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Item 1.01
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Entry into a Material Definitive Agreement
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At an initial closing held on November
3, 2016 (the “
Closing
”), Protea Biosciences Group, Inc. (the “
Company
”) received an aggregate
of $631,680.00 in gross cash proceeds from 25 accredited investors (the “
Purchasers
”) in connection with the
sale of approximately 63 units of securities (each a “
Unit
” and collectively, the “
Units
”)
pursuant to the terms and conditions of Subscription Agreements (the “
Subscription Agreements
”) by and among
the Company and each of the Purchasers.
Pursuant to its private placement memorandum,
dated as of October 31, 2016 (the “
Memorandum
”), the Company is offering, through Laidlaw & Company (UK)
Ltd (the “
Placement Agent
”) a maximum of 500 Units of securities at a price of $10,000 per Unit for up to $5,000,000
in gross proceeds (the “
Offering
”). Each Unit consists of up to (a) 133,333.33 shares of common stock, par value
$0.0001 (the “
Common Stock
”), (b) 18 month warrants to purchase 133,333.33 shares of Common Stock at an exercise
price of $0.09 per share (the “
Class A Warrants
”), and (c) five year warrants to purchase 133,333.33 shares
of Common Stock at an exercise price of $0.1125 per share (the “
Class B Warrants
” and together with the Class
A Warrants, the “
Investor Warrants
”). If all 500 Units are sold, the Company will issue an aggregate of 66,666,667
shares of its Common Stock and Investor Warrants to purchase up to 133,333,334 shares of Common Stock. The Offering will terminate
on December 31, 2016 unless the Company and the Placement Agent mutually agree to extend the Offering to as late at March 31, 2017.
On October 24, 2016, the Company
amended its Certificate of Incorporation to permit the Company to issue up to 500,000,000 shares of Common Stock. As at October
31, 2016, the 134,226,310 outstanding shares of Common Stock, plus all additional shares of Common Stock that are issuable upon
conversion of currently outstanding notes and exercise of currently outstanding options and warrants (the “
Common Stock
Equivalents
”) totals 243,957,380 shares of Common Stock. In addition, the Company intends to consummate a 1-for-25 reverse
stock split of its outstanding Common Stock following the termination date of the Offering, which reverse split has previously
been authorized by the Company’s stockholders, thereby reducing the outstanding number of shares of Common Stock and Common
Stock Equivalents to 19,742,923 shares of Common Stock after giving effect to the sale of all 500 Units of securities in the Offering.
Consummation of the Reverse Stock Split will require (a) the filing of an amendment to the Company’s Certificate of Incorporation
with the Delaware Secretary of State, and (b) obtaining the approval of the Financial Industry Regulatory Authority.
At the Closing, an aggregate of 8,422,400
shares of Common Stock and Investor Warrants to purchase an aggregate of 16,844,800 shares of Common Stock were issued.
In connection with the Closing, the Company
paid to the Placement Agent an aggregate of $95,841.60 in cash compensation, representing fees and an expense allowance. In addition,
the Company agreed to issue a warrant (the “
Placement Agent Warrant
”) to the Placement Agent (or its designees)
to purchase an aggregate of 2,278,720 shares of Common Stock, with an exercise price of $0.09 per share and term of three years.
The Company also issued one Unit to the Placement Agent’s legal counsel for services rendered in connection with the Closing.
In connection with the Closing, the Company
also entered into a Registration Rights Agreement (the “
Registration Rights Agreement
”) with each of the Purchasers,
which requires the Company to file a registration statement (the “
Registration Statement
”) with the Securities
and Exchange Commission (the “
Commission
”) registering for resale (i) all Common Stock issued to the Purchasers
as part of the Units, (ii) all shares of Common Stock issuable upon exercise of the Investor Warrants and the Placement Agent Warrants,
and (iii) all shares of Common Stock issued to legal counsel for services rendered in connection with the Closing.
If the Registration Statement is not declared
effective by the Commission within the specified deadlines set forth in the Registration Rights Agreement, the Company will
be required to pay to each Purchaser an amount in cash, as partial liquidated damages, equal to 1.0% of the aggregate purchase
price paid by such Purchaser per 30 day period that such failure continues, up to the maximum of 6% of the aggregate Purchase Price.
If the Company fails to pay any partial liquidated damages in full within seven days after the date payable, the Company will pay
interest thereon at a rate of 18% per annum.
The forms of the Subscription Agreement,
the Registration Rights Agreement, the Class A Warrant, the Class B Warrant and the Placement Agent Warrant are filed as Exhibits
to this Current Report on Form 8-K, and the foregoing summaries of the terms of such documents are subject to, and qualified in
their entirety by, the full text of such documents, which are incorporated herein by reference.