Item
1.01 Entry into a Material Definitive Agreement
On
July 31, 2020, Innovative Payment Solutions, Inc. (the “Company”), closed the second tranche of its offering to Cavalry
Fund I LP (“Cavalry”), under its Securities Purchase Agreement, dated June 30, 2020 (the “Cavalry SPA”)
with Cavalry pursuant to which the Company received $262,500 in exchange for the issuance of:
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an
Original Issue Discount 10% Senior Secured Convertible Note (the “Second Note”) in the principal amount of $300,000;
and
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a
five-year warrant (the “Second Warrant”) to purchase 8,571,428 shares of the Company’s common stock at an exercise
price of $0.05 per share.
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The
Company had previously issued, on June 30, 2020, under the Cavalry SPA an Original Issue Discount 10% Senior Secured Convertible
Note (the “Initial Note”) in the principal amount of $300,000; and a five-year warrant (the “Initial Warrant”)
to purchase 8,571,428 shares of the Company’s common stock at an exercise price of $0.05 per share.
On
August 3, 2020, the Company entered into a Securities Purchase Agreement (the “Mercer SPA”) with Mercer Street Global
Opportunity Fund, LLC (“Mercer”), pursuant to which the Company received $350,000 in exchange for the issuance of:
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an
Original Issue Discount 10% Senior Secured Convertible Note (the “Mercer Note”) in the principal amount of $400,000;
and
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a
five-year warrant (the “Mercer Warrant”) to purchase 11,428,571 shares of the Company’s common stock at an exercise
price of $0.05 per share.
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On
August 5, 2020, the Company entered into a Securities Purchase Agreement (the “Pinz SPA”) with Pinz Capital Special
Opportunities Fund, LP. (“Pinz”), pursuant to which the Company received $87,500 in exchange for the issuance of:
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an
Original Issue Discount 10% Senior Secured Convertible Note (the “Pinz Note”) in the principal amount of $100,000;
and
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a
five-year warrant (the “Pinz Warrant”) to purchase 2,857,143 shares of the Company’s common stock at an exercise
price of $0.05 per share.
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The
Initial Note, Second Note, Mercer Note and Pinz Note are hereinafter referred to collectively as the “Notes. The Initial
Warrant, Second Warrant, Mercer Warrant and Pinz Warrant are hereinafter referred to collectively as the “Warrants’.
The
Notes mature in 12 months after issuance, bear interest at a rate of 10% per annum, and are initially convertible into the Company’s
common stock at a conversion price of $0.035 per share (as adjusted for stock splits, stock combinations, dilutive issuances and
similar events).
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 115% of the principal amount plus accrued interest. From day 181 through day 365, the Notes
may be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Notes contain certain covenants,
such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The
Notes and the 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% (the “Maximum Percentage”) 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.
The
Company had pledged substantially all of its assets as security for amounts due under the Initial Note and Second Note, upon the
terms and subject to the conditions set forth in a Security Agreement, dated June 30, 2020, between the Company and Cavalry (the
“Security Agreement”). The Security Agreement was amended and restated on August 3, 2020 (the “Amended Security
Agreement”) to include the Mercer Note and Pinz Note thereunder on a pari passu basis with the Initial Note and Second
Note.
Upon
the occurrence of an event of default under the Notes, a holders of the Notes has the right to be prepaid at 140% of the outstanding
principal balance and accrued interest, and interest accrues at 18% per annum (or the maximum amount permitted by law). In addition,
if an event of default under in the Notes has occurred, regardless of whether it has been cured or remains ongoing, the Notes
will thereafter be convertible at 65% of the lowest closing price of the Company’s common stock for the last 10 consecutive
trading days.
In
connection with the Cavalry SPA, the Company had entered into a Registration Rights Agreement on June 30, 2020 (“Cavalry
RRA”), with Cavalry pursuant to which it was obligated to file a registration statement with the SEC within sixty (60) days
after the date of the agreement to register the resale by Cavalry of the shares of the Company’s common stock issuable to
it under the Initial Note, Second Note, Initial Warrant and Second Warrant. A registration statement was filed by the Company
with respect to such shares and was declared effective on July 28, 2020.
In
connection with the Mercer SPA, the Company entered into a Registration Rights Agreement, dated August 3, 2020 (“Mercer
RRA”), with Mercer pursuant to which it is obligated to file a registration statement with the SEC within ninety (90) days
after the date of the agreement to register the resale by Mercer of the shares of the Company’s common stock issuable to
it under the Mercer Note and Mercer Warrant, and use all commercially reasonable efforts to have the registration statement declared
effective by the SEC within one hundred and five (105) days after the date of the agreement.
In
connection with the Pinz SPA, the Company entered into a Registration Rights Agreement, dated August 3, 2020 (“Pinz RRA”),
with Pinz pursuant to which it is obligated to file a registration statement with the SEC within ninety (90) days after the date
of the agreement to register the resale by Pinz of the shares of the Company’s common stock issuable to it under the Pinz
Note and Pinz Warrant, and use all commercially reasonable efforts to have the registration statement declared effective by the
SEC within one hundred and five (105) days after the date of the agreement.
The
Notes and the Warrants 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. Each of the investors
are 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 Mercer Note and Pinz Note and the exercise of the Mercer Warrants
and Pinz 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 Form
of Note, the Second Warrant, Mercer Warrant, Pinz Warrant, the Cavalry SPA. Mercer SPA, Pinz SPA, the Amended Security Agreement,
the Mercer RRA and the Pinz RRA, attached hereto as Exhibits 4.1, 4.2, 4.3, 4.4, 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6 respectively,
each of which are incorporated herein by reference.