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Item
1.01
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Entry
into a Material Definitive Agreement.
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Securities
Purchase Agreement
On
January 11, 2019, 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 will issue an aggregate of 31,000,000 shares of the Company’s common
stock, par value $0.001 per share (the “Common Stock”) and warrants to purchase up to 31,000,000 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 $4,340,000 (exclusive of the exercise of the Warrants) (the “Offering”).
We expect to receive aggregate net proceeds of approximately $3,979,600, 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 January 15, 2019, 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 and also agreed not to effect
a reverse stock split during that period.
Under
the SPA, certain investors have agreed to waive their rights to require us to reserve shares of Common Stock to issue to them
in connection with our prior offering of Series C Preferred Stock in June 2017 and our prior offering of Common Stock in October
2018. This wavier will be in effect until the earlier of May 6, 2019 and the date we effect a reverse stock split. In addition,
we are not required to reserve the amount of shares issuable pursuant to the Warrants until the earlier of May 6, 2019 and the
date we effect a reverse stock split. In addition, pursuant to the SPA, the Investors and the Company agreed to amend the common
stock purchase warrants dated October 15, 2018 (the “October Warrants”) issued pursuant to the securities purchase
agreement between the Investors and the Company dated October 11, 2018 to reduce the exercise price of the October Warrants from
$0.3654 to $0.232.
The
sale of the Common Stock at a price of $0.14 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 January 11, 2019, 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 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.
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 December 31, 2018, 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 Investors Warrants to purchase up to 31,000,000 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 $0.232 per share (“Exercise Price”). The Warrants will be exercisable for 42 months following the closing
date.
After
July 15, 2019, the Investors may exercise the Warrants by means of a “cashless exercise” in the event there is no
effective registration statement registering, or no current prospectus is available for the resale of, the Warrant Shares. Also
after July 15, 2019, if the daily volume weighted average price of our common stock fails to exceed the Exercise Price, the aggregate
number of warrant shares issuable in a cashless exercise will be equal to the product of (i) the aggregate number of Warrant Shares
that would be issuable upon exercise of the Warrants if such exercise were by means of a cash exercise and (ii) 0.75. 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 $7,192,000. 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.