Item 1.01 Entry into a Material Definitive Agreement.
Labrys Fund Financing
On April 16, 2021 (the "Effective Date"), Grom Social Enterprises, Inc., a
Florida corporation (the "Company"), entered into a securities purchase
agreement (the "Labrys Purchase Agreement") with Labrys Fund, LP, a Delaware
limited partnership ("Labrys"), pursuant to which the Company issued to Labrys a
convertible promissory note in the principal amount of $300,000 (the "Labrys
Note"). In connection with the issuance of the Labys Note, Labrys was also
issued a five-year warrant (the "Labrys Warrant") to purchase up to an aggregate
of 3,750,000 shares of the Company's common stock (the "Labrys Warrant Shares"),
at an exercise price of $0.06 per share. The net proceeds received by the
Company were $266,000, after deducting an original issue discount in the amount
of $30,000 and $4,000 to cover Labrys's legal fees. The Company intends to use
the net proceeds for working capital and general corporate purposes.
The Labrys Note has a principal balance of $300,000, and a stated maturity date
of one year from the Effective Date. The Labrys Note bears interest at a rate of
12% per annum, which is payable when the Labrys Note becomes due, whether at
maturity, or upon acceleration, or by prepayment, or otherwise, with the
understanding that the first twelve months of interest (equal to $36,000) is
guaranteed and deemed to be earned in full as of the date of issuance. In the
event the Company fails to pay any amount when due under the Labrys Note, the
interest rate will increase to the lesser of 16%, or the maximum amount
permitted by law. Labrys may convert any amount due under the Labrys Note into
shares of the Company's common stock (the "Labrys Conversion Shares") at a
conversion price of $0.06 per share. Labrys may not convert any portion of the
Labrys Note that would cause it, together with its affiliates, to beneficially
own in excess of 4.99% of the Company's common stock. The conversion price and
number of shares of the Company's common stock issuable upon conversion of the
Labrys Note will be subject to adjustment from time to time in the event of any
merger, consolidation, distribution of shares, or other dilutive issuances.
The Labrys Warrant provides for the purchase of up to 3,750,000 shares of the
Company's common stock, an exercise price of $0.06 per share. The Labrys Warrant
is exercisable for a term of five years from the Effective Date. Labrys may not
exercise the Labrys Warrant with respect to any number of Labrys Warrant Shares
that would cause it, together with its affiliates, to beneficially own in excess
of 4.99% of the Company's common stock. The Labrys Warrant may be exercised for
cash, or, if the market price of the Company's common stock is greater than the
Labrys Warrant's exercise price, the Labrys Warrant may be exercised on a
cashless basis. The number of shares of common stock to be deliverable upon
exercise of the Labrys Warrant is subject to adjustment for subdivision or
consolidation of shares and other dilutive events, or in the event the Company
effects a reorganization, reclassification, merger, consolidation, disposition
of assets, or other fundamental transaction.
Pursuant to the Labrys Purchase Agreement, the Company agreed to give Labrys a
right of first refusal to participate in any offer or sale of the Company's
equity or debt securities for as long as the Labrys Note is outstanding. In
addition, the Company granted Labrys piggyback registration rights with respect
to the Labrys Conversion Shares and the Labrys Warrant Shares. Also, the Company
agreed that, while any of the Labrys Note, the Labrys Conversion Shares, the
Labrys Warrants, or the Labrys Warrant Shares remain outstanding, it would not
sell securities on more favorable terms than those provided to Labrys without
adjusting Labrys's securities to incorporate those more favorable terms.
Further, the Company agreed that, while any amount remains unpaid under the
Labrys Note, it would not enter into any subsequent variable rate transactions.
The foregoing descriptions of the Labrys Purchase Agreement, Labrys Note and
Labrys Warrant do not purport to be complete and are qualified in their entirety
by reference to the full text of such documents, copies of which are attached
hereto as Exhibits 10.1, 4.1 and 4.2, respectively, and are incorporated herein
by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information contained in Item 1.01 above is incorporated by reference in
this Item 2.03.
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Item 3.02 Unregistered Sales of Equity Securities.
The information contained in Item 1.01 above is incorporated herein by reference
in this Item 3.02.
The Labrys Note and Labrys Warrant described in Item 1.01 above were offered and
sold in reliance upon exemptions from registration pursuant to Section 4(a)(2)
under the Securities Act of 1933, as amended, and/or Rule 506(b) of Regulation D
promulgated thereunder, as transactions by an issuer not involving any public
offering.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibit is included in this Current Report:
Exhibit No. Description
4.1 12% Convertible Promissory Note, dated April 16, 2021, issued to
Labrys Fund, LP
4.2 Common Stock Purchase Warrant, dated April 16, 2021, issued to Labrys
Fund, LP
10.1 Securities Purchase Agreement, dated April 16, 2021, between the
Company and Labrys Fund, LP
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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.
GROM SOCIAL ENTERPRISES, INC.
Date: April 20, 2021 By: /s/ Melvin Leiner
Melvin Leiner
Executive Vice President and Chief Financial Officer
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