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
September 1, 2020 (the “Issuance Date”), Brain Scientific Inc. (the “Company”) entered into a Securities
Purchase Agreement and issued and sold to Diamond Investment Group II LLC (the “Investor”), an 8% Convertible Redeemable
Note in the original principal amount of $157,500 (the “Note”). The net amount received by the Company for the sale
of the Note was $142,500 after an original issue discount of $7,500 and after payment of the Investor’s legal fees.
The
Company intends to use the net proceeds from the sale of the Note for the Company’s working capital and general corporate
purposes.
The
Note bears interest commencing on the Issuance Date at a fixed rate of 8% per annum on any unpaid principal balance, and will
be payable, along with the principal amount, on September 1, 2021 (the “Maturity Date”), unless such interest is earlier
converted into shares of the Company’s common stock (“Common Stock”) pursuant to the conversion terms contained
in the Note.
The
unpaid outstanding principal amount and accrued and unpaid interest under the Note shall be convertible into shares of Common
Stock at any time on or after the Issuance Date at the option of the Investor. The conversion price shall be equal to 60% of the
lowest closing bid price for the Common Stock, subject to certain exceptions and adjustments contained in the Note, for the fifteen
prior trading day period. From the Issuance Date until 180 days after the Issuance Date, upon 3 days’ notice to the Investor,
the Company shall have the right to pre-pay the entire remaining principal amount of the Note, subject to the pre-payment terms
contained in the Note.
The
conversion of the Note is subject to a beneficial ownership limitation of 4.99% (or 9.9% upon notice of the Investor) of the number
of shares of common stock outstanding immediately after giving effect to such conversion. The Note is further subject to a “most-favored
nation” clause in the event the Company offers a more favorable conversion discount, interest rate, (whether through a straight
discount or in combination with an original issue discount), look back period or other more favorable term to another party for
any financings while this Note is in effect, subject to certain exceptions contained in the Note.
The
Note contains customary events of default which entitle the Investor, among other things, to accelerate the due date of the unpaid
principal amount of, and all accrued and unpaid interest on, the Note. Upon an event of default, interest shall accrue at a default
interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest
permitted by law. The Note further contains monetary penalties in the event of certain events of default.
At
the Investor’s election, if the Company fails for any reason to deliver to the Investor underlying shares upon conversion
by the 3rd business day thereafter and if the Investor incurs a Failure to Deliver Loss (as defined in the Note), then the Company
must make the Investor whole in relation to such loss.
For
a period of 45 days following the Issuance Date, the Company shall not issue or consummate the sale of any variable equity securities,
including those securities which have the potential to become variable rate equity securities. However, the Company may consummate
the sale of convertible equity securities in an amount not to exceed $100,000 during this period of time.
Upon
certain sale events as specified in the Note, the Company shall, upon request of the Investor, redeem the Note in cash for 150%
of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Investor,
such Holder may convert the unpaid principal amount of the Note (together with the amount of accrued but unpaid interest) into
shares of Company common stock immediately prior to such sale event at the conversion price specified in the Note.
The
foregoing is a brief description of the purchase of the Note and is qualified in its entirety by reference to the full text of
the Securities Purchase Agreement and Note, copies of which are included as Exhibits 10.1 and 10.2, respectively, to this Current
Report on Form 8-K, each of which are incorporated herein by reference.