iAnthus Capital Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Subsequent Events

Subsequent Events

12 Months Ended

Dec. 31, 2021

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 17

Subsequent Events

Legal Proceedings

Please refer to Note 13 for further discussion.

Event of Default and Financial Restructuring

The Company is currently in default of the obligations under the Company’s long-term debt as discussed in Note 1.

As part of the Restructuring Support Agreement with the Secured Lenders and a majority of the Unsecured Debentureholders, dated July 1

, 2020, the Secured Lenders, the Unsecured Debentureholders and the Existing Shareholders of the Company are to be allocated and issued, approximately, the amounts of Restructured Senior Debt (as defined below), Interim Financing (as defined below), Junior

Non-Convertible

Unsecured Notes (as defined below) and percentage of the pro forma common equity, as presented in the following table:


(in ’000s of U.S. dollars)	Restructured Senior Debt 1		Interim Financing 2		8% Senior Unsecured Debentures 3		Pro Forma Common Equity 4
Secured Lenders	$	85,000	$	14,737	$	5,000		48.625	%
Unsecured Debentureholders		—		—		15,000		48.625	%
Existing Shareholders		—		—		—		2.75	%

Total	$	85,000	$	14,737	$	20,000		100	%

(1)

The principal balance of the Secured Notes will be reduced to $85.0 million, which will be increased by the amount of the Interim Financing, which has a first lien, senior secured position over all of the Company’s assets, is

non-convertible

and

non-callable

for three years and includes payment in kind at an interest rate of 8% per year and a maturity date which will be five years after the consummation of the Recapitalization Transaction (the “Restructured Senior Debt”).

(2)

The Secured Lenders provided $14.7 million of interim financing (“Interim Financing”) to ICM on substantially the same terms as the Restructured Senior Debt, net of a 5% original issue discount. The amounts of the Interim Financing along with any accrued interest thereon is expected to be converted into, and the original principal balance will be added to, the Restructured Senior Debt upon consummation of the Recapitalization Transaction.

(3)

The 8% Senior Unsecured Debentures include payment in kind at an interest rate of 8% per annum, a maturity date which will be five years after the consummation of the Recapitalization Transaction, are

non-callable

for three years and are subordinate to the Restructured Senior Debt but senior to the Company’s common shares.

(4)

On January 6, 2022, our Board of Directors approved the terms of a Long-Term Incentive Program recommended by the Board of Director’s compensation committee and, pursuant to which, we will allocate to certain of our employees (including executive officers) restricted stock units and option awards up to, in the aggregate, 5.75% of the fully diluted equity of the Company under the Company’s Amended and Restated Omnibus Incentive Plan dated October 15, 2018 (“LTIP Awards”) in order to attract and retain such employees. The allocations of the LTIP Awards are contingent upon, and will occur within ten days following, the closing of the Recapitalization Transaction contemplated by the Restructuring Support Agreement. All of the Company’s existing warrants and options will be cancelled and the Company’s common shares may be consolidated pursuant to a consolidation ratio which has yet to be determined.

Upon consummation of the Recapitalization Transaction, a new board of directors (the “New Board”) will be composed of the following members: (i) three nominees will be designated by the Secured Lenders; (ii) three nominees will be designated by the Consenting Unsecured Lenders; and (iii) one nominee will be designated by the director nominees of the Secured Lenders and Consenting Unsecured Lenders to serve as a member of the Company’s New Board.

Pursuant to the terms of the proposed Recapitalization Transaction, the Collateral Agent, the Secured Lenders and the Consenting Unsecured Lenders agreed to forbear from further exercising any rights or remedies in connection with any events of default that now exist or may in the future arise under any of the purchase agreements with respect of the Secured Notes and all other agreements delivered in connection therewith, the purchase agreements with respect of the Unsecured Lenders and all other agreements delivered in connection therewith and any other agreement to which the Collateral Agent, Secured Lenders, or Consenting Unsecured Lenders are a party to (collectively, the “Defaults”) and shall take such steps as are necessary to stop any ongoing enforcement efforts in relation thereto. Upon consummation of the Recapitalization Transaction, the Collateral Agent, Secured Lenders and Consenting Unsecured Lenders are also expected to irrevocably waive all Defaults and take all steps required to withdraw, revoke and/or terminate any enforcement efforts in relation thereto.

State-level regulatory approvals remain outstanding in Massachusetts, Maryland, New Jersey, New York and Florida as a result of the Petition until there is a final resolution of the Petition and a final agency order is issued by the OMMU. On January 7, 2022, the New Jersey CRC approved the Company’s acquisition

of 100%

of the equity interest in New Jersey license holder MPX NJ. On February 1, 2022, the Company closed on its acquisition of MPX NJ, which resulted in a requirement for prior regulatory approval for the change of beneficial ownership of MPX NJ that would result from the Recapitalization Transaction will be required as a condition to closing under the Restructuring Support Agreement.

Completion of the Recapitalization Transaction

subject to receipt of the Requisite Approvals. If the Requisite Approvals are obtained, the Plan of Arrangement will bind all Secured Lenders, Unsecured Debentureholders and Existing Shareholders. The Plan of Arrangement was approved by the Court on October 5, 2020. On January 29, 2021, a notice of appeal with respect to the final approval for the Plan of Arrangement received by the Company on November 5, 2020 was dismissed by the British Columbia Court of Appeal. The Company is in progress of obtaining the remaining Requisite Approvals. Specifically, certain of the transactions contemplated by the Recapitalization Transaction have triggered the requirement for an approval by state-level regulators in certain U.S. states with jurisdiction over the licensed cannabis operations of entities owned, in whole or in part, or controlled, directly or indirectly, by the Company in such states. On February 23, 2021, the Nevada

CCB

approved the proposed change of ownership and control of the Company’s wholly-owned subsidiary, GMNV, contemplated by the Recapitalization Transaction. On June 17, 2021, the CCC issued the June 17 Approval. On June 15, 2021, the Company and the Lenders agreed to amend the

utside

Date

by which the Recapitalization Transaction pursuant to the Plan of Arrangement is required to be implemented by from June 30, 2021 to August 31,

2021.

On August 12, 2021, Mayflower’s pending application for its Allston Retail License was approved by the CCC at its August

2021

public meeting. As a result of this August 12, 2021 approval, Mayflower must submit the New COC Application. The New COC Application must be submitted by Mayflower and approved by the CCC before the June 17 Approval can be effectuated. The New COC Application was submitted by Mayflower on November 10, 2021 and is currently pending before the CCC.

On August 20, 2021, the Vermont DPS confirmed that DPS does not require prior approval of the Recapitalization Transaction, except for background checks of the prospective new directors and Interim Chief Executive Officer of the Company to be appointed upon the closing of the Recapitalization Transaction, which background checks have been completed.

On October 29, 2021, the OMMU approved the proposed change of ownership and control of the Company’s wholly-owned subsidiary, McCrory’s, contemplated by the Recapitalization Transaction. On November 19, 2021, the Petition was filed by the Petitioners with the OMMU challenging the OMMU’s approval of the Variance Request and requesting a formal administrative hearing before an administrative law judge at the Florida Division of Administrative

Hearings

. As a result of the Petition, the OMMU informed the Company that the OMMU’s prior approval of the

Variance Request is not an enforceable agency order until such time that there is a final resolution of the Petition and a final agency order is issued by the OMMU.

On August 20, 2021, the Applicants filed the Application with the OSCJ, which sought, among other things, a declaration that the Outside Date be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On October 12, 2021, the OSCJ issued his decision granting the Applicant’s relief sought in the Decision. Specifically, the OSCJ granted the declaration sought by the Applicants and ordered that the Outside Date in the Restructuring Support Agreement be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On November 10, 2021, the Company filed a Notice of Appeal with the Ontario Court of Appeal, which remains pending. See Note 13 for further discussion.

For the

year ended December 31, 2021, restructuring costs of $7.4 million (December 31, 2020

–

$6.8

million), were incurred with respect to the Recapitalization Transaction. To date, the Company has incurred $14.2 million in restructuring costs. Restructuring costs are recorded in the selling, general and administrative expenses on the consolidated statements of operations.

Acquisition of MPX NJ

The Company’s wholly-owned subsidiary, INJ, pursuant to a loan agreement (the “Loan Agreement”) with MPX NJ dated October 24, 201

, exercised its right to convert the principal balance of the loans and accrued interest owed thereon into a

99%

equity interest in MPX NJ, which conversion was subject to certain regulatory approvals. In addition, pursuant to an option agreement (the “Option Agreement”) dated as of the same date with MPX NJ and its current equityholders, INJ exercised its option to acquire the remaining

of MPX NJ for nominal consideration, again subject to certain regulatory approvals. INJ exercised its rights under the Loan Agreement and Option Agreement on February 3, 2021 and February 25, 2021, respectively. On January 7, 2022, the CRC approved INJ’s acquisition of

100%

of the equity interests of MPX NJ. On February 1, 2022, the Company closed on its acquisition of MPX NJ.