Business Context and Reporting Period
This Form 8-K was filed by Inpixon (noted as XTI Aerospace in metadata, but identified as Inpixon in the filing text) on May 31, 2017. The report details the entry into a Material Definitive Agreement involving the issuance of subordinated convertible promissory notes to institutional accredited investors.
Key Financial Metrics and Transaction Details
- Principal Amount: $2,200,000 in subordinated convertible notes.
- Purchase Price: $2,000,000 (reflecting an approximately 9% original issue discount).
- Interest Rate: 10.0% per annum, payable in cash or shares (limited to 5% of total interest in shares).
- Maturity Date: May 31, 2018.
- Conversion Price: Fixed at $1.00 per share, subject to adjustments.
- Use of Proceeds: Transaction costs, legal fees, $200,000 repayment to Hillair Capital Investments L.P., and general working capital (including trade payables via GemCap line of credit).
- Debt Covenants: Default interest rate of 18% upon event of default.
Material Changes and Agreements
The filing reports the execution of a Securities Purchase Agreement and two critical waivers to facilitate the transaction:
- GemCap Waiver: Obtained from GemCap Lending I, LLC to permit the incurrence of additional indebtedness under the new notes.
- Hillair Waiver: Obtained from Hillair Capital Investments L.P. to permit the transaction and waive anti-dilution adjustments on their existing debenture. In consideration, Inpixon agreed to pay $200,000 toward the outstanding principal of the Hillair debenture.
- Share Issuance Limits: Issuance of common stock upon conversion is capped at 538,065 shares (19.99% of outstanding shares) unless stockholder approval is obtained by December 31, 2017.
Outlook, Risks, and Unusual Items
- Redemption Provisions: The Company has an optional redemption right with escalating premiums (110%, 115%, or 130% of the conversion amount) depending on the timing relative to the issuance date. Holders also have a redemption right upon a Qualified Public Offering (QPO) of at least $5,000,000.
- Default Risks: Upon an event of default, holders may demand payment of the "Event of Default Redemption Price," calculated as the greater of 125% of the conversion amount or 125% of the conversion price multiplied by the highest stock price in the preceding period.
- Restrictive Covenants: For 45 trading days post-issuance, the Company is prohibited from issuing new equity or debt without consent from Required Holders, except for a QPO used to repay the notes.
- Legal Contingencies: The Company agreed to pay up to $30,000 in attorneys' fees for certain buyers and indemnify buyers against losses related to breaches of representations.
Investor Verification Checklist
- Verify the exact number of shares outstanding as of May 31, 2017, to confirm the 19.99% share issuance cap (538,065 shares).
- Confirm the status of the $200,000 payment to Hillair Capital Investments L.P. and the remaining balance of the Hillair debenture.
- Review the Company's cash position to assess the ability to service the 10% interest and potential redemption premiums.
- Monitor the timeline for the required stockholder meeting (by December 31, 2017) to approve share issuances exceeding the 19.99% limit.
- Check for any subsequent Qualified Public Offerings that would trigger mandatory redemption rights for note holders.