Item 1.01. Entry into a Material Definitive Agreement.
Private Placement and Securities Purchase Agreement
On December 3, 2021, Medicine Man Technologies,
Inc. (the “Company”) and all its direct and indirect subsidiaries (the “Subsidiary Guarantors”) entered into a
Securities Purchase Agreement (the “Purchase Agreement”) with 31 accredited investors (the “Investors”) pursuant
to which the Company agreed to issue and sell to the Investors 13% senior secured convertible notes due five years after issuance (the
“Notes”) in an aggregate principal amount of $95,000,000 for an aggregate purchase price of $93,100,000 (reflecting an original
issue discount of $1,900,000, or 2%) in a private placement (the “Private Placement”). On December 7, 2021, the Company consummated
the Private Placement and issued and sold the Notes. The Company received net proceeds of approximately $92 Million at the closing, after
deducting a commission to the placement agent and estimated offering expenses associated with the Private Placement payable by the Company.
The Purchase Agreement contains customary representations,
warranties, covenants and indemnification obligations by the Company and the Subsidiary Guarantors. Among other covenants, the Company
is required to file a registration statement on or before January 7, 2021 to register the resale of the shares of the Company’s
common stock, par value of $0.001 per share (“Common Stock”), issuable upon conversion of the Notes, and is required to use
its best efforts to keep such registration statement continuously effective until the earlier of (i) the date the securities underlying
the Notes are sold pursuant to an effective registration statement or (ii) such time when the securities underlying the Notes no longer
constitute Registrable Securities (as defined in the Purchase Agreement). A failure to satisfy the registration requirement will result
in the Notes accruing Additional Interest (as defined and described below). The Company has also agreed to use commercially reasonable
efforts to list the Common Stock on the NEO Exchange within nine months after the issuance of the Notes.
Three of the Company’s directors, Jeffrey
Cozad, Jeffrey Garwood and Pratap Mukharji, were Investors in the private placement on the same terms as the other Investors. Also, Marc
Rubin, an individual affiliated with CRW Cann Holdings, LLC, an entity controlled by Marc Rubin and Jeffrey Cozad and a significant holder
of the Company’s Series A Convertible Preferred Stock with the right to designate one director, was an Investor in the private placement
on the same terms as the other Investors.
The Benchmark Company, LLC acted as the
placement agent for the transaction. At the closing, the Company paid the placement agent an aggregate cash fee of $1,163,750.00 and
reimbursed the placement agent’s reasonable expenses in connection with the engagement. Additionally, the Company has agreed
to indemnify the placement agent against certain liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the placement agent may be required to make because of those liabilities.
Indenture, Notes and Note Guarantees
The Notes were issued pursuant to an Indenture,
dated December 7, 2021, among the Company, the Subsidiary Guarantors, Ankura Trust Company, LLC as trustee and Chicago Atlantic Admin,
LLC as collateral agent for the Note holders (the “Indenture”). The Notes will mature five years after issuance unless earlier
repurchased, redeemed, or converted. The Notes bear interest at 13% per year paid quarterly commencing March 31, 2022 in cash for an amount
equal to the amount payable on such date as if the Notes were subject to an annual interest rate of 9%, with the remainder of the accrued
interest payable as an increase to the principal amount of the Notes. The proceeds from the Notes are required to be used to fund previously
identified acquisitions and other growth initiatives.
The Company must pay Additional Interest (as defined
in the Indenture) at a rate of 0.25% per year if (i) during the period from six months after the Issuance Date and ending on the Free
Trade Date (both terms as defined in the Indenture), the Company fails to timely make any filings with the Securities and Exchange Commission
(“SEC”) pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or (ii) the shares of Common
Stock issued upon conversion of any Note are not freely tradeable after the Free Trade Date. Additionally, the Company is required to
pay Additional Interest if the Company fails to continuously maintain an effective registration statement with the SEC covering the resale
of the number of Registrable Securities (as defined in the Purchase Agreement) required to be covered under the terms of the registration
right in the Securities Purchase Agreement, which Additional Interest will be payable on the portion of the principal amount of each Note
attributable to the number of Registrable Securities required to be covered by the registration statement that are not covered. The Company
is required to pay default interest at a rate of 15% per year upon the occurrence of an Event of Default (as defined in the Indenture),
which will continue to accrue until the Event of Default has been cured or waived pursuant to the terms of the Indenture.
A holder of a Note may convert all or any portion
of the Note into shares of Common Stock at any time until the close of business on the business day immediately preceding the maturity
date of the Notes, at a conversion price equal to $2.24 per share (the “Conversion Price”). The Conversion Price will be
adjusted in the event of any change in the outstanding Common Stock by way of stock subdivision (including a stock split), stock combination,
issuance of stock or cash dividends, distributions of other securities or assets and other corporate actions. The number of shares issuable
upon conversion of the Notes will be equal to the principal amount of the Note plus accrued interest divided by the conversion price
(the “Conversion Rate”).
The Company may, at its option, elect to redeem
all, but not less than all, of the Notes for cash, subject to certain conditions, at a repurchase price equal to the principal amount
of the Notes plus accrued and unpaid interest thereon on such date, plus the greater of: (i) the sum of the present values or the remaining
scheduled interest payments that would have been paid on the Notes from the repurchase date to the third anniversary of the Issuance Date
or (ii) the lesser of (a) the sum of the present values of the scheduled interest payments that would have been paid (assuming such payments
are made in cash) on the Notes from the redemption date through the one-year anniversary of the redemption date or (y) the sum of the
present values of the scheduled interest payments that would have been paid (assuming such payments are made in cash) on the Notes from
the redemption date through the maturity date. If the Company elects to redeem the Notes, holders of Note may require the Company to convert
their Notes in lieu of receiving cash in the redemption.
On the fourth anniversary of the Issuance Date,
the Investors will have the right, at their option, to require the Company to repurchase some or all of their Notes for cash in an amount
equal to the principal amount of the Notes being repurchased plus accrued and unpaid interest up to the date of repurchase.
On or after the second anniversary of the Issuance
Date, the Company may, at its option, convert up to 12.5% of the outstanding Notes each quarter, if (i) the last reported sale price of
the Common Stock exceeds 150% of the applicable Conversion Price, (ii) either (a) the Common Stock is listed on a Permitted Exchange (as
defined in the Indenture) or (b) the Company’s daily volume weighted average price for the Common Stock exceeds $2,500,000, in each
case for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading
day of such period) ending on, and including, the trading day immediately preceding the date of conversion for the Conversion Price plus
accrued and unpaid interest and (iii) there is an effective registration statement covering the resale by the holders of the Notes of
all Common Stock to be received in such conversion. The Company will be required to pay a Make-Whole Premium (as defined in the Indenture),
payable in cash or Common Stock, to the Investors if the Notes are voluntarily converted before the third anniversary of the Issuance
Date and the Company’s daily volume weighted average price for the Common Stock does not exceed 175% of the Conversion Rate during
the five consecutive trading days immediately preceding the date of conversion.
A holder of a Note may not convert a Note, and
the Company may not issue shares of Common Stock under such Note if, after giving effect to the conversion and issuance, the holder, together
with its affiliates, would beneficially own in excess of 4.9% of the outstanding shares of the Common Stock, subject to exceptions.
Upon the occurrence of a Change of Control (as
defined in the Indenture), subject to certain conditions, a holder of a Note may require the Company to repurchase for cash all or any
portion of the Note at a repurchase price equal to the principal amount of the Note to be repurchased, plus accrued and unpaid interest
thereon, plus the lesser of: (i) the present value of one year of additional interest on such Note, commencing on the date the repurchase
price is payable, and (ii the sum of the present values or the remaining scheduled interest payments that would have been paid on such
Note from the repurchase date to the maturity date. The Company is not permitted to consolidate, merger with, sell or transfer substantially
all of its assets to any other person unless the Company is the surviving corporation or the surviving corporation expressly assumes the
obligations under the Indenture by executing a Supplemental Indenture.
Pursuant to the Indenture, commencing on the first
anniversary of the Issuance Date, the Company is required to maintain a Consolidated Fixed Charge Coverage Ratio of no less than 1.30
to 1.00 as of the last day of each quarter. Additionally, the Company and the Subsidiary Guarantors are required to have at least $10,000,000
in cash (in the aggregate) on the last day of each calendar quarter in deposit accounts for which the collateral agent has a perfected
security interest in.
The Indenture includes customary affirmative and
negative covenants, including limitations on liens, additional indebtedness, repurchases and redemptions of any equity interest in the
Company or any Subsidiary Guarantor, certain investments, and dividends and other restricted payments, and customary events of default.
Under the Indenture, the Company and the Subsidiary
Guarantors are restricted from making certain payments, including but not limited to (i) payment of dividends, (ii) repurchase, redemption,
retire, or otherwise acquire any equity interest, option, or warrant of the Company or any Subsidiary Guarantor, and (iii) payment to
any equity holder of the Company or a Subsidiary Guarantor for services provided pursuant to management, consulting, or other service
agreement (the “Restricted Payments”) but the Company may declare and pay dividends if payable solely in its own equity, or,
in the case of the Subsidiary Guarantors, amounts payable to such subsidiaries with respect to its applicable equity ownership. Provided
the Company is not in default under the terms of the Indenture, the Company may make Restricted Payments not otherwise permitted thereunder
(i) in an amount not to exceed $500,000 until discharge of the Indenture, or (ii) after the third anniversary of the Issuance Date, so
long as the Company’s Consolidated Leverage Ratio (as defined in the Indenture) is between 1.00 and 2.25 for the applicable reference
period at the time of the Restricted Payment after giving pro forma effect thereto.
The Indenture contains restrictions and limitations
on the Company’s ability to incur additional debt and grant liens on its assets. The Company and its Subsidiary Guarantors are not
permitted to incur additional debt or issue Disqualified Equity Interests (as defined in the Indenture) unless the Company’s Consolidated
Leverage Ratio is between 1.00 and 2.25 after giving pro forma effect thereto. In addition, the Company is not permitted to grant a senior
lien on its assets (excluding acquisition target assets that are identified in the Indenture) to secure indebtedness unless and until
(a) at least $80,000,000 of the net proceeds from the Notes (plus the proceeds of certain sale-leaseback transactions) have been used
to consummate Permitted Acquisitions prior to the granting of any such lien, and (b) the Consolidated Leverage Ratio for the applicable
reference period, calculated on a pro forma basis giving effect to such acquisition and all related transactions, is less than 1.40 to
1.00. The Indenture provides that the Company and its Subsidiary Guarantors may incur debt under certain circumstances, including but
not limited to, (i) debt incurred related to certain acquisitions and dispositions, including capital lease obligations and sale-leaseback
transactions not to exceed $5,500,000 (plus up to an additional $2,200,000 in connection with certain transactions identified prior to
the Issuance Date) in the aggregate at any time, (ii) certain transactions in the ordinary course of business, and (iii) any other unsecured
debt not to exceed $1,000,000 at any time.
The amounts due on all of the outstanding Notes
will accelerate and become immediately due and payable if the Company or any Subsidiary Guarantor goes into bankruptcy. The Notes are
also accelerable at the option of the trustee or at least 25% of the Note holders if any Event of Default occurs and remains uncured,
which can be rescinded by the holders of a majority of the aggregate principal of the Notes then outstanding.
The Company issued the Notes in physical form
separately from each other and the Notes may be transferred separately immediately thereafter, subject to the terms of the Notes and the
Indenture. The Notes will not be listed on any national securities exchange or other trading market.
At the closing, each of the Subsidiary Guarantors
executed a Note Guarantee, securing the Company’s obligations under the Notes and the Indenture.
Liens and Security Agreement
The Notes are secured by a first lien on the unencumbered
assets and a second lien on the encumbered assets of the Company and its subsidiaries. In connection with the closing of the Private Placement,
the Company and the Subsidiary Guarantors entered into a Security Agreement in favor of Chicago Atlantic Admin, LLC as the collateral
agent (the “Security Agreement”), pursuant to which the Company and the Subsidiary Guarantors granted, in favor of the collateral
agent, subject to some exceptions (i) a first priority security interest in all unencumbered assets of the Company and the Subsidiary
Guarantors at the time of closing), (ii) a first priority security interest in all assets of the Company and the Subsidiary Guarantors
acquired following the closing, and (iii) a second priority security interest in all other assets of the Company and the Subsidiary Guarantors
that secure indebtedness existing as of the closing of the Private Placement. The Security Agreement includes customary covenants and
agreements governing the collateral.
Intercreditor Agreement
In connection with the closing of the Private
Placement, the Company and the Subsidiary Guarantors also entered into an Intercreditor Agreement with Chicago Atlantic Admin, LLC as
collateral agent for the Note holders, GGG Partners LLC as the collateral agent for the lender under the Loan Agreement, dated February
26, 2021, as amended, Naser Joudeh (as collateral agent for the StarBuds Seller Secured Parties (as defined therein)) and the following
secured parties: Colorado Health Consultants LLC, StarBuds Aurora, LLC, SB Arapahoe LLC, StarBuds Commerce City LLC, StarBuds Pueblo LLC,
StarBuds Alameda LLC, Citi-Med, LLC, StarBuds Louisville, LLC, Kew LLC, Lucky Ticket LLC, StarBuds Niwot LLC, LM MJC LLC, and Mountain
View 44th LLC (the “Intercreditor Agreement”). The Intercreditor Agreement establishes the relative lien priorities
between secured parties with respect to the collateral and includes customary covenants and agreements governing the rights, priority,
and remedies of such secured parties.
The description of the representations, warranties,
covenants, terms and conditions of the Purchase Agreement, the Indenture, the Notes, the Security Agreement and the Intercreditor Agreement
(collectively, the “Offering Documents”) does not purport to be complete and is qualified in its entirety by the full text
of the agreements described above, copies of which are attached as exhibits to this Current Report on Form 8-K.
Limitation of Representations
The description of the Offering Documents and
the Private Placement, and the other disclosures included, in this Current Report on Form 8-K are intended to provide stockholders and
investors with information regarding the terms of the Offering Documents and the Private Placement, and not to provide stockholders and
investors with any other factual information regarding the Company or its subsidiaries or their respective business. You should not rely
on the representations and warranties in the Offering Documents or any descriptions thereof as characterizations of the actual state of
facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the
representations and warranties may change after the date of the Private Placement, which subsequent information may or may not be fully
reflected in the Company’s public disclosures. Other than as disclosed in this Current Report on Form 8-K, as of the date of this
Current Report on Form 8-K, the Company is not aware of any material facts that are required to be disclosed under the federal securities
laws that would contradict the Company’s representations and warranties in the Offering Documents. The Company will provide additional
disclosure in its public reports to the extent that it is aware of the existence of any material facts that are required to be disclosed
under federal securities laws and that might otherwise contradict the Company’s representations and warranties contained in the
Offering Documents and will update such disclosure as required by federal securities laws. Accordingly, the Offering Documents should
not be read alone, but should instead be read in conjunction with the other information regarding the Company and its subsidiaries that
has been, is or will be contained in, or incorporated by reference into, the Forms 10-K, Forms 10-Q, Forms 8-K, proxy statements, registration
statements and other documents that the Company files with the Securities and Exchange Commission.