| Long-Term Debt | Note 9 - Long-Term Debt As discussed in Note 2(b), the Company consummated the Recapitalization Agreement with the Secured Lenders and the Unsecured Lenders on the Closing Date, at which time the Company issued the Shares as well as the June Secured Debentures and June Unsecured Debentures in the aggregate principal amount of $ million in exchange for the full satisfaction of the Secured Notes, Unsecured Debentures and the accrued interest and accrued fee obligations in the aggregate amount of $ million. Upon the consummation of the Recapitalization Transaction and as of the Closing Date, all existing Defaults under the Secured Notes and Unsecured Debentures were cured. As a result of the consummation of the Recapitalization Agreement, as of the Closing Date, the Secured Lenders and the Unsecured Lenders owned, in the aggregate, % of the Company’s common shares. Background of Recapitalization Transaction Since March 31, 2020, the Company had not made interest payments due to the Secured Lenders and the Unsecured Lenders. Through June 24, 2022, the Company had been in default on the Secured Notes and Unsecured Debentures, which, as of June 24, 2022, consisted of $ million and $ million of principal amount and $ million and $ million in accrued interest, respectively. In addition, as a result of the default, the Company had accrued additional fees and interest of $ million in excess of the aforementioned amounts. As a result of the March 31, 2020 default, the Board of the Company formed a special committee comprised of the Company’s then five independent, non-management COVID-19,
• renegotiation of existing financing arrangements and other material contracts, including any amendments, waivers, extensions or similar agreements with the Lenders and/or stakeholders of the Company and/or its subsidiaries that the Special Committee determined are in the best interest of the Company and/or its subsidiaries;
• managing available sources of capital, including equity investments or debt financing or refinancing and the terms thereof;
• implementing the operational and financial restructuring of the Company and its subsidiaries and their respective businesses, assets and licensure and other rights; and
• implementing other potential strategic transactions. The Special Committee engaged Canaccord Genuity Corp. as its financial advisor to assist it in analyzing various strategic alternatives to address its capital structure and liquidity challenges. On June 22, 2020, the Company received notice from the Collateral Agent, as collateral agent holding security for the benefit of the Secured Lenders, with a demand for repayment (the “Demand Letter”) under the Amended and Restated Secured Debenture Purchase Agreement dated October 10, 2019 (the “Secured Notes Purchase Agreement”) of the entire principal amount of the Secured Notes, together with interest, fees, costs and other allowable charges that had accrued or might accrue in accordance with the Secured Notes Purchase Agreement and the other Transaction Agreements (as defined in the Secured Notes Purchase Agreement). The Collateral Agent also concurrently provided the Company with a Notice of Intention to Enforce Security under section 244 of the Bankruptcy and Insolvency Act (Canada). On July 10, 2020, the Company and certain of its subsidiaries entered into the Restructuring Support Agreement with the Secured Lenders and the Consenting Unsecured Lenders to affect the Recapitalization Transaction. Under the Restructuring Support Agreement, certain of the Secured Lenders agreed to provide interim financing in the amount of $ million (the “Tranche Four Secured Notes”). Subject to compliance with the Restructuring Support Agreement, the Secured Lenders and the Consenting Unsecured Lenders agreed to forbear from further exercising any rights or remedies in connection with any Defaults. Consummation of the Recapitalization Transaction through the Plan of Arrangement was subject to certain conditions, including obtaining the Requisite Approvals. All Requisite Approvals required to consummate the Recapitalization Transaction were satisfied, conditioned, or waived by the Company, Secured Lenders and Consenting Unsecured Lenders, for purposes of closing the Recapitalization Transaction on the Closing Date. The following table summarizes long term debt outstanding as of December 31, 2022 and 2021:
Secured (1) March May 2019 June Additional June Other Total
As of January 1, 2022 $ 134,902 $ 33,138 $ 24,033 $ — — — $ 1,307 $ 193,380
Fair value of financial liabilities issued 2,066 — — 88,806 26,067 15,708 — 132,647
Accretion of balance 559 730 367 1,467 — 467 — 3,590
Debt extinguishment (123,675 ) (33,868 ) (24,400 ) — — — — (181,943 )
Repayment — — — — — — (362 ) (362 )
As of December 31, 2022 $ 13,852 $ — $ — $ 90,273 $ 26,067 $ 16,175 $ 945 $ 147,312
Secured (1) May 2019 March 2019 Other Total
As of January 1, 2021 $ 115,350 $ 23,240 $ 31,665 $ 920 $ 171,175
Fair value of financial liabilities issued 13,056 — — 160 13,216
Accretion of balance 6,496 793 1,473 295 9,057
Repayment — — — (68 ) (68 )
As of December 31, 2021 $ 134,902 $ 24,033 $ 33,138 $ 1,307 $ 193,380
(1) This amount includes the Company’s obligation to pay an exit fee of $ million that accrued interest at a rate of % per annum (the “Exit Fee”) under the Secured Notes. Accounting for the Recapitalization Transaction On the Closing Date, the Company completed its previously announced Recapitalization Transaction pursuant to the terms of the Restructuring Support Agreement. The Recapitalization Transaction closed pursuant to the terms of the Plan of Arrangement under the Business Corporations Act (British Columbia) approved by the Court. In accordance with debt extinguishment accounting rules outlined in ASC 470-50, Debt-Modifications and Extinguishments On the Closing Date, the Company fully amortized the debt discount costs related to the old debt that were extinguished. As of December 31, 2022, the total and unamortized debt discount costs related to new debt were $20.3 million and $18.4 million, respectively (December 31, 2021— (December 31, 2021— As of December 31, 2022, the total interest accrued on both current and long-term debt was $Nil (December 31, 2021—$ (a) Secured Notes Tranche One On May 14, 2018, the Company issued the Tranche One Secured Notes with a maturity date of Due to the conversion price of $ being less than the Company’s closing stock price on the date of issuance, this gave rise to a beneficial conversion feature valued at $ million. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital on the Closing Date. The discount to the Tranche One Secured Notes was being fully amortized to accretion expense by the original maturity date of . For the year ended December 31, 2022, the amount of amortization recorded in accretion expense was $ (December 31, 2021—$ million), on the consolidated statements of operations. The debt host contract was accounted for using the guidance applicable to non-convertible debt under ASC 470 and was assigned relative fair value of $ million at issuance. It was recorded on the consolidated balance sheets, net of issuance costs of $ million. For the year ended December 31, 2022, interest expense and accretion expense of $ million and $ , respectively, were recorded on the consolidated statements of operations (December 31, 2021—$ million and $ million, respectively). As of June 24, 2022, immediately prior to the consummation of the Recapitalization Transaction, the Company was not in compliance with the market value test, and the Company did not make interest payments, and therefore was in breach of a financial covenant with respect to the Tranche One Secured Notes, Tranche Two Secured Notes (as defined herein), and Tranche Three Secured Notes (as defined herein). Furthermore, the Company was in default on its Secured Notes as of March 31, 2020, and as a result, an event of default occurred on April 4, 2020. This default was triggered on the Company’s long-term debt, which, as of June 24, 2022, consisted of $97.5 million and $60.0 million of principal amount and $38.5 million and $11.9 million in accrued interest on the Secured Notes and the Unsecured Debentures, respectively. As a result of the default and through June 24, 2022, the Company classified the Tranche One Secured Notes, Tranche Two Secured Notes, and Tranche Three Secured Notes as current liabilities on the consolidated balance sheets. As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the Tranche One Secured Notes, Tranche Two Secured Notes, and Tranche Three Secured Notes. For the year ended December 31, 2022, interest expense of $0.8 million (December 31, 2021 – $1.7 million), was recorded in relation to the Exit Fee on the consolidated statements of operations. As of June 24, 2022, the aggregate Exit Fee obligation of $16.2 million was satisfied in connection with the closing of the Recapitalization Transaction (December 31, 2021—$ Tranche Two On September 30, 2019, the Company issued an additional $20.0 million of secured notes (the “Tranche Two Secured Notes”). The Tranche Two Secured Notes accrued interest a % per annum and had an original maturity date o and were convertible int shares of the Company at per share. The Tranche Two Secured Notes were issued with warrants to purchase, in aggregate, up t shares of the Company at an exercise price of per share (“Tranche Two Equity Warrants”). The Tranche Two Equity Warrants expired o , and the principal amount of such notes along with accrued interest at the default rate of 16.0% per annum were extinguished on June 24, 2022 in connection with the closing of the Recapitalization Transaction. The debt host contract was accounted for using the guidance applicable to non-convertible All terms, restrictions and financial covenants applicable to the Tranche One Secured Notes were also applicable to the Tranche Two Secured Notes. As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the Tranche Two Secured Notes. Tranche Three O n December 20, 2019, the Company issued an additional $36.2 million of secured notes (the “Tranche Three Secured Notes”). The Tranche Three Secured Notes accrued interest at . 16.0 The debt host contract is being accounted for using the guidance applicable to non-convertible (December 31, 2021—$ All terms, restrictions and financial covenants applicable to the Tranche One Secured Notes and Tranche Two Secured Notes were also applicable to Tranche Three Secured Notes. As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the Tranche Two Secured Notes. Tranche Four On July 13, 2020, as part of the Recapitalization Transaction, the Company issued an additional $14.7 million as Tranche Four Secured Notes which accrued interest at 8.0% per annum and had an original maturity date of July 13, 2025. On June 24, 2022, the terms of the Tranche Four Secured Notes were materially modified pursuant to the Restructuring Support Agreement and as such, were considered to be extinguished in connection with the closing of the Recapitalization Transaction. The debt host, classified as a liability using the guidance of ASC 470, and was recognized in the amount of $ million, net of issuance costs. The debt instrument was recorded on the consolidated balance sheets, net of issuance costs of $ million. Interest was to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter, and such amount thereafter became part of the principal amount and accrued interest. For the year ended December 31, 2022, interest expense of $0.7 million (December 31, 2021 – $1.3 million) and accretion expense of $0.2 million (December 31, 2021—$ iAnthus New Jersey, LLC Senior Secured Bridge Notes On February 2, 2021, INJ issued the Senior Secured Bridge Notes which originally matured on the earlier of , (ii) the date on which the Company closed a Qualified Financing (as defined below) and (iii) such earlier date that the principal amount may become due and payable pursuant to the terms of such notes. The net proceeds of the Senior Secured Bridge Notes were placed in escrow, and the availability of the funds are subject to drawdown requests that must be approved by Gotham Green Admin 2, LLC, as collateral agent. The Senior Secured Bridge Notes accrued interest at a rate of % per annum (increasing to % per annum in the event of default and decreasing to % per annum upon the completion of the Company’s The debt host, classified as a liability using the guidance of ASC 470, and was recognized in the amount of $ million, net of issuance costs. The debt instrument was recorded on the consolidated balance sheets, net of issuance costs of $ million. Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being March 31, 2021) and such amount thereafter becoming part of the principal amount and will accrue interest. Interest paid in kind will be payable on the date that all of the principal amount is due and payable. For the year ended December 31, 2022, interest expense of $ (December 31, 2021—$ (December 31, 2021—$ . The Senior Secured Bridge Notes are secured by a security interest in certain assets of INJ. The Company provided a guarantee in respect of all of the obligations of INJ under the Senior Secured Bridge Notes, and the Company is in compliance with the terms of the Senior Secured Bridge Notes as of December 31, 2022. On February 2, 2023, the Company and INJ entered into an amendment (the “Amendment”) to the Senior Secured Bridge Notes with all of the holders of the Senior Secured Bridge Notes. Pursuant to the Amendment, the maturity date of the Senior Secured Bridge Notes was extended until February 2, 2024, the interest on the principal amount outstanding was increased to a rate of 12.0% per annum, and an amendment fee equal to 10.0% of the principal amount outstanding of the Senior Secured Bridge Notes as of February 2, 2023 or $1.4 million in the aggregate, was added to such notes such that it will become due and payable on the maturity date. The Senior Secured Bridge Notes are classified as non-current Certain of the Secured Lenders, including Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater than % of the outstanding common shares of the Company upon closing of the Recapitalization Transaction. As principal owners of the Company, these lenders are considered to be related parties. (b) March 2019 Debentures On March 18, 2019, the Company completed a private placement of $35.0 million of unsecured convertible debentures (the “March 2019 Debentures”) and corresponding warrants to purchase 2,177,291 common shares of the Company at an exercise price of $6.43 per share (“March 2019 Equity Warrants”). All of the March 2019 Equity Warrants expired on March 15, 2022. The March 2019 Debentures accrued interest at a rate of 8.0%, per annum, payable quarterly on the last business day of each fiscal quarter, beginning on March 31, 2019. Interest was to be paid in cash, shares, or a combination of cash and shares, up to 50.0%, at the Company’s election. The March 2019 Debentures would have matured on March 15, 2023; however, on June 24, 2022, the outstanding principal of March 2019 Debentures along with related accrued interest and applicable fees were extinguished as part of the closing of the Recapitalization Transaction. The debt host contract was accounted for using the guidance applicable to non-convertible (December 31, 2021—$ The terms of the March 2019 Debentures imposed certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to incur certain additional indebtedness at the subsidiary level. As of June 24, 2022, immediately prior to the consummation of the Recapitalization Transaction, the Company was in default on its interest obligations to the holders of the Secured Notes. This default triggered a cross-default on its interest obligations to the holders of the March 2019 Debentures. As a result of this default, the Company classified the debt as a current liability on the consolidated balance sheets as the March 2019 Debentures were due on demand. As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the March 2019 Debentures. (c) May 2019 Debentures On May , , the Company completed a private placement of $ million of unsecured convertible debentures (the “ Debentures”) and corresponding warrants to purchase common shares of the Company at an exercise price of $ per common share (“ Equity Warrants”). All of the Equity Warrants expired on . The Debentures accrued interest at a rate of %, per annum, on the last business day of each fiscal quarter, beginning on June , . Interest was to be paid in cash, shares, or a combination of cash and shares, up to %, at the Company’s election. The Debentures would have matured on ; however, on June , 2022, the outstanding principal of the May 2019 Debentures along with related accrued interest and applicable fees were extinguished as part of the closing of the Recapitalization Transaction. The debt host contract was accounted for using the guidance applicable to non-convertible (December 31, 2021—$ The terms of the May 2019 Debentures imposed certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to incur certain additional indebtedness at the subsidiary level. As of June 24, 2022, immediately prior to the consummation of the Recapitalization Transaction, the Company was in default on its interest obligations to the holders of the Secured Notes. This default triggered a cross-default on its interest obligations to the holders of the March 2019 Debentures. Further, as a result of this default, the Company classified the debt as a current liability on the consolidated balance sheets as the May 2019 Debentures were due on demand. As of June (d) June Secured Debentures On June 24, 2022 in connection with the closing of Recapitalization Transaction, the Company entered into the Secured DPA, pursuant to which the Company issued the June Secured Debentures in the aggregate principal amount of $99.7 million which accrue interest at the rate of 8.0% per annum , The debt host, classified as a liability using the guidance of ASC 470, and was recognized at the fair value of $84.5 million. Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable. For the year ended December 31, 2022, interest expense and accretion expense of $4.3 million and $1.5 million, respectively, were recorded on the consolidated statements of operations (December 31, 2021 —$ The terms of the Secured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The June Secured Debentures are secured by all current and future assets of the Company and ICM. The terms of the Secured DPAs do not have any financial covenants or market value test and ICM is in compliance with the terms of the June Secured Debentures as of December 31, 2022. The June Secured Debentures are classified as long-term liabilities on the consolidated balance sheets. C L.P. and Parallax Master Fund, LP, collectively held greater than (e) June Unsecured Debentures On June 24, 2022 in connection with the closing of the Recapitalization Transaction, the Company entered into the Unsecured DPA, pursuant to which the Company issued June Unsecured Debentures in the aggregate principal amount of $20.0 million which accrue interest at the rate of 8.0% per annum , The debt host, classified as a liability using the guidance of ASC and was recognized at the fair value of $ million. Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable. For the year ended December 31, 2022, interest expense and accretion expense of $0.8 million and $0.5 million, respectively, were recorded on the consolidated statements of operations (December 31, 2021—$ The terms of the Unsecured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The terms of the Unsecured DPA do not have any financial covenants or market value test, and ICM is in compliance with the terms of the June Unsecured Debentures as of December 31, 2022. The June Unsecured Debentures are classified as long-term liabilities on the consolidated balance sheets. Certain of the Secured Lenders and Consenting Unsecured Lenders, including Gotham Green Fund 1, L.P., Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Gotham Green Credit Partners SPV 1, L.P., Gotham Green Partners SPV V, L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP, Parallax Master Fund, L.P. and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater (f) Additional Secured Debentures Pursuant to the terms of the Secured DPA, ICM issued the Additional Secured Debentures on June 24, 2022 in the aggregate principal amount of $25.0 million which accrue interest at the rate of 8.0% per annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Secured DPA), with a maturity date of June 24, 2027. The debt host, classified as a liability using the guidance of ASC , and was recognized in the amount of $ million. Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being June 30, 2022) and such amount thereafter becoming part of the principal amount, which will accrue additional interest. Interest paid in kind will be payable on the date when all of the principal amount is due and payable. For the year ended December 31, 2022, interest expense of $1.0 million, was recorded on the consolidated statements of operations (December 31, 2021 - $Nil). The terms of the Secured DPA impose certain restrictions on the Company’s operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; issue shares or convertible securities; and sell certain assets. The Additional Secured Debentures are secured by all current and future assets of the Company and ICM. The terms of the Secured DPAs do not have any financial covenants or market value test, and ICM is in compliance with the terms of the Additional Secured Debentures as of December 31, 2022. The Additional Secured Debentures are classified as long-term liabilities on the consolidated balance sheets. Certain of the New Secured Lenders, including Gotham Green Fund 1, L.P., Gotham Green Fund 1 (Q), L.P., Gotham Green Fund II, L.P., Gotham Green Fund II (Q), L.P., Oasis Investments II Master Fund LTD., Senvest Global (KY), LP, Senvest Master Fund, LP and Hadron Healthcare and Consumer Special Opportunities Master Fund, held greater than 5.0% of the outstanding common shares of the Company upon the closing of the Recapitalization Transaction. As principal owners of the Company, certain of the New Secured Lenders are considered to be related parties |
