Here it is:
Item 1.01 Entry into a Material Definitive Agreement.
On May 25, 2016 (the "Closing Date"), CV Sciences, Inc. (the "Company") entered into a Securities Purchase Agreement ("SPA") with an institutional accredited investor ("Investor") pursuant to which Investor invested $2,000,000 (the "Financing"). On the Closing Date, the Company issued to Investor a Secured Convertible Promissory Note (the "Note") in the principal amount of $2,055,000, in exchange for payment by Investor of $2,000,000. The principal sum of the Note reflects the amount invested, plus a 2.25% "Original Issue Discount" ("OID") and a $10,000 reimbursement of Investor's legal fees. Out of the proceeds from the Note, the Company paid the sum of $25,000 to its placement agent, Meyers & Associates, L.P. The Company received net proceeds of $1,975,000 in exchange for the Note.
In connection with the Financing, and in addition to the SPA and the Note, on the Closing Date, the Company and Investor entered into a Security Agreement, pursuant to which the Company granted a first priority lien and security interest in and to its inventory, accounts receivable and equipment to secure payment under the Note. The SPA, the Note and the Security Agreement are collectively referred to herein as the "Transaction Documents."
The Note matures in 13 months, and is convertible at the option of Investor at any time into shares of the Company's common stock at a conversion price equal to $0.50 per share. The Company may prepay the Note at any time by payment to Investor of 125% of the principal, interest and other amounts then due under the Note. The Company may prepay the Note notwithstanding an earlier notice of conversion from Investor, provided that in such event Investor may convert an amount not to exceed $300,000 under the Note.
Commencing on the date that is six (6) months from the issuance of the Note, Investor may redeem a portion of the Note in monthly amounts not to exceed $275,000. Provided the Company has not suffered an "Event of Default" and is in compliance with certain "Equity Conditions" (unless waived by Investor in either case), the Company may make redemption payments by the issuance of common stock in lieu of cash payments. If the Company chooses to make redemption payments in stock, the number of shares issuable shall be determined based upon a price per share equal to the lesser of $0.50 per share or 70% of the average of the three
(3) lowest closing bid prices in the previous twenty (20) trading days; provided, however, that the percentage reflected above (the "Conversion Factor") shall adjust downward if (a) the 20-day average bid price is below $0.25 per share (in which case the Conversion Factor shall be reduced by 10%), (b) the Company is not DWAC eligible (in which case the Conversion Factor shall be reduced by 5%), (c) there has occurred a "Major Default" (in which case the Conversion Factor shall be reduced by 5% for each Major Default).
Events of Default include the events set forth in Section 4.1 of the Note, and include, but are not limited to, failure to make timely payments, failure to deliver conversion shares, bankruptcy, receivership, insolvency, failure to reserve required shares for issuance upon conversion, and failure to be DWAC eligible. The Equity Conditions required for payment of redemption installments in stock are set forth in Attachment 1, Section A12 of the Note, and include, but are not limited to, maintaining eligibility under Rule 144, listing on an exchange, the timely delivery of all conversion shares, compliance with laws and no trading suspension.
Upon an Event of Default under the Note, Investor may accelerate the outstanding principal amount of all outstanding Note, plus accrued and unpaid interest, and other amounts owing through the date of acceleration. In the event of such acceleration, the interest rate on the Note shall accrue at 22% per annum or the maximum rate permitted under applicable law. Upon acceleration, the amount due will be 115% of the outstanding principal amount of the Note and accrued and unpaid interest, together with payment of all other amounts, costs, expenses and liquidated damages due under the Note.
Pursuant to the terms of the SPA and the Note, the Company is required to reserve and keep available out of its authorized and unissued shares of common stock a number of shares of common stock at least equal to three (3) times the number of shares issuable on conversion of the Note.
The foregoing summary description of the terms of the Transaction Documents may not contain all information that is of interest to the reader. For further . . .
