EXHIBIT 10.2



  





NOTICE
OF EXCHANGE 


 


(To
be Executed by the Registered Holder in Order to Exchange the Series O-1 Note and

Series O-1 Warrant for the Series O-2 Note and Series
O-2 Warrant)


 


FROM:
_________________________________________________________________________________(“Holder”)


 





	RE:	 	Exchange of the Series O-1 Promissory Note (“Series O-1 Note”) and Series O-1
    Common Stock Purchase Warrant (“Series O-1 Warrant”) issued by QuantumSphere, Inc. (“Company”)
    to Holder on May 28, 2015






 


The
Holder hereby elects to exchange all outstanding principal and accrued interest represented by the Series O-1 Note for the securities
comprising the Series O-2 round (i.e., Series O-2 Note and Series O-2 Warrant as set forth in Exhibit A attached hereto). The
Holder acknowledges and agrees that (i) the exchange will occur on the date of the initial closing of the Series O-2 round, (ii)
interest on the Series O-1 Note shall accrue through the date of the initial closing of the Series O-2 round, and (iii) the calculation
of the amount of accrued interest on the Series O-1 Note will be provided to Holder in writing on or before the date of the initial
closing of the Series O-2 round for purposes of determining the original principal amount of the Series O-2 Note and the number
of shares underlying the Series O-2 Warrant.


 


For
the avoidance of doubt, Holder will be required to (i) return the original Series O-1 Note for cancellation, and (ii) Series O-1
Common Stock Purchase Warrant for cancellation, each of which shall occur simultaneous with the issuance of the new Series O-2
Note and Series O-2 Warrant.


 


IN
WITNESS WHEREOF, the Holder has executed this Notice of Exchange effective as fo the date set forth below.


 


	By:	 	 	Date:	 
		 	 	 	 
	Name:	 	 	 	 



 


	Title
    (if applicable):	 	 	 	 


 


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EXHIBIT
A


 


SERIES
O-2 TERM SHEET


 


	Borrower:	QuantumSphere,
                                         Inc., a Nevada corporation (“QSI” or the “Company”)

        

	 	 
	Lenders:   	Accredited
    Investors only (collectively, “Lenders”)
	 	 
	Offering
    (Min/Max):	Minimum:
                                         One Million Dollars ($1,000,000) (“Minimum Offering”)

        Maximum:
        Three Million Dollars ($3,000,000) ( “Maximum Offering”)

        

	 	 
	Minimum
    Investment:	Twenty-Five
                                         Thousand Dollars ($25,000) 

	 	 
	Form
    of Securities:	10%
    Subordinated Convertible Promissory Notes (“Notes”) with detachable common stock purchase warrants
    (“Warrants”).
	 	 
	Security:	The
    Notes shall be secured by all of the assets of QSI, including, without limitation, all tangible and intangible assets (collectively,
    the “Assets”). Novus Capital Group, LLC (“Novus”) is the Company’s
    senior secured lender as evidenced by that certain Loan and Security Agreement between Novus and QSI dated June 18, 2014.
    Lenders will receive a security interest (the “Security Interest”) in the Assets of QSI, junior,
    or subordinated, to the senior security interest of Novus, and pari passu to the convertible noteholders who collectively
    purchased $510,000 of convertible notes from QSI on May 28, 2015. The Security Interest in the Assets will be evidenced by
    a security agreement, and financing statement on Form UCC-1 filed with the Secretary of State of California.
	 	 
	Maturity:	The
    Maturity Date shall be the earlier of (i) one (1) year from the date of issuance of the Notes, or (ii) closing of an
    equity financing of Four Million Dollars ($4,000,000) or more (“Qualifying Equity Financing”).
	 	 
	Interest:	The
    Notes shall bear simple interest at the rate of 10% per annum. The default interest rate shall be eighteen percent (18%) per
    annum. All interest shall accrue and be payable at maturity in the form of either, (i) cash, in the event a Qualifying
    Equity Financing has not occurred prior to the one (1) year anniversary of the Notes, or (ii) common stock, if a Qualifying
    Equity Financing has occurred prior to the one (1) year anniversary of the Notes, with such conversion on the terms outlined
    herein.
	 	 
	Warrants:	Lenders
    shall be issued warrants to purchase common stock (“Warrants”) equal to100% of the face value of
    the Notes based upon an exercise price (the “Exercise Price”) of $3.00 per share. The Warrants shall
    be exercisable for a period of five (5) years. For illustration purposes only, assuming an investment of $150,000, and an
    Exercise Price of $3.00 per share, the Lender would receive a warrant to purchase 50,000 shares of common stock, exercisable
    at $3.00 per share for a period of five (5) years. The shares of common stock issued upon exercise of the Warrants shall be
    referred to as Registrable Securities herein.


 


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	Warrant
                                         - Call Provision

         
	The
    Warrants may be called by the Company upon the common stock of the Company having an average closing bid price of $3.60 per
    share over ten (10) consecutive trading days. Upon the Company calling the Warrants, the Warrant holders shall have a period
    of thirty (30) days to exercise their respective Warrants. In the event the Warrants are not exercised, then in such event
    the Company may redeem the Warrants, in whole or in part, at a redemption price equal to $0.01 per share of common stock underlying
    the Warrants (the “Redemption”).
	 	 
	Conversion:	All
    outstanding principal and accrued interest under the Notes will be automatically converted into shares of common stock
    of the Company at the closing of a Qualifying Equity Offering based upon a conversion price of $1.60 per share. The outstanding
    principal and accrued interest may be voluntarily converted, at the sole discretion of the Lender, at any time prior
    to the close of the Qualifying Equity Offering, in whole or in part, at a conversion price of $1.60 per share as well. The
    shares of common stock issued upon conversion of the Notes shall be referred to as Registrable Securities herein.
	 	 
	Make
    Good Provision	In
    the event that, prior to the closing of a Qualifying Equity Financing, the Company elects to undertake another convertible
    debt financing on terms more favorable to the terms set forth herein, then the terms hereof shall be modified to reflect the
    more favorable convertible debt financing terms.
	 	 
	Use
    of Proceeds	The
    proceeds of the Offering shall be used to fund (i) capital expenditures relating to catalyst manufacturing equipment and ancillary
    equipment for existing reactors, (ii) production of additional QSI-Nano iron catalysts for follow-on commercial validations
    and potential purchase orders, and (iii) working capital for general corporate purposes.
	 	 
	Capital
    Structure:	As
    of the date of this Term Sheet, QSI has the following issued and outstanding shares of common stock: (i) 22,511,884 shares
    of common stock, $0.001 par value.
	 	 
	Piggyback
    Registration Rights:	Lenders
    will receive unlimited piggyback registration rights with respect to all equity securities issued in conjunction with (i)
    the conversion of the Notes (if applicable), and (ii) the exercise of Warrants. The foregoing securities are referred to herein
    as the “Registrable Securities.” With respect to any future registration statement, filed on Form S-1 or S-3 (collectively,
    the “Registration Statement”) with the Securities and Exchange Commission for the purpose of registering
    the Registrable Securities along with other securities of the Company in the future, the Company shall keep such Registration
    Statement effective for a period equal to the later of the following: (a) the sale of all shares of common stock issued upon
    the conversion of the Notes and (b) the sale of all shares issued upon exercise of the Warrants. The Company shall comply
    with all Federal and state laws or regulations necessary for the holders of Registrable Securities to effect a sale or disposition
    of Registrable Securities. The Company shall pay all expenses of registration. All selling expenses shall be borne exclusively
    by the holders of Registrable Securities.


 


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	Disclosure
    Documents:	The
    Company is utilizing the following public filings made with the SEC pursuant to its reporting obligations under the Securities
    Exchange Act of 1934, as amended, as its disclosure documents:
	 	 
	 	(i)
                                         Transition Report on Form 10-KT, as filed on September 26, 2014;

        (ii)
        Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, as filed on November 14, 2014;

        (iii)
        Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2014, as filed on February 17, 2015;

        (iv)
        Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, as filed on May 14, 2015; and

        (v)
        Annual Report on Form 10-K for the annual period ended June 30, 2015, as filed on September 28, 2015.

	 	 
	Transaction
    Documents:	The
                                         following will comprise the transaction documents for the Offering:

        (i)
        Term Sheet;

        (ii)
        Note Purchase Agreement;

        (iii)
        10% Subordinated Convertible Promissory Note;

        (iv)
        Security Agreement;

        (v)
        Common Stock Purchase Warrant;

        (vi)
        Intercreditor Agreement; and

        (vii)
        Registration Rights Agreement.

	 	 
	Accredited
                                         Investors Only:

         
	The
    Notes and Warrants may be purchased by accredited investors only as that term is defined in Rule 501 of Regulation D, promulgated
    under The Securities Act of 1933, as amended. All investors in the Offering will be required to make a written representation
    that they satisfy the accredited investor requirements set forth thereunder.
	 	 
	Governing
    Law:	The
    Notes and the Warrants will be governed by, and construed under, the laws of State of Nevada, without giving effect to applicable
    principles of conflict of laws, to the extent that the application of the laws of another jurisdiction would be required thereby.
	 	 
	Closings:	The
                                         Company may hold an initial closings upon achieving the Minimum Offering (“Initial
                                         Closing”), and follow-on closings at any time through November 13, 2015 (the “Final
                                         Closing”), subject to the Company’s right to extend the Offering for up to
                                         an additional thirty (30) days. The Company will maintain an escrow account for all subscriptions
                                         received in the Offering.

         

	Confidentiality:

         

         
	The
                                         investment by Lenders shall be held confidential by the Company at all times. The Company
                                         will not distribute or disclose the foregoing other than to its employees, officers,
                                         directors, legal advisors and auditors, as applicable, each of whom shall be subject
                                         to the foregoing terms of confidentiality. The Company will disclose the offering, or
                                         as may be required by state or Federal securities laws at Closing. 



 


IMPROVING
CHEMICAL EFFICIENCIES WITH ADVANCED TECHNOLOGIES


 


2905
Tech Center Drive, Santa Ana, CA 92705 ● Ph: 714-545-6266 ● Fax: 714-545-6265 ● www.qsinano.com