ITEM 1.01. Entry Into a Material Definitive Agreement.
On December 23, 2021, the Company entered into a settlement agreement (the
"Settlement Agreement") with How Smooth It Is, Inc. ("HSII") to terminate the
legal action between the Company and HSII. Under the terms of the Settlement
Agreement, HSII agreed to pay the Company $2,225,000 in monthly installments
beginning February 1, 2022. HSII's payments under the Settlement Agreement are
equal to the greater of $15,000 or 5% of gross revenues of HSII for March
through December 2022 and the greater of $15,000 or 6% of gross revenues for
HSII after January 1, 2023. The payment due under the Settlement Agreement is
reduced to $2,000,000 if HSII makes payments in that amount prior to January 1,
2024.
Concurrently with the Settlement Agreement, HSII and HSII's CEO and principal
shareholder Leonard Cusenza ("Cusenza") entered into a security agreement (the
"Security Agreement") and a consent judgement (the "Consent Judgment") to be
filed with the court in the event of HSII's default under the Settlement
Agreement. Per the Consent Judgment, upon HSII's default, HSII and Cusenza are
required to pay the Company $2,500,000 within thirty days of the court's order
affirming the Consent Judgement. The Settlement Agreement is collateralized by a
first priority security interest in all of the assets of HSII, including its
licenses to operate a marihuana business in the State of Michigan, and all of
the assets of Cusenza.
In consideration for entering into the Settlement Agreement, the Security
Agreement, and the Consent Judgement, the Company, HSII, and Cusenza agreed to
waive and release all claims between them except for claims related to a breach
of the Settlement Agreement. However, the Company reserves the rights to pursue
its claims if HSII or Cusenza committed a crime in their dealings with the
Company.
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