Attached files
| file | filename |
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| EX-10.5 - MATERIAL CONTRACTS - root9B Holdings, Inc. | rtnb_ex105.htm |
| EX-10.4 - MATERIAL CONTRACTS - root9B Holdings, Inc. | rtnb_ex104.htm |
| EX-10.2 - MATERIAL CONTRACTS - root9B Holdings, Inc. | rtnb_ex102.htm |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 7,
2017
root9B Holdings, Inc.
(Exact name of Company as specified in Charter)
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Delaware
(State or other jurisdiction of incorporation or
organization)
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000-50502
(Commission File No.)
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20-0443575
(IRS Employee Identification No.)
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102 N. Cascade Avenue, Suite 220
Colorado Springs, CO 80919
(Address of Principal Executive Offices)
(602) 889-1137
(Issuer Telephone number)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the Company under
any of the following provisions (see General Instruction A.2
below).
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13(e)-4(c))
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Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of
1934 (§240.12b-2 of this chapter).
Emerging growth
company
☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ☐
Explanatory Note
Introduction to and Overview of Form 8-K
root9B
Holdings, Inc., a Delaware corporation
(the “Company”) continues to face challenges meeting
its operational working capital requirements. For further
information regarding the Company’s liquidity, reference is
made to “Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations –
Liquidity and
Capital Resources” and
“Note
1: Basis of Presentation and General Information
– Going Concern and
Liquidity” to the
Company’s financial statements contained in the quarterly
report on Form 10-Q for the period ended March 31,
2017.
On
July 10, 2017, and July 19, 2017, the Company received loans from
its President for $500,000 and $300,000, respectively, that allowed
the Company to meet certain working capital requirements. As
discussed below, on June 20, 2017, the Company received a deposit
of $500,000 from a potential purchaser of certain non-core Company
assets, which was later converted to a loan. By August 7, 2017, the
Company received additional loans totaling $500,000 from a group of
lenders that again allowed the Company to meet its working capital
requirements. This recent group of lenders included the
Company’s non-executive chairman of the board, a
director-elect of the Company, and its President. These loans
totaling $1,811,000 combined with the existing secured convertible
promisorry notes totaling $8.771,000 equal the total secured debt
of the Company or $10,571,000. These loans are secured by
substantially all the assets of the Company and contain certain
financial covenants. The Company continues to actively pursue
various additional sources of capital including in connection with
the previously announced relationship with the Chertoff Group, as
well as potential covenant waivers with the lenders. If the Company
is unsuccessful in its capital raising efforts or does not obtain
covenant waivers, we do not expect that we will be able to comply
with these financial covenants, as early as mid-August 2017. In the
event of a default, secured lenders may, among other things, demand
immediate repayment of their loans and commence foreclosure
proceedings to seize all or substantially all of the
Company’s assets. As previously reported in the annual report
on Form 10-K and the quarterly report on Form 10-Q for the first
quarter, the Company has been operating with a going concern
designation. Any of the actions outlined above could further erode
the ability to continue as a going concern and dramatically impact
the value of the Company’s securities.
Cautionary Note Regarding Forward-Looking Statements.
This
Current Report on Form 8-K contains forward-looking statements that
reflect management’s current views with respect to certain
future events and the Company’s prospects, operations,
performance and financial condition. Such forward-looking
statements speak only as of the date of this Report and the Company
will not be required to amend or update such statements at any time
in the future. Forward-looking statements include, but are not
limited to: the Company’s ability to obtain further or
additional waivers of events of default from its lenders; the
Company’s future operating and financial results and ability
to remain in compliance with its debt covenants; the availability
of strategic investors or buyers for the remaining assets of the
Company’s discontinued operations; and the results of any
potential restructuring activities. For all forward-looking
statements, the Company claims the protection of the Safe Harbor
for Forward-Looking Statements contained in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot
be predicted with accuracy or are otherwise beyond the
Company’s control and some of which might not even be
anticipated. Future events and actual results could differ
materially from those described in or contemplated by the
forward-looking statements. Important factors that contribute to
such risks include, but are not limited to, successful execution of
the Company’s business plan, adequacy of capital resources,
and the Company’s ability to comply with, or obtain waivers
with respect to non-compliance with, the terms of its indebtedness.
The risks included are not exhaustive; for a more detailed
description of these uncertainties and other factors, see
“Item 1A. Risk Factors” in the Company’s Annual
Report on Form 10-K filed with the Commission on April 17,
2017.
Item 1.01
Entry into a Material Definitive
Agreement.
On August 10, 2017, the Company issued secured
convertible promissory notes (the “New Notes”) to
certain lenders (the “Lenders”), with an aggregate
principal amount of $1,000,000, along with warrants to purchase
shares (the “Warrant Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common
Stock”), representing fifty percent (50%) warrant coverage
(the “Warrants”). The Lenders include the
Company’s current Non-Executive Chairman of the Board of
Directors, Joseph J. Grano, Jr., a director-elect, Mr. Dieter
Gable, and its President, Mr. Dan Wachtler. The principal amounts
of the New Notes represent (i) the conversion of a deposit of
$500,000 the Company received from Mr. Gable as a potential buyer
for its remaining non-Cyber Security assets and (ii) $500,000 of
additional funds provided by the Lenders. The New Notes rank
pari passu
with the secured convertible
promissory notes (as amended, the “Prior Notes” and,
together with the New Notes and the Management Notes (defined
below), the “Notes”) issued pursuant to the Securities
Purchase Agreement (the “Secured SPA”), dated as of
September 9, 2016, by and among the Company and the purchasers
identified therein, subject to receipt of approval from the holders
of the Prior Notes.
The
New Notes mature on September 9, 2019 (the “Maturity
Date”). The New Notes accrue interest at the rate of 10% per
annum, payable on each March 31, June 30, September 30 and December
31, commencing September 30, 2017 until the earlier of (i) the
entire principal amount being converted or (ii) the Maturity Date.
The interest payments shall be made in either cash or, at the
Lender’s option, in shares of Common Stock (the
“Interest Payment Shares”) at a per share price equal
to 85% of the average daily volume weighted average price of the
Common Stock during the five consecutive trading day period
immediately prior to the interest payment date, but in no event
less than $10.00 per share. Following December 31, 2017, at the
election of the Lender, all principal and interest due and owing
under the New Notes is convertible into shares of Common Stock at a
conversion price equal to $10.00 (the “Conversion
Shares” and, together with the Warrant Shares and the
Interest Payment Shares, the “Shares”). The conversion
price is subject to adjustment for stock splits, stock dividends,
combinations, or similar events.
The Company may prepay any portion of the
outstanding principal amount of the New Notes and any accrued and
unpaid interest, with the prior written consent of the Lender, by
paying to the Lender an amount (the “Prepayment
Amount”) equal to (i) if the prepayment date is prior to the
first anniversary of the date of issuance (the “Anniversary
Date”), (1) the unpaid principal to be repaid plus (2) any
accrued but unpaid interest plus (3) an amount equal to the
interest which has not accrued as of the prepayment date but would
accrue on the principal to be repaid during the period beginning on
the prepayment date and ending on the Anniversary Date of the
then-outstanding principal amount of the New Notes or (ii) if the
prepayment date is after the Anniversary Date, (1) the unpaid
principal to be repaid plus (2) any accrued but unpaid interest
plus (3) an amount equal to one-half of the interest which has not
accrued as of the prepayment date but would accrue on the principal
to be repaid during the period beginning on the prepayment date and
ending on the Maturity Date. The New Notes contain certain
financial covenants (described below in Item 2.04 of this Current
Report). The Company will be required to provide monthly
certifications regarding its Working Capital and Cash on Hand (each
as defined in the New Notes) beginning on August 11,
2017.
The
Warrants have a term of five years, an exercise price of $10.00 per
share and may be exercised at any time following the date which is
six months after the date of issuance. The number of shares of
Common Stock issuable upon exercise of the Warrants is subject to
adjustment for certain stock dividends or stock splits, or any
reclassification of the outstanding securities of, or
reorganization of, the Company.
Pursuant
to the terms of both the New Notes and the Warrants, a Lender may
not be issued Shares if, after giving effect to the conversion or
exercise of the Shares, as applicable, such lender would
beneficially own in excess of 9.99% of the outstanding shares of
Common Stock. In addition, in the event the Company consummates a
consolidation or merger with or into another entity or other
reorganization event in which the Common Stock is converted or
exchanged for securities, cash or other property, or the Company
sells, assigns, transfers, conveys or otherwise disposes of all or
substantially all of its assets or the Company or another entity
acquires 50% or more of the outstanding Common Stock, then
following such event, (i) at the Lender’s election within 30
days of consummation of the transaction, the Lender will be
entitled to receive the Prepayment Amount, and (ii) the Lender will
be entitled to receive upon exercise of its Warrant the same kind
and amount of securities, cash or property which would have been
received had such Lender exercised its Warrant immediately prior to
such transaction. Any successor to the Company or surviving entity
shall assume the Company’s obligations under the New Notes
and the Warrants.
The Company agreed to conform the terms of the
secured promissory notes approved to be issued to its President in
an aggregate principal amount of $800,000, as disclosed in the
Company’s Current Reports on Form 8-K filed with the
Securities and Exchange Commission (the “Commission”)
on July 14, 2017 and July 19, 2017
(the “Management Notes”), to the terms of the New
Notes. Holders of the New Notes and Management Notes became a party
to the Security Agreement, dated September 9, 2016, by and among
the Company and the investors listed therein (the “Security
Agreement”). The material terms of the Security Agreement are
described in the Company’s Current Report on Form 8-K filed
with the Commission on
September 12, 2016.
The
New Notes were issued and sold pursuant to exemptions from the
registration requirements of the Securities Act, including Section
4(a)(2) thereof and Rule 506(b) of Regulation D thereunder, as well
as comparable exemptions under applicable state securities laws, as
transactions by an issuer not involving a public
offering.
The
description of the Prior Notes (as amended and restated), Secured
SPA, Security Agreement, New Notes, and Warrants are qualified in
their entirety by reference to the full text of the form of Secured
SPA, Prior Note (as amended and restated), Security Agreement, form
of New Note, and form of Warrant, copies of which are filed as
Exhibits 10.1, 10.2, 10.3, 10.4, and 10.5, respectively, to this
Current Report on Form 8-K.
Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The
information disclosed in Item
1.01 of this Current Report on Form 8-K is incorporated by
reference into this Item 2.03.
Item 2.04
Triggering Events That
Accelerate or Increase a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet
Arrangement.
The
Company is obligated, pursuant to Section 15 of the Notes,
Management Notes and New Notes (collectively, the “Secured
Holders”) with a certificate regarding the Company’s
compliance with the covenants described below (the “Secured
Covenants”) no later than (i) August 15, 2017, with respect
to the Prior Notes and (ii) August 11, 2017, with respect to the
New Notes. In the event that the Company is not able to demonstrate
it complies with the Secured Covenants, or if the Company fails to
provide the required certificates regarding the Company’s
compliance with the Secured Covenants, the Secured Holders may deem
the Company in default of the Notes (a “Secured
Default”). Unless the Company is able to raise a significant
capital investment or obtain covenant waivers prior to August 11,
2017, the Company does not anticipate that it will be in compliance
with the Secured Covenants.
The
Secured Covenants require the Company, on a monthly basis to (i)
maintain a positive Working Capital (as defined in the Notes) and
(ii) have sufficient cash on hand equal to or greater than the
largest salary payroll (including payroll taxes) paid during the
preceding 90 days, subject to certain adjustments as defined in the
Notes.
In
the event of a Secured Default, the Secured Holders may, among
other remedies, declare the entire then-outstanding and unpaid
principal amount of the Notes, together with any accrued but unpaid
interest thereon (the “Secured Outstanding Amount”),
immediately due and payable. As of August 10, 2017, the aggregate
Secured Outstanding Amount was $10,675,805.
A
Secured Default will also cause the Company to be in default of the
Security Agreement pursuant to a cross-default provision, and may
cause the Company to be in default of other provisions. In the
event of the Company’s default under the Security Agreement,
the Secured Holders may take any action permitted under the Uniform
Commercial Code of the State of New York (the “UCC”),
including, among other things, begin foreclosure proceedings to
take possession of all or substantially all of the Company’s
assets.
The
Company continues to pursue a variety of strategic initiatives to
address its liquidity needs, including the sale of assets,
financing activities, raising capital and restructuring
alternatives, including bankruptcy. There can be no assurance that
the Company will successfully be able to resolve its current
liquidity situation, and such failure could further erode the
ability to continue as a going concern and dramatically impact the
value of the Company’s securities
Item 3.02
Unregistered Sales of Equity Securities.
The
information disclosed in Item 1.01 of this Current Report on Form
8-K is incorporated by reference into this Item 3.02.
Item 5.02
Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers.
On
August 7, 2017, Seymour Siegel resigned from the Company’s
Board of Directors and all committees thereof effective
immediately. Mr. Siegel’s resignation is not the result of
any disagreement with the Company on any matter relating to the
Company’s operations, policies, or practices.
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits.
The
information set forth in the Exhibit Index immediately following
the signature page to this Current Report on Form 8-K is
incorporated by reference into this Item 9.01.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Company
has duly caused this Current Report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated:
August 10, 2017
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ROOT9B
HOLDINGS, INC.
By:
/s/ William Hoke
Name:
William Hoke
Title:
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No.
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Description
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10.1
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Form of
Securities Purchase Agreement, dated September 9, 2016, by and
among the Registrant and the Secured Parties (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of the
Registrant filed with the Commission on September 12,
2016).
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10.1.1
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First
Amendment to Securities Purchase Agreement, effective December 22,
2016 (incorporated by reference to Exhibit 10.27 to the Amendment
No. 1 to the Annual Report on Form 10-K/A of the Company filed with
the Commission on May 1, 2017).
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10.1.2
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Second
Amendment to Securities Purchase Agreement, effective January 24,
2017 (incorporated by reference to Exhibit 10.5 to the Current
Report on Form 8-K of the Company filed with the Commission on
January 26, 2016).
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10.1.3
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Third
Amendment to Securities Purchase Agreement, effective March 24,
2017 (incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of the Company filed with the Commission on
July 7, 2017).
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10.2*
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Amended
and Restated Form of Secured Convertible Promissory
Note.
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10.3
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Form of
Security Agreement, dated September 9, 2016, by and among the
Registrant and the Secured Parties (incorporated by reference to
Exhibit 10.4 to the Current Report on Form 8-K of the Registrant
filed with the Commission on September 12, 2016).
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10.4*
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Form of
2017 Secured Convertible Promissory Note.
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10.5*
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Form of
2017 August Warrant.
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* Filed
herewith.