Item 1.01 Entry into a Material Definitive Agreement.
On May 15, 2023 (the “Closing Date”), TILT Holdings Inc. (the “Company”) and its subsidiaries, Jimmy Jang, L.P., Baker Technologies, Inc., Commonwealth Alternative Care, Inc., and Jupiter Research, LLC (“Jupiter”, and collectively, the “Subsidiary Borrowers”) entered into a Secured Note Purchase Agreement, with Jordan Geotas, as the noteholder representative (the “Noteholder Representative”) on behalf of the purchasers named therein (the “2023 NPA”). Pursuant to the 2023 NPA, Subsidiary Borrowers issued by way of private placement senior secured promissory notes in the aggregate principal amount of US$4,500,000 (the “2023 Bridge Notes”) to the holders with a maturity date of December 1, 2023 (the “Maturity Date”). The 2023 Bridge Notes bear interest at the greater of 16% or the prime rate plus 8.5% payable monthly.
The 2023 Bridge Notes are secured by a security interest in all of the assets of the Subsidiary Borrowers. This security interest is subordinate to the security interest in certain assets that were pledged by Jupiter to secure a revolving credit facility. In addition, payments received by the Noteholder Representative, whether under the 2023 NPA or the 2019 NPA (as defined below), shall be applied to repay the 2023 Bridge Notes whether such payments are as a result of the enforcement of remedies, dispositions, liquidations, or as a result of payments on claims filed in a case under the Bankruptcy Code or other similar proceedings. The 2023 Bridge Notes are also guaranteed by the Company and all subsidiaries of the Company. The equity interests in all subsidiaries of the Company have also been pledged as security for the obligations under the 2023 Bridge Notes.
The 2023 NPA includes affirmative and negative covenants, events of default, representations and warranties that are customary for debt securities of this type. The 2023 Bridge Notes may be accelerated and all remedies may be exercised by the holders in case of an event of default under the 2023 Bridge Notes, which includes events that customarily constitute an event of default for debt securities of this type as well as upon a change of control, the termination of Tim Conder’s employment with the Company for any reason and the failure by the Company to appoint a replacement for Mr. Conder within 90 days that is approved to the Noteholder Representative or any default of event of default under the Secured Note Purchase Agreement dated as of November 1, 2019, as amended by the First Amendment to Secured Note Purchase Agreement dated as of February 15, 2023, by and among the Subsidiary Borrowers, the Company, Noteholder Representative, Noteholders and AP Noteholders (as defined therein) (as amended, the “2019 NPA”).
In addition, pursuant to the 2023 NPA, the Company agreed to keep the number of directors on the Company’s board of directors (the “Board”) at five, of which two directors will be designated by the Noteholder Representative. The Company has also agreed to permit the Noteholder Representative or its designee to attend all meetings of the Board in a non-voting observer capacity. Such person shall be subject to customary confidentiality obligations.
Starting July 1, 2023, the Subsidiary Borrowers are obligated to pay US$750,000 in amortization payments in addition to interest payments and a monthly payment at the beginning of each calendar month the 2023 Bridge Notes are outstanding that is equal to 50% of the Company’s unrestricted cash greater than US$10,000,000 at the end of the prior calendar month. The Subsidiary Borrowers are also obligated to make mandatory prepayments of net cash proceeds from asset sales, casualty and condemnation awards, future equity or debt issuances and the settlement of certain third-party assets.
In connection with the 2023 NPA, the Noteholder Representative under the 2019 NPA has waived the Subsidiary Borrowers’ payment obligations during a forbearance period ending on December 8, 2023 so long as the amounts otherwise due are applied under the 2023 NPA, and has agreed to waive certain financial covenant defaults expected to occur during the forbearance period as a result of the Company and Subsidiary Borrowers entering into and performing their obligations under the 2023 NPA. The promissory notes issued under the 2019 NPA will accrue interest at a default rate (the prime rate plus 8.5%) and late fees at the rate of US$40,000 per month will be incurred during this forbearance period. All interest payments not made when due during the forbearance period, interest at the default rate accrued thereon, and late fees incurred will be due and payable at the end of the forbearance period.
After the Closing Date, but prior to the earliest to occur of (a) an event of default, (b) any other termination or cancellation of the 2023 NPA and (c) June 30, 2023, the Subsidiary Borrowers may sell and issue to the holders up to US$1,500,000 in aggregate original principal amount of promissory notes.
