Item
1.01
|
Entry
into a Material Definitive Agreement.
|
Securities
Purchase Agreement
On
October 11, 2018, MagneGas Applied Technology Solutions, Inc. (the “Company”) entered into a Securities Purchase Agreement
(“SPA”) with one or more investors identified on the signature pages thereto (“Investors”) attached hereto
as Exhibit 10.1. Under the terms of the SPA, the Company shall issue and sell to each Investor, and each Investor severally, but
not jointly, agrees to purchase from the Company 21,800,000 shares of the Company’s common stock, par value $0.001 per share
(the “Common Stock”) and warrants to purchase up to 21,800,000 shares of Common Stock (“Warrants”) (collectively,
the “Transaction Securities”) as set forth on the Purchaser Signature Page attached to the SPA, for a total gross
purchase price of $5,014,000 (exclusive of the exercise of the Warrants) (the “Offering”). We expect to receive aggregate
net proceeds of approximately $4,588,160, and the Company intends to use the net proceeds for working capital and other general
corporate purposes. The Offering is expected to close on or about October 15, 2018, subject to customary closing conditions. The
SPA contains customary representations, warranties and agreements by us and customary conditions to closing. Under the SPA, we
have agreed not to enter into any agreement to issue or announce the issuance or proposed issuance of any common stock or common
stock equivalents for a period of 30 days following the closing of the offering.
The
sale of the Common Stock at a price of $0.23 per share is being made pursuant to a prospectus supplement, which will be filed
with the Securities and Exchange Commission (the “SEC”) on or about October 11, 2018, and accompanying base prospectus
relating to the Company’s shelf registration statement on Form S-3 (File No. 333-207928), which was declared effective by
the SEC on June 15, 2016.
Additionally, the sale of the Warrants at
a price of $0.3654 per Warrant is being made pursuant to an exemption from registration under Section 4(a)(2) of the Securities
Act of 1933, as amended (the “Securities Act”). See “Warrant Agreement” below. Pursuant to the SPA,
holders of Warrants have piggy-back registration rights beginning 45 days after the closing date until one year following the
closing date to have their Warrant Shares (defined below) registered on certain of our registration statements at the Company’s
expense.
The
above description of the SPA does not purport to be complete and is qualified in its entirety by the full text of such SPA, which
is incorporated herein and attached hereto as Exhibit 10.1.
A
copy of the opinion of our Legal Counsel relating to the legality of the issuance and sale of the Transaction Securities in the
Offering is attached as Exhibit 5.1 hereto.
Placement
Agency Agreement
In
conjunction with the SPA, the Company entered into a Placement Agency Agreement with Maxim Group, LLC (“Maxim”). Under
the terms of the Placement Agency Agreement, Maxim will act as the exclusive placement agent for the transaction. The Company
has agreed to pay Maxim a cash fee payable upon the closing of the Offering (“Closing”) equal to 6.0% of the gross
proceeds received by the Company from the offering of the Transaction Securities (the “Placement Fee”), and, subject
to certain conditions, to reimburse all travel and other out-of-pocket expenses of Maxim in connection with this Offering, including
but not limited to legal fees, up to a maximum of $50,000. If we elect to terminate this Offering for any reason, and, if within
six months following the termination, we complete any financing of equity, equity-linked or debt or other capital raising activity
with Investors introduced to us by Maxim in connection with the placement of the Transaction Securities, then we will be required
to pay to Maxim upon the closing of the financing the Placement Fee.
The
Placement Agency Agreement contains customary representations, warranties and agreements by us and customary conditions to closing.
We have agreed to indemnify Maxim against certain liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments that Maxim may be required to make in respect of those liabilities.
The
above description of the Placement Agency Agreement does not purport to be complete and is qualified in its entirety by the full
text of such Placement Agency Agreement, which is incorporated herein and attached hereto as Exhibit 10.2.
Warrant
Agreement
Additionally, pursuant to the terms of the
SPA, the Company granted the Investor Warrants to purchase up to 21,800,000 shares of Common Stock for each share purchased for
cash in this offering. The Warrants are exercisable beginning on the initial exercise date, which is the earlier of the date the
Company obtains the approval of its stockholders to the issuance of the shares of Common Stock underlying the Warrants (the “Warrant
Shares”) or the six-month anniversary of the date of issuance, at an exercise price of $0.3654 per share (“Exercise
Price”). The Warrants will be exercisable for 42 months following the closing date.
If
the Company has an effective registration statement registering the Warrant Shares, the Warrants may only be exercised for cash.
Beginning six months after the issuance of the Warrants, in the event no effective registration statement registering, or no current
prospectus is available for the resale of the Warrant Shares, the Investors may exercise the Warrants by means of a “cashless
exercise.” Subject to limited exceptions, a holder of Warrants will not have the right to exercise any portion of its Warrants
if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%)
of the number of shares of Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership
Limitation”); provided, however, that upon 61 days’ prior notice to the Company, the holder may increase the Beneficial
Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%.
The
Exercise Price and number of the shares of our common stock issuable upon the exercise of the Warrants will be subject to adjustment
in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction,
as described in the Warrants.
Total
gross proceeds to the Company, assuming full exercise of the Warrants, will be $7,965,720. The offering of the Warrants was exempt
from registration under Section 4(a)(2) of the Securities Act.
The
above description of the Warrants does not purport to be complete and is qualified in its entirety by the full text of the “form
of” Warrant, which is incorporated herein attached hereto as Exhibit 10.3.