Exhibit 10.3


 





Security Agreement






This
Security Agreement (this “Agreement”), dated as of May 25, 2016, is executed by CV Sciences, Inc., a
Delaware corporation (“Debtor”), in favor of Iliad Research and Trading, L.P., a Utah limited partnership (“Secured
Party”).


 


A.          Debtor has
issued to Secured Party a certain Secured Convertible Promissory Note of even date herewith, as may be amended from time to time,
in the original face amount of $2,055,000.00 (the “Note”).


 


B.          In order to
induce Secured Party to extend the credit evidenced by the Note, Debtor has agreed to enter into this Agreement and to grant Secured
Party the security interest in the Collateral (as defined below).


 


NOW, THEREFORE,
in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:


 


1.                 
Definitions and Interpretation. When used in this Agreement, the following terms have the following respective meanings:


 


“Collateral”
has the meaning given to that term in Section 2 hereof.


 


“Lien”
shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in,
of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional
sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing
of any financing statement or similar instrument under the UCC or comparable law of any jurisdiction.


 


“Obligations”
means (a) all loans, advances, future advances, debts, liabilities and obligations, howsoever arising, owed by Debtor to Secured
Party or any affiliate of Secured Party of every kind and description, now existing or hereafter arising, whether created by the
Note, this Agreement, that certain Securities Purchase Agreement of even date herewith, entered into by and between Debtor and
Secured Party (the “Purchase Agreement”), any other Transaction Documents (as defined in the Purchase Agreement),
any modification or amendment to any of the foregoing, guaranty of payment or other contract or by a quasi-contract, tort, statute
or other operation of law, whether incurred or owed directly to Secured Party or as an affiliate of Secured Party or acquired by
Secured Party or an affiliate of Secured Party by purchase, pledge or otherwise, (b) all costs and expenses, including attorneys’
fees, incurred by Secured Party or any affiliate of Secured Party in connection with the Note or in connection with the collection
or enforcement of any portion of the indebtedness, liabilities or obligations described in the foregoing clause (a), (c) the payment
of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Agreement, and (d) the
performance of the covenants and agreements of Debtor contained in this Agreement and all other Transaction Documents.


 


“Permitted
Liens” means (a) Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate
proceedings for which adequate reserves have been established, and (b) Liens in favor of Secured Party under this Agreement or
arising under the other Transaction Documents.


 






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“UCC”
means the Uniform Commercial Code as in effect in the state whose laws would govern the security interest in, including without
limitation the perfection thereof, and foreclosure of the applicable Collateral.


 


Unless otherwise defined
herein, all terms defined in the UCC have the respective meanings given to those terms in the UCC.


 


2.                 
Grant of Security Interest. As security for the Obligations, Debtor hereby pledges to Secured Party and grants to
Secured Party a security interest in all right, title, interest, claims and demands of Debtor in and to the property described
in Schedule A hereto, and all replacements, proceeds, products, and accessions thereof (collectively, the “Collateral”).


 


3.                 
Authorization to File Financing Statements. Debtor hereby irrevocably authorizes Secured Party at any time and from
time to time to file in any filing office in any Uniform Commercial Code jurisdiction or other jurisdiction of Debtor or its subsidiaries
(including without limitation Delaware and Nevada) any financing statements or documents having a similar effect and amendments
thereto that provide any other information required by the Uniform Commercial Code (or similar law of any non-United States jurisdiction,
if applicable) of such state or jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment,
including whether Debtor is an organization, the type of organization and any organization identification number issued to Debtor.
Debtor agrees to furnish any such information to Secured Party promptly upon Secured Party’s request.


 


4.                 
General Representations and Warranties. Debtor represents and warrants to Secured Party that (a) Debtor is the owner
of the Collateral and that no other person has any right, title, claim or interest (by way of Lien or otherwise) in, against or
to the Collateral, other than Permitted Liens, and (b) upon the filing of UCC-1 financing statements with the Delaware Secretary
of State, Secured Party shall have a perfected first-position security interest in the Collateral to the extent that a security
interest in the Collateral can be perfected by such filing, except for Permitted Liens.


 


5.                 
Additional Covenants. Debtor hereby agrees:


 


5.1.           
to perform all acts that may be necessary to maintain, preserve, protect and perfect in the Collateral, the Lien granted
to Secured Party therein, and the perfection and priority of such Lien, except for Permitted Liens;


 


5.2.           
to procure, execute (including endorse, as applicable), and deliver from time to time any endorsements, assignments, financing
statements, certificates of title, and all other instruments, documents and/or writings reasonably deemed necessary or appropriate
by Secured Party to perfect, maintain and protect Secured Party’s Lien hereunder and the priority thereof;


 


5.3.           
to provide at least fifteen (15) days prior written notice to Secured Party of any of the following events: (a) any changes
or alterations of Debtor’s name, (b) any changes with respect to Debtor’s address or principal place of business, and
(c) the formation of any subsidiaries of Debtor;


 


5.4.           
upon the occurrence of an Event of Default (as defined in the Note) under the Note and, thereafter, at Secured Party’s
request, to endorse (up to the outstanding amount under such promissory notes at the time of Secured Party’s request), assign
and deliver any promissory notes included in the Collateral to Secured Party, accompanied by such instruments of transfer or assignment
duly executed in blank as Secured Party may from time to time specify;


 






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5.5.           
to the extent the Collateral is not delivered to Secured Party pursuant to this Agreement, to keep the Collateral at the
principal office of Debtor (unless otherwise agreed to by Secured Party in writing), and not to relocate the Collateral to any
other locations without the prior written consent of Secured Party;


 


5.6.           
not to sell or otherwise dispose, or offer to sell or otherwise dispose, of the Collateral or any interest therein (other
than inventory in the ordinary course of business); and


 


5.7.           
not to, directly or indirectly, allow, grant or suffer to exist any Lien upon any of the Collateral, other than Permitted
Liens.


 


6.                 
Authorized Action by Secured Party. Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact (which
appointment is coupled with an interest) and agrees that Secured Party may perform (but Secured Party shall not be obligated to
and shall incur no liability to Debtor or any third party for failure so to do) any act which Debtor is obligated by this Agreement
to perform, and to exercise such rights and powers as Debtor might exercise with respect to the Collateral, including the right
to (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds
and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization,
deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) make any compromise or settlement, and take any action Secured Party deems advisable, with respect
to the Collateral; (d) file a copy of this Agreement with any governmental agency, body or authority, at the sole cost and expense
of Debtor; (e) insure, process and preserve the Collateral; (f) pay any indebtedness of Debtor relating to the Collateral;
(g) execute and file UCC financing statements and other documents, certificates, instruments and agreements with respect to the
Collateral or as otherwise required or permitted hereunder; and (h) take any and all appropriate action and execute any and all
documents and instruments that may be necessary or useful to accomplish the purposes of this Agreement; provided, however,
that Secured Party shall not exercise any such powers granted pursuant to clauses (a) through (c) above prior to the occurrence
of an Event of Default and shall only exercise such powers during the continuance of an Event of Default. The powers conferred
on Secured Party under this Section 6 are solely to protect its interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Secured Party shall be accountable only for the amounts that it actually receives as a result of
the exercise of such powers, and neither Secured Party nor any of its stockholders, directors, officers, managers, employees or
agents shall be responsible to Debtor for any act or failure to act, except with respect to Secured Party’s own gross negligence
or willful misconduct. Nothing in this Section 6 shall be deemed an authorization for Debtor to take any action that it is otherwise
expressly prohibited from undertaking by way of other provision of this Agreement.


 


7.                 
Default and Remedies.


 


7.1.           
Default. Debtor shall be deemed in default under this Agreement upon the occurrence of an Event of Default (as defined
in the Note).


 


7.2.           
Remedies. Upon the occurrence of any such Event of Default, Secured Party shall have the rights of a secured creditor
under the UCC, all rights granted by this Agreement and by law, including, without limiting the foregoing, (a) the right to require
Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party, and (b)
the right to take possession of the Collateral, and for that purpose Secured Party may enter upon premises on which the Collateral
may be situated and remove the Collateral therefrom. Debtor hereby agrees that fifteen (15) days’ notice of a public sale
of any Collateral or notice of the date after which a private sale of any Collateral may take place is reasonable. In addition,
Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of Secured Party’s
rights and remedies hereunder, including, without limitation, Secured Party’s right following an Event of Default to take
immediate possession of Collateral and to exercise Secured Party’s rights and remedies with respect thereto. Secured Party
may also have a receiver appointed to take charge of all or any portion of the Collateral and to exercise all rights of Secured
Party under this Agreement. Secured Party may exercise any of its rights under this Section 7.2 without demand or notice of any
kind. The remedies in this Agreement, including without limitation this Section 7.2, are in addition to, not in limitation of,
any other right, power, privilege, or remedy, either in law, in equity, or otherwise, to which Secured Party may be entitled. No
failure or delay on the part of Secured party in exercising any right, power, or remedy will operate as a waiver thereof, nor will
any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder.
All of Secured Party’s rights and remedies, whether evidenced by this Agreement or by any other agreement, instrument or
document shall be cumulative and may be exercised singularly or concurrently.


 






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7.3.           
Standards for Exercising Rights and Remedies. To the extent that applicable law imposes duties on Secured Party to
exercise remedies in a commercially reasonable manner, Debtor acknowledges and agrees that it is not commercially unreasonable
for Secured Party (a) to fail to incur expenses reasonably deemed significant by Secured Party to prepare Collateral for disposition,
(b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other
law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or
disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to
fail to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account
debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists,
(e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral
is of a specialized nature, (f) to contact other persons, whether or not in the same business as Debtor, for expressions of interest
in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the Collateral is of a specialized nature, (h) to dispose of Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing
so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, (k) to purchase insurance or credit enhancements to insure Secured Party against risks of loss, collection
or disposition of Collateral or to provide to Secured Party a guaranteed return from the collection or disposition of Collateral,
or (l) to the extent deemed appropriate by Secured Party, to obtain the services of other brokers, investment bankers, consultants
and other professionals to assist Secured Party in the collection or disposition of any of the Collateral. Debtor acknowledges
that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Secured Party would fulfill
Secured Party’s duties under the UCC in Secured Party’s exercise of remedies against the Collateral and that other
actions or omissions by Secured Party shall not be deemed to fail to fulfill such duties solely on account of not being indicated
in this Section. Without limitation upon the foregoing, nothing contained in this Section shall be construed to grant any rights
to Debtor or to impose any duties on Secured Party that would not have been granted or imposed by this Agreement or by applicable
law in the absence of this Section.


 


7.4.           
Marshalling. Secured Party shall not be required to marshal any present or future Collateral for, or other assurances
of payment of, the Obligations or to resort to such Collateral or other assurances of payment in any particular order, and all
of its rights and remedies hereunder and in respect of such Collateral and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, Debtor hereby agrees
that it will not invoke any law relating to the marshalling of Collateral which might cause delay in or impede the enforcement
of Secured Party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof
is otherwise assured, and, to the extent that it lawfully may, Debtor hereby irrevocably waives the benefits of all such laws.


 






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7.5.           
Application of Collateral Proceeds. The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds
and the avails of any remedy hereunder (as well as any other amounts of any kind held by Secured Party at the time of, or received
by Secured Party after, the occurrence of an Event of Default) shall be paid to and applied as follows:


 


(a)               
First, to the payment of reasonable costs and expenses, including all amounts expended to preserve the value of the Collateral,
of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses,
liability and advances, including reasonable legal expenses and attorneys’ fees, incurred or made hereunder by Secured Party;


 


(b)              
Second, to the payment to Secured Party of the amount then owing or unpaid on the Note (to be applied first to accrued interest
and second to outstanding principal) and all amounts owed under any of the other Transaction Documents; and


 


(c)               
Third, to the payment of the surplus, if any, to Debtor, its successors and assigns, or to whosoever may be lawfully entitled
to receive the same.


 


In the absence of
final payment and satisfaction in full of all of the Obligations, Debtor shall remain liable for any deficiency.


 


8.                 
Miscellaneous.


 


8.1.           
Notices. Any notice required or permitted hereunder shall be given in the manner provided in the subsection titled
“Notices” in the Purchase Agreement, the terms of which are incorporated herein by this reference.


 


8.2.           
Non-waiver. No failure or delay on Secured Party’s part in exercising any right hereunder shall operate as
a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise
thereof or of any other right.


 


8.3.           
Amendments and Waivers. This Agreement may not be amended or modified, nor may any of its terms be waived, except
by written instruments signed by Debtor and Secured Party. Each waiver or consent under any provision hereof shall be effective
only in the specific instances for the purpose for which given.


 


8.4.           
Assignment. This Agreement shall be binding upon and inure to the benefit of Secured Party and Debtor and their respective
successors and assigns; provided, however, that Debtor may not sell, assign or delegate rights and obligations hereunder
without the prior written consent of Secured Party.


 


8.5.           
Cumulative Rights, etc. The rights, powers and remedies of Secured Party under this Agreement shall be in addition
to all rights, powers and remedies given to Secured Party by virtue of any applicable law, rule or regulation of any governmental
authority, or the Note, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently
without impairing Secured Party’s rights hereunder. Debtor waives any right to require Secured Party to proceed against any
person or entity or to exhaust any Collateral or to pursue any remedy in Secured Party’s power.


 






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8.6.           
Partial Invalidity. If any part of this Agreement is construed to be in violation of any law, such part shall be
modified to achieve the objective of the parties to the fullest extent permitted and the balance of this Agreement shall remain
in full force and effect.


 


8.7.           
Expenses. Debtor shall pay on demand all reasonable fees and expenses, including reasonable attorneys’ fees
and expenses, incurred by Secured Party in connection with the custody, preservation or sale of, or other realization on, any of
the Collateral or the enforcement or attempt to enforce any of the Obligations which are not performed as and when required by
this Agreement.


 


8.8.           
Entire Agreement. This Agreement and the other Transaction Documents, taken together, constitute and contain the
entire agreement of Debtor and Secured Party with respect to this particular matter and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject
matter hereof.


 


8.9.           
Governing Law; Venue. Except as otherwise specifically set forth herein, the parties expressly agree that this Agreement
shall be governed solely by the laws of the State of Utah, without giving effect to the principles thereof regarding the conflict
of laws; provided, however, that enforcement of Secured Party’s rights and remedies against the Collateral as provided
herein will be subject to the UCC. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes
are incorporated herein by this reference.


 


8.10.       
Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES
HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE
STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT
TO DEMAND TRIAL BY JURY.


 


8.11.       
Purchase Agreement; Arbitration of Disputes. By executing this Agreement, each party agrees to be bound by the terms,
conditions and general provisions of the Purchase Agreement and the other Transaction Documents, including without limitation the
Arbitration Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the Purchase Agreement.


 


8.12.       
Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and
all of which together shall constitute one instrument. Any electronic copy of a party’s executed counterpart will be deemed
to be an executed original.


 


8.13.       
Termination of Security Interest. Upon the payment in full of all Obligations, the security interest granted herein
shall terminate and all rights to the Collateral shall revert to Debtor. Upon such termination, Secured Party hereby authorizes
Debtor to file any UCC termination statements necessary to effect such termination and Secured Party will execute and deliver to
Debtor any additional documents or instruments as Debtor shall reasonably request to evidence such termination.


 


8.14.       
Time of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement.


 


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signature page follows]


 






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IN WITNESS WHEREOF, Secured
Party and Debtor have caused this Agreement to be executed as of the day and year first above written.


 


SECURED PARTY:


 


Iliad
Research and Trading, L.P.


 


By: Iliad Management, LLC, its General
Partner


 


By: Fife Trading, Inc., its
Manager


 


 


By: ________________


John
M. Fife, President


 


 


 


DEBTOR:


 


CV
Sciences, Inc.


 


 


By: _________________


Name: Michael Mona, Jr.


Title: Chief Executive Officer


 






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SCHEDULE A


TO SECURITY AGREEMENT


 


All accounts receivable, inventory (specifically
including without limitation all CBD oil), goods, and equipment of Debtor, whether now owned or hereafter acquired, and any and
all claims, rights and interests in any of the above and all substitutions for, attachments, accessories, replacements, additions
and accessions to, and proceeds thereof, wherever located.


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 






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