YCBD cbdMD Inc

 

On March 2, 2023 cbdMD, Inc. (the “Company”) and Keystone Capital Partners, LLC (“Keystone”), entered into a common stock purchase agreement (the “Purchase Agreement”), which provides that subject to the terms and conditions set forth therein, the Company may sell to Keystone up to 12,687,012 shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”), from time to time during the term of the Purchase Agreement.

 

Additionally, on March 2, 2023, the Company and Keystone entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) covering the resale of shares of Common Stock that are issued to Keystone under the Purchase Agreement.

 

Under the terms and subject to the satisfaction of the conditions set forth in the Purchase Agreement, the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to 12,687,012 shares of Common Stock. Such sales of Common Stock by the Company, if any, will be subject to certain limitations as set forth in the Purchase Agreement, and may occur from time to time, at the Company’s sole discretion, over a 12-month period commencing on the date that all of the conditions to the Company’s right to commence such sales are satisfied, including that the registration statement referred to above is declared effective by the SEC and a final form of the prospectus included therein is filed with the SEC (the “Commencement Date”). Keystone has no right to require the Company to sell any Common Stock to Keystone, but Keystone is obligated to make purchases as the Company directs, subject to satisfaction of the conditions set forth in the Purchase Agreement.

 

Upon entering into the Purchase Agreement, the Company agreed to issue to Keystone 392,382 shares of Common Stock (the “Commitment Shares”) as consideration for Keystone’s commitment to purchase shares of Common Stock upon the Company’s direction under the Purchase Agreement. The Company issued 30% of the Commitment Shares effective on the date of the Purchase Agreement. An additional 30% of the Commitment Shares shall be issued to Keystone 90 days following the Commencement Date. The remaining 40% of the Commitment Shares shall be issued to Keystone 180 days following the Commencement Date. The Company also agreed to pay Keystone up to $35,000 for its reasonable expenses under the Purchase Agreement.

 

Under the Purchase Agreement, the Company may, at its discretion, from time to time from and after the Commencement Date, direct Keystone to purchase (a “Fixed Purchase”) up to the greater of (i) 100,000 shares of Common Stock and (ii) $50,000on any trading day on which the closing sale price of the Common Stock is not below $0.10 per share on the NYSE American (the “NYSE”).

 

In addition to Fixed Purchases, and provided that the Company has directed Keystone to purchase the maximum allowable amount of shares of Common Stock in a Fixed Purchase, the Company also may, at its discretion, from time to time from and after the Commencement Date, direct Keystone to purchase additional shares of Common Stock on the trading day immediately following the purchase date for such Fixed Purchase (each, a “VWAP Purchase”) and, under certain circumstances set forth in the Purchase Agreement, direct Keystone to purchase additional shares of Common Stock on the same trading day as such VWAP Purchase (each, an “Additional VWAP Purchase”), in each case upon the terms and subject to the conditions set forth in the Purchase Agreement. We refer to the Fixed Purchase, the VWAP Purchase and the Additional VWAP Purchase, collectively as a “Purchase”.

 

 

There is no upper limit on the price per share that Keystone may be obligated to pay for the Common Stock in any of the Purchases. The purchase price per share for each Purchase is as follows:

 

 

 

 

 

Each Purchase has a maximum number of shares that may be purchased for each applicable Purchase Period. The maximum share amounts, purchase prices and the closing sale prices referred to in this Form 8-K will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring after the date of the Purchase Agreement.

 

 

Under applicable rules of the NYSE, in no event may the Company issue or sell to Keystone under the Purchase Agreement more than 13,079,394 shares of Common Stock (including the Commitment Shares), which maximum number of shares is equal to 19.99% of the Company’s shares of Common Stock outstanding immediately prior to the execution of the Purchase Agreement

 

The Purchase Agreement also prohibits the Company from directing Keystone to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common Stock then beneficially owned by Keystone and its affiliates, would result in Keystone having beneficial ownership of more than 9.99% of the outstanding shares of Common Stock.

 

The Purchase Agreement contains customary representations, warranties, covenants, indemnification and termination provisions. Keystone has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Common Stock. There are no limitations on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on the Company’s ability to enter into additional “variable rate transactions” or substantially similar transactions as the transactions contemplated by the Purchase Agreement, subject to certain exceptions, during certain periods beginning prior to the applicable purchase dates for any Fixed Purchase, VWAP Purchase and Additional VWAP Purchase and ending after the dates on which such purchases are fully settled, as set forth in the Purchase Agreement), rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by the Company at any time, at the Company’s sole discretion, without any cost or penalty (subject to the Company issuing the Commitment Shares), on 1 trading day prior written notice to Keystone. Neither the Company, nor Keystone, may assign or transfer its rights and obligations under the Purchase Agreement and no provision of the Purchase Agreement or the Registration Rights Agreement may be modified or waived by the parties.

 

 

The net proceeds under the Purchase Agreement to the Company will depend on the frequency of sales and the number of shares sold to Keystone and prices at which the Company sells shares to Keystone. The Company expects that any net proceeds received by the Company from such sales to Keystone will be used for working capital and general corporate purposes. Management of the Company believes that it is in the Company’s best interests to have the flexibility to sell Common Stock pursuant to the Purchase Agreement, subject to market conditions.

 

The foregoing descriptions of the Purchase Agreement and the Registration Rights Agreement are qualified in their entirety by reference to the full text of the Purchase Agreement and the Registration Rights Agreement, each of which is attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively, and each of which is incorporated herein by reference.

 

The Purchase Agreement and Registration Rights Agreement contain customary representations and warranties, covenants and indemnification provisions that the parties made to, and solely for the benefit of, each other in the context of all of the terms and conditions of such agreements and in the context of the specific relationship between the parties thereto. The provisions of the Purchase Agreement and Registration Rights Agreement, including any representations and warranties contained therein, are not for the benefit of any party other than the parties thereto and are not intended as documents for investors and the public to obtain factual information about the current state of affairs of the parties thereto. Rather, investors and the public should look to other disclosures contained in our annual, quarterly and current reports we file with the SEC. There are no assurances that the Company will sell to Keystone shares of Common Stock pursuant to the Purchase Agreement.

 

This Current Report on Form 8-K shall not constitute an offer to sell or a solicitation of an offer to buy any shares of Common Stock, nor shall there be any sale of shares of Common Stock in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction.

 

 

Certain statements and assumptions in this Current Report contain or are based upon “forward-looking” information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Current Report include, among others, statements about the Company’s strategy and future plans. These forward-looking statements are subject to risks and uncertainties. When we use the words “will likely result,” “may,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” or similar expressions, we intend to identify forward-looking statements. Such statements are subject to numerous assumptions and uncertainties, many of which are outside the Company’s control. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated, including, without limitation, the completion of any sales under the Purchase Agreement or proceeds received under the Purchase Agreement, if any. Other risk factors are more fully discussed in the Company’s filings with the SEC.