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Item 1.01.
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Entry into a Material Definitive Agreement.
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Pursuant to the terms of a Securities Purchase Agreement, initially dated as of October 28, 2019 and amended and restated as of November 25, 2019 (the Securities Purchase Agreement), between Galaxy Next Generation, Inc. (the Company) and YA II PN, LTD. (the Holder), the Company issued and sold a senior secured convertible debenture in the aggregate principal amount of $1,000,000 (the Convertible Debenture) that is convertible into shares of the Companys common stock, par value $0.0001 per share (the Common Stock), bears interest at the rate of 8.0% per annum that matures on November 25, 2020 (the Maturity Date), which may be extended at the option of the Holder in the event that, and for so long as, an Event of Default (as defined in the Convertible Debenture) will have occurred and be continuing on the Maturity Date. The Convertible Debenture was issued with a 7.0% original issue discount, resulting in net proceeds to the Company of $930,000. As part of the issuance of the Convertible Debenture, the Company issued to the Holder 500,000 shares of Common Stock (the Commitment Shares).
The Convertible Debenture is secured by a security interest in all of the assets of the Company and of each of the Companys subsidiaries as evidenced by the security agreement dated as of October 29, 2019 (the Security Agreement) and subject to the global guaranty agreement executed by each of the Companys subsidiaries dated October 29, 2019.
The Company at its option has the right to redeem (a Redemption), in part or in whole, subject to certain notice requirements, outstanding principal and interest under the Convertible Debenture prior to the Maturity Date provided that as of the date of the Holders receipt of a Redemption notice there is no Equity Conditions Failure (as defined in the Convertible Debenture). The Company will pay an amount equal to the principal amount being redeemed plus a Redemption premium equal to 15% of the outstanding principal amount being redeemed plus outstanding and accrued interest. Other than as specifically permitted by the Convertible Debenture, the Company may not prepay or redeem any portion of its outstanding principal amount without the prior written consent of the Holder.
The Holder of the Convertible Debenture, has the right, subject to certain limitations, at any time to convert all or a portion of the Convertible Debenture, up to $250,000 of the outstanding and unpaid Conversion Amount (as defined below) in any 30 day calendar period, into fully paid and nonassessable shares of Common Stock, below the Fixed Conversion Price, initially of $0.46 (subject to adjustment), provided however that the Holder will not be limited to conversions in the aggregate of $250,000 for conversions at or above the Fixed Conversion Price. The number of shares of Common Stock issuable upon conversion of any Conversion Amount will be determined by dividing (x) such Conversion Amount by (y) the Fixed Conversion Price or (z) the Market Conversion Price, as applicable (the Conversion Rate). The Conversion Amount means the portion of the principal and accrued interest to be converted, redeemed or otherwise with respect to which this determination is being made. The Market Conversion Price means, as of any conversion date or other date of determination, 75% of the lowest VWAP (as defined in the Convertible Debenture) of the Common Stock during the 10 Trading Days immediately preceding the Conversion Date. The Holder, together with any affiliate, will also be limited from beneficially owning more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest (potentially limiting the Holders conversion right).
The Convertible Debenture contains standard and customary events of default including, but not limited to, failure to make payments when due, failure to observe or perform covenants or agreements contained in the Convertible Debenture, the breach of any material representation or warranty contain therein, the bankruptcy or insolvency of the Company, failure to timely file a registration statement for the shares underlying the Convertible Debenture in a timely manner, the suspension of trading of common stock, and a change of control of the Company. If any event of default occurs, subject to any cure period, the full principal amount, together with interest (including default interest of 15% per annum) and other amounts owing in respect thereof to the date of acceleration will become, at the Holders election, immediately due and payable in cash.
The conversion price of the Convertible Debenture is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Companys Common Stock and certain dilutive issuances.
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Pursuant to the terms of a Registration Rights Agreement entered into between the Company and the Holder initially dated as of October 28, 2019 and amended and restated as of November 25, 2019, which was entered into in connection with the Securities Purchase Agreement and the Convertible Debenture, the Company agreed to file a registration statement (the Registration Statement) for the resale of the shares of Common Stock into which the Convertible Debenture may be converted within 45 days of the date of the agreement and to obtain effectiveness of the Registration Statement within 110 days of the date of the agreement.
The foregoing description of the Convertible Debenture, the Securities Purchase Agreement, the Security Agreement and the Registration Rights Agreement are qualified in their entirety by reference to the Convertible Debenture, the Securities Purchase Agreement, the Security Agreement and the Registration Rights Agreement, copies of which are filed as Exhibits 10.1, 10.2, 10.3 and 10.4 to this Current Report on Form 8-K and are incorporated by reference in this Item 1.01.