Item 5.02 Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
Resignation of Director
On July 9, 2020, Michael Feinsod resigned from the Board of Directors of General
Cannabis Corp (the "Company"). In his resignation letter, Mr. Feinsod stated he
had expressed to the Board of Directors and management several concerns and
disagreements with various matters regarding the Company and that such matters
had not been adequately addressed to date. Mr. Feinsod did not specifically
identify any concerns or disagreements in his resignation letter. Management and
the Board of Directors, however, can surmise that his concerns and disagreements
relate to unspecified general claims that the Company had deficiencies in its
controls and procedures. The Company believes Mr. Feinsod claims are unfounded
and strongly disagrees with his assertions, nevertheless, as a matter of
responsible governance, it has initiated a review into such matters. In
addition, the Company recently discovered and remediated certain issues arising
from an accounting error relating to the Company's accounting for a warrant
derivative liability with respect to certain outstanding common stock warrants
with the filing of its most recent Form 10-Q and restated Form 10-K, and is
currently in the process of hiring a Chief Financial Officer to fill a current
vacancy in the position.
During the period covered by the restated 2019 Form 10-K and the first quarter
2020 Form 10-Q, Mr. Feinsod served as an officer and director of the Company;
having served as Interim Chief Executive Officer of the Company from January 7,
2019 through August 5, 2019, as Chief Executive Officer from August 5, 2019 to
December 13, 2019, and thereafter as Executive Chairman of the Board of
Directors until his resignation on June 24, 2020, and as Chairman of the Board
of Directors until his removal on June 28, 2020. On the date of his resignation,
he did not serve on any committees of the Board of Directors.
Appointment of Director
On July 13, 2020, Adam Hershey was appointed to the Board of Directors of the
Company.
Mr. Hershey has over 25 years of investing experience in the public and private
markets. He is currently the Founder, Managing Partner and Portfolio Manager of
Hershey Strategic Capital, LP, an opportunistic, alternative asset manager
focused on active investing in small cap, public companies, since inception in
July 2009 to the present. He invests in both public and private companies,
covering multiple industries with a typical investment time frame of 3-5 years
focused on fundamental, long term absolute returns across the capital structure.
He is the Founder and Managing Member of several investment partnerships that
focus on providing growth and expansion capital to talented entrepreneurs and
executives to build great businesses and ultimately achieve successful liquidity
events.
Mr. Hershey was a Partner and Chief Investment Officer (CIO) at SIAR Capital,
LLC. a single Family Office specializing in undervalued and emerging growth
companies based in New York City from September 2007 through June 2016, and
remained a consultant through December 2016. At SIAR Capital he invested in
public and private companies, as well as third-party alternative asset managers
and multiple Co-Investment transactions. The investment focus was based on a
concentrated portfolio of undervalued and emerging companies working closely
with management to foster economic value through the development of companies.
SIAR Capital broadened its investment mandate to include opportunistic
investments across asset classes. Mr. Hershey was also a director of United
Energy Corp. from 2008 until his resignation in February 2018. Mr. Hershey
graduated from Tulane University A.B. Freeman School of Business with the degree
of B.S.M. in 1994.
On May 29, 2020, the Company entered into a subscription agreement with Hershey
Strategic Capital, LP and Shore Ventures III, LP (collectively, the "Investor")
with respect to the sale of shares of common stock and warrants to purchase
common stock (collectively, the "securities"). At the first closing, which
occurred on May 29, 2020, the Company sold $800,000 of securities to the
Investor, representing 2,008,536 shares of common stock and warrants to purchase
1,506,402 shares of common stock. At the second closing, which occurred on June
3, 2020, the Company sold to the Investor $1,385,000 of securities, representing
3,477,278 shares of common stock and warrants to purchase 2,607,958 shares of
common stock. A third closing will be held with respect to the sale of $815,000
of the securities if Mr. Hershey is "Approved for Suitability" by the State of
Colorado's Marijuana Enforcement Division ("MED") within one year of the date of
the subscription agreement. This is expected to consist of 2,046,196 shares of
common stock and warrants to purchase 1,534,647 shares of common stock.
Assuming a third closing is held, Mr. Hershey is expected to beneficially own a
total of 7,532,010 shares of common stock and warrants to purchase 5,649,007
shares of common stock. Notwithstanding the foregoing, the subscription
agreement provides that Mr. Hershey's investment shall not exceed 20% or more of
the common stock (or securities convertible into or exercisable for common
stock) or the voting power of the Company on a post-transaction basis, and the
warrant agreement provides that, prior to Mr. Hershey being "Approved for
Suitability" by the MED, Mr. Hershey shall not have the right to exercise his
warrants to the extent that, after giving effect to such issuance after
exercise, Mr. Hershey would beneficially own in excess of 9.99% of Company's
common stock outstanding immediately after giving effect to such issuance.
Because Mr. Hershey is a director and a principal shareholder of the Company,
the Company is submitting a formal request to the State of Colorado's MED to
determine whether Mr. Hershey is "Approved for Suitability." In connection with
such submission, Mr. Hershey has agreed with the Company, in the event Mr.
Hershey is not "Approved for Suitability" by the MED, to take such actions
reasonably required by the MED, including possible divestiture of certain of his
ownership interests in the Company and/or his resignation from his positions
with the Company.
Pursuant to the terms of the subscription agreement with the Investor, the
Company's Board of Director shall nominate Mr. Hershey (or such other director
designated by the Investor) for re-election to the Company's Board of Directors
at the Company's annual shareholder meetings held in 2020, 2021 and 2022, as
applicable, provided that as of the date of each such annual meeting the
Investor continues to hold in aggregate at least one-half of the shares of
Common Stock purchased by them in aggregate pursuant to the subscription
agreement (without giving effect to the exercise of the warrants). The right to
designate a director for election or re-election to the Company's Board of
Directors shall terminate on the earlier of (i) the date immediately preceding
the Company's annual meeting of shareholders in 2023, or (ii) the date on which
the Investor fails to hold in aggregate at least one-half of the shares of
common stock purchased by them in aggregate pursuant to the subscription
agreement (without giving effect to the exercise of the warrants). The foregoing
descriptions of the subscription agreement and warrant agreement do not purport
to be complete and are qualified in their entirety by reference to the
subscription agreement and warrant agreement attached as Exhibit 10.1 and
Exhibit 10.2, respectively, to the Company's Form 8-K filed June 1, 2020.
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On June 3, 2020, the Company entered into a consulting agreement with Mr.
Hershey pursuant to which he would act as a strategic consultant for the
Company, including providing assistance with the sourcing and evaluation of M&A
deals, strategic capital and strategic partnerships or joint ventures. Mr.
Hershey is paid an initial monthly rate of $8,333 for the services, subject to
certain adjustments. The foregoing description of the consulting agreement does
not purport to be complete and is qualified in its entirety by reference to the
Consulting Agreement attached as Exhibit 10.8 to the Company's Form 10-Q for the
quarter ended March 31, 2020.
Pursuant to the Company's amended and restated bylaws, the Company's Board of
Directors has the power to fill vacancies on the Board of Directors by the
affirmative vote of a majority of the directors serving at the time of the
increase. On July 9, 2020, Michael Feinsod retired from the Company's Board of
Directors creating a vacancy. The Company's Board of Directors elected Adam
Hershey as a new director to fill that vacancy. Except as described above, there
is no arrangement or understanding between Mr. Hershey and any other persons
pursuant to which Mr. Hershey was selected as a director of the Company and Mr.
Hershey does not have any direct or indirect material interest in any existing
or currently proposed transaction to which the Company is or may become a party.
A copy of the press release announcing Mr. Hershey's appointment is furnished
and attached hereto as Exhibit 99.2.
Item 5.08. Shareholder Director Nominations.
The Board of Directors of the Company has determined that it plans to hold its
Annual Meeting of Shareholders on Wednesday, September 23, 2020 at 9:00 a.m. MT
(the "2020 Annual Meeting"). The record date for the determination of
shareholders entitled to receive notice of and to vote at the 2020 Annual
Meeting shall be the close of business on Monday, August 10, 2020. Because the
date of the 2020 Annual Meeting differs by more than thirty days from the
anniversary date of the 2019 Annual Meeting of Shareholders, the Company is
using this Form 8-K to provide the due date for the submission of any qualified
shareholder proposals or qualified shareholder nominations. The location of the
2020 Annual Meeting will be as set forth in the Company's proxy statement for
the 2020 Annual Meeting, to be filed prior to the 2020 Annual Meeting with the
Securities and Exchange Commission ("SEC").
In accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), any shareholder proposal intended to be considered
for inclusion in the Company's proxy materials for the 2020 Annual Meeting must
be delivered to, or mailed to and received at, the Company's principal executive
offices located at 6565 E. Evans Avenue, Denver, Colorado 80224 Attention:
Secretary, on or before the close of business on August 7, 2020, which the
Company has determined to be a reasonable time before it expects to begin to
print and distribute its proxy materials prior to the 2020 Annual Meeting. In
addition to complying with this deadline, shareholder proposals intended to be
considered for inclusion in the Company's proxy materials for the 2020 Annual
Meeting must also comply with all applicable SEC rules, including Rule 14a-8, as
well as the Company's bylaws.
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Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not Applicable.
(b) Pro Forma Financial Information.
Not Applicable.
(c) Shell Company Transactions.
Not Applicable.
(d) Exhibits.
Exhibit No. Description
99.1 Letter of Resignation from Michael Feinsod, dated July
9, 2020.
99.2 Press Release, dated July 14, 2020.
104 Cover Page Interactive Data File (embedded within the
Inline XBRL document).
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