CV SCIENCES, INC. (OTCMKTS:CVSI) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01
| Entry into a Material Definitive Agreement. |
On March 16, 2017 (the Closing Date), CV Sciences, Inc. (the
Company) entered into Amendment No. 1 (the Amendment) to that
certain Agreement and Plan of Reorganization with CANNAVEST
Merger Sub, Inc., CANNAVEST Acquisition LLC, CanX, Inc. (CanX)
and The Starwood Trust (the Merger Agreement). As more fully set
forth in the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission (the Commission) on January 4,
2016 (the January 2016 Form 8-K), on December 30, 2015 and to the
Merger Agreement, the Company acquired CanX and its wholly-owned
subsidiary, Canabine, LLC, in exchange for payment to the former
shareholders of CanX (the CanX Shareholders) at the closing of an
aggregate sum of Two Hundred Fifty Thousand Dollars ($250,000) in
cash and Five Million (5,000,000) shares of the Companys common
stock.
to the Merger Agreement, the CanX Shareholders are eligible,
subject to and conditioned upon the Company or its Affiliates (as
defined in the Merger Agreement) achieving certain post-closing
milestones, to receive additional consideration. As more
particularly set forth in the January 2016 Form 8-K, such
consideration includes the potential issuance of up to Nineteen
Million Five Hundred Thousand (19,500,000) shares of the Companys
common stock upon satisfaction of the milestones (each, a Share
Issuance Milestone). The initial Share Issuance Milestone,
related to the completion of development of a U.S. Food Drug
Administration (FDA) current good manufacturing practice-grade
batch of successfully synthetically formulated, ready-to-ship
Cannabidiol (CBD) for use in drug development activities,
previously was met and the Company, to the terms of the Merger
Agreement, previously issued to the CanX Shareholders Four
Million Five Hundred Thousand (4,500,000) shares of the Companys
common stock. The remainder of the Share Issuance Milestones each
relate to the Companys progress in development of an FDA-approved
drug utilizing CBD as the active pharmaceutical ingredient (the
CBD Drug Product). Upon satisfaction of each of the remaining
three (3) Share Issuance Milestones, the Merger Agreement
provides for the issuance of Five Million (5,000,000) shares, for
an aggregate of Fifteen Million (15,000,000) shares upon
achievement of the final Share Issuance Milestone. Each of the
Share Issuance Milestones are described in detail in the January
2016 Form 8-K.
to the Amendment, which was approved by the disinterested members
of the Board of Directors of the Company (the Board), the Company
agreed to issue the remaining Fifteen Million (15,000,000) shares
to the CanX Shareholders, and without the Company having yet
achieved the remaining Share Issuance Milestones.
As more fully set forth in the January 2016 Form 8-K, the Merger
Agreement also provides that upon commercial release by the
Company of a CBD Drug Product formulated to treat human medical
conditions, the Company will pay to the CanX Shareholders an
amount equal to five percent (5%) of net sales of such CBD Drug
Product (the Royalty Payment). The Company has the right, but not
the obligation, at any time to buyout (the Buy-Out Option) the
Royalty Payment in exchange for a one-time buyout consideration
payment to the CanX Shareholders comprised of such aggregate
number of registered and freely tradable shares of Company common
stock equal to (a) five percent (5%) multiplied by (b)
the greater of (1) the total number of shares of Company common
stock issued and outstanding on the date the Buy-Out Option is
exercised, or (2) the total number of shares of Company common
stock issued and outstanding on the date the Buy-Out Option is
consummated.
to the Amendment, the parties to the Merger Agreement agreed to
revise the Buy-Out Option to allow the Company to buyout the
Royalty Payment by the issuance to the CanX Shareholders of Six
Million Four Hundred Thousand (6,400,000) shares of the Companys
restricted common stock (the Royalty Buy-Out Shares). The Company
concurrently exercised the Buy-Out Option, as so revised. In the
aggregate, and to the Amendment, the Company agreed to issue to
the CanX Shareholders a total of Twenty-One Million Four Hundred
Thousand (21,400,000) shares of restricted common stock. As
disclosed in the January 2016 Form 8-K, James McNulty, a member
of the Companys Board of Directors, is a former shareholder of
CanX and thereby received a pro rata portion of the consideration
paid to the CanX Shareholders upon consummation of the
transactions contemplated by the Merger Agreement, and a pro rata
share of the Royalty Buy-Out Shares and shares issued to the CanX
Shareholders in connection with the Share Issuance Milestones.
As previously reported in the Companys Current Report on Form 8-K
filed with the Commission on July 11, 2016 (the July 2016 8-K),
on July 6, 2016, the Company entered into Employment Agreements
(each, an Employment Agreement) with Michael Mona, Jr., the
Founder, President and Chief Executive Officer of the Company,
Joseph Dowling, the Chief Financial Officer of the Company, and
Michael Mona III, the Co-Founder and Chief Operating Officer of
the Company (collectively, the Executives). On March 16, 2017,
the Company entered into an amendment to the Employment Agreement
with each of Messrs. Mona and Mona III.
The information set forth in Item 5.02 – Departure of Directors
or Certain Officers; Election of Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers below is incorporated by reference into this
Item 1.01.
| Item 3.02 | Unregistered Sales of Equity Securities |
The information provided above in Item 1.01 Entry Into of a
Material Definitive Agreement of this Current Report on Form 8-K
is incorporated by reference into this Item 3.02.
The issuance of the shares of the Companys common stock as
represented by the Royalty Buy-Out Shares is exempt from
registration under the Securities Act of 1933, as amended (the
Act), in reliance on exemptions from the registration
requirements of the Act in transactions not involved in a public
offering to Rule 506(b) of Regulation D, as promulgated by the
Commission under the Act. As previously set forth in the January
2016 Form 8-K, the issuance of the shares of the Companys common
stock in connection with the Share Issuance Milestones is exempt
from registration under the Act, in reliance on exemptions from
the registration requirements of the Act in transactions not
involved in a public offering to Rule 506(b) of Regulation D, as
promulgated by the Commission under the Act.
On March 15, 2017, the disinterested members of the Board
approved certain compensation arrangements for the Executives.
Such compensation arrangements include the grant of Five Million
(5,000,000) stock options to Michael Mona, Jr. Such options were
not granted to the Companys Amended and Restated 2013 Equity
Incentive Plan (the Plan), in reliance on Rule 701 as promulgated
by the Commission under the Act, but rather were granted to an
exemption from registration under the Act for transactions not
involved in a public offering to Rule 506(b) of Regulation D, as
promulgated by the Commission under the Act. As a result, the
number of Stock Awards (as defined in the Plan) available for
issuance under the Plan has not been reduced as a result of this
stock option grant to Mr. Mona.
The information set forth in Item 5.02 – Departure of Directors
or Certain Officers; Election of Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers below is incorporated by reference into this
Item 3.02.
On March 15, 2017, the Board approved the issuance of up to Five
Million (5,000,000) stock-settled restricted stock units (the
RSUs) to Organucopia, LLC, an entity owned and controlled by
Frank ODonnell, in compensation for his service to the Company to
that certain Independent Contractor Agreement dated February 17,
2017 (the Contractor Agreement). to the Contractor Agreement, Mr.
ODonnell shall provide services to the Company to support its
regulatory, pre-clinical and clinical development program for the
CBD Drug Product. One Million (1,000,000) of the RSUs vested
immediately upon approval by the Board and the remaining Four
Million (4,000,000) RSUs shall vest, if at all, upon the
achievement of certain milestones, as follows (the Vesting
Milestones):
| (i) |
One Million (1,000,000) when the Company has final meeting minutes from a pre-investigational new drug application (IND) meeting as authorized by the FDA for a drug development program utilizing CBD as the active pharmaceutical ingredient; |
| (ii) |
One Million (1,000,000) when the Company is granted an IND; and |
| (iii) |
Two Million (2,000,000) when the Company commences its first human dosing under the IND. |
Vesting shall accelerate upon a sale of the Company or change in
control. The issuance of the RSUs to Organucopia, LLC is exempt
from registration under the Act, in reliance on exemptions from
the registration requirements of the Act in transactions not
involved in a public offering to Rule 506(b) of Regulation D, as
promulgated by the Commission under the Act. The RSUs have not
been issued to the Plan, and Rule 701 as promulgated by the
Commission under the Act. As a result, the number of Stock Awards
(as defined in the Plan) available for issuance under the Plan
has not been reduced as a result of the issuance of the RSUs.
| Item 5.02 |
Departure of Directors or Certain Officers; Election of Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers |
Compensatory Arrangements of Certain Officers
Stock Options. The disinterested members of the Board,
granted Mr. Mona Two Hundred Thousand (200,000) stock options,
Mr. Dowling One Hundred Thousand (100,000) stock options and Mr.
Mona III One Hundred Thousand (100,000) stock options to the
bonus plan set forth in the Employment Agreements for fiscal year
2016 performance. The stock options are fully-vested, have an
exercise price equal to the fair market value of the Companys
common stock at the time of grant, or $0.38, and have a term of
ten (10) years from the date of grant. Vesting shall accelerate
upon a sale of the Company or change in control.
As previously set forth in Item 3.02 Unregistered Sales of Equity
Securities, the disinterested members of the Board, granted Mr.
Mona Five Million (5,000,000) stock options. These stock options
(a) are durational-based, conditioned upon the Companys
achievement of the Vesting Milestones (defined above), with 25%
vesting on the first Vesting Milestone, 33% vesting on the second
Vesting Milestone and 50% vesting on the third Vesting Milestone,
(b) have an exercise price equal to the fair market value of the
Companys common stock at the time of grant, or $0.38, and (c)
have a term of ten (10) years from the date of grant. Vesting
shall accelerate upon a sale of the Company or change in control.
Amendment to Vesting Milestones (Previously Issued
Options). The disinterested members of the Board also
approved the amendment of certain milestones applicable to the
vesting of stock options previously issued to the Executives, as
more particularly set forth in the July 2016 8-K. The second,
third and fourth milestones related to the vesting of such prior
stock options have been superseded and replaced by the Vesting
Milestones (defined above), with one-third (1/3) of the remaining
option shares subject to each such stock option vesting upon
achievement of each of the Vesting Milestones.
Stock Option Repricing. The terms of the Plan, a copy of
which is attached as Attachment A to the Companys Schedule 14A
Proxy Statement to Section 14(a) of the Securities Exchange Act
of 1934 filed by the Company with the Commission on September 13,
2016, provide discretion for the Administrator (as defined in the
Plan) to amend the terms of one or more Stock Option Awards (as
defined in the Plan) to provide terms more favorable than
previously provided in the Stock Award Agreement issued to a
Participant. The disinterested members of the Board, as the Plan
Administrator, approved the amendment to certain stock options
granted to employees of the Company, including the Executives, to
reduce the exercise price of such stock options. The stock
options of the Executives amended are as set forth below:
| Name |
October 2014 ($2.82) |
December 2014 ($2.64) |
May 2015 ($1.39) |
| Michael Mona, Jr. | 4,000,000 | ||
| Joseph Dowling | 600,000 | 100,000 | |
| Michael Mona III | 500,000 |
As a result of the amendment to the stock option grants to the
Executives, each of the stock options issued to Messrs. Mona,
Dowling and Mona III referenced above have been amended to
provide for a strike price equal to $0.38 per share, which
represents 100% of the Fair Market Value (as defined in the Plan)
of the Companys common stock as of March 15, 2017, the date of
the amendment to the Executives stock option grants.
Bonus Compensation. The disinterested members of the Board
also approved an amendment to the Employment Agreements for each
of Michael Mona, Jr. and Michael Mona III (the Amendments) to
provide eligibility for a cash bonus upon occurrence of certain
events as more particularly set forth below. Messrs. Monas and
Mona IIIs Employment Agreements are filed as exhibits to the
Companys Quarterly Report on Form 10-Q filed by the Company with
the Commission on November 1, 2016. to the Amendments, upon a
Liquidity Event (as defined below), Mr. Mona or his assign(s)
shall receive four percent (4%) and Mr. Mona III or his assign(s)
shall receive two percent (2%) of the Gross Closing Proceeds (as
defined below), subject to an aggregate cap of $750,000,000 (on
the total 6%).
For purposes of the Amendments, a Liquidity Event shall mean and
include (A) a licensing of the CBD Drug Product or any other
intellectual property asset of the Company, or (B) (i) the direct
or indirect sale or transfer, in a single transaction or a series
of related transactions, by the stockholders of the Company of
voting securities, in which the holders of the outstanding voting
securities of the Company immediately prior to such transaction
or series of transactions hold, as a result of holding Company
securities prior to such transaction, in the aggregate,
securities possessing less than twenty percent (20%) of the total
combined voting power all outstanding voting securities of the
Company or of the acquiring entity immediately after such
transaction or series of related transactions, (ii) a merger or
consolidation in which the Company is not the surviving entity,
except for a transaction in which the holders of the outstanding
voting securities of the Company immediately prior to such merger
or consolidation hold as a result of holding Company securities
prior to such transaction, in the aggregate, securities
possessing more than fifty percent (50%) of the total combined
voting power of all outstanding voting securities of the
surviving entity (or the parent of the surviving entity)
immediately after such merger or consolidation, (iii) a reverse
merger in which the Company is the surviving entity but in which
the holders of the outstanding voting securities of the Company
immediately prior to such merger hold as a result of holding
Company securities prior to such transaction, in the aggregate,
securities possessing less than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the
Company or of the acquiring entity immediately after such merger,
or (iv) the sale, transfer or other disposition (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company, except for a
transaction in which the holders of the outstanding voting
securities of the Company immediately prior to such
transaction(s) receive as a distribution with respect to
securities of the Company, in the aggregate, securities
possessing more than fifty percent (50%) of the total combined
voting power of all outstanding voting securities of the
acquiring entity immediately after such transaction(s).
For purposes of the Amendments, Gross Closing Proceeds shall mean
and include all cash sums payable to the Company or its
stockholders in connection with a Liquidity Event at the closing
of a transaction constituting a Liquidity Event, and not
including any deferred payments, earnouts, ongoing royalty
payments or other contingent or deferred compensation.
The Amendments also provide that if any payments to Mr. Mona or
Mr. Mona III in connection with a Liquidity Event would be
subject to the excise tax under Sections 280G or 4999 of the
Internal Revenue Code on excess parachute payments, the Company
will, in general, gross up their respective compensation to
offset the excise tax, except that (a) if the aggregate parachute
payments that would otherwise be made to them do not exceed 110%
of the maximum amount of parachute payments that can be made
without triggering the excise tax, the parachute payments to them
will be reduced to the extent necessary to avoid the imposition
of the excise tax and no gross up will be paid, and (b) if the
aggregate parachute payments that would otherwise be made to them
do exceed 110% of the maximum amount of parachute payments that
can be made without triggering the excise tax, the full amount of
those parachute payments will be made, they will have to
individually bear the excise tax allocable to 10% of the
aggregate total of parachute payments, and the Company will gross
up their compensation to offset the excise taxes other than that
portion that is allocable to 10% of the aggregate total of
parachute payments.
| Item 5.03 |
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year |
At a meeting of the Board held on March 15, 2017, the Board
unanimously approved and adopted an amendment to the Bylaws of
the Company (the Bylaws), with the following effect:
| – |
Amending Article III, Section 3.2 of the Bylaws to provide that the number of directors constituting the entire Board shall be no less than five (5) and no more than seven (7). |
The text of the amendment is attached hereto as Exhibit 3.1.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits | |
| 3.1 | Amendment to the Bylaws of the Company, as amended. |
About CV SCIENCES, INC. (OTCMKTS:CVSI)
CV Sciences, Inc. is a life science company. The Company operates in two segments: specialty pharmaceuticals and consumer products. The Company’s specialty pharma business segment is focused on developing and commercializing therapeutics utilizing synthetic Cannabidiol (CBD) across several therapeutic areas. The consumer product business segment is focused on manufacturing, marketing and selling plant-based CBD products to a range of market sectors. CV SCIENCES, INC. (OTCMKTS:CVSI) Recent Trading Information
CV SCIENCES, INC. (OTCMKTS:CVSI) closed its last trading session up +0.020 at 0.410 with shares trading hands.