Item 1.01 Entry into a Material Definitive
Agreement.
On September 6, 2019 (the “Execution
Date”), Medicine Man Technologies (the “Company”), a Nevada corporation, entered into a binding term sheet (the
“Term Sheet”) with Ahab, LLC, Garden Greens, LLC, Syls LLC, Heartland Industries, LLC and Tri City Partners LLC, which
entities operate under the name “Strawberry Fields” (collectively, the “Targets”) pursuant to which the
Company will purchase 100% of the capital stock or assets of the Targets, except for certain assets as outlined in the Term Sheet
(the “Acquisition”).
As consideration, the Company shall pay
a total purchase price of $31,000,000 (the “Purchase Price”) consisting of $14,000,000 in cash and 5,704,698 shares
of its common stock, par value $0.001 per share. The 5,704,698 shares was determined by averaging the closing price of Company’s
common stock for the five (5) days prior to August 22, 2019, which equated to $2.98 per share.
A portion of the stock consideration will
be subject to certain trading restrictions in the first six months 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 predicated on projected
2019 and 2020 annual gross revenues of the Targets, with an EBITDA margin of no less than 18.5% of net revenues for 2019 and 2020,
and may be subject to adjustment in certain instances as will be outlined in the Long-Form Agreement (as defined below). However,
no adjustment in the Purchase Price will be made if the variation between Targets’ actual and projected sales for 2019 and
2020 are plus or minus 10%.
The Term Sheet provides for a closing on
or before May 31, 2020, unless the parties agree to an extension.
The obligations of the Company and the
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 31, 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 the Targets;
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vi.
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the execution of leases and employment agreements that are mutually acceptable to each party;
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vii.
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that the Company’s stock remains publicly traded at the closing; and
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viii.
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that the Company’s stock price is greater than $2.00 per share at closing (if otherwise,
the parties will simply recalculate in good faith the shares portion of the Purchase Price).
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The Term Sheet also contemplates the entry
into employment agreements with Michael Kwesell and Richard Kwesell, managing members of the Targets, as a condition to closing.
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 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.
The Long-Form Agreement will include a
commitment by the Company to fund up to $800,000 in store and architectural improvements for two of the Targets’ existing
stores after closing. The Targets may terminate the Long-Form Agreement if the Company suffers a material adverse event such as
the Company’s stock is de-listed or the regulatory approval for licensing transfer is denied by the Colorado Marijuana Enforcement
Division after reasonable applications and appeals are satisfied.
On September 11, 2019, the Company issued
a press release with respect to the foregoing, a copy of which is attached hereto as Exhibit 99.1.