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”):
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(i)
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cash
consideration of $4,256,000, consisting of:
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a.
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$280,000
in cash; and
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b.
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$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
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(ii)
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660,571,429
shares of common stock of the Company, par value $0.001 (the “Company Common Stock”);
and
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(iii)
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2,000,000
shares of Series B Preferred Stock of the Company (the “Series B Stock”).
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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.