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Item 1.01 | | Entry into a Material Definitive Agreement. |
Acquisition of Green Tree Assets
On September 13, 2022, the Company and a newly-formed subsidiary thereof entered into an Asset Purchase Agreement (“APA”) with Ancient Alternatives LLC (“Ancient”), Natural Alternatives For Life, LLC, (“Natural”), Mountainside Industries, LLC (“Mountainside”), Hillside Enterprises, LLC (“Hillside”), and GT Creations, LLC (“GT Creations”), each a Colorado limited liability company (“Green Tree Entities”), pursuant to which the Company agreed to purchase substantially all of the assets of the Green Tree Entities (“Green Tree Acquisition”). The purchase price in connection with the Green Tree Acquisition consists of cash equal to $500,000 payable at closing; 17,977,528 shares (“Buyer Shares”) of the Company’s common stock, par value $0.01 per share (“Common Stock”), deliverable at closing; and an additional $3,500,000 in cash in fifteen (15) equal monthly payments commencing on the 9-month anniversary of the closing. The number of Buyer Shares is subject to adjustment based upon a formula specified in the APA. The APA provides that the Company will assume certain liabilities at closing, including certain manufacturing agreements between GT Creations and affiliates of the Green Tree Entities. The Green Tree Acquisition is subject to certain conditions, including regulatory approval of the Colorado Marijuana Enforcement Division. The APA provides for multiple closings in the event that applicable regulatory approvals in respect of separate Green Tree Entities occur at different times.
As part of the Green Tree Acquisition, the Company has agreed, upon the closing, to enter into two-year employment agreements with each of Allyson Feiler and Loree Schwartz, equity principals of the Green Tree Entities (“Employment Agreements”). Ms. Feiler will be employed by the Company as its Chief Marketing Officer at an annual base salary of $225,000, with an agreed one-time bonus equal to $383,071.43, payable within 30 business days following the completion of the cannabis license transfers held by Ancient, Natural, Mountainside and GT Creations. Ms. Schwartz will be employed by the Company as its Chief Compliance Officer at an annual base salary of $150,000, also with an agreed one-time bonus equal to $383,071.43, payable within 30 business days following the completion of the cannabis license transfers held by Ancient, Natural, Mountainside and GT Creations. Both Employment Agreements also provide for severance payouts up to the full initial two-year term in the event of a termination without ‘Cause’ or for ‘Good Reason’ (as such terms are defined therein) during the initial term. In addition, the Company has agreed, upon the closing, to enter into consulting agreements (“Consulting Agreements”) with each of (i) CMD Consulting Services, Inc., pursuant to which consultant will be paid a one-time consulting fee equal to $47,619.05 within 30 days following the closing of each of Ancient, Natural and Hillside; and (ii) Silverfox LLC pursuant to which consultant will be paid a one-time consulting fee equal to $186,238.09 within 30 days following the closing of each of Ancient and Natural.
The foregoing descriptions of the APA, Employment Agreements and Consulting Agreements do not purport to be complete and are qualified in their entirety by reference to the full text of the agreements, each of which is annexed hereto as Exhibits 10.1 – 10.5, respectively, and are incorporated herein by reference.
Senior Secured Convertible Notes and Warrants Offering
On September 15, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited investors (“Investors”), pursuant to which the Company agreed to issue and sell senior secured convertible notes (the “Notes”) with an aggregate principal amount of $13,500,000 (“Principal Amount”) to such Investors (“Note Offering”), in exchange for payment to the Company by certain Investors of an aggregate amount of $10,587,250 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $2,912,750 represented by certain prior promissory notes issued by the Company in December 2020 and April 2020. The Note Offering closed on September 16, 2022.
In connection with the Note Offering, Investors received warrants (the “Warrants”) to purchase shares of the Company’s common stock equal to 20% coverage of the aggregate principal amount at $0.70 per share, which equals an aggregate of warrants to purchase 3,857,150 shares of the Common Stock. The lead Investor (“Lead Investor”) received an additional 10% warrant coverage on the aggregate principal amount of Notes for total additional warrants to purchase 1,928,571 shares of Common Stock. The Lead Investor also will receive a five percent cash fee on the aggregate principal amount of Notes, payable by the Company; one-half of such fee may be deferred by the Company for up to five months from the closing.
