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Item
2.03
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Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
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On
April 21, 2020, Brain Scientific Inc. (the “Company”) issued a Convertible Grid Promissory Note (the “Caleca
Note”) to Thomas J. Caleca (“Caleca”), an existing stockholder of the Company, pursuant to which Caleca agreed
to advance to the Company the aggregate principal amount of $125,000 (the “Caleca Aggregate Advance”). The Company
also issued to Caleca a common stock purchase warrant (the “Caleca Warrant”), granting Caleca the right to purchase
up to 750,000 shares of the Company’s common stock at a per share exercise price of $0.80 (subject to adjustment as set
forth in the Caleca Warrant).
Also
on April 21, 2020, the Company issued a Convertible Grid Promissory Note (the “Brown Note”, and together with the
Caleca Note, the “Notes”) to Andrew Brown (“Brown”, and together with Caleca, the “Investors”),
an existing stockholder of the Company, pursuant to which Brown agreed to advance to the Company the aggregate principal amount
of $125,000 (the “Brown Aggregate Advance”, and together with the Caleca Aggregate Advance, the “Aggregate Advance”).
The Company also issued to Brown a common stock purchase warrant (the “Brown Warrant”, and together with the Caleca
Warrant, the “Warrants”), granting Brown the right to purchase up to 750,000 shares of the Company’s common
stock at a per share exercise price of $0.80 (subject to adjustment as set forth in the Brown Warrant).
On
April 22, 2020, the Investors each made their first cash advance of $25,000 pursuant to the terms of the Notes, for an aggregate
cash advance to the Company of $50,000 (the “First Advance”). The Investors shall make additional cash advances to
the Company pursuant to the terms of their Notes.
The Company intends to use the proceeds from
the First Advance and all subsequent advances for the Company’s working capital and general corporate purposes.
The
Notes bear interest on the unpaid balances at a fixed simple rate of twelve percent (12%) per annum (subject to a rate increase
if the Company commits an Event of Default (as defined in the Notes)), computed based on a 360-day year of twelve 30-day months,
commencing on the date of the respective advance and payable quarterly.
The
principal amount of the Aggregate Advance, or so much thereof as has been advanced to the Company by the Investors from time to
time pursuant to the Notes, will be payable on April 21, 2021 (the “Maturity Date”), unless sooner converted into
shares of the Company’s common stock pursuant to the terms of the Notes.
The
unpaid outstanding principal amount and accrued and unpaid interest under the Notes shall be convertible at any time prior to
the Maturity Date at the election of the Investors into such number of shares of the Company’s common stock obtained by
dividing the amount so converted by $1.00 (the “Conversion Price”). At the Maturity Date, all of the remaining unpaid
outstanding principal amount and accrued and unpaid interest (the “Outstanding Balance”) under the Notes shall automatically
convert into such number of shares of the Company’s common stock obtained by dividing the Outstanding Balance by the Conversion
Price. The Notes may not be prepaid by the Company in whole or in part without the prior written consent of the respective Investor.
The
Company also agreed to provide piggy-back registration rights to the Investors pursuant to which the Company shall include all
shares issuable upon conversion of the Notes, as well as any other shares of the Company’s common stock owned by the Investors
as of the date the Notes were issued, on the next registration statement the Company files with the Securities and Exchange Commission.
The
Notes contain customary events of default, which, if uncured, entitle the Lenders to accelerate the due date of the unpaid principal
amount of, and all accrued and unpaid interest on, their Notes.
The
Warrants are exercisable at any time commencing on the eighteen-month anniversary of the issuance of the Warrants (as may be accelerated
pursuant to the terms of the Warrants) and expiring on the five-year anniversary of the issuance of the Warrants. The Warrants
also provide piggy-back registration rights to the Investors pursuant to which the Company shall include all shares issuable upon
exercise of the Warrants on the next registration statement the Company files with the Securities and Exchange Commission.
The
foregoing is a brief description of the terms of the Notes and the Warrants and is qualified in its entirety by reference to the
full text of the Caleca Note, Caleca Warrant, Brown Note, and Brown Warrant, copies of which are included as Exhibits 10.1, 10.2,
10.3, and 10.4, respectively, to this Current Report on Form 8-K, each of which are incorporated herein by reference.