Item 1.01 Entry into a Material Definitive Agreement.
Closing
of Ceautamed Acquisition
As
previously disclosed, on March 14, 2022, Smart for Life, Inc. (the “Company”) entered into a securities purchase agreement
with Ceautamed Worldwide, LLC (“Ceautamed”) and RMB Industries, Inc., RTB Childrens Trust and D&D Hayes, LLC (the
“Sellers”), pursuant to which the Company agreed to acquire all of the issued and outstanding membership interests
of Ceautamed, a vitamin and supplement company, from the Sellers (the “Acquisition”).
On
July 29, 2022, the parties entered into a first amendment to securities purchase agreement to amend certain terms of the securities purchase
agreement. On the same date, closing of the Acquisition was completed.
Pursuant
to the terms of the securities purchase agreement, as amended (the “Securities Purchase Agreement”), the Company acquired
Ceautamed for an aggregate purchase price of $8,600,000, subject to adjustments as described below.
The purchase price consists of (i) $3,000,000 in cash, of which $1,000,000 was previously paid by the Company and $2,000,000 was paid
at closing, (ii) secured subordinated convertible promissory notes in the aggregate principal amount of $2,150,000 (the “Buyer
Notes I”); (iii) secured subordinated promissory notes in the aggregate principal amount of $2,150,000 (the “Buyer
Notes II”) and (iv) secured subordinated promissory notes in the aggregate principal amount of $1,300,000 (the “Buyer
Notes III” and together with the Buyer Notes I and Buyer Notes II, the “Buyer Notes”).
The
purchase price is subject to a post-closing working capital adjustment provision. Within ninety (90) days after the closing, the
Company is required to deliver to the Sellers an unaudited balance sheet of Ceautamed and its subsidiaries as of the closing date and
its calculation of the closing working capital (as defined in the Purchase Agreement). If such closing working capital exceeds a minimum
working capital equal to the average monthly working capital of Ceautamed for the twelve-month period ended December 31, 2021 by
more than $150,000, then the Company must promptly (and, in any event, within five (5) business days) pay to the Sellers an amount that
is equal to such excess. If such minimum working capital exceeds the closing working capital, then the Sellers must promptly (and, in
any event, within five (5) business days) pay to the Company an amount that is equal to the deficiency. Such adjustments shall be
paid as follows: (i) fifty percent (50%) shall be paid in cash, (ii) twenty-five percent (25%) shall be paid through an increase or reduction
in the principal amount of the Buyer Notes I and (iii) twenty-five percent (25%) shall be paid through an increase or reduction in the
principal amount of the Buyer Notes II.
The
Buyer Notes I shall bear interest at the rate of five percent (5%) per annum with all principal and accrued interest being due and payable
in one lump sum on July 29, 2025; provided that upon an event of default (as defined in the Buyer Notes I), such interest rate shall
increase to ten percent (10%). The Buyer Notes I are convertible at the option of the holder into the Company’s common stock at
a conversion price of $6.25; provided that the holder may not elect to convert a portion of the outstanding principal in an amount less
than the lesser of $200,000 or the remaining outstanding principal. The Buyer Notes I contain customary “piggyback” registration
rights with respect to the common stock issuable upon conversion of the Buyer Notes I.
The
Buyer Notes II shall bear interest at the rate of five percent (5%) per annum and mature on July 29, 2025; provided that upon an event
of default (as defined in the Buyer Notes II), such interest rate shall increase to ten percent (10%). The outstanding principal and
all accrued interest shall be amortized on a five-year straight-line basis and payable quarterly in accordance with the amortization
schedule set forth on Exhibit A to the Buyer Notes II. The Company may redeem all or any portion of the Buyer Notes II at any time without
premium or penalty.
The
Buyer Notes III shall bear interest at the rate of five percent (5%) per annum with all principal and accrued interest being due and
payable in one lump sum ninety (90) days from the date of the Buyer Notes III; provided that upon an event of default (as defined in
the Buyer Notes III), such interest rate shall increase to ten percent (10%). The Company may redeem all or any portion of the Buyer
Notes III at any time without premium or penalty.
The
Buyer Notes contain customary covenants and events of default for loans of this type, including upon any default under the senior indebtedness
(as defined below). In the event of a change of control (as defined in the Buyer Notes) with respect to the Company or any Guarantor
(as defined below), all obligations of the Company under the Buyer Notes shall become immediately due and payable. The Buyer Notes are
guaranteed by Ceautamed and its subsidiaries Wellness Watchers Global, LLC and Greens First Female, LLC and are secured by a security
interest in all of the assets of such guarantors. The Buyer Notes are subordinated in right of payment to the prior payment in full of
all senior indebtedness. For purposes of the Buyer Notes, “senior indebtedness” means all senior secured indebtedness of
the Company, whether outstanding or thereafter created, to banks, insurance companies, other financial institutions, private equity funds,
hedge funds or other similar funds, and the Note (as defined below); provided that any seller notes or other seller financing in connection
with any acquisitions by the Company shall not constitute senior indebtedness.
Note
Purchase Agreement
On
July 29, 2022, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with an accredited
investor, pursuant to which the Company issued to such investor an original issue discount subordinated note in the principal amount
of $2,272,727.27 (the “Note”). The Note contains an original issue discount of 12%, or $272,727.27, resulting in a
purchase price of $2,000,000.
The
Note shall bear interest at the rate of sixteen percent (16%) per annum and matures on July 29, 2027. The outstanding principal and all
accrued interest shall be amortized on a 60-month straight-line basis and payable in accordance with the amortization schedule set forth
on Exhibit A to the Note. The Company may prepay the principal and all accrued and unpaid interest on the Note without penalty, in whole
or in part; provided however, in no event before January 15, 2023, unless with the explicit prior written approval of the holder.
The
Note Purchase Agreement and the Note contain customary representations and warranties and events of default for a loan of this type.
The Note is guaranteed by the Company’s subsidiaries Bonne Sante Natural Manufacturing, Inc., Doctors Scientific Organica, LLC,
Nexus Offers, Inc., GSP Nutrition, Inc., and Ceautamed and is secured by a security interest in all of the assets of the Company and
such guarantors. For purposes of the Note, “senior indebtedness” means all indebtedness of the Company, whether outstanding
on the date of execution of the Note or thereafter created, to Diamond Creek Capital, LLC, pursuant to that certain loan agreement dated,
as of July 1, 2021, with Diamond Creek Capital, LLC.
Debenture
Purchase Agreement
On July 29, 2022, the Company entered into a debenture purchase agreement
(the “Debenture Purchase Agreement”) with eight investors, pursuant to which the Company issued to such investors original
issue discount subordinated debentures in the aggregate principal amount of $735,294 (the “Debentures”). The Debentures
contain an original issue discount of 15%, or an aggregate original issue discount of $110,294, resulting in a total purchase price of
$625,000.
The
Debentures bear interest at a rate of 17.5% per annum. The outstanding principal amount and all accrued interest is due and payable on
the earlier of (i) the completion of the Company’s next equity financing, (ii) July 29, 2024 or (iii) within 30 days after election
of repayment from the holder so long as the election is after the 6-month anniversary of the Debenture. For purposes hereof, “next
equity financing” means a bona fide transaction or series of transactions with the principal purpose of raising capital in which
the Company receives gross proceeds in excess of $20 million. The Company may also voluntarily prepay the Debentures in whole or in part
without premium or penalty.
The
Purchase Agreement and the Debentures contain customary representations and warranties and events of default for a loan of this type.
The Debentures are unsecured and are subordinated in right of payment to the prior payment in full of all senior indebtedness and are
pari passu in right of payment to any other unsecured indebtedness incurred by the Company in favor of any third party. For purposes
of the Debentures, “senior indebtedness” means all indebtedness of the Company to banks, insurance companies and other financial
institutions or funds, unless in the instrument creating or evidencing such indebtedness it is provided that such indebtedness is not
senior in right of payment to the Debentures or otherwise indicates that it is pari passu with other unsecured indebtedness of
the Company.
The
foregoing summary of the terms and conditions of the Securities Purchase Agreement, the Buyer Notes, the Note Purchase Agreement, the
Note, the Debenture Purchase Agreement and Debentures does not purport to be complete and is qualified in its entirety by reference to
the full text of those documents attached hereto as Exhibit 10.1-10.16, which are incorporated herein by reference.