Item
1.01. Entry Into a Material Definitive Agreement.
Merger
Agreement
On
June 20, 2023, Resonate Blends, Inc. (“Parent”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Pegasus Specialty Vehicles, LLC, an Ohio limited liability company (the “Company”),
and Pegasus Specialty Holdings LLC, an Ohio limited liability company and wholly-owned subsidiary of Parent (“Merger Sub”).
The
Merger Agreement provides that at the closing (the “Closing”), subject to the terms and conditions set forth
in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving
the Merger as a wholly-owned subsidiary of Parent. At Closing of the Merger, the issued and outstanding common shares of the Company
(“Company Common Shares”) will automatically be converted into the right to receive an aggregate of 623,500
shares of Series AA Preferred Stock of Parent (the “Merger Consideration”).
Each
of the Company, Parent, and Merger Sub has made various representations and warranties and agreed to certain covenants in the Merger
Agreement, including a covenant by Parent that it would raise $3,000,000 less costs in new financing at Closing, with $500,000 of such
amount less costs loaned pre-Closing to the Company under a secured promissory note. The Company has a covenant that it would grant a
security interest to Parent in all of its assets on the $500,000 loan in favor of Parent, subordinate to other security interests as
to the same collateral.
Consummation
of the Merger is subject to the satisfaction or, if permitted by applicable law, waiver, by Parent, the Company, or both of various conditions.
For the Company, these conditions include, without limitation, (i) an agreeable plan to spin out the existing Parent cannabis assets
and operations, (ii) an agreeable plan to transfer the outstanding shares of Series C Preferred Stock of Parent to Brian Barrington simultaneously
to the date of the aforementioned spin-out; (iii) an agreeable plan to retire the Series E Designation; (iv) financing by Parent of $3,000,000
less costs; (v) the filing of the Certificate of Designation for the Series AA Preferred Stock with the Secretary of State of Nevada;
and (vi) certain other customary conditions. For the Parent, these conditions include, without limitation, (i) a secured promissory note
issued by the Company to Parent in the amount of $500,000 with the collateral being a UCC lien subordinate to other lenders; (ii) the
payback by Parent of certain advances contributed by corporate officers and others in the Parent in an amount not to exceed $140,000;
(iii) resolutions of the equity holders of Company approving this Agreement and the transactions contemplated; and (iv) certain other
customary conditions.
The
Merger Agreement contains certain termination rights including the right of the parties to mutually agree upon termination, and by each
of the Company and the Parent unilaterally if the other party has committed a violation of the covenants, representations and warranties
in the Merger Agreement.
The
Merger Agreement, the Merger, and the transactions contemplated thereby were unanimously approved by the board of directors of the Parent,
and unanimously approved by the board of directors of the Company.
The
Closing of the Merger is expected to occur as soon as practicable after the satisfaction or waiver of all the conditions to Closing in
the Merger Agreement, which is currently expected to be in the 3rd quarter of calendar year 2023.
The
Merger Agreement has been included to provide investors with information regarding its terms. The representations, warranties, and covenants
contained in the Merger Agreement were made only for the purposes of the Merger Agreement, were made as of specific dates, were made
solely for the benefit of the parties to the Merger Agreement, and may not have been intended to be statements of fact, but rather as
a method of allocating risk and governing the contractual rights and relationships among the parties to the Merger Agreement. In addition,
such representations, warranties, and covenants may have been qualified by certain disclosures not reflected in the text of the Merger
Agreement and may apply standards of materiality and other qualifications and limitations in a way that is different from what may be
viewed as material by the Parent’s shareholders. None of the Parent’s shareholders or any other third party should rely on
the representations, warranties, and covenants, or any descriptions thereof, as characterizations of the actual state of facts or conditions
of the Company, Parent, Merger Sub, or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject
matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not
be fully reflected in the Parent’s public disclosures. The Merger Agreement should not be read alone, but should instead be read
in conjunction with the other information regarding Parent that is or will be contained in, or incorporated by reference into, the Forms
10-K, Forms 10-Q, Forms 8-K, and other documents that Parent files or has filed with the SEC.
The
foregoing descriptions of the Merger Agreement and the Merger are summaries, do not purport to be complete, and are qualified in their
entirety by reference to the full text of the Merger Agreement, and the exhibits attached thereto, a copy of which is attached as Exhibit
2.1 to this Current Report on Form 8-K and incorporated by reference herein.
Bridge
Financing
On
June 20, 2023, Parent signed a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited
investor (the “Investor”), pursuant to which Parent issued and sold to the Investor a 15% OID Senior Promissory Note (non-convertible),
dated June 20, 2023, in the principal amount of $575,000 (the “Parent Note”). The Parent Note is secured by
all of the Company’s assets under a separate security agreement between the Investor and the Company.
Parent
received $500,000 from the Parent Note after applying the original issue discount to the Parent Note, $30,000 of which was used to pay
a commission to a broker as placement agent and $30,000 was paid to the lender for its legal fees, and the balance was tendered to the
Company for working capital under a Loan and Security Agreement (described below) (the “Company Loan”).
The
maturity date for repayment of the Parent Note is September 20, 2023 and the Parent Note bears interest at 15% per annum starting 60
days after issuance and interest payable in cash monthly thereafter. Parent may prepay the Parent Note at any time, but if Parent repays
the Parent Note after 60 days, it is required to pay a premium of 104% of the principal amount.
As
additional consideration, Parent agreed to issue to the Investor 1,318,000 shares of its common stock as commitment shares. Parent is
required to issue additional commitment shares in the event the Parent Note is not prepaid at 60 days. Pursuant to a Registration Rights
Agreement (the “Registration Agreement”), Parent has agreed to register the Investor shares with the SEC no
later than 90 days from the issuance of the Parent Note.
In
the Purchase Agreement, Parent agreed to certain restrictive covenants, including a restriction on borrowing and a most favored nation
clause in favor of Investor for any future offerings not specifically exempted.
On
June 20, 2023, Parent and the Company entered into a Loan and Security Agreement in the principal amount of $575,000 secured by all of
the Company’s assets but subordinate to the security interest of Investor and another lender of the Company.
The
foregoing description of the Purchase Agreement, the Registration Agreement, the Parent Note, the Company Loan, and the transactions
contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text
of the Purchase Agreement, the Registration Agreement, the Parent Note, and the Company Loan, which are included in this Current Report
as Exhibits 10.1, 10.2, 4.1 and 10.3, respectively, and are incorporated herein by reference.