Fuse Science, Inc. (OTCPK:DROP) announced a private placement of senior secured convertible notes for gross proceeds of $1,000,000 on January 3, 2014. The transaction will include participation from existing investors, Hudson Bay Master Fund Ltd., a fund managed by Hudson Bay Capital Management LP and GRQ Consultants, Inc. 401(k), which will invest equally. The company will also issue warrants to purchase 50,000,000 shares at an exercise price of $0.0259 for a period of seven years.

The warrants will also be exercisable on cashless basis. The transaction will take place in tranches. The company will receive $550,000 in first tranche and will issue 4,250,000 warrants in first tranche, expected to close by January 6, 2014.

The company will receive remaining $450,000 in four equal monthly installments of $100,000 and 7,500,000 warrants and a final installment of $50,000 and 3,750,000 warrants subject to satisfaction of customary conditions at the closing of each installment. The notes bear interest at a rate of 12% per annum payable when the notes become due ad mature on fifth anniversary from issuance. The notes will be convertible at an initial conversion price of $0.02 per share.

The conversion price of the notes will be equal to the lower of the fixed conversion price and 60% of the arithmetic average of the one lowest weighted average price our common stock for the 60 trading days immediately preceding any conversion of the notes. The company will issue securities pursuant to exemption provided under Regulation D. The company will reimburse Hudson Bay Master Fund Ltd. for all reasonable costs and expenses incurred by it or its affiliates in connection with the transactions contemplated by the documents. The company will seek stockholders' approval within 74 days after the initial closing.

Dale A. Bergman of Roetzel & Andress, LPA and Jorge Gutierrez of Gutierrez Yelin & Boulris, PLLC will act as legal advisors to the company. Eleazer N. Klein of Schulte Roth & Zabel LLP will act as legal advisor to the investors. The investors can terminate the agreement if the first tranche does not close within five days of the agreement.

Dawson James Securities Inc. acted as a placement agent to the company in the transaction and received 5% warrant coverage.