Item 1.01 Entry into a Material Definitive Agreement
This amendment to the Form 8-K filed on February
22, 2017 is to add additional exhibits and summaries in connection with the Note originally summarized in the Form 8-K.
On February 13, 2017, Helix TCS, Inc. (the
“Company” or “we”) and RedDiamond Partners LLC (“Holder”) entered into two secured convertible
promissory notes totaling $208,333.33, an Investment Agreement (Exhibit 10.6), a Registration Rights Agreement (Exhibit 10.4),
a Securities Purchase Agreement (Exhibit 10.10), a Subsidiary Guarantee (Exhibit 10.7), and a Security Agreement (Exhibit 10.9)
(altogether, the “Transaction Documents”).
The Company executed a secured 10% convertible
promissory note of the Company with Holder, in the principal amount of US$183,333.33 (“Note 1”), along with a secured
10% convertible promissory note in the principal amount of US$25,000 (“Note 2”) (together with any note(s) issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “
Notes
”),
upon the terms and subject to the limitations and conditions set forth in such Notes. The Notes are attached as Exhibits 10.1 and
10.3.
The Notes, together in the aggregate principal
amount of $208,333.33, are secured in accordance with the Security Agreement attached as Exhibit 10.9. The Company, along with
its subsidiaries, acted as Guarantors in the Security Agreement. The subsidiaries, including Helix TCS LLC, Security Consultants
Group, and Boss Security Solutions, Inc., entered into a Subsidiary Guarantee, attached as Exhibit 10.7.
In consideration for the Holder acting as financing
agent, the Company and the Holder entered into a Securities Purchase Agreement, whereby the Company agreed to issue 25,000 warrants
to purchase one share of Common Stock each, exercisable at $1.00 per share, subject to adjustment. The warrants will expire after
5 years. The Common Stock Purchase Warrant is attached as Exhibit 10.8 and the Securities Purchase Agreement is attached as Exhibit
10.10.
The Notes, bearing a guaranteed interest rate
of 10%, were entered into on February 13, 2017 for $183,333.33 and $25,000, and mature on September 12, 2017 and September 13,
2017, respectively. The Notes were funded and the Company received $166,666.66 of Note 1 on February 17, 2017 (the “Effective
Date”), with the remaining $16,666.67 being retained by the Holder, and $25,000 of Note 2 on February 17, 2017. The Notes
additionally bear the lower of a 20% per annum, or the highest rate permitted by law, in the Event of Default.
The following is a summary of each of the agreements
in the Transaction Documents. All capitalized terms not defined herein shall have the meaning ascribed to them in each of the specific
Transaction Documents, incorporated by reference herein.
Note 1:
Note 1, bearing a guaranteed interest rate
of 10%, was entered into on February 13, 2017 for $183,333.33, and matures on September 12, 2017. Note 1 was funded and the Company
received $166,666.66 on February 17, 2017 (the “Effective Date”), with the remaining $16,666.67 being retained by the
Holder. Note 1 additionally bears the lower of a 20% per annum, or the highest rate permitted by law, in the Event of Default.
The Company may prepay Note 1 in whole or in
part at any time, up to 180 days after the Effective Date, by paying the principal amount to be prepaid together with premium interest
thereon to the date of prepayment. After 180 days from the Effective Date, the consent of Holder is required to prepay any amount.
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The Holder has the right, at the Holder’s
sole option, at any time to convert in whole or in part the outstanding and unpaid Principal Amount under this Note 1 into shares
of Common Stock of the Company at $1.50 per share. The Company agreed to reserve 2,000,000 shares of Common Stock of the Company
for conversions pursuant to the Notes, as evidenced by the Transfer Agent Letter attached as Exhibit 10.5.
Note 2:
Note 2, bearing a guaranteed interest rate
of 10%, was entered into on February 13, 2017 for $183,333.33, and matures on September 13, 2017. Note 2 was funded and the Company
received $25,000 on February 17, 2017 (the “Effective Date”). Note 2 additionally bears the lower of a 20% per annum,
or the highest rate permitted by law, in the Event of Default.
The Company may not prepay Note 2 at any time.
The Holder has the right, at the Holder’s
sole option, at any time to convert in whole or in part the outstanding and unpaid Principal Amount under this Note 2 into shares
of Common Stock of the Company at $6.10 per share. The Company agreed to reserve 2,000,000 shares of Common Stock of the Company
for conversions pursuant to the Notes, as evidenced by the Transfer Agent Letter attached as Exhibit 10.5.
Investment Agreement:
Pursuant to the Investment Agreement, the Holder
shall invest up to Three Million Dollars ($3,000,000) (the “Commitment Amount”) to purchase the Company’s Common
Stock, par value of $.001 per share. Such investments will be made in reliance upon the exemption from securities registration
afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), Rule 506 of Regulation D promulgated
by the SEC under the 1933 Act, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available
with respect to any or all of the investments in Common Stock. The Company has agreed to provide certain registration rights under
the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws (see Registration Rights
Agreement attached hereto as Exhibit 10.4).
The Purchase Price of the Common Stock shall
be 85% of the lowest trading price of the Common Stock during the Pricing Period applicable to the Put Notice, provided, however,
an additional 10% will be added to the discount of each Put if (i) the Company is not DWAC eligible and (ii) an additional 15%
will be added to the discount of each Put if the Company is under DTC “chill” status on the applicable Put Notice Date.
All capitalized terms are as defined in the Investment Agreement (Exhibit 10.6) incorporated herein by reference. The maximum amount
that the Company shall be entitled to Put to the Investor per any applicable Put Notice an amount of shares of Common Stock up
to or equal to two hundred percent (200%) of the average of the daily trading volume (U.S. market only) of the Common Stock for
the ten (10) consecutive Trading Days immediately prior to the applicable Put Notice Date (the “Put Amount”) so long
as such amount is at least $5,000 and does not exceed $100,000, as calculated by multiplying the Put Amount by the average daily
VWAP for the ten (10) consecutive Trading Days immediately prior to the applicable Put Notice Date. During the Open Period, the
Company shall not be entitled to submit a Put Notice until after the previous Closing has been completed. Notwithstanding the foregoing,
the Company may not deliver a Put Notice on or earlier of the tenth (10th) Trading Day immediately following the preceding Put
Notice Date (the “Waiting Period”).
The Company shall not be entitled to deliver
a Put Notice unless each of the following conditions are met:
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i.
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a Registration Statement shall have been
declared effective and shall remain effective and available for the resale of all the Put Shares Due at all times until the Closing
with respect to the applicable Put Notice;
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ii.
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at all times during the period beginning
on the related Put Notice Date and ending on and including the related Closing Date, the Common Stock shall have been listed or
quoted for trading on the Principal Market and shall not have been suspended from trading thereon during the Pricing Period;
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iii.
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the Company has complied with its obligations
and is otherwise not in material breach of or in material default under, this Agreement, the Registration Rights Agreement or any
other agreement executed in connection herewith which has not been cured prior to delivery to the Investor of the applicable Put
Notice;
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iv.
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no injunction shall have been issued and
remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase
or the issuance of the Securities; and
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v.
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the issuance of the Securities will not
violate any shareholder approval requirements of the Principal Market.
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In no event shall the Holder be entitled to
purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such
term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 9.99% of the number of shares
of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.
Registration Rights Agreement:
Pursuant to the Investment Agreement entered
into by and between the Company and the Holder, the Company has agreed to issue and sell to the Holder an indeterminate number
of shares of the Company’s common stock, par value of $.001 per share, up to an aggregate purchase price of Three Million
Dollars ($3,000,000). As an inducement to the Holder to execute and deliver the Investment Agreement, the Company has agreed to
provide certain registration rights under the 1933 Act, and applicable state securities laws, with respect to the shares of Common
Stock issuable pursuant to the Investment Agreement.
The Company shall use its best efforts to,
within forty five (45) days of the Execution Date, file with the SEC a Registration Statement or Registration Statements (as is
necessary) on Form S-1 (or, if such form is unavailable for such a registration, on such other form as is available for such registration),
covering the resale of 2,000,000 shares of the Registrable Securities, which Registration Statement(s) shall state that, in accordance
with Rule 416 promulgated under the 1933 Act, such Registration Statement also covers such indeterminate number of additional shares
of Common Stock as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially
register for resale 2,000,000 shares of Registrable Securities except to the extent that the SEC requires the share amount to be
reduced as a condition of effectiveness. The Company shall use commercially reasonable efforts to have the Registration Statement(s)
declared effective by the SEC within seventy-five (75) days but no more than one hundred twenty (120) days after the Company has
filed the Registration Statement(s).
Upon the effectiveness of such Registration
Statement relating to the Registrable Securities, the Company shall keep such Registration Statement effective until the earlier
to occur of the date on which (A) the Holder shall have sold all the Registrable Securities actually issued or that the Company
has an obligation to issue under the Investment Agreement; or (B) the Holder has no right to acquire any additional shares of Common
Stock under the Investment Agreement; or (C) the Holder may sell the Registrable Securities without volume limitations under Rule
144 (the “Registration Period”).
Subsidiary Guarantee:
As a material inducement to the Holder to purchase
the Notes and to enter into all of the Transaction Documents, the Company’s subsidiaries, Helix TCS LLC, Security Consultants
Group, and Boss Security Solutions, Inc., (altogether “Guarantors”) and the Company entered into a Subsidiary Guarantee.
The Guarantors jointly and severally, unconditionally and irrevocably, guaranteed to the Holder and their respective successors,
endorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
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Security Agreement:
In order to induce the Holder to extend the
loans evidenced by the Notes and to enter into the Transaction Documents, the Company and its subsidiaries entered into the Security
Agreement and granted the Holder a security interest in certain property of the Company and its subsidiaries (altogether “Debtors”)
to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Notes and the
other Transaction Documents and the Guarantors’ obligations under the Guarantee. The Collateral in which the Holder is granted
a security interest by the Security Agreement shall include the following personal property of the Debtor:
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vii.
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all general intangibles
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ix.
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all intellectual property
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xi.
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all other tangible and intangible personal property whatsoever of the Debtors related to the Assets
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xii.
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account receivables, together with all instruments, all documents of title representing any of
the foregoing, and all right, title, and security with respect to each account;
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xiii.
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all supporting obligations;
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xiv.
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the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(xiii), above.
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Subject to the Permitted Liens, as an inducement
for the Holder to extend the loan as evidenced by the Notes and to secure the complete and timely payment, performance and discharge
in full, as the case may be, of all of the Obligations, the Debtor unconditionally and irrevocably pledges, grants and hypothecates
to the Secured Party a security interest in and to, a lien upon and a right of set-off against all of their respective right, title
and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the
“Security Interests”). The Security Interests shall terminate when the Notes and all other Obligations have been paid
in full or discharged.
Common Stock Purchase Warrant:
The Common Stock Purchase Warrant certifies
that, for value received, Holder is entitled, upon the terms and subject to the limitations on exercise and the conditions set
forth in the Warrant, at any time on or after the Initial Exercise Date and on or prior to 5 PM New York City Time on February
12, 2022 but not thereafter, to subscribe for and purchase from the Company, up to 25,000 shares (as subject to adjustment hereunder,
the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under the Warrant shall be equal
to $1.00, subject to the following adjustment condition:
If at any time after the six month
anniversary of the Initial Exercise Date, there is no effective Registration Statement registering, or no current prospectus available
for, the resale of the Warrant Shares by the Holder, then the Warrant may only be exercised, in whole or in part, at such time
by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately
preceding the date on which Holder elects to exercise the Warrant by means of a “cashless exercise,” as set forth in
the applicable Notice of Exercise;
(B) = the Exercise Price of the Warrant,
as adjusted hereunder; and
(X) = the number of Warrant Shares
that would be issuable upon exercise of the Warrant in accordance with the terms of the Warrant if such exercise were by means
of a cash exercise rather than a cashless exercise.
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Securities Purchase Agreement:
The Company and the Holder executed the Securities
Purchase Agreement (“SPA”) in accordance with and in reliance upon the exemption from securities registration for offers
and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the United States Securities
and Exchange Commission (the “SEC”) under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The SPA outlines the
purchase of the Notes as well as the Warrants (together, the “Securities”), and the Holder understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the registration requirements of the 1933 Act and state
securities laws and that the Company is relying upon the truth and accuracy of, and the Holder’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Holder set forth in the SPA in order to determine the availability
of such exemptions and the eligibility of the Holder to acquire the Securities.
Transfer Agent Instruction Letter:
Until the Company’s obligations under
the Note are paid and performed in full, (a) the Transfer Agent of the Company is authorized to establish a reserve of shares of
authorized but unissued Common Stock of the Company in an amount not less than 2,000,000 shares (the “Transfer Agent Reserve”)
for issuance upon partial or full conversion of the Notes in accordance with the terms thereof, (b) the Transfer Agent shall maintain
and hold the Transfer Agent Reserve for the exclusive benefit of Holder, (c) the Transfer Agent shall issue the shares of Common
Stock held in the Transfer Agent Reserve to Holder or its broker only (subject to the immediately following clause (d)), (d) when
the Transfer Agent issue shares of Common Stock to Holder or its broker under the Note pursuant to the other instructions in the
Letter, the Transfer Agent shall issue such shares from Company’s authorized and unissued shares of Common Stock to the extent
the same are available and not from the Transfer Agent Reserve unless and until there are no authorized shares of Common Stock
available for issuance other than those held in the Transfer Agent Reserve, at which point, and upon receipt of written authorization
from Holder, the Transfer Agent shall then issue any shares of Common Stock deliverable to Holder under the Note from the Transfer
Agent Reserve, (e) the Transfer Agent shall not otherwise reduce the Transfer Agent Reserve under any circumstances, unless Holder
delivers written pre-approval of such reduction, and (f) the Transfer Agent shall immediately add shares of Common Stock to the
Transfer Agent Reserve as and when requested by Company or Holder in writing from time to time, provided that such incremental
increases do not cause the Transfer Agent Reserve to exceed the Company’s authorized shares of Common Stock.