34.7% Stake of FalconStor Software, Inc. (FALC) Held by Hale Martin M Jr

Hale Martin M Jr

stated that they own 34.7% of FalconStor Software, Inc. (OTCMKTS:FALC) in a Form 13D/A disclosure that was filed with the Securities and Exchange Commission (SEC) on Monday, November 27th. The investor owns 7,317,073 shares of the stock valued at approximately $1,718,780. The reporting parties listed on the disclosure included Martin M Hale, Jr, Hale Fund Management, LLC, Hale Capital Management, LP, Hale Capital Partners, LP and Hcpfva, LLC. The filing is available through Edgar at this link.

Hale Martin M Jr

provided the following explanation of their ownership:

On November 17,2017, HCP provided a commitment letter to the Company (the “Commitment Letter”), which Commitment Letter is referenced as Exhibit 1 hereto, pursuant to which HCP committed to purchase (the “Commitment”) up to seventyfive percent (75%) of the total number of units (the “Financing Units”) to be issued in that certain financing described in the Commitment Letter (the “Financing”), subject to the terms and conditions set forth in the Commitment Letter. As part of that Commitment, on November 17,2017, HCPFVA entered into a Loan and Security Agreement (the “Loan Agreement”), which is referenced as Exhibit 2 hereto, with the Issuer and certain other loan parties named therein (collectively, the “Loan Parties”) pursuant to which HCPFVA made the ShortTerm Loan to the Issuer.
The ShortTerm Loan is evidenced by that certain secured promissory note in the aggregate principal amount of $500,000, which secured promissory note is in the form attached to the Loan Agreement as Exhibit A. The ShortTerm Loan (i) bears interest at a rate per annum equal to the prime rate, as set forth in the Wall Street Journal, plus 0.75%, (ii) is secured by a lien on all of the Loan Parties’ assets, (iii) is guaranteed by the Issuer’s domestic subsidiaries, (iv) has a maturity date of May 17,2018, (v) is subject to mandatory prepayment upon the occurrence of certain events, including future equity or debt financings and a change of control, which mandatory prepayment shall include a prepayment fee of five percent (5%) of the principal amount of the ShortTerm Loan prepaid by the Issuer and (vi) will, upon closing of any portion of the Financing with HCP or its affiliates, be satisfied through the issuance and sale to HCPFVA of Financing Units; the Financing Units to be issued to HCPFVA in respect of the principal amount of the ShortTerm Loan (the “Bridge Loan Obligations”) will consist of (y) senior secured debt in the aggregate principal amount of the ShortTerm Loan and (z) warrants to purchase approximately 61,165,134 shares of Common Stock (assuming a year end closing), at an exercise price of $0.001 per share.
As a condition to the ShortTerm Loan and in partial consideration for the Commitment, the Issuer issued to HCPFVA on November 17,2017 the Initial Loan and Backstop Warrants, which Initial Loan and Backstop Warrants are referenced as Exhibit 3 hereto. The Initial Loan and Backstop Warrants (i) have an exercise price of $0.001 per share, (ii) are exercisable for a period of ten (10) years and (iii) contain a cashless exercise provision.
The Financing contemplated by the Commitment is a private placement of approximately $14,080,000 of Financing Units (which assumes a year end closing) to eligible stockholders of the Issuer, with each Financing Unit consisting of senior secured debt, nominal warrants and shares of the Issuer’s Series A Preferred Stock held by HCPFVA. If the Financing is fully subscribed, $4,000,000 million of the total offering proceeds would be paid to the Issuer in exchange for the portion of the Financing Units consisting of secured debt and warrants and approximately $10,080,000 million of the total offering proceeds (less any portion attributable to the Financing Units purchased by HCP or its affiliates) would be paid to HCPFVA for the purchase of its Series A Preferred Stock of the Issuer. Pursuant to the terms of the Commitment, HCP has committed to purchase 75% of the total number of Financing Units to be issued in the Financing to ensure the Issuer will receive at least $3 million of total offering proceeds, inclusive of the units issuable upon conversion of the ShortTerm Loan.
Upon HCP or its affiliate funding all or any portion of the Commitment, the Issuer will issue an additional warrant (the “Additional Backstop Warrants” and, together with the Initial Loan and Backstop Warrants, the “Backstop Warrants”) to HCP or its designated affiliate to purchase 41,577,382 shares of Common Stock at an exercise price of $0.001 per share, which Additional Backstop Warrants shall be in substantially the same form as the Initial Loan and Backstop Warrants. All of the Backstop Warrants (or the Common Stock into which they were converted on a postcashless exercise basis) are subject to cancellation in the event that HCP fails to fund the Commitment requested by the Issuer following satisfaction of all conditions to such funding as set forth in, and subject to the terms of, the Commitment Letter. Fifty percent (50%) of the Backstop Warrants (or the shares of Common Stock issuable upon exercise thereof on a postcashless exercise basis) are subject to cancellation in the event that more than half of the Financing Units are purchased by eligible stockholders (other than HCP and its affiliates). The Backstop Warrants are in addition to the nominal warrants to be issued to HCP or any of its affiliates in connection with their purchase of any Financing Units in the Financing. With respect to any Backstop Warrants issued to HCP and its affiliates, HCP and its affiliates that hold the Backstop Warrants have agreed to exercise the Backstop Warrants, up to the maximum amount of available authorized stock, and vote the shares of Common Stock issuable upon exercise thereof in favor of an amendment to the Issuer’s Certificate of Incorporation necessary to increase the authorized Common Stock in order to permit the consummation of the Financing and the issuance of the securities issuable in connection therewith.
The foregoing descriptions of the Commitment Letter, the Loan Agreement and the Initial Loan and Backstop Warrants do not purport to be complete and are qualified in their entirety by the terms of each such document which are incorporated herein by reference to Exhibits 1, 2 and 3 of this Amendment No. 3.

Separately, Virtu KCG Holdings LLC increased its holdings in FalconStor Software by 1,043.0% in the 2nd quarter. Virtu KCG Holdings LLC now owns 408,350 shares of the software maker’s stock worth $106,000 after purchasing an additional 372,624 shares in the last quarter. Institutional investors and hedge funds own 18.08% of the company’s stock.

Separately, ValuEngine raised FalconStor Software from a “sell” rating to a “hold” rating in a research note on Monday, September 11th.

Shares of FalconStor Software, Inc. (OTCMKTS:FALC) traded down $0.02 during mid-day trading on Monday, hitting $0.23. The stock had a trading volume of 166,837 shares, compared to its average volume of 162,589. FalconStor Software, Inc. has a 12 month low of $0.14 and a 12 month high of $1.02.

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About FalconStor Software

FalconStor Software, Inc is a Software-Defined Storage (SDS) company offering a converged data services software platform. The Company’s platform FreeStor, allows information technology (IT) organizations minimize and eliminate that complexity with the delivery of migration, continuity, protection, recovery and optimization for any storage environment through a management interface for a price based on managed capacity across arrays, servers, hypervisors, data centers, and the cloud.

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