ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Related-Party Transactions
In the ordinary course of our business and in connection with our financing activities, we have entered into a number of transactions with our directors, officers and holders of more than 5% of capital stock of the Company. All of the transactions set forth below were approved by our board of directors. We believe that we have executed all of the transactions set forth below on terms no less favorable to us than could have been obtained from unaffiliated third parties. Our Audit Committee is responsible for reviewing all related party transactions.
We describe below the transactions and series of similar transactions, since December 31, 2019, to which we were a participant or will be a participant, in which:
|
●
|
the amount involved exceeds the lesser of $120,000 or one percent of the average of the smaller reporting company’s total assets at year-end for the last two completed fiscal years; and
|
|
●
|
any of the directors, executive officers, holders of more than 5% of capital stock of the Company or any member of their immediate family had or will have a direct or indirect material interest.
|
Steve Gutterman, our Chief Executive Officer and one of our directors, agreed to a 50% reduction in his base salary given the uncertainty of the business environment surrounding the COVID-19 pandemic. On September 13, 2020, Mr. Gutterman agreed not to enter into discussions to adjust his base salary back to its original level until the Company is cash flow positive.
John Barker Dalton, one of our directors, owns 100% percent of Dalton Adventures, LLC. Dalton Adventures owns 8,859,117 shares of the Company’s common stock, which it acquired in connection with the sale of its assets that constitute the business of SevenFive Farm to the Company, which transaction was finalized on May 25, 2020.
In addition, in conjunction with such acquisition, the Company entered into a lease agreement with Dalton Adventures in which the Company rents greenhouse space in Boulder, Colorado for $33,680 a month, which includes base rent and real estate taxes. The terms of such arrangements with Dalton Adventures were previously disclosed in the Company’s Current Reports on Form 8-K filed on February 24, 2020 and May 29, 2020, and a copy of the Asset Purchase Agreement and Commercial Lease between the Company and Dalton Adventures were attached as exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
On May 29, 2020, we entered into a subscription agreement, as amended, with Hershey Strategic Capital, LP and Shore Ventures III, LP (collectively the “Hershey Investor”) with respect to the sale of shares of common stock and warrants to purchase common stock. Adam Hershey is the managing partner of each such entity. During the year ended December 31, 2020, we sold $3,000,000 of securities to the Hershey Investor, representing 7,532,010 shares of common stock and warrants to purchase 5,649,007 shares of common stock with an exercise price of $0.5565 per share. In accordance with the terms of the subscription agreement, we issued an additional 1,631,000 warrants in December 2020 to purchase common stock with an exercise price of $0.4917 to the Hershey Investor.
In addition, on June 3, 2020, the Company entered into a consulting agreement with Mr. Hershey pursuant to which he would act as a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of M&A deals, strategic capital and strategic partnerships or joint ventures. Mr. Hershey is paid an initial monthly rate of $8,333 for the services, subject to certain adjustments described therein.
On December 23, 2020, all five board members of the Company purchased 10% senior convertible promissory notes (“10% Notes”) from the Company for an aggregate amount of $340,000. In connection with the issuance of the 10% Notes, the noteholders received warrants to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 121,431 shares of our common stock. The 10% Notes will bear interest at an annual rate of 10% and will mature on December 23, 2023. The noteholders have the option at any time to convert up to 50% of the outstanding unpaid principal and accrued interest.