Item 1.01 Entry
into a Material Definitive Agreement.
On March 1, 2017 (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 $750,000 (the “Financing”). On the
Closing Date, the Company issued to Investor a Secured Convertible Promissory Note (the “Note”) in the principal amount
of $770,000, in exchange for payment by Investor of $750,000. The principal sum of the Note reflects the amount invested, plus
a $15,000 “Original Issue Discount” (“OID”) and a $5,000 reimbursement of Investor’s legal fees.
The Company paid no commissions or other placement agent fees.
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 14 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 $200,000 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 $100,000. 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 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
A11 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 the greater
of 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 Notes.
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 information regarding
the terms of the Transaction Documents, reference is made to such Transaction Documents, which are filed hereto as Exhibits 10.1
– 10.3, and are incorporated herein by this reference.