Item 1.01 Entry into a Material
Definitive Agreement.
On August 30, 2019 (the “Execution
Date”), Medicine Man Technologies (the “Company”), a Nevada corporation, entered into a binding term sheet (the
“Term Sheet”) with Colorado Health Consultants, LLC, CitiMed, LLC, Lucky Ticket LLC and KEW LLC (collectively, the
“Targets”) pursuant to which the Company will purchase the membership interests of the Targets (the “Acquisition”).
As consideration, the Company shall pay
a total purchase price of $36,898,499 (the “Purchase Price”) consisting of $18,449,249.50 in cash ($9,224,624.75 of
which is payable over a period of twelve months after the closing as set forth in the Term Sheet) and 3,095,512 shares of its common
stock, par value $0.001 per share. The 3,095,512 shares was determined by averaging the closing price of Company’s common
stock for the five (5) days prior to August 30, 2019, which equated to $2.98 per share. Seventy-five percent (75%) of the stock
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 stock consideration will also be
included in the Long-Form Agreement, as defined below. The Purchase Price is subject to adjustment in the event of a variance in
excess of 10% in the Targets’ revenue.
The Term Sheet provides for a closing on
or before May 1, 2020, unless the parties agree to an extension.
The obligations of the Company and Targets
under the Term Sheet and the Long-Form Agreement (as defined below), as applicable, are conditioned upon the satisfaction or mutual
waiver of certain closing conditions (the “Conditions”) on or before May 1, 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 in the State of Colorado 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 or the Long-Form Agreement (as defined below), as applicable;
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v.
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a tax structure that is satisfactory to both the Company and the Targets; and
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vi.
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the execution of leases with right of first refusal for the Company to acquire from any affiliate
of the Targets, as applicable, the underlying real estate assets of Targets when applicable, in market terms.
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The Term Sheet may be terminated (i) upon
mutual consent of the parties, (ii) by the Company if the Targets shall materially breach the terms of the Term Sheet and fail
to cure such breach after notice or such breach is incurable, (iii) by the Targets if the Company shall materially breach the terms
of the Term Sheet and fail to cure such breach after notice or such breach is incurable, (iv) by the Targets if the Company fails
to deliver Proof of Funds on or before April 1, 2020, or (v) on November 15, 2019, if the Long-Form Agreement, as defined below,
is not executed by the parties. The Company shall pay the Targets a termination fee of one percent of the Purchase Price or $368,985,
in the event of the termination of the Term Sheet on the basis of the conditions set forth above in subparagraphs (iii), (iv) and
(v).
Under the terms of the Term Sheet, the
Company and the Targets agreed to indemnification upon the terms and conditions outlined therein.
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 May 1, 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 5, 2019, the Company issued
a press release with respect to the foregoing, a copy of which is attached hereto as Exhibit 99.1.