Item 1.01 Entry into a Material Definitive
Agreement.
On September 9, 2019 (the “Execution
Date”), Medicine Man Technologies (the “Company”), a Nevada corporation, entered into a binding term sheet (the
“Term Sheet”) with Canyon, LLC (“Canyon”) and It Brand Enterprises (“It Brand” and together
with Canyon, the “Targets”) pursuant to which the Company will purchase 100% of the capital stock or assets of Canyon
and certain assets of It Brand (the “Acquisition”).
As consideration, the Company shall pay
a total purchase price of $5,130,000 (the “Purchase Price”) consisting of (i) a cash component, which will be calculated
at the time the Long-Form Agreement (as defined below) is executed, but in no case will be greater than $2,565,000, and (ii) an
equity component, which will consist of shares of the Company’s common stock, par value $0.001 per share, for the balance
of the Purchase Price. The number of shares that make up the equity component will be determined by dividing the balance of the
Purchase Price by the average closing price of Company’s common stock for the five (5) days prior to September 7, 2019, which
equated to $3.07 per share. The Purchase Price is payable by the Company to each of the Targets and is estimated to be $4,950,000
for Canyon and $180,000 for the It Brand assets.
A portion of the equity consideration will
be subject to certain trading restrictions in the first year after issuance, to be defined in the Long-Form Agreement (as defined
below). In addition, claw-back language for fifteen percent (15%) of the equity consideration will also be included in the Long-Form
Agreement (as defined below). The Purchase Price is predicated on projected 2019 annual gross revenues of the Targets and is subject
to certain adjustments outlined in the Term Sheet, including adjustments in the event of a variance in excess of 10% in the Targets’
revenue.
The Term Sheet provides for a closing on
or before September 9, 2020, unless the parties agree to an extension.
The obligations of the Company and the
Targets under the Term Sheet are conditioned upon the satisfaction or mutual waiver of certain closing conditions (the “Conditions”)
on or before September 9, 2020 or unless the parties agree to a mutual extension, including the following:
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i.
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regulatory approval relating to all applicable filings and expiration or early termination of any applicable waiting periods;
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ii.
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regulatory approval of the Marijuana Enforcement Division and applicable local licensing authority approval;
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iii.
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receipt of all material necessary, third party, consents and approvals;
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iv.
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each party's compliance in all material respects with the respective obligations under the Term Sheet;
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v.
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a tax structure that is satisfactory to both the Company and Canyon;
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vi.
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the execution of leases and employment agreements that are mutually acceptable to each party; and
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vii.
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mutual satisfactory completion of due diligence, upon review of all requested information.
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The Term Sheet also contemplates the entry
into employment agreements with Morgan Iwersen, Andrew Iwersen, and Timothy M. McMurray, owners of the Targets.
In addition, in the event the Targets obtain
licensing rights or partners in Oregon, California, or Puerto Rico, as outlined in the Term Sheet, the Term Sheet contemplates
certain profit sharing, licensing, or royalty arrangements between the Company and Targets, as well as rights of first refusal
for the Company in lieu of such arrangements.
Under the terms of the Term Sheet, the
Company and the Targets agreed to mutual indemnification upon the terms and conditions outlined therein. The term sheet also provides
that the members of Canyon will not commence or invest in a business that competes with the Company directly or through its affiliates
during the eighteen months following the closing.
The Term Sheet contemplates the parties
entering into a long-form agreement and other ancillary documents to memorialize the Acquisition (the “Long-Form Agreement”)
upon the conclusion of all standard legal and business due diligence. In the event the Long-Form Agreement is not agreed to on
or before September 9, 2020, and all of the Conditions are either satisfied or waived, the Acquisition shall be consummated and
governed by the terms of the Term Sheet.
On September 12, 2019, the Company issued
a press release with respect to the foregoing, a copy of which is attached hereto as Exhibit 99.1.