Item 1.01 Entry
into a Material Definitive Agreement.
Securities
Purchase Agreement (Institutional). On January 27, 2020, Sigma Labs, Inc. (the “Company”) entered into
a Securities Purchase Agreement (the “Institutional SPA”) attached hereto as Exhibit 10.1, with certain institutional
investors (the “Institutional Investors”). Pursuant to the Institutional SPA, the Company has agreed to issue and
sell to each Institutional Investor and each Institutional Investor severally has agreed to purchase from the Company shares of
the Company’s Series D Convertible Preferred Stock (the “Series D Preferred Stock”), warrants to purchase the
Company’s Common Stock (the “Institutional Common Warrants”) and warrants to purchase the Series D Preferred
Stock (the “Preferred Warrants”) for a total gross purchase price of $1,600,000. At the closing, the Company will
issue to the Institutional Investors an aggregate of 1,640 shares of the Series D Preferred Stock (the “Series D
Preferred Shares”), Institutional Common Warrants to purchase up to an aggregate of 7,796,000 shares of Common Stock
and warrants to purchase an aggregate of 6,156 of additional Series D Preferred Stock, which, if exercised in
full, would result in additional gross proceeds to the Company of approximately $6 million (including $500,000 subject to a forced
exercise right by the Company described more fully below).
Under
the Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has an initial stated value of
$1,000 per share (the “Stated Value”). Dividends accrue at a dividend rate of 9% per annum (subject to increase upon
the occurrence (and during the continuance) of certain triggering events described therein) will accrue and, on a monthly basis,
shall be payable in kind by the increase of the Stated Value of the Series D Preferred Shares by said amount. The holders of the
Series D Preferred Shares will have the right at any time to convert all or a portion of the Series D Preferred Shares (including,
without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the closing date) into
shares of the Company’s Common Stock at the conversion price then in effect, which initially is $1.00 (subject to adjustment
for stock splits, dividends, recapitalizations and similar events and full ratchet price protection). In addition, a holder may
at any time, alternatively, convert all, or any part, of its Series D Preferred Shares at an alternative conversion price, which
equals the lower of the applicable conversion price then in effect, and the greater of (x) $0.1856 and (y) 85% of the average
volume weighted average price (“VWAP”) of the Common Stock for a five (5) trading day period prior to such conversion.
Upon the occurrence of certain triggering events, described in the Certificate of Designations, including, but not limited to
payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq Capital Market, and other defaults
set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125% premium
to the underlying value of the Series D Preferred Shares being redeemed.
The
Institutional Common Warrants have a term of 5½ years, but is not initially exercisable until six month and one day
after the closing. The initial exercise price is $1.00 and is subject to adjustment for stock splits, dividends, recapitalizations
and similar events and, unless shareholder approval is obtained by the Company, subject to a floor of $0.95, full ratchet
antidilution price protection.
The
Preferred Warrants have a term of one year from the date that the securities referenced in the Institutional SPA become
fully tradeable (whether by registration with the SEC of such securities or the expiration of the requisite holding period
under Rule 144 of the Securities Act of 1933, as amended). The Company has the right to force the exercise of up to 512 Preferred
Warrants subject to certain equity conditions, which would result in gross proceeds to the Company of approximately $500,000.
The initial exercise price for the Preferred Warrants is $975 per share, which is subject to adjustment for stock splits,
dividends, recapitalizations and similar events.
The Certificate of
Designations contains a prohibition on the issuance of any shares of Common Stock upon conversion of the Series D Preferred
Shares in excess of the amount set forth in NASDAQ Listing Rule 5635(d) (20% or more of the outstanding shares of common stock)
until the Company obtains shareholder approval for issuance of shares of Common Stock in excess of such amount. In the Institutional
SPA, the Company has agreed to promptly obtain such shareholder approval and amend its article of incorporation and/or effect
a reverse split in order to have sufficient shares of Common Stock available to allow the holders of the Series D Preferred Shares
to convert in full the Series D Preferred Shares and exercise in full the Institutional Common Warrants.
Pursuant to a Registration
Rights Agreement to be executed on or before the closing, the Company has agreed to prepare and, as soon as practicable, file
with the Securities and Exchange Commission a registration statement covering the resale of all the Series D Preferred Shares
(including the Series D Preferred Shares issuable upon exercise of the Preferred Warrants), the shares issuable upon conversion
of the Series D Preferred Shares, and the shares issuable upon exercise of the Institutional Common Warrants.
The foregoing summaries
of the Securities Purchase Agreement, Certificate of Designations, Registration Rights Agreement, Institutional Common Warrants
and Preferred Warrants do not purport to be complete and are qualified in their entirety by the terms and conditions set forth
in the forms thereof attached hereto exhibits 10.1, 10.2, 10.3, 10.4 and 10.5, respectively, which are incorporated by reference
herein in their entirety.
Securities
Purchase Agreement (Other Investors).
On January 27,
2020, the Company also entered into a Securities Purchase Agreement (“Other Investors SPA”) attached hereto as Exhibit
10.6, with the Company’s largest shareholder and certain of its directors (the “Other Investors”). Pursuant
to the Other Investors SPA, the Company has agreed to issue and sell to each Other Investor and each Other Investor severally
has agreed to purchase from the Company shares of the Company’s Series E Convertible Preferred Stock (the “Series
E Preferred Stock”), and Class A warrants to purchase the Company’s Common Stock (the “Class A Warrants”)
for a total gross purchase price of $500,000.
At
the closing, the Company will issue to the Other Investors an aggregate of 333.33 shares of the Series E Preferred Stock
(the “Series E Preferred Shares”), and Class A Warrants to purchase shares of Common Stock equal to 100% of the conversion
shares issuable at the closing.
Under
the Certificate of Designations for the Series E Preferred Stock, the Series E Preferred Shares have an initial stated value of
$1,500 per share (the “Stated Value”). Dividends at the initial rate of 9% per annum will accrue and, on a monthly
basis, shall be payable in kind by the increase of the Stated Value of the Series E Preferred Stock by said
amount. The holders of the Series E Preferred Shares have the right at any time to convert all or a portion of the Preferred Shares
(including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the
closing date) into shares of the Company’s Common Stock at an initial conversion rate determined by dividing the Conversion
Amount by the Conversion Price ($0.13 above the consolidated closing bid price for the trading day prior to the execution
of the Other Investors SPA). The Conversion Amount is the sum of the Stated Value of the Series E Preferred Shares then being
converted plus any other unpaid amounts payable with respect to the Series E Preferred Shares being converted plus the “Make
Whole Amount” (the amount of any dividends that, but for the conversion, would have accrued at the dividend rate for the
period through the third anniversary of the initial issuance date). The Conversion Rate is also subject to adjustment for stock
splits, dividends recapitalizations and similar events.
The Class A Warrants have
a term of 5 ½ years, but is not initially exercisable until six month and one day after the closing. The initial
exercise price is equal to 110% of the conversion price of the Series E Preferred Stock and is subject to adjustment for
stock splits, dividends, recapitalizations and similar events.
The foregoing summaries
of the Other Investors SPA, Certificate of Designations for the Series E Preferred Stock and Class A Warrants do not purport to
be complete and are qualified in their entirety by the terms and conditions set forth in the forms thereof attached hereto exhibits
10.6, 10.7 and 10.8, respectively, which are incorporated by reference herein in their entirety.
General
The
closing of the issuance of the securities covered by the Securities Purchase Agreements is subject to the closing conditions set
forth therein.