Item 1.01 Entry into a Material Definitive Agreement.
The information set forth below under Item 1.03 of this Current Report on Form
8-K regarding the DIP Credit Agreement and the Asset Purchase Agreement (each as
defined below) is incorporated herein by reference.
Item 1.03. Bankruptcy or Receivership.
On May 15, 2022, Pareteum Corporation (the "Company") and certain of its direct
and indirect subsidiaries (collectively, the "Debtors") filed voluntary
petitions for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code, as amended (the "Bankruptcy Code"), in the United States
Bankruptcy Court for the Southern District of New York in New York, New York
(the "Bankruptcy Court"). The Debtors' Chapter 11 cases are being jointly
administered under the caption In re Pareteum Corporation., et al., Case
No. 22-10615 (the "Chapter 11 Filing"). The Debtors will continue to operate
their businesses as "debtors-in-possession" under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and the orders of the Bankruptcy Court. The Debtors have filed
various "first day" motions with the Bankruptcy Court requesting customary
relief that will enable the Company to transition into Chapter 11 protection
without material disruption to their ordinary course operations.
DIP Credit Agreement
In connection with the Chapter 11 Filing, the Debtors entered into a
superpriority senior secured debtor-in-possession credit agreement (the "DIP
Credit Agreement"), dated as of May 19, 2022, with a senior secured lender of
the Company, Circles MVNE Pte. LTD. ("Circles"), providing postpetition
financing (the "DIP Financing") that will provide for (i) a new money term loan
facility with an aggregate principal amount of up to $6.0 million (the "DIP
Facility") and (ii) roll-up loans in an amount equal to the Debtors' outstanding
prepetition senior obligations held by Circle or an affiliate (the "Roll-Up DIP
Loans"). On May 18, 2022, the Bankruptcy Court approved the DIP Financing on an
interim basis, with a hearing for Bankruptcy Court approval on a final basis set
for June 7, 2022.
The DIP Facility will provide up to $3.0 million to the Debtors of new money
term loan borrowings on an interim basis (the "Interim New Money DIP Loans"),
and up to an additional $3.0 million of new money term loan borrowings on a
final basis (the "Final New Money DIP Loans"). The Roll-Up DIP Loans shall repay
by roll-up (i) the pre-petition bridge loan obligations on a dollar-for-dollar
basis for every dollar of Interim New Money DIP Loans funded by Circles to the
Debtors and (ii) upon funding of the Final New Money DIP Loans and the entry of
a final order, the remaining outstanding prepetition senior notes obligations.
The DIP Financing has an interest rate of 9.0% per annum, which may be increased
by 2.0% per annum following the occurrence and declaration of an Event of
Default (as defined in the DIP Credit Agreement). The maturity date of the DIP
Financing shall be the earliest of (i) 210 days after the closing date of the
DIP Credit Agreement, (ii) the close of the sale of the business and assets of
the Debtors pursuant to an order of the Bankruptcy Court and (iii) the
acceleration of the maturity of the DIP Facility and the Roll-Up DIP Loans
following an Event of Default. The outstanding principal of the DIP Financing is
due and payable in full on the maturity date.
The DIP Financing will be secured by a perfected first priority priming security
interest and lien on all of the property of the bankruptcy estates of each
Debtor other than certain Excluded Property (as defined in the DIP Credit
Agreement). The DIP Financing is subject to certain customary and appropriate
conditions for financings of similar type. The Debtors and Circles anticipate
finalizing and executing the DIP Financing documentation promptly.
The Chapter 11 Filing is subject to certain milestones under the DIP Credit
Agreement, including (i) the Debtors obtaining entry by the Bankruptcy Court of
an order approving bidding procedures for substantially all of the Debtors'
assets within 15 days following the Petition Date and (ii) the consummation of
the sale of the Stalking Horse Package (as defined in the DIP Credit Agreement)
no later than July 12, 2022.
The DIP Credit Agreement contains customary affirmative and negative covenants
and events of default for financings of this type and size, in each case, as set
forth in the DIP Credit Agreement.
The foregoing description of the DIP Credit Agreement and the transactions
contemplated thereby do not purport to be complete and are qualified in their
entirety by reference to the DIP Credit Agreement, a copy of which is attached
hereto as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference
in its entirety.
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Asset Purchase Agreement
On May 15, 2022, the Debtors entered into (subject to the Bankruptcy Court's
approval) a "stalking horse" Asset Purchase Agreement (the "Asset Purchase
Agreement") with Circles and Channel Ventures Group, LLC (collectively, the
"Purchasers") pursuant to which the Purchasers agreed to purchase substantially
all of the assets of the Company (such assets, the "Purchased Assets," and such
transaction, the "Asset Sale"). The Purchased Assets include certain of the
Debtors' assets, including, but not limited to, all rights of the Debtors under
the executory contracts and unexpired leases specified in the Asset Purchase
Agreement (collectively, the "Assumed Contracts"), certain cash and cash
equivalents, certain inventory and tangible personal property, certain permits,
all intellectual property rights, and books and records. Under the Asset
Purchase Agreement, Purchaser would acquire the Purchased Assets for a purchase
price of approximately $60 million (the "Purchase Price"), subject to certain
post-closing adjustments, and would assume the liabilities and obligations set
forth in Section 3.1 of the Asset Purchase Agreement.
. . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth or incorporated in Item 1.03 is also incorporated by
reference in 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 Chapter 11 Filing described in Item 1.03 of this Current Report on Form 8-K
constituted an event of default under the that certain Securities Purchase
Agreement, dated as of April 25, 2022, by and among the Company and Circles (the
"Bridge Notes SPA"). As of May 15, 2022, there was approximately $27.7 million
in outstanding senior notes obligations under the Bridge Notes SPA. As a result
of the Chapter 11 Filing, all commitments under the Bridge Notes SPA were
terminated and the principal amount of all outstanding senior notes obligations
(together with accrued and unpaid interest thereon) and all other amounts
outstanding under the Bridge Notes SPA became immediately due and payable. The
Company believes that any efforts to enforce such payment obligations under
Bridge Notes SPA are stayed as a result of the Chapter 11 Filing, and the
creditors' rights of enforcement in respect of the Bridge Notes SPA are subject
to the applicable provisions of the Bankruptcy Code.
The information set forth or incorporated in Item 1.03 is also incorporated by
reference in this Item 2.04.
Item 8.01. Other Events.
Press Release
On May 15, 2022, the Company issued a press release announcing the Chapter 11
Filing, a copy of which is attached as Exhibit 99.1 hereto and is incorporated
by reference herein.
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Cautionary Note Regarding Forward Looking Statements
Certain statements contained in this Current Report on Form 8-K constitute
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995. With the exception of historical matters, the matters
discussed in this report are forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Forward-looking statements are generally identified by words such
as "believe," "expect," "anticipate," "intend," "estimate," "plan," "project,"
"should," "will," "would" and other similar expressions. In addition, any
statements that refer to expectations or other characterizations of future
events or circumstances are forward-looking statements. However, our actual
results may differ materially from those contained in, or implied by, these
forward-looking statements. Factors that could cause actual results to differ
materially from those in the forward-looking statements include, but are not
limited to: risks and uncertainties associated with the integration of the
assets and operations we have acquired and may acquire in the future; our
possible inability to raise additional capital that will be necessary to expand
our operations; the substantial doubt about our ability to continue as a going
concern expressed in the most recent report on our audited financial statements;
our potential lack of revenue growth; the length of our sales cycle; pending
investigations by the federal government and other lawsuits; the outbreak and
impact of the novel coronavirus (COVID-19) and Russia's invasion of Ukraine on
the global economy and our business; our potential inability to add new products
and services that will be necessary to generate increased sales; our potential
inability to develop and successfully market platforms or services or our
inability to obtain adequate funding to implement or develop our business; our
ability to successfully remediate the material weakness in our internal control
over financial reporting within the time periods and in the manner currently
anticipated; the effectiveness of our internal control over financial reporting,
including the identification of additional control deficiencies; risks related
to restrictions and covenants in our convertible debt facility that may
adversely affect our business; risks related to our current noncompliance with
certain terms under our senior secured convertible indebtedness; our potential
loss of key personnel and our ability to find qualified personnel;
international, national regional and local economic political changes, political
risks, and risks related to global tariffs and import/export regulations;
fluctuations in foreign currency exchange rates; our potential inability to use
and protect our intellectual property; risks related to our continued investment
in research and development, product defects or software errors, or
cybersecurity threats; general economic and market conditions; regulatory risks
and the potential consequences of non-compliance with applicable laws and
regulations; increases in operating expenses associated with the growth of our
operations; risks related to our capital stock, including the potentially
dilutive effect of issuing additional shares and the fact that shares eligible
for future sale may adversely affect the market for our common stock; the
possibility of telecommunications rate changes and technological changes;
disruptions in our networks and infrastructure; the potential for increased
competition and risks related to competing with major competitors who are larger
than we are; our positioning in the marketplace as a smaller provider; risks
resulting from the restatement of certain of our financial statements; and the
other risks discussed in our Form 10-K for the year ended December 31, 2020.
Except to the extent required by applicable laws or rules, we undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Description
2.1* Asset Purchase Agreement, dated as of May 15, 2022, by and among the
Company, certain of the Company's subsidiaries, Circles MVNE Pte. LTD.
and Channel Ventures Group, LLC
10.1* Senior Secured Priming and Superpriority Debtor-in-Possession Credit
Agreement, dated as of May 19, 2022, by and among the Company, certain
of the Company's subsidiaries and Circles MVNE Pte. LTD., as Lender
and Administrative Agent
99.1 Press Release, dated May 15, 2022, issued by the Company
104 Cover page Interactive data file (embedded with in the inline XBRL
document)
* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of
Regulation S-K.
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