Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT - root9B Holdings, Inc. | rtnb_8k.htm |
| EX-10.5 - MATERIAL CONTRACTS - root9B Holdings, Inc. | rtnb_ex105.htm |
| EX-10.4 - MATERIAL CONTRACTS - root9B Holdings, Inc. | rtnb_ex104.htm |
Exhibit 10.2
THE
SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
SECURED CONVERTIBLE PROMISSORY NOTE
|
$__________
|
_________,
2017
|
|
|
New
York , New York
|
For
value received, root9B Holdings, Inc. (f/k/a root9B Technologies,
Inc.), a Delaware corporation (the “Company”), promises to
pay to ____________ (the “Holder”), or its
registered assigns, in lawful money of the United States of America
the principal amount of [●] Dollars ($[●]). Interest
shall accrue from the date of this Secured Convertible Promissory
Note (this “Note”) on the unpaid
principal amount at a rate equal to 10.00% per annum simple
interest. Interest on this Note shall accrue and, unless otherwise
converted in accordance with Section 2 below, shall be payable upon
the Maturity Date (as defined below). This Note is one of a series
of Notes issued pursuant to that certain Securities Purchase
Agreement, dated as of September 9, 2016, as amended from time to
time (the “Purchase
Agreement”), by and among the Company and the
investors (the “Holders”) referred to
therein. Capitalized terms used but not defined herein shall have
the meaning set forth in the Purchase Agreement.
This
Notes amends and restates Note Number [●], issued to the
Holder on [●] (the “Prior Note”). Effective
as of the date this Note is issued to the Holder, the Prior Note
shall automatically terminate and be of no further force and effect
and shall be amended and restated in its entirety as set forth in
this Note.
This
Note is subject to the following terms and conditions:
1. Payments.
(a) Repayment.
(i) Repayment
upon Maturity Date. If this Note is not earlier converted
pursuant to Section 2, the entire then-outstanding and unpaid
principal amount of this Note, together with any accrued but unpaid
interest thereon (the “Outstanding Amount”),
shall be due and payable upon the earlier to occur of (i) September
9, 2019 (the “Maturity Date”), and (ii)
following the occurrence of an Event of Default (as defined below),
when such amounts are declared due and payable by the Holder in
accordance with the terms hereof. All payments shall be made, at
the Holder’s option, in either (i) lawful money of the United
States of America at such place as the Holder hereof may from time
to time designate in writing to the Company or (ii) shares of the
Company’s common stock, par value $0.001 (the
“Common
Stock”) pursuant to Section 2(b) below. Subject to
Section 2 below, interest shall accrue on this Note but shall not
be due and payable until the Maturity Date.
(ii) Optional
Repayment Upon a Minimum Threshold Sale. In the event that
the Company consummates a Minimum Threshold Sale (as defined
below), then Holder shall have the one-time right, exercisable by
delivering to the Company written notice (the “Optional Repayment
Notice”) at any time during the Option Period (as
defined below), to demand repayment of an amount equal to up to
twenty-five percent (25%) of the Outstanding Amount (which amount
shall be specified in the Optional Repayment Notice) (the
“Minimum Threshold
Repayment”), in cash at such place as the Holder
hereof may designate in writing to the Company, with such payment
to be made within three (3) business days of receipt of the
Optional Repayment Notice. Notwithstanding anything to the contrary
contained herein, including, but not limited to, Section 1(c)
below, any such Optional Repayment shall not be subject to any
prepayment penalty. For the avoidance of doubt, the right to demand
the Minimum Threshold Repayment shall expire upon the expiration of
the Option Period.
(iii) Optional
Repayment Upon a Maximum Threshold Sale. In the event that
the Company consummates a Maximum Threshold Sale (as defined
below), then Holder shall have the one-time right, exercisable by
delivering to the Company an Optional Repayment Notice during the
Option Period, to demand repayment of an amount equal to up to
fifty percent (50%) of the Outstanding Amount (which amount shall
be specified in the Optional Repayment Notice) (the
“Maximum Threshold
Repayment”), in cash at such place as the Holder
hereof may designate in writing to the Company, with such payment
to be made within three (3) business days of receipt of the
Optional Repayment Notice. Notwithstanding anything to the contrary
contained herein, including, but not limited to, Section 1(c)
below, any such Optional Repayment shall not be subject to any
prepayment penalty. For the avoidance of doubt, the right to demand
the Maximum Threshold Repayment shall expire upon the expiration of
the Option Period.
(b) Interest
Payment. The Interest Payment shall be paid by the Company
on each Payment Date. The Interest Payment shall be payable in, at
the option of the Holder, either (i) lawful money of the United
States of America at such place as the Holder hereof may from time
to time designate in writing to the Company or (ii) such number of
shares of Common Stock (the “Interest Shares”) equal
to the quotient obtained by dividing (i) the Interest Payment by
(ii) Interest Conversion Rate (the “Interest Payment Type”).
Notwithstanding the foregoing, Holder may not request the Interest
Payment to be paid in Interest Shares if such issuance shall result
in a Share Reserve Failure. Holder shall notify the Company in
writing no fewer than three (3) business days prior to the
applicable Payment Date the Interest Payment Type such
Holder’s Interest Payment shall be payable in on the
applicable Payment Date.
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(c) Prepayment.
The Company shall have the right at any time prior to the twelve
month anniversary (the “Anniversary Date”) of the
date of issuance of this Note, with the prior written consent of
the Holder, to prepay all or some of the outstanding Principal
Amount of this Note together with accrued interest then due (the
"Prepayment
Amount") by paying to the Holder an amount equal to (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 Optional
Prepayment Date (as defined below) but would accrue on the
principal to be repaid during the period beginning on the Optional
Prepayment Date and ending on the Anniversary Date (the
“Early Prepayment
Price”). Following the Anniversary Date, the Company
shall have the right, exercisable on not less than three (3)
Trading Days prior written notice to the Holder of the Note, to
prepay all or some of the outstanding Principal Amount of this Note
together with accrued interest then due by paying to the Holder an
amount equal to (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
Optional Prepayment Date (as defined below) but would accrue on the
principal to be repaid during the period beginning on the Optional
Prepayment Date and ending on the Maturity Date (the
“Subsequent
Prepayment Price” and, together with the Early
Prepayment Price, the "Prepayment Price"). Any notice
of prepayment hereunder (an “Optional Prepayment
Notice”) shall be delivered to the Holder at its
registered address and shall state: (1) that the Company is
exercising its right to prepay the Note, (2) the Prepayment Amount,
(3) the applicable Prepayment Price and (4) the date of prepayment
which shall be not more than three (3) Trading Days from the date
of the Optional Prepayment Notice. On the date fixed for prepayment
(the “Optional
Prepayment Date”), the Company shall make payment of
the applicable Prepayment Price to or upon the order of the Holder
as specified by the Holder in writing to the Company at least one
(1) business day prior to the Optional Prepayment Date. The Company
covenants and agrees that it will honor all Notices of Conversion
(as defined below) tendered from the time of delivery of the
Optional Prepayment Notice through the date all amounts owing
thereon are due and paid in full. Notwithstanding the provisions of
this Section 1(c), the Company shall only be permitted to prepay
this Note if concurrently with such prepayment the Company prepays
all Notes issued pursuant to the Purchase Agreement on a pro-rata
basis.
(d) Security.
The payment obligations arising under this Note are secured
pursuant to the terms of that certain Security Agreement made
effective as of the date of the Purchase Agreement by and between
the Company and the Holder (as amended from time to time, the
“Security
Agreement”). Reference hereby is made to the Security
Agreement for a description of the nature and extent of the
collateral serving as security for this Note and the rights of the
Holder with respect to such security.
(e) Ranking.
The Note shall rank senior in all respects to indebtedness,
liabilities or obligations of the Company to other parties
outstanding as of the date of this Note and shall rank pari passu with any Note issued
pursuant to the Purchase Agreement.
3
(f) Definitions.
(i) “Interest
Conversion Rate” means a per share price equal to 85%
of the quotient of the sum of the VWAP of the Common Stock as of
each Trading Day during the five (5) consecutive Trading Day
period ending and including the Trading Day ended immediately prior
to the Additional Closing Date, divided by five (5), but in no
event less than $10.00 per share.
(ii)
“Interest
Payment” means an amount equal to any accrued but
unpaid interest under this Note as of each Payment
Date.
(iii) “IPSA
Sale” means a sale of substantially all of the assets
of IPSA (as defined below).
(iv) “Maximum
Threshold Sale” means an IPSA Sale from which the
Company receives cash proceeds of not less than $10,000,000 at the
closing of such transaction (exclusive of any earn out amounts,
milestone payments or similar contingent payments).
(v) “Minimum
Threshold Sale” means an IPSA Sale from which the
Company receives cash proceeds of not less than $8,000,000 and not
greater than $9,999,999.99 at the closing of such transaction
(exclusive of any earn out amounts, milestone payments or similar
contingent payments).
(vi) “Option
Period” means the 30 calendar day period following
either a Minimum Threshold Sale or Maximum Threshold Sale, as
applicable.
(vii) “Payment
Date” means each March 31, June 30, September 30 and
December 31, commencing December 31, 2016 or, in each case, if such
day is not a business day, the first business day immediately
thereafter until the earlier of (i) the Outstanding Amount is
repaid pursuant to Section
1(a) or (ii) the Outstanding Amount is converted pursuant to
Section
2.
(viii)
“Trading
Day” means a day on which the principal Trading Market
is open for trading.
(ix) “Trading
Market” means any of the following markets or
exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE MKT, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange, the OTC Bulletin Board or the “Pink
Sheets” published by Pink OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting
prices) (or any successors to any of the foregoing).
4
(x) “VWAP”
means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is
then listed or quoted on a Trading Market, the daily volume
weighted average price of the Common Stock for such date (or the
nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.
(New York City time)), (b) if the OTC Bulletin Board is not a
Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or
quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets”
published by Pink OTC Markets, Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported, or
(d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by the Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
2. Conversion.
(a) Conversion.
Subject to the limitations set forth in Section 2(d) and Section 3 below, at any time on
or after [●], 2017, unless the Outstanding Amount has
previously been repaid or converted as provided herein, the Holder
may elect to convert, in whole or in part, the Outstanding Amount
into fully paid and non-assessable shares of Common Stock. The
number of shares of Common Stock to be issued upon conversion of
this Note pursuant to this Section 2(a) shall be equal to
the quotient obtained by dividing (i) the Outstanding Amount
elected by the Holder to be converted, by (ii) $10.00 (subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination or similar recapitalization affecting such
shares) (the "Conversion
Price"), rounded down to the nearest whole
share.
(b)
Rights,
Preferences and Privileges of Common Stock. Upon conversion
of this Note pursuant to this Section 2, the Company shall
issue shares of Common Stock (the “Conversion Shares”) which
shall have the rights, preferences and privileges set forth in the
Company’s Certificate of Incorporation, as amended from time
to time and then in effect.
(c) Mechanics
and Effect of Conversion. This Note may be converted by the
Holder in whole or in part pursuant to Section 2(a), on any Trading
Day, by submitting to the Company a notice (by facsimile, e-mail or
other reasonable means of communication dispatched on the
Conversion Date prior to 4:00 p.m., New York, New York time)
specifying the Outstanding Amount to be so converted (the
“Notice of
Conversion”). Any Notice of Conversion submitted after
4:00 p.m., New York, New York time, shall be deemed to have been
delivered and received on the next Trading Day. No fractional
shares of the Common Stock will be issued upon conversion of this
Note. In lieu of any fractional share to which the Holder would
otherwise be entitled, the Company will pay to the Holder in cash
the amount of the unconverted outstanding and unpaid principal
amount of this Note that would otherwise be converted into such
fractional share. Upon conversion of this Note pursuant to this
Section 2, the
Holder shall surrender this Note, duly endorsed, at the principal
offices of the Company or any transfer agent of the Company. At its
expense, the Company will, as soon as practicable thereafter, issue
and deliver to such Holder, at such principal office, a certificate
or certificates for the number of shares to which such Holder is
entitled upon such conversion, together with any other securities
and property to which the Holder is entitled upon such conversion
under the terms of this Note, including a check payable to the
Holder for any cash amounts payable as described herein. Upon
conversion of this Note, the Company will be forever released from
all of its obligations and liabilities under this Note with regard
to that portion of the principal amount being converted including
without limitation the obligation to pay such portion of the
principal amount.
5
(d) Limitations
on Exercise. This Note shall not be converted by the Holder
to the extent (but only to the extent) that, following such
conversion, the Holder or any of its affiliates would beneficially
own in excess of 9.99% (the “Maximum Percentage”) of
the Outstanding Shares of Common Stock (as defined below). No prior
limitation on the number of shares of Common Stock subject to this
Note or the inability to convert this Note pursuant to this
Section 2 shall
have any effect on the applicability of the provisions of this
Section 2 with
respect to any subsequent determinations of the number of shares
subject to the Note or the conversion hereof. For the purpose of
this Section 2(d),
beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with
Section 13(d) of the Exchange Act. For clarification, the foregoing
calculation of beneficial ownership shall take into account all
securities which give rise to beneficial ownership by the Holder or
its Affiliates of such Common Stock under such rules and
regulations and not solely this Note. The provisions of this
Section 2(d) shall
be implemented in a manner otherwise than in strict conformity with
the terms of this Section
2(d) in order to correct this Section 2(d) or any portion
hereof which may be defective or inconsistent with the intended
Maximum Percentage beneficial ownership limitation herein contained
or to make changes or supplements necessary or desirable to
properly give effect to such Maximum Percentage limitation. The
limitations contained in this Section 2(d) shall apply to a
successor holder of this Note. “Affiliate” means, with
respect to any Person, any other Person that, directly or
indirectly through one or more intermediaries, Controls, is
controlled by or is under common control with such Person, as such
terms are used in and construed under Rule 405 under the Securities
Act. With respect to the Holder, any investment fund or managed
account that is managed on a discretionary basis by the same
investment manager Holder will be deemed to be an Affiliate of
Holder. “Person” means any
individual, firm, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or
political subdivision thereof, or other entity of any kind and
includes any successor (by merger or otherwise) of such entity.
“Outstanding Shares
of Common Stock” means, as of any particular
measurement time, the sum of (i) the total number of outstanding
shares of Common Stock of the Company as of such time, and (ii) the
total number of shares of Common Stock which Holder has the right
to acquire beneficial ownership of within sixty days of such
measurement time (to the extent not included in (i)), including but
not limited to any right to acquire shares of Common Stock through
the exercise of any option, warrant or right or through the
conversion of another security (including this Note).
“Exchange
Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and
Exchange Commission thereunder.
6
(e) No
Rights as Stockholder. This Note does not by itself entitle
the Holder to any voting rights or other rights as a stockholder of
the Company. In the absence of conversion of this Note, no
provisions of this Note, and no enumeration herein of the rights or
privileges of the Holder shall cause the Holder to be a stockholder
of the Company for any purpose.
3. Share
Reserve.
(a) Notwithstanding
anything herein to the contrary, the Holder acknowledges and agrees
that this Note may not be converted nor any shares issued in
payment of accrued interest pursuant to Section 1(b), if, at the time
of such conversion or share payment, as applicable, the Company
does not have a sufficient number of authorized shares of Common
Stock pursuant to the Company’s Certificate of Incorporation
(the “Certificate of
Incorporation”), as in effect as of such date, to
cover such issuance. Notwithstanding anything herein to the
contrary, the Company shall hold a Special Meeting of Stockholders
prior to December 31, 2016 (the “Meeting”), in order to
seek stockholder approval (the “Approval”) to amend its
Certificate of Incorporation (the “Amendment”) in order to,
among other thing, to provide for a number of authorized shares of
Common Stock such that, following the effectiveness of the
Amendment, sufficient shares of Common Stock will be available to
provide for the conversion of the Notes in full without regard to
any limitation on conversion set forth in the Notes, as well as any
possible payment of interest on the Notes in shares of Common Stock
as provided in Section
1(b), and the exercise in full of the Warrants without
regard to any limitation on exercise set forth in the
Warrants.
(b) If
the Company does not receive the Approval on or prior to December
31, 2016, then the Holder shall have the right at any time through
January 31, 2017, at its option, to require the Company to
repurchase all or any portion of its Notes, or any portion of the
Outstanding Amount thereunder at a price equal to the Outstanding
Amount elected by the Holder to be redeemed hereunder.
4. Events
of Default. Promptly following the Company becoming aware of
an occurrence of any Event of Default, the Company shall furnish to
the Holder written notice of the occurrence thereof. The occurrence
of any of the following shall constitute an “Event of Default” under
this Note:
(a) Failure
to Pay. The Company shall fail to pay (i) when due any
outstanding and unpaid principal amount on any due date hereunder
or (ii) any other payment required under the terms of this
Note on the date due, and in the case of (ii), such payment shall
not have been made within five (5) business days following the
Company’s receipt of Holder’s written notice to the
Company of such failure to pay; or
(b)
Voluntary
Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) make a general
assignment for the benefit of its or any of its creditors, or
(iii) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official
in an involuntary case or other proceeding commenced against it;
or
7
(c)
Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a
receiver, trustee, liquidator or custodian of the Company or of all
or a substantial part of the property thereof, or an involuntary
case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under
any bankruptcy, insolvency or other similar law now or hereafter in
effect shall be commenced and an order for relief entered or such
proceeding shall not be challenged, dismissed or discharged within
sixty (60) days of commencement;
(d)
Dissolution.
The dissolution or winding up of the Company;
(e)
Cessation or
Suspension of Trading. The Common Stock is (i) no longer
listed for trading or authorized for quotation (as the case may be)
on a Trading Market or (ii) suspended from trading on a Trading
Market for a period of five (5) consecutive Trading Days or for
more than an aggregate of ten (10) Trading Days in any 365-day
period;
(f) Failure
to Deliver Shares. The Company shall fail to timely deliver
any shares of Common Stock when so required pursuant to the terms
of this Note;
(g) Cross-Default.
There shall have occurred an “Event of Default” (or
other comparable event) under any currently or future existing
indebtedness of the Company and such “Event of Default”
(or other comparable event) shall be continuing and not subject to
forbearance. For clarity, a default under any Note shall constitute
a default under this Section 4(g); or
(h)
Breach
of Representations, Warranties or Covenants. Any
representation or warranty of the Company in the Purchase
Agreement, this Note or any other document or agreement delivered
by the Company to the Holder shall not be true and complete, or the
Company shall fail to observe or perform any other covenant,
obligation, condition or agreement contained in this Note or any
other Purchase Agreement or any other document or agreement
delivered by the Company to the Holder, and such failure, to the
extent curable, shall continue for five (5) Trading
Days.
(i) Working
Capital. Following April 30, 2017, the Company, excluding
IPSA, shall fail to maintain positive Working Capital (at least $1)
as of each month end. For purposes of this Note, “Working
Capital” shall mean cash plus accounts receivable within 60 days
old minus accounts payable
more than 60 days old of a measurement date.
8
(j) Payroll
Requirement. Following April 30, 2017, the Company,
excluding IPSA, shall fail to have sufficient cash on hand
(“COH”)
equal to or greater than 1.0 times the largest salary payroll paid
during the preceding 90 days, as adjusted for any reductions in
force (but in any event after April 30, 2017). COH will be computed
at the end of each calendar month and equal to the average COH for
that month. For purposes of clarity, this payroll amount is
exclusive of any severance, bonus or commission payments made but
shall include payroll taxes on salary.”
5. Rights
of Holder upon Default.
(a)
Rights upon
Default. Upon the occurrence or existence of any Event of
Default (other than an Event of Default referred to in Sections
4(b) or 4(c)) and at any time thereafter during the continuance of
such Event of Default, following the applicable cure or grace
period, the Holder, may, by written notice to the Company, declare
all Outstanding Amounts hereunder to be immediately due and payable
without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived, anything contained
herein to the contrary notwithstanding. Upon the occurrence or
existence of any Event of Default described in Sections 4(b) or
4(c), immediately and without notice, all Outstanding Amounts
payable by the Company hereunder shall automatically become
immediately due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding.
In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, and following the applicable
cure or grace period, Holder may exercise any other right power or
remedy granted to it by this Note or otherwise permitted to it by
law, either by suit in equity or by action at law, or both. Any
payment made by the Company upon an Event of Default shall be made
on a pro-rata basis to all Notes issued pursuant to the Purchase
Agreement.
(b) Right
to Designate Directors. In addition to any other right or
remedy, upon the occurrence or existence of any Event of Default,
and until the Event of Default is cured or the Notes are converted,
the Majority Note Holders (as such term as defined in the
Agreement) may designate up to two (2) candidates (the
“Note
Designees”) reasonably acceptable to the Company to
serve as directors on the Company’s Board of Directors and
the Company shall take such actions necessary to cause such
candidates to be added to the Company’s Board of Directors.
The right to designate the Note Designees set forth in Section 5(b) may only be
exercised once and in no event may the Note Designees elected
pursuant to this provision constitute a majority of the
Company’s Board of Directors.
9
(c) Right
of First Refusal. In addition to any other right or remedy,
upon the occurrence or existence of any Event of Default, until
such Event of Default is cured, Holder shall have a right of first
refusal to match any Deal offered by a third party (which may
include directors, officers or stockholders, or affiliates or
associates thereof). A “Deal” shall mean any
written proposal or offer involving (i) a debt or equity financing
transaction involving the receipt by the Company of at least
$2,000,000, or (ii) the sale or exclusive license of substantially
all of the Company’s assets or acquisition of control of the
Company in whatever form. The Company shall provide to Holder
written notice of the Company’s receipt of any proposal
relating to a Deal that the Company receives after the occurrence
of an Event of Default until such Event of Default is cured, which
Holder shall maintain in confidence until publicly disclosed by the
Company. If more than one Holder of a Note issued pursuant to the
Agreement exercises its right of first refusal, then the right
shall be apportioned based on the principal owed to each Holder.
Holder must provide written notice of its desire to match any
proposal relating to a Deal within 7 business days of its receipt
of written notice of such proposal, and if one or more holders of
Notes elects to match such proposal, the parties shall endeavor to
close any such Deal as promptly as practicable
thereafter.
6. Rights
Upon a Fundamental Transaction. As a condition of the
consummation of any Fundamental Transaction occurring at any time
prior to the repayment or conversion in full of the Outstanding
Amount, the Company shall cause any Successor Entity in a
Fundamental Transaction to assume in writing all of the obligations
of the Company under this Note in accordance with the provisions of
this Section 6 pursuant to written agreements in form and
substance reasonably satisfactory to the Holder, including
agreements to deliver to the Holder in exchange for this Note a
security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Note,
including, without limitation, which is, at the time of
consummation of the Fundamental Transaction, convertible into a
corresponding number of shares of capital stock equivalent to the
shares of Common Stock acquirable and receivable upon conversion of
this Note (without regard to any limitations on the conversion of
this Note) prior to such Fundamental Transaction, and with a
conversion price equal to the Conversion Price (but taking into
account the relative value of the shares of Common Stock pursuant
to such Fundamental Transaction and the value of such shares of
capital stock, such adjustments to the number of shares of capital
stock and such exercise price being for the purpose of protecting
the economic value of this Note immediately prior to the
consummation of such Fundamental Transaction). Upon the
consummation of each Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after
the date of the applicable Fundamental Transaction, the provisions
of this Note referring to the “Company” shall refer
instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the
Company under this Note with the same effect as if such Successor
Entity had been named as the Company herein. Notwithstanding
anything to the contrary, the Company or any Successor Entity
shall, at the Holder’s option, exercisable at any time
concurrently with, or within 30 days after, the consummation of the
Fundamental Transaction, purchase all or any portion of the
Outstanding Amount under this Note from the Holder by paying to the
Holder an amount of cash equal to the applicable Prepayment Amount
set forth is Section
1(c) above. The foregoing provisions of this Section 6 shall
similarly apply to successive Fundamental
Transactions.
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(a) Definitions.
(i) “Fundamental
Transaction" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving
corporation) another Person or Persons, if the holders of the
Voting Stock (not including any shares of Voting Stock held by the
Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such consolidation or merger)
immediately prior to such consolidation or merger shall hold or
have the right to direct the voting of less than 50% of the Voting
Stock or such voting securities of such other surviving Person
immediately following such transaction, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company (other than the sale of
IPSA International, Inc., the Company’s wholly-owned
subsidiary (“IPSA”), or any assets
related to IPSA) to another Person, or (iii) allow another Person
to make a purchase, tender or exchange offer that is accepted by
the holders of more than the 50% of the outstanding shares of
Voting Stock of the Company (not including any shares of Voting
Stock held by the Person or Persons making or party to, or
associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer) (other than the acquisition of
the Voting Stock of IPSA), or (iv) consummate a stock purchase
agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme
of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock held
by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to,
such stock purchase agreement or other business combination) (other
than a sale of the Voting Stock of IPSA), (v) reorganize,
recapitalize or reclassify its Common Stock (other than pursuant to
the Amendment, if approved) or (vi) any "person" or "group" (as
these terms are used for purposes of Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) is or shall become
the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or
indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock.
(ii) “Successor
Entity” means the Person formed by, resulting from or
surviving any Fundamental Transaction or the Person with which such
Fundamental Transaction shall have been entered into.
(iii) “Voting
Stock" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the
general voting power to elect, or the general power to appoint, at
least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital
stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
7. Negative
Covenants. Until the Note has been converted, redeemed or
otherwise satisfied in accordance with their terms, the Company
shall not and, the Company shall not permit any of its
subsidiaries, without the prior written consent of the Holder to,
directly or indirectly
(a) incur
or guarantee, assume or suffer to exist any indebtedness senior or
pari passu to the Note,
including without limitation the issuance of any additional Notes
under the Purchase Agreement;
11
(b) allow
or suffer to exist any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or
any of its subsidiaries (collectively, "Liens") other than (i) the
Liens contemplated by the Security Agreement (as defined in the
Purchase Agreement), (ii) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established in
accordance with United States generally accepted accounting
principles, consistently applied during the periods involved, (iii)
any statutory Lien arising in the ordinary course of business by
operation of law with respect to a liability that is not yet due or
delinquent, (iv) any Liens created by that certain Factoring and
Security Agreement by and between IPSA and Advance Payroll Funding
Ltd., as amended, and any similar agreements and (v) any Lien
created by operation of law, such as materialmen's liens,
mechanics' liens and other similar liens, arising in the ordinary
course of business with respect to a liability that is not yet due
or delinquent or that are being contested in good faith by
appropriate proceedings, (v) Liens (A) upon or in any equipment
acquired or held by the Company or any of its subsidiaries to
secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or
lease of such equipment, or (B) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely
to the property so acquired and improvements thereon, and the
proceeds of such equipment, (vi) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured
by Liens of the type described in clause (v) above, provided that
any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount
of the Indebtedness being extended, renewed or refinanced does not
increase, (vii) leases or subleases and licenses and sublicenses
granted to others in the ordinary course of the Company's business,
not interfering in any material respect with the business of the
Company and its subsidiaries taken as a whole, (viii) Liens in
favor of customs and revenue authorities arising as a matter of law
to secure payments of custom duties in connection with the
importation of goods, and (ix) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event
of Default;
(c) redeem,
defease, repurchase, repay or make any payments in respect of, by
the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of (i) any
indebtedness of the Company which is junior in priority to the
Note, or (ii) any indebtedness if at the time such payment is due
or is otherwise made or, after giving effect to such payment, an
event constituting, or that with the passage of time and without
being cured would constitute, an Event of Default has occurred and
is continuing, in each case, whether by way of payment in respect
of principal of (or premium, if any) or interest on, such
indebtedness;
(d) redeem
or repurchase for cash the Common Stock;
(e) declare
or pay any cash dividend on the Common Stock;
12
(f) enter
into any agreement that conflicts with any provision set forth in
the Purchase Agreement or this Note and/or restricts or prohibits
the Company's compliance with any provision of the Purchase
Agreement or this Note; or
(g) amend
any of the term of any of the Notes issued pursuant to the Purchase
Agreement to be, individually or in the aggregate, more favorable
than the terms of this Note.
8. Transfer;
Successors and Assigns. The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Notwithstanding
the foregoing, neither the Company nor the Holder may assign or
transfer any of its obligations or rights under this Note without
the prior written approval of the other party hereto. Subject to
the preceding sentence, this Note may be transferred only upon
surrender of the original Note for registration of transfer, duly
endorsed, or accompanied by a duly executed written instrument of
transfer in form satisfactory to the Company. Thereupon, a new note
for the same principal amount and interest will be issued to, and
registered in the name of, the transferee. Interest and principal
are payable only to the Holder of this Note. The Company shall
maintain at its offices a register for the recordation of the names
and addresses of each Holder and assignee or transferee of such
Holder, and the principal amounts (and stated interest) under the
Note owing to, the Holder or any such assignee or transferee
pursuant to the terms hereof from time to time (the
“Register”). The entries
in the Register shall be conclusive absent manifest error, and the
Company, the Holder and any such assignee or transferee shall treat
each Person whose name is recorded in the Register pursuant to the
terms hereof as a Holder for all purposes hereunder.
9. Governing
Law. This Note and
all acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of
law.
10. Notices.
All notices and other communications given or made pursuant to this
Note shall be in writing and shall be deemed effectively given upon
the earlier of actual receipt or: (i) personal delivery to the
party to be notified, (ii) when sent, if sent by electronic mail or
facsimile during normal business hours of the recipient, and if not
sent during normal business hours, then on the recipient’s
next business day, provided that in either case it is followed
promptly by a confirming copy of the notice given via another
authorized means for that recipient, (iii) two (2) business days
after deposit with a nationally recognized overnight courier,
freight prepaid for delivery, specifying next business day
delivery, with written verification of receipt, addressed to the
party to be notified at such party’s address as set forth on
the signature page hereto, or as subsequently modified by written
notice, and if to the Company, with a copy to DLA Piper LLP (US),
2525 East Camelback Road, Suite 1000, Phoenix, Arizona 85016,
Attention: Steven D. Pidgeon.
11. Amendments
and Waivers. Any term
of this Note may be amended only with the written consent of the
Company and the Holder. Any amendment or waiver effected in
accordance with this Section 11 shall be binding
upon the Company, the Holder and each transferee of the Note. No
consideration shall be offered or paid to the Holder or any holder
of any Secured Convertible Promissory Note (other than this Note)
issued by the Company pursuant to the Purchase Agreement (the
"Other Notes") to
amend or consent to a waiver or modification of any provision of
this Note and/or the Other Notes unless the same consideration is
also offered to the Holder and all holders of Other
Notes.
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12. Entire
Agreement. Upon the
issuance of this Note, the Prior Note shall be deemed amended and
restated to read in its entirety as set forth in this Note. This
Note constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other
written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly
canceled.
13. Counterparts;
Electronic Delivery.
This Note may be executed in two (2) counterparts, each of which
shall be deemed an original, but both of which together shall
constitute one and the same instrument. Counterparts may be
executed electronically and delivered via facsimile, electronic
mail (including pdf or any electronic signature complying with the
U.S. federal ESIGN Act of 2000, e.g., www.docusign.com)
or other transmission method and any counterpart so delivered shall
be deemed to have been duly and validly delivered and be valid and
effective for all purposes.
14. Stockholders,
Officers and Directors Not Liable. In no event shall any stockholder,
officer or director of the Company be liable for any amounts due or
payable pursuant to this Note.
15. Company
Covenants.
(a) Following
April 30, 2017, within fifteen (15) days following each month end,
the Company shall deliver to holder a certificate setting forth the
Company’s Working Capital at the end of such month certified
by the Company’s chief financial officer.
(b)
Following April 30, 2017, the Company shall provide written notice
to Holder, within twenty-four hours of a determination by the
Company, excluding IPSA, that it ceases to have sufficient cash on
hand (“COH”) equal to or greater
than 1.0 times the largest salary payroll paid during the preceding
90 days, as adjusted for any reductions in force (but in any event
after April 30, 2017). COH will be computed at the end of each
calendar month and equal to the average COH for that month. For
purposes of clarity, this payroll amount is exclusive of any
severance, bonus or commission payments made but shall include
payroll taxes on salary.
[Remainder
of Page Intentionally Left Blank]
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The
Company has caused this Note to be issued as of the date first
written above.
COMPANY:
ROOT9B
HOLDINGS, INC.
By:
__________________________
Name:
Title:
Address:
AGREED TO AND ACCEPTED:
______________________________
By:
Name:
Title:
Address: