Business Context and Reporting Period
This Form 8-K was filed by Wizard Brands, Inc. (not Prairie Operating Co.) on March 29, 2021. The filing reports the entry into a Material Definitive Agreement and the issuance of unregistered equity securities. The company is incorporated in Delaware and is not an emerging growth company.
Key Financial Metrics and Transaction Details
The filing details a private placement transaction with Leviston Resources LLC. The filing text does not provide standard financial metrics such as revenue, profit, cash flow, or existing debt levels.
- Total Aggregate Purchase Price: $5,000,000
- Securities Issued: 5,000 shares of Series B Preferred Stock (aggregate stated value $5,400,000) and two warrants to purchase an additional 5,000 shares each.
- Payment Schedule: $2,000,000 paid on the Closing Date; $500,000 due within three business days of filing a registration statement; $2,500,000 due within three business days of the registration statement becoming effective.
- Preferred Stock Dividend: 5% per annum, cumulative, payable quarterly.
- Warrant Exercise Price: $1,000 per share for both Series 1 (expires March 26, 2023) and Series 2 (expires March 26, 2024).
Material Changes and Covenants
The transaction introduces significant covenants and restrictions on the company's operations and capital structure:
- Debt Restriction: For 12 months from the Closing Date, the company is prohibited from incurring, assuming, or guaranteeing any indebtedness for borrowed money, with limited exceptions for trade payables and accrued expenses.
- Issuance Restrictions: The company cannot issue or announce the issuance of Common Stock or related securities for 30 days post-closing. For 24 months, the Purchaser has a right of first refusal to participate in up to 35% of future equity issuances.
- Repurchase Rights: The company may repurchase unconverted Series B Preferred Stock after one month of the registration statement's effective date for 125% of the aggregate stated value.
- Registration Rights: The company must file a registration statement within 21 days of the Closing Date and use commercially reasonable efforts to have it declared effective within 60 to 90 days.
Outlook, Risks, and Contingencies
The filing outlines specific risks and contingencies tied to the new securities:
- Triggering Events: If the company fails to comply with obligations under the Transaction Documents, the Conversion Price may be adjusted downward (from 85% to 70% of VWAP), or the holder may demand a cash payment equal to the greater of 120% of the stated value or a market-based calculation.
- Force Exercise: The company may force the exercise of warrants if the volume-weighted average price (VWAP) of Common Stock exceeds 250% (Series 1) or 350% (Series 2) of the 125% Conversion Price for five consecutive trading days.
- Liquidation Preference: In a liquidation, Series B Preferred Stock holders are entitled to the stated value plus accrued dividends before any distribution to Common Stock holders.
- Beneficial Ownership Limitation: Conversion is restricted if it would result in the holder owning more than 9.99% of outstanding Common Stock, unless the holder provides notice to increase this limit.
Key Facts for Investor Verification
- Verify the company's ability to file and have declared effective the required registration statement within the stipulated 60-90 day window to unlock the remaining $3,000,000 of the purchase price.
- Confirm the company's current cash position to ensure it can meet the 5% quarterly dividend obligations on the $5.4 million stated value of the Preferred Stock.
- Assess the impact of the 12-month debt covenant on the company's ability to secure future working capital or refinance existing obligations.
- Review the specific definition of "Triggering Events" in the Series B Certificate of Designation to understand the conditions that could lead to a significant dilution of existing shareholders or a large cash payout.
- Monitor the VWAP of the Common Stock to evaluate the likelihood of the company forcing the exercise of the warrants.