) the occurrence of a Working Capital Termination Event
(as defined in the Foreclosure Proposal). The cash infusion and Working Capital Cash Payments provide the opportunity for
the Company to receive total cash payments of up to $10.2 million over the next 24 months.
Pursuant to the Foreclosure
Proposal, Benchmark Holdings, as the holder of the following obligations of the Company, absolutely and unconditionally released
and forever discharged the Company and the other Credit Parties from certain indebtedness previously held by Niagara
Nominee L.P. (in the amount of $4,858,154), the Term Loans (in the
amount of $42,257,171) and the Super Senior Term Loans (in the amount of $13,539,349) (as each such term is defined in
the Credit Agreement) (collectively, the “Released Debt Obligations”).
Additionally,
pursuant to an Agreement Regarding Debt and Series H Preferred Stock (the “Debt and Series H Agreement”), entered
into between the Company and Fred Sacramone and Brian McMahon, Messrs. Sacramone and McMahon released the Company and its
affiliates from (i) all obligations represented by the Amended Sacramone Note (as defined in the Credit Agreement), which
had an outstanding amount equal to $1,030,000 and (ii) indebtedness represented by the Amended Series B Benchmark Notes in
the amount of $18,982,640. As a result, the total amount remaining outstanding under the Amended Series A Benchmark Notes
and Amended Series B Benchmark Notes is $28.0 million.
Moreover, effective on December 31, 2019, unless (i) on or before November 10, 2019, the
Company has entered into a business combination transaction that enables the Company’s common stock to remain listed on
the NYSE American stock exchange or the Company’s common stock is then listed on any other U.S. national securities
exchange (a “Qualified Business Combination”) and (ii) such Qualified Business Combination is consummated on or before December 31, 2019, the remaining $28.0 million outstanding on the Amended Series A
Benchmark Notes and Amended Series B Benchmark Notes shall be absolutely and unconditionally released and forever
discharged.
Unless (i) the
Company enters into a Qualified Business Combination by November 10, 2019 and (ii) such business combination transaction
is consummated on or before December 31, 2019, the Company will repurchase all outstanding shares of the Company’s Series
H Preferred Stock from Messrs. Sacramone and McMahon for a nominal amount.
The
Company is in discussions with a third party concerning a potential material strategic transaction, but no commitment or agreement
has been entered into and there can be no assurance that any business combination or other strategic transaction will result from
these discussions. See Item 8.01 below for further description of the potential transaction.
The
foregoing summary of the Foreclosure Proposal, the Debt and Series H Agreement and the other agreements and instruments
the Company has entered and will enter into in connection with the foreclosure does not purport to be complete and is subject
to, and qualified in its entirety by, the full text of such documents. A copy of the Foreclosure Proposal is filed as Exhibit
10.1 hereto and the terms of which are incorporated herein by reference. A copy of the Debt and Series H Agreement is filed as
Exhibit 10.2 hereto and the terms of which are incorporated herein by reference.