Item 1.01 Entry into a Material Definitive Agreement.
On October 15, 2021, C-Bond Systems,
Inc. (the “Company” or “C-Bond”) entered into a Securities Purchase Agreement (the “SPA”) with Mercer
Street Global Opportunity Fund, LLC (the “Investor”), pursuant to which the Company received $750,000 (less $10,000 of Investor’s
fees) in exchange for the issuance of a 10% Original Issue Discount Senior Convertible Promissory Note (the “Initial Note”)
in the principal amount of $825,000, and a five-year warrant (the “Initial Warrant”) to purchase, in the aggregate, shares
of the Company’s common stock at an exercise price of $0.05 per share in an amount equal to 50% of the conversion shares to be issued.
The transactions contemplated
under the SPA closed on October 18, 2021. Pursuant to the SPA, the Investor has agreed to purchase an additional $825,000 10% Original
Issue Discount Senior Convertible Promissory Note (the “Second Note,” and together with the Initial Note, the “Notes”),
and a five-year warrant (the “Second Warrant,” and together with the Initial Warrant, the “Warrants”) to purchase,
in the aggregate, shares of the Company’s common stock at an exercise price of $0.05 per share from the Company in an amount equal
to 50% of the conversion shares to be issued upon the same terms as the Initial Note and Initial Warrant (subject to there being no event
of default under the Initial Note or other customary closing conditions), within three trading days of a registration statement registering
the shares of the Company’s common stock issuable under the Notes (the “Conversion Shares”) and upon exercise of the
Warrants (the “Warrant Shares”) being declared effective by the SEC.
The Notes mature 12 months after
issuance, bear interest at a rate of 4% per annum, and are initially convertible into the Company’s common stock at a fixed conversion
price of $0.025 per share, subject to adjustment for stock splits, stock combinations, dilutive issuances, and similar events, as described
in the Notes.
The Notes may be prepaid at any
time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Notes may be prepaid in an amount equal
to 110% of the principal amount plus accrued interest. From day 181 through the day immediately preceding the maturity date, the Notes
may be prepaid in an amount equal to 120% of the principal amount plus accrued interest.
The Notes and Warrants contain
conversion limitations providing that a holder thereof may not convert the Notes or exercise the Warrants to the extent (but only to the
extent) that, if after giving effect to such conversion, the holder or any of its affiliates would beneficially own in excess of 4.99%
of the outstanding shares of the Company’s common stock immediately after giving effect to such conversion or exercise. A holder
may increase or decrease its beneficial ownership limitation upon notice to the Company provided that in no event such limitation exceeds
9.99%, and that any increase shall not be effective until the 61st day after such notice.
In connection with the SPA, the
Company entered into a Registration Rights Agreement dated October 15, 2021 (the “Registration Rights Agreement”), with the
Investor pursuant to which it is obligated to file a registration statement with the SEC within 45 days after the date of the agreement
to register the resale by the Investor of the conversion shares and warrant shares, and use all commercially reasonable efforts to have
the registration statement declared effective by the SEC within 60 days after the registration statement is filed.
Upon the occurrence of an event
of default under the Notes, the Investor has the right to be prepaid at 125% of the outstanding principal balance and accrued interest,
and interest accrues at 18% per annum.
The Company has also granted the
Investor a 12-month (or until the Notes are no longer outstanding) right to participate in specified future financings, up to a level
of 30%.
The Initial Note and Initial Warrant
were sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended
(the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder. The Investor is an accredited investor which
has purchased the securities as an investment in a private placement that did not involve a general solicitation. The shares to be issued
upon conversion of the Notes and the exercise of the Warrants have not been registered under the Securities Act and may not be offered
or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements. This
Current Report on Form 8-K shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of
these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under
the securities laws of any such state.
The foregoing description does
not purport to be complete and is qualified in its entirety by reference to the full text of the Initial Note, Initial Warrant, SPA, and
Registration Rights Agreement, attached hereto as Exhibits 4.1, 4.2, 10.1, and 10.2, respectively, each of which are incorporated herein
by reference.
