Attached files
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EX-2.1 - PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION - cbdMD, Inc. | levb_ex2-1.htm |
EX-99.1 - ADDITIONAL EXHIBITS - cbdMD, Inc. | levb_ex991.htm |
EX-10.2 - MATERIAL CONTRACTS - cbdMD, Inc. | levb_ex102.htm |
EX-10.1 - MATERIAL CONTRACTS - cbdMD, Inc. | levb_ex101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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) December
3,
2018
LEVEL BRANDS, INC.
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(Exact name of registrant as specified in its charter)
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North Carolina
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001-38299
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47-3414576
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(State or other jurisdiction of incorporation or
organization)
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(Commission File Number)
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(I.R.S. Employer Identification No.)
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4521 Sharon Road, Suite 450, Charlotte, NC 28211
(Address of principal executive offices)(Zip Code)
Registrant's
telephone number, including area code: (704) 445-5800
not applicable
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(Former name or former address, if changed since last
report)
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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))
Indicate by check mark whether the registrant is an emerging growth
company as defined in 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 ☑
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If an
emerging growth company, indicate by checkmark 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
December 3, 2018 Level Brands, Inc., and its newly organized
wholly-owned subsidiaries AcqCo, LLC and cbdMD LLC, entered into an
Agreement and Plan of Merger (the “Merger Agreement”) with
Cure Based Development, LLC, a Nevada limited liability company
(“Cure Based
Development”). The Merger
Agreement provides that, upon the terms and subject to the
conditions set forth therein, AcqCo LLC will merge with and into
Cure Based Development with the Cure Based Development as the
surviving entity (the “Merger”),
and immediately thereafter Cure Based Development will merge with
and into cbdMD LLC with cbdMD LLC as the surviving entity (the
“Secondary
Merger” and collectively
with the Merger, the “Mergers”).
Upon consummation of the Mergers, cbdMD LLC will continue as a
wholly-owned subsidiary of Level Brands and will continue the
operations of Cure Based Development
pre-closing.
Cure Based Development, a Charlotte, NC-based
company formed in August 2017, is owner, operator and manufacturer
of nationally recognized consumer cannabidiol (CBD) brand cbdMD
which currently offers a variety of CBD products from
topicals and tinctures to bath bombs and pet products, manufactured
and sold direct to consumers online via the company website. Cure
Based Development also provides wholesale distribution with
retailers currently selling products at brick-and-mortar locations,
compounding pharmacies, salons, supplement stores, and pet shops.
Cure Based Development reported
revenues of $354 and $3,280,009 for the period from inception
through December 31, 2017 and for the eight months ended August 31,
2018, respectively, and a net loss of $323,197 and $353,561 for
those periods.
Upon the terms and subject to the conditions set
forth in the Merger Agreement, at the effective time of the Mergers
(the “Effective
Time”), the members of
Cure Based Development will receive contractual rights to receive
15,525,000 shares of our common stock, representing approximately
60% of our outstanding common stock following such issuance, as the
merger consideration, issuable as follows:
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as promptly as practicable following receipt of approval by
our shareholders for the possible issuance of in excess of 19.99%
of our presently outstanding common stock in accordance with the
rule of the NYSE American (the “Shareholder Approval”)
the members of Cure Based Development will be issued an aggregate
of 6,500,000 shares of our common stock (the “First Tranche
Shares”); and
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●
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as
promptly as practicable after receipt of Shareholder Approval, we
will issue an additional 8,750,000 shares of our common stock (the
“Second Tranche Shares”) to CBD Holding, LLC, a member
of Cure Based Development which is controlled by Mr. Scott Coffman,
CEO and one of the managers of Cure Based Development
(“CBDH”), vesting follows: (i) 2,187,500 shares will
vest on the 12 month anniversary of the Closing; (ii) an additional
2,187,500 shares will vest on the 24 month anniversary of the
Closing; (iii) an additional 2,187,500 shares will vest on the 42
month anniversary of the Closing; and (iv) the remaining 2,187,500
shares will vest on the 60 month anniversary of the
Closing.
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The
First Tranche Shares and Second Tranche Shares will be subject to
leak out agreements, and the Second Tranche Shares will be subject
to an irrevocable voting proxy agreement until such time as the
shares vest pursuant to which the chairman of the Level Brands
audit committee, the proxyholder, will vote the shares in
accordance with the recommendations of our Board of
Directors.
2
Prior
to the approval of the Mergers and the Merger Agreement by our
Board of Directors, the Board
established a special committee made up of the disinterested and independent
directors to review, evaluate and negotiate the proposed
transaction (the “Special Committee”). Upon approval and recommendation of
the Special Committee, together with the delivery of audited
financial statements of Cure Based Development and a fairness
opinion by ThinkEquity, a division of Fordman Financial Management
Inc., our Board of Directors approved
the Merger, the Merger Agreement and the related transactions. The
Mergers and the Merger Agreement was also approved by the managers
and all of the members of Cure Based
Development.
The
Merger Agreement contains customary representations and warranties
from each party to the agreement, and each party has agreed to
customary covenants, including, among others, covenants relating to
(1) the conduct of Cure Based Development’s business during
the interim period between the execution of the Merger Agreement
and the closing of the Mergers, (2) mutual continued access to
information regarding the other entity’s operations, and (3)
Level Brand’s and Cure Based Development’s obligations
to use their reasonable best efforts to take all steps necessary to
consummate the Mergers.
In
addition to customary conditions to closing, the completion of the
Mergers is subject to (1) the approval by the President of the
United States of the Agricultural and Nutrition Act of 2018, or
such other titled Federal legislation, which, when approved,
contains a permanent declassification of cannabidiol (CBD) as a
controlled substance under Federal law; (2) the delivery of
customary opinions from counsel to Level Brands and counsel to Cure
Based Development, (3) the delivery of leak out agreements and
voting proxy agreements from the members of Cure Based Development,
and (4) cbdMD LLC entering into employment agreements with each of
Mr. Scott Coffman and Ms. Caryn Dunayer, currently the CEO and
President, respectively, of Cure Based Development, to serve in
similar positions with cbdMD LLC. At closing Mr. Coffman will also
be appointed to our Board of Directors. In the event we complete
the Mergers, our combined company will be required to satisfy NYSE
American initial listing standards for the continue listing of
Level Brand’s common stock on the NYSE American following the
closing.
The Merger Agreement also provides that CBDH will
be entitled to receive up to an additional 15,525,000 shares of our
common stock (the “Earnout
Shares”) as part of the
merger consideration, upon the satisfaction of certain aggregate
net revenue criteria by cbdMD LLC within 60 months following the
Closing as follows, based upon the ratios set forth
below:
Aggregate Net Revenues
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Shares Issued / Each $ of Aggregate Net Revenue Ratio
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$1 -
$20,000,000
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.190625
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$20,000,001
- $60,000,000
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.0953125
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$60,000,001
- $140,000,000
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.04765625
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$140,000,001
- $300,000,000
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.023828125
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The issuance of the Earnout Shares is also subject
to prior Shareholder Approval. We expect to include the
Shareholder Approval proposal covering both the First Tranche
Shares, the Second Tranche Shares and the Earnout Shares, in the
proxy statement to be filed with the SEC for our 2019 annual
shareholders meeting. The issuance of the shares will constitute a
change of control under the rules and regulations of the NYSE
American and at the time of the initial issuance of the shares the
Company shall seek the continued listing of the Company’s
common stock on the NYSE American.
3
Prior
to the date of the Merger Agreement, an entity affiliated with Mr.
Coffman lent Cure Based Development an aggregate of $1,490,823 for
working capital. Following the closing of the Mergers, we will
reduce that obligation by a $1,000,000 cash payment and the balance
will be converted to an 18 month 6% promissory note.
Following
the closing of the Mergers, CBDH will issue Mr. Martin A.
Sumichrast, our Chairman of the Board and CEO, a one year warrant,
exercisable at an aggregate price of $90.00, to purchase up to 9%
of the Second Tranche Shares and the Earnout Shares.
The
foregoing description of the Mergers, the Merger Agreement and the
related transactions does not purport to be complete and is
qualified in its entirety by reference to the full text of the
Merger Agreement, which is filed as Exhibit 2.1 to this
report.
$2 million Secured Promissory Note and Security
Agreement
Following
the execution of the Merger Agreement, and as contemplated therein,
on December 4, 2018 we lent Cure Based Development $2,000,000 under
the terms of a one year Secured Promissory Note. The note bears
interest at 6% per annum and is secured by a first position
security interest in all of the assets of Cure Based Development
under the terms of a Security Agreement. Cure Based Development
intends to use the proceeds from the loan for marketing and
branding strategy and campaigns and general operating expenses. The
foregoing descriptions of the terms and conditions of the Secured
Promissory Note and Security Agreement are qualified in their
entirety by reference to the agreements which are filed as Exhibits
10.1 and 10.2 to this report.
Item
7.01. Regulation FD Disclosure.
On
December 4, 2018 we issued a press release announcing the signing
of the Merger Agreement. A copy of this press release is furnished
as Exhibit 99.1 to this report. Pursuant to General Instruction B.2
of Form 8-K, the information in this Item 7.01 of Form 8-K,
including Exhibit 99.1, is being furnished and shall not be deemed
“filed” for the purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise be subject to the
liabilities of that section, nor is it incorporated by reference
into any filing of Level Brands, Inc. under the Securities Act of
1933 or the Securities Exchange Act of 1934, whether made before or
after the date hereof, regardless of any general incorporation
language in such filing.
Item 9.01. Financial Statement and
Exhibits.
(d)
Exhibits.
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Incorporated by Reference
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No.
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Exhibit Description
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Form
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Date
Filed
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Number
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Filed or
Furnished
Herewith
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Merger
Agreement dated December 3, 2018 by and among Level Brands, Inc.,
AcqCo, LLC, cbdMD LLC and Cure Based Development, LLC
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Filed
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Secured
Promissory Note dated December 4, 2018 in the principal amount of
$2,000,000 from Cure Based Development LLC
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Filed
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Security
Agreement dated December 4, 2018 by and between Level Brands, Inc.
and Cure Based Development, LLC
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Filed
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Press
release dated December 4, 2018
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Furnished
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4
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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LEVEL
BRANDS, INC.
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Date:
December 4, 2018
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By:
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/s/
Mark S. Elliott
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Mark S.
Elliott, Chief Financial Officer and Chief Operating
Officer
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