Item 1.01 Entry into a Material Definitive Agreement
On December 30, 2020, Generation Hemp, Inc. (the "Company") entered into
Subscription Agreements (the "Subscription Agreements") with certain accredited
investors, including Gary C. Evans, Chief Executive Officer of the Company
(collectively, the "Purchasers"), pursuant to which the Company agreed to offer,
issue and sell to the Purchasers, an aggregate of 135 units (the "Units"). Each
Unit is comprise of (i) one share of Series B Redeemable Convertible Preferred
Stock, no par value (the "Series B Preferred Stock" or the "Shares") the
Company, and (ii) one warrant (the "Warrant(s)") exercisable for 50,000 shares
of common stock of the Company (the "Common Stock"), in accordance with the
terms and conditions of this Subscription Agreement, at a purchase price (the
"Offering Price") of $10,000 per Unit.
The sale of the Units under the Subscription Agreements entered into on December
30, 2020 resulted in aggregate gross proceeds to the Company of approximately
$1.35 million, before deducting estimated offering expenses payable by the
Company. Substantially all of the proceeds raised in the offering shall be used
in connection with executing the acquisition strategy of the Company and for
general corporate purposes.
On December 30, 2020, the Company filed a Certificate of Designation of
Preferences, Rights and Limitations of the Series B Preferred Stock with the
Secretary of State of the State of Colorado (the "Certificate of Designation")
creating a new series of authorized preferred stock of the Company designated as
the "Series B Convertible Preferred Stock." The Certificate of Designation
became effective with the Secretary of State of the State of Colorado upon
filing.
Each share of Series B Preferred Stock shall initially be convertible into
twenty-five thousand (25,000) shares of Common Stock (the "Conversion Shares"),
subject to adjustment in accordance with the Certificate of Designation.
Holders of Series B Preferred Stock are entitled to receive dividends of 6.00%
per annum based on the stated value equal to $10,000 per Share (the "Stated
Value"). Except as otherwise required by law, the Series B Preferred Stock does
not have voting rights. However, as long as any shares of Series B Preferred
Stock are outstanding, the Company will not, without the affirmative vote of the
holders of a majority of the then outstanding shares of the Series B Preferred
Stock, (a) alter or change adversely the powers, preferences or rights given to
the Series B Preferred Stock, (b) alter or amend the Certificate of Designation,
(c) amend its certificate of incorporation or other charter documents in any
manner that adversely affects any rights of the holders of Series B Preferred
Stock, (d) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock, (e) enter into any
agreement with respect to any of the foregoing, or (f) pay cash dividends or
distributions on any equity securities of the Corporation other than pursuant to
the terms of the Corporation's outstanding Series B Preferred Stock. The Series
B Preferred Stock does not have a preference upon any liquidation, dissolution
or winding-up of the Company.
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Beginning the later of June 30, 2021 or the effectiveness of any registration
statement registering the underlying common shares, all or any portion of the
Series B Preferred Stock held by such Purchaser may be converted, at their
option, into 25,000 shares of Common Stock, as adjusted for any stock dividends,
splits, combinations or similar events.
At any time after the occurrence of a "Qualifying Event," the Company, upon
5-day written notice to the Purchaser, shall have the right to cause each share
of Series B Preferred Stock (and all accrued in-kind dividends with respect
thereto) to be converted into the Conversion Shares. For purposes this automatic
conversion of the Series B Preferred Stock, a "Qualifying Event" shall have
occurred if (A) (1) the rolling five (5)-trading day volume-weighted average
trading price of shares of the Common Stock exceeds $1.00, and (2) there shall
be an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering all of the shares of Common Stock which
would be issuable upon conversion of all of the outstanding shares of Series B
Preferred Stock or (B) the Corporation closes a firm commitment underwriting of
the Common Stock on a Form S-1 Registration Statement with aggregate gross
proceeds of at least $5,000,000 at a price per share equal to or greater than
$1.00.
The share of Series B Preferred Stock may be redeemed by the Company for the
Stated Value, plus accrued and unpaid dividends, at any time. On March 31, 2021,
and June 30, 2021, September 30, 2021, December 31, 2021, a payment of 12.5% of
the total amount of Series B Preferred Stock then outstanding plus accrued
dividends will be due from the Company to each Holder of Series B Preferred
Stock as a partial redemption by the Company of such Holder.
Each Warrant shall be exercisable immediately upon issuance and shall be
exercisable until the 24-month anniversary of the date of issuance, at an
exercise price of $0.352 per Warrant Share. The exercise price of the Warrants
will be subject to adjustment in the event of any stock dividends and splits,
reverse stock split, recapitalization, reorganization or similar transaction, as
described in the Warrants. The Warrants may only be exercised for cash.
The Preferred Shares, the Warrants and the Warrant Shares have not been
registered under the Securities Act, and are instead being offered pursuant to
the exemption provided in Section 4(a)(2) under the Securities Act and Rule
. . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 above regarding the Subordinated Note and
the full text of the Subordinated Note, which is attached hereto as Exhibit 4.2,
is incorporated by reference into this Item 2.03.
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Item 3.02 Unregistered Sale of Equity Securities.
References to the Series B Preferred Stock, Warrants, and Conversion Shares set
forth under Item 1.01, are incorporated by reference into this Item 3.02.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
Reference to the filing of the Certificate of Designation made in Item 1.01 of
this Current Report on Form 8-K is incorporated into this Item 5.03 by
reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description of Exhibit
3.1 Certificate of Designation of Preferences, Rights and Limitations
of the Series B Convertible Preferred Stock.
4.1 Form of Warrant.
4.2 10.00% Subordinated Promissory Note due September 30, 2021
10.1 Form of Subscription Agreement
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