Item 1.01 Entry into a Material Definitive
Agreement.
Non-Recourse Factoring and Security Agreement
Effective as June 19, 2020 (the “Effective
Date”), Sysorex, Inc. and its wholly-owned subsidiary, Sysorex Government Services, Inc. (collectively, the “Company”),
and SouthStar Financial, LLC (“SouthStar”) entered into a Non-Recourse Factoring and Security Agreement (the “Agreement”)
pursuant to which SouthStar may purchase receivables from the Company (the “Purchased Receivables”) for a price not
to exceed 85% of the face value of the Purchased Receivables or a lesser percentage agreed upon between the Company and SouthStar.
In consideration of SouthStar’s purchase of the Purchased Receivables, the Company will pay to SouthStar an amount equal
to 0.8% of the face amount of the Purchased Receivables for the first 10-day period after payment for the Purchased Receivables
is transmitted to SouthStar plus 0.9% for each additional 10-day period or part thereof, calculated from the date of purchase until
payments received by SouthStar in collected funds on the Purchased Receivables equals the purchase price of the Purchased Receivables
plus all charges due SouthStar from the Company at the time. An additional 1.0% per 10-day period will be charged for invoices
exceeding 60 days from invoice date.
If the Company requires additional funding in
order to support its ordinary and necessary business expenses (an “Overadvance”), SouthStar may provide the Overadvance
in its sole discretion. If SouthStar provides an Overadvance, the Company will pay to SouthStar an amount equal to 1.6% of the
amount of the Overadvance for the first 10-day period after the Overadvance is transmitted to SouthStar plus 1.9% for each additional
10-day period or part thereof until payments received by SouthStar in collected funds equals the amount of the Overadvance, plus
all charges due to SouthStar at the time.
The Company will pay a transactional administrative
fee in the amount of $50 for each new Purchased Receivable purchased by SouthStar and an amount equal to 0.25% of the face amount
thereof for any handling, collecting, mailing, quality assuring, insuring the risk, transmitting, and performing certain data processing
services with respect to the maintenance and servicing of the Purchased Receivables.
The Company also agreed that if SouthStar does
not purchase during an annual period an amount of Purchased Receivables which exceeds $2,000,000 per calendar year (the “Minimum
Amount”), the Company will pay to SouthStar an additional amount equal to what the charges provided for in the Agreement
would have been on the Minimum Amount, not to exceed $70,000, less the actual charges paid by the Company to SouthStar during the
period.
So long as the Company is not in default under
the Agreement, once SouthStar receives payment of the Purchased Receivables, SouthStar will transfer to the Company an amount equal
to the difference between the amount of aggregate receipt of payments on the Purchased Receivables, less the sum of (a) the aggregate
Purchase Price of such Purchased Receivables, (b) all charges or other amounts or accruals then due SouthStar from the Company,
and (c) any reserves SouthStar elects to establish to secure payment of any other Purchased Receivables.
As security for the payment and performance
of all of the Company’s present and future obligations to SouthStar under the Agreement, the Company granted to SouthStar
a first priority security interest in all of the Company’s presently-owned and hereafter-acquired personal and fixture property.
By executing the Agreement, the Company made
certain representations, warranties and covenants and agreed to certain provisions setting forth events of default that are standard
for agreements of this type. In case any event of default occurs and is not waived, SouthStar may (i) immediately terminate the
Agreement, at which time all amounts due and owing shall immediately become due and payable without notice, institute default pricing
on any and all open invoices and retain a reserve account from payments from all the Company’s accounts that are collateral;
(ii) take possession of collateral with or without judicial process; (iii) seek to place the Company into receivership, or other
applicable state law process, and request a court to appoint a receiver over the Company; (iv) take control of goods relating to
any account; and (v) enforce all rights which it may have with respect to the security interest granted to it pursuant to the Agreement,
and specifically, not by way of limitation, to notify and require the U.S. Post Office to deliver the Company’s mail to SouthStar,
and to open the Company’s mail and take and endorse for deposit in the name of the Company all payments received upon any
of the Company’s accounts and to deposit same for benefit of SouthStar. The Company is required to pay to SouthStar all other
damages, costs and losses caused to SouthStar by reason of a default, including, but not limited to reasonable attorneys’
fees, court costs, other collection expenses and all other expenses and costs incurred or paid by SouthStar to obtain performance
or to enforce any of the Company’s covenants or agreements included in the Agreement. In addition to the charges and other
fees and obligations included in the Agreement and due to the additional administrative burden caused by an event of default, the
Company also agreed to pay an additional default service charge of 5% of the amount of each account collected by SouthStar following
the Company’s default.
The Company has agreed, except in the case of
fraud or the willful misconduct of SouthStar, to indemnify and hold SouthStar harmless from all claims asserted against SouthStar
subsequent to the Effective Date or the factoring documents, including reasonable legal fees and costs incurred by SouthStar in
defense thereof. The Company also agreed to waive every present and future defense, cause of action, counterclaim or setoff, which
the Company may now have or hereafter may have, to any action by SouthStar in enforcing the Agreement.
The Company must receive written approval from
SouthStar prior to the commencement of any proceeding under any federal, state, or other law relating to bankruptcy, receivership,
insolvency, or other debtor relief laws initiated by or against the Company, whether voluntary or involuntary (“Insolvency
Proceeding”). If the Company does not receive SouthStar’s written consent prior to the commencement of an Insolvency
Proceeding, the Company must consent to and/or join any filing made or position asserted by SouthStar to dismiss the Insolvency
Proceeding.
During the Term (as defined below), the Company
must carry comprehensive public liability insurance, including property damage, with limits of at least the following: bodily injury
$1,000,000 each person, $2,000,000 each occurrence, and property damage $1,000,000 each occurrence. Such insurance policy must
name SouthStar as an additional insured and a loss payee for property damage and will be deposited with a paid receipt with SouthStar.
The Agreement is an exclusive agreement. The
term of the Agreement began on the Effective Date and will continue for an initial term of 12 months from the first day of the
month following the date that the first Purchased Receivable is purchased. Unless terminated by the Company, the Agreement will
be renewed every 12 months thereafter. (Together, the initial term and any renewal terms are referred to herein as the “Term.”)
If the Agreement is terminated by the Company for any reason whatsoever prior to the expiration of the Term, the Company will pay
to SouthStar an early termination fee equal to 50% of the amount of the charges and 100% of other accruals provided for under the
Agreement, multiplied by the Minimum Amount, calculated for the period of time that remains on the Term, not to exceed $35,000.
Validity of Collateral Guaranty
On the Effective Date, Zaman Khan, the Chief
Executive Officer of Sysorex, Inc., and Vincent Loiacono, the Chief Financial Officer of Sysorex, Inc., each executed a Validity
of Collateral Guaranty (the “Guaranty”) in favor of SouthStar. The Guaranty secures each and every obligation and debt
of the Company under any and all agreements between the Company and SouthStar including, but not limited to, the Agreement. Upon
the occurrence of an event of default under the Agreement or the Guaranty, such event of default shall be deemed an event of default
under any and all agreements between the parties, and SouthStar, in its sole discretion, shall be entitled to assert any and all
rights and remedies against the Company or the Guarantor. The Company is in discussions with SouthStar to amend the Guaranty to
only apply to the extent there is any wrongdoing by the applicable officer; however, the Company cannot provide any assurance that
such amendment will be agreed to.
The descriptions of the Agreement and the Guaranty
are summaries only, are not intended to be complete, and are qualified in their entirety by reference to the full text of the Agreement
and the Guaranty, which are incorporated herein in full.