UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of The Securities Exchange Act of
1934
Date
of Report (Date of earliest event reported): May 12,
2021
SUGARMADE, INC.
(Exact
name of registrant as specified in its charter)
Delaware |
|
000-23446 |
|
94-3008888 |
(State
or other jurisdiction
of
incorporation)
|
|
(Commission
File
Number)
|
|
(IRS
Employer
Identification
No.)
|
750
Royal Oaks Dr., Suite 108
Monrovia,
CA
|
|
91016 |
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (888)
982-1628
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
[ ] |
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425) |
|
|
[ ] |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12) |
|
|
[ ] |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b)) |
|
|
[ ] |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
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Name
of each exchange on which registered |
N/A |
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N/A |
|
N/A |
Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405 of
this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934
(§240.12b-2 of this chapter).
Emerging
growth company [ ]
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Item
1.01. Entry into a Material Definitive Agreement
Merger
Agreement
On
May 12, 2021, Sugarmade, Inc. (the “Company”) entered into a
Agreement and Plan of Merger (the “Merger Agreement”) by and
between Carnaby Spot Bay Corp, a California corporation and a
wholly owned subsidiary of the Company (“Merger Sub”), Lemon Glow
Company, a California corporation (the “Lemon Glow”) and Ryan
Santiago (the “Shareholder Representative”).
Pursuant
to the Merger Agreement, the parties to the Merger Agreement agreed
that, upon the terms and subject to the conditions set forth in the
Merger Agreement, Merger Sub would merge with and into Lemon Glow
(the “Merger”) at which time the separate corporate existence of
Merger Sub would cease, with Lemon Glow being the surviving
corporation in the Merger.
As
consideration for the Merger, Company agreed to provide to the
shareholders of Lemon Glow (the “Lemon Glow Shareholders”), at the
closing of the Merger (the “Closing”):
|
(i) |
cash
consideration of $4,256,000, consisting of: |
|
|
|
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a. |
$280,000
in cash; and |
|
b. |
$3,976,000
via the issuance of promissory notes to Lemon Glow Shareholders,
which each bear interest at the rate of 5% per year 36 monthly
payments commencing on June 15, 2021 (each, a “Note” and
collectively the “Notes”); and |
|
|
|
|
(ii) |
660,571,429
shares of common stock of the Company, par value $0.001 (the
“Company Common Stock”); and |
|
(iii) |
2,000,000
shares of Series B Preferred Stock of the Company (the “Series B
Stock”). |
The
individual items of consideration above are referred to
collectively as the “Merger Consideration”.
The Closing of the Merger was subject to certain customary closing
conditions, including, but not limited to, (i) the adoption and
approval of the Merger Agreement by the board of directors and the
holders of the outstanding shares of common stock, par value
$0.001, of Lemon Glow (“Lemon Glow Common Stock”); (ii) the
adoption and approval of the Merger Agreement by the board of
directors of the Company, as well as the shareholder of the Merger
Sub (which is the Company); and (iii) that no judgment or law is in
effect that enjoins, makes illegal or otherwise prohibits the
consummation of the Merger by either party, or, specifically for
Lemon Glow, any such judgment, law, or contract that would restrict
the business activities of Lemon Glow. Moreover, each party’s
obligations to consummate the Merger are subject to certain other
conditions, including (a) the accuracy of the other party’s
representations and warranties (subject to certain materiality
exceptions); (b) the other party’s compliance in all material
respects with its obligations under the Merger Agreement; and (c)
the absence of any pending claim, proceeding or other action by a
governmental authority that seeks to prevent, prohibit or make
illegal the consummation of the Merger and the absence of any
effect, change, event, development or occurrence that, individually
or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect (as defined in the Merger Agreement)
that is continuing.
The
Merger Agreement contains representations and warranties and
covenants of the parties customary for a transaction of this
nature. Until the earlier of the termination of the Merger
Agreement or the Closing of the Merger, Lemon Glow agreed to
operate its business in the ordinary course of business in all
material respects and has agreed to certain other operating
covenants and to not take certain specified actions prior to the
consummation of the Merger, as set forth more fully in the Merger
Agreement. In addition, the Lemon Glow agreed not to initiate,
solicit or knowingly encourage takeover proposals from third
parties.
The
Closing of the Merger occurred in accordance with the terms of the
Merger Agreement on May 14, 2021. The disclosure set forth below
under Item 2.01 (Completion of Acquisition of Disposition of
Assets) regarding the Closing of the Merger is incorporated by
reference into this Item 1.01.
The
foregoing description of the Merger Agreement is not a complete
description of all of the parties’ rights and obligations under the
Merger Agreement and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is filed as Exhibit 10.1 to
this Current Report on Form 8-K and incorporated herein by
reference.
Item
2.01 Completion of Acquisition or Disposition of
Assets.
The
Merger
As
described under Item 1.01 of this Current Report on Form 8-K, the
Closing of the Merger occurred in accordance with the terms of the
Merger Agreement on May 14, 2021. The Merger was consummated on May
14, 2021 by the filing of a Certificate of Merger with the
Secretary of State of the State of California and by making other
filings or recordings required under the California Corporation
Code in connection with the Merger. A copy of the Certificate of
Merger is filed as Exhibit 2.2 to this Form 8-K and is incorporated
by reference. The Merger was effective on May 14, 2021. We refer to
the effective time of the Merger as the “Effective
Time”.
At
the Closing, each outstanding share of common stock of Lemon Glow,
par value $0.001 (the “Lemon Glow Common Stock”), of which there
were 11,000 shares at the Effective Time of the Merger, were
converted into the right to receive the Merger Consideration. The
Company paid the Merger Consideration to the Lemon Glow
Shareholders, paying the cash consideration, issuing the Notes, and
issuing the shares of Company Common Stock and Series B Stock. The
Company Common Stock and Series B Stock issued by Company were
“restricted securities” as defined in Rule 144 pursuant to the
Securities Act of 1933.
Effect
of the Merger
At
the Effective Time, all the property, rights, privileges, powers
and franchises of Lemon Glow and Merger Sub vested in Lemon Glow as
the surviving corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of Lemon Glow and Merger Sub
became those of Lemon Glow as the surviving corporation. In
addition, at the Effective Time, the Articles of Incorporation and
Bylaws of Lemon Glow remained in place as the Articles of
Incorporation and Bylaws of Lemon Glow as the surviving
corporation.
At
the Effective Time, each outstanding share of common stock of
Merger Sub, par value $0.001 per share (100 shares) was converted
into one validly issued, fully paid and non-assessable share of
common stock of Lemon Glow, par value $0.001 (the “Lemon Glow
Common Stock”) which became the only outstanding capital stock of
the Lemon Glow at the Effective Time. In addition, each share of
Lemon Glow Common Stock of the Company held in the treasury of
Lemon Glow immediately prior to the Effective Time was canceled and
retired. As a result, the Company became the sole owner of 100% of
the issued and outstanding Common Stock of Lemon Glow.
In
addition, at the Effective Time, the Articles of Incorporation and
Bylaws of Lemon Glow remained in place as the Articles of
Incorporation and Bylaws of Lemon Glow (as the Surviving
Corporation). Also, at the Effective Time, the executive officers
and directors of Lemon Glow remained in place as the executive
officers and directors of Lemon Glow.
The
Merger is intended to be a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the “Code”), and the Merger Agreement is intended to be a “plan of
reorganization” within the meaning of the regulations promulgated
under Section 368(a) of the Code and for the purpose of qualifying
as a tax-free transaction for federal income tax purposes. The
parties to the Merger Agreement agreed to report the Merger as a
tax-free reorganization under the provisions of Section 368(a), and
covenanted that none of them will take or cause to be taken any
action which would prevent the transactions contemplated by the
Merger Agreement from qualifying as a reorganization under Section
368(a).
The
disclosure set forth under Item 1.01 of this Current Report on Form
8-K regarding the terms of the Merger Agreement is incorporated by
reference into this Item 1.01.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a
Registrant.
At
the Closing of the Merger, the Company issued to the Lemon Glow
Shareholders the Merger Consideration. A portion of the Merger
Consideration was paid via the issuance of promissory
notes.
On
May 14, 2021, the Company issued four (4) promissory notes to the
following Lemon Glow Shareholders in the following principal
amounts (collectively, the “Notes”):
|
1. |
Ryan
Santiago ($1,000,000) |
|
2. |
SMBS
Capital Inc.. ($600,000) |
|
3. |
Sam
Luu ($2,026,000) |
|
4. |
Manuel
Rivera ($360,000) |
Each of the
Notes has a maturity date of May 14, 2024 and bears interest at 5%
per year. Payments of principal and interest on the Notes must be
paid in thirty-six (36) equal monthly installments, commencing on
June 14, 2021, and on each monthly anniversary thereafter, and
being payable on the first business day following each such
anniversary date.
Pursuant
to the Notes, the Company each of the noteholders acknowledge and
agree that, pursuant to the provisions of the Merger Agreement, the
Company may become obligated to pay to any certain parties certain
indemnification amounts pursuant to the indemnity provisions set
forth in the Merger Agreement, and that, in such event, the
principal and interest due under a Note shall be automatically
reduced by the dollar amount of such payment obligations, assuming
such payment obligations would have otherwise been the obligations
of the applicable noteholder.
Additionally
the Company may prepay all or any portion of the principal amount
and any accrued and unpaid interest at any time without
penalty.
The
Notes contain customary events of default, including, but not
limited to:
|
● |
Payment
Default. The Company fails to make any payment when due under
this Note. |
|
● |
Breach
of Representations of Warrants. Any warranty or representation
of the Company made in Merger Agreement is false in any material
respect at the time made. |
|
● |
Insolvency.
(i) The occurrence of the dissolution of Company, or the
termination of Company’s existence as a going business, or (ii) if
the Company (1) applies for or consents to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or
liquidator; (2) makes a general assignment for the benefit of the
Company’s creditors; or (3) commences a voluntary case under the
U.S. Bankruptcy Code as now and hereafter in effect, or any
successor statute. |
|
● |
Creditor
or Forfeiture Proceedings. A proceeding or case is commenced,
without the application or consent of the Company, in any court of
competent jurisdiction, seeking (1) liquidation, reorganization or
other relief with respect to the Company or its assets or the
composition or readjustment of its debts, or (2) the appointment of
a trustee, receiver, custodian, liquidator or the like of any
substantial part of the Company’s assets, and, in each case, such
proceedings or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60
days, if in the United States, or 90 days, if outside of the United
States; or an order for relief against the Company shall be entered
in an involuntary case under any bankruptcy, insolvency,
composition, readjustment of debt, liquidation of assets or similar
Law of any jurisdiction. |
If an
event of default has occurred and a Noteholder has notified the
Company of such an event of default, the Company shall have thirty
(30) days to cure the event of default. After such period has
ended, if the event of default is still is continuing, a noteholder
may declare all or any portion of the then-outstanding principal
amount of his or her Note, together with all accrued and unpaid
interest thereon, due and payable, and the Note shall thereupon
become immediately due and payable in cash and the noteholder will
also have the right to pursue any other remedies that the
noteholder may have under applicable law.
Item
7.01. Regulation FD
Disclosure.
On
May 14, 2021, the Company issued a press release announcing the
Closing of the Merger. A copy of the press release is attached as
Exhibit 99.1 to this Current Report on Form 8-K.
The
information included in this Item 7.01, including Exhibit 99.1,
shall not be deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
or otherwise subject to the liabilities of that section, nor shall
such information be deemed incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Exchange Act,
except as shall be expressly set forth by specific reference in
such a filing. The information set forth under this Item 7.01 shall
not be deemed an admission as to the materiality of any information
in this Current Report on Form 8-K that is required to be disclosed
solely to satisfy the requirements of Regulation FD.
Item
9.01 Financial Statement and Exhibits.
(d)
Exhibits
The
following exhibits are filed or furnished with this Current Report
on Form 8-K:
Exhibit
No. |
|
Description |
|
|
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2.1 |
|
Agreement
and Plan of Merger dated May 12, 2021 by and among Sugarmade, Inc.,
Carnaby Spot Bay Corp, Lemon Glow Company, and Ryan
Santiago.
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|
2.2 |
|
Certificate
of Merger filed with the State of California on May 14,
2021
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10.1 |
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Promissory
Note dated May 14, 2021 issued between the Company (as borrower)
and Ryan Santiago (as holder).
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10.2 |
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Promissory
Note dated May 14, 2021 issued between the Company (as borrower)
and SMBS Capital Inc. (as holder).
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10.3 |
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Promissory
Note dated May 14, 2021 issued between the Company (as borrower)
and Sam Luu (as holder).
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10.4 |
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Promissory
Note dated May 14, 2021 issued between the Company (as borrower)
and Manuel Rivera (as holder). |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
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SUGARMADE,
INC. |
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|
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Date:
May 17, 2021 |
By: |
/s/
Jimmy Chan |
|
Name: |
Jimmy
Chan |
|
Title: |
Chief
Executive Officer and Chief Financial Officer |
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