Business Context and Reporting Period
This Form 8-K, filed on August 10, 2016, reports on events occurring on August 5 and August 9, 2016, for Sysorex Global (referred to in the metadata as XTI Aerospace, Inc.). The filing details a material definitive agreement involving a private placement of securities and an amendment to an existing business financing agreement.
Key Financial Metrics and Transaction Details
- Transaction Value: The Company raised an aggregate purchase price of $5,000,000.
- Securities Issued:
- 8% Original Issue Discount Senior Convertible Debenture with a principal amount of $5,700,000 (due August 9, 2018).
- 2,250 shares of Series 1 Convertible Preferred Stock (stated value $1,000 per share).
- Use of Proceeds: Approximately $1.4 million for repayment of a term loan with Western Alliance Bank, at least $1 million for accounts payable, and the remainder for business development, capital expenditures, working capital, and general administrative expenses.
- Debt Obligations: The Debenture accrues interest at 8.0% per annum, payable quarterly. It includes mandatory periodic redemptions of 25% of the initial principal plus accrued interest on November 9, 2017, February 9, 2018, May 9, 2018, and August 9, 2018.
- Conversion Terms: The Debenture is convertible at $1.50 per share. The Preferred Stock is convertible based on the Stated Value divided by the applicable Conversion Price.
- Amendment Fee: The Company agreed to pay a $200,000 fee to Western Alliance Bank in lieu of issuing additional warrants.
Material Changes Versus Prior Period
The filing does not provide comparative financial statements or revenue/profit metrics for prior periods. The material change is the execution of the Securities Purchase Agreement and the Amendment Number Seven to the Business Financing Agreement, which altered the Company's capital structure and debt obligations.
Guidance, Risks, and Contingencies
- Default Provisions: Events of default include failure to make payments, breach of covenants, bankruptcy, or delisting. Upon default, the Investor may demand a "Mandatory Default Amount" calculated as the greater of a specific share-based formula or 125% of the outstanding principal plus 100% of accrued interest.
- Redemption Rights: The Company has the option to redeem the Debenture early for 110% or 120% of the outstanding principal plus accrued interest, subject to equity conditions.
- Security: The Debenture is secured by a subordinated lien on certain Company property, with subsidiaries providing guarantees.
- Regulatory Status: The securities were sold unregistered under Section 4(a)(2) of the Securities Act of 1933 to an accredited investor.
Investor Verification Checklist
- Verify the exact terms of the "Maximum Share Limitation" (19.99%) and the conditions required to remove it.
- Confirm the status of the $1.4 million Western Alliance Bank loan repayment and the $200,000 fee payment.
- Review the "Certificate of Designation" and "Certificate of Correction" for specific anti-dilution protections and voting restrictions on the Preferred Stock.
- Assess the Company's liquidity position to ensure it can meet the mandatory quarterly principal redemptions starting November 2017.
- Check for any subsequent filings regarding shareholder approval for the removal of the Maximum Share Limitation.