Item
1.01
|
Entry
into Material Agreement
|
Loans
to Quantum Materials Corp.
On
March 29, 2017, Quantum Materials Corp. issued a promissory note in the amount of $169,500 to SBI Investment LLC, 2014-1 (“SBI”)
and a second promissory note in the amount of $395,500 to L2 Capital, LLC (“L2 Capital”). The maturity date of these
notes is six months from the funding date of each tranche. The Company received an aggregate of $300,000 of loan proceeds, before
deduction of legal fees of $15,000 from the first two tranches and expects to receive an additional $200,000 from the third tranche
shortly after stockholders approve an increase in the authorized number of shares of common stock to 750,000,000 shares at its
stockholder meeting which is currently scheduled for May 1, 2017. These loans bear guaranteed interest at 6% per annum and may
not be prepaid, except by paying a prepayment penalty on principal and accrued interest. The notes are not convertible unless
there is an Event of Default as defined in the notes.
Equity
Purchase Agreement
On
March 29, 2017, the Company entered into an equity purchase agreement (“Eloc”) with SBI and L2 Capital to purchase
from them up to $5,000,000 of the Company’s common stock. Pursuant to the terms of the equity agreement, for a period of
up to four years, SBI and L2 Capital are committed to purchase at the election of the Company, assuming an effective registration
statement, and upon delivery by the Company of a put notice to Put Shares (as defined in the Eloc) (i) in a minimum amount of
not less than $25,000 and (ii) in a maximum amount up to the lesser of (a) $250,000 or (b) 150% of the average daily trading value;
provided such minimum amount of Put Shares may be decreased and such maximum amount of Put Shares may be increased, subject to
the Company’s approval. Unless otherwise agreed to in writing by SBI and L2 Capital, the amount in the Put Notice shall
be allocated pro rata among the participating investors based upon the Maximum Commitment Amount as defined in the Eloc. The purchase
price of the Put Shares shall mean 80% of the market price (i.e. the lowest closing bid price for any trading day during the Valuation
Period as defined in the Eloc). If 80% of the lowest closing bid price on the OTCQB for any trading day during the respective
Valuation Period (as defined in Eloc) is less than the Company minimum price of $.12 per share, then SBI and/or L2 Capital may
elect to purchase all or none of the Put Shares at the Company minimum price.
As
further consideration for SBI and L2 Capital entering into the Eloc, the Company agreed to pay SBI and L2 Capital $63,000 and
$147,000, respectively, in promissory notes. These promissory notes bear interest at 8% per annum and have a maturity date of
nine months from the date of issuance. These notes are not convertible unless there is an Event of Default as defined in the notes.
Common
Stock Purchase Warrants
In connection with the loan transactions, the Company is required to issue warrants to each lender. In connection
with the first tranche, the Company issued to SBI warrants to purchase 253,525 shares and the Company issued to L2 Capital warrants
to purchase 760,576 shares. At each closing after the first tranche, the Company will issue to each of SBI and L2 Capital warrants
to purchase 50% of the total amount of each tranche funded plus the applicable original issue discount, divided by the lesser of
(i) the closing bid of the common stock on March 29, 2017 and (ii) the closing bid price of the common stock on the funding date
of each respective tranche.
Registration
Rights Agreement
On
March 29, 2016, the Company entered into a registration rights agreement with SBI and L2 Capital. Pursuant to said agreement,
the Company is required to file a registration statement with the Securities and Exchange Commission to register the shares of
common stock under the Eloc and all shares of common stock underlying the notes and warrants issued to SBI and L2 Capital in connection
with the Eloc and loan transactions described above.
Trading
Agreement
Exhibit
10.9 filed herewith contains a trading agreement entered into between SBI and L2 Capital. In accordance with the terms of the
trading agreement, all shares purchased from the Company pursuant to the aforementioned parties agreements with the Company will
be held by a designated brokerage firm and the proceeds of sale will be paid 70% to L2 Capital and 30% to SBI.