Item 3. Legal Proceedings
Item
3. Legal Proceedings
From
time to time, we could become involved in disputes and various litigation matters that arise in the normal course of business. These
may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically,
we review the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from
any claim or legal claim is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Legal
proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based
on the best information available at the time. As additional information becomes available, we reassess the potential liability related
to pending claims and litigation.
DelMorgan
Group, LLC et al. v. Ensysce Biosciences, Inc., et al., Los Angeles County Superior Court, Case Number 21 STCV25585
In
July 2021, following the Merger, the Company’s former financial advisor, Del Morgan Group, LLC and Globalist Capital, LLC (together,
“ Plaintiffs ”) filed an action against the Company and its Chief Executive Officer (together, “ Defendants ”)
alleging that the common stock and warrants (together, “ Securities ”) issued to Plaintiffs in satisfaction of its advisory
fee should have been registered and the Securities immediately tradeable. The Plaintiffs asserted various causes of action in furtherance
of their claims. The Plaintiffs were seeking registered and freely tradeable Securities and damages arising from their inability to trade
the Securities, which Plaintiffs asserted are in the millions of dollars. The Defendants believed there were meritorious defenses to
the Plaintiffs claims, and possible counterclaims.
On
August 3, 2021, the Plaintiffs and Defendants entered into a Settlement Agreement and Mutual General Release whereby Plaintiffs would
have their common stock, and the common stock underlying their warrants registered on the Company’s Form S-1 Registration Statement.
In addition, the warrants would be modified to allow for cashless exercise and to reduce the exercise price from $11.50/share to $10.00/share.
In consideration for this, both Parties agreed to release the other from any past, present or future claims. In addition, the Plaintiffs
agreed to immediately stay the proceedings and inform the Superior Court of a conditional settlement and to dismiss the lawsuit with
prejudice five days following the effectiveness of the Form S-1 Registration Statement. On October 6, 2021, the Superior Court dismissed
with prejudice the case filed on July 12, 2021 by the Plaintiffs, following effectiveness of the Resale Registration Statement filed
on August 9, 2021 and amended on September 22, 2021.
Item
4. Mine Safety Disclosures
Not
applicable.
76
PART
II