Item 3.02 Unregistered Sales of Equity Securities.
As previously reported on a Current Report on Form 8-K filed by the Company on
October 16, 2013, Franklin Credit Management Corporation ("FCRM" or the
"Company") and Thomas J. Axon, Chairman, President and majority stockholder of
Franklin Credit Management Corporation, on October 11, 2013 entered into a
capital contribution agreement (the "Agreement"), effective September 30, 2013.
Pursuant to and under the terms of the Agreement, Mr. Axon shall receive one
share of non-transferrable restricted Series A Convertible Preferred Stock
("Preferred Stock") of the Company, par value $0.001, for every $2 the Company
receives in capital contributions made by Mr. Axon. An aggregate of 2,050,000
shares of Preferred Stock has been reserved for issuance under the terms of the
Per the Agreement, Mr. Axon, on August 12, 2014, was issued 100,000 shares of
Preferred Stock at the price of two dollars ($2.00) per share, for an aggregate
price of $200,000.00, which the Company received from Mr. Axon in cash on August
12, 2014. Accordingly, when combined with the prior issuances, Mr. Axon has been
issued a total of 1,600,000 shares of Preferred Stock under the terms of the
The Company issued the shares of Preferred Stock without registration in
reliance on the exemptions provided under Section 4(2) of the Securities Act of
1933 and Rule 505 and Rule 506 of Regulation D promulgated thereunder. Mr. Axon,
an executive officer and director of the Company, is an "accredited investor"
(as defined under Rule 501 of Regulation D), who is purchasing restricted shares
of Preferred Stock for investment only, under a private placement conducted
without the use of any form of general solicitation or advertising, and not for
resale or distribution.
The Agreement grants to Mr. Axon an irrevocable and exclusive option to exchange
2,050,000 shares of Preferred Stock for any right, title and interest of the
Company in two specifically designated real estate properties owned by the
Company located in the borough of Manhattan in the city of New York (the "Real
Estate"), exercisable on or after the date on which the Company has received a
total of $4.1 million in cash capital contributions from Mr. Axon (the
"Option"). Prior to the exercise of the Option, Mr. Axon shall not have any
ownership rights in, and the Company shall retain the right to use and possess
the Real Estate, including the right to any rental income received from the Real
Each share of Preferred Stock (a) carries a cumulative dividend rate of 7% per
annum, to be paid if and as declared by FCRM's board of directors or as
otherwise provided under the Agreement, in preference to any payment of any
dividend on the common stock of the Company; (b) has no liquidation preference;
and (c) shall be automatically converted into shares of common stock of the
Company in the event Mr. Axon does not make his required monthly capital
contribution within 60 days of its due date, subject to a limited cure period,
which may be granted at the sole discretion of the Audit Committee. To the
extent any shares of Preferred Stock are converted into shares of common stock,
the conversion rate shall equal (a) the aggregate capital contributions made by
Mr. Axon to the Company, plus any accrued and unpaid dividends, divided by (b)
the greater of (x) the closing price of the common stock of the Company on the
day immediately prior to the date of conversion or if such day is not during a
"window period" during which Mr. Axon would otherwise be permitted to purchase
Company securities, under the Company's insider trading policy then in effect,
then the first business day of the next "window period" that would be applicable
to Mr. Axon or (y) $0.41.
The Company has the right, but not the obligation, to accelerate the Agreement
and to repurchase all or, at its election, a portion of the shares of Preferred
Stock from Mr. Axon at the purchase price paid for such shares of Preferred
Stock plus any accrued but unpaid dividends, in the event of any consolidation
or merger of the Company into any other corporation or other entity or person.
Mr. Axon, in lieu of the Company's exercise of its right to purchase shares of
Preferred Stock, will have within thirty (30) days of acceleration to exercise
the Option to acquire the Real Estate.