Item
1.01. Entry into a Material Definitive Agreement.
On
April 6, 2018, Sigma Labs, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with two purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in
a private placement (the “Private Placement”) pursuant to Rule 4(a)(2) and Regulation D under the Securities Act of
1933, as amended (the “Act”), an aggregate of 1,000 shares of the Company’s newly-created non-voting Series
B Convertible Preferred Stock, stated value $1,000 per share (the “Series B Convertible Preferred”), and warrants
(“Warrants”) to purchase an aggregate of up to 750,000 shares of the Company’s common stock, par value $0.001
per share (“Common Stock”), for an aggregate purchase price of $1,000,000. The Series B Convertible Preferred is initially
convertible into 1,000,000 shares of Common Stock based on an initial conversion price of $1.00 per share. The Company intends
to use the net proceeds of this offering (i) to make additional hires with metallurgical and software expertise for the purpose
of accelerating and completing the development of tools with Signature/Solution libraries and artificial intelligence facets that
are designed to enable sophisticated closed loop control of additive manufacturing machines for real time quality assurance or
rescue, (ii) to acquire additional software and customer support personnel for production implementations, and (iii) for other
working capital and general corporate purposes.
Series
B Convertible Preferred
On
April 6, 2018, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred
Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada, which designated 1,000
shares of Series B Convertible Preferred. The shares of Series B Convertible Preferred bear cumulative dividends at a rate of
10% per annum of the stated value, payable in cash upon conversion of the Series B Convertible Preferred (with respect to the
shares being converted). Such dividends will cease to accrue upon the second annual anniversary of the date of issuance of the
Series B Convertible Preferred. The holders of Series B Convertible Preferred also are entitled to participate in dividends (on
an as-converted basis) as and when declared and paid to the holders of Common Stock.
The
initial conversion price of the Series B Convertible Preferred is $1.00 per share of Common Stock, subject to standard adjustments
for certain transactions affecting the Company’s securities (such as stock dividends, stock splits, and the like). Shares
of Series B Convertible Preferred are convertible into Common Stock at the option of the holder from time to time, subject to
a beneficial ownership limitation of 4.99% (or 9.99% at the option of the Investor).
The
Series B Convertible Preferred generally has no voting rights. However, for so long as any shares of Series B Convertible Preferred
are outstanding, the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Convertible
Preferred is required to: (a) alter or change adversely the powers, preferences or rights given to the Series B Convertible Preferred
or alter or amend the Certificate of Designation, (b) amend the Company’s articles of incorporation or other charter documents
in any manner that adversely affects any rights of the holders of Series B Convertible Preferred, (c) increase the number of authorized
shares of Series B Convertible Preferred, or (d) enter into any agreement with respect to any of the foregoing.
Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, that is not a Fundamental Transaction
(as defined in the Certificate of Designation), the holders of Series B Convertible Preferred are entitled to receive out of the
assets the Company the same amount they would have received on an as-converted basis, disregarding any conversion limitations.
Such amounts are to be paid on a
pari passu
basis with all holders of Common Stock.
Warrants
Under
the Purchase Agreement, the Company issued to the Purchasers Warrants to purchase an aggregate of up to 750,000 shares of Common
Stock, or 75% of the shares of Common Stock into which the shares of Series B Convertible Preferred sold to the Purchasers are
initially convertible. The Warrants have an initial exercise price of $1.47 per share, the closing price of Common Stock
reported on The NASDAQ Capital Market on April 6, 2018, subject to adjustment in certain circumstances, may not be exercised until
the date that is six months and one day after issuance, and have a term of five years from the initial exercise date. Exercise
is also subject to a beneficial ownership limitation of 4.99% (or 9.99% at the option of the Investor).
Placement
Agent
Dawson
James Securities, Inc. (“Dawson James”) acted as placement agent in the Private Placement pursuant to an engagement
letter, dated March 12, 2018 (the “Engagement Letter”), with the Company. In the Engagement Letter, the Company agreed
to pay Dawson James a cash fee equal to 8% of the gross proceeds received by the Company from Purchasers on April 6, 2018 and
to grant to Dawson James warrants (the “Placement Agent Warrants”) to purchase up to 80,000 shares of Common Stock
at an initial exercise price of $1.47 per share, the initial exercise price of the Warrants, and up to 60,000 shares of Common
Stock at an initial exercise price of $1.47 per share, the initial exercise price of the Warrants. The Company also agreed to
reimburse Dawson James up to $42,500 of expenses (including legal fees and expenses) incurred in connection with the Private Placement.
The
foregoing description of the terms of the Purchase Agreement, the Certificate of Designation, the Warrants, the Placement Agent
Warrants and the Engagement Letter set forth above are not complete and are qualified in their entirety by reference to the full
text of the documents, copies of which are filed as Exhibits 10.1, 3.1, 4.1, 4.2 and 1.1, respectively, hereto, and are incorporated
herein by reference.