Item
1.01. Entry into a Material Definitive Agreement.
On
February 21, 2023, Sugarmade, Inc., a Delaware corporation (the “Company”) entered into a securities purchase agreement (the
“SPA”) and security agreement (the “Security Agreement”) with Mast Hill Fund, L.P., a Delaware limited partnership
(the “Holder”), pursuant to which the Company issued an 8% senior secured promissory note (the “Note”) with a
maturity date of February 21, 2024 (the “Maturity Date”), in the principal sum of $122,500 (the “Principal Sum”).
In addition, the Company issued a common stock purchase warrant for the purchase of up to 418,333,334 shares of the Company’s common
stock (the “Warrant”) to the Holder pursuant to the SPA. Pursuant to the terms of the Note, the Company agreed to pay the
Principal Sum to the Holder and to pay interest on the principal balance at the rate of 8% per annum. The Note carries an original issue
discount (“OID”) of $12,250. Accordingly, on the Closing Date (as defined in the SPA), the Holder paid the purchase price
of $110,250 in exchange for the Note and Warrant. The Holder may convert the Note into the Company’s common stock (the “Common
Stock”), at any time at a conversion price equal to $0.00005 per share, subject to adjustment as provided in the Note (including
but not limited to certain price protection provisions in case of future dilutive offerings) as well as certain beneficial ownership
limitations.
The
Company may prepay the Note at any time prior to the date that an Event of Default (as defined in the Note) (each an “Event of
Default”) occurs at an amount equal to the Principal Sum then outstanding plus accrued and unpaid interest (no prepayment premium)
plus $750.00 for administrative fees. The Note contains customary events of default relating to, among other things, payment defaults,
breach of representations and warranties, and breach of provisions of the Note, Warrant, or SPA.
Upon
the occurrence of any Event of Default, the Note shall become immediately due and payable and the Company shall pay to the Holder, in
full satisfaction of its obligations hereunder, an amount equal to the Principal Sum then outstanding plus accrued interest multiplied
by 150% (the “Default Amount”). Upon the occurrence of an Event of Default, additional interest will accrue from the date
of the Event of Default at the rate equal to the lower of 16% per annum or the highest rate permitted by law.
The
Warrant is exercisable for five years from February 21, 2023, at an exercise price of $0.0003 per share (the “Exercise Price”),
subject to adjustment as provided in the Warrant. The Warrant also contains certain cashless exercise provisions as well as price protection
provisions providing for adjustment of the number of shares of Common Stock issuable upon exercise of the Warrants and the Exercise Price
in case of future dilutive offerings. Notwithstanding the foregoing, the adjustment to the number of shares of Common Stock issuable
due to a dilutive offering will only apply if an Event of Default occurs under the Note.
The
Company’s obligations under the Note are secured by all of the assets of the Company and its subsidiaries, pursuant to the terms
of the Security Agreement.
The
SPA contains customary representations, warranties, and covenants of the Company, including, among other things and subject to certain
exceptions, covenants that restrict the ability of the Company to enter into variable rate transactions. Pursuant to the SPA, the Holder
also has certain participation rights in certain future equity and debt offerings by the Company until the date that the Note is extinguished,
as well as piggy-back registration rights with respect to the Common Stock into which the Note is convertible and Warrant is exercisable.
The
foregoing descriptions of the Warrant, Note, SPA, and Security Agreement do not purport to be complete and are qualified in its entirety
by reference to the full text of the Warrant, Note, SPA, and Security Agreement, copies of which are filed herewith as Exhibits 4.1,
10.1, 10.2, and 10.3, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
