Item
1.01 Entry into a Material Definitive Agreement.
Entry
into Operating Agreement of SugarRush 5058, LLC
As
previously disclosed in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”)
on June 10, 2021, Sugarmade, Inc. (the “Company”) entered into a binding Memorandum of Understanding (the “MOU”)
with Zarian Hadley, an individual, setting forth the terms and conditions, scope of work and responsibilities of the parties to the MOU
pertaining to a collaboration between the parties for the purpose of obtaining up to three (3) Los Angeles Dept. of Cannabis Regulation
(“DCR”) retail delivery-only licenses and related California Bureau of Cannabis Control (“BCC”) licenses as required
(each, a “License”, and collectively, the “Licenses”) each as may be awarded to an entity (a “Licensed
Entity”). The parties agreed to cooperate on developing and submitting all documentation reasonably necessary to obtain each License
in accordance with DCR and BCC regulations, including without limitation, filing all ownership documentation, corporate governance documents
or documents required by any government agency, including but not limited to the DCR, BCC and/or the SEC.
As
disclosed under Item 8.01 of this Current Report on Form 8-K, on August 24, 2021, the Company and Mr. Hadley formed SugarRush 5058, LLC
(“SugarRush”) for the purpose of establishing SugarRush as a Licensed Entity.
The
Company and Mr. Hadley entered an Operating Agreement of SugarRush dated August 26, 2021 (the “Operating Agreement”). Pursuant
to the Operating Agreement, the Company is designated as the Manager of SugarRush, and agrees to provide miscellaneous legal and other
compliance services to obtain and maintain the Licenses necessary to operate a licensed commercial cannabis retail delivery, distribution
and manufacturing business, including financing, marketing, intellectual property, marketing support, consulting, distribution, sales,
cultivation, supply and procurement services. Mr. Hadley agrees pursuant to the operating agreement to provide services as requested
by the Company, including without limitation, obtaining and maintaining the Licenses.
Pursuant
to the Operating Agreement, the Company agreed to make a series of payments to Mr. Hadley at certain stages of SugarRush’s development
or upon the occurrence of certain events as follows (the “Incentive Payments”):
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1.
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$50,000
upon submission of definitive License applications to the DCR for retail delivery activities on behalf of SugarRush.
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2.
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$75,000
upon approval of a License application by the DCR authorizing retail delivery activities
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3.
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$55,000
upon approval of a License application by the BCC or Department of Cannabis Control (DCC) authorizing retail delivery activities
of SugarRush
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4.
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$25,000 upon the exercise of the Company’s Option to
purchase of Mr. Hadley’s membership interests in SugarRush and the subsequent transfer or amendment of any Licenses held by Mr.
Hadley to another party designated by the Company. (At any time on or after January 2, 2025, the Company will have an irrevocable option
and right of first offer / refusal to purchase Mr. Hadley’s membership interest in SugarRush for a one-time payment of $25,000
(the “Option”).
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All such Incentive Payments will be
made against Mr. Hadley’s equity share of future profit distributions that Mr. Hadley is entitled to as a member of
SugarRush.
The
foregoing description of the Operating Agreement do not purport to be complete, and are qualified in their entirety by reference to the
full text of the Operating Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report. The foregoing description of the
terms of the MOU do not purport to be complete, and are qualified in their entirety by reference to the full text of the MOU, a copy
of which is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 10, 2021.
Entry
Into Licensing Agreement
On
August 26, 2021, the Company and SugarRush entered
into a Non-Exclusive Intellectual Property Licensing Agreement (the “Licensing Agreement”). Pursuant to the Licensing Agreement,
the Company granted SugarRush a non-exclusive license to use certain intellectual property of the Company (including trade secrets, certain
customer data, and business know-how related to cannabis business operations) to market, sell, and distribute certain commercial cannabis
products branded with the Company’s trademarks and packaging (the “Licensed Products”) solely in the State of California
(the “License”).
As
consideration for the License, SugarRush agreed to pay royalty fees to the Company equal to twelve percent (12%) of the SugarRush’s
revenues derived from sales of the Licensed Products and use of related intellectual property of the Company during the term of the Licensing
Agreement.
The
initial term of the Licensing Agreement is five (5) years commencing on the August 26, 2021, with automatic renewal upon the expiration
of the initial term for three additional five (5) year renewal period terms unless a party provides written notice to the other party
expressing intent to not renew the Licensing Agreement 30 days’ prior to expiration of a term.
The
Licensing Agreement is non-assignable by the parties, and contains indemnification provisions, confidentiality provisions, and certain
representations and warranties that are customary in licensing agreements of this nature.
The
foregoing description of the Licensing Agreement does not purport to be complete, and is qualified in its entirety by reference to the
full text of the Licensing Agreement, a copy of which is filed as Exhibit 10.2 to this Current Report.