UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§240.12b-2 of this chapter).
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| Item 1.01 | Entry Into Material Definitive Agreement. |
Entry into a Securities Purchase Agreement
On November 9, 2023, Grom Social Enterprises, Inc., a Florida corporation (the “Company”), entered into a Securities Purchase Agreement (the “SPA”) with Generating Alpha Ltd., a Saint Kitts and Nevis Corporation (the “Investor”) pursuant to which the Company has agreed to sell two convertible promissory notes of the Company (each, a “Note” and collectively, the “Notes”), with each Note having an initial principal amount of $4,000,000, for a price of $3,640,000 per Note. In connection with the purchase and sale of the Notes, the Company has agreed to issue to the Investor warrants (each, a “Warrant” and collectively, the “Warrants”) to acquire a total of 3,028,146 shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”) (the issuance of the Warrants together with the purchase and sale of the Notes, the “Transactions”). Capitalized words and phrases not otherwise defined herein have the meanings assigned thereto in the SPA.
EF Hutton, division of Benchmark Investment, LLC, is acting as placement agent for the financing.
Transactions Pending Shareholder Approval
The Transactions are subject to shareholder approval (the “Shareholder Approval”). Pursuant to the SPA, the Company has agreed to secure Shareholder Approval for the SPA and the Transactions at a special meeting or via a written consent in lieu of a meeting. Concurrently with the execution of the SPA, the Company delivered to the Investor a fully executed copy of a Voting Agreement (the “Voting Agreement”), wherein certain shareholders of the Company have agreed to vote certain securities of the Company held by them as set forth therein.
Note Terms
The Note in the aggregate principal amount of $4,000,000 has five (5) year maturity with an interest at nine (9) percent per calendar year and carries a nine (9) percent of original issue discount. The Company has agreed to make amortization payments each month in the amount of $83,033.42 in cash or in kind.
The Note is convertible at the discretion of the Investor into Common Stock at a price of $1.50. The Investor may choose the alternate Conversion Price (as described in the Notes) equal to 85% of the average of the three lowest trading prices during the previous ten (10) trading day period ending on the latest complete trading day prior to notice of conversion.
The Conversion Price is subject to full ratchet anti-dilution protections in the event that the Company issues any Common Stock at a per share price (each a “Dilutive Price”) lower than the conversion price then in effect, provided, however, that Investor shall have the sole discretion in deciding whether to utilize such Dilutive Price instead of the Conversion Price otherwise in effect at the time of the respective conversion.
In the event of an Event of Default (as described in the Notes), the Conversion Price shall be equal to seventy (70) percent multiplied by the lower of (i) the lowest intraday trading price in the forty (40) trading days prior to the applicable Conversion Date (as described in the Notes) or (ii) the lowest closing bid price in the forty (40) trading days prior to the applicable Conversion Date.
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Warrant Terms
Pursuant to the SPA, the issuance of the Notes and the Warrants shall occur at two closings (the “First Closing” and the “Second Closing”, each a “Closing”). The Warrant to be issued at the First Closing shall be a Warrant for 1,514,073 shares of Common Stock and shall have an exercise price of $1.78 per share of Common Stock. The Warrant to be issued at the Second Closing shall be a Warrant for 1,514,073 shares of Common Stock and shall have an exercise price of $0.001 per share of Common Stock.
Subject to the terms and conditions set forth in the SPA, the First Closing shall occur on the first business day following the receipt of the Shareholder Approval, and the Second Closing shall occur thirty-five (35) business days following the date that the Registration Statement (as defined below) has been declared effective by the Securities and Exchange Commission (the “SEC”).
Registration Rights
Pursuant to the Registration Rights Agreement (the “Registration Rights Agreement”), the Company is required to file a registration statement (the “Registration Statement”) with the SEC five (5) days following the date that the Shareholder Approval has been obtained, and go effective no later than the sixtieth (60th) calendar day following the filing date, provided, however, that in the event the Company is notified by the SEC that the Registration Statement will not be reviewed or is no longer subject to further review and comments, the effectiveness date as to such Registration Statement shall be the fifth (5th) trading day following the date on which the Company is so notified if such date precedes the dates otherwise required above.
The foregoing description of the Voting Agreement, SPA, Notes, Warrants, and Registration Rights Agreement are a summary only, does not purport to be complete, and is qualified in its entirety by reference to the full text of such documents, which or the forms of which are attached hereto as Exhibits 9.1, 10.1, 10.2, 10.3, and 10.4, respectively, and incorporated herein by reference.
| Item 3.02 | Unregistered Sales of Equity Securities. |
The information contained in Item 1.01 above is incorporated herein by reference.
The Notes and Warrants described in Item 1.01 above will be offered and sold in reliance upon an exemption from registration pursuant to Section 4(1) and Regulation D of the Securities Act of 1933, as amended.
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Cautionary Statements
This filing includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect the Company’s operations, financial performance, and other factors as discussed in the Company’s filings with the SEC. Among the factors that could cause results to differ materially are those risks discussed in the periodic reports the Company files with the SEC. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” The Company does not undertake any duty to update any forward-looking statement except as required by law.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
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SIGNATURE
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: November 15, 2023 | By: | /s/ Darren Marks |
|
Darren Marks Chief Executive Officer | ||
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