MMNFF Medmen Enterprises Inc (CE)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):

January 5, 2024

 

MEDMEN ENTERPRISES INC.

(Exact name of registrant as specified in its charter)

 

British Columbia		000-56199		98-1431779
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

6501 Congress Ave., Boca Raton, Florida 33487

(Address, including zip code, of principal executive offices)

 

Registrant’s telephone number, including area code	(424) 330-2082

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

Item 2.01.

Completion of Acquisition or Disposition of Assets.

 

As previously disclosed in the Current Report on Form 8-K filed by MedMen Enterprises Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”) on December 22, 2023, subsidiaries of the Company, MMOF Vegas Retail, Inc. and MMOF Vegas Retail 2, Inc., entered into an Asset Purchase and Sale Agreement (the “Nevada Agreement”) with Retail Facilities Operations NV, LLC, and MME Retail Management, LLC, a subsidiary of the Company, entered into an Assignment Agreement (the “Arizona Agreement” and together with the Nevada Agreement, the “Agreements”) with Retail Facilities Operations AZ, LLC. Retail Facilities Operations AZ, LLC and Retail Facilities Operations NV, LLC are affiliate of Mint Cannabis, a private multi-state cannabis operator headquartered in Arizona. Pursuant to the Agreements, the Company agreed to sell its non-core business operations in Arizona (the “Arizona Assets”) and certain assets in Nevada (the “Nevada Assets”) for total consideration comprising a minimum of an aggregate of $24.0 million of cash, which is subject to certain tax liability, net working capital and other adjustments, and short-term seller notes in the principal amount of $5.5 million, subject to certain tax liability adjustment, and the assumption of certain liabilities. In particular, the transactions comprise of the sales of the Company’s wholly-owned operating subsidiary in Arizona and its two operating dispensaries located in Clark County in Nevada.

 

On January 5, 2024, the sale of the Arizona Assets was consummated pursuant to the Arizona Agreement. The total consideration received by the Company for the sale was approximately $14 million, subject to certain adjustments as set forth in the Arizona Agreement. The sale of the Nevada Assets is still pending subject to regulatory approval for completion.

 

The foregoing descriptions of the Agreements are not complete and are subject to, and qualified in their entirety by reference to, the Agreements, copies of which are filed with this Current Report on Form 8-K as Exhibit 2.1 and 2.2, respectively, and the terms of which are incorporated herein by reference.

 

The required pro forma financial information for the disposition of the Arizona Assets described in this Item 2.01 will be filed by an amendment to this Current Report on Form 8-K once the Company’s financial statements for the year ended July 1, 2023 and the quarter ended September 30, 2023 are completed and filed with the SEC.

 

Item 7.01

Regulation FD Disclosure.

 

On January 5, 2024, the Company issued a press release announcing the completion of disposition of the Arizona Assets. A copy of the press release is attached hereto as Exhibit 99.1 and is hereby incorporated herein by reference.

 

This information is being furnished under Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

Item 8.01

Other Events.

 

On January 11, 2024, the Company was notified by the OTC Markets Group Inc. (the “OTC Markets Group”) that the Company has been moved from the OTCQB market (the “OTCQB”) to the OTC Expert Market per the public disclosure requirements of Rule 15c2-11 of the Securities Exchange Act of 1934, as amended. The Company has not filed its Annual Report on Form 10-K for the fiscal year ended July 1, 2023 (the “Form 10-K”) and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Form 10-Q”, together with the Form 10-K, the “Reports”). Once the Company files the Reports with the SEC and if the Company meets all of the eligibility requirements of the OTCQB standards, it intends to reapply to the OTCQB.

 

On January 5, 2024, the British Columbia Securities Commission (“BCSC”), as principal regulator, and the Ontario Securities Commission issued a general “failure to file” cease trade order (“CTO”) in respect of the securities of the Company as a result of the Company being unable to file the Reports (and related filings) by the filing deadlines. The CTO prohibits the trading by any person of any securities of the Company in each jurisdiction in Canada in which the Company is a reporting issuer for as long as the CTO remains in effect. However, the CTO provides an exception for beneficial securityholders of the Company who are not currently (and who were not as of January 5, 2024) insiders or control persons of the Company and who sell securities of the Company acquired before January 5, 2024 if both of the following criteria are met: (i) the sale is made through a “foreign organized regulated market”, as defined in section 1.1 of the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada and (ii) the sale is made through an investment dealer registered in a jurisdiction of Canada in accordance with applicable securities legislation. The Company anticipates that the CTO will remain in place until such time as the Reports have been filed.

 

Item 9.01.

Financial Statements and Exhibits

 

(d) Exhibits

 

Exhibit No.		Description
2.1†		Assignment Agreement dated as of December 15, 2023 by and between Omaha Management Services, LLC, MME Retails Managements, LLC and Retail Facilities Operations AZ, LLC
2.2†		Asset Purchase and Sale Agreement dated as of December 15, 2023 between MMOF Vegas Retail, Inc., MMOF Vegas Retails 2, Inc. and Retail Facilities Operations NV, LLC
99.1		Press Release dated January 5, 2024.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

† Certain exhibits and schedules to this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon its request.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: January 12, 2024	MEDMEN ENTERPRISES INC.
		/s/ Kimble Cannon
	By:	Kimble Cannon
	Its:	General Counsel & Corporate Secretary

 

 

 

Exhibit 2.1

 

 

ASSIGNMENT AGREEMENT

 

by and between

 

OMAHA MANAGEMENT SERVICES, LLC

 

and

 

MME Retail management, llc,

 

AS “Sellers,”

 

and

 

Retail facilities OPERATIONS az, llc,

 

AS “BUYER”

 

 

Dated as of December 15, 2023

 

 

ASSIGNMENT AGREEMENT

 

This ASSIGNMENT Agreement (this “Agreement”), is made and entered into as of December 15, 2023 (the “Effective Date”) by and between Omaha Management Services, LLC, an Arizona limited liability company (“Omaha”), and MME Retail Management, LLC, a Delaware limited liability company formerly known as CSI Solutions Management, LLC (“MME Retail”; Omaha and MME Retail are referred to herein, individually, as a “Seller” and, collectively, the “Sellers”), on the one hand, and Retail Facilities Operations AZ, LLC, an Arizona limited liability company (“Buyer”), on the other hand. The Sellers and Buyer are sometimes referred to herein, individually, as a “Party” and, collectively, as the “Parties”.

 

RECITALS

 

WHEREAS, pursuant to and in compliance with the Arizona Medical Marijuana Act codified in Chapter 28.1 of the Arizona Revised Statutes (A.R.S. §§ 36-2801 et seq.) and the Smart and Safe Arizona Act codified in Chapter 28.2 of the Arizona Revised Statutes (A.R.S. §§ 36-2850 et seq.), as amended from time to time (collectively, the “Act”), and Title 9, Chapters 17 and 18 of the Arizona Administrative Code (the “AZDHS Rules”), (the AZDHS Rules and the Act collectively referred to herein as the “AMMA”), the Arizona Department of Health Services (“AZDHS”) awarded EBA Holdings, Inc., an Arizona nonprofit corporation formerly known as Monarch Wellness Center, Inc. (the “Licensed Entity”), a Medical Marijuana Registration Certificate ID No. 00000072DCMU00762354, a Marijuana Establishment License No. 00000068ESZM96727661 and permits and other regulatory approvals related thereto (collectively, the “Dispensary Licenses”);

 

WHEREAS, pursuant to the Dispensary Licenses and in compliance with the AMMA and all other applicable rules, regulations, and requirements, the Licensed Entity owns and operates (a) a licensed medical marijuana dispensary and adult use retail establishment known as “Talking Stick” located at 8729 E. Manzanita Drive, Scottsdale, Arizona 85258 (the “Dispensary”) and (b) a cultivation and production facility located at 2832 N. Omaha, Mesa, Arizona 85215 (the “Cultivation Facility”);

 

WHEREAS, the Sellers are party, respectively, to the following agreements with the Licensed Entity (collectively, as amended from time to time, the “Management Agreements”):

 

	(1)	a Cultivation Management Services Agreement dated as of March 7, 2019, between the Licensed Entity, as “License Holder,” and Omaha, as “Manager,” pursuant to which Manager provides certain management services to the Licensed Entity as it relates to the administration, operation and management of the Cultivation Facility; and
	(2)	a Dispensary Management Services Agreement dated as of March 7, 2019, between the Licensed Entity, as “License Holder,” and MME Retail, as “Manager,” pursuant to which MME Retail provides Management Services (as defined therein) to the Licensed Entity as it relates to the administration, operation and management of the Dispensary;

 

WHEREAS, in addition, MME AZ Group, LLC, a Delaware limited liability company (“MME AZ”), and the Licensed Entity are parties to that certain Payroll Processing and Common Paymaster Agreement dated as of March 7, 2019 (it being understood that the reference to “2018” therein is a typographical error) (the “Payroll Processing Agreement”), between MME AZ, as “Manager,” and the Licensed Entity, as “Company,” pursuant to which the Licensed Entity retained MME AZ to serve as a Common Paymaster (as defined therein) to provide payroll processing services and the other Services (as defined therein) to or on behalf of the Licensed Entity;

 

 

WHEREAS, each Seller desires to sell, assign, transfer, and convey to Buyer, and Buyer desires to purchase, accept, and acquire from each such Seller, effective at and as of the Closing, all of such Seller’s right, title and interest in and to the Management Agreement to which it is party, and the Parties desire that the Payroll Processing Agreement be terminated in its entirety, all on the terms and subject to the conditions set forth in this Agreement (collectively, the “Transaction”);

 

WHEREAS, in addition, the Parties desire that the Sellers cause the exclusive management and control of the Licensed Entity to be transferred from the individual who serves as the sole POBM of the Licensed Entity as of the Effective Date to an individual who has been initially designated by Buyer to serve as the POBM’s of the Licensed Entity as of the Effective Date (the “Change in POBM’s”), such Change in POBM’s to be legally effective on the AZDHS Approval Issue Date but to have no practical or other effect as between or among the Parties unless and until the Closing occurs, as contemplated by Section 5.06(b);

 

WHEREAS, concurrently herewith, the Parties and the Escrow Agent are entering into the Escrow Agreement; and

 

WHEREAS, in addition, concurrently herewith: (i) the Nevada Sellers and the Nevada Buyer are entering into the Nevada Purchase Agreement and (ii) the Nevada Sellers, the Nevada Buyer and the Nevada Escrow Agent are entering into the Nevada Escrow Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

Definitions

 

Unless otherwise indicated elsewhere in this Agreement, the following terms have the meanings specified or referred to in this ARTICLE I:

 

“2023 Fiscal Year” means the fiscal year of the Licensed Entity commencing on June 26, 2022 and ending on June 30, 2023.

 

“2024 Fiscal Year” means the fiscal year of the Licensed Entity commencing on July 1, 2023 and ending on June 29, 2024.

 

“2024 Pre-Closing Tax Period” means the taxable period commencing on July 1, 2023 and ending on the day immediately prior to the Closing Date.

 

“ACC” means the Arizona Corporation Commission.

 

“ACC Approval” means the approval by the ACC of the Change in POBM’s.

 

“Accounts Receivable” means, as of any given date, the monies owed to the Licensed Entity for goods or services delivered or sold to, but not yet paid for, by third party customers of the Licensed Entity as of such date.

 

 

“Act” means the Arizona Medical Marijuana Act codified in Chapters 28.1 of the Arizona Revised Statutes (A.R.S. §§ 36-2801 et seq.), collectively with the Smart and Safe Arizona Act codified in Chapters 28.2 (A.R.S. §§ 36-2850 et seq.), as amended from time to time.

 

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

 

“Affiliate” of a Person means any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Agreement” has the meaning set forth in the Preamble and includes the Exhibits.

 

“AMMA” has the meaning set forth in the Recitals.

 

“April 2023 Balance Sheet” has the meaning set forth in Section 3.05.

 

“Assignment and Assumption Agreement” means that certain Assignment and Assumption Agreement, in substantially the form attached hereto as Exhibit A, dated the Closing Date and executed by the Parties.

 

“Assumed Liabilities” has the meaning set forth in Section 2.01(b).

 

“Attestation Form” means a Marijuana Program Principal Officer and/or Board Member Attestation for Licensed Facility Applications, in form and substance required by the AZDHS.

 

“AZDHS” has the meaning set forth in the Recitals.

 

“AZDHS Approval” means the approval by the AZDHS of the Change in POBM’s.

 

“AZDHS Approval Issue Date” means the date upon which the AZDHS issues the AZDHS Approval.

 

“AZDHS Program” means Title 9, Chapters 17 and 18 of the Arizona Department of Health Services, Bureau of Marijuana Licensing Medical Marijuana and Adult Use of Marijuana Programs.

 

“Base Purchase Price” has the meaning set forth in Section 2.02(a).

 

“Books and Records” means all books of account, tax records, sales and purchase records, records required to be maintained by AZDHS, customer and supplier lists, computer software, formulae, business reports, plans and projections and all other documents, files, correspondence and other information of a person, as the case may be, (whether in written, printed, electronic or computer printout form).

 

“Business” means the ownership, operation, administration and management by the Licensed Entity of the Dispensary and the Cultivation Facility and the performance by the Licensed Entity of other AZDHS-authorized activities related thereto.

 

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in Phoenix, Arizona are authorized or required by Law to be closed for business.

 

 

“Buyer” has the meaning set forth in the Recitals.

 

“Buyer POBM” means any individual who is designated by Buyer to serve, or who otherwise serves, as a POBM of the Licensed Entity from time to time on or after the AZDHS Approval Issue Date.

 

“Buyer Indemnified Parties” has the meaning set forth in Section 8.02.

 

“Buyer Parent” means The Cerberean Group LLC, an Arizona limited liability company.

 

“Buyer Parent Indemnification Agreement” means a Buyer Parent Indemnification Agreement, in substantially the form attached as Exhibit H, dated the Closing Date and executed by Buyer Parent in favor of Seller Parent.

 

“Buyer-Prepared Tax Returns” has the meaning set forth in Section 6.01(d).

 

“Change in POBM Documents” means, collectively, the following documents, all in form and substance previously circulated between the Parties:

 

(i) A letter of resignation from each individual who, on the Effective Date, is serving as a member of the Board of Directors, the Chief Executive Officer and any other principal officers of the Licensed Entity, duly executed by such individual;

 

(ii) An Attestation Form, duly executed by each individual who delivers a letter of resignation under clause (i) above;

 

(iii) Written notice from Buyer designating one or more individuals who shall initially serve as a Buyer POBM, provided that each such individual shall have an active Marijuana Facility Agent License or an active Dispensary Agent Card and be in good standing with AZDHS;

 

(iv) An Attestation Form, duly executed by each individual who shall initially serve as a Buyer POBM;

 

(v) Written Consent of the Board of Directors of the Licensed Entity, duly executed by the sole member of the Board of Directors, approving the Change in POBM’s and concomitant amendments to the existing bylaws of the Licensed Entity, effective upon the AZDHS Approval Issue Date;

 

(vi) An amendment to the existing Bylaws of the Licensed Entity that was approved pursuant to the foregoing Written Consent of the Board of Directors of the Licensed Entity, duly executed by the Chief Executive Officer of the Licensed Entity, effective upon the AZDHS Approval Issue Date; and

 

(vii) Any other documents that may be requested by the ACC or the AZDHS after the submission thereto of the documents referred to in Section 5.06(a), respectively.

 

“Change in POBM’s” has the meaning set forth in the Recitals.

 

“Claim Notice” has the meaning set forth in Section 8.06.

 

“Closing” has the meaning set forth in Section 7.01.

 

“Closing Date” has the meaning set forth in Section 7.01.

 

 

“Closing Income Tax Liability Adjustment” means the total amount of actual and estimated federal and Arizona state income taxes of the Licensed Entity, including penalties and interest, that has not been paid as of the Effective Date equal to $5,457,258, which total amount is described in item 2 of Section 3.18 of the Disclosure Schedule.

 

“Closing Income Tax Liability Adjustment – Note Portion” means that portion of the Closing Income Tax Liability Adjustment equal to $4,200,000.

 

“Closing Income Tax Liability Adjustment – Cash Portion” means that portion of the Closing Income Tax Liability Adjustment equal to $1,257,258.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collateral Agent” means Omaha, as collateral agent for and on behalf of the Sellers, and any successors or assigns.

 

“Collateral Documents” means, collectively, the Equity Pledge Agreement, the Security Agreement, deposit account control agreements, UCC financing statements and any other agreements, instruments and documents executed and/or delivered in connection herewith or therewith relating to the Collateral, in each case as amended from time to time.

 

“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

 

“CSA” means the United States Federal Controlled Substances Act (Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970) and all U.S. federal Governmental Orders related thereto.

 

“Cultivation Facility” has the meaning set forth in the Recitals.

 

“Deductible” has the meaning set forth in Section 9.04(c).

 

“Disclosure Schedule” means the Disclosure Schedule attached hereto as Exhibit B.

 

“Dispensary” has the meaning set forth in the Recitals.

 

“Dispensary Inventory” means all finished goods Inventory located or held at the Dispensary, excluding any such finished goods Inventory that is “MedMen”-branded, “Huxton”-branded, “Moss”-branded or “Omaha Farms”-branded.

 

“Dispensary Licenses” has the meaning set forth in the Recitals.

 

“Dispute” has the meaning set forth in Section 10.11.

 

“Dollars or $” means the lawful currency of the United States.

 

“EBA Landlord” means Real Estate Holdings Group, LLC (f/k/a Whitestar).

 

“EBA Lease Guaranties” means, collectively, those certain Guaranties, each dated November 3, 2018, delivered by MME USA in favor of the EBA Landlord attached to the EBA Leases and guarantying the performance by the Licensed Entity of its covenants and obligations under the EBA Leases, respectively.

 

 

“EBA Leases” means, collectively, (i) that certain Lease dated November 3, 2018, between the EBA Landlord and the Licensed Entity, covering the premises located at 8719 and 8729 E. Manzanita Drive, Scottsdale, AZ, and (ii) that certain Lease dated November 3, 2018, between the EBA Landlord and the Licensed Entity, covering the premises located at 2832 N. Omaha Street, Scottsdale, AZ.

 

“Effective Date” has the meaning set forth in the Preamble.

 

“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

 

“Environmental Law” means any federal, state or local Laws, and any Governmental Order or binding agreement with any Governmental Authority, relating to (a) pollution (or the abatement thereof) or the protection of natural resources or the environment or (b) the handling, use, storage, treatment, disposal, investigation or remediation of any Hazardous Materials.

 

“Equity Pledge Agreement” means that certain Equity Pledge Agreement dated as of the Closing Date, in substantially the form of attached hereto as Exhibit D, between Retail Facilities Parent and the Collateral Agent, as amended from time to time.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“ERISA Affiliate” means all employers (whether or not incorporated) that would be treated together with the Sellers, the Licensed Entity or any of their respective Affiliates as a “single employer” within the meaning of Section 414 of the Code.

 

“Escrow Account” means the “Escrow Account” as defined in the Escrow Agreement.

 

“Escrow Agent” means Arizona Escrow & Financial Corporation, or any successor escrow agent.

 

“Escrow Agreement” means that certain Escrow Agreement dated of even date herewith to be entered into by and among Buyer, the Sellers and the Escrow Agent, as amended from time to time.

 

“Escrow Closing Notice” means the “Closing Notice” as defined in the Escrow Agreement.

 

“Escrowed Funds” has the meaning set forth in Section 2.02(b).

 

“Estimated Closing Net Working Capital” means $1,115,918. The Parties acknowledge that the Estimated Closing Net Working Capital is based on the calculation reflected in the Estimated Closing Net Working Capital Statement.

 

“Estimated Closing Net Working Capital Statement” means an Excel file titled “Project Cooper Working Capital Adjustment (AZ) [2023-12-14].xlsx” provided by or on behalf of the Sellers to Buyer immediately prior to the Effective Date.

 

“Excluded Assets” has the meaning set forth in Section 2.01.

 

“Excluded Laws” means any U.S. federal laws, statutes, codes, ordinances, decrees, rules, regulations which apply to the production, trafficking, distribution, processing, extraction, and/or sale of marijuana (cannabis) and related substances, including the CSA; provided, however, that Excluded Laws shall not include any provision of the Code, including Section 280E of the Code.

 

 

“Final Closing Net Working Capital” means the Net Working Capital of the Licensed Entity as of the Closing as set forth in the Final Closing Net Working Capital Statement.

 

“Final Closing Net Working Capital Overage” means the amount, if any, by which the Final Closing Net Working Capital is greater than negative $1,115,918.

 

“Final Closing Net Working Capital Payment” has the meaning set forth in Section 2.02I.

 

“Final Closing Net Working Capital Shortage” means the amount, if any, by which the Final Closing Net Working Capital is less than negative $1,115,918.

 

“Final Closing Net Working Capital Statement” has the meaning set forth in Section 2.02(c).

 

“Final 2023 Fiscal Year Income Tax Liability” means the total amount of federal and Arizona state income tax liabilities of the Licensed Entity attributable to the 2023 Fiscal Year, as determined under Section 2.02(d).

 

“Final 2023/2024 Income Tax Liability Adjustment” means, collectively, an amount equal to (i) the sum of the Final 2023 Fiscal Year Income Tax Liability and the Final 2024 Pre-Closing Income Tax Liability minus (ii) that portion of the Closing Income Liability Adjustment that constitutes the total amount of estimated federal and Arizona state income taxes for the 2023 Fiscal Year and the 2024 Fiscal Year, as disclosed in item 2 of Section 3.18 of the Disclosure Schedule.

 

“Final 2023/2024 Income Tax Liability Payment” has the meaning set forth in Section 2.02(d).

 

“Final 2023/2024 Income Tax Determination Date” has the meaning set forth in Section 2.02(d).

 

“Final 2023/2024 Income Tax Liability Statement” has the meaning set forth in Section 2.02(d).

 

“Final 2024 Pre-Closing Income Tax Liability” means the total amount of federal and Arizona state income tax liabilities of the Licensed Entity attributable to the 2024 Pre-Closing Tax Period, as determined under Section 2.02(d).

 

“Financial Statements” has the meaning set forth in Section 3.05.

 

“Fundamental Representations” has the meaning set forth in Section 8.01.

 

“GAAP” means generally accepted accounting principles and practices set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, all as in effect on the date hereof, applied on a basis consistent with prior periods.

 

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency, including the AZDHS, or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory or other authority or quasi-governmental body (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction, in each case applicable to Sellers or the Licensed Entity.

 

 

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

“Hazardous Materials” means: (a) any material, substance, or waste that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under any Environmental Law and (b) any petroleum hydrocarbon, radon, radioactive material, asbestos-containing material, lead-based paint, urea formaldehyde foam insulation, and polychlorinated biphenyls.

 

“Hired Employees” has the meaning set forth in Section 5.09.

 

“Indemnified Party” has the meaning set forth in Section 8.06.

 

“Indemnified Tax Periods” means the calendar years of the Licensed Entity ended December 31, 2018, 2019, 2020 and 2021 and the short fiscal year of the Licensed Entity that commenced on January 1, 2022 and ended on June 25, 2022.

 

“Indemnifying Party” has the meaning set forth in Section 8.06

 

“Initial Escrow Deposit” has the meaning set forth in Section 2.02(b).

 

“Interim Period” has the meaning set forth in Section 5.01.

 

“Inventory” means all inventory of the Licensed Entity, including raw materials (including production, packaging and other materials and supplies), works in process and finished goods, whether held at the Cultivation Facility or the Dispensary as designated, excluding any samples or products marked “not for resale.”

 

“IP Assignment and Termination Agreement” means an Intellectual Property Assignment, License and Termination Agreement, in substantially the form of Exhibit G, among Seller Parent, the Sellers, MME AZ and the Licensed Entity.

 

“KIVA Inventory” means all Inventory that is or is intended to be “KIVA”-branded and that is held at the Cultivation Facility.

 

“Knowledge of Seller” or “Seller’s Knowledge” or any other similar knowledge qualification means, at any time, the actual knowledge of Kimble Cannon, Karen Torres and Robert Robb at such time.

 

“Laws” means all laws, statutes, codes, ordinances, decrees, rules, regulations, code, treaty, municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, policies, voluntary restraints, guidelines or other legal requirement of any Governmental Authority or any provisions of the foregoing, including the AMMA, and also including general principles of common and civil law and equity, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject; provided, however, that “Laws” shall expressly exclude the Excluded Laws.

 

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority, including the AMMA; provided, however, that the term “Law” shall expressly exclude the Excluded Laws.

 

 

“Lease” and “Leases” have the meanings set forth in Section 3.09(b).

 

“Leased Properties” has the meaning set forth in Section 3.09(b).

 

“Liabilities” has the meaning set forth in Section 3.06.

 

“Licensed Entity” has the meaning set forth in the Recitals.

 

“Losses” means claims, losses, damages, liabilities, deficiencies, Actions, judgments, settlements, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable professional fees, attorneys’ fees and all other costs, including the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that notwithstanding anything to the contrary, the term “Losses” shall not include any indirect damages, lost profits, diminutions in value, consequential damages, incidental damages, punitive damages, exemplary damages or unforeseeable damages except to the extent such damages are required to be paid in connection with a Third Party Claim.

 

“Management Agreements” has the meaning set forth in the Recitals.

 

“Material Adverse Effect” means any change or event that, individually or in the aggregate, (a) has had, or may reasonably be expected to have, a material adverse effect on the Business, results of operations or financial condition of the Licensed Entity or (b) would prevent or materially delay or impair the ability of the Sellers to perform their respective obligations under this Agreement or any other Transaction Document or to consummate the Transaction, other than one or more of the following: (i) the effect of any change that generally affects the cannabis industry; (ii) any effect generally affecting the economy or the credit, debt, financial or capital markets, in each case, in the United States or elsewhere in the world; (iii) the effect of any change arising in connection with natural disasters or acts of nature, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions; or (iv) the effect of any change in applicable Laws or accounting principles or rules, or the interpretation thereof.

 

“Material Contracts” has the meaning set forth in Section 3.08(a).

 

“MME Retail” has the meaning set forth in the Preamble.

 

“Net Working Capital” means an amount equal to:

 

(i) all cash and cash equivalents of the Licensed Entity existing as of the Closing Date;

 

(ii) [Reserved];

 

(iii) all Dispensary Inventory existing as of the Closing Date valued at 100% of the wholesale cost paid by the Licensed Entity for such Dispensary Inventory, up to a maximum amount of $350,000; provided, however, that in the calculation of the value of the Dispensary Inventory, product included in the calculation shall not include edibles with a date of receipt by the Dispensary exceeding 60 days immediately prior to the Closing Date and all other SKU’s constituting Dispensary Inventory shall not have been received by the Dispensary more than 90 days immediately prior to the Closing Date; and provided further, however, that any KIVA Inventory comprising Dispensary Inventory shall not exceed $60,000 in the aggregate;

 

 

(iv) 100% of the Accounts Receivable outstanding as of the Closing Date that are not yet due or that are 1-30 days, 31-60 days or 61-90 days past their respective due dates (collectively, “NWC Accounts Receivable”), provided that (A) Accounts Receivable arising from the sale of Sunday Goods or Sol Flower-branded products shall not be included in NWC Accounts Receivable, (B) the value of all NWC Accounts Receivable for purposes of this clause (iv) shall not exceed an aggregate maximum amount of $600,000 and (C) those Accounts Receivable to be included in NWC Accounts Receivable for purposes of determining whether the foregoing aggregate maximum amount has been reached shall be based on the date of the sales invoice of such Accounts Receivable, commencing with the oldest sales invoices; and

 

(v) prepaid expenses of the Licensed Entity existing as of the Closing Date;

 

minus

 

(vi) all accounts payable of the Licensed Entity owing to third parties outstanding as of the Closing Date.

 

For purposes of this Agreement, Net Working Capital shall exclude any Tax assets or Tax liabilities (deferred or otherwise).

 

“Nevada Buyer” means Retail Facilities Operations NV, LLC, a Nevada limited liability company, together with its successors and permitted assigns. The Nevada Buyer is an Affiliate of Buyer.

 

“Nevada Escrow Agreement” means an Escrow Agreement, in substantially the form in existence on the Effective Date or with such changes to such form as may be mutually agreed upon by the parties thereto, to be entered into concurrently with the execution and delivery of the Nevada Purchase Agreement, by and among the Nevada Buyer, the Nevada Sellers and the escrow agent named therein, as amended from time to time.

 

“Nevada Purchase Agreement” means that certain Asset Purchase and Sale Agreement dated of even date herewith by and between the Nevada Sellers, on the one hand, and the Nevada Buyer, on the other hand, including the exhibits thereto, as amended from time to time.

 

“Nevada Sellers” means collectively, MMOF Vegas Retail, Inc., a Nevada corporation, and MMOF Vegas Retail 2, Inc., a Nevada corporation, together with its successors and permitted assigns. The Nevada Sellers are Affiliates of the Sellers.

 

“Nonrefundable Deposit” has the meaning set forth in Section 2.02.

 

“Note Documents” has the meaning set forth in the Seller Notes.

 

“Omaha” has the meaning set forth in the Preamble.

 

“Party” and “Parties” have the meanings set forth in the Recitals.

 

“Payroll Processing Agreement” has the meaning set forth in the Recitals.

 

 

“Permitted Encumbrances” means (a) all purchase money liens on equipment or Inventory; (b) statutory liens of landlords and liens of carriers, warehousemen, bailees, mechanics, materialmen and other like liens imposed by Law, created in the ordinary course of business and securing amounts not yet due or paid in the ordinary course of business (or which are being contested in good faith, by appropriate proceedings or other appropriate actions which are sufficient to prevent imminent foreclosure of such liens); (c) deposits made (and the liens thereon) in the ordinary course of business of the Sellers and the Licensed Entity (including security deposits for leases, indemnity bonds, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations arising as a result of progress payments under government contracts; (d) easements (including reciprocal easement agreements and utility agreements), encroachments, rights of way or minor defects or irregularities in title (whether or not recorded), if applicable, and which, individually or in the aggregate, do not materially interfere with the operation by the Sellers or the Licensed Entity or the Business or with the occupation and enjoyment of the Real Property so encumbered; (e) liens for Taxes not yet due and payable and liens for Taxes that the Sellers and/or the Licensed Entity are contesting, in good faith, by appropriate proceedings which are sufficient to prevent imminent foreclosure of such liens, and with respect to which adequate reserves are being maintained by the Sellers and/or the Licensed Entity, as applicable.

 

“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities, including the Dispensary Licenses, for purposes of operating the Business.

 

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

 

“POBM” means, with respect to the Licensed Entity, any individual who is serving or will serve as a principal officer or member of the Board of Directors of the Licensed Entity.

 

“Post-Closing Tax Period” means any taxable period beginning on or after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.

 

“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on the Closing Date.

 

“Purchase Price” has the meaning set forth in Section 2.02(a).

 

“Real Property” means real property owned, leased or subleased, together with all buildings, structures and facilities located thereon.

 

“Related Party Transactions” has the meaning set forth in Section 3.21.

 

“Regulatory Approvals” means the ACC Approval and the AZDHS Approval.

 

“Representative” means, with respect to any Person, any and all directors, managers, officers, Affiliates, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

“Retail Facilities Parent” means Retail Facilities Management AZ, LLC, an Arizona limited liability company.

 

“Security Agreement” means that certain Security Agreement dated as of the Closing Date, in substantially the form of attached hereto as Exhibit E, between Buyer and the Licensed Entity, on the one hand, and the Collateral Agent, on the other hand, as amended from time to time.

 

 

“Seller Indemnified Parties” has the meaning set forth in Section 8.03.

 

“Seller Intellectual Property” means all intellectual property rights and assets of the Sellers and their Affiliates (other than the Licensed Entity) and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing, including the “MEDMEN” trademarks, service marks, trade names, brand names and logos; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts, user names and handles used with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, so-called “moral rights” or “droit moral” and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; and (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); provided, however, that Customer Data (as defined in the IP Assignment and Termination Agreement) shall not be deemed to constitute “Seller Intellectual Property” and Buyer’s rights to use Customer Data shall be expressly governed by the applicable terms of the IP Assignment and Termination Agreement.

 

“Seller Notes” means, collectively, a Senior Secured Promissory Note dated as of the Closing Date, in substantially the form attached hereto as Exhibit C, made payable by Buyer to the Sellers in the principal amount of $1,300,000, as amended from time to time.

 

“Seller Operational Period” means the period commencing on September 18, 2018 and ending on the day immediately preceding the Closing Date.

 

“Seller Parent” means MM Enterprises USA, LLC, a Delaware limited liability company and an Affiliate of the Sellers.

 

“Seller Parent Guaranty” means the Guaranty of Seller Parent attached to this Agreement.

 

“Seller-Retained Accounts Receivable” means all Accounts Receivable outstanding as of the Closing Date that are not yet due or that are 1-30 days, 31-60 days or 61-90 days past their respective due dates and that are in excess of the maximum amount of $600,000 (it being understood and agreed that if NWC Accounts Receivable is less than or equal to $600,000, the value of all Seller-Retained Accounts Receivable is zero).

 

“Solvent” means, with respect to Buyer, that Buyer (i) is able to pay its debts as they become due and does not have any plans to incur debts beyond its ability to pay them as they become absolute and matured; (ii) owns assets that have a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities); and (iii) has adequate capital to carry on its business as it is currently conducted and proposed to be conducted.

 

“Tax Losses” has the meaning set forth in Section 8.05.

 

 

“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

 

“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Termination of Payroll Processing Agreement” means a Termination Agreement and Mutual Release (Payroll Processing Agreement), in substantially the form attached as Exhibit F, between MME AZ and the Licensed Entity.

 

“Third Party Claim” has the meaning set forth in Section 8.07(a).

 

“Transaction” has the meaning set forth in the Recitals.

 

“Transaction Documents” means, collectively, this Agreement, the Seller Notes and the other Note Documents, the Escrow Agreement, the IP Assignment and Termination Agreement, the Termination of Payroll Processing Agreement, the Buyer Parent Indemnification Agreement, the Seller Parent Guaranty, the Change in POBM Documents, the Unwind Documents and the other agreements, instruments and documents contemplated by or related to this Agreement, in each case as amended from time to time.

 

“Unwind Documents” means, collectively, (a) the following documents, all in form and substance previously circulated between the Parties, and (b) after the AZDHS Approval Issue Date, any additional documents delivered pursuant to Section 5.14:

 

(i) A letter of resignation from each individual who is designated to serve as a POBM of the Licensed Entity on and after the AZDHS Approval Issue Date, duly executed by each such individual;

 

(ii) A Written Consent of the Board of Directors of the Licensed Entity, duly executed by each member of the Board of Directors of the Licensed Entity who shall be a member of the Board of Directors of the Licensed Entity on or after the AZDHS Approval Issue Date, approving (a) the resignations of all Buyer POBMs and reappointing Edward Record as the sole member of the Board of Directors and the Chief Executive Officer of the Licensed Entity and (b) an amendment and restatement of the Bylaws of the Licensed Entity;

 

(iii) An Amended and Restated Bylaws of the Licensed Entity that was approved pursuant to the Written Consent referenced under clause (ii) above, duly executed by the individual designated to serve as Chief Executive Officer of the Licensed Entity on or after AZDHS Approval Issue Date;

 

(iv) A notarized written notice addressed to the AZDHS, duly executed by each member of the Board of Directors of the Licensed Entity who shall serve as such effective on or after AZDHS Approval Issue Date; and

 

(v) An Attestation Form from each individual who shall have delivered a letter of resignation under clause (i) above, duly executed by each such individual.

 

 

“Whitestar Litigation” means Whitestar Solutions, LLC and Adakai Holdings, LLC v. MedMen Enterprises, Inc. et al. (Ariz. Maricopa Cnty. 2022, Case No. CV2020-003335, and Whitestar Solutions, LLC and Adakai Holdings, LLC v. MedMen Enterprises, Inc. (Ariz. Ct. App., Case No. 1 CA-CV-22-0738.

 

ARTICLE II

Purchase and Sale

 

Section 2.01 Purchase and Sale; Assumed Liabilities.

 

(a) Subject to the terms and conditions set forth herein, at the Closing, in exchange for the consideration specified in Section 2.02, each Seller shall transfer, assign and grant to Buyer all of its rights, title and interests, in, to and under each of the Management Agreements, free and clear of any and all liens, mortgages, adverse claims, charges, security interests, encumbrances and other restrictions or limitations whatsoever, as required herein, other than the Permitted Encumbrances. Except as explicitly provided in this Agreement, any and all other assets, properties, rights, interests and Contracts of the Sellers (or any of them), including all Seller Intellectual Property, shall be retained by the Sellers (or any of them), as applicable, and shall not be sold, assigned or transferred to Buyer in connection with the Transaction or otherwise (collectively, the “Excluded Assets”).

 

(b) At the Closing, Buyer shall assume and agree to pay, perform and discharge when due any and all liabilities and obligations of the Sellers, respectively, arising out of or relating to the Management Agreements on or after the Closing Date (excluding any liability or obligation for breaches thereof arising out of events or occurrences that occurred prior to the Closing Date) (collectively, the “Assumed Liabilities”).

 

Section 2.02 Purchase Price; Working Capital Adjustment.

 

(a) Purchase Price. The total purchase price (the “Purchase Price”) for the assignment of the Management Agreements to Buyer and the acquisition by Buyer of the exclusive management and control of the Licensed Entity shall be an amount equal to:

 

	(A)	$14,000,000 (the “Base Purchase Price”), minus
	(B)	the Closing Income Tax Liability Adjustment, minus
	(C)	the Final 2023/2024 Income Tax Liability Adjustment, plus or minus
	(D)	the Final Closing Net Working Capital.

 

(b) Payment of Purchase Price at Closing. The portion of the Purchase Price to be paid at the Closing shall be equal to $7,426,824, payable to the Sellers as follows:

 

(i) The parties acknowledge that on April 26, 2023, Buyer paid $1,500,000 to an Affiliate of the Sellers (the “Nonrefundable Deposit”). At the Closing, the Nonrefundable Deposit shall be applied to pay a portion of the Purchase Price;

 

 

(ii) On or prior to December 20, 2023, Buyer shall deliver the sum of $4,626,824 (the “Initial Escrow Deposit”; the Initial Escrow Deposit, together with any earnings thereon, being the “Escrowed Funds”) to the Escrow Agent for deposit into the Escrow Account pursuant to the Escrow Agreement. (The Parties agree that the Initial Escrow Deposit shall be equal to (A) $7,000,000, which is the amount initially intended to be the Initial Escrow Deposit, minus (B) the Closing Income Tax Liability Adjustment – Cash Portion, minus (C) the Estimated Closing Net Working Capital.) Immediately prior to the Closing Date, the Parties shall execute and deliver an Escrow Closing Notice to the Escrow Agent instructing the Escrow Agent to release the Escrowed Funds to the Sellers and such other Persons (which may include Buyer, certain Governmental Authorities to which Taxes are owed and the Sellers’ financial advisors and attorneys, as applicable) at the Closing as designated therein;

 

(iii) At the Closing, Buyer shall deliver the Seller Notes to the Sellers. (The Parties agree that the initial principal amount of the Seller Notes shall be equal to (A) $5,500,000, which is the amount initially intended to be the aggregate principal amount of the Seller Notes, minus (B) the Closing Income Tax Liability Adjustment – Note Portion.)

 

The Parties acknowledge and agree that (A) the portion of the Purchase Price that is being paid at the Closing has been reduced by the Closing Income Tax Liability Adjustment, which reduction has been allocated between the Initial Escrow Deposit and the Seller Notes as provided above in this Section 2.02(b), (B) the Licensed Entity shall continue to be liable to pay the federal and Arizona state income tax liabilities comprising the Closing Income Tax Liability Adjustment and (C) notwithstanding anything to the contrary, the Sellers shall have no further responsibility or liability with respect to any such federal or state income tax liabilities (including the non-payment thereof) other than as expressly provided in Section 8.05.

 

(c) Working Capital Adjustment.

 

(i) No more than thirty (30) days after the Closing Date, Buyer shall prepare and deliver to the Sellers a written statement (the “Final Closing Net Working Capital Statement”) of the Final Closing Net Working Capital, including the resulting Final Closing Net Working Capital Overage (if any) or Final Closing Net Working Capital Shortage (if any), and including a detailed classification of the various amounts of each component of Net Working Capital. Buyer shall adopt the same methodology used to determine the Final Closing Net Working Capital that were used by the Parties to determine the Estimated Closing Net Working Capital in the Estimated Closing Net Working Capital Statement. Any such amounts determined to be payable pursuant to the Final Closing Net Working Capital Statement shall be paid to the Sellers (or any of them), on the one hand, or Buyer, on the other hand, pursuant to Section 2.02(c)(iii) (the “Final Closing Net Working Capital Payment”).

 

 

(ii) If the Sellers disagree with Buyer’s calculation of any amounts on the Final Closing Net Working Capital Statement, the Sellers (or any of them) shall, within thirty (30) Business Days after their receipt of the Final Closing Net Working Capital Statement, notify Buyer of such disagreement in writing, setting forth in detail the particulars of such disagreement. Any amounts on the Final Closing Net Working Capital Statement not disputed in writing by the Sellers within thirty (30) Business Days after receipt of the Final Closing Net Working Capital Statement shall be final, binding and conclusive for purposes of this Agreement. Buyer will provide the Sellers reasonable access to any of Buyer’s and the Licensed Entity’s records (including work papers and source documents) and relevant employees not otherwise available to the Sellers as a result of the Transaction. If the Sellers do not provide such notice of disagreement within the thirty (30) Business Day period, the Sellers shall be deemed to have accepted the Final Closing Net Working Capital Statement and the calculation of all amounts set forth therein, which shall be final, binding and conclusive for purposes of this Agreement and not subject to any further recourse by Buyer, the Sellers or their respective Affiliates absent manifest error or fraud. If any such notice of disagreement is timely provided, Buyer and the Sellers shall use their commercially reasonable efforts for a period of twenty (20) Business Days (or such longer period as they may mutually agree) to resolve any disagreements with respect to the calculation of any amounts set forth on the Final Closing Net Working Capital Statement (and which were previously identified in writing by Sellers pursuant to the first sentence of this clause (iii)). If, at the end of such period, the parties are unable to fully resolve the disagreements, the parties shall refer the matter to Withum or another auditor as may be mutually agreed by the Parties (in each case, the “Auditor”) to resolve any remaining disagreements. The Auditor shall be instructed to (i) consider only such matters as to which there is a disagreement, (ii) determine, as promptly as practicable, whether the disputed amounts set forth on the Final Closing Net Working Capital Statement were prepared in accordance with the standards set forth in this Agreement, and (iii) deliver, as promptly as practicable but in any event within forty-five (45) days after the date the disagreement is formally submitted to the Auditor (or such longer period as the parties may mutually agree), to Sellers and Buyer its determination in writing. The resolution for each disputed item contained in the Auditor’s determination shall be made subject to the definitions and principles set forth in this Agreement, and shall be consistent with either the position of Sellers or Buyer. The Sellers and Buyer shall bear their own expenses in the preparation and review of the Final Closing Net Working Capital Statement, except that the fees and expenses of the Auditor shall be paid one-half by Buyer and one-half by the Sellers. The determination of the Auditor shall be final, binding and conclusive for purposes of this Agreement and not subject to any further recourse by Buyer, the Sellers or their respective Affiliates, absent manifest error or fraud by Buyer, the Sellers or the Auditor. Any dispute with respect to the Final Closing Net Working Capital Statement will not affect any undisputed amounts in the Final Closing Net Working Capital Statement or the related payments contemplated by this Section 2.02(c). The date on which an amount set forth on the Final Closing Net Working Capital Statement is finally determined in accordance with this Section 2.02(c) is hereinafter referred to as the “Determination Date.”

 

(iii) Any amounts determined to be due and owing to the Sellers from Buyer or to Buyer from the Sellers, as applicable, pursuant to Section 2.02(c)(ii) shall be paid by the Sellers to Buyer or by Buyer to the Sellers, as applicable, within three (3) Business Days after the applicable Determination Date.

 

(d) Final 2023/2024 Income Tax Liability Adjustment.

 

(i) No more than thirty (30) days after the Closing Date, Buyer shall prepare and deliver to the Sellers a written statement (the “Final 2023/2024 Income Tax Liability Statement”) setting forth the Final 2023/2024 Income Tax Liability Adjustment.

 

 

(ii) If the Sellers disagree with the Final 2023/2024 Income Tax Liability Statement, the Sellers (or either of them) may, within thirty (30) Business Days after their receipt of the Final 2023/2024 Income Tax Liability Statement, notify Buyer of such disagreement in writing, setting forth in detail the particulars of such disagreement. Any amounts on the Final 2023/2024 Income Tax Liability Statement not disputed in writing by the Sellers within thirty (30) Business Days after receipt of the Final 2023/2024 Income Tax Liability Statement shall be final, binding and conclusive for purposes of this Agreement. Buyer will provide the Sellers with reasonable access to any of Buyer’s and the Licensed Entity’s records (including work papers and source documents) and relevant employees not otherwise available to the Sellers. If the Sellers do not provide such notice of disagreement within such thirty (30) Business Day period, the Sellers shall be deemed to have accepted the Final 2023/2024 Income Tax Liability Statement and the calculation of all amounts set forth therein, which shall be final, binding and conclusive for purposes of this Agreement and not subject to any further recourse by Buyer, the Sellers or their respective Affiliates absent manifest error or fraud. If any such notice of disagreement is timely provided, Buyer and the Sellers shall use their commercially reasonable efforts for a period of twenty (20) Business Days (or such longer period as they may mutually agree) to resolve any disagreements with respect to the calculation of any amounts set forth on the Final 2023/2024 Income Tax Liability Statement (and which were previously identified in writing by Sellers pursuant to the first sentence of this clause (ii)). If, at the end of such twenty (20) Business Day period, the parties are unable to fully resolve the disagreements, the parties shall refer the matter to the Auditor to resolve any remaining disagreements. The Auditor shall be instructed to (i) consider only such matters as to which there is a disagreement, (ii) determine, as promptly as practicable, whether the disputed amounts set forth on the Final 2023/2024 Income Tax Liability Statement were prepared in accordance with the standards set forth in this Agreement, and (iii) deliver, as promptly as practicable but in any event within forty-five (45) days after the date the disagreement is formally submitted to the Auditor (or such longer period as the parties may mutually agree), to the Sellers and Buyer its determination in writing. The resolution for each disputed item contained in the Auditor’s determination shall be made subject to the definitions and principles set forth in this Agreement, and shall be consistent with either the position of the Sellers or Buyer. The Sellers and Buyer shall bear their own expenses in the preparation and review of the Final 2023/2024 Income Tax Liability Statement, except that the fees and expenses of the Auditor shall be paid one-half by Buyer and one-half by the Sellers. The determination of the Auditor shall be final, binding and conclusive for purposes of this Agreement and not subject to any further recourse by Buyer, the Sellers or their respective Affiliates, absent manifest error or fraud by Buyer, the Sellers or the Auditor. Any dispute with respect to the Final 2023/2024 Income Tax Liability Statement will not affect any undisputed amounts in the Final 2023/2024 Income Tax Liability Statement or the related reductions and payments contemplated by this Section 2.02(d). The date on which an amount set forth on the Final 2023/2024 Income Tax Liability Statement is finally determined in accordance with this Section 2.02(d) is hereinafter referred to as the “Final 2023/2024 Income Tax Determination Date.”

 

(iii) Any amounts determined to be due and owing to the Sellers from Buyer or to Buyer from the Sellers, as applicable, pursuant to Section 2.02(d)(ii) shall be paid by the Sellers to Buyer or by Buyer to the Sellers, as applicable, within three (3) Business Days after the applicable Final 2023/2024 Income Tax Determination Date in the case of Buyer to the Sellers, or credited to the Seller Notes in the case of the Sellers to Buyer (the “Final 2023/2024 Income Tax Liability Payment”). The Parties acknowledge and agree that from and after the Final 2023/2024 Income Tax Determination Date, the Sellers shall have no further responsibility or liability for any Taxes or other amounts attributable to the 2023 Fiscal Year or the 2024 Fiscal Year (including the 2024 Pre-Closing Tax Period) or to any period from or after the Closing Date.

 

 

(e) Payment for Inventory at the Cultivation Facility. Within ninety (90) days after the Closing Date, Buyer shall pay to the Sellers (or at the Sellers’ direction, to one of them) an amount in cash equal to $350,000 in consideration for all Inventory (whether raw materials, work-in-process or finished goods) existing at the Cultivation Facility on the Closing Date.

 

ARTICLE III

Representations and Warranties of SellerS

 

The representations and warranties contained in this Article III are qualified by the disclosures made in the Disclosure Schedule. Except with respect to matters set forth in the Disclosure Schedule, or as expressly set forth herein, the Sellers hereby represent and warrant to Buyer, as of the Effective Date and the Closing Date, as follows (it is hereby understood that any representations or warranties made in this Article III or otherwise with respect to the Sellers (or any of them) or their respective assets shall be made solely to the extent the subject matter of such representation or warranty relates to the Business):

 

Section 3.01 Organization and Authority of Sellers. Each Seller is a limited liability company duly organized, validly existing and in good standing under the Laws of the state of its formation. Each Seller has the full limited liability company power and authority to enter into this Agreement and to carry out its obligations hereunder and has taken all action necessary to authorize, execute and deliver this Agreement and the transactions contemplated hereunder. This Agreement has been duly executed and delivered by each Seller and (assuming due authorization, execution and delivery by Buyer) constitutes a legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) the discretion that a court may exercise in the granting of extraordinary remedies such as specific performance and injunction.

 

Section 3.02 Organization and Authority of the Licensed Entity. The Licensed Entity is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of Arizona and has full corporate authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the applicable aspect of the Business as it has been and is currently conducted by the Licensed Entity. The Dispensary Licenses are active and in good standing, and the Sellers are not aware of any deficiencies in the Dispensary Licenses that have not been disclosed to Buyer in writing. Section 3.02 of the Disclosure Schedule sets forth each jurisdiction in which the Licensed Entity is licensed or qualified to do business and, other than as would not reasonably be expected to result in a Material Adverse Effect, the Licensed Entity is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of the applicable aspect of the Business as currently conducted by such Licensed Entity makes such licensing or qualification necessary. All corporate actions taken by the Licensed Entity in connection with this Agreement, if any, will be duly authorized on or prior to the Closing Date.

 

Section 3.03 Management Agreements. As of the Closing, each of the Management Agreements will be in full force and effect and enforceable against each party thereto in accordance with its terms. Other than the Management Agreements, the Payroll Processing Agreement and as set forth in Section 3.03 of the Disclosure Schedule, there are no other agreements or understandings, whether written or oral, relating to (i) the management or control of the Licensed Entity or (ii) a share of the profits and/or revenues of the Licensed Entity.

 

 

Section 3.04 No Conflicts; Consents. Except in each case as set forth in Section 3.04 of the Disclosure Schedule, the execution, delivery and performance by each Seller of this Agreement and the consummation of the Transaction by it do not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of formation, limited liability agreement other organizational documents of such Seller or the Licensed Entity; (b) conflict with or result in a violation or breach of any provision of any Law applicable to such Seller or the Licensed Entity; (c) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any Party the right to accelerate, terminate, modify or cancel any Material Contract to which such Seller or the Licensed Entity are a party or by which either such Seller or the Licensed Entity are bound or to which any of its properties and assets are subject (or any Permit affecting the properties, assets or business of such Seller or the Licensed Entity); or (d) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on any properties or assets of any Seller or the Licensed Entity, except, in the case of clauses (b) through (d), any such conflict, violation or default would not reasonably be expected to result in a Material Adverse Effect. Except for the Regulatory Approvals and as set forth in Section 3.04 of the Disclosure Schedule, no material consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to any Seller or the Licensed Entity in connection with the execution and delivery of this Agreement and the consummation of the Transaction.

 

Section 3.05 Financial Statements. Complete copies of (a) an unaudited balance sheet of the Licensed Entity as of April 30, 2023 (the “April 2023 Balance Sheet”), and related unaudited statements of profit and loss for the year ended December 2022 and for the months ended January 2023, February 2023, March 2023 and April 2023 (collectively, the “Financial Statements”) have been delivered to Buyer. The Financial Statements have been prepared by management based upon the books and records of the Licensed Entity and in accordance with GAAP applied on a consistent basis throughout the period involved. The Financial Statements fairly present in all material respects the financial condition of the Licensed Entity as of the respective dates reflected therein and for the periods indicated. The Licensed Entity maintains a standard system of accounting established and administered in accordance with GAAP.

 

Section 3.06 Undisclosed Liabilities. Except as set forth in Section 3.18 of the Disclosure Schedule, as of the Closing, the Licensed Entity will not have any liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (“Liabilities”), except (a) trade payables and other Liabilities arising or incurred in the ordinary course of business consistent with past practice since the April 2023 Balance Sheet (and, for clarification purposes, not including any third party claims or lawsuits arising from actions taken on behalf of the Licensed Entity alleged to be as a result of negligence, fraud or breach of contract), (b) the Assumed Liabilities and (c) Liabilities in connection with the Whitestar Litigation.

 

Section 3.07 Absence of Certain Changes, Events and Conditions. Since the date of the April 2023 Balance Sheet, other than (i) as contemplated by this Agreement and any other Transaction Document or (ii) in the ordinary course of business consistent with past practice, there has not been, with respect to the Licensed Entity, any:

 

(a) amendment of the charter, bylaws or other organizational documents;

 

(b) split, combination or reclassification of any Equity Interests;

 

(c) issuance, sale or other disposition of any of its equity interests, or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its equity interests, as applicable;

 

(d) material change in any method of accounting or accounting practice of the Licensed Entity that would be required to be reflected in financial statements prepared in accordance with GAAP;

 

 

(e) incurrence, assumption or guarantee of any indebtedness for borrowed money in excess of $25,000;

 

(f) material damage, destruction or loss (whether or not covered by insurance) to the Licensed Entity’s property;

 

(g) other than as disclosed in Section 3.18 of the Disclosure Schedule, action to make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer in respect of any Post-Closing Tax Period; or

 

(h) Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

 

Section 3.08 Material Contracts.

 

(a) Section 3.08(a) of the Disclosure Schedule lists each of the following Contracts to which the Licensed Entity is a party or which otherwise primarily relates to the Business (“Material Contracts”):

 

(i) all Leases;

 

(ii) each Contract involving aggregate consideration in excess of $50,000 annually and which, in each case, cannot be cancelled by the Licensed Entity without penalty or without more than thirty (30) days’ notice;

 

(iii) all Contracts that provide for the indemnification of any Person or the assumption of any Tax, environmental or other liability of any Person;

 

(iv) all Contracts that relate to the acquisition or disposition of any business, a material amount of stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);

 

(v) all employment agreements and other Contracts with independent contractors or consultants (or similar arrangements);

 

(vi) all Contracts relating to indebtedness (including guaranties);

 

(vii) all Contracts with any Governmental Authority;

 

(viii) all Contracts that limit or purport to limit the ability of the Licensed Entity to compete in any line of business or with any Person or in any geographic area or during any period of time;

 

(ix) all Contracts between the Licensed Entity, on the one hand, and any Seller or any other Affiliate of any Seller, on the other hand; and

 

(x) all collective bargaining agreements or Contracts with any union.

 

 

(b) As of the Closing Date, each Material Contract will be valid and binding on the applicable Seller or the Licensed Entity in accordance with its terms and is in full force and effect. Neither any Seller, the Licensed Entity nor, to Seller’s Knowledge, any other Party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. To Seller’s Knowledge, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer.

 

Section 3.09 Title to Assets; Real Property.

 

(a) As of the Closing Date, the Licensed Entity will have good and valid title to, or a valid leasehold interest in, all personal property and other assets reflected in the April 2023 Balance Sheet or acquired after the date of the April 2023 Balance Sheet, other than properties and assets sold or otherwise disposed of in the ordinary course of business consistent with past practice since the Effective Date. As of the Closing Date, all such properties and other assets (including leasehold interests) will be free and clear of Encumbrances except for Permitted Encumbrances.

 

(b) Section 3.09(b) of the Disclosure Schedule sets forth a true, correct and complete list of all Real Property and interests in Real Property leased or subleased by the Licensed Entity, the Sellers or their Affiliate, in each case as a lessee (collectively, the “Leased Properties”) and identifies for each lease of Leased Property (individually, a “Lease” and, collectively, the “Leases”) the parties thereto, the address of the property subject thereto, the rent payable thereunder, the terms of any renewal options, the substance of any amendments or modifications thereto and any reciprocal easement or operating agreements relating thereto. The applicable Seller or the Licensed Entity (as applicable) has good, marketable and valid leasehold interest in each Leased Property, subject only to Permitted Encumbrances. The Sellers have previously delivered to Buyer correct and complete copies of each Lease, together with all amendments, modifications, supplements, waivers and side letters related thereto. With respect to each Lease: (i) the Lease is legal, valid, binding, enforceable and in full force and effect; (ii) except as set forth in Section 3.09(b) to the Disclosure Schedule, neither any Seller nor the Licensed Entity, as applicable, nor, any other party to any Lease, is in breach or default thereunder, and no event has occurred which, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under such Lease; (iii) no party to any Lease has repudiated any provision thereof; (iv) there are no disputes or oral agreements in effect as to any Lease; (v) no Lease has been modified in any material respect, except to the extent that such modifications are disclosed by the documents delivered to the Buyer; and (vi) neither any Seller nor the Licensed Entity, as applicable, has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in any Lease.

 

(c) With respect to each Real Property: (i) the current use of such Real Property and the operation of Business thereon does not violate any instrument of record or material Contract affecting such Real Property, or any applicable Law in any material respect (without any fines or monetary Liabilities attached); (ii) there are no leases, subleases, licenses, concessions or other Contracts, written or oral, granting to any Person the right of use or occupancy of any portion of such Real Property except in favor of the Sellers or the Licensed Entity; and (iii) as of the Closing Date, there are no Persons in possession of such Real Property except the Sellers or the Licensed Entity.

 

(d) The Sellers or the Licensed Entity (as applicable) are in possession of all certificates of occupancy and Permits necessary for the current use and operation of each Real Property. Such Permits have been validly issued by the appropriate Governmental Authority in compliance with all applicable Laws, and the Sellers and the Licensed Entity have each fully complied with all conditions of the Permits applicable to each. All such Permits are in full force and effect without further consent or approval of any Person.

 

 

(e) No part of any Real Property, as applicable, is subject to any building or use restrictions that would restrict or prevent the operation of the Business on such Real Property, and each Real Property is properly and duly zoned for its current use, and such current use is in all respects a conforming use. No Governmental Authority having jurisdiction over any Real Property has issued or, to the Knowledge of the Sellers, threatened to issue, any notice or order, injunction, judgment, decree, ruling, writ or arbitration award that materially and adversely affects the use or operation of any Real Property.

 

(f) There does not exist any actual or, to the Knowledge of the Sellers, threatened or contemplated, condemnation or eminent domain proceedings that materially and adversely affects any Real Property, as applicable, or any part thereof, and neither any Seller nor the Licensed Entity has received any notice, oral or written, of the intention of any Governmental Authority or other Person to take or use any Real Property or any material part thereof.

 

(g) The Licensed Entity has performed in all material respects its obligations under the EBA Leases and has reasonably satisfied, or is in the process of reasonably satisfying, the additional actions requested by the landlords under the EBA Leases or the McCormick Ranch Property Owners’ Association, Inc., respectively.

 

Section 3.10 Condition and Sufficiency of Assets. Other than as set forth in Section 3.10 of the Disclosure Schedule, the Licensed Entity owns or holds the right to use all assets, properties and rights that are sufficient to conduct the Business as conducted by the Licensed Entity as of the Closing Date. All material equipment used at the Cultivation Facility is in good working condition, wear and tear excepted.

 

Section 3.11 Product; Inventory.

 

(a) Except as set forth on Section 3.11 of the Disclosure Schedule: (i) the Inventory is owned by the Licensed Entity free and clear of any Encumbrances, (ii) none of the Inventory is on consignment, (iii) the Inventory as reflected in the Financial Statements has been valued in a manner consistent with past practices and procedures and in accordance with GAAP and (iv) all Inventory located at the Leased Properties is owned by Licensed Entity and is not held by the Licensed Entity (on consignment or otherwise) for or on behalf of any other Person. Except for damaged, obsolete or otherwise unsaleable or excess Inventory, all of the Inventory is usable in the ordinary course of business. The levels of the Inventories on the Effective Date are consistent with the levels of Inventory that have been maintained by the Licensed Entity before the Effective Date in the normal course of business and consistent with past practices in light of seasonal adjustments, market fluctuations and the requirements of customers of the Licensed Entity, except as contemplated by this Agreement or discussed between the Parties. No recalls or withdrawals of products developed, produced, distributed or sold by the Licensed Entity have been required or suggested by any Seller, the Licensed Entity or any Governmental Authority with respect to the products supplied by the Licensed Entity, and no facts or circumstances exist that could reasonably be expected to result in any such recall or withdrawal. All Inventory purchased by the Licensed Entity from third parties was, to the Knowledge of Sellers, cultivated, harvested, produced, tested, handled and delivered in accordance with all applicable Law in all material respects, and was purchased from suppliers duly licensed by the applicable Governmental Authority to cultivate, harvest and produce such products. The Licensed Entity has not used any substance, including pesticides, prohibited by Laws applicable in the State of Arizona and the localities therein in which the Licensed Entity operates, in any prohibited amount at any stage of the cultivation, harvesting, handling, processing, storage or delivery of Inventory.

 

 

(b) No products manufactured, marketed or sold by the Licensed Entity have been recalled or withdrawn (whether voluntarily or otherwise) at any time during the past three (3) years (for purposes of this Section, a product shall have been recalled or withdrawn if all or a substantial number of products in a product line were recalled or withdrawn); and (ii) no Actions (whether completed or pending) at any time during the past three (3) years have been initiated seeking the recall, withdrawal, suspension or seizure of any product sold by the Licensed Entity in connection with the Business.

 

(c) All Inventory has been tested in accordance with AMMA and has passed all necessary testing standards promulgated by AZDHS prior to being placed for sale in the Dispensary or sold wholesale by the Licensed Entity since August 1, 2022. There are no statements, citations or decisions issued by any Governmental Authority or any third party testing laboratory asserting that any product of the Licensed Entity offered for sale is or was unsafe, or that it failed to meet any testing standards promulgated by such Governmental Authority or applicable to such testing laboratory, nor have there been any mandatory or voluntary recalls of any such product of the Licensed Entity. There has been no pattern of defects in the growth or manufacture of any product sold or manufactured by the Licensed Entity in connection with the Business nor any fact relating to any such product that may impose a duty on the Licensed Entity to recall any product or warn any customer of a defect in any product.

 

Section 3.12 Accounts Receivable. To the Seller’s Knowledge, the Accounts Receivable (a) have arisen from bona fide transactions entered into by the Licensed Entity involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; and (b) constitute only valid, undisputed claims of the Licensed Entity not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice.

 

Section 3.13 Legal Proceedings; Governmental Orders.

 

(a) Other than the Whitestar Litigation or as otherwise as set forth in Section 3.13 of the Disclosure Schedule, there are no Actions pending or, the Sellers’ knowledge, threatened (a) against or by the Licensed Entity (or any Seller or any Affiliate thereof with respect to the Business or the Licensed Entity) or (b) against or by any Seller or the Licensed Entity or any Affiliate of any Seller that challenges or seeks to prevent, enjoin or otherwise delay the Transaction. To Seller’s Knowledge, except for the Whitestar Litigation and as disclosed in Section 3.13 of the Disclosure Schedule, no event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.

 

(b) There are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against the Licensed Entity or the Business or, with respect to the Business, any Seller or their properties or assets.

 

Section 3.14 Compliance with Laws; Permits. During the Seller Operational Period:

 

(a) The Licensed Entity has complied in all material respects with all Laws applicable to it or the Business.

 

(b) All Permits required for the Sellers and the Licensed Entity to conduct the Business, including the Dispensary Licenses, have been obtained by the Sellers and the Licensed Entity, as applicable, are valid and in full force and effect. All fees and charges with respect to such Permits that will be due and payable prior to the Closing Date have been paid in full. Section 3.14 of the Disclosure Schedule lists all current Permits issued to the Licensed Entity, including the names of the Permits and their respective dates of issuance and expiration. Other than as set forth in Section 3.14 of the Disclosure Schedule, no Seller has received any written notice from any Governmental Authority to the effect that, or has otherwise been advised that, either any Seller (solely with respect to the Business) or the Licensed Entity is not in compliance with any applicable Permit and, to Sellers’ Knowledge, no event has occurred that, with or without notice or lapse of time or both (including after the Closing), would reasonably be expected to result in the notice of deficiency (except where cured prior to inspection by the AZDHS), revocation, suspension, lapse or limitation of any Permit.

 

 

(c) None of the Sellers, the Licensed Entity nor any of their respective equity owners, directors, officers, agents, employees, affiliates, or other person associated with or acting on behalf of any of them has (i) used any company funds for any unlawful contribution, gift, entertainment, or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government or regulatory official or employee; (iii) made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment; or (iv) violated or is in violation of any provision of (x) the United States Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder, or (y) any other anti-bribery or anti-corruption statute or regulation. The Licensed Entity and the Sellers have instituted and maintained and enforced policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

 

(d) The Sellers and the Licensed Entity operate in compliance in all material respects with the United States Department of Justice guidance to United States Attorneys regarding enforcement priorities for prosecuting marijuana-related crimes, as set forth in that certain memorandum dated August 29, 2013, issued by Deputy Attorney General James Cole (the “2013 Cole Memo”). As part of its compliance with the 2013 Cole Memo, the Sellers have used commercially reasonable efforts to ensure that the Licensed Entity does not: (a) distribute marijuana to minors; (b) direct revenue from the sale of marijuana to criminal enterprises, gangs, and cartels, or otherwise have any involvement with such groups; (c) divert marijuana from states where it is legal under state law in some form to other states; (d) use state-authorized marijuana activity as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; (e) use violence or firearms in the cultivation and distribution of marijuana; (f) contribute to drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; (g) grow or possess marijuana on public lands; or (h) promote marijuana possession or use on federal property.

 

(e) The Licensed Entity has complied in all material respects with all applicable and material contractual and legal requirements pertaining to information privacy and security. To the Knowledge of Sellers, no complaint relating to an improper use or disclosure of, or a breach in the security of, any such information has been made or threatened against the Licensed Entity. The Sellers are unaware of any: (i) material unauthorized disclosure of any third party proprietary or confidential information in the possession, custody or control of the Licensed Entity or (ii) material breach of the Licensed Entity’s security procedures wherein confidential information has been disclosed to a third person.

 

Section 3.15 Environmental Matters.

 

(a) The Licensed Entity is, and has been, in compliance in all material respects with all Environmental Laws.

 

(b) Neither the Sellers nor the Licensed Entity has received any notice, demand, letter, claim or request for information relating to the Real Property alleging a violation of or liability under any Environmental Law.

 

(c) There has been no disposal or release of Hazardous Materials in, under, from or about the Real Property which would reasonably be expected to result in a Material Adverse Effect.

 

 

(d) The Sellers have provided or otherwise made available to Buyer copies of all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments and similar documents with respect to the Real Property which are in the possession or control of the Sellers or the Licensed Entity.

 

Section 3.16 [Reserved].

 

Section 3.17 Employment Matters. Section 3.17 of the Disclosure Schedule contains a list of all individuals who are employees, independent contractors or consultants of MME AZ and who provide services to the Business, including employees who are on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; and (iv) except for employees who are paid on an hourly basis, current annual base compensation rate. All of the individuals who provide employment services primarily with respect to the Business are employed by MME AZ. To the Knowledge of the Sellers, (a) the Licensed Entity is in compliance in all material respects with all Laws applicable to it pertaining to employment and employment practices, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance, (b) MME AZ is in compliance in all material respects with applicable employee licensing requirements, (c) each employee who is required to have a license or approval under Law maintains such a license or approval in current and valid form, (d) each consultant, contractor or other nonemployee service provider of the Licensed Entity who is required to have a license or approval under Law maintains such a license or approval in current and valid form and (e) there are no incidents or events that occurred prior to the Effective Date could give rise to any employer liability for the Licensed Entity after the Effective Date.

 

Section 3.18 Taxes. During the Seller Operational Period, except as set forth in Section 3.18 of the Disclosure Schedule:

 

(a) All material Tax Returns required to be filed on or before the Closing Date by the Licensed Entity have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all material respects. Other than as described in clause (h) below, neither the Licensed Entity, nor any Seller on behalf of the Licensed Entity, has filed any amended tax returns in the six (6) months immediately preceding the Effective Date. The amount of outstanding Taxes due and payable by the Licensed Entity prior to the Closing Date has been disclosed to Buyer. All Taxes due and owing by the Licensed Entity (whether or not shown on any Tax Return) prior to the Closing Date for income required to be recognized for tax purposes have been, or before the Closing Date will be, timely paid when due and payable (if due and payable on or before the Closing Date).

 

(b) The Sellers and the Licensed Entity have each withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.

 

(c) No claim has been made by any taxing authority in any jurisdiction where any Seller or the Licensed Entity does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.

 

(d) No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of any Seller or the Licensed Entity.

 

 

(e) All deficiencies asserted, or assessments made, against any Seller Company or the Licensed Entity as a result of any examinations by any taxing authority have been fully paid.

 

(f) Neither any Seller nor the Licensed Entity is a party to any Action by any taxing authority. There are no pending or threatened Actions by any taxing authority.

 

(g) The Licensed Entity is not bound by and does not have any obligation under or potential liability with respect to any Tax allocation, Tax sharing or Tax indemnification agreement or similar contract or arrangement. Neither any Seller nor the Licensed Entity has been a member of an affiliated, combined, consolidated, or unitary Tax group for Tax purposes. Neither any Seller nor the Licensed Entity has any liability for Taxes of any Person (other than the Business) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local, or foreign Law), as transferee or successor, by contract, or otherwise.

 

(h) The Sellers have delivered to Buyer (or caused the delivery to Buyer of) copies of (i) the federal and Arizona state income Tax Returns for the Licensed Entity filed, and statements of deficiencies assessed against, or agreed to by, the Licensed Entity, with respect to the calendar years ended December 31, 2020 and December 31, 2021, (ii) the federal and Arizona state amended income Tax Returns for the Licensed Entity filed with respect to the calendar year ended December 31, 2021, and (iii) the federal and Arizona state income Tax Returns for the Licensed Entity filed with respect to the short taxable period commencing on January 1, 2022 and ending on June 25, 2022.

 

(i) There are no Encumbrances for Taxes other than Permitted Encumbrances upon the business or assets of any Seller and the Licensed Entity.

 

(j) None of the Sellers or the Licensed Entity is a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2.

 

(k) The Licensed Entity will not be required to include any amount in, or exclude any item of deduction from, income for any Tax period ending after the Closing Date as a result of a change in accounting method for any Pre-Closing Tax period or pursuant to any agreement with any Tax authority with respect to any such Pre-Closing Tax Period. The Licensed Entity will not be required to include in any Tax period or portion thereof after the Closing Date any income that accrued in a Pre-Closing Tax Period but was not recognized in any Pre-Closing Tax Period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting or the cash method of accounting or as a result of the receipt of any prepaid amounts.

 

(l) None of the Sellers nor the Licensed Entity has consummated or participated in, and is not currently participating in, any transaction which was or is a “Tax shelter,” “listed transaction” or “reportable transaction” as defined in Sections 6662, 6662A, 6011, 6012, 6111 or 6707A of the Code or the Treasury Regulations promulgated thereunder, including transactions identified by the IRS by notice, regulation or other form of published guidance as set forth in Treasury Regulation § 1.6011-4(b)(2).

 

 

Section 3.19 Insurance. Section 3.19 of the Disclosure Schedule sets forth a true and complete list of all current policies or binders of insurance maintained by the Licensed Entity, any Seller or their respective Affiliates and relating to the assets, business, operations, employees, officers, shareholders and directors of the Licensed Entity (collectively, the “Insurance Policies”). Such Insurance Policies: (a) are in full force and effect; (b) are valid and binding in accordance with their terms; (c) are provided by carriers who are financially solvent; and (d) have not been subject to any lapse in coverage. Neither any Seller nor the Licensed Entity, has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have been paid. Neither any Seller nor the Licensed Entity is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Licensed Entity and are sufficient for compliance with all applicable Laws and Contracts to which the Licensed Entity is a party or by which it is bound. Except as disclosed on Section 3.19 of the Disclosure Schedule, there will be no material retrospective insurance premiums or charges or any other similar adjustment on or with respect to any of the Insurance Policies for any period or occurrence through the Closing Date.

 

Section 3.20 Books and Records. The minute books and records of the Licensed Entity, which are in the possession of Sellers and have been made available to Buyer, are complete and correct in all material respects.

 

Section 3.21 Related Party Transactions. There are no contracts or transactions between the Licensed Entity, on the one hand, and Seller Parent, any Seller or any of their respective officers, directors, key employees or Affiliates, on the other hand, other than (a) the Management Agreements, (b) the Payroll Processing Agreement, (c) any implied or express grants of licenses or rights to use Seller Intellectual Property, (d) the payment of salaries and bonuses for services rendered and the provision of employee benefits, (e) reimbursement of customary and reasonable expenses and (f) as set forth in Section 3.21 of the Disclosure Schedule (each, a “Related Party Transaction”).

 

Section 3.22 Brokers. Except as set forth in Section 3.22 of the Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of any Seller.

 

ARTICLE IV

Representations and Warranties of Buyer

 

Buyer hereby represents and warrants to the Sellers as of the Effective Date and the Closing Date as follows:

 

Section 4.01 Organization and Authority of Buyer. Buyer is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Arizona and has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder and the consummation by Buyer of the Transaction have been duly authorized by all requisite corporate action by each of Buyer. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) the discretion that a court may exercise in the granting of extraordinary remedies such as specific performance and injunction.

 

Section 4.02 No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement and the consummation of the Transaction do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation or certificate of formation, bylaws or other organizational documents of Buyer or their Affiliates; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Buyer or their Affiliates; or (c) require the consent, notice or other action by any Person under any Contract to which Buyer or their Affiliates are a party.

 

 

Section 4.03 Governmental Approvals and Consents. No consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required by or with respect to Buyer or their Affiliates in connection with the execution and delivery of this Agreement and any other Transaction Document to which the Buyer or their Affiliates are a party or the consummation of the Transaction.

 

Section 4.04 No Cease Trade Orders. Neither Buyer nor any of its directors, officers, managers, managing members or promoters is subject to any cease trade or other order of any securities or Governmental Authority and no investigation or other proceedings involving Buyer or any of their directors, officers, managers, managing members or promoters are currently in progress or pending before any securities or Governmental Authority.

 

Section 4.05 Sufficiency of Funds. Buyer has cash on hand or available funds from its Affiliates sufficient to enable Buyer to satisfy all of its financial obligations under this Agreement and the other Transaction Documents.

 

Section 4.06 Investment Decision. Buyer has had an opportunity to discuss the business, operations, management and financial and other affairs of the Licensed Entity with the management of the Sellers and the Licensed Entity and to inspect the Dispensary and the Cultivation Facility. Buyer has substantial experience in evaluating, investing, and/or acquiring companies in the Sellers’ industry, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of the Transaction and protecting its own interests.

 

Section 4.07 Legal Proceedings. There are no Actions pending or threatened against or by Buyer or any of their Affiliates that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may reasonably give rise or serve as a basis for any such Action.

 

Section 4.08 Solvency. Immediately following the Closing, Buyer will be Solvent.

 

Section 4.09 Buyer Parent. Retail Facilities Parent owns 100% of the equity ownership interests in Buyer.

 

Section 4.10 Buyer POBM’s. Any individual who shall serve as a Buyer POBM effective on or at any time after the AZDHS Approval Issue Date shall have an active Marijuana Facility Agent License or an active Dispensary Agent Card and shall be in good standing with AZDHS.

 

Section 4.11 Brokers. Except for CLD Advisory LLC, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Buyer or its Affiliates.

 

 

ARTICLE V

Covenants

 

Section 5.01 Conduct of Business Prior to the Closing. Between the Effective Date and the earlier of the termination of this Agreement and the Closing (the “Interim Period”), except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld or delayed), the Sellers shall cause the Licensed Entity to: (a) conduct the Business in the ordinary course of business consistent with recent practice; (b) preserve and maintain all of its material Permits; (c) pay all debts and Taxes when due; (d) comply in all material respects with all applicable Laws; (e) pay or perform other obligations in the ordinary course of the Business; (f) not to modify, terminate or transfer the Management Agreements, and (g) use all commercially reasonable efforts, consistent with past practices and policies, to preserve its present business organizations, keep available the services of its employees, preserve its relationships with key customers, suppliers, distributors, licensors, licensees, and others having business dealings with it. During the Interim Period, the Sellers will promptly notify Buyer of any event or occurrence of which it receives knowledge, and that the Sellers reasonably believe would have a Material Adverse Effect.

 

Without limiting the generality of the foregoing, as expressly contemplated by this Agreement, during the Interim Period, the Sellers will not permit the Licensed Entity to do any of the following without the prior written consent of Buyer:

 

(a) adopt or propose any change to its organizational documents;

 

(b) merge or consolidate with any other Person or acquire equity interests or assets of any other Person or effect any business combination, recapitalization or similar transaction;

 

(c) sell, lease, license, encumber or otherwise dispose of any material amount of assets, securities or other property, individually or in the aggregate, in excess of $50,000, except for sales of Inventory;

 

(d) create or incur any consensual Encumbrance on any of its assets;

 

(e) make any loan, advance or capital contribution to or investment in any other Person other than trade credit in the ordinary course of the Business;

 

(f) make any capital expenditure in an amount in excess of $200,000;

 

(g) [Reserved];

 

(h) enter into any new employment agreement or collective bargaining agreement or commitment to or with any employee;

 

(i) enter into any new Related Party Transaction;

 

(j) terminate or amend any Material Contract other than as may be required in connection with the Closing or as mutually agreed by the Parties;

 

(k) enter into any settlement with respect to any Action against or relating to it;

 

(l) change any method of accounting or accounting principles or practice or cash management practices;

 

(m) transfer any Dispensary Licenses to a third party; or

 

(n) agree or commit to do any of the foregoing.

 

 

Section 5.02 Access to Information. During the Interim Period, the Sellers shall, and shall cause the Licensed Entity to, (a) reasonably afford Buyer and its Representatives access to and the right to inspect all of their Real Property, properties, assets, premises, books and records, Contracts and other documents and data; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Sellers and the Licensed Entity as Buyer or any of its Representatives may reasonably request; and (c) instruct the Representatives of Sellers and the Licensed Entity to cooperate with Buyer in its investigation of the Sellers and the Licensed Entity.

 

Section 5.03 EBA Lease Guaranties. Buyer acknowledges that Seller Parent has executed and delivered the EBA Lease Guaranties. The Parties have agreed not to approach the EBA Landlord to request that Seller Parent be replaced with Buyer Parent as the guarantor under the EBA Lease Guaranties and the EBA Lease Guaranties shall remain in place from and after the Closing. In consideration therefor, Buyer Parent shall execute and deliver the Buyer Parent Indemnification Agreement to Seller Parent at the Closing. If, after the Closing Date, the EBA Landlord is willing to accept the replacement of Seller Parent with Buyer Parent as the guarantor under the EBA Lease Guaranties and fully release Seller Parent from its obligations under the EBA Lease Guaranties, the Parties shall mutually cooperate with one another and use their reasonable best efforts to effectuate such transactions.

 

Section 5.04 Confidentiality. Each of the Parties shall hold, and shall use its commercially reasonable best efforts to cause its officers, directors, managers, members, employees, Representatives and Affiliates to hold, in strict confidence from any Person, unless (a) compelled to disclose by judicial or administrative process (including in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated by this Agreement from any Court or Governmental Authority) or by other requirements of Law, or (b) disclosed in an Action brought by a Party in pursuit of its rights or in the exercise of its remedies, all documents and information concerning any other Party or any of its Affiliates furnished to it by any other Party or such other Party’s officers, directors, managers, managing members and agents in connection with this Agreement or the Transaction (collectively, “Confidential Information”), except to the extent that such documents or information can be shown to have been (i) previously known by the Party receiving such documents or information, (ii) in the public domain (either prior to or after the furnishing of such documents or information) through no fault of such receiving party or (iii) later acquired by the receiving Party from another source if the receiving party is not aware and should not reasonably expect that such source is under an obligation to another Party to keep such documents and information confidential. Notwithstanding the foregoing, in the event of disclosure pursuant to clause (a) or (b) above, the Party required to disclose any documents or information shall (x) provide the Party whose information is to be disclosed with prompt notice of such requirement prior to disclosure to the extent permissible by Law, (y) provide the Party whose information is to be disclosed with reasonable information and assistance so that such Party can take reasonable measures to protect the information from disclosure and (z) use good faith efforts to limit what is disclosed to the maximum extent permissible under Law. The Parties agree not to use any Confidential Information of another Person for any purpose other than complying with obligations under this Agreement and completing the transactions contemplated by this Agreement. The Parties further agree that they shall only disclose Confidential Information to their officers, directors, managers, members, employees, Representatives and Affiliates on a “need-to-know” basis in connection with the purposes described in the preceding sentence. Notwithstanding anything else in this Section 5.04 to the contrary, any receiving Party may disclose Confidential Information to a third party with the prior written consent of the disclosing Party.

 

Section 5.05 Deposit of Unwind Documents. Within two (2) Business Days after the Effective Date, the Parties shall cause originally signed copies of the Unwind Documents to be delivered to the Escrow Agent for deposit into the Escrow Account.

 

 

Section 5.06 Regulatory Approvals; Effectiveness of Change in POBM Documents. From the Effective Date until Closing, the Parties shall take all such actions as may be necessary to cause the AZDHS to approve the Change in POBM’s. Without limiting the generality of the foregoing:

 

(a) Within two (2) Business Days after the Effective Date, the Parties shall cause the Change in POBM Documents to be duly executed and delivered to the Sellers.

 

(b) Within two (2) Business Days after the Effective Date, the Sellers shall cause:

 

(i) An “Officer/Director/Shareholder Change” form, or equivalent electronic filing, to be submitted to the ACC through the ACC’s eCorp online system to obtain the ACC Approval; and

 

(ii) A “Information Update Application” form, or equivalent electronic filing, together with applicable Change in POBM Documents, to be submitted to the AZDHS through the AZDHS Facility Licensing Portal to obtain the AZDHS Approval.

 

(c) Notwithstanding anything to the contrary contained herein or otherwise, the Parties acknowledge that one or more Regulatory Approvals may be issued by the ACC or the AZDHS prior to the Closing Date. In the event that any such Regulatory Approvals shall be issued prior to the Closing Date, the Parties hereby agree that, whether or not any such Regulatory Approvals shall be deemed legally effective under applicable Law upon issuance, none of the Change in POBM Documents shall be deemed effective as between or among the Parties unless and until all other closing conditions set forth in Article VII shall have been satisfied (or waived) and the Closing shall have occurred, at which time the Change in POBM Documents shall become legally effective as between or among the Parties at the Closing. If the Closing shall not occur, the Change in POBM Documents shall be deemed null and void and of no force or effect, and Buyer shall cooperate with the Sellers, and shall take all such actions and execute all such documents as may be requested by the Sellers to reverse the effects of the Change in POBM Documents, including with respect to the records of the ACC and AZDHS.

 

Section 5.07 Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), neither Buyer, the Sellers or their respective Affiliates shall make any public announcements in respect of this Agreement or the Transaction or otherwise communicate with any news media without the prior written consent of the other parties (which consent shall not be unreasonably withheld, delayed or conditioned). To the extent any public announcement is required to be made by Buyer, the Sellers or their respective Affiliates under applicable Law, the Parties shall use their good faith commercially reasonable efforts to agree on the contents of such announcement prior to the issuance thereof. Without limiting the generality of the foregoing, prior to the Closing, the Parties shall mutually prepare a public announcement relating to this Agreement and the Transaction for use by the Parties in connection with the Effective Date.

 

Section 5.08 Seller Intellectual Property. The Parties acknowledge that the Sellers or their respective Affiliates granted the Licensed Entity a license and rights to use the Seller Intellectual Property in connection with its ownership and operation of the Business. At the Closing, except as set forth in the IP Assignment and Termination Agreement with respect to Customer Data (as defined therein), any and all licenses and other rights to use the Seller Intellectual Property granted by the Sellers or any of their Affiliates to the Licensed Entity, whether oral or written, will be terminated in their entirety. From and after the Closing, neither Buyer nor any of its Affiliates shall, and shall not permit the Licensed Entity to, use any Seller Intellectual Property in any manner whatsoever. The Sellers and their Affiliates reserve all right, title and interest in and to the Seller Intellectual Property, and nothing in this Agreement or otherwise shall be construed as the grant of a license or other right of any kind granted by the Sellers or any of their Affiliates to use the Seller Intellectual Property, or own any interest therein. On the Closing Date, Buyer shall immediately remove or sufficiently cover all references to “MedMen,” any similar name or term, and all other Seller Intellectual Property from the signage used by the Licensed Entity at the Dispensary or the Cultivation Facility or in the conduct of the Business, including any references to “MedMen,” or any similar name or term, on the website(s), social media accounts, marketing, promotions, advertising and instructional materials of or controlled by the Licensed Entity, and shall not indicate or imply in any way any association or affiliation with, or endorsement by, the Sellers or any of their Affiliates.

 

 

Section 5.09 Employees. The Parties acknowledge that pursuant to the Payroll Processing Agreement, MME AZ provides all payroll services for, and employs, substantially all of the individuals who provide employment or other services at the Dispensary and the Cultivation Facility. Prior to the Closing, Buyer or its Affiliate will interview and offer employment to those employees of MME AZ that it seeks to hire effective as of the Closing. Buyer shall provide to the Sellers a list of those employees who have been offered such employment no later than two (2) Business Days prior to the Closing Date. Those employees who accept Buyer’s offer of employment and commence working for Buyer on the Closing Date shall hereafter be referred to as the “Hired Employees.”

 

Section 5.10 Cultivation Inventory. Within three (3) Business Days after the Effective Date, (a) the Sellers shall provide Buyer with all testing documentation and Inventory reconciliation for the Inventory located at the Cultivation Facility and (b) the Sellers and Buyer shall coordinate for Buyer to enter the Cultivation Facility to review the Inventory thereat for the purposes of reasonably confirming the status of such Inventory.

 

Section 5.11 Further Assurances. Each of the Parties shall, and shall cause its Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and effectuate the Transaction.

 

Section 5.12 Retention of Copies of Books and Records. The Parties agree that the Sellers shall provide to Buyer copies of all Books and Records of the Licensed Entity existing on the Closing Date and the Parties may use such Books and Records on a non-exclusive basis to the extent necessary in its sole discretion. Notwithstanding the foregoing, if after the Closing the Sellers cannot locate copies of any Books and Records in connection with a business purpose that the Sellers had previously provided to Buyer and Buyer is able to locate and access such requested Books and Records, the Sellers or their Affiliates shall have the right to inspect and to make copies (at their own expense) of the same at any time upon reasonable request during normal business hours and upon reasonable notice for any proper purpose and without undue interference. After the Closing, the Sellers will use their commercially reasonable efforts to provide additional information related to the Books and Records, as may be reasonably requested by Buyer, or the location of documents and information in support of the Books and Records to the extent the Sellers have such additional information or are aware of the same.

 

Section 5.13 Pre-Closing Information. The Sellers agree that their obligation to disclose any material information that was not previously disclosed in the Disclosure Schedule shall continue up until the Closing. Until the Closing, the Sellers shall continuously respond to any reasonable additions to those requests necessary to substantiate the accuracy of said disclosure.

 

 

Section 5.14 Change of POBM’s Post-AZDHS Approval.

 

(a) If one or more individuals who shall serve as a Buyer POBM of the Licensed Entity on or after the AZDHS Approval Issue Date shall no longer serve in such capacity thereafter, whether by resignation, retirement, death, replacement, removal or otherwise, Buyer shall cause each such individual to deliver to the Escrow Agent for deposit into the Escrow Account as an Unwind Document: (i) so long as such individual has not passed away, (A) a letter of resignation, in form and substance satisfactory to the Sellers, duly executed by each such individual and dated the effective date of resignation, (B) an accompanying Attestation Form, duly executed by each such individual, and (ii) an amendment to the then-existing Bylaws of the Licensed Entity amending the POBM’s named therein, in form and substance satisfactory to the Sellers, duly executed by an authorized officer of the Licensed Entity.

 

(b) If, at any time on or after the AZDHS Approval Issue Date, it is proposed that one or more additional individuals serve as a POBM of the Licensed Entity, Buyer shall (i) ensure that each such individual shall hold an active Marijuana Facility Agent License or an active Dispensary Agent Card and be in good standing with AZDHS and (ii) deliver to the Escrow Agent for deposit into the Escrow Account as an Unwind Document, with copies delivered to the Sellers: (A) a letter of resignation from each such individual, executed by such individual, (B) an accompanying Attestation Form from each such individual, executed by such individual, and (C) an amendment to the then-existing Bylaws of the Licensed Entity amending the POBM’s named therein, duly executed by an authorized officer of the Licensed Entity, in each case in form and substance satisfactory to the Sellers, to be held by the Escrow Agent as an Unwind Document.

 

(c) The Parties agree that Section 5.14(b) shall have no effect after the payment in cash in full of the Seller Notes and delivery of the Note Repayment Notice (as defined in the Escrow Agreement) to the Escrow Agent.

 

Section 5.15 Certain Accounts Receivable and Inventory Arrangements.

 

(a) [Reserved.]

 

(b) Seller-Retained Accounts Receivable; Remittance to Sellers.

 

(i) The Sellers shall have the right to collect, receive and retain without condition any and all Seller-Retained Accounts Receivable outstanding as of the Closing Date. Prior to the Closing, the Parties shall cooperate with one another to identify such Seller-Retained Accounts Receivable.

 

(ii) After the Closing, the Sellers may take any commercially reasonable actions that it deems necessary or appropriate in its sole discretion at its sole expense to collect and receive all Seller-Retained Accounts Receivable, and Buyer agrees to assist the Sellers, at Buyer’s expense, to receive, and shall deposit any proceeds it receives from, all such Seller-Retained Accounts Receivable.

 

(iii) On the first (1^st) and fifteenth (15^th) day of each calendar month following the Closing Date, Buyer shall, at Buyer’s expense, remit to the Sellers any proceeds Buyer has received on account of any Seller-Retained Accounts Receivable prior to the third (3^rd) day before the applicable remittance date, without any deduction, offset, withholding or otherwise, by wire transfer in immediately available funds to one account designated by the Sellers; provided, however, if the first (1^st) or fifteenth (15^th) day of any such calendar month falls on a day that is not a Business Day, the applicable date of remittance shall be made on the immediately succeeding Business Day.

 

(iv) Buyer agrees to provide from time to time, at the request of the Sellers, such invoices, correspondence and other documentation as may be reasonably requested by the Sellers with respect to Seller-Retained Accounts Receivable or the collection thereof.

 

 

(v) The right of the Sellers to collect the Seller-Retained Accounts Receivable under this Section 5.15(b) shall cease on the first anniversary of the Closing Date.

 

Section 5.16 Payment of Accounts Payable. Within thirty (30) days after the Closing Date, Buyer shall pay, or shall cause the Licensed Entity to pay, to each of the vendors of the Licensed Entity listed in Section 5.16 of the Disclosure Schedule the total amount set forth opposite such vendor’s name, without any discount.

 

Section 5.17 Declaration of Restrictions. The Sellers shall use its commercially reasonable efforts to obtain confirmation of compliance with the Declaration of Restrictions applicable to the Leased Properties, respectively.

 

ARTICLE VI

Tax Matters

 

Section 6.01 Tax Covenants.

 

(a) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement (including any real property transfer Taxes and any other similar Tax), if any, shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by the Sellers, when due. The Party that is required under applicable Law to file any Tax Return or other document with respect to such Taxes or fees shall, at its own expense, timely file such Tax Return or other document (and the other Parties shall cooperate with respect thereto and join in the execution of such Tax Returns to the extent required by applicable Law).

 

(b) Except as set forth in Section 3.18 of the Disclosure Schedule or Section 3.18, without the prior written consent of Buyer, no Seller shall, to the extent it may affect or relate to the Business: (i) make, change or rescind any Tax election, (ii) amend any Tax Return, or (iii) take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer or the Licensed Entity in respect of any Post-Closing Tax Period.

 

(c) Buyer, the Licensed Entity and the Sellers shall cooperate fully, as and to the extent reasonably requested by the other Parties, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention, and (upon the other party’s request) the provision, of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder; provided, that the party requesting assistance shall pay the reasonable out-of-pocket expenses incurred by the party providing such assistance; provided, further, no party shall be required to provide assistance at times or in amounts that would interfere unreasonably with the business and operations of such party. Buyer, the Licensed Entity, or the Sellers (as the case may be) shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Licensed Entity for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods. Furthermore, Buyer, the Licensed Entity and the Sellers further agree, upon request, to use their reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

 

 

(d) The Parties agree that after the Closing, Buyer shall be responsible for preparing all federal and Arizona Tax Returns of the Licensed Entity for the 2023 Fiscal Year and the 2024 Fiscal Year (which shall include the 2024 Pre-Closing Tax Period) (the “Buyer-Prepared Tax Returns”).

 

(e) Prior to or on the Closing Date, the Sellers agree to pay, or to cause to be paid, (i) the outstanding total amount of Arizona marijuana excise taxes through August 31, 2023 disclosed under item 3 of Section 3.18 of the Disclosure Schedule and any additional Arizona marijuana excise taxes that accrue after August 31, 2023 and before the Closing Date and (ii) any Arizona transaction privilege taxes through August 31, 2023 disclosed under item 4 of Section 3.18 of the Disclosure Schedule, if any, and any additional Arizona transaction privilege taxes that accrue after August 31, 2023 and before the Closing Date.

 

ARTICLE VII

CLOSING; Conditions to Closing

 

Section 7.01 Closing. Subject to the terms and conditions of this Agreement, the closing of the Transaction contemplated by this Agreement (the “Closing”) shall be effected by electronic mail or facsimile, by overnight courier service or by physical exchange of documentation within three (3) Business Days after the date of receipt of all Regulatory Approvals or such other date and time as may be mutually agreed upon by the Parties, provided that the conditions set forth in this Article VII have been satisfied (or waived) at such time or prior thereto. The day upon which the Closing takes place shall be referred to as the “Closing Date.” The Parties agree to act in good faith and take all such actions as may be necessary to consummate the Transaction in accordance with the terms of the Agreement.

 

Section 7.02 Conditions to Obligations of All Parties. The obligations of each of the Parties to consummate the Transaction shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

 

(a) No Restraint. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect as of the Closing and has the effect of making the Transaction contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such Transaction or causing any part of the Transaction contemplated hereunder to be rescinded following completion thereof.

 

(b) Regulatory Approvals. All Regulatory Approvals required to consummate the Transaction have been issued, including the AZDHS Approval and the ACC Approval.

 

Section 7.03 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the Transaction shall be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the following conditions:

 

(a) The representations and warranties of the Sellers in Article III that are qualified as to materiality or words of similar import shall be true and correct in all respects, and those representations and warranties not so qualified shall be true and correct in all material respects, on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

 

 

(b) The Sellers shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(c) The Sellers shall have delivered to Buyer the following documents:

 

(i) The Assignment and Assumption Agreement, dated as of the Closing Date and duly executed by the Sellers;

 

(ii) The Termination of Payroll Processing Agreement, dated as of the Closing Date and duly executed by MME AZ and the Licensed Entity;

 

(iii) An assignment and assumption agreement with respect to the premises located at 4220 E. McDowell Road, Suites 101, Mesa, Arizona, and landlord consent thereto, in form and substance reasonably satisfactory to the Parties, duly executed by Seller Parent and Otto Trucking, Inc., as landlord thereunder;

 

(iv) An assignment and assumption agreement with respect to the premises located at 4220 E. McDowell Road, Suites 103, Mesa, Arizona, and landlord consent thereto, in form and substance reasonably satisfactory to the Parties, duly executed by Seller Parent and Otto Trucking, Inc., as landlord thereunder; and

 

(v) such other agreements, documents, instruments or certificates as may be reasonably requested by Buyer to effectuate the Transaction.

 

(d) Seller Closing Certificates. The Sellers shall have delivered (or caused to be delivered) to Buyer:

 

(i) An officer’s certificate of the Sellers, in form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by a duly authorized officer or manager of the Sellers, certifying that each of the conditions set forth in Section 7.04(a) and Section 7.04(b) have been satisfied; and

 

(ii) A manager’s certificate of the Sellers, in form and substance reasonably satisfactory to the Sellers, dated the Closing Date and signed by the manager of the Sellers, certifying that attached thereto are true and complete copies of all organizational documents of the Sellers and resolutions duly adopted by or on behalf of the Sellers authorizing and approving the execution, delivery and performance of this Agreement and the consummation of the Transaction, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Transaction; and

 

(iii) Resolutions duly adopted by the Board of Directors of the Licensed Entity, certified by Chief Executive Officer of the Licensed Entity, authorizing and approving the execution, delivery and performance of the Transaction Documents (other than the Collateral Documents) to which the Licensed Entity is a party and the consummation of the transactions contemplated thereby.

 

(e) Material Adverse Effect. Since the Effective Date, no Material Adverse Effect will have occurred.

 

(f) Transaction Fees. The Sellers shall have paid all fees, costs and expenses incurred by or on behalf of them in connection with the preparation, execution and delivery of this Agreement and the consummation of the Transaction.

 

 

(g) Release of Escrowed Funds. The Sellers shall have delivered to the Escrow Agent a signed counterpart to the Escrow Closing Notice instructing the Escrow Agent to release the Escrowed Funds to the Persons designated therein.

 

Section 7.04 Conditions to Obligations of Sellers. The obligations of the Sellers to consummate the Transaction as contemplated by this Agreement shall be subject to the fulfillment or the Sellers’ waiver, at or prior to the Closing, of each of the following conditions:

 

(a) Representations and Warranties. The representations and warranties of Buyer in Article IV that are qualified as to materiality or words of similar import shall be true and correct in all respects on and as of the Closing Date, and the representations and warranties of Buyer in Article IV of the Assignment Agreement that are not so qualified shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

 

(b) Covenants. Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(c) Release of Escrowed Funds. Buyer shall have delivered to the Escrow Agent a signed counterpart to the Escrow Closing Notice instructing the Escrow Agent to release the Escrowed Funds to the Sellers and the other Persons as designated therein.

 

(d) Closing Documents. Buyer shall have delivered to the Sellers the following documents:

 

(i) The Assignment and Assumption Agreement, dated the Closing Date and duly executed by Buyer;

 

(ii) The Seller Notes, dated the Closing Date and duly executed by Buyer;

 

(iii) The Equity Pledge Agreement, dated the Closing Date and duly executed by Retail Facilities Parent;

 

(iv) The Security Agreement, dated the Closing Date and duly executed by Buyer and the Licensed Entity;

 

(v) [Reserved];

 

(vi) The Termination of Payroll Processing Agreement, dated as of the Closing Date and duly executed by MME AZ and the Licensed Entity;

 

(vii) The IP Assignment and Termination Agreement, dated as of the Closing Date and duly executed by MME USA, the Sellers, MME AZ and the Licensed Entity;

 

(viii) The Termination of Payroll Processing Agreement, dated as of the Closing Date and duly executed by MME AZ and the Licensed Entity;

 

(ix) The documents described in clauses (iii) and (iv) of Section 7.3(c), duly executed by Buyer and Otto Trucking, Inc., a landlord thereunder;

 

 

(x) The Buyer Parent Indemnification Agreement, dated the Closing Date and duly executed by Buyer Parent; and

 

(xi) Such other agreements, documents, instruments or certificates as may be reasonably requested by the Sellers to effectuate the Transaction.

 

(e) Buyer Closing Certificates. Buyer shall have delivered (or caused to be delivered) to the Sellers:

 

(i) An officer’s certificate of Buyer, in form and substance reasonably satisfactory to the Sellers, dated the Closing Date and signed by the manager of Buyer, certifying that each of the conditions set forth in Section 7.04(a) and Section 7.04(b) have been satisfied;

 

(ii) A manager’s certificate of Buyer, in form and substance reasonably satisfactory to the Sellers, dated the Closing Date and signed by the manager of Buyer, certifying that attached thereto are true and complete copies of the organizational documents of Buyer and all resolutions duly adopted by the manager, managing member or board of managers, as applicable, by or on behalf of Buyer authorizing and approving the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the Transaction, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Transaction; and

 

(iii) A manager’s certificate of Buyer, in form and substance reasonably satisfactory to the Sellers, dated the Closing Date and signed by the manager of Buyer, certifying that attached thereto are true and complete copies of all resolutions duly adopted by the Board of Directors of the Licensed Entity, certified by Chief Executive Officer of the Licensed Entity, authorizing and approving the execution, delivery and performance of any and all Collateral Documents to which the Licensed Entity is a party and the consummation of the transactions contemplated thereby.

 

ARTICLE VIII

Survival; Indemnification

 

Section 8.01 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein survive the Closing until the eighteen (18) month anniversary of the Closing Date; provided, however, that (a) the representations and warranties of (i) the Sellers in Section 3.01 (Organization and Authority of Sellers), Section 3.02 (Organization and Authority of the Licensed Entity), Section 3.13 (Legal Proceedings; Governmental Orders) and Section 3.22 (Brokers) and (ii) Buyer in Section 4.01 (Organization and Authority of Buyer), Section 4.02 (Governmental Approvals and Consents), Section 4.07 (Legal Proceedings) and Section 4.10 (Brokers) (collectively, the “Fundamental Representations”) shall survive indefinitely and (b) the representations and warranties contained in Section 3.18 (Tax Matters) shall survive the Closing until sixty (60) days after the expiration of the applicable statute of limitations with respect to the Tax matters in question. All covenants and agreements of the Parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) by written notice from a non-breaching Party to a breaching Party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

 

 

Section 8.02 Indemnification by Sellers. Subject to the terms and conditions of this Article VIII, from and after the Closing, the Sellers shall, jointly and severally, indemnify and hold harmless Buyer, Buyer’s Affiliates and their respective Representatives (collectively, the “Buyer Indemnified Parties”), from and against, and shall pay and reimburse each of them for, any and all Losses reasonably incurred by the Buyer Indemnified Parties based upon, arising out of, with respect to or by reason of:

 

(a) any material inaccuracy in, or material breach of, any of the representations or warranties of the Sellers contained in this Agreement or in any certificate or instrument delivered by or on behalf of any Seller or the Licensed Entity pursuant to this Agreement;

 

(b) any breach or non-fulfillment in any material respect of any covenant, agreement or obligation to be performed by any Seller pursuant to this Agreement;

 

(c) the Whitestar Litigation; and

 

(d) any Third Party Claims arising out of or resulting from the operation of the Business during the Seller Operational Period, including Third Party Claims brought by an employee of MME AZ arising out of or resulting from the operation of the Business during the Seller Operational Period.

 

Section 8.03 Indemnification by Buyer. Subject to the terms and conditions of this Article VIII, Buyer shall indemnify and hold harmless the Sellers, the Sellers’ Affiliates and their respective Representatives (collectively, the “Seller Indemnified Parties”) from and against, and shall pay and reimburse each of them for, any and all Losses reasonably incurred by the Seller Indemnified Parties based upon, arising out of, with respect to or by reason of:

 

(a) any material inaccuracy in, or material breach of, any of the representations or warranties of Buyer contained in this Agreement or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement;

 

(b) any breach or non-fulfillment in any material respect of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement;

 

(c) the Assumed Liabilities; and

 

(d) any Third Party Claims arising out of or resulting from the operations of the Business from and after the Closing Date, including Third Party Claims with respect to the EBA Leases.

 

Section 8.04 Limitations on Seller Indemnification. Notwithstanding anything to the contrary:

 

(a) Deductible. No Buyer Indemnified Party shall be entitled to indemnification for Losses resulting from, or arising out of, breaches and inaccuracies of representations or warranties pursuant to Section 8.02(a) or breaches of covenants, agreements and obligations pursuant to Section 8.02(b) unless and until the aggregate amount of all Losses for which the Buyer Indemnified Party shall be entitled to indemnification under Section 8.02(a) and/or Section 8.02(b) (as limited by the other provisions of this Article VIII)) exceeds $200,000 (the “Deductible”); provided, however, that indemnification in respect of Losses arising out of (i) a breach of any Fundamental Representations by the Sellers pursuant to Section 8.02(a), (ii) the Whitestar Litigation pursuant to Section 8.02(c) and (iii) any breach of or inaccuracy in any representation or warranty made in Section 3.18 (Taxes) shall not be subject to, nor be included in the calculation of, the Deductible.

 

 

(b) Total Liability Cap. In no event shall the total amount of all Losses for which the Buyer Indemnified Parties shall be entitled to indemnification resulting from, or arising out of, breaches and inaccuracies of representations or warranties pursuant to Section 8.02(a) or breaches of covenants, agreements and obligations pursuant to Section 8.02(b) exceed fifteen percent (15%) of the Base Purchase Price (the “Total Liability Cap”); provided, however, that any indemnification by the Sellers in respect of indemnifiable Losses (i) arising out of a breach of any Fundamental Representations of the Sellers pursuant to Section 8.02(a), (ii) arising out of the Whitestar Litigation pursuant to Section 8.02(c), (iii) that constitute Tax Losses or (iv) resulting from actual fraud shall not be subject to, nor be included in the calculation of, the Total Liability Cap; provided further, however, that notwithstanding anything to the contrary, in no event shall the Sellers (or any of them) be obligated to pay an aggregate amount in respect of all indemnification obligations under this Article VIII or otherwise that exceeds the Purchase Price.

 

Section 8.05 Tax Indemnification. Subject to the limitations set forth herein, the Sellers shall indemnify and hold harmless each Buyer Indemnified Party from and against any of the following Losses solely to the extent that any such Losses (i) are attributable to the Seller Operational Period and (ii) are attributable to the Indemnified Tax Periods (it being understood that the Sellers shall not be liable for any Tax Losses attributable to the 2023 Fiscal Year or the 2024 Fiscal Year (including the 2024 Pre-Closing Tax Period) or any period from or after the Closing Date): (a) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 3.18 (Taxes) and (b) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement or obligation in ARTICLE VI (collectively, “Tax Losses”); provided, however, that pursuant to Section 2.7(b)(iii) of the Nevada Purchase Agreement, in no event shall the Sellers be liable under this Section 8.05 or otherwise with respect to Taxes, and shall be released from all liabilities and obligations with respect thereto, under the circumstances described therein and Buyer shall enter into a written agreement with the Sellers, in form and substance reasonably satisfactory to the Sellers, to evidence the release of the Sellers from any and all such liabilities or obligations.

 

Section 8.06 Claims Procedures.

 

(a) Subject to Section 8.07 with respect to Third Party Claims, any party seeking indemnification hereunder (the “Indemnified Party”) shall deliver to the Party purportedly obligated to provide indemnification to such Indemnified Party (the “Indemnifying Party”) a written notice (a “Claim Notice”), which shall be delivered promptly after the Indemnified Party becomes aware of the basis for a claim for indemnification hereunder and which shall describe in reasonable detail the facts giving rise to such claim, shall include copies of any material written evidence thereof and shall include in such Claim Notice the amount, or the method of computation of the amount, of Losses arising from such claim (if known or reasonably ascertainable) and a reference to the provision of this Agreement or any other agreement, document or instrument executed hereunder or in connection herewith upon which such claim is based; provided, however, that the failure or delay of the Indemnified Party to provide a Claim Notice promptly to the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent the Indemnifying Party shall have been materially prejudiced by such failure. The Indemnifying Party shall have thirty (30) calendar days after its receipt of a Claim Notice to respond in writing to it by accepting such Claim Notice or objecting to such Claim Notice. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have accepted such claim, in which case the Indemnifying Party shall immediately pay such Losses to the Indemnified Party. If the Indemnifying Party fails to promptly pay such Losses, the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

 

 

(b) After the timely delivery of a response to a Claim Notice by the Indemnifying Party pursuant to Section 8.06(a), the amount of indemnification to which an Indemnified Party may be entitled under this Article VIII shall be determined (i) by a written agreement between the Indemnified Party and the Indemnifying Party, (ii) by any other means to which the Indemnified Party and the Indemnifying Party shall mutually agree or (iii) by legal action.

 

(c) Any Tax Losses incurred by the Buyer Indemnified Parties that are subject to indemnification by the Sellers pursuant to Section 8.05 shall be effected, first, by reducing the then-outstanding aggregate principal balance of the Seller Notes in an amount equal to the amount of such Tax Losses as of the date of determination and, second, if the then-outstanding aggregate principal balance of the Seller Notes is zero, by wire transfer of immediately available funds from or on behalf of the Sellers to an account designated by Buyer in writing.

 

Section 8.07 Third Party Claims.

 

(a) Promptly (and in no event more than five (5) Business Days) after an Indemnified Party receives notice or otherwise obtains knowledge of any actual or possible claim, demand, suit, action, arbitration, investigation, audit, inquiry or proceeding that has been or may be brought or asserted by a third party against such Indemnified Party and with respect to which such Indemnified Party intends to make an indemnification claim under this ARTICLE VIII (any such actual or possible claim, demand, suit, action, arbitration, investigation, inquiry or proceeding by a third party (including any Governmental Authority) being referred to as a “Third Party Claim”), the Indemnified Party shall deliver to the Indemnifying Party a written notice stating in reasonable detail the nature and basis of such Third Party Claim and the dollar amount of such Third Party Claim, to the extent known; provided, that the failure to give such notice in the time specified above shall not relieve the Indemnifying Party of its obligations under this ARTICLE VIII, except to the extent that the Indemnifying Party is materially prejudiced thereby.

 

(b) The Indemnifying Party shall have the right, at its sole option, to assume the defense of any Third Party Claim against an Indemnified Party with counsel of its own choice and at the sole expense of the Indemnifying Party by providing written notice of such intent to the Indemnified Party within ten (10) days of receipt of notice of the Third Party Claim by the Indemnifying Party, which notice shall confirm the Indemnifying Party’s agreement to indemnify the Indemnified Party in accordance with the terms and conditions of this Agreement for any Losses incurred in connection with or as a result of such Third Party Claim; provided, however, that the Indemnifying Party shall not be entitled to assume such defense (unless otherwise agreed to in writing by the Indemnified Party) and shall pay the reasonable fees and expenses of one counsel retained by the Indemnified Party that is reasonably acceptable to the Indemnifying Party, (i) to the extent the claim for indemnification is in connection with any criminal proceeding, action, indictment, allegation or investigation against or targeting the Indemnified Party, (ii) if the claim is a motion for a temporary restraining order or preliminary injunction against the Indemnified Party, (iii) there exists a material conflict of interest (other than one of a monetary nature) that would make it inappropriate for the same counsel to represent both the Indemnified Party and the Indemnifying Party or (iv) the Indemnifying Party fails to vigorously prosecute or defend such claim. If the Indemnifying Party elects to assume the defense of any such Third Party Claim in accordance with the preceding sentence, then:

 

(i) The Indemnifying Party shall defend such Third Party Claim in good faith by appropriate actions diligently pursued, and the attorneys’ fees of the Indemnifying Party’s counsel and other defense costs incurred by the Indemnifying Party shall be borne and payable by the Indemnifying Party;

 

(ii) Notwithstanding anything to the contrary contained in this Agreement, except as set forth in Section 8.07(b)(iii), the Indemnified Party shall not be entitled to be indemnified for any costs or expenses incurred by the Indemnified Party in connection with the defense of such Third Party Claim following the Indemnifying Party’s election to assume the defense of such Third Party Claim in accordance with this Section 8.07;

 

 

(iii) The Indemnified Party shall be entitled, but not obligated, to participate in and monitor (but not control) such defense at its own expense; provided, however, that the Indemnified Party shall be entitled, at the Indemnifying Party’s expense, to retain one firm of separate counsel of its own choosing if the named parties in any such Third Party Claim include both the Indemnifying Party and the Indemnified Party and the Indemnified Party has been advised by counsel that representation of both sets of parties by the same counsel would be inappropriate due to actual or potential conflicts in connection with the defense of the Third Party Claim;

 

(iv) The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party, execute and deliver such documents as shall be reasonably required in connection with the foregoing and make available to the Indemnifying Party all books, records and other documents and materials that are under the direct or indirect control of the Indemnified Party and that the Indemnifying Party considers necessary or desirable, in good faith, for the defense of such Third Party Claim; provided, that the Indemnified Party shall not be required to provide materials to the Indemnifying Party that, based on advice of counsel, would reasonably be expected to constitute a waiver of the attorney client privilege or other privilege under applicable Law;

 

(v) Subject to the limitations on settlement of Third Party Claims set forth in this Section 8.07, the Indemnified Party shall execute such documents and take such other actions, at the expense of the Indemnifying Party, as the Indemnifying Party may reasonably request for the purpose of facilitating the defense of, or any settlement, compromise or adjustment relating to, such Third Party Claim;

 

(vi) The Indemnified Party shall cooperate, at the Indemnifying Party’s expense, as reasonably requested by the Indemnifying Party in the defense of such Third Party Claim; and

 

(vii) The Indemnified Party shall not admit, and shall use reasonable efforts to ensure that its Affiliates do not admit, any liability with respect to such Third Party Claim.

 

(c) If the Indemnifying Party does not elect to assume the defense of such Third Party Claim within the ten (10) day period specified in Section 8.07(b), or such shorter period as may be required by the applicable proceeding, then the Indemnified Party shall (upon written notice to the Indemnifying Party) be entitled to undertake the defense and settlement of such Third Party Claim, and the Indemnifying Party shall be liable for, subject to the limitations set forth in this ARTICLE VIII, all Losses incurred by the Indemnified Party in conducting such defense or settlement of such Third Party Claim and for any final judgment (subject to any right of appeal).

 

(d) In the event the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnifying Party shall keep the Indemnified Party reasonably informed of the progress of any such defense, compromise or settlement, and in the event the Indemnified Party assumes the defense of a Third Party Claim, the Indemnified Party shall keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement.

 

 

(e) Neither the Indemnifying Party nor the Indemnified Party shall settle or compromise any Third Party Claim without the consent of the other party (which consent shall not be unreasonably withheld or delayed) unless such judgment, compromise or settlement, (i) when settled by the Indemnifying Party, provides for the payment by the Indemnifying Party of money as sole relief for the claimant, (ii) results in the full and general release of the Indemnified Parties from all liabilities arising or relating to, or in connection with, the Third Party Claim, and (iii) involves no finding or admission of any violation of Law or the rights of the Indemnified Parties. No settlement or compromise of a Third Party Claim without the consent of the Indemnifying Party or Indemnified Party shall be deemed to be dispositive with respect to the existence of an indemnifiable claim or the amount of Losses resulting from such claim.

 

(f) Notwithstanding the foregoing, if a Third Party Claim seeks relief other than the payment of monetary damages or would result in the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party or any of its Affiliates, then the Indemnified Party alone shall, at the Indemnifying Party’s expense, be entitled to contest, defend, compromise and settle (subject, with respect to any such settlement, to obtaining the consent of the Indemnifying Party, such consent not to be unreasonably withheld or delayed) such Third Party Claim in the first instance and, if the Indemnified Party does not contest, defend, compromise or settle such Third Party Claim, the Indemnifying Party shall then have the right to contest and defend (but not settle or compromise without the prior written consent of the Indemnified Party, such consent not to be unreasonably withheld) such Third Party Claim.

 

(g) In furtherance of the Sellers’ obligation to indemnify Buyer under Section 8.02(c), so long as the Whitestar Litigation is pending or the Licensed Entity is still a party, the Sellers agree to continue to defend the Licensed Entity in the Whitestar Litigation at their own expense until it is fully resolved and no longer appealable. Following the Closing Date (and so long as the Whitestar Litigation is pending or the Licensed Entity is still a party), the Sellers shall provide an update (via email or otherwise) to Buyer of any material developments related to the Whitestar Litigation. Notwithstanding the foregoing, the Sellers will provide a quarterly update to Buyer with regard to the Whitestar Litigation.

 

Section 8.08 Subrogation; Mitigation.

 

(a) The Indemnifying Party shall be entitled to exercise, and shall be subrogated to, any rights and remedies (including rights of indemnity, rights of contribution and other rights of recovery) that the Indemnified Party may have against any third party with respect to any Losses paid by the Indemnifying Party.

 

(b) Promptly after any Indemnified Party becomes aware of any event or circumstance that could reasonably be expected to constitute or give rise to a claim for indemnification for Losses under this ARTICLE VIII, such Indemnified Party shall take all commercially reasonable steps to mitigate and minimize all such Losses that may result from such event or circumstances.

 

Section 8.09 Reduction in Losses. The amount of any Losses subject to indemnification under this ARTICLE VIII shall be reduced by any insurance proceeds, indemnification payments, contribution payments or reimbursements or other amounts actually recovered by the Indemnified Parties under applicable insurance policies with respect to claims related to such Losses (net of any deductible amounts and any other costs or expenses incurred in connection therewith).

 

Section 8.10 No Duplication. Notwithstanding the fact that any Indemnified Party may have the right to assert claims for indemnification under or in respect of more than one provision of this Agreement in respect of any fact, event, condition or circumstance, no Indemnified Party shall be entitled to recover the amount of any Losses suffered by such Indemnified Party more than once, regardless of whether such Losses may be as a result of a breach of more than one representation, warranty or covenant.

 

 

Section 8.11 Tax Consequences of Indemnification Payments. All payments (if any) made pursuant to any indemnification obligations under this Agreement will be treated as adjustments to the Purchase Price for Tax purposes and such agreed treatment will govern for purposes of this Agreement, unless otherwise required by Law.

 

Section 8.12 Exclusive Remedy. Other than claims for actual fraud or criminal activity, the indemnification provisions of this ARTICLE VIII shall be the sole and exclusive remedy available to the Buyer Indemnified Parties and the Seller Indemnified Parties as to all claims arising under or relating to this Agreement, the other Transaction Documents and the Transaction. For purposes of this Agreement, the term “actual fraud,” when used with respect to the Sellers, shall mean that the Sellers shall have willfully and knowingly committed fraud against Buyer, with the specific intent to deceive and mislead Buyer, by making the representations and warranties contained in this Agreement or any certificate or other document pursuant hereto, and for which the Sellers shall have common law liability and shall be liable solely for the Losses resulting from such actual fraud; provided, that, for the avoidance of doubt, the term “actual fraud” shall expressly exclude recklessness, gross negligence and constructive fraud.

 

Section 8.13 No Personal Liability. No current or former member, manager, stockholder, director, officer, employee, Affiliate or Representative of the Parties, respectively, shall have any personal or individual liability of any nature with respect to any breach or inaccuracy of any representation or warranty set forth in, or any other breach of, this Agreement or the Transaction.

 

ARTICLE IX

Termination

 

Section 9.01 Termination. This Agreement may be terminated at any time prior to the Closing:

 

(a) by the mutual written consent of the Sellers and Buyer; or

 

(b) by Buyer, by written notice to the Sellers, if Buyer is not then in material breach of any provision of this Agreement or the Closing cannot occur through no fault of Buyer, and there has been a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by the Sellers pursuant to this Agreement that would give rise to the failure of any of the closing conditions specified in Section 7.3, and such material breach, inaccuracy or failure to perform has not been cured by the Sellers within twenty (20) days after the Sellers’ receipt of such written notice of such breach, inaccuracy or failure from Buyer; or

 

(c) by the Sellers, by written notice to Buyer, if the Sellers are not then in material breach of any provision of this Agreement or the Closing cannot occur through no fault of the Sellers, and there has been material breach, material inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the closing conditions specified in Section 7.4 and such material breach, inaccuracy or failure has not been cured by Buyer within twenty (20) days of Buyer’s receipt of written notice of such breach, inaccuracy or failure to perform from the Sellers; or

 

(d) by Buyer, by written notice to the Sellers, if the actions taken by any Governmental Authority frustrates the purpose of the Transaction. For purposes of this clause (d), the Transaction would be deemed “frustrated” if both (a) the action of any Governmental Authority prohibits or declares unlawful (other than with respect to Federal laws concerning or effecting state legal cannabis businesses) or otherwise frustrates in any material respect Buyer’s intended use of the Dispensary Licenses and (b) the Parties are unable to propose a feasible way of either avoiding such interference or to reorganize the Parties’ arrangements under this Agreement with respect to the Transaction so as to eliminate or minimize the effect of any such material interference, within a period of ninety (90) days of Buyer notifying the Sellers in writing of such interference (including by taking legal action in respect of such interference). Any such written notice by Buyer to the Sellers of such interference must include a reasonably detailed description of the action taken by the Governmental Authority and the resulting prohibition, declaration of unlawfulness or material impairment, frustration or interference of purpose; or

 

 

(e) by Buyer or the Sellers, if the Closing does not occur on or prior to the four (4) month anniversary of the Effective Date (or such later date as may be mutually agreed upon by the Parties, the “Outside Date”).

 

Section 9.02 Effect of Termination. In the event of the termination of this Agreement in accordance with this Article IX, this Agreement shall forthwith become void and there shall be no liability on the part of any Party except:

 

(a) as set forth in this Article IX and ARTICLE X X; and

 

(b) nothing herein shall relieve any Party from liability for any willful or intentional breach of any provision hereof.

 

Section 9.03 Return of Nonrefundable Deposit. The Parties acknowledge and agree that the Nonrefundable Deposit previously paid by Buyer to or on behalf of the Sellers as described in Section 2.02(a)(i) shall be retained by the Sellers and shall not be returnable to Buyer for any reason whatsoever except under the following express circumstances:

 

(a) If the Parties are unable to obtain all Regulatory Approvals necessary to consummate the Transaction after using their respective best efforts to obtain the same on or before the Outside Date (subject to extension as provided in clause (b) below), the Nonrefundable Deposit shall be returned to Buyer (without interest);

 

(b) If any component of the Dispensary Licenses is not in good standing at the time of the Closing and the Parties are unable to cause the entire Dispensary Licenses to be reinstated in good standing within ninety (90) days after written notification by either Party to the other Parties that one or more components of the Dispensary Licenses are not in good standing, the Nonrefundable Deposit shall be returned to Buyer (without interest);

 

(c) If Buyer terminates this Agreement pursuant to Section 9.01(b) or (d), the Nonrefundable Deposit shall be returned to Buyer (without interest); or

 

(d) If the Transaction involves an assignment or transfer of any real property lease to which the Licensed Entity is a party and which is material to the operation of the Business, the landlord under such real property lease has the contractual right not to consent to such assignment or transfer, this Agreement contemplates that such real property lease will be assigned or transferred to Buyer and such landlord refuses to consent to the assignment or transfer of such real property lease to Buyer, the Nonrefundable Deposit shall be returned to Buyer (without interest).

 

ARTICLE X

Miscellaneous

 

Section 10.01 Expenses. Except as otherwise expressly provided herein, all fees, costs and expenses, including the fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the Transaction shall be paid by the Party incurring such fees, costs and expenses, whether or not the Closing shall occur.

 

 

Section 10.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.02):

 

If to any Seller, to:	MedMen Enterprises, LLC 8740 S. Sepulveda Blvd, Suite 105 Los Angeles, CA 90045 Attention: Legal Email: legal@medmen.com
With a copy to (which shall not constitute notice):	Raines Feldman LLP 1900 Avenue of the Stars, 19th Floor Los Angeles, CA 90067 Attention: Jonathan D. Littrell Email: jlittrell@raineslaw.com
If to Buyer, to:	Retail Facilities Operations AZ, LLC 5210 S. Priest Drive Guadalupe, Arizona 85283 Attention: Eivan Shahara Email: es@brightroot.com and nicholas@brightroot.com

 

Section 10.03 Interpretation. The headings contained in this Agreement and the other Transaction Documents are for convenience of reference only and are not to be considered in construing or interpreting hereof or thereof. All section, preamble, recital, party, Exhibit and Schedule references contained in this Agreement and the other Transaction Documents to this Agreement or such other Transaction Document, as applicable, unless otherwise stated. Unless the context clearly requires otherwise, the use of the word “including” is not limiting and the use of the word “or” has the inclusive meaning represented by the phrase “and/or” and the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement or the other Transaction Document, as applicable, as a whole. References in this Agreement and the other Transaction Documents to any agreement or other document “as amended” or “as amended from time to time,” or amendments of any agreement or document, shall include any amendments, supplements, restatements, replacements, renewals, refinancings or other modifications thereto or to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. The definitions of terms herein shall apply equally to the singular and plural forms of the terms so defined. No party, nor its counsel, shall be deemed the drafter of this Agreement or any other Transaction Document for purposes of construing the provisions hereof or thereof. Accordingly, all provisions of this Agreement and each other Transaction Document shall be construed in accordance with their fair meaning, and not strictly for or against any party. This Agreement and the other Transaction Documents have been negotiated by, and entered into between or among, persons that are sophisticated and knowledgeable in business matters. Accordingly, any rule of law or legal decision that would, notwithstanding any of the foregoing provisions, require interpretation of this Agreement and the other Transaction Documents against the party deemed the drafter thereof shall not be applicable and is irrevocably and unconditionally waived.

 

 

Section 10.04 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to affect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Transaction be consummated as originally contemplated to the greatest extent possible.

 

Section 10.05 Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire understanding and agreement among the Parties with respect to the subject matter contained herein and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including, to the extent it applies to the Transaction, (a) that certain Term Sheet dated April 21, 2023, among Buyer Parent, the Sellers and certain Affiliates of the Sellers and (b) that certain Confidentiality, Non-Disclosure and Non-Circumvention Agreement dated February 22, 2023 between Seller Parent and Buyer Parent. In the event of any inconsistency between the provisions of the body of this Agreement and the Exhibits (other than an exception expressly set forth as such in the Disclosure Schedule), the provisions in the body of this Agreement will control.

 

Section 10.06 No Assignment; Successors and Assigns. Neither Party may assign its rights or obligations hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns.

 

Section 10.07 No Third Party Beneficiaries. Except as provided in ARTICLE VIII, this Agreement is for the sole benefit of the Parties and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

Section 10.08 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

 

Section 10.09 Federal Government Action. The Parties hereby acknowledge that they are aware of and fully understand that despite the State of Arizona’s medical cannabis laws and the terms and conditions of this Agreement, Arizona medical cannabis cultivators, transporters, distributors or possessors may still be arrested by federal officers and prosecuted under federal law. In the event of a federal arrest, seizure, or prosecution action associated with the Parties’ activities described herein, the Parties agree to hold each other and their respective attorneys harmless for actions undertaken by such Party and agree to be individually responsible for any attorneys’ fees associated with defending such actions. The Parties also agree to waive illegality as a defense to any contract enforcement action related to this Agreement and brought by any Party against another Party.

 

Section 10.10 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Arizona, without giving effect to any choice or conflict of law provision or rule (whether of the State of Arizona or any other jurisdiction).

 

Section 10.11 Alternative Dispute Resolution; Waiver of Jury Trial. Any controversy, claim or dispute arising out of or relating to this Agreement or any other Transaction Document, or the breach thereof, between the Sellers, on the one hand, and Buyer, on the other hand (each a “Dispute”), that cannot be resolved by good faith negotiations between the Parties shall be resolved in accordance with the procedures set forth in this Section 10.11, which will be the sole and exclusive procedures for the final resolution of any such Dispute, regardless of its nature. The Parties intend that these provisions shall be valid, binding, enforceable and irrevocable and shall survive any termination of this Agreement.

 

(a) Any Dispute shall be settled exclusively by arbitration, before a single arbitrator, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”). Judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, any party may in an appropriate matter apply to any court of competent jurisdiction for provisional relief, including a temporary restraining order or a preliminary injunction, on the ground that the award to which the applicant may be entitled in arbitration may be rendered ineffectual without provisional relief.

 

(b) The arbitration held at the offices of the AAA located in the City of Phoenix, State of Arizona, and shall be administered by the AAA in the event the parties thereto cannot agree on the selection of an arbitrator or if one (or both) of such parties requests such administration. In the event the parties are unable to agree upon an arbitrator, the parties shall select a single arbitrator from a list of nine (9) arbitrators supplied by the AAA. If the parties are unable to agree upon an arbitrator from the list so drawn, then the parties shall each strike names alternately from the list, with the first to strike being determined by lot. After each party has used four strikes, the remaining name on the list shall be the arbitrator. If such person is unable to serve for any reason, the parties shall repeat this process until an arbitrator is selected. The arbitrator shall be a retired federal judge or a commercial lawyer who shall have at least ten (10) years of experience with M&A transactions of this nature.

 

 

(c) This agreement to resolve any disputes by binding arbitration shall extend to claims against any parent, subsidiary or Affiliate of each party, and, when acting within such capacity, any officer, director, shareholder, employee or agent of each party, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and local ordinances as well as to claims arising under the common law. In the event of any Dispute subject to this Section 10.11, (a) the parties shall be entitled to reasonable discovery subject to the discretion of the arbitrator, (b) all testimony of witnesses shall be taken under oath, and the admission of evidence shall be governed by the rules of evidence applicable to civil proceedings under applicable law, and (c) a stenographic record shall be kept of all oral hearings. The remedial authority of the arbitrator shall be the same as, but no greater than, would be the remedial power of a court having jurisdiction over the parties and their dispute; provided, however, that the arbitrator shall have no power or authority under this Agreement or otherwise to award or provide for the award of punitive or consequential damages against any party. The arbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringing the motion establishes that he or it would be entitled to summary judgment if the matter had been pursued in court litigation. In the event of a conflict between the applicable rules of the AAA and these procedures, the provisions of these procedures shall govern. The parties and the arbitrator shall use their best efforts to keep confidential all matters relating to any arbitration hereunder (including without limitation the existence of the dispute and the arbitration).

 

(d) In interpreting this Agreement, the arbitrator shall be bound by and follow the substantive law of the State of Arizona. To the extent applicable and not inconsistent with this Section 10.11, the arbitrator shall apply the Federal Rules of Civil Procedure.

 

(e) Any filing or administrative fees shall be borne initially by the party requesting administration by the AAA. If both parties request such administration, the fees shall be borne initially by the party incurring such fees as provided by the rules of the AAA. The initial fees and costs of the arbitrator shall be borne equally by the parties. The prevailing party in such arbitration, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled to reimbursement from the other party for all of the prevailing party’s costs (including the arbitrator’s compensation), expenses, and attorneys’ fees.

 

(f) The arbitrator shall render an award and written opinion, and the award shall be final and binding upon the parties. If any of the provisions of this Section 10.11 are determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Section 10.11, and this Section 10.11 shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the arbitration provisions of this Section 10.11 are not absolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law.

 

(g) Except as may be necessary to enter judgment upon the award or to the extent required by applicable Law, all claims, defenses and proceedings (including the existence of a controversy and the fact that there is an arbitration proceeding) will be treated in a confidential manner by the arbitrators and all those involved in the proceeding. Any controversy relating to the arbitration presented to a court will be filed under seal to the extent permitted by Law.

 

(h) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR SUCH OTHER TRANSACTION DOCUMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.

 

Section 10.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

[signature page follows]

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first written above by their respective officers thereunto duly authorized.

 

BUYER:
RETAIL FACILITIES OPERATIONS AZ, LLC
By:	/s/ Eivan Shahara
Name:	Eivan Shahara
Title:	Manager

 

SELLERS:
OMAHA MANAGEMENT SERVICES, LLC
By:	/s/ Ellen Deutsch Harrison
Name:	Ellen Deutsch Harrison
Title:	CEO

 

MME RETAIL MANAGEMENT, LLC
By:	/s/ Ellen Deutsch Harrison
Name:	Ellen Deutsch Harrison
Title:	CEO

 

 

Exhibit 2.2

 

 

ASSET PURCHASE AND SALE AGREEMENT

 

by and between

 

MMOF VEGAS RETAIL, INC.

 

and

 

MMOF VEGAS RETAIL 2, INC.

 

AS “Sellers,”

 

and

 

RETAIL FACILITIES OPERATIONS NV, LLC,

 

AS “BUYER”

 

 

Dated as of December 15, 2023

 

 

THIS AGREEMENT IS SUBJECT TO STRICT REQUIREMENTS FOR ONGOING REGULATORY COMPLIANCE BY THE PARTIES HERETO, INCLUDING THE REQUIREMENTS THAT THE PARTIES TAKE NO ACTION IN VIOLATION OF ANY PROVISION OF CHAPTERS 678A, 678B, 678C AND 678D OF TITLE 56 OF THE NEVADA REVISED STATUTES (NRS) (TOGETHER WITH ALL RELATED RULES AND REGULATIONS THEREUNDER, AND ANY AMENDED OR SUPERSEDING LEGISLATION, RULES AND REGULATIONS, THE “ACT”) OR THE REGULATIONS, POLICIES, GUIDANCE OR INSTRUCTION OF THE NEVADA CANNABIS COMPLIANCE BOARD OR THE CLARK COUNTY COMMISSION (ACTING THROUGH THE CLARK COUNTY DEPARTMENT OF BUSINESS LICENSE), TOGETHER WITH ANY SUCCESSORS (COLLECTIVELY, THE “REGULATORS”), INCLUDING NEVADA CANNABIS COMPLAINCE REGULATION (NCCR) 5.110 AND CLARK COUNTY CODE CHAPTERS 8.60 AND 8.65. SECTION 2.5 BELOW CONTAINS SPECIFIC REQUIREMENTS AND COMMITMENTS BY THE PARTIES TO MAINTAIN FULLY THEIR RESPECTIVE COMPLIANCE WITH THE ACT AND THE REGULATORS.

 

ASSET PURCHASE AND SALE AGREEMENT

 

THIS ASSET PURCHASE AND SALE AGREEMENT (this “Agreement”) is entered into as of December 15, 2023 (the “Effective Date”), by and between MMOF Vegas Retail, Inc., a Nevada corporation (“Vegas Retail”), and MMOF Vegas Retail 2, Inc., a Nevada corporation (“Vegas Retail 2;” Vegas Retail and Vegas Retail 2 are referred to each as a “Seller” and collectively as the “Sellers”), on the one hand, and Retail Facilities Operations NV, LLC, a Nevada limited-liability company (“Buyer”), on the other hand. Each of the Sellers and Buyer are referred to herein individually as a “Party” and collectively as the “Parties.”

 

RECITALS

 

A. The Sellers are the lawful owners of (a) One Hundred Percent (100%) of the ownership interest in the Nevada Medical Cannabis Facility Licenses with Facility ID numbers D078 / D092 (collectively, the “Nevada Medical Cannabis Facility Licenses”) authorizing them to engage in commercial medical cannabis activities in accordance with applicable Nevada Law and (b) One Hundred Percent (100%) of the ownership interest in the Nevada Adult-Use Cannabis Retail Store Licenses with Facility ID numbers RD078 / RD092 (collectively, the “Nevada Adult-Use Cannabis Retail Store Licenses”), in each case issued and/or administered by the CCB in accordance with applicable Nevada law.

 

B. In compliance with Nevada law in Unincorporated Clark County, Nevada (“County”), Vegas Retail owns and operates a cannabis dispensary and retail store and related office space located at 4503 Paradise Road, Suites 210A and 210B, Las Vegas, Nevada (the “Paradise Facilities”) pursuant to the Paradise Master Leases and the Paradise Subleases, and Vegas Retail 2 owns and operates a cannabis dispensary and retail store located at 6332 S. Rainbow Blvd., Suite 105, Las Vegas, Nevada (the “Rainbow Facility” and, together with the Paradise Facilities, the “Facilities”) pursuant to the Rainbow Lease. (For clarification purposes, the Parties acknowledge that they sometimes refer to the Rainbow Facility as “Spring Valley.”) The ownership and operation of the Facilities is collectively referred to herein as the “Business.”

 

C. Vegas Retail is the lawful owner of and maintains a Marijuana Master Business License with license number 2000169.MMR-301 issued by the CCBL, and Vegas Retail 2 is the lawful owner of and maintains a Marijuana Master Business License with license number 2000104.MMR-301 issued by the CCBL (collectively, the “County Marijuana Master Business Licenses”).

 

 

D. Subject to the receipt of applicable Regulatory Approvals, the Sellers wish to sell, assign and transfer to Buyer, and Buyer wishes to purchase and assume from the Sellers, all of the Sellers’ respective right, title and interest in and to the Facility Licenses and the other Purchased Assets, effective at and as of the Closing, and Buyer shall assume and agree to pay the Assumed Liabilities, subject to the terms and conditions set forth herein (the “Transaction”).

 

E. On or about April 26, 2023, Buyer paid $1,500,000 to an Affiliate of the Sellers (the “Exclusive Dealing Fee”) in exchange for the exclusive rights to negotiate the Transaction with the Sellers during a limited period of time. The Parties acknowledge that no portion of the Exclusive Dealing Fee was paid at such time to purchase any assets (whether regulatory or non-regulatory), rights or other property of the Sellers, but that the Exclusive Dealing Fee would be applied to pay a portion of the purchase price for the Purchased Assets at the Closing if and only if the Closing shall occur.

 

F. Concurrently herewith, the Parties and the Escrow Agent are entering into the Escrow Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

CERTAIN DEFINITIONS

 

Unless otherwise indicated elsewhere in this Agreement, the following terms have the meanings specified or referred to in this Article I:

 

1.1 “Actions” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

 

1.2 “Additional Closing Payment” has the meaning set forth in Section 3.2(d).

 

1.3 “Affiliate” of a Person means any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

1.4 “Allocation Schedule” has the meaning set forth in Section 3.3.

 

1.5 “Arizona Assignment Agreement” means that certain Assignment Agreement dated of even date herewith by and between the Arizona Sellers, on the one hand, and the Arizona Buyer, on the other hand, as amended from time to time.

 

1.6 “Arizona Buyer” means “Buyer” as defined in the Arizona Assignment Agreement.

 

1.7 “Arizona Seller Notes” means the “Seller Notes” as defined in the Arizona Assignment Agreement.

 

 

1.8 “Arizona Sellers” means, collectively, Omaha Management Services, LLC, an Arizona limited liability company, and MME Retail Management, LLC, a Delaware limited liability company formerly known as CSI Solutions Management, LLC.

 

1.9 “Assigned Contracts” has the meaning set forth in Section 2.1(c).

 

1.10 “Assignment and Assumption agreement” means that certain Assignment and Assumption Agreement dated the Closing Date, in substantially the form attached hereto as Exhibit A, between the Parties.

 

1.11 “Assumed Liabilities” has the meaning set forth in Section 2.3.

 

1.12 “Base Purchase Price” means:

 

(i) If (a) the Seller Gross Margin is equal to 42.0% or more and (b) Rainbow Average Monthly Sales is equal to $80,000 or more, the Base Purchase Price shall be equal to the sum of (A) $3,250,000 plus (B) the product of (x) Paradise Annualized Net Revenues, multiplied by (y) 1.15;

 

(ii) If (a) the Seller Gross Margin is equal to 42.0% or more and (b) Rainbow Average Monthly Sales is less than $80,000, the Base Purchase Price shall be equal to (x) Seller Annualized Combined Net Revenues, multiplied by (y) 1.25; or

 

(iii) If the Seller Gross Margin is less than 42.0% (regardless of the amount of Rainbow Average Monthly Sales), the Base Purchase Price shall be equal to $10,000,000;

 

provided, however, that notwithstanding anything to the contrary, the Base Purchase Price shall in no event be less than $10,000,000.

 

1.13 “BPP Measurement Period” means the full nine (9) calendar month period ending immediately prior to the first (1^st) day of the calendar month during which the Closing Date occurs.

 

1.14 “Bill of Sale” means a Bill of Sale and Assignment of Assets dated the Closing Date, in substantially the form attached hereto as Exhibit B, between the Parties.

 

1.15 “Business” has the meaning set forth in the Recitals.

 

1.16 “Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in Las Vegas, Nevada are authorized or required by Law to be closed for business.

 

1.17 “Buyer” has the meaning set forth in the Preamble.

 

1.18 “Buyer Parent” means The Cerberean Group LLC, an Arizona limited liability company.

 

1.19 “CCB” means the Nevada Cannabis Compliance Board.

 

1.20 “CCBL” means the Clark County Commission through the Clark County Department of Business License.

 

1.21 “Claim Notice” has the meaning set forth in Section 8.6.

 

 

1.22 “Closing” has the meaning set forth in Section 7.1.

 

1.23 “Closing Date” has the meaning set forth in Section 7.1.

 

1.24 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

1.25 “Collateral” means the “Pledged Collateral” or the “Collateral” as defined in the Collateral Documents, as applicable.

 

1.26 “Collateral Agent” means Vegas Retail, as collateral agent for and on behalf of the Sellers, and any successors and assigns.

 

1.27 “Collateral Documents” means, collectively, the Equity Pledge Agreement, the Security Agreement, deposit account control agreements, UCC financing statements and any other agreements, instruments and documents executed and/or delivered in connection herewith or therewith relating to the Collateral, in each case as amended from time to time.

 

1.28 “Contracts” means, with respect to any Person, all contracts, leases, licenses, instruments, undertakings, indentures and all other legally binding agreements, commitments and arrangements, whether written or oral, to which such Person is a party.

 

1.29 “CSA” means the United States Federal Controlled Substances Act (Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970) and all U.S. federal Governmental Orders related thereto.

 

1.30 “Customer Data” means intellectual property rights, including copyright, trade secret and other forms of protection afforded by law to proprietary information and data, related to customers of the Business, including the names, addresses, phone numbers, and email addresses of such customers and their purchasing histories.

 

1.31 “Deductible” has the meaning set forth in Section 8.4.

 

1.32 “Disclosure Schedule” means the Disclosure Schedule attached hereto as Exhibit C.

 

1.33 “Dollars” or “$” means the lawful currency of the United States.

 

1.34 “Effective Date” has the meaning set forth in the Preamble.

 

1.35 “Effective Time” means 12:01 a.m. Pacific Time on the Closing Date. All actions scheduled in this Agreement for the Closing Date shall be deemed to occur simultaneously at the Effective Time.

 

1.36 “Equity Pledge Agreement” means that certain Equity Pledge Agreement dated as of the Closing Date, in substantially the form of attached hereto as Exhibit D, between Retail Facilities Parent and the Collateral Agent, as amended from time to time.

 

1.37 “Escrow Account” means the “Escrow Account” as defined in the Escrow Agreement.

 

1.38 “Escrow Agent” means Accelerated Escrow Company, including its successors and permitted assigns.

 

 

1.39 “Escrow Agreement” means that certain Escrow Agreement dated as of the Effective Date by and among Buyer, the Sellers and the Escrow Agent, as amended from time to time.

 

1.40 “Escrowed Funds” means the sum of the Total Pre-Closing Deposit and all other “Escrowed Funds” as defined in the Escrow Agreement.

 

1.41 “Excess Cash Payment” means the positive amount, if any, equal to (i) the Minimum Cash Consideration minus (ii) the Exclusive Dealing Fee, minus (iii) the Escrowed Funds to be released and delivered to the Sellers at the Closing pursuant to Section 3.2(b).

 

1.42 “Excluded Assets” has the meaning set forth in Section 2.2.

 

1.43 “Excluded Laws” means any U.S. federal laws, statutes, codes, ordinances, decrees, rules, regulations which apply to the production, trafficking, distribution, processing, extraction, and/or sale of marijuana (cannabis) and related substances, including the CSA; provided, however, that Excluded Laws shall not include any provision of the Code, including Section 280E of the Code.

 

1.44 “Excluded Liabilities” has the meaning set forth in Section 2.4.

 

1.45 “Exclusive Dealing Fee” has the meaning set forth in the Recitals.

 

1.46 “Facilities” has the meaning set forth in the Recitals.

 

1.47 “Facility Licenses” means, collectively, the Nevada Medical Cannabis Facility License, the Nevada Adult-Use Cannabis Retail Store Licenses and the County Marijuana Master Business Licenses.

 

1.48 “Financial Statements” has the meanings set forth in Section 4.5.

 

1.49 “First Pre-Closing Payment” has the meaning set forth in Section 2.7.

 

1.50 “4503 Paradise Office” means 4503 Paradise Office, LLC, a Nevada limited liability company and an Affiliate of the Sellers.

 

1.51 “4503 Paradise Retail” means 4503 Paradise Retail, LLC, a Nevada limited liability company and an Affiliate of the Sellers.

 

1.52 “Fundamental Representations” has the meanings set forth in Section 8.1.

 

1.53 “GAAP” means generally accepted accounting principles and practices set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, all as in effect on the date hereof, applied on a basis consistent with prior periods.

 

1.54 “Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency, including the CCB, the CCBL and the Nevada Department of Taxation, or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-Governmental Authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction, in each case applicable to Sellers or the Business.

 

 

1.55 “Indemnified Party” has the meaning set forth in Section 8.6.

 

1.56 “Indemnifying Party” has the meaning set forth in Section 8.6.

 

1.57 “Inventory” has the meaning set forth in Section 2.1(b).

 

1.58 “Inventory Value” means the value of the Inventory being purchased by Buyer at the Closing equal to the actual cost paid or incurred by the Sellers therefor, as reflected in the records of the Licensed Entity; provided, however, that no value shall be attributed to edibles with a date of receipt by any Dispensary exceeding sixty (60) days immediately prior to the Closing Date or any other SKU’s constituting Dispensary Inventory with a date of receipt by any Dispensary exceeding ninety (90) days immediately prior to the Closing Date.

 

1.59 “Joint Release Instructions” means written instructions to be delivered to the Escrow Agent as contemplated by, and in substantially the form attached to, the Escrow Agreement.

 

1.60 “Knowledge of the Sellers” or any other similar knowledge qualification means, at any time, the actual knowledge of Kimble Cannon and Karen Torres at such time.

 

1.61 “Laws” means all laws, statutes, codes, ordinances, decrees, rules, regulations, code, treaty, municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, policies, voluntary restraints, guidelines or other legal requirement of any Governmental Authority or any provisions of the foregoing, including the CCB and CCBL, and also including general principles of common and civil law and equity, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject; provided, however, that “Laws” shall expressly exclude the Excluded Laws.

 

1.62 “Leases” means, collectively, the Paradise Master Leases, the Paradise Subleases and the Rainbow Lease.

 

1.63 “Liabilities” means liabilities, obligations or commitments of any nature whatsoever, whether asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured, or otherwise.

 

1.64 “Liens” means, collectively, all liens, pledges, defects, leases, licenses, charges, claims, conditions, encumbrances, security interests, easements, restrictions, mortgages or other restrictions of any kind materially affecting transfer any of the Purchased Assets.

 

1.65 “Losses” means claims, losses, damages, liabilities, deficiencies, Actions, judgments, settlements, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable professional fees, attorneys’ fees and all other costs, including the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that notwithstanding anything to the contract, the term Losses shall not include, and no Party shall be liable for, any lost profits, diminution in value, indirect damages, consequential damages, incidental damages, punitive damages, exemplary damages or unforeseeable damages.

 

 

1.66 “Material Adverse Effect” means any change or event that, individually or in the aggregate, (a) has had, or may reasonably be expected to have, a material adverse effect on the Facility Licenses or the Business or (b) would prevent or materially delay or impair the ability of the Sellers to perform their respective obligations under this Agreement or any other Transaction Document or to consummate the Transaction, other than one or more of the following: (i) the effect of any change that generally affects the cannabis industry; (ii) any effect generally affecting the economy or the credit, debt, financial or capital markets, in each case, in the United States or elsewhere in the world; (iii) the effect of any change arising in connection with natural disasters or acts of nature, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions; or (iv) the effect of any change in applicable Laws or accounting principles or rules, or the interpretation thereof.

 

1.67 “Material Contracts” has the meaning set forth in Section 4.11.

 

1.68 “May 2023 Balance Sheet” has the meanings set forth in Section 4.5.

 

1.69 “Minimum Cash Consideration” means the greater of (i) the Base Purchase Price, multiplied by seventy percent (70.0%), and (b) $7,500,000. (It is acknowledged and agreed that the cash portion of the Base Purchase Price to be paid by Buyer shall in no event be less than the Minimum Cash Consideration.)

 

1.70 “MME Parent Guaranties” means, collectively: (i) that certain Guaranty of Lease dated April 6, 2018, executed by Seller Parent in favor of the Paradise Landlord with respect to the Paradise Office Master Lease; (ii) that certain Guaranty of Lease dated April 6, 2018, executed by Seller Parent in favor of the Paradise Landlord with respect to the Paradise Retail Master Lease; and (iii) that certain Guaranty of License Agreement dated April 6, 2018, executed by Seller Parent in favor of the Paradise Landlord with respect to the Paradise Signage License Agreement.

 

1.71 “Net Revenues” of any Facility means, during any applicable period, the total sales of such Facility, less applicable refunds, discounts and loyalty/rewards redeemed, for such period, all calculated based on the Sellers’ records (for clarification purposes, total sales shall not include any sales, transaction, privilege, excise or other taxes).

 

1.72 “Note Documents” means, collectively, the Seller Notes and the Collateral Documents.

 

1.73 “Paradise Annualized Net Revenues” means (i) the total amount of monthly Net Revenues of the Paradise Facilities during the BPP Measurement Period, excluding the lowest amount of monthly Net Revenues during such BPP Measurement Period, divided by (ii) eight (8), multiplied by (iii) 12.

 

1.74 “Paradise Facilities” has the meaning set forth in the Recitals.

 

1.75 “Paradise Landlord” means Harmon Square SPE LLC, a Nevada limited liability company.

 

1.76 “Paradise Master Leases” means (i) that certain Standard Retail Lease dated April 6, 2018, as amended, between the Paradise Landlord, as “Landlord,” and 4503 Paradise Office, as “Tenant,” with respect to Suite 210B at the Paradise Facilities (the “Paradise Office Master Lease”); and (ii) that certain Standard Retail Lease dated April __, 2018, as amended, between the Paradise Landlord, as “Landlord,” and 4503 Paradise Retail, as “Tenant,” with respect to Suite 210A at the Paradise Facilities (the “Paradise Retail Master Lease”).

 

 

1.77 “Paradise Signage License Agreement” means that certain License Agreement dated as of April 2, 2018, between the Paradise Landlord, as “Licensor,” and Vegas Retail, as “Licensee.”

 

1.78 “Paradise Subleases” means (i) that certain Sublease and Amendment dated as of April 6, 2018, between the Paradise Landlord, as “Master Landlord,” 4503 Paradise Office, as “Sublandlord,” and Vegas Retail, as “Subtenant,” with respect to the Paradise Office Master Lease (the “Paradise Office Sublease”); and (ii) that certain Sublease and Amendment dated as of April 6, 2018, between the Paradise Landlord, as “Master Landlord,” 4503 Paradise Retail, as “Sublandlord,” and Vegas Retail, as “Subtenant,” with respect to the Paradise Retail Master Lease (the “Paradise Retail Sublease”).

 

1.79 “Party” and “Parties” have the meanings set forth in the Preamble.

 

1.80 “Permitted Liens” means, collectively, (i) Liens for Taxes not yet due and payable; (ii) easements, rights of way, zoning ordinances and other similar encumbrances affecting the Facilities which are not, in the aggregate, material to the Business or the Purchased Assets, which do not prohibit or interfere with the current operation of any Facility, (iii) Liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice which are not, in the aggregate, material to the Business or the Purchased Assets, (iv) all Regulatory Approvals required to be obtained with respect to the transfer of the Facility Licenses and any other Purchased Assets and (v) those items listed in Section 1(A) of the Disclosure Schedule.

 

1.81 “Policies and Procedures” means any standard operating policies or procedures submitted by the Sellers to the CCB and used by the Sellers in the operation of the Business immediately prior to the Closing Date.

 

1.82 “Pre-Closing Payments” has the meaning set forth in Section 2.7.

 

1.83 “Pre-Closing Period” means the period commencing on (i) with respect to that portion of the Business owned and operated by Vegas Retail, December 18, 2017, and (ii) with respect to that portion of the Business owned and operated by Vegas Retail 2, August 28, 2018, and, in each of clauses (i) and (ii), ending on the day immediately preceding the Closing Date.

 

1.84 “Prepaid Expenses” has the meaning set forth in Section 2.1.

 

1.85 “Purchase Price” has the meaning set forth in Section 3.1.

 

1.86 “Purchased Assets” has the meaning set forth in Section 2.1.

 

1.87 “Rainbow Facility” has the meaning set forth in the Recitals.

 

1.88 “Rainbow Lease” means that certain Business Park Office Lease dated April 21, 2014, as amended, between DG LLC (as successor-in-interest to J&M Real Estate Holdings, LLC), as “Landlord” (the “Rainbow Landlord”), and Vegas Retail 2, as “Tenant,” with respect to the Rainbow Facility.

 

1.89 “Rainbow Average Monthly Sales” means (i) the total amount of monthly Net Revenues of the Rainbow Facility during the BBP Measurement Period, all calculated based on the Sellers’ records, divided by (ii) nine (9).

 

1.90 “Regulatory Approvals” means all consents, approvals and waivers from any Regulatory Authorities which are required to be obtained to effectuate the sale, assignment, transfer and collateralization of the Facility Licenses and any of the other Purchased Assets, including the approvals of the CCB (pursuant to NCCR Section 5.110) and the CCBL (pursuant to Clark County Code Sections 8.60.210 and/or 8.65.210) of a Transfer of Interest for the Facility Licenses.

 

 

1.91 “Regulatory Authorities” shall mean the CCB and the CCBL.

 

1.92 “Representative” means, with respect to any Person, any and all directors, managers, officers, Affiliates, employees, consultants, financial advisors, counsel, accountants and other authorized agents of such Person.

 

1.93 “Retail facilities Parent” means Retail Facilities Management NV, LLC, a Nevada limited liability company and the direct parent of Buyer.

 

1.94 “Second Pre-Closing Payment” has the meaning set forth in Section 2.7.

 

1.95 “Security Agreement” means that certain Security Agreement dated as of the Closing Date, in substantially the form of attached hereto as Exhibit E, between Buyer and the Collateral Agent.

 

1.96 “Seller” has the meaning set forth in the Preamble.

 

1.97 “Seller Annualized Combined Net Revenues” means (i) the total amount of monthly Net Revenues of the Facilities during the BPP Measurement Period, excluding the lowest amount of monthly Net Revenues for each Facility during such BPP Measurement Period, all calculated based on the Sellers’ records, divided by (ii) eight (8), multiplied by (iii) 12.

 

1.98 “Seller Gross Margin” means (i) the total amount of monthly Net Revenues of the Facilities during the BPP Measurement Period, minus the total amount of costs of goods sold (COGS) during the same BPP Measurement Period, divided by (ii) such total amount of monthly Net Revenues, stated as a percentage, all calculated based on the Sellers’ records.

 

1.99 “Seller Intellectual Property” means all intellectual property and industrial property rights and assets of the Sellers and their Affiliates and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts and handles used with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, so-called “moral rights” or “droit moral” and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; and (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models) provided, however, that Customer Data and Policies and Procedures shall not be deemed to constitute “Seller Intellectual Property” and Buyer’s rights to use Customer Data shall be expressly governed by Section 6.11 and Buyer’s rights to use the Policies and Procedures shall be expressly governed by Section 6.12.

 

 

1.100 “Seller Notes” means, collectively, a Senior Secured Promissory Note dated as of the Closing Date, in substantially the form attached hereto as Exhibit F, made payable by Buyer to the Sellers in the initial principal amount equal to (i) the Base Purchase Price minus (ii) the Minimum Cash Consideration, as amended from time to time.

 

1.101 “Seller Parent” means MM Enterprises USA, LLC, a Delaware limited liability company.

 

1.102 “Seller Parent Guaranty” means the Guaranty of Seller Parent attached to this Agreement.

 

1.103 “Tax Losses” has the meaning set forth in Section 8.05.

 

1.104 “Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

1.105 “Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

 

1.106 “Third Pre-Closing Payment” has the meaning set forth in Section 2.7.

 

1.107 “Third Party Claim” has the meaning set forth in Section 8.7(a).

 

1.108 “TOI” means an application for approval of a transfer of interest in a license issued or administered by the CCB and/or CCBL, including a Notice of Interest form used by the CCB pursuant to NCCR Section 5.110, subsections (10), (11), or (12), and the equivalent form(s) or notices used by the CCBL pursuant to Clark County Code Sections 8.60.210 and/or 8.65.210, including a transfer of interest in the Facility Licenses as contemplated by this Agreement.

 

1.109 “Total Liability Cap” has the meaning set forth in Section 8.4.

 

1.110 “Total Pre-Closing Deposit” means $6,000,000.

 

1.111 “Transaction” has the meaning set forth in the Recitals.

 

1.112 “Transaction Documents” means, collectively, this Agreement, the Note Documents, the Escrow Agreement, the assignment and assumption of leases, guaranties and license agreements and all other agreements, instruments and other documents contemplated by or related to this Agreement, in each case as amended from time to time.

 

1.113 “Transfer Taxes” has the meaning set forth in Section 3.5.

 

1.114 “Vegas Retail” has the meaning set forth in the Preamble.

 

1.115 “Vegas Retail 2” has the meaning set forth in the Preamble.

 

 

ARTICLE II

PURCHASE AND SALE OF ASSETS

 

2.1 Purchased assets. On the terms and subject to the conditions set forth in this Agreement, at the Closing, the Sellers shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase, acquire and accept from the Sellers, all of the Sellers’ respective right, title and interest in and to the following assets, properties and rights which are owned or held for use by the Sellers in the Business and in existing on the Closing Date (collectively, the “Purchased Assets”):

 

(a) The Facility Licenses;

 

(b) all inventory, including finished goods, packaging and other materials and supplies, excluding any “MedMen”-branded or logoed inventory, determined pursuant to the procedures described in Section 6.8 (“Inventory”);

 

(c) the Contracts listed in Section 2.1(c) of the Disclosure Schedule (the “Assigned Contracts”);

 

(d) all furniture, fixtures, equipment, machinery, tools, office equipment, supplies and telephone systems and computer equipment (but not any software or software licenses) located at the Facilities (“Tangible Personal Property”);

 

(e) all prepaid expenses, credits, advance payments and security and other deposits owned or held for use by the Sellers in the Business and primarily related to assets being purchased by Buyer under this Section 2.1 (“Prepaid Expenses”), including those in existence on the Effective Date and listed in Section 2.1(e) of the Disclosure Schedule;

 

(f) originals or, where not available, copies, of all books and records, including books of account, ledgers, and general, financial, and accounting records, machinery and equipment maintenance files, price lists, distribution lists, supplier or vendor lists, production data, quality control records and procedures, customer complaints and inquiry files, research and development files, records, and data (including all registrations, applications and correspondence to and/or with any Governmental Authority), sales material and records, strategic plans and marketing, and promotional surveys, material and research, in each case primarily relating to the Business (“Books and Records”);

 

(g) any prior or pending applications for permits, licenses and land-use approvals, together with all amendments and supplements thereto, that were submitted by or on behalf of the Sellers to the CCB, the CCBL or to any other regulatory body having jurisdiction over the Sellers and relate primarily to the Business, including the Clark County Department of Comprehensive Planning;

 

(h) all of Seller’s rights under warranties, indemnities, and all similar rights against third parties to the extent primarily related to the foregoing assets;

 

(i) cash located at each point of sale in each of the Facilities in an amount not to exceed $200.00 at each point of sale; and

 

(j) all goodwill and the going concern value of the Business.

 

 

2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement or otherwise, Buyer shall not purchase or acquire, and the Sellers shall not be deemed to have sold, assigned or transferred to Buyer, any right, title or interest in or to the assets, properties and rights of the Sellers or their Affiliates that are not Purchased Assets (the “Excluded Assets”), including, among other things, the following:

 

(a) Except as provided in Section 2.1(i) above, any cash (whether at the Facilities, in bank accounts, in transit or otherwise) or cash equivalents of the Sellers;

 

(b) any accounts receivable of the Sellers;

 

(c) any Seller Intellectual Property;

 

(d) any employment records of the Sellers’ employees;

 

(e) all software and software licenses; and

 

(f) all of the stock record books, minute books and other corporate and similar records of the Sellers, whether or not required to be retained by the Sellers by applicable Laws, as well as all books, records and documents related to any Excluded Assets or to any liability of the Sellers that is not an Assumed Liability or to the Sellers’ organizational or other internal matters, and all Tax records.

 

2.3 Assumption of Liabilities. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Buyer shall assume, and agree to pay, perform or discharge when due, the following liabilities and obligations of the Sellers (the “Assumed Liabilities”):

 

(a) All Liabilities under or with respect to the Assigned Contracts to the extent that such Liabilities are required to be paid or performed on or after the Closing Date;

 

(b) All Liabilities for Taxes that relate to the Purchased Assets or the Business that are attributable to the periods on or after the Closing Date, including all sales and use Taxes and Taxes on income or which are measured by income attributable to periods on or after the Closing Date;

 

(c) All Liabilities arising out of or result from the operations of the Business, to the extent such Liabilities arise out of or result from (i) the operations of the Business on or after the Closing Date or (ii) the Purchased Assets or their use on or after the Closing Date; and

 

(d) The other Liabilities set forth on Section 2.3 of the Disclosure Schedule.

 

2.4 Excluded Liabilities. Buyer shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of the Sellers of any kind or nature whatsoever other than the Assumed Liabilities (the “Excluded Liabilities”).

 

2.5 Regulatory Approvals. The Parties acknowledge that the Facility Licenses may not be transferred to Buyer pursuant to this Agreement without first receiving Regulatory Approval. The Sellers shall provide the information reasonably necessary for Buyer to complete the applications required to obtain Regulatory Approval, execute the same where necessary, and return the same to Buyer within ten (10) days of the Effective Date. Without limiting the generality of the foregoing:

 

(a) Buyer shall submit to the CCB applications to obtain Regulatory Approval from the CCB within ten (10) days after Buyer’s receipt of the fully executed TOI from the Sellers as contemplated in this clause (a) below and the date on which the Sellers grant delegate authority to such Seller’s CCB Accela account for the Facility Licenses to Buyer or Buyer’s counsel (as directed by Buyer) such that the application may be submitted electronically to the CCB. Within ten (10) days after the Effective Date, the Sellers shall execute, with such signature being notarized, a TOI requesting that the CCB approve the transfer of the Facility Licenses to Buyer, in the customarily acceptable form and substance as generally dictated by NCCR Section 5.110. Also, within ten (10) days after the Effective Date, the Sellers shall delegate nonexclusive and limited authority to Buyer’s Nevada regulatory counsel named in Section 10.2 of this Agreement to Seller’s CCB Accella account with regard to the Facility Licenses solely for the purposes of submitting and renewing applications required to effectuate the Transaction. The failure of the Sellers to provide a signed, notarized TOI within the time period as specified in the preceding sentence shall constitute a material breach by the Sellers.

 

 

(b) Buyer shall submit such notices and applications as required by Clark County Code Sections 8.60.210 and/or 8.65.210 to obtain a Regulatory Approval from the CCBL within thirty (30) days after Buyer’s receipt of the fully executed TOI (as set forth in the preceding subsection).

 

(c) The Parties shall mutually and diligently pursue Regulatory Approvals from the CCB and CCBL, including the obligation of the Sellers, Buyer and each of their respective officers, directors, managers, members, and/or owners to mutually cooperate and provide any information or response requested by the CCB within three (3) business days of the receipt of such request and between Buyer and the Sellers, notwithstanding any other provision herein, will provide any further information or take any action necessary to pursue Regulatory Approvals within fourteen (14) days after receipt of a written request from the other party. Further, in the event the CCB requests that the Parties provide an advance waiver of notice with respect to a specific CCB monthly hearing at which the Transaction is proposed to be heard, each Party agrees to execute such waiver as may be necessary so that the Transaction can be placed on the agenda for such CCB hearing.

 

2.6 Procedures for Non-Transferable Assets. If any asset, property or right included in the Purchased Assets that is not material to the operations of the Business may not be assigned or transferred either by virtue of the provisions thereof or under any applicable legal requirements without obtaining the requisite consent of any Governmental Authority (including any Regulatory Authority) or other third party, the Sellers shall use commercially reasonable efforts to obtain, as soon as reasonably possible after the Closing Date, any consents to assignment as are reasonably requested by Buyer that were not previously obtained. With respect to any such asset, property or right for which a necessary consent has not been obtained as of the Closing Date, if requested by Buyer, Seller shall enter into any reasonable arrangement with Buyer that is designed to give Buyer the practical benefits of such asset, property or right, without any additional cost to Buyer or the Sellers, to the extent permitted under applicable Laws.

 

2.7 Pre-Closing Payments.

 

(a) To induce the Sellers to enter into this Agreement and agree to perform their respective obligations hereunder and under the other Transaction Documents, Buyer shall make the following payments to the Escrow Agent by wire transfer in immediately available funds for deposit into the Escrow Account (collectively, the “Pre-Closing Payments”):

 

(i) Concurrently herewith, Buyer shall deliver the sum of $500,000 (the “First Pre-Closing Payment”) to the Escrow Agent for deposit into the Escrow Account;

 

(ii) (A) In the event that approval of this Agreement and the Transaction is not scheduled on the CCB’s publicly issued monthly hearing agenda to be heard prior to the four (4) month anniversary of the Effective Date, Buyer shall, on the four (4) month anniversary of the Effective Date, deliver the additional sum of $500,000 to the Escrow Agent for deposit into the Escrow Account (the “Second Pre-Closing Payment”) or (B) in the event that approval of this Agreement and the Transaction is scheduled on the CCB’s publicly issued monthly hearing agenda to be heard prior to the four (4) month anniversary of the Effective Date, Buyer shall deliver to the Escrow Agent, within three (3) Business Days after the date such monthly hearing agenda has been public issued, for deposit into the Escrow Account, a total amount equal to (x) the Total Pre-Closing Deposit, minus (y) the First Pre-Closing Payment (it being understood and agreed that, immediately after such deposit into the Escrow Account, there shall be no less than the Total Pre-Closing Deposit in the Escrow Account (excluding any interest or other earnings thereon);

 

 

(iii) (A) In the event that approval of this Agreement and the Transaction is not scheduled on the CCB’s publicly issued monthly hearing agenda to be heard prior to the eight (8) month anniversary of the Effective Date, Buyer shall, on the eight (8) month anniversary of the Effective Date, deliver the additional sum of $500,000 to the Escrow Agent for deposit into the Escrow Account (the “Third Pre-Closing Payment”) or (B) in the event that approval of this Agreement and the Transaction is scheduled on the CCB’s publicly issued monthly hearing agenda to be heard after the four (4) month anniversary of the Effective Date but prior to the eight (8) month anniversary of the Effective Date, Buyer shall deliver to the Escrow Agent, within three (3) Business Days after the date such monthly hearing agenda has been public issued, for deposit into the Escrow Account, a total amount equal to (x) the Total Pre-Closing Deposit, minus (y) the sum of the applicable First Pre-Closing Payment and the Second Pre-Closing Payment (it being understood and agreed that, immediately after such deposit into the Escrow Account, there shall be no less than the Total Pre-Closing Deposit in the Escrow Account (excluding any interest or other earnings thereon); and

 

(iv) In the event that approval of this Agreement and the Transaction is scheduled on the CCB’s publicly issued monthly hearing agenda to be heard after the eight (8) month anniversary of the Effective Date, Buyer shall deliver to the Escrow Agent, within three (3) Business Days after the date such monthly hearing agenda has been publicly issued, for deposit into the Escrow Account, a total amount equal to (A) the Total Pre-Closing Deposit, minus (B) the sum of the applicable First Pre-Closing Payment, the Second Pre-Closing Payment and the Third Pre-Closing Payment (it being understood and agreed that, immediately after such deposit into the Escrow Account, there shall be no less than the Total Pre-Closing Deposit in the Escrow Account (excluding any interest or other earnings thereon)).

 

(b) In the event it is determined at any time prior to the Outside Date that consummation of the Transaction pursuant to the terms of this Agreement cannot occur on or before the Outside Date, or the Closing otherwise fails to occur prior to the Outside Date, in each case solely by reason of a breach or failure to perform by Buyer of its representations, warranties, covenants or obligations under this Agreement or a wrongful termination of this Agreement by Buyer, then, as of the earlier to occur of the date it has been so determined or the Outside Date:

 

(i) In addition to the Sellers’ right to retain the Exclusive Dealing Fee pursuant to Section 9.3, the Sellers shall be entitled to receive and retain that portion of the Pre-Closing Payments previously deposited into the Escrow Account equal to $1,500,000 and, at the written request of the Sellers, Buyer shall execute and deliver Joint Release Instructions to the Escrow Agent instructing the Escrow Agent to immediately release and deliver such amount from the Escrow Account to the Sellers as designated therein; provided, however, that to the extent that the total amount of Pre-Closing Payments on deposit in the Escrow Account is less than $1,500,000, Buyer shall concurrently pay to the Sellers an additional amount in cash equal to such deficiency such that the Sellers shall have received the total amount of $1,500,000;

 

 

(ii) All outstanding amounts and other obligations then due and payable under the Arizona Seller Notes shall become immediately due and payable by the Arizona Buyer to the Arizona Sellers, without notice, presentment, demand, protest, notice of intention to accelerate, or other notice of any kind; and

 

(iii) The Arizona Sellers shall have no liability or obligation to indemnify the Arizona Buyer for any Tax Losses (as defined in the Arizona Assignment Agreement), whether under Section 8.05 of the Arizona Assignment Agreement or otherwise, and Buyer shall, at the written request of the Sellers, cause the Arizona Buyer to enter into a written agreement with the Arizona Sellers to evidence the release of the Arizona Sellers from any and all liabilities and obligations with respect thereto.

 

(c) In the event it is determined at any time prior to the Outside Date that consummation of the Transaction pursuant to the terms of this Agreement cannot occur on or before the Outside Date, or the Closing fails to occur prior to the Outside Date, in each case other than as provided in Section 2.7(b) above, then, as of the earlier to occur of the date it has been so determined and the Outside Date, at the written request of Buyer, the Sellers shall execute and deliver Joint Release Instructions to the Escrow Agent instructing the Escrow Agent to immediately release and deliver such amount from the Escrow Account to Buyer as designated therein.

 

ARTICLE III

PURCHASE CONSIDERATION

 

3.1 Purchase Price. The total price to be paid by Buyer for the Purchased Assets shall be an amount equal to (a)(i) the Base Purchase Price, plus (ii) the Inventory Value (collectively with the Base Purchase Price, the “Purchase Price”), plus (b) the assumption of the Assumed Liabilities. The Purchase Price (as determined for federal income tax purposes, including the Assumed Liabilities that are required to be treated as part of the Purchase Price for federal income tax purposes) shall be allocated among the Purchased Assets and the Assumed Liabilities as provided in the Allocation Schedule.

 

3.2 Payment of Purchase Price. The Purchase Price shall be payable to the Sellers as follows:

 

(a) At the Closing, the Exclusive Dealing Fee shall be applied to pay a portion of the Base Purchase Price;

 

(b) Not less than two (2) Business Days immediately prior to the Closing Date, the Parties shall execute and deliver Joint Release Instructions to the Escrow Agent instructing the Escrow Agent to release and deliver on the Closing Date all Escrowed Funds to the Sellers and such other Persons as designated therein and, at the Closing, all such Escrowed Funds shall be so released and delivered;

 

(c) At the Closing, Buyer shall execute and deliver the Seller Notes to the Sellers, respectively; and

 

(d) At the Closing, Buyer shall pay to the Sellers an additional amount (the “Additional Closing Payment”), by wire transfer of immediately available funds to one or more account(s) designated in writing by the Sellers prior to the Closing Date, equal to the sum of (i) the Inventory Value plus (ii) the Excess Cash Payment.

 

3.3 Allocation of purchase price. The Purchase Price and the Assumed Liabilities shall be allocated among the Purchased Assets for tax purposes as shown on an allocation schedule to be finally agreed upon by the Parties before the Closing Date (the “Allocation Schedule”). A draft of the Allocation Schedule is set forth in Section 3.3 of the Disclosure Schedule. The Parties shall negotiate in good faith prior to the Closing to resolve any changes to the draft Allocation Schedule. The Allocation Schedule shall be prepared in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended. Buyer and the Sellers shall file all Tax Returns in a manner consistent with the final Allocation Schedule.

 

 

3.4 Tax Clearance. Prior to the Closing, the Sellers shall provide a clearance letter or other written evidence from the Nevada Department of Taxation and the Employment Security Division showing that all amounts due from the Sellers necessary to comply with the provisions of NRS 360.525 (sales and use taxes) and NRS 612.695 (unemployment contributions), respectively, have been paid or a certificate stating that no amount is due, or such evidence as Buyer may reasonably require to assure Buyer that the applicable obligations have been paid.

 

3.5 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such similar Taxes and fees (including any penalties and interest) incurred in connection with this Agreement (including any real property transfer Tax and any other similar Tax) (“Transfer Taxes”), if any, shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by the Sellers, when due. The party hereto required by applicable Law shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and the other parties hereto shall cooperate with respect thereto and join in the execution of such Tax Returns to the extent required by applicable Law). Notwithstanding the foregoing, the term “Transfer Taxes” shall not include Taxes with respect to income of the Sellers or Seller Parent as a result of the Transaction.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

The representations and warranties contained in this Article 4 are qualified by the disclosures made in the Disclosure Schedule. Subject to the disclosures set forth in the Disclosure Schedule, or as expressly set forth herein, the Sellers hereby represent and warrant to Buyer, as of the Effective Date and the Closing Date, as follows:

 

4.1 Organization and Authority; Enforceability.

 

(a) Each Seller is duly formed, validly existing and in good standing under the Laws of the jurisdiction in which it is formed. Each Seller has full limited liability company power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the Transaction. The execution and delivery by each Seller of this Agreement and any other Transaction Document to it is a party, the performance by such Seller of its obligations hereunder and thereunder and the consummation by such Seller of the Transaction have been duly authorized by all requisite limited liability action on the part of such Seller.

 

(b) This Agreement and the other Transaction Documents constitute the legal, valid and binding obligations of the Sellers, respectively, enforceable against them in accordance with their respective terms.

 

4.2 No Consents. Except as set forth in Section 4.2 of the Disclosure Schedule, no consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or other Person is required by the Sellers in connection with the execution, delivery or performance of this Agreement and the other Transaction Documents to which they are party or the consummation of the Transaction.

 

4.3 Title to Assets. At the Closing, the Sellers will have good and marketable title to the Purchased Assets, respectively, free and clear of any and all Liens other than the Permitted Liens. Immediately following the Closing, Buyer will acquire all of the Sellers’ right, title and interest in and to the Purchased Assets, respectively, free and clear of all Liens other than the Permitted Liens.

 

 

4.4 Compliance with Laws. To the best of Sellers’ knowledge, (a) the Sellers have complied in all material respects with all Laws, including NCCR Regulation 7, NRS Chapter 678B, NRS Chapter 678C and D, relating to the operation of the Business and the Facility Licenses, and (b) there are no facts, circumstances, actions or failures to act which would, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect and (c) the Sellers have disclosed all notices of deficiency received from the CCB during the past three (3) years.

 

4.5 Financial Statements. Complete copies of (a) an unaudited balance sheet of each Seller as of May 31, 2023 (the “May 2023 Balance Sheet”), and related unaudited statements of profit and loss for the year ended December 31, 2022 and for the calendar month ended May 31, 2023 (collectively, the “Financial Statements”) have been delivered to Buyer. The Financial Statements have been prepared by management based upon the books and records of the Sellers and in accordance with GAAP applied on a consistent basis throughout the period involved and fairly present in all material respects the financial condition of the Sellers as of the respective dates reflected therein and for the periods indicated. The Sellers maintain a standard system of accounting established and administered in accordance with GAAP.

 

4.6 Undisclosed Liabilities. As of the Closing, the Sellers will not have any Liabilities with respect to the Business except for (a) trade payables and other liabilities and obligations arising or incurred in the ordinary course of business since the date of the May 2023 Balance Sheet and (b) those that would not reasonably be expected to result in a Material Adverse Effect.

 

4.7 Certain Transactions. Seller has not entered into any transaction or incurred any liability or obligation that is material to the operation of Business outside of the ordinary course of business. The Sellers have not sold or transferred any of its assets, including the Purchased Assets, other than in the ordinary course of business consistent with their respective past practices.

 

4.8 Permits and Licenses. Seller holds all permits and licenses which are required by any Governmental Authority having jurisdiction over the Sellers to operate the Business, to own, lease and maintain its properties and assets and to carry on the Business as it is conducted on the Effective Date. All such permits and licenses, including the Facility Licenses, are in good standing and in full force and effect. Each Seller is in compliance in all material respects with such permits and licenses, and there are no proceedings, investigations or inquiries of any kind in progress pending or threatened, which relate to any of such permits or licenses. None of such permits or licenses are subject to any variances, conditions, waivers or other matters which are of a material nature. Each Seller has applied for, or received (as applicable), all renewals or re-registrations of all permits and licenses, which are required from any regulatory authority having jurisdiction over such Seller to operate the Business, which it requires, or is required to have to own, lease, and maintain its properties and assets and to carry on the Business. The Sellers have used their commercially reasonable efforts to maintain such permits and licenses in good standing.

 

4.9 Employees; Employment Matters. At the Effective Date: (a) The employees who provide services at the Paradise Facilities are employed by Vegas Retail and the employees who provide services at the Rainbow Facility are employed by Vegas Retail 2 and (b) to the Knowledge of the Sellers, the Sellers are in compliance in all material respects with all applicable Laws pertaining to employment and employment practices.

 

 

4.10 Tax Returns. The Sellers shall have filed all Tax Returns that are due and shall have paid all necessary sales, use, ad valorem, excise, or any other Taxes with respect to the Purchased Assets and the operations of the Business or, if Seller has not so filed and paid, shall remain liable to file all Tax Returns for periods on or prior to the date of the Closing Date and pay any state or federal income taxes incurred with respect to periods ending before the Closing Date that could affect the Purchased Assets after the Closing Date. This Section 4.10 shall not apply to Transfer Taxes or associated Tax Returns, which shall instead be governed by Section 3.5.

 

4.11 Material Contracts. Section 4.11 of the Disclosure Schedule sets forth the following Material Contracts (each a “Material Contract”) which are currently in effect and to which any Seller is a party or by which any Seller is legally bound:

 

(a) any agreement (or group of related agreements) for the lease of tangible personal property to or from any person providing for lease payments in excess of $25,000 per annum;

 

(b) any agreement (or group of related agreements) for the purchase or sale of supplies, products, or other tangible personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one (1) year, result in a loss to the Seller, or involve consideration in excess of $25,000 per annum;

 

(c) any agreement concerning a partnership or joint venture;

 

(d) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $25,000 per annum or under which it has imposed a Lien on any of its assets, tangible or intangible;

 

(e) any agreement concerning confidentiality, non-competition or non-solicitation entered into the ordinary course of business;

 

(f) any profit sharing, membership interest option, membership interest purchase, membership interest appreciation, deferred compensation, severance, or other plan or arrangement for the benefit of its current or former directors, officers, members or managers;

 

(g) any collective bargaining agreement or labor peace agreement, and any documents related to the same to the extent any such collective bargaining agreement or labor peace agreement exists;

 

(h) any agreement for the employment or engagement as an independent contractor of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $25,000 or providing severance benefits;

 

(i) any agreement under which it has advanced or loaned money to any third party;

 

(j) any agreement under which the consequences of a default or termination could have a Material Adverse Effect;

 

(k) any settlement, conciliation or similar agreement with any Governmental Authority or which will require satisfaction of any obligations after the date hereof;

 

(l) any agreement, license or other contract under which (A) any Seller has licensed or otherwise granted rights in any Seller Intellectual Property to any Person or (B) any Person has licensed or sublicensed to any Seller, or otherwise authorized any Seller to use, any third-party Intellectual Property (other than licenses of internally used off-the-shelf or shrink-wrap software);

 

 

(m) any employment, consulting or sales or leasing representative agreement not cancelable by the Seller without penalty upon ninety (90) days or less written notice;

 

(n) any settlement agreement or other agreement in respect of any past or present claim involving payments in excess of $50,000;

 

(o) any agreement providing for indemnification to third parties other than pursuant to standard terms of contracts in the ordinary course of business;

 

(p) any other agreement (or group of related agreements) the performance of which involves aggregate consideration in excess of $50,000 per annum.

 

The Sellers have delivered (or cause to be delivered) to Buyer a correct and complete copy of each Material Contract. With respect to each Material Contract: (A) such Material Contract is a legal, valid and binding obligation of the Seller party thereto, enforceable against such Seller, and is in full force and effect; (B) neither such Seller or, the Knowledge of Sellers, no other party is in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under such Material Contract; and (C) such Material Contract is not currently being renegotiated (nor has written demand for any renegotiation been made) and no party thereto has repudiated any provision of such Contract.

 

4.12 Related Party Transactions. There are no obligations or contracts between the Sellers, on the one hand, and any of its officers, directors, key employees or Affiliates of the Sellers, on the other hand, other than (a) for payment of salaries and other compensation for services rendered, (b) reimbursement of customary and reasonable expenses incurred on behalf of the Sellers, (c) benefits due under any employee benefit plans in which employees of the Sellers participate and (d) as set forth in Section 4.12 of the Disclosure Schedule.

 

4.13 Inventory. Except as set forth on Section 4.13 of the Disclosure Schedule, at the Closing, all Inventory will be owned by the Sellers, respectively, free and clear of any Liens (other than Permitted Liens), and will be located at the Paradise Facilities or the Rainbow Facility, as the case may be. All Inventory sold by the Sellers prior to the Effective Date was produced, packaged and labelled in all material respects in accordance with all applicable Laws and is fit for human consumption, not adulterated or misbranded and free of any defects. To the Knowledge of the Sellers, no recalls or withdrawals of products distributed or sold by the Sellers have been required or suggested by a Governmental Authority and no facts or circumstances exist that could reasonably be expected to result in any such recall or withdrawal.

 

4.14 No Brokers. Except as set forth in Section 4.14 of the Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Sellers or any of its Affiliates.

 

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to the Sellers as of the Effective Date and the Closing Date as follows:

 

5.1 Organization and Authority; Enforceability.

 

(a) Buyer is duly formed, validly existing and in good standing under the Laws of the jurisdiction in which it is formed. Buyer has full limited liability company power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the Transaction. The execution and delivery by Buyer of this Agreement and any other Transaction Document to it is a party, the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the Transaction have been duly authorized by all requisite limited liability action on the part of Buyer.

 

(b) This Agreement and the other Transaction Documents constitute the legal, valid and binding obligations of Buyer enforceable against it in accordance with their respective terms.

 

5.2 No Consent. Except as set forth in Section 2.5 above, no consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required by Buyer in connection with the execution, delivery or performance of this Agreement and the other Transaction Documents to which it is a party or the consummation of the Transaction.

 

5.3 Sufficiency of Funds. Buyer has cash on hand or available funds from its Affiliates sufficient to enable Buyer to satisfy all of its financial obligations under this Agreement and the other Transaction Documents.

 

5.4 No Actions. There are no Actions pending or threatened against or by Buyer or any of their Affiliates that challenge or seek to prevent, enjoin or otherwise delay the Transaction. No event has occurred or circumstances exist that may reasonably give rise or serve as a basis for any such Action.

 

5.5 Investment Decision. Buyer has had an opportunity to discuss the Sellers’ businesses, management, financial and other affairs with the Sellers’ management and to inspect the Sellers’ facilities. Buyer has substantial experience in evaluating, investing, and/or acquiring companies in the Sellers’ industry, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of the Transaction and protecting its own interests.

 

5.6 No Brokers. Except for CLD Advisory LLC, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer or any of its Affiliates.

 

ARTICLE VI

COVENANTS

 

6.1 Conduct of Business Prior to the Closing. Between the Effective Date and the earlier of the date of termination of this Agreement and the Closing (the “Interim Period”), except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld or delayed), the Sellers shall (a) conduct the Business in the ordinary course of business consistent with recent practice; (b) maintain Inventory quantity levels at the Dispensaries in amounts not to exceed those maintained in the ordinary course of business during the twelve month period prior to April 21, 2023; (c) preserve and maintain all of its material Permits; (d) pay all debts and Taxes when due; (e) comply in all material respects with all applicable Laws; (f) pay or perform other obligations in the ordinary course of the Business; (g) not to modify, terminate or transfer the Management Agreements, and (h) use all commercially reasonable efforts, consistent with past practices and policies, to preserve its present business organizations, keep available the services of its employees, preserve its relationships with key customers, suppliers and vendors, distributors, customer referral sources, licensors, licensees, and others having business dealings with it. During the Interim Period, the Sellers will promptly notify Buyer of any event or occurrence of which it receives knowledge, and that the Sellers reasonably believe would have a Material Adverse Effect.

 

 

6.2 Access to Information. During the Interim Period, the Sellers shall (a) reasonably afford Buyer and its Representatives access to and the right to inspect all of their properties, assets, premises, books and records, Contracts and other documents and data of the Sellers; and (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Business as Buyer or any of its Representatives may reasonably request. Notwithstanding the foregoing, within twenty (20) days after the end of each calendar month ending prior to the Closing Date, the Sellers shall provide Buyer with (i) point of sale data for the immediately preceding calendar month and (ii) unaudited profit and loss statements for the Sellers for the immediately preceding calendar month. At the written request of Buyer, Representatives of the Sellers shall meet with Buyer once in any calendar month, during normal business hours and at such time and in such manner as the Parties shall mutually agree, to discuss the ongoing financial performance and operations of the Business.

 

6.3 Confidentiality. Each of the Parties shall hold, and shall use its commercially reasonable best efforts to cause its officers, directors, managers, managing members, employees, Representatives and Affiliates to hold, in strict confidence from any Person, unless (a) compelled to disclose by judicial or administrative process (including in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated by this Agreement from any Court or Governmental Authority) or by other requirements of Law, or (b) disclosed in an action or proceeding brought by a Party in pursuit of its rights or in the exercise of its remedies, all documents and information concerning any other Party or any of its Affiliates furnished to it by any other Party or such other Party’s officers, directors, managers, managing members and agents in connection with this Agreement or the transactions contemplated by this Agreement (collectively, “Confidential Information”), except to the extent that such documents or information can be shown to have been (i) previously known by the Party receiving such documents or information, (ii) in the public domain (either prior to or after the furnishing of such documents or information) through no fault of such receiving party or (iii) later acquired by the receiving Party from another source if the receiving party is not aware and should not reasonably expect that such source is under an obligation to another Party to keep such documents and information confidential. Notwithstanding the foregoing, in the event of disclosure pursuant to clause (a) or (b) above, the Party required to disclose information shall (x) provide the Party whose information is to be disclosed with prompt notice of such requirement prior to disclosure to the extent permissible by Law, (y) provide the Party whose information is to be disclosed with reasonable information and assistance so that such Party can take reasonable measures to protect the information from disclosure and (z) use good faith efforts to limit what is disclosed to the maximum extent permissible under Law. The Parties agree not to use any Confidential Information of another Person for any purpose other than complying with obligations under this Agreement and completing the transactions contemplated by this Agreement. The Parties further agree that they shall only disclose Confidential Information to their officers, directors, managers, managing members, employees, Representatives and Affiliates on a “need-to-know” basis in connection with the purposes described in the preceding sentence. Notwithstanding anything else in this Section 6.3 to the contrary, any receiving Party may disclose Confidential Information to a third party with the prior written consent of the disclosing Party.

 

6.4 Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), neither Buyer, the Sellers or their respective Affiliates shall make any public announcements in respect of this Agreement or the Transaction or otherwise communicate with any news media without the prior written consent of the other parties (which consent shall not be unreasonably withheld, delayed or conditioned). To the extent any public announcement is required to be made by Buyer, the Sellers or their respective Affiliates under applicable Law, the Parties shall use their commercially reasonable efforts to agree on the contents of such announcement prior to the issuance thereof. Without limiting the generality of the foregoing, prior to the Closing, the Parties shall mutually prepare a public announcement relating to this Agreement and the Transaction for use by the Parties at or in connection with the Closing.

 

 

6.5 Seller Intellectual Property. (a) Buyer shall not, and shall not permit its Affiliates to, use any Seller Intellectual Property in any manner whatsoever and (b) on the Closing Date, Buyer shall remove all references to “MedMen” or other Seller Intellectual Property in the signage used by the Sellers at the Facilities or otherwise in the conduct of the Business and shall not indicate in any way any association or affiliation with the Sellers or their Affiliates. The Sellers and their Affiliates reserve all right, title and interest in and to the Seller Intellectual Property and nothing in this Agreement or otherwise shall be construed as the grant of a license or other right of any kind granted by the Sellers or their Affiliates to Buyer or any of its Affiliates to use the Seller Intellectual Property, or own any interest therein.

 

6.6 Employees. Each Seller shall terminate all its employees effective as of the Closing Date for each of the Paradise Facilities and Rainbow Facility. Buyer, in its sole and absolute discretion, may hire any of the former employees of each Seller. Buyer will perform interviews and make decisions regarding the hiring of such employees on dates and times mutually agreed upon by the Parties.

 

6.7 Retention of Copies of Books and Records. The Parties agree that the Sellers shall provide to Buyer copies of all Books and Records existing on the Closing Date and the Parties may nonetheless use such Books and Records on a non-exclusive basis to the extent necessary in its sole discretion. Notwithstanding the foregoing, if after the Closing the Sellers cannot locate copies of any Books and Records that the Sellers had previously provided to Buyer and Buyer can locate and access such requested Books and Records, the Sellers or their Affiliates shall have the right to inspect and to make copies (at their own expense) of the same at any time upon reasonable request during normal business hours and upon reasonable notice for any proper purpose and without undue interference.

 

6.8 Inventory Reconciliation. Within three (3) days immediately prior to the Closing Date, the Parties shall mutually conduct a physical count and reconciliation using the “METRC” platform of the Inventory to be purchased by Buyer under this Agreement.

 

6.9 Transfer of Certain Data. Within three (3) days immediately prior to the Closing Date, Seller will commence assisting Buyer with the transfer of all historical inventory, sales and any other tracking data used by the Sellers in the Business and required to be maintained by any Nevada Governmental Authority from Sellers’ proprietary systems to one or more similar systems owned by Buyer.

 

6.10 Further Assurances. Each of the Parties shall, and shall cause its Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and effectuate the Transaction. Without limiting the generality of the foregoing, each Party shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done all things necessary, proper or advisable under this Agreement, applicable Law or otherwise, and to promptly obtain all authorizations, consents, orders and approvals of all Governmental Authorities and other Persons reasonably necessary to consummate the Transaction.

 

6.11 Customer Data License. The Sellers hereby grant to Buyer a limited, irrevocable, royalty-free, non-exclusive, non-sub-licensable license and right to copy and use the Customer Data solely in the Business. Buyer expressly acknowledges, agrees and confirms that the Sellers exclusively own and control the Customer Data and that the Sellers may copy, distribute, and use the Customer Data at any time without any notice to or consent from Buyer.

 

 

6.12 Policies and Procedures License. The Sellers hereby grant to Buyer a limited, irrevocable, royalty-free, non-exclusive, non-sub-licensable license and right to copy and use, the Policies and Procedures for a period commencing on the Closing Date and ending on the six (6) month anniversary of the Closing Date. Buyer expressly acknowledges, agrees and confirms that the Sellers exclusively own and control the Policies and Procedures and that the Sellers may copy, distribute, and use the Policies and Procedures at any time without any notice to or consent from Buyer.

 

ARTICLE VII

CLOSING; CONDITIONS TO CLOSING

 

7.1 Closing. Subject to the terms and conditions of this Agreement, the closing of the Transaction contemplated by this Agreement (the “Closing”) shall take place remotely via the electronic exchange of documents and signatures (or their electronic counterparts), at 9:00 a.m., Pacific time (but shall be deemed effective at 12:01 a.m., Pacific time), on the third (3^rd) Business Day after the date that all of the conditions to Closing set forth in this Article VII are either satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), or at such other time, date or place as the Parties may mutually agree upon in writing. The date on which the Closing is to occur is herein referred to as the “Closing Date.”

 

At the written request of Buyer, the Parties may conduct the closing relating to the purchase and sale of the Purchased Assets owned or held for use by Vegas Retail (the “Vegas Retail Purchased Assets”) and the Purchased Assets owned or held for use by Vegas Retail 2 (the “Vegas Retail 2 Purchased Assets”) on separate days, and such closings need not be conducted simultaneously. In such event: (a) the Base Purchase Price allocated to Vegas Retail will be paid, and Inventory owned by Vegas Retail will be paid for, at the closing of the purchase and sale of the Vegas Retail Purchased Assets and the Base Purchase Price allocated to Vegas Retail 2 will be paid, and Inventory owned by Vegas Retail 2 will be paid for, at the closing of the purchase and sale of the Vegas Retail 2 Purchased Assets; and (b) the conditions to closing in this Article VII relating to the purchase and sale of the Vegas Retail Purchased Assets will be required to be satisfied at the closing of such purchase and sale and the conditions to closing in this Article VII relating to the purchase and sale of the Vegas Retail 2 Purchased Assets will be required to be satisfied at the closing of such purchase and sale.

 

7.2 Conditions to Obligations of All Parties. The obligations of each of the Parties to consummate the Transaction shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

 

(a) No Restraint. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect as of the Closing and has the effect of making the Transaction illegal, otherwise restraining or prohibiting consummation of such Transaction or causing any part of the Transaction contemplated hereunder to be rescinded following completion thereof.

 

(b) Regulatory Approvals. All Regulatory Approvals required to consummate the Transaction have issued, including the approvals of the CCB and the CCBL described in Section 2.5.

 

7.3 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the Transaction shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

 

(a) The representations and warranties of the Sellers in Article IV that are qualified as to materiality or words of similar import shall be true and correct in all respects, and those representations and warranties not so qualified shall be true and correct in all material respects, on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

 

 

(b) The Sellers shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(c) Closing Documents. The Sellers shall have delivered to Buyer the following documents:

 

(i) A Bill of Sale, dated as of the Closing Date and duly executed by the Sellers;

 

(ii) The Assignment and Assumption Agreement, dated as of the Closing Date and duly executed by Sellers;

 

(iii) A certificate or certificates in compliance with Treasury Regulations Section 1.1445-2 of the Code and any IRS or Treasury Department guidance thereunder, certifying that the Transaction is exempt from withholding under Sections 1445 of the Code; and

 

(iv) Such other agreements, instruments and documents as Buyer may reasonably request to effectuate the consummation of the Transaction.

 

(d) Certain Lease Documents. The Sellers shall have delivered to Buyer the following documents:

 

(i) An assignment and assumption of lease and landlord consent with respect to the Paradise Office Master Lease, in form and substance reasonably satisfactory to the Parties, duly executed by Buyer, 4503 Paradise Office and the Paradise Landlord;

 

(ii) An assignment and assumption of sublease and landlord consent with respect to the Paradise Office Sublease, in form and substance reasonably satisfactory to the Parties, duly executed by Buyer, 4503 Paradise Office, Vegas Retail and the Paradise Landlord;

 

(iii) An assignment and assumption of lease and landlord consent with respect to the Paradise Retail Master Lease, in form and substance reasonably satisfactory to the Parties, duly executed by Buyer, 4503 Paradise Retail and the Paradise Landlord;

 

(iv) An assignment and assumption of sublease and landlord consent with respect to the Paradise Retail Sublease, in form and substance reasonably satisfactory to the Parties, duly executed by Buyer, 4503 Paradise Retail, Vegas Retail and the Paradise Landlord;

 

(v) An assignment and assumption of lease and landlord consent with respect to the Rainbow Lease, in form and substance reasonably satisfactory to the Parties, duly executed by Buyer, Vegas Retail 2 and the Rainbow Landlord;

 

(vi) An assignment and assumption of the Paradise Signage License Agreement, in form and substance reasonably satisfactory to the Parties, duly executed by Buyer, Vegas Retail and the Paradise Landlord; and

 

 

(vii) An assignment and assumption of Guaranty and landlord (or licensor) consent with respect to each of the three MME Parent Guaranties, in form and substance reasonably satisfactory to the Parties, duly executed by the parties thereto, respectively.

 

(e) Seller Closing Certificates. The Sellers shall have delivered (or caused to be delivered) to Buyer: (i) an officer’s certificate, in form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by a duly authorized officer or manager of the Sellers, certifying that each of the conditions set forth in Sections 7.3(a) and 7.3(b) have been satisfied, and (ii) a manager’s certificate, in form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by a duly authorized officer or the manager of the Sellers, certifying that attached thereto are true and complete copies of all organizational documents of the Sellers and resolutions adopted by or on behalf of the Sellers authorizing the execution, delivery and performance of this Agreement and the consummation of the Transaction, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Transaction.

 

(f) Tax Clearance. The Sellers shall have delivered (or caused to be delivered) to Buyer a tax clearance letter or other written evidence from the State of Nevada Department of Taxation and the Employment Security Division required to be delivered under Section 3.4.

 

(g) Transaction Fees. The Sellers shall have paid all fees, costs and expenses incurred by or on behalf of them in connection with the preparation, execution and delivery of this Agreement and the consummation of the Transaction.

 

(h) Inventory Reconciliation. The Parties shall have conducted and finalized the Inventory physical count and reconciliation described in Section 6.8.

 

7.4 Conditions to Obligations of Sellers. The obligations of each of the Sellers to consummate the Transaction shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

 

(a) Representations and Warranties. The representations and warranties of Buyer in Article V shall be true and correct in all respects, on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

 

(b) Covenants. Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(c) Release of Escrowed Funds; Additional Closing Payment. Buyer shall have (i) executed Joint Written Instructions as provided in Section 3.2, such signed Joint Written Instructions shall have been delivered to the Escrow Agent and the Sellers shall have received all Escrowed Funds and (ii) paid the Additional Closing Payment to the Sellers as provided in Section 3.2(d).

 

(d) Certain Other Closing Documents. Buyer shall have delivered to the Sellers the following documents:

 

(i) The Assignment and Assumption Agreement, dated the Closing Date and duly executed by Buyer;

 

 

(ii) The Escrow Agreement, dated the Closing Date and duly executed by Buyer and the Escrow Agent; and

 

(iii) such other agreements, instruments and documents as any Seller may reasonably request to effectuate the consummation of the Transaction.

 

(e) Note Documents. Buyer shall have delivered to the Sellers the following documents:

 

(i) The Seller Notes, dated the Closing Date and duly executed by Buyer;

 

(ii) The Equity Pledge Agreement, dated the Closing Date and duly executed by Buyer Parent;

 

(iii) The Security Agreement, dated the Closing Date and duly executed by Buyer; and

 

(iv) Deposit Account Control Agreements (as defined in the Security Agreement), duly executed by the applicable Grantor (as defined in the Security Agreement) and the banks or other financial institutions at which each such Grantor’s deposit and similar accounts are maintained.

 

(f) Certain Lease Documents. Buyer shall have delivered to the Sellers the documents listed in Section 7.3(d), duly executed by Buyer and the Paradise Landlord, the Rainbow Landlord and the Buyer Parent, respectively.

 

(g) Buyer Closing Certificate. Buyer shall have delivered (or caused to be delivered) to the Sellers: (i) an officer’s certificate, in form and substance reasonably satisfactory to the Sellers, dated the Closing Date and signed by the Chief Executive Officer or equivalent officer or manager of Buyer, certifying that each of the conditions set forth in Sections 7.4(a) and 7.4(b) have been satisfied, and (ii) a manager’s certificate, in form and substance reasonably satisfactory to the Sellers, dated the Closing Date and signed by the manager of Buyer, certifying that attached thereto are true and complete copies of the organizational documents of Buyer and all resolutions adopted by the manager, managing member or board of managers, as applicable, by or on behalf of Buyer authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the Transaction, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Transaction.

 

ARTICLE VIII

SURVIVAL; INDEMNIFICATION

 

8.1 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the eighteenth (18^th) month anniversary of the Closing Date; provided, however, that the representations and warranties of (a) the Sellers in Section 4.1 (Organization and Authority; Enforceability) and Section 4.2 (No Consent) and (b) Buyer in Section 5.1 (Organization and Authority; Enforceability) and Section 5.2 (No Consent) (collectively, the “Fundamental Representations”) shall survive indefinitely. All covenants and agreements of the Parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) by written notice from the non-breaching Party to the breaching Party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

 

 

8.2 Seller Indemnification. Subject to the terms and conditions of this Article VIII, from and after the Closing, the Sellers shall, jointly and severally, indemnify and hold harmless Buyer and its Representatives (collectively, the “Buyer Indemnified Parties”) from and against, and shall pay and reimburse each of them for, any and all Losses reasonably incurred by the Buyer Indemnified Parties based upon, arising out of, with respect to or by reason of:

 

(a) any material inaccuracy in, or material breach of, any of the representations or warranties of the Sellers contained in this Agreement or in any certificate or instrument delivered by the Sellers pursuant to this Agreement or any other Transaction Document;

 

(b) any breach or non-fulfillment in any material respect of any covenant, agreement or obligation to be performed by the Sellers pursuant to this Agreement or any other Transaction Document;

 

(c) the Excluded Liabilities; and

 

(d) any Third Party Claims arising out of or resulting from the operation of the Business during the Pre-Closing Period.

 

8.3 Buyer Indemnification. Subject to the terms and conditions of this Article VIII, from and after the Closing, Buyer shall indemnify and hold harmless each Seller and its Affiliates and Representatives (collectively, the “Seller Indemnified Parties”) from and against, and shall pay and reimburse each of them for, any and all Losses reasonably incurred by the Seller Buyer Indemnified Parties based upon, arising out of, with respect to or by reason of:

 

(a) any material inaccuracy in, or material breach of, any of the representations or warranties of Buyer contained in this Agreement or in any certificate or instrument delivered by Buyer pursuant to this Agreement or any other Transaction Document;

 

(b) any breach or non-fulfillment in any material respect of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement or any other Transaction Document;

 

(c) the Assumed Liabilities; and

 

(d) any Third Party Claims arising out of or resulting from the operation of the Business from and after the Closing Date.

 

8.4 Limitations on Seller Indemnification.

 

(a) Deductible. No Buyer Indemnified Party shall be entitled to indemnification for Losses resulting from, or arising out of, breaches and inaccuracies of representations or warranties pursuant to Section 8.2(a) or breaches of covenants pursuant to Section 8.2(b) unless and until the aggregate amount of all Losses for which the Buyer Indemnified Party shall be entitled to indemnification under Section 8.2(a) and/or Section 8.2(b) (as limited by the other provisions of this Article VIII)) exceeds $200,000 (the “Deductible”); provided, however, that indemnification in respect of Losses arising out of (i) a breach of any Fundamental Representations of the Sellers pursuant to Section 8.2(a) and (ii) any Tax Losses shall not be subject to, nor be included in the calculation of, the Deductible.

 

 

(b) Total Liability Cap. In no event shall the total amount of all Losses for which the Buyer Indemnified Parties shall be entitled to indemnification resulting from, or arising out of, breaches and inaccuracies of representations or warranties pursuant to Section 8.2(a) or breaches of covenants or agreements pursuant to Section 8.2(b) exceed fifteen percent (15%) of the Purchase Price (the “Total Liability Cap”); provided, however, that any indemnification by the Sellers in respect of indemnifiable Losses (i) arising out of a breach of any Fundamental Representations of the Sellers pursuant to Section 8.2(a), (ii) that constitute Tax Losses or (iii) resulting from actual fraud shall not be subject to, nor be included in the calculation of, the Total Liability Cap; provided further, however, that notwithstanding anything to the contrary, in no event shall the Sellers (or any of them) be obligated to pay an aggregate amount in respect of all indemnification obligations under this Article VIII or otherwise that exceeds the Purchase Price.

 

8.5 Tax Indemnification. Subject to the provisions of this Article VIII, the Sellers shall indemnify and hold harmless each Buyer Indemnified Party from and against any of the following (collectively, “Tax Losses”) solely to the extent such Tax Losses are attributable to the Pre-Closing Period: (a) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 4.10; and (b) all Taxes of the Sellers relating to the Business.

 

8.6 Claims Procedures.

 

(a) Subject to Section 8.7 with respect to Third Party Claims, any party seeking indemnification hereunder (the “Indemnified Party”) shall deliver to the Party purportedly obligated to provide indemnification to such Indemnified Party (the “Indemnifying Party”) a written notice (a “Claim Notice”), which shall be delivered promptly after the Indemnified Party becomes aware of the basis for a claim for indemnification hereunder and which shall describe in reasonable detail the facts giving rise to such claim, shall include copies of any material written evidence thereof and shall include in such Claim Notice the amount, or the method of computation of the amount, of Losses arising from such claim (if known or reasonably ascertainable) and a reference to the provision of this Agreement or any other agreement, document or instrument executed hereunder or in connection herewith upon which such claim is based; provided, however, that the failure or delay of the Indemnified Party to provide a Claim Notice promptly to the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent the Indemnifying Party shall have been materially prejudiced by such failure. The Indemnifying Party shall have thirty (30) calendar days after its receipt of a Claim Notice to respond in writing to it by accepting such Claim Notice or objecting to such Claim Notice. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have accepted such claim, in which case the Indemnifying Party shall immediately pay such Losses to the Indemnified Party. If the Indemnifying Party fails to promptly pay such Losses, the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

 

(b) After the timely delivery of a response to a Claim Notice by the Indemnifying Party pursuant to Section 8.6, the amount of indemnification to which an Indemnified Party may be entitled under this Article VIII shall be determined (i) by a written agreement between the Indemnified Party and the Indemnifying Party, (ii) by any other means to which the Indemnified Party and the Indemnifying Party shall mutually agree or (iii) by legal action.

 

(c) Any Losses incurred by the Buyer Indemnified Parties that are subject to indemnification by the Sellers pursuant to this Article VIII shall be effected, at the sole option of the Sellers, first, by reducing the then-outstanding aggregate principal balance of the Seller Notes in an amount equal to the amount of indemnifiable Losses as of the date of determination and, second, if the then-outstanding aggregate principal balance of the Seller Notes is zero or the Sellers otherwise determine, by wire transfer of immediately available funds from or on behalf of the Sellers to an account designated by Buyer in writing.

 

 

8.7 Third Party Claims.

 

(a) Promptly (and in no event more than five (5) Business Days) after an Indemnified Party receives notice or otherwise obtains knowledge of any actual or possible claim, demand, suit, action, arbitration, investigation, audit, inquiry or proceeding that has been or may be brought or asserted by a third party against such Indemnified Party and with respect to which such Indemnified Party intends to make an indemnification claim under this Section 8.7(a) (such actual or possible claim, demand, suit, action, arbitration, investigation, inquiry or proceeding by a third party (including any Governmental Authority) being referred to as a “Third Party Claim”), the Indemnified Party shall deliver to the Indemnifying Party a written notice stating in reasonable detail the nature and basis of such Third Party Claim and the dollar amount of such Third Party Claim, to the extent known; provided, that the failure to give such notice in the time specified above shall not relieve the Indemnifying Party of its obligations under this Section 8.7(a), except to the extent that the Indemnifying Party is materially prejudiced thereby.

 

(b) The Indemnifying Party shall have the right, at its sole option, to assume the defense of any Third Party Claim against an Indemnified Party with counsel of its own choice and at the expense of the Indemnifying Party by providing written notice of such intent to the Indemnified Party within ten (10) days of receipt of notice of the Third Party Claim by the Indemnifying Party, which notice shall confirm the Indemnifying Party’s agreement to indemnify the Indemnified Party in accordance with the terms and conditions of this Agreement for any Losses incurred in connection with or as a result of such Third Party Claim; provided, however, that the Indemnifying Party shall not be entitled to assume such defense (unless otherwise agreed to in writing by the Indemnified Party) and shall pay the reasonable fees and expenses of one counsel retained by the Indemnified Party that is reasonably acceptable to the Indemnifying Party, (i) to the extent the claim for indemnification is in connection with any criminal proceeding, action, indictment, allegation or investigation against or targeting the Indemnified Party, (ii) if the claim is a motion for a temporary restraining order or preliminary injunction against the Indemnified Party, (iii) there exists a material conflict of interest (other than one of a monetary nature) that would make it inappropriate for the same counsel to represent both the Indemnified Party and the Indemnifying Party or (iv) the Indemnifying Party fails to vigorously prosecute or defend such claim. If the Indemnifying Party elects to assume the defense of any such Third Party Claim in accordance with the preceding sentence, then:

 

(i) The Indemnifying Party shall defend such Third Party Claim in good faith by appropriate actions diligently pursued, and the attorneys’ fees of the Indemnifying Party’s counsel and other defense costs incurred by the Indemnifying Party shall be borne and payable by the Indemnifying Party;

 

(ii) Notwithstanding anything to the contrary contained in this Agreement, except as set forth in Section 8.7(b)(iii), the Indemnified Party shall not be entitled to be indemnified for any costs or expenses incurred by the Indemnified Party in connection with the defense of such Third Party Claim following the Indemnifying Party’s election to assume the defense of such Third Party Claim in accordance with this Section 8.7;

 

(iii) The Indemnified Party shall be entitled, but not obligated, to participate in and monitor (but not control) such defense at its own expense; provided, however, that the Indemnified Party shall be entitled, at the Indemnifying Party’s expense, to retain one firm of separate counsel of its own choosing if the named parties in any such Third Party Claim include both the Indemnifying Party and the Indemnified Party and the Indemnified Party has been advised by counsel that representation of both sets of parties by the same counsel would be inappropriate due to actual or potential conflicts in connection with the defense of the Third Party Claim;

 

 

(iv) The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party, execute and deliver such documents as shall be reasonably required in connection with the foregoing and make available to the Indemnifying Party all books, records and other documents and materials that are under the direct or indirect control of the Indemnified Party and that the Indemnifying Party considers necessary or desirable, in good faith, for the defense of such Third Party Claim; provided, that the Indemnified Party shall not be required to provide materials to the Indemnifying Party that, based on advice of counsel, would reasonably be expected to constitute a waiver of the attorney client privilege or other privilege under applicable Law;

 

(v) Subject to the limitations on settlement of Third Party Claims set forth in this Section 8.7, the Indemnified Party shall execute such documents and take such other actions, at the expense of the Indemnifying Party, as the Indemnifying Party may reasonably request for the purpose of facilitating the defense of, or any settlement, compromise or adjustment relating to, such Third Party Claim;

 

(vi) The Indemnified Party shall cooperate, at the Indemnifying Party’s expense, as reasonably requested by the Indemnifying Party in the defense of such Third Party Claim; and

 

(vii) The Indemnified Party shall not admit, and shall use reasonable efforts to ensure that its Affiliates do not admit, any liability with respect to such Third Party Claim.

 

(c) If the Indemnifying Party does not elect to assume the defense of such Third Party Claim within the ten (10) day period specified in Section 8.7(b), or such shorter period as may be required by the applicable proceeding, then the Indemnified Party shall (upon written notice to the Indemnifying Party) be entitled to undertake the defense and settlement of such Third Party Claim, and the Indemnifying Party shall be liable for, subject to the limitations set forth in this Article VIII, all Losses incurred by the Indemnified Party in conducting such defense or settlement of such Third Party Claim and for any final judgment (subject to any right of appeal).

 

(d) In the event the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnifying Party shall keep the Indemnified Party reasonably informed of the progress of any such defense, compromise or settlement, and in the event the Indemnified Party assumes the defense of a Third Party Claim, the Indemnified Party shall keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement.

 

(e) Neither the Indemnifying Party nor the Indemnified Party shall settle or compromise any Third Party Claim without the consent of the other party (which consent shall not be unreasonably withheld or delayed) unless such judgment, compromise or settlement, (i) when settled by the Indemnifying Party, provides for the payment by the Indemnifying Party of money as sole relief for the claimant, (ii) results in the full and general release of the Indemnified Parties from all liabilities arising or relating to, or in connection with, the Third Party Claim, and (iii) involves no finding or admission of any violation of Law or the rights of the Indemnified Parties. No settlement or compromise of a Third Party Claim without the consent of the Indemnifying Party or Indemnified Party shall be deemed to be dispositive with respect to the existence of an indemnifiable claim or the amount of Losses resulting from such claim.

 

 

(f) Notwithstanding the foregoing, if a Third Party Claim seeks relief other than the payment of monetary damages or would result in the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party or any of its Affiliates, then the Indemnified Party alone shall, at the Indemnifying Party’s expense, be entitled to contest, defend, compromise and settle (subject, with respect to any such settlement, to obtaining the consent of the Indemnifying Party, such consent not to be unreasonably withheld or delayed) such Third Party Claim in the first instance and, if the Indemnified Party does not contest, defend, compromise or settle such Third Party Claim, the Indemnifying Party shall then have the right to contest and defend (but not settle or compromise without the prior written consent of the Indemnified Party, such consent not to be unreasonably withheld) such Third Party Claim.

 

8.8 Subrogation; Mitigation.

 

(a) Any Indemnifying Party shall be entitled to exercise, and shall be subrogated to, any rights and remedies (including rights of indemnity, rights of contribution and other rights of recovery) that the Indemnified Party may have against any other Person with respect to any Losses paid by the Indemnifying Party.

 

(b) Promptly after any Indemnified Party becomes aware of any event or circumstance that could reasonably be expected to constitute or give rise to a claim for indemnification under this Section 8.8, such Indemnified Party shall take all commercially reasonable steps to mitigate and minimize all Losses that may result from such event or circumstances.

 

8.9 Materiality. For purposes of calculating the existence of a breach and the amount of Losses for which an Indemnified Party is entitled to indemnification pursuant to this Article VIII, the representations, warranties and other provisions contained in this Agreement shall be deemed to have been made without any qualifications as to “material,” “materiality,” “in all material respects,” Material Adverse Effect or similar qualifications.

 

8.10 Reduction in Losses. The amount of any Losses subject to indemnification under this Article VIII shall be reduced by any insurance proceeds, indemnification payments, contribution payments or reimbursements or other amounts actually recovered by the Indemnified Parties under applicable insurance policies with respect to claims related to such Losses (net of any deductible amounts and any other costs or expenses incurred in connection therewith).

 

8.11 Tax Consequences of indemnification Payments. All payments (if any) made pursuant to any indemnification obligations under this Article VIII will be treated as adjustments to the Purchase Price for Tax purposes and such agreed treatment will govern for purposes of this Agreement, unless otherwise required by Law.

 

8.12 Exclusive Remedy. Other than claims for actual fraud, criminal activity or willful misconduct, the indemnification provisions of this Article VIII shall be the sole and exclusive remedies available to the Buyer Indemnified Parties and the Seller Indemnified Parties as to all claims arising under or relating to this Agreement and the transactions contemplated by this Agreement. For purposes of this Agreement, the term “actual fraud,” when used with respect to the Sellers, shall mean that the Sellers shall have willfully and knowingly committed fraud against Buyer, with the specific intent to deceive and mislead Buyer, by making the representations and warranties contained in this Agreement or in any Disclosure Schedule, certificate or other document pursuant hereto, and for which the Sellers shall have common law liability and shall be liable solely for the Losses resulting from such actual fraud; provided, that, for the avoidance of doubt, the term “actual fraud” shall expressly exclude recklessness, gross negligence and constructive fraud.

 

 

8.13 No Personal Liability. No current or former member, manager, stockholder, director, officer, employee, Affiliate or Representative of the Parties, respectively, shall have any personal or individual liability of any nature with respect to any breach or inaccuracy of any representation or warranty set forth in, or any other breach of, this Agreement or the Transaction.

 

ARTICLE IX

TERMINATION

 

9.1 Termination. This Agreement may be terminated at any time prior to the Closing:

 

(a) by the mutual written consent of the Sellers and Buyer; or

 

(b) by Buyer, by written notice to the Sellers, if Buyer is not then in breach of any provision of this Agreement or the Closing cannot occur through no fault of Buyer, and there has been a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by the Sellers pursuant to this Agreement that would give rise to the failure of any of the closing conditions specified in Section 7.3, and such material breach, inaccuracy or failure to perform has not been cured by the Sellers within twenty (20) days after the Sellers’ receipt of such written notice of such breach, inaccuracy or failure from Buyer; or

 

(c) by the Sellers, by written notice to Buyer, if the Sellers are not then in breach of any provision of this Agreement or the Closing cannot occur through no fault of the Sellers, and there has been material breach of, material inaccuracy in or failure to perform of any representation, warranty, covenant or agreement made by Buyer under this Agreement that would give rise to the failure of any of the conditions specified in Section 7.4 and such material breach, inaccuracy or failure has not been cured by Buyer within twenty (20) days after Buyer’s receipt of written notice of such breach, inaccuracy or failure to perform from the Sellers; or

 

(d) by Buyer, by written notice to the Sellers, if the actions taken by any Governmental Authority frustrates the purpose of the Transaction. For purposes of this clause (d), the Transaction would be deemed “frustrated” if both (a) the action of any Governmental Authority prohibits or declares unlawful (other than with respect to Federal laws concerning or effecting state legal cannabis businesses) or otherwise frustrates in any material respect Buyer’s intended use of the Facility Licenses and (b) the Parties are unable to propose a feasible way of either avoiding such interference or to reorganize the Parties’ arrangements under this Agreement with respect to the Transaction so as to eliminate or minimize the effect of any such material interference, within a period of ninety (90) days of Buyer notifying the Sellers in writing of such interference (including by taking legal action in respect of such interference). Any such written notice by Buyer to the Sellers of such interference must include a reasonably detailed description of the action taken by the Governmental Authority and the resulting prohibition, declaration of unlawfulness or material impairment, frustration or interference of purpose; or

 

(e) by Buyer or the Sellers, if the Closing does not occur on or prior to eighteen (18) month anniversary of the Effective Date (or such other date as may be mutually agreed upon by the Parties, the “Outside Date”).

 

9.2 Effect of Termination. In the event of the termination of this Agreement in accordance with this Article IX, this Agreement shall forthwith become void and there shall be no liability on the part of any Party except (a) under Section 2.7, Section 6.3, this Article IX and Article X and (b) nothing herein shall relieve any Party from liability for any willful or intentional breach of any provision hereof.

 

 

9.3 Return of Exclusive Dealing Fee. The Parties acknowledge and agree that the Exclusive Dealing Fee previously paid by Buyer to or on behalf of the Sellers as described in the Recitals shall be retained by the Sellers and shall not be returnable to Buyer for any reason whatsoever except under the following express circumstances:

 

(a) If the Parties are unable to obtain all Regulatory Approvals necessary to consummate the Transaction after using their respective best efforts to obtain the same on or before the Outside Date (subject to extension as provided in clause (b) below), the Exclusive Dealing Fee shall be returned to Buyer (without interest);

 

(b) If the Facility Licenses are not in good standing at the time of the Closing and the Parties are unable to cause the Facility Licenses to be reinstated in good standing within ninety (90) days after written notification by either Party that the Facility Licenses are not in good standing, the Exclusive Dealing Fee shall be returned to Buyer (without interest);

 

(c) If Buyer terminates this Agreement pursuant to Section 9.1(b) or (d), the Exclusive Dealing Fee shall be returned to Buyer (without interest);

 

(d) If the Paradise Landlord or the Rainbow Landlord, as the case may be, has the contractual right not to consent to an assignment of its Lease to Buyer and such Landlord refuses to consent to such assignment and such refusal is not in violation of the terms of such Lease, the Exclusive Dealing Fee shall be returned to Buyer (without interest).

 

ARTICLE X

GENERAL PROVISIONS

 

10.1 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including the fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the Transaction shall be paid by the Party incurring such fees, costs and expenses, whether or not the Closing shall have occurred.

 

10.2 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.2):

 

If to any Seller, to:		MedMen Enterprises, LLC 8740 S. Sepulveda Blvd., Suite 105 Los Angeles, CA 90045 Attention: Legal Email: legal@medmen.com
With a copy to (which shall not constitute notice):		Raines Feldman LLP 1900 Avenue of the Stars, 19th Floor Los Angeles, CA 90067 Attention: Jonathan D. Littrell Email: jlittrell@raineslaw.com

 

If to Buyer, to:	Retail Facilities Operations NV, LLC 5210 S. Priest Dr. Guadalupe, Arizona 85283 Attn: Nicholas Scavio, Esq. Email: nicholas@brightroot.com
With a copy to (which shall not constitute notice):	Armstrong Teasdale LLP 7160 Rafael Rivera Way, Suite 320 Las Vegas, Nevada 89113 Attn: Alicia R. Ashcraft, Esq. Email: aashcraft@atllp.com

 

10.3 Interpretation. The headings contained in this Agreement and the other Transaction Documents are for convenience of reference only and are not to be considered in construing or interpreting hereof or thereof. All section, preamble, recital, party, Exhibit and Disclosure Schedule references contained in this Agreement and the other Transaction Documents to this Agreement or such other Transaction Document, as applicable, unless otherwise stated. Unless the context clearly requires otherwise, the use of the word “including” is not limiting and the use of the word “or” has the inclusive meaning represented by the phrase “and/or” and the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement or the other Transaction Document, as applicable, as a whole. References in this Agreement and the other Transaction Documents to any agreement or other document “as amended” or “as amended from time to time,” or amendments of any agreement or document, shall include any amendments, supplements, restatements, replacements, renewals, refinancings or other modifications thereto or to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. The definitions of terms herein shall apply equally to the singular and plural forms of the terms so defined. No party, nor its counsel, shall be deemed the drafter of this Agreement or any other Transaction Document for purposes of construing the provisions hereof or thereof. Accordingly, all provisions of this Agreement and each other Transaction Document shall be construed in accordance with their fair meaning, and not strictly for or against any party. This Agreement and the other Transaction Documents have been negotiated by, and entered into between or among, persons that are sophisticated and knowledgeable in business matters. Accordingly, any rule of law or legal decision that would, notwithstanding any of the foregoing provisions, require interpretation of this Agreement and the other Transaction Documents against the party deemed the drafter thereof shall not be applicable and is irrevocably and unconditionally waived.

 

10.4 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to affect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Transaction be consummated as originally contemplated to the greatest extent possible.

 

 

10.5 Entire Agreement. This Agreement, together with the Exhibits (including the Disclosure Schedule) and the other Transaction Documents, constitute the sole and entire understanding and agreement among the Parties with respect to the subject matter contained herein and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including, to the extent it applies to the Transaction, (a) that certain Term Sheet dated April 21, 2023, among Buyer Parent, the Sellers and certain Affiliates of the Sellers and (b) that certain Confidentiality, Non-Disclosure and Non-Circumvention Agreement dated February 22, 2023 between Seller Parent and Buyer Parent. In the event of any inconsistency between the statements in the body of this Agreement and the Exhibits (other than an exception expressly set forth as such in the Disclosure Schedule), the statements in the body of this Agreement will control.

 

10.6 No Assignment; Successors and Assigns. Neither Party may assign its rights or obligations hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns.

 

10.7 No Third Party Beneficiaries. Except as provided in Article VIII, this Agreement is for the sole benefit of the Parties and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

10.8 Amendment And Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

10.9 Federal Government Action. The Parties hereby acknowledge that they are aware of and fully understand that despite the State of Nevada’s medical cannabis laws and the terms and conditions of this Agreement, Nevada medical cannabis cultivators, transporters, distributors or possessors may still be arrested by federal officers and prosecuted under federal law. In the event of a federal arrest, seizure, or prosecution action associated with the Parties’ activities described herein, the Parties agree to hold each other and their respective attorneys harmless for actions undertaken by such Party and agree to be individually responsible for any attorneys’ fees associated with defending such actions. The Parties also agree to waive illegality as a defense to any contract enforcement action related to this Agreement and brought by any Party against another Party.

 

10.10 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada, without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction).

 

 

10.11 Alternative Dispute Resolution; Waiver of Jury Trial. Any controversy, claim or dispute (including the determination of the scope or applicability of this Agreement to arbitrate) between the Sellers, on the one hand, and Buyer, on the other hand, arising out of or relating to this Agreement or any other Transaction Document (a “Dispute”) that cannot be resolved by good faith negotiations between such Parties shall be resolved in accordance with the procedures specified in this Section 10.11, which will be the sole and exclusive procedures for the final resolution of any Dispute. The Parties intend that these provisions will be valid, binding, enforceable and irrevocable and will survive any termination of this Agreement.

 

(a) Any Dispute will be submitted to final and binding arbitration with the JAMS Las Vegas Mediation, Arbitration and ADR Service (“JAMS”) located in the City of Las Vegas, State of Nevada, to be conducted in accordance with the provisions of JAMS’ Comprehensive Arbitration Rules and Procedures as in effect at the time of the arbitration. The arbitration will be conducted by a panel of three (3) arbitrators appointed by JAMS in accordance with its rules. The parties to any such arbitration proceeding may obtain discovery in aid of the arbitration to the fullest extent permitted by Law. All discovery disputes shall be resolved by the arbitrators. In the event of an arbitration, each Party will initially pay the fees of its attorneys, the expenses of their witnesses and any other expenses connected with presenting their claim. Other costs of the arbitration, including the fees of the arbitrators, cost of any record or transcript of the arbitration, administrative fees, and other fees and costs shall be borne one-half by Buyer and one-half by the Sellers. The arbitrators shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted in the state and federal courts in the State of Nevada to resolve a disputed matter. The arbitrators shall have the power to award, and shall award, to the substantially prevailing Party the reimbursement of all of such Party’s reasonable attorneys’ fees, costs and expenses (including expert fees) as well as such administrative fees in connection with such arbitration. Any dispute as to the reasonableness of any fee or cost will be resolved by the arbitrators.

 

(b) Except as may be necessary to enter judgment upon the award or to the extent required by applicable Law, all claims, defenses and proceedings (including the existence of a controversy and the fact that there is an arbitration proceeding) will be treated in a confidential manner by the arbitrators and all those involved in the proceeding. Any controversy relating to the arbitration presented to a court will be filed under seal to the extent permitted by Law. An arbitration award rendered pursuant to this Section 10.11(b) will be final and binding on the Parties and may be submitted to a court of competent jurisdiction for entry of a judgment thereon.

 

(c) In interpreting this Agreement, the arbitrator shall be bound by and follow the substantive law of the State of Nevada. To the extent applicable and not inconsistent with this Section 10.11, the arbitrator shall apply the Federal Rules of Civil Procedure.

 

(d) Any filing or administrative fees shall be borne initially by the party requesting administration by JAMS. If both parties request such administration, the fees shall be borne initially by the party incurring such fees as provided by the rules of JAMS. The initial fees and costs of the arbitrator shall be borne equally by the parties. The prevailing party in any arbitration, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled to reimbursement from the other party(ies) for all of such prevailing party’s costs (including the costs of the arbitration or related proceeding, the arbitrator’s compensation and all attorneys’ fees and expenses).

 

(e) The arbitrator shall render an award and written opinion, and the award shall be final and binding upon the parties. If any of the provisions of this Section 10.11 are determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Section 10.11, and this Section 10.11 shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the arbitration provisions of this Section 10.11 are not absolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law.

 

(f) Except as may be necessary to enter judgment upon the award or to the extent required by applicable Law, all claims, defenses and proceedings (including the existence of a controversy and the fact that there is an arbitration proceeding) will be treated in a confidential manner by the arbitrators and all those involved in the proceeding. Any controversy relating to the arbitration presented to a court will be filed under seal to the extent permitted by Law.

 

 

(g) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR SUCH OTHER TRANSACTION DOCUMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.

 

(h) Notwithstanding the Parties’ agreement to submit all Disputes to final and binding arbitration pursuant to this Section 10.11, the Parties shall have the right to seek and obtain temporary or preliminary injunctive relief or specific performance in any court of competent jurisdiction without the need to post a bond. Such courts shall have authority to, among other things, grant temporary or provisional injunctive relief or specific performance (with such relief effective until the arbitrators have rendered a final award) in order to protect any Party’s rights under this Agreement or otherwise.

 

10.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day and year first above written.

 

	SELLERS
	MMOF VEGAS RETAIL, INC.
	By:	/s/ Ellen Deutsch Harrison
	Name:	Ellen Deutsch Harrison
	Title:	CEO
	MMOF VEGAS RETAIL2, INC.
	By:	/s/ Ellen Deutsch Harrison
	Name:	Ellen Deutsch Harrison
	Title:	CEO
	BUYER:
	RETAIL FACILITIES OPERATIONS NV, LLC
	By:	/s/ Eivan Shahara
		Eivan Shahara
		Manager

 

 

 

Exhibit 99.1

 

MedMen Exits Arizona Market, Completing Sale of Local Operations to MINT Cannabis

 

January 5, 2024

 

BOCA RATON, Fla.—(BUSINESS WIRE)— MedMen Enterprises Inc. (“MedMen” or the “Company”) (CSE: MMEN) (OTCQX: MMNFF), a premier cannabis company with operations across the United States, today announced that the Company has completed the previously announced sale of its non-core business operations in Arizona to an affiliate of Mint Cannabis (“MINT Cannabis”). The pending sale of the Company’s assets in Nevada to MINT Cannabis awaits regulatory approval for completion.

 

“We are pleased to announce the closing of the sale of our business operations in Arizona. As previously stated, the divestiture of non-core operations enables the Company to optimize our go-forward operational footprint,” said Ellen Deutsch Harrison, MedMen’s CEO.

 

ATB Capital Markets acted as financial advisor and Raines Feldman Littrell LLP acted as legal advisor to MedMen. CLD Advisory acted as financial advisor to MINT Cannabis.

 

For more information about MedMen, visit www.medmen.com.

 

About MedMen:

 

MedMen is a premier American cannabis company with an operational footprint in California, Nevada, Illinois, Massachusetts, and New York. MedMen offers a robust selection of high-quality products, including MedMen-owned brands MedMen Red, Moss and LuxLyte, through its premium retail stores, proprietary delivery service, as well as curbside and in-store pickup. MedMen Buds, an industry-first loyalty program, provides exclusive access to promotions, product drops and content. MedMen believes that a world where cannabis is legal and regulated is safer, healthier, and happier.

 

Forward Looking Statements:

 

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of federal securities laws, including the Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of Canadian securities laws (each referred to as “forward-looking statements”). Forward-looking statements include statements regarding intentions, beliefs, projections, outlook, analyses, or current expectations. Many factors could cause actual results, performance or achievement to be materially different from any forward-looking statements, and other risks and uncertainties not presently known to MedMen, as applicable, or that MedMen, deems immaterial, could also cause actual results or events to differ materially from those expressed in the forward-looking statements contained herein. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements, and you should not rely on them as predictions of future events. The forward-looking statements included in this communication are made as of the date of this communication and MedMen does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

 

MedMen Investor Relations Contact:

 

Investors@MedMen.com

 

 

v3.23.4

Cover	Jan. 05, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Jan. 05, 2024
Entity File Number	000-56199
Entity Registrant Name	MEDMEN ENTERPRISES INC.
Entity Central Index Key	0001776932
Entity Tax Identification Number	98-1431779
Entity Incorporation, State or Country Code	A1
Entity Address, Address Line One	6501 Congress Ave.
Entity Address, City or Town	Boca Raton
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	33487
City Area Code	(424)
Local Phone Number	330-2082
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	true
Elected Not To Use the Extended Transition Period	false

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