Item 1.01 Entry into a Material Definitive
Agreement.
Nexogy Merger
On November 17, 2020, T3
Nevada’s wholly owned subsidiary, Nexogy Acquisition, Inc., merged with and into Nexogy, Inc. (“Nexogy”) resulting
in Nexogy becoming a wholly owned subsidiary of T3 Nevada (the “Merger”). Nexogy is a leading provider in South Florida
of Unified Communications as a Service and managed services, offering a portfolio of cloud-based solutions to the high-growth SMB
market. In February 2020, after meeting the required public notice period pursuant to section 214 of the Communications Act of
1934, the Company secured FCC approval for the acquisition of Nexogy. The Merger was conducted pursuant to the Agreement and Plan
of Merger by and among T3 Nevada, Nexogy Acquisition, Inc., Nexogy, and Juan Carlos Canto as Shareholder Representative (the “Merger
Agreement”), originally signed on September 20, 2019. The Merger Agreement was amended multiple times to extend the Outside
Date for completing the merger pursuant to which T3 Nevada paid extension fees credited against the purchase price for Nexogy.
The purchase price for
Nexogy was $9 million in cash, plus an additional $452,000 in initial excess Net Working Capital, with $900,000 of the $9 million
being placed in an indemnity escrow account and $50,000 of the $9 million being placed in a working capital escrow account. In
addition, at the closing of the Merger, T3 Nevada paid a number of Nexogy’s liabilities which were included in the $9 million
purchase price.
The foregoing summary of
the Merger Agreement contains only a brief description of the material terms of the Merger Agreement and such description is qualified
in its entirety by reference to the full text of the Merger Agreement, filed herewith as Exhibit 2.1.
ActivePBX Asset Purchase
On November 17, 2020, our
indirect, wholly owned subsidiary, T3 Communications, Inc., a Florida corporation (“T3 Florida”), executed and closed
on an Asset Purchase Agreement (the “Purchase Agreement”) with ActiveServe, Inc., a Florida corporation (“Seller”).
Pursuant to the Purchase Agreement, T3 Florida acquired the customer base, certain equipment, certain intellectual property, inventory,
contract rights, software and other licenses and miscellaneous assets used in connection with the operation of Seller’s telecommunications
business known as ActivePBX (collectively, the “Purchased Assets”).
The aggregate purchase
price for the Purchased Assets was $2,555,000 in cash, subject to adjustment as provided therein (the “Purchase
Price”). $1,190,000 of the Purchase Price was payable at closing, with $50,000 of such amount being withheld by T3
Florida for a period of 12 months to cover part of potential future indemnification obligations of Seller to T3 Florida
due to Seller’s breaches, if any, of any representations and warranties made to T3 Florida by Seller under the
Purchase Agreement, and $40,000 of such amount being credited to T3 Florida against a payment in that amount made by T3 Florida
to Seller pursuant to the Second Amendment to Letter of Intent between Seller and T3 Florida dated as of October 15, 2020.
Part of the Purchase
Price is payable in 8 equal quarterly payments of $136,250, subject to T3 Florida achieving quarterly post-purchase recurring
revenues under monthly contracts or subscriptions from the acquired customer base, excluding charges for taxes, regulatory
fees, additional set-up fees, equipment purchases or lease, and consulting fees. To the extent that a quarterly revenue threshold
is not reached, the amount of the corresponding quarterly payment shall be reduced on a proportional basis. T3 Florida’s
$1,190,000 payment obligation is represented by a promissory note of T3 Florida in the form included as an exhibit to the Purchase
Agreement. The note, in turn, is subject to the Subordination Agreement, included as an Exhibit to the Purchase Agreement, among
Seller, the Company’s parent, T3 Nevada, and Post Road Administrative, LLC, in its capacity as administrative agent
for the Post Road lenders. $275,000 of the Purchase Price (the “Customer Renewal Value”) represents an incentive
earn-out to be paid with respect to Seller’s customer accounts which are transferred to T3 Florida at closing ,
that are renewed, expanded and/or revised with T3 Florida for a minimum term of twelve months with an auto-renewal for 12
months.
In connection with
the Purchase Agreement, we entered into Consulting Agreements and a Non-Compete Agreement with each of Alex Gonzalez and Jose Gonzalez,
the Chief Executive Officer and Chief Technology Officer of Seller.
The foregoing summary
of the Purchase Agreement contains only a brief description of the material terms of the Purchase Agreement and such description
is qualified in its entirety by reference to the full text of the Purchase Agreement, filed herewith as Exhibit 10.1.
Credit Agreement and Notes
On November 17, 2020,
T3 Communications, Inc., a Nevada corporation (“T3 Nevada”), a majority owned subsidiary of Digerati Technologies,
Inc. (the “Company”) and the Company’s other subsidiaries entered into a credit agreement (the “Credit
Agreement”) with Post Road Administrative LLC and its affiliate Post Road Special Opportunity Fund II LLP (collectively,
“Post Road”). The Company is a party to certain sections of the Credit Agreement. Pursuant to the Credit Agreement,
Post Road will provide T3 Nevada with a secured loan of up to $20,000,000 (the “Loan”), with initial loans of $10,500,000
pursuant to the issuance of a Term Loan A Note (the “Term Loan A Note”) and $3,500,000 pursuant to the issuance of
a Term Loan B Note (the “Term Loan B Note”), each funded on November 17, 2020, and additional loans in increments of
$1,000,000 as requested by T3 Nevada before the 18 month anniversary of the initial funding date to be lent pursuant to the issuance
of a Delayed Draw Term Note (the “Delayed Draw Term Note”).
The Term Loan A and Delayed
Draw Term Notes have maturity dates of November 17, 2024 and an interest rate of LIBOR (with a minimum rate of 1.5%) plus twelve
percent (12%). Term Loan A is non-amortized (interest only payments) through the maturity date and contains an option for the Company
to pay interest in kind (PIK) for up to five percent (5%) of the interest rate in year one, four percent (4%) in year two and three
percent (3%) in year three.
Term Loan B has a maturity
date of December 31, 2021 and an interest rate of LIBOR (with a minimum rate of 1.5%) plus twelve percent (12%). Term Loan B is
non-amortized (interest only payments) through the maturity date and contains an option for the Company to pay interest in kind
(PIK) for up to five percent (5%) of the interest rate in year one, four percent (4%) in year two and three percent (3%) in year
three.
Permitted use of proceeds
for the initial $14,000,000 of the Loan included approximately $9.452 million for the purchase price for the merger of Nexogy with
and into an indirect wholly owned subsidiary of the Company described above, $1.190 million for the purchase price and transaction
fees of certain assets of ActiveServe, Inc. described above, $1.480 million for the payment in full of outstanding debts owed to
three creditors, including the secured creditor Thermo Communication, Inc., $484,000 for general working capital purposes and to
pay approximately $894,000 in transaction fees related to the Loan. Proceeds from additional portions of the Loan, if any, are
to be used for permitted acquisitions and to fund growth capital expenditures.
The Credit Agreement
contains customary representations, warranties and indemnification provisions. The Credit Agreement also contains affirmative and
negative covenants with respect to operation of the business and properties of the loan parties as well as financial performance.
T3 Nevada’s obligations
under the Credit Agreement are secured by a first-priority security interest in all of the assets of T3 Nevada, and guaranteed
by the other subsidiaries of the Company pursuant to the Guaranty and Collateral Agreement, dated November 17, 2020, by and among
T3 Nevada, the Company’s other subsidiaries, and Post Road Administrative LLC (the “Guaranty and Collateral Agreement”).
In addition, T3 Nevada’s obligations under the Credit Agreement are, pursuant to a Pledge Agreement (the “Pledge Agreement”),
secured by a pledge of a first priority security interest in T3 Nevada’s 100% equity ownership of each of T3 Nevada’s
operating companies.
The foregoing summary
of the Credit Agreement, Guaranty and Collateral Agreement, Pledge Agreement, Term Loan A Note, Term Loan B Note, and the Delayed
Draw Term Note contains only a brief description of the material terms of such documents and such descriptions are qualified in
their entirety by reference to the full text of the Credit Agreement, Guaranty and Collateral Agreement, Pledge Agreement, Term
Loan A Note, Term Loan B Note, and the Delayed Draw Term Note, filed herewith as, respectively, Exhibits 10.2, 10.3, 10.4, 4.1,
4.2, and 4.3.
Warrant
In connection with
the Credit Agreement, on November 17, 2020, the Company issued a Warrant to Post Road Special Opportunity Fund II LP (the “Warrant”)
to purchase, initially, twenty-five percent (25%) of the Company’s total shares (the “Warrant”), calculated on
a fully-diluted basis as of the date of issuance (the “Warrant Shares”) and subject to a reduction to fifteen percent
(15%) as described below.
The number of Warrant
Shares is adjustable to allow the holder to maintain, subject to certain share issuances that are exceptions, the right to purchase
twenty-five percent (25%) of the Company’s total shares, calculated on a fully-diluted basis. The Warrant has an exercise
price of $0.01 per share and the Warrant expires on November 17, 2030. Seventy-five percent (75%) of the Warrant Shares are immediately
fully vested and not subject to forfeiture at any time for any reason. The remaining twenty-five percent (25%) of the Warrant Shares
are subject to forfeiture based on the Company achieving certain performance targets which, if achieved, would result in twenty
percent (20%) warrant coverage. If the minority shareholders of T3 Nevada convert their T3 Nevada shares into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) , the Warrant Shares percentage shall also be lowered
such that when combined with the achievement of the performance targets, the warrant coverage could be reduced to fifteen percent
(15%).
In connection with
the issuance of the Warrant, the three executives of the Company, Art Smith, Antonio Estrada, and Craig Clement entered into a
Tag-Along Agreement (the “Tag-Along Agreement”) whereby they agreed that the holder of the Warrant or Warrant Share
will have the right to participate or “tag-along” in any agreements to sell any shares of their Common Stock that such
executives enter into. The Company also agreed, in connection with the issuance of the Warrant and pursuant to a Board Observer
Agreement (the “Board Observer Agreement”), to grant Post Road the right to appoint a representative to each of the
boards of directors of the Company and each of its subsidiaries, to attend all board meeting in a non-voting observer capacity.
The foregoing summary
of the Warrant, the Tag-Along Agreement, and the Board Observer Agreement contains only a brief description of the material terms
of such documents and such descriptions are qualified in their entirety by reference to the full text of the Warrant, the Tag-Along
Agreement, and the Board Observer Agreement, filed herewith as, respectively, Exhibits 4.4, 10.5, and 10.6.