Item
1.01 – Entry into a Material Definitive Agreement.
On
January 24, 2017, the Registrant entered into a Debt Refinancing Agreement (the “Refinancing Agreement”) with Warren
Breslow (“Breslow”) and the Survivor’s Trust Under the Warren L. Breslow Trust (the “Breslow Trust”)
(Breslow and the Breslow Trust are hereinafter sometimes referred to herein as the “Breslow Parties”), and a related
Unsecured Convertible Promissory Note (the “Note”) with the Breslow Trust. Breslow is a director of the Registrant
and beneficially owns approximately 6% of Registrant’s Common Stock. In addition, Breslow is a trustee of the Breslow Trust.
Pursuant
to the Refinancing Agreement, the parties thereto agreed that, as of the date thereof, the Registrant owed the Breslow Trust an
aggregate of $23,872,614.47 (the “Aggregate Debt”), of which $8,890,573.95 represented accrued interest (including
penalties of any nature, the “Accrued Interest”). The Aggregate Debt included indebtedness by the Registrant to Breslow,
Active Mortgage Corp., and Overland Financial Co., which indebtedness the Breslow Parties represent was transferred previously
to the Breslow Trust.
Pursuant
to the Refinancing Agreement, the Breslow Parties have canceled and forgiven all Accrued Interest through the date of the Refinancing
Agreement (the “Waived Interest”), and have warranted that, to their knowledge, other than the Aggregate Debt, no
other debts, liabilities or obligations of any nature existed as of the date thereof with respect to the payment of any amount
owed (or alleged to be owed) to either Breslow Party by the Registrant pursuant to any document or instrument evidencing, securing
or otherwise pertaining to any indebtedness to any of the Breslow Parties. In addition, the Breslow Parties have waived all existing
events of default relating to the Aggregate Debt, and have agreed that all instruments or other agreements evidencing or pertaining
to the Aggregate Debt shall be deemed cancelled and shall be superseded and replaced in their entirety by the Note. However, the
Refinancing Agreement stipulates that, if Stockholder Approval (as hereinafter defined) is not obtained within twelve months after
the date of the Refinancing Agreement, the Refinancing Agreement and the Note shall be deemed rescinded by the parties and shall
be of no further force or effect, provided that the Breslow Parties vote all of the voting securities of the Registrant beneficially
owned by them in favor of the Resolutions (as hereinafter defined).
The
Refinancing Agreement defines “Stockholder Approval” as the affirmative approval by Registrant’s stockholders
of resolutions (the “Resolutions”) approving (i) an amendment to the Certificate of Incorporation to effect a 1-for-7
reverse stock split of the Registrant’s Common Stock (“Reverse Stock Split”) and (ii) if required by applicable
law, the issuances granted to the Breslow Trust pursuant to the Refinancing Agreement.
Pursuant
to the Refinancing Agreement, the Breslow Parties have jointly and severally agreed to indemnify and hold the Registrant and its
past and present stockholders, officers, directors, employees, attorneys, agents, successors, and other representatives (collectively,
the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, any breach of any representation,
warranty or covenant of the Breslow Parties set forth in the Refinancing Agreement. Any indemnification payment by the Breslow
Parties may be in the form of a cash payment by the Breslow Parties or, provided that the ownership by the Breslow Trust of the
Aggregate Debt or the Note has not been invalidated or is then in dispute and the right and power of the Breslow Trust to enter
into the Refinancing Agreement has not been invalidated or is then in dispute, an assignment of or the surrender and cancellation
of the Note and any shares of Registrant’s Common Stock issued upon conversion thereof and then held by the Breslow Parties,
or any combination of the foregoing, as determined in the Breslow Parties’ discretion.
Concurrently
with the execution of the Refinancing Agreement, the Registrant has delivered to the Breslow Trust the Note in the amount of $14,982,040.52,
which is equal to the Aggregate Debt reduced by the Waived Interest (the “Restructured Principal”). The Note bears
interest on the unpaid Restructured Principal at a rate equal to zero percent per annum for the first six months, and 5% per annum
thereafter. However, in the event of an event of default on the Note, the interest rate shall become 18% per annum. The entire
unpaid balance of the Note is due on the 60
th
month anniversary of the date of issuance, and may be prepaid or redeemed
in whole or in part without premium or penalty.
Immediately
upon the Reverse Stock Split becoming effective, $11,982,041 of the Restructured Principal shall automatically be converted into
7,403,705 shares of the Registrant’s Common Stock. In addition, at any time after the effective date of the Reverse Stock
Split, and so long as any portion of the Note remains unpaid and outstanding, the holder of the Note shall be entitled to convert
any portion of the Note then outstanding (together with accrued and unpaid interest) into shares of Common Stock, based on a “Voluntary
Conversion Price” of $0.20 per share, subject to adjustment from time to time pursuant to the provisions of the Note. The
Voluntary Conversion Price will be adjusted to reflect any stock split, reverse stock split or similar subdivision or combination,
other than the Reverse Stock Split.
The
following constitute events of default with respect to the Note: failure to pay, within 5 business days of the due date, any principal
amount of the Note; the Registrant breaches or fails to pay interest or any other amount under the Note within 5 business days
after the due date thereof; the Registrant breaches or fails to perform, comply with or observe, or be in default under, any other
covenant or obligation required to by formed by it under the Note, unless cured (if subject to cure) within 10 business days after
the receipt of written notice that such breach or failure has occurred; an involuntary case is commenced against the Registrant
seeking the liquidation or reorganization under the bankruptcy laws or similar proceeding, or an involuntary case or proceeding
seeking the appointment of a receiver, custodian or similar official for it, or to take possession of all or a substantial portion
of its property or to operate all or a substantial portion of its business, and any of the following occur: (i) the Registrant
consents to such involuntary case or proceeding is not timely controverted, (ii) the petition commencing the involuntary case
or proceeding is not timely controverted, or (iii) the petition commencing the involuntary case or proceeding remains undismissed
or unstayed for 60 days, or (iv) an order for relief shall have been issued or entered therein or a receiver, custodian, trustee
or similar official appointed; or the Registrant institutes a voluntary case seeking liquidation or reorganization under the bankruptcy
laws or any similar proceeding, or shall consent thereto, or shall take similar actions. With certain exceptions, if an event
of default occurs and is continuing, the holder of the Note may, without notice, declare all outstanding principal and accrued
and unpaid interest to be immediately due and payable.
Copies
of the Refinancing Agreement and the Note are attached hereto as Exhibits 10.1 and 10.2, and are incorporated herein by this reference.