ITEM
2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS THE MERGER AND RELATED TRANSACTIONS
Merger
Agreement
As
previously announced in our Current Report on Form 8-K dated June 11,2021 and filed with the SEC on June 16, 2021, on June 11, 2021,
Brain Scientific Inc. (the “Company”) entered into an Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) with Piezo Motion Corp., a Delaware corporation (“Piezo”), and BRSF Acquisition Inc., a Delaware corporation
and wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms
and subject to the conditions set forth in the Merger Agreement, Merger Sub was to be merged with and into Piezo, whereby Merger Sub
would cease to exist and Piezo would survive as a wholly owned subsidiary of the Company (the “Merger”). On October 1,2021
the Company, Piezo and the Merger Sub entered into an Amendment to Merger Agreement (the “Merger Agreement Amendment”) to
revise certain provisions within the Merger Agreement involving the post-Merger composition of Company management and certain post-Merger
arrangements with the Company’s outgoing principal executive officer, Boris Goldstein. The Merger was completed on October 1, 2021.
At
the effective time of the Merger (the “Effective Time”), shares of common stock, par value $0.0001 per share, of Piezo, representing
all of Piezo’s issued and outstanding common stock immediately prior to the Effective Time (the “Piezo Shares”) were
converted into an aggregate of 29,520,452 shares of common stock, par value $0.001 per share of the Company (the “Merger Shares”),
with such Merger Shares representing, upon issuance, 50% of the Company’s issued and outstanding common stock on a fully diluted
basis. At the Effective Time, Piezo had no outstanding options, warrants, convertible notes or other securities exercisable for or convertible
into shares of Piezo common stock
At the Effective Time,
the board of directors of the Company (the “Board”) was increased from two directors to five directors. Boris Goldstein resigned
as the chairman and as a director of the Company and Hassan Kotob was appointed to fill one of the board vacancies creates thereby. Nickolay
Kukekov remained as a director following the Effective Time. There are three existing vacancies to the Board. At the Effective Time, Boris
Goldstein also resigned as the Company’s principal executive officer and from all other executive officer positions then held by
him, Mark Corrao resigned as the Company’s chief financial officer, Hassan Kotob was appointed as the Company’s chief executive
officer, and Bonnie-Jeanne Gerety was appointed as the Company’s chief financial officer. At the Effective Time, Boris Goldstein
was appointed to serve, for a period of one year, on a part-time basis, as chief product officer of the Company’s wholly owned subsidiary,
MemoryMD, Inc., at a rate of $5,000 per month.
In conjunction with the closing
of the Merger, on October 1,2021 we entered into an executive employment agreement with Hassan Kotob (the “Kotob Employment Agreement”),
pursuant to which Mr. Kotob is serving as our Chief Executive Officer and as the Chairman of our Board of Directors. Pursuant thereto,
Mr. Kotob is receiving a base annual salary of $390,000. Mr. Kotob is also eligible to receive annual performance bonuses of not less
than $250,000 upon the Company achieving certain agreed to milestones. Upon a termination of the Kotob Employment Agreement by Mr. Kotob
for good reason or by the Company without cause, Mr. Kotob is entitled to continue to receive his then current base salary until a date
that is the later of (A) the 3 year anniversary of the commencement date of the Kotob Employment Agreement, or (B) the 12 month anniversary
of the effective date of such termination and is also eligible to receive a severance bonus in an amount equal to a pro-rata portion of
the annual bonus to which Mr. Kotob may have been entitled for the year in which termination takes place. The Kotob Employment Agreement
will continue until terminated by either party.
In conjunction with the closing of the Merger,
and as a condition to the Merger, the Company transferred all of the Company’s pre-Merger operating assets and liabilities to the
Company’s wholly-owned subsidiary, MemoryMD, Inc., such that immediately following the closing of the Merger, the Company became
a holding company. The terms and conditions of the transfer are set forth in the Assignment and Assumption Agreement dated
September 10, 2021 between the Company and MemoryMD, Inc. (the “Assignment and Assumption Agreement”).
Effective
September 28, 2021 and September 30, 2021, respectively, Boris Goldstein and Vadim Sakharov entered into Assignment Agreements (the “Goldstein
Assignment Agreement” and the “Sakharov Assignment Agreement”) under which they each confirmed their previous assignment
of the full and exclusive right, title and interest in and to all Proprietary Information (as such term is defined in the Assignment
Agreements) and Inventions (as such term is defined in the Assignment Agreements) related to their employment by the Company and Memory
MD, Inc. to Memory MD, Inc. and its successors and assigns.
Pursuant to the Merger
Agreement Amendment, as amended, the Company agreed to make the following payments to Boris Goldstein:
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(i)
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$149,000
of accrued payroll payment upon the Company raising an aggregate $5,000,000 in capital after the closing;
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(ii)
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$200,000
upon the Company raising an aggregate of $10,000,000 in capital after the closing (inclusive of proceeds raised the Offering) and such
cash payment shall be held in escrow for 12 months against any liabilities arising prior to the Merger closing;
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(i)
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$150,000
upon the Company listing its securities on a senior exchange such as NASDAQ or the New York Stock Exchange; and
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(ii)
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$250,000
upon completion of performance metrics as specified by Hassan Kotob, in his capacity as the Company’s chief executive officer.
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The
payment referenced in (i) above was made at the closing of the Merger.
The completion of the
Merger was subject to various customary conditions, including, among other things: (a) the approval of the respective stockholders
and boards of directors of the Company, Merger Sub, and Piezo; (b) subject to certain materiality exceptions, the accuracy of the
representations and warranties made by each of the Company and Piezo and the compliance by each of the Company and Piezo with their respective
obligations under the Merger Agreement; (c) approval of the transactions contemplated by the Merger Agreement by any third-parties and
governmental entities as required by law; (d) the execution and delivery of an assignment and assumption agreement between the Company
and MemoryMD, a wholly-owned subsidiary of the Company, pursuant to which the Company assigned to MemoryMD, and MemoryMD assumed from
the Company, all of the Company’s per-Merger operating assets and liabilities, subject to certain exceptions; (e) the completion
of all necessary legal due diligence by each of the Company and Piezo; (f) the first closing of a capital raise by the Company of at least
$5.0 million (the “Offering”), including any interim bridge financing raised by either Company or Piezo that was convertible
into the Offering, consisting of a 10% convertible promissory note and common stock purchase warrants, upon the terms and subject to the
conditions of a separate securities purchase agreement; and (g) the number of shares of Piezo common stock held by Piezo stockholders
who did not vote to adopt the Merger Agreement could not exceed 10% of the number of outstanding shares of Piezo common stock as of the
Effective Time. 92.44% of the Piezo stockholders voted to adopt the Merger Agreement and no Piezo stockholders asserted appraisal rights.
Holders of the Company’s Common Stock did not have appraisal rights in connection with the Merger or any of the other actions described
in this Report.
The
Merger Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing
conditions.
The
Merger is intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
The
issuance of shares of our common stock, to holders of Piezo common stock in connection with the Merger was not registered under the Securities
Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by
an issuer not involving any public offering, and Rule 506 of Regulation D promulgated by the Securities and Exchange Commission, or the
SEC, under that section. These securities may not be offered or sold in the United States absent registration or an applicable exemption
from the registration requirement.
Closing Under Note
Offering and Debt Conversions
In conjunction with the
closing of the Merger, the Company conducted an initial closing under a private offering (the “Offering”) of 10% convertible
promissory notes due and payable on April 1, 2023 (the “Notes”). At the initial closing, an aggregate of $5,000,000 in Notes
was closed on. At that same time, (i) an aggregate of $4,128,242 of debt of Piezo and an aggregate of $1,311,244 of debt of the Company
was converted into Notes. Each holder of a Note, provided that the Note is still then outstanding, will be issued on the earlier of (i)
the date, if any, upon which the Company’s common stock is listed for trading on the NASDAQ stock exchange (the “Uplist”),
and (ii) the date that is eighteen months from the date of issuance, a warrant (the “Warrant”) to purchase an amount of shares
of Company common stock, equal to such holder’s Warrant Share Amount. For purposes of the foregoing, a holder’s “Warrant
Share Amount” means (i) if such Warrant is issued in connection with the Uplist, one half of the initial principal balance of such
holder’s Note at issuance divided by the lesser of (A) $0.90, and (B) and the greater of (x) $0.20 and (y) one hundred twenty percent
(120%) of the closing price for the Company’s common stock on the trading day prior to the date of the Uplist, and (ii) if such
Warrant is issued otherwise than in connection with the Uplist, the initial principal balance of such holder’s Note, divided by
the lesser of (A) $0.90, and (B) and the greater of (x) $0.20 and (y) one hundred twenty percent (120%) of the volume weighted average
price (“VWAP”) for the Company’s common stock over the five consecutive trading days immediately preceding the date
that is eighteen months from the date of issuance.
The
Notes contain mandatory and voluntary conversion features as follows:
(a)
Mandatory Conversion.
(i) The
Notes automatically convert into shares of the Company’s common stock or Units, as provided below, immediately upon the earliest
to occur of (a) the Uplist, and (b) a Subsequent Qualified Financing Date. For purposes of the Notes, a “Unit” means the
combination of common stock and warrants to purchase common stock offered by the Company in any financing occurring simultaneously with
the Uplist (“Simultaneous Uplist Unit Offering”). For purposes of a Note, “Subsequent Qualified Financing Date”
means the date on which the Company has received proceeds in excess of $5,000,000 from a transaction or series of related transactions
occurring prior to the maturity date of the Note, including, but not limited to, equity financings, business combinations or other issuances
of the Company’s equity securities (not including the transactions contemplated by the Purchase Agreement for the Offering).
(ii) If
a Note is being converted in connection with an Uplist, and no Simultaneous Uplist Unit Offering has occurred, the Note will be convertible
into a number of shares of Company common stock equal to the quotient of (I) the outstanding aggregate principal amount of the Note plus
accrued but unpaid interest thereon, divided by (II) the lesser of (a) $0.90 and (b) the greater of (x) $0.20 and (y) eighty percent
(80%) of closing price for the Company’s common stock on the trading day prior to the date of the Uplist.
(iii) If
a Note is being converted in connection with an Uplist, and a Simultaneous Uplist Unit Offering has occurred, the Note will be convertible
into a number of Units equal to the quotient of (I) the outstanding aggregate principal amount of the Note plus accrued but unpaid interest
thereon, divided by (II) the lesser of (a) $0.90 and (b) the greater of (x) $0.20 and (y) eighty percent (80%) of the per Unit price
in the Simultaneous Uplist Unit Offering, .
(iv) If
a Note is being converted upon a Subsequent Qualified Financing Date, the Note will be convertible into a number of shares of Company
common stock equal to the quotient of (I) the outstanding aggregate principal amount of the Note plus accrued but unpaid interest thereon,
divided by (II) the lesser of (a) $0.90 and (b) the greater of (x) $0.20 and (y) eighty percent (80%) of the VWAP for the common stock
for the five consecutive trading days immediately preceding such Subsequent Qualified Financing Date.
(b)
Voluntary Conversion.
(i)
The Holder of a Note has the right (subject to the conversion limitations set forth therein) from time following the date of issuance
to convert all or any part of the outstanding and unpaid principal and interest then due under the Note into fully paid and non-assessable
shares of the Company’s common stock, as such common Stock exists on the date of issuance, or any shares of capital stock or other
securities of the Company into which such common stock may thereafter be changed or reclassified at the Voluntary Conversion Price (as
defined below).
(ii) If
a Note is being converted pursuant to this Section 3(b), this Note shall be convertible into a number of shares of Common Stock equal
to the quotient of (I) the outstanding aggregate principal amount of the Note plus accrued but unpaid interest thereon, divided by (II)
the lesser of (a) $0.90 and (b) the greater of (x) $0.20 and (y) eighty percent (80%) of the VWAP for the Common Stock for the five (5)
consecutive Trading Days immediately preceding the applicable conversion date (the “Voluntary Conversion Price”).
Option/Warrant Issuances
In connection with the Merger closing, the Company
issued an aggregate of 10,009,365 options and warrants (5,505,151 warrants and 4,504,214 options) to six persons, such aggregate amount
equaling, in the aggregate, 20% of the issued and outstanding shares of Company’s common stock immediately after the Merger closing.
The recipients included Nickolay Kukekov (2,001,873 options), Boris Goldstein (2,001,873 warrants) and Hassan Kotob (2,502,341 options.).
Each option and warrant has a ten year term, is fully exercisable upon issuance and has an exercise price of $0.35 which was the closing
price for the Company’s common stock on October 1, 2021.
The Merger Agreement,
the Amendment to Merger Agreement, the Form of Note, the Form of Warrant, the Kotob Employment Agreement, the Assignment and Assumption
Agreement, the Goldstein Assignment Agreement and the Sakharov Assignment Agreement are incorporated by reference in this Report. All
descriptions of the Merger Agreement, Amendment to Merger Agreement, the Form of Note, the Form of Warrant, the Kotob Employment Agreement,
the Assignment and Assumption Agreement, the Goldstein Assignment Agreement and the Sakharov Assignment Agreement herein are qualified
in their entirety by reference to the text thereof (See Exhibits 2.1, 2.2, 4.1, 10.1, 10.2, 10.3, 10.4, and 10.5 hereto).