SENIOR SECURED CONVERTIBLE NOTE
Exhibit 10.31
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
| Original Issue Date: October 31, 2017 | $11,500,000.00 |
Chicago, Illinois
SENIOR SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, Hightimes Holding Corp., a Delaware corporation (“Parent”), Trans-High Corporation, a New York corporation, High Times Productions, Inc., a New York corporation, Cannabis Business Digital, LLC, a New York limited liability company, High Times, Inc., a New York corporation, New Morning Productions, Inc., a New York corporation, Hemp Times, Inc., a New York corporation, Planet Hemp, Inc., a New York corporation, The Hemp Borrowers of America, Inc., a New York corporation, High Times Cannex Corp., a New York corporation, and High Times Press, Inc., a New York corporation (together with Parent, the “Borrowers” or individually, a “Borrower”), each with a principal place of business at 0000 Xxxxxxxx Xxxxxxxxx, 0xx xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, hereby jointly and severally unconditionally promise to pay to the order of ExWorks Capital Fund I, L.P., a Delaware limited partnership, with its principal place of business located at 000 Xxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000 (“Lender”), or at any other place that Lender may designate in writing, Eleven Million Five Hundred Thousand and 00/100 Dollars ($11,500,000.00) or the lesser principal amount of Loans advanced and outstanding pursuant to the Agreement (defined below), in immediately available funds, together with Expenses, fees and interest on the unpaid principal amount at the rates, on the dates, and in the manner set forth in the Agreement. The Lender and any other subsequent holder or holders of this Note is hereinafter sometimes referred to individually as a “Holder” and collectively, as the “Holders.
This Note is issued in connection with the Second Amendment to Loan and Security Agreement (“Second Amendment”), dated on or about the date set forth above, among Borrowers and Lender. Reference is made to the Agreement for the terms and conditions governing this Note, including, without limitation, the terms and conditions under which this Note may be accelerated. This Note is payable in full on the Maturity Date (defined below), is secured by the Collateral and is otherwise subject to the terms of the Agreement. Capitalized terms used but not otherwise defined in this Note have the meanings attributed to them in the Agreement.
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This Note supersedes in its entirety and replaces (but does extinguish the indebtedness under) a $7,500,000 Line of Credit Note, dated February 27, 2017 among the Lender and the Borrowers, which is hereby deemed cancelled.
To the fullest extent permitted by applicable law, each Borrower hereby waives presentment for payment, demand, notice of non-payment, notice of protest and protest of this Note, diligence in collection or bringing suit. Each Borrower’s obligations under this Note are cross-collateralized and cross-defaulted with all other Obligations owing to Lender by Borrowers.
Lender will, and is hereby authorized to, record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder in its books and records.
This Note is subject to the following additional provisions:
“Agreement” shall mean the Loan and Security Agreement dated as of February 27, 2017 among Borrowers and Lender, as amended or modified and in effect from time to time, including by the First Amendment to Loan and Security Agreement, dated as of August 7, 2017 (“First Amendment”) and the Second Amendment.
“Approved Public Listing” shall mean the listing of the Common Stock of the Parent, OAC or any other Issuer on any Approved Securities Market.
“Approved Securities Market” shall mean any one of The NASDAQ Stock Market LLC, including the NASDAQ Capital Market, the New York Stock Exchange, the Toronto Stock Exchange (including the Toronto Venture Exchange) or the OTC Markets Group Inc. electronic inter-dealer quotation system, including OTCQX, OTCQB, OTCBB and OTC Pink Sheets.
“Base Conversion Shares” shall have the mean set forth in Section 5(c).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(c).
“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of Illinois and New York are authorized or required by law or other governmental action to close.
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“Buy-In” shall have the meaning set forth in Section 4(d)(iv).
“Cash Collateral” shall have the meaning given in Section 4(e) below.
“Change of Control Transaction” except for OAC Merger and related transactions contemplated by the Origo Merger Agreement, (which shall not be deemed to be a “Change of Control Transaction”) means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Parent or other Issuer, by contract or otherwise) of in excess of 50% of the voting securities of the Parent or other Issuer (other than by means of Conversion of the Note), (b) the Parent or other Issuer merges into or consolidates with any other Person, or any Person merges into or consolidates with the Parent or other Issuer and, after giving effect to such transaction, the stockholders of the Parent or other Issuer immediately prior to such transaction own less than 50% of the aggregate voting power of the Borrowers or the successor entity of such transaction, or (c) the Parent or other Issuer sells or transfers all or substantially all of its assets to another Person and the stockholders of the Parent or other Issuer immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction.
“Common Stock” shall mean the collective reference to (a) the shares of Class A voting Common Stock of the Parent, (b) the OAC Shares, or (c) the voting common stock of any other Issuer whose shares of common stock are listed for trading on any Approved Securities Market.
“Common Stock Equivalent” shall mean any notes, debentures or preferred stock that are convertible into shares of Common Stock of an Issuer, and/or any stock options, warrants or other rights entitling the holder to purchase shares of Common Stock of the Issuer.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Option” shall mean Holder’s option to convert some or all of the Obligations into Common Stock as provided in Section 4.
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means that number of shares of Common Stock of the applicable Issuer as shall be determined by dividing (a) the amount of the outstanding Obligations that Holder elects to convert into Common Stock, by (b) the Per Share Price. The applicable number of Conversion Shares shall be subject to adjustment as contemplated by Section 5 below.
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“Fully-Diluted Common Stock” shall mean, as at the date of the first Liquidity Event, the sum of the (a) the outstanding shares of Common Stock of the Issuer, and (b) all Common Stock Equivalents; provided, that the term “Fully Diluted Common Stock” shall not mean or include (i) any shares of Common Stock or Common Stock Equivalents issued in connection with a Public Offering, (ii) any Common Stock issuable under stock options approved under the Parent’s incentive stock option plan, or (iii) any Common Stock or Common Stock Equivalents issued in connection with any acquisition by any Borrower of the assets, securities or business of any other Person that is approved by the Lender.
“Issuer” shall mean the collective reference to (a) the Parent, (b) OAC, (c) any successor in interest to OAC by reason of the reincorporation or conversion of OAC from a Cayman Islands corporation to a Nevada Corporation, as contemplated by the Origo Merger Agreement, or (d) any other corporation resulting from a merger (including a Reverse Merger) with or Sale of Control of the Parent, that is the issuer of the securities in connection with an Approved Public Listing of its Common Stock on an Approved Securities Market.
“Liquidity Event” shall mean the first to occur of:
(a) the consummation of an initial Public Offering of the Parent Common Stock pursuant to an effective S-1 registration statement or a Regulation A+ Offering Circular filed under the Securities Act declared effective or qualified by the SEC, and the listing of the Parent Common Stock for trading on an Approved Securities Exchange (a “Public Offering”); or
(b) consummation of the Origo Merger; or
(c) consummation of a Change of Control Transaction, or
(d) consummation of a Reverse Merger.
“Maturity Date” shall mean February 28, 2018, which date may be extended to as late as August 28, 2018, at the option of the Borrowers, pursuant to the First Amendment.
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“OAC” shall mean Origo Acquisition Corporation, a Cayman Islands corporation.
“Origo Merger” shall mean the merger of HTHC Merger Sub, Inc., a Delaware corporation and a newly-formed wholly-owned subsidiary of OAC (“Merger Sub”) with and into the Parent with the Parent as the surviving corporation of such merger, as a result of which the Parent would become a wholly-owned Subsidiary of OAC or its successor Issuer.
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“Origo Merger Agreement” shall mean that certain Merger Agreement, dated July 24, 2017, among, the Parent, OAC, Merger Sub and Xxxx Xxxxxxxxxx, solely in the capacity as the OAC Representative, as amended on September 27, 2017, as the same may be further amended, modified or restated in its entirety.
“Parent Common Stock” shall mean the shares of Class A Common Stock, $0.0001 par value per share, of the Parent.
“Per Share Price” shall mean the applicable percentage of the per share price of securities issued in connection with a Liquidity Event, to represent the lower of: (i) 100% of the initial per share offering price per share sold to the public in connection with a Public Offering, or (ii) 90% of the per share valuation to Parent’s stockholders in connection with the OAC Merger, or (iii) 90% of the consideration paid per share for Fully-Diluted Common Stock by any third Person to the Parent in connection with a Sale of Control.
“Pre-Money Valuation” shall mean means the product of multiplying (a) the Fully-Diluted Common Stock of the Issuer at the time of the Liquidity Event, by (b) the Per Share Price; provided, however, for all purposes of this Note and any Conversions into Common Stock of the applicable Issuer, such Pre-Money Valuation shall not exceed $225,000,000.
“Reverse Merger” means, in addition to the Origo Merger, a share exchange or merger of the Parent with any other corporation whose Common Stock is traded on an Approved Securities Market, as a result of which 80% or more of the capital stock of the Issuer shall be transferred to the holders of Capital Stock or common Stock Equivalents of the Parent.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).
“Subsidiary” shall mean means a corporation or other entity of whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having the power only by reason of the happening of a contingency) to elect a majority of the directors of the corporation, or other persons performing similar functions for the entity, are owned, directly or indirectly, by any other entity.
“Trading Day” means a day on which the New York Stock Exchange is open for business.
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Section 2. Registration of Transfers and Investment Representation.
a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
Section 3 Reserved
a) Voluntary Conversion. At any time after consummation of a Liquidity Event and until all Obligations are paid in full, the Obligations shall be convertible, in whole or in part, into shares of Common Stock of any applicable Issuer at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof); the foregoing right is sometimes referred to as the Conversion Option and the exercise of the right is sometimes referred to as a “Conversion” or “Conversions”, as applicable). The Holder shall effect Conversions by delivering to the Borrowers a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the amount of the Obligations to be converted and the date on which such Conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is actually delivered hereunder. To effect Conversions hereunder, the Holder shall not be required to physically surrender this Note to the Borrowers unless all Obligations have been so converted. Conversions hereunder shall have the effect of lowering the outstanding Obligations in an amount equal to the applicable Conversion. The Holder and the Issuer shall maintain records showing the amount(s) converted and the date of such Conversion(s).
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e) Prepayments.
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(A) the initial registration statement or offering circular filed with the SEC (collectively, the “Public Offering Documents”) must disclose in the “Use of Proceeds” section, the Proposed Prepayment Amount and any conditions to payment of the Proposed Prepayment Amount, such as receipt by Parent of a minimum amount of gross proceeds from the Public Offering;
(B) Borrowers must provide Holder with true copies of all Public Offering Documents filed with the SEC in connection with the Public Offering and, within three (3) business days of receipt, all comment letters from the SEC;
(C) by so indicating in its Notice of Conversion, Holder may make its exercise of its Conversion Option contingent upon the Borrowers consummating the Public Offering, receiving the minimum gross proceeds set forth in the Public Offering Documents and prepaying the Proposed Prepayment Amount on or before a date up to 90 days after the date of the filing of the initial Public Offering Documents with the SEC;
(D) subject to Borrowers’ compliance with subparts (A) and (B), if the Holder desires to exercise its Conversion Option, the Holder must deliver its Notice of Conversion to Parent (subject to clause (C) above) within the later of the following (the “Permitted Exercise Period”) - thirty (30) days after delivery of the Public Offering Documents or five (5) Business Days before the date the SEC declares the registration statement effective, delivers a “no review” communication to Issuer or approves the offering circular, as applicable (the “Approval Date”);
(D) if the Holder does not exercise its Conversion Option before the end of the Permitted Exercise Period and any Obligations remain after the permitted prepayment, the Holder may not exercise its Conversion Option until at least forty-five (45) days after the end of the Permitted Exercise Period; and
(E) if Holder has timely given a Notice of Conversion in connection with a Public Offering, Holder may withdraw and cancel the Notice of Conversion by giving notice to Borrowers no later than five (5) business days prior to the Approval Date.
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Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Issuer, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Issuer upon Conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Issuer, then the Conversion Price then in effect shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Issuer) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
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a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by electronic communication or sent by a nationally recognized overnight courier service, addressed to the Borrowers, at the address set forth above, or such other facsimile number or address as the Borrowers may specify for such purpose by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Borrowers hereunder shall be in writing and delivered personally, by facsimile, by electronic communication or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Borrowers, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile or electronic communication prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile or electronic communication between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligations of the Borrowers, which are absolute and unconditional, to pay the Obligations at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Borrowers.
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c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Borrowers shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Borrowers.
a) Governing Law, Venue, Jury Trial Waiver. This Note will be governed by and construed under the laws of the State of Illinois as those laws apply to contracts entered into and wholly to be performed within that state. Borrowers irrevocably submit to the non-exclusive jurisdiction of the courts of the State of Illinois located in Cook County and the United States District Court for the Northern District of Illinois for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Note. Borrowers irrevocably consent to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in the referenced Illinois courts. Borrowers irrevocably waive any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH BORROWER WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS NOTE AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
(Signature Pages Follow)
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| HIGHTIMES HOLDING CORP., | ||
| a Delaware corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| TRANS-HIGH CORPORATION, | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| HIGH TIMES PRODUCTIONS, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| CANNABIS BUSINESS DIGITAL, LLC, | ||
| a New York limited liability company | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| HIGH TIMES, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| NEW MORNING PRODUCTIONS, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| HEMP TIMES, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| PLANET HEMP, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| THE HEMP COMPANY OF AMERICA, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| HIGH TIMES CANNEX CORP., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
| HIGH TIMES PRESS, INC., | ||
| a New York corporation | ||
| By: | /s/ Xxxx Xxxxx | |
| Name: | Xxxx Xxxxx | |
| Title: | CEO | |
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert Obligations owing by Hightimes Holding Corp., a Delaware corporation (“Parent”), Trans-High Corporation, a New York corporation, High Times Productions, Inc., a New York corporation, Cannabis Business Digital, LLC, a New York limited liability company, High Times, Inc., a New York corporation, New Morning Productions, Inc., a New York corporation, Hemp Times, Inc., a New York corporation, Planet Hemp, Inc., a New York corporation, The Hemp Borrowers of America, Inc., a New York corporation, High Times Cannex Corp., a New York corporation, and High Times Press, Inc., a New York corporation (together with Parent, the “Borrowers” or individually, a “Borrower”), into shares of Parent Common Stock, according to the conditions hereof, as of the date written below. If shares of Parent Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Parent in accordance therewith. No fee will be charged to the holder for any Conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Parent that its ownership of the Parent Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.
Conversion calculations:
| Date to Effect Conversion: | |
| Principal Amount of Note to be Converted: | |
| Number of Conversion Shares that would exceed the limits set forth in Section 4(c) of the Note: | |
| Number of shares of Common Stock to be issued: | |
| Signature: | |
| Name: | |
| Address for Delivery of Common Stock Certificates: |
Schedule 1
CONVERSION SCHEDULE
The Senior Secured Convertible Note in the original principal amount of $11,500,000 (the “Note”) is issued by Hightimes Holding Corp., a Delaware corporation and the other Borrowers named therein. This Conversion Schedule reflects Conversions made under Section 4 of the above referenced Note.
Dated:
| Date of Conversion (or for first entry, Original Issue Date) |
Amount of Conversion |
Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount) |
Hightimes Holding Corp. Attestation |
