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Item 1.01.
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Entry into a Material Definitive Agreement.
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On
April 23rd, 2021, Cannabics Pharmaceuticals Inc. (the “Company”) entered into a Senior Secured Note (the “Note”)
for $1,375,000 with an institutional investor (the “investor” or a “holder”). This follows the previously disclosed
Securities Purchase Agreement dated 17th December 2020 (the “SPA”), a Restated Securities Purchase Agreement dated
as of 22nd February 202, (the “A&R SPA”), as well as accompanying documents for an aggregate principal amount
of $2,750,000 having an aggregate original issue discount of 10%, and ranking senior to all outstanding and future indebtedness of the
Company.
Said
investments have been made in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act
of 1933, as amended (the “1933 Act”), and Rule 506(b) of Regulation D (“Regulation D”) as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the 1933 Act, together with the issuance of the Convertible Note,
the “Securities”) to acquire our common stock , as described below. This most recent Note has a face amount of $1,375,000,
which the Company has now received.
The
following descriptions of the Convertible Note, Security and Pledge Agreement, Guaranty, Registration Rights Agreement, SPA and A&R
SPA are not complete and are qualified in their entirety by reference to the full text of such agreements, the forms of which are attached
as Exhibit 10.1 through 10.6[1] to this Form 8-K, respectively. Additional information regarding the Security and Pledge Agreement,
Guaranty, Registration Rights Agreement, and SPA is set forth in the disclosure on Form 8-K, which was filed with the Securities and Exchange
Commission on December 16, 2020; and is incorporated by reference into this Item 1.01.
This
report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to purchase the Convertible Notes or the Warrants.
Convertible Notes
Maturity
and Repayment Dates
The
Convertible Notes mature (the “Maturity Date”) on the one-year anniversary of the date on which they are issued (the “Issuance
Date”). The Convertible Notes must be paid in cash and the Company may not voluntarily prepaid by the Company except as described
in “Redemptions at Company Election” below.
Interest
The
Convertible Notes are being sold with an original issue discount and do not bear interest except upon the occurrence of an Event of Default
(described below), in which event the applicable rate will be 18.00% per annum.
Conversion
The
Convertible Notes are convertible at any time or times after the Issuance Date in whole or in part, at the option of the holders thereof,
into shares of our common stock at a rate equal to the amount of principal, interest (if any) and unpaid late charges (if any), divided
by a conversion price of $0.35 (subject to adjustment as provided in the Note, the “Conversion Price”). The Conversion Price
has full ratchet antidilution protection upon any subsequent placement below the Conversion Price then in effect and is subject to standard
adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction. If the
Company enters into any agreement to issue (or issue) any variable price securities, the holder has the additional right to substitute
such variable price (or formula) for the Conversion Price.
Alternate
Conversion
The
holders of the Convertible Notes may alternatively convert all or any portion of the Convertible Notes at any time at an alternate conversion
price equal to the lower of (i) the conversion price then in effect, and (ii) 80% of the price computed as the quotient of (i) the sum
of the VWAP of our common stock for each of the two (2) trading days with the lowest volume weighted average price (“VWAP”)
of our common stock during the ten (10) consecutive trading day period ending and including the trading day immediately preceding the
delivery or deemed delivery of the applicable notice of conversion divided by two (2) (the “Alternate Conversion Price”).
In
connection with the occurrence of Events of Default, the holders of the Convertible Notes will be entitled to convert all or any portion
of the Convertible Notes at the Alternate Conversion Price.
Conversion
Limitation and Exchange Cap
The
holders of the Convertible Notes will not have the right to convert any portion of the Convertible Notes, to the extent that, after giving
effect to such conversion, such holder (together with certain related parties) would beneficially own in excess of 4.99% of the shares
of our common stock outstanding immediately after giving effect to such conversion. A holder may from time to time increase this limit
to 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice to the Company of such increase.
Events
of Default
The
Convertible Notes include certain customary Events of Default as described in the form of Note attached hereto. In connection with an
Event of Default, the holders of the Convertible Notes may require the Company to redeem any portion or all of the Convertible Notes.
The redemption price will equal the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) 125% and
(ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in effect at such time as the holder delivers an Event
of Default Redemption Notice multiplied by (Y) the product of (1) 125% multiplied by (2) the greatest Closing Sale Price of our common
stock on any trading day during the period commencing on the date immediately preceding such Event of Default and ending on the date the
Company makes the entire payment required, as determined in accordance with the Convertible Notes.
Upon
the occurrence of a Bankruptcy Event of Default (as defined in the Convertible Notes), the Convertible Notes will automatically become
immediately due and payable in cash in an amount equal to all outstanding principal, interest, and late charges multiplied by a redemption
premium of 125%.
Change
of Control
In
connection with a Change of Control (as defined in the Convertible Notes), the holders of the Convertible Notes may require the Company
to redeem all or any portion of the Convertible Notes. The redemption price per share will equal the greatest of (i) 125% of the outstanding
principal of the Convertible Notes to be redeemed, and accrued and unpaid interest and unpaid late charges thereon, (ii) 125% of the market
value of the shares of our common stock underlying the Convertible Notes, as determined in accordance with the Convertible Notes, and
(iii) 125% of the aggregate cash consideration that would have been payable in respect of the shares of our common stock underlying the
Convertible Notes, as determined in accordance with the Convertible Notes.
Other
Corporate Events
The
Company cannot enter a Fundamental Transaction (as defined in the Convertible Notes), unless the successor entity assumes all of the obligations
under the Convertible Notes pursuant to written agreements satisfactory to the holder of the Convertible Notes, and the successor entity
is a publicly traded corporation whose shares of common stock are quoted or listed on a national securities exchange. If at any time the
Company grants any Purchase Rights (as defined in the Convertible Note) or makes any distribution of assets pro rata to all or substantially
all of the holders of any class of its common stock, then the holders of the Convertible Notes will be entitled to acquire the aggregate
Purchase Rights or assets which such holder could have acquired if such holder had held the number of shares of our common stock acquirable
upon complete conversion of the Convertible Notes (without taking into account any limitations on conversion) held by such holder immediately
prior to the date as of which the record holders are to be determined for such grant of purchase rights or distributions. To the extent
any such grant of rights or distribution would result in the holders exceeding the maximum percentage described in first paragraph of
“Conversion Limitation and Exchange Cap” above, such rights shall be held in abeyance for up to ninety trading days.
Redemptions
at Company Election
At
any time after the Issuance Date, the Company has the right to redeem all, or any part, of the Conversion Amount then remaining under
the Convertible Notes at cash price equal to 115% of the greater of (i) the Conversion Amount being redeemed and (ii) the product of (1)
the Conversion Rate with respect to the Conversion Amount being redeemed multiplied by (2) the greatest Closing Sale Price of our common
stock on any trading day during the period commencing on the date immediately preceding such redemption notice date and ending on the
Trading Day immediately prior to the date the Company makes the entire payment required to be made for the redemption.
Covenants
The
Notes require the Company’s compliance with certain customary affirmative and negative covenants regarding the incurrence of indebtedness,
the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and
the transfer of assets, among other matters.
Events
of Default
Events
of Default are cross-referenced to the definition contained in the Convertible Notes.
At
any time after the occurrence of an Event of Default, at the request of a holder, the Company or the Successor Entity (as the case may
be) shall purchase the Warrant from the holder on the date of such request by paying to the holder cash in an amount equal to the Event
of Default Black Scholes Value.
Security and Pledge
Agreement
Pursuant
to the SPA and the Convertible Notes, the Company and certain of its subsidiaries will enter into a Security and Pledge Agreement (the
“Security Agreement”) with the investor, in its capacity as collateral agent (in such capacity, the “Collateral Agent”)
for all holders of the Convertible Notes. The Security Agreement creates a first priority security interest in all assets of the Company
and certain of its subsidiaries of every kind and description, tangible or intangible, whether currently owned and existing or created
or acquired in the future (the “Collateral”).
Upon
the occurrence of an “Event of Default” under the Security Agreement, the Collateral Agent will have certain rights under
the Security Agreement including taking control of the Collateral and, in certain circumstances, selling the Collateral to cover obligations
owed to the holders of the Notes pursuant to its terms. “Event of Default” under the Security Agreement means (i) any defined
event of default under any one or more of the transaction documents (including the Convertible Notes), in each instance, after giving
effect to any notice, grace, or cure periods provided for in the applicable document, (ii) the failure by the Company to pay any amounts
when due under the Notes or any other transaction document, or (iii) the breach of any representation, warranty or covenant by the Company
under the Security Agreement.
Guaranty Agreement
Pursuant
to the SPA, certain subsidiaries of the Company will enter into a guaranty agreement under which they will guarantee the obligations of
the Company under the Convertible Notes.
Registration Rights
Agreement
In
connection with the Private Placement, the Company and the investor has additionally entered into a Registration Rights Agreement (the
“Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company is required to file with the
SEC a registration statement for resale of our common stock issuable upon conversion of the Convertible Note within 30 days and to have
the registration statement declared effective within 90 days of after the Closing of the SPA. The Registration Rights Agreement also grants
the investor customary “piggyback” registration rights. If the Company fails to file the registration statement or have it
declared effective by the deadlines above, or if certain other conditions relating to the availability of the registration statement and
current public information are not met, the Company will pay certain Registration Delay Payments to the investor (as defined in the Registration
Rights Agreement).
Securities Purchase
Agreement
The SPA contains certain
representations and warranties, covenants and indemnities customary for similar transactions. Under the SPA, the Company also agreed to
the following additional covenants:
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During the period commencing on December 16, 2020 through and including the 90th trading day after the earlier to occur of (i) the first date on which a registration statement is declared effective by the SEC, or (ii) the first date on which all of the registrable securities are eligible to be resold by the selling shareholders pursuant to Rule 144, the Company may not issue, offer, sell or grant any equity or equity-linked security, subject to certain limited exceptions.
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So long as the Convertible Notes remain outstanding, the Company will not effectuate or enter an agreement for any variable rate transaction.
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Amended & Restated
Securities Purchase Agreement of February 22nd, 2021
the “A&R SPA”
was drafted to Amend and Restate that original Securities Purchase Agreement of December 16th, 2020; and authorized a new series
of senior secured convertible notes of the Company, which would aggregate to the same original principal amount of $2,750,000 as in the
December Securities Purchase Agreement. The representations, representations and warranties, covenants and indemnities within the A&R
SPA were the same as those originally agreed to under the December Securities Purchase Agreement.
The
preceding description is a summary of the proposed transaction and the agreements entered into by the Company in connection therewith
and does not purport to be a complete description of the rights and obligations of the parties thereunder. Such summary is qualified in
its entirety by reference to the Convertible Note, the Security Agreement, the Guaranty, the Registration Rights Agreement, the SPA, the
A&R SPA and the other transaction agreements, which are filed as exhibits to this Current Report. Investors and incorporated herein
by reference. Security holders of the Company are urged to read the exhibits filed herewith in their entirety because they contain important
information about the transaction.