EXHIBIT 10.1
LOAN AGREEMENT
This Loan Agreement (this "Agreement"), is made as of September 21, 2014
between:
1. Americann, Inc. ("Americann") and
2. Wellness Group Pharms, LLC ("WGP").
INTRODUCTION
WGP has requested that Americann extend credit to WGP in the form of loan
not to exceed $4,760,000 to be used to fund WGP's acquisition, development and
construction of property, plant, equipment, all necessary permits and start-up
costs and expenses in accordance with those costs and operating income and
expense projections shown on the attached Exhibit A. The Property on which the
cultivation and growing facility will be constructed is described on Exhibit B.
AGREEMENT
The parties agree as follows:
1. The Loan.
1.1 Subject to the terms and conditions in this Agreement, Americann will
make a loan (the "Loan") to WGP in the principal amount requested by WGP up to
$4,760,000 (the Commitment Limit). If less than the Commitment Limit is borrowed
initially, and if no event of default has occurred and is continuing, and all
other conditions have been satisfied, subject to the terms, conditions,
obligations and rights of Americann under this Agreement, WGP shall be entitled
to request that additional advances be made to it, such that the total loan
balance outstanding would not exceed the Commitment Limit. Americann will
deposit $50,000 in escrow upon the execution of this Agreement. If the deposit
has not previously been returned to Americann pursuant to the terms of this
Agreement, the deposit will be released to WGP as the first Loan advance (or as
part of the first loan advance).
1.2 The basic term of the loans will be as follows:
Loan amount: $4,760,000
Term: 2 Months
Interest rate: 18% per year
After 12 months, prepayment can be made at 120% of the outstanding
principal of the loan.
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As a condition to making the Loan, WGP will pay Americann a
consulting fee of $47,600 per month for the first 24 months of the Loan. At the
end of the 24 month period, the monthly consulting fee will be adjusted to an
amount equal to $10,000 per month for every $1,000,000 financed (pro rata for
fractional amounts of $1,000,000), based on the outstanding balance of the loan
at the end of such 24 month period.
Principal and Interest (P & I) payments and the consulting fee will
accrue during the first 12 months, but payment will be deferred and applied to
the outstanding principal balance of the Loan which will be repaid over the
remaining 60 months. However, WGP will have the right, but not obligation, to
commence making P & I and/or consulting fee payments at any time during the
first 12 months.
Development Fee equal to 30% of the final total loan amount will be
applied to the outstanding balance of the loan and amortized over the term of
the loan at the rate identified.
Loan drawdowns for the construction phase of the project will be
subject to certifications by the architect and building contractor and will be
based upon the percentage of the project's completion. Loan drawdowns for
start-up costs and expenses will be based upon WGP's budget for such costs,
subject to Americann's approval of the budget.
The Loan will be secured by a mortgage or first deed of trust
against the Property. All other assets, including accounts receivable, equipment
and assignment of leases and rents, if any, will also serve as collateral for
the Loan.
WGP will be required to submit compiled financial statements,
reviewed by an independent accountant, on a monthly basis during the first year
of the loan, with quarterly submissions thereafter.
2. License Application.
2.1 WGP will promptly make an application to the appropriate authorities in
Illinois for a license to construct and operate a marijuana cultivation and
growing facility. WGP will use its best efforts to have the license granted. WGP
will promptly apprise Americann of any communications it receives from
applicable Illinois agencies or authorities, and will forward to Americann,
within two days of receipt, copies of any communication it receives from any
person relative to the license application.
2.2 WGP will notify Americann (via email), within two days of receiving
notification that its license application has been accepted or rejected.
2.3 Within seven days of receiving notification that its license
application has been accepted, WGP must notify Americann of its election to
proceed to close the Loan. If WGP does not notify Americann of its election to
proceed to close the Loan, WGP must pay Americann a breakup fee of $150,000,
which will be payable to Americann via wire transfer upon the expiration of such
seven day period, plus $47,600 per month for twenty-four months.
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2.4 If WGP does not notify Americann of its election to close the Loan, the
deposit will be returned to Americann.
2.5 If a license to construct and operate a marijuana cultivation and
growing facility has not been granted to WGP by January 31, 2015, then
Americann, at any time thereafter, may at its sole option, terminate this
Agreement by written notification to WGP. Upon such termination, the deposit
will be returned to Americann.
2.6 If WGP's license is rejected, but WGP decides to reapply for a license,
WGP will give Americann notice of such fact, and the provisions of Sections 2.1
through 2.5 will apply to any new license application.
3. Conditions to Americann's Obligation to Close.
The obligation of Americann hereunder to fund the Loan is subject to the
satisfaction, at or before the Closing, of each of the following conditions,
provided that these conditions are for Americann's sole benefit and may be
waived by Americann at any time in its sole discretion by providing WGP with
prior written notice thereof. WGP will use its best efforts to satisfy these
conditions.
3.1 The promissory note evidencing the Loan, together with the mortgage,
deed of trust, security agreements, account control agreements, assignments of
receivables and rents, as well as any other collateral documents reasonably
requested by Americann (the "Security Documents"), will be on terms acceptable
to Americann.
3.2 The Security Documents shall have been executed and delivered to
Americann, and WGP will have taken such other actions, as in each case, as shall
be necessary or, in the opinion of Americann, to perfect a first priority lien
in the Property and a first priority security lien on the other assets securing
the Loan.
3.3 WGP shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the construction and operation of
a marijuana cultivation and growing facility on the Property.
3.4 WGP will have all necessary (i) certificates, licenses, and other
approvals, governmental and otherwise, for the operation of the of a marijuana
cultivation and growing facility on the Property and (ii) zoning, building code,
land use, environmental and other similar permits or approvals, all of which
will be currently in full force and effect and not subject to revocation,
suspension, forfeiture, or modification, acceptable to Americann at its sole and
absolute discretion. The Property and its use and occupancy will be in full
compliance with all applicable laws and WGP will have received no notice of any
violation or potential violation of the applicable laws which have not been
remedied or satisfied, and the zoning classification of the Property permits the
use of the Property as intended.
3.5 The Property will be free from damage caused by fire or other casualty.
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3.6 Within two business days prior to the Closing, WGP shall have delivered
or caused to be delivered to Americann (A) certified copies of UCC search
results, listing all effective financing statements which name as debtor WGP
filed in the prior five years, together with copies of such financing
statements, none of which, except as otherwise agreed in writing by Americann,
shall cover any of WGP's assets which will serve as security for the Loan, as
well as the results of searches for any tax liens or judgment liens filed
against WGP or its property, which results, except as otherwise agreed to in
writing by Americann shall not show any such liens; and (B) a UCC perfection
certificate, duly completed and executed by WGP, in form and substance
satisfactory to Americann.
3.7 Americann shall have been provided the following for its review and
approval, and such approval shall be granted or withheld in Americann's sole
discretion:
a) A lender's title insurance policy, to be issued at WGP's sole
cost and expense, made in favor of Americann, committing to issue to
Americann, as lender, extended coverage title insurance policy for the
Property, in an amount equal to the purchase price of the Property,
subject only to those certain exceptions to title acceptable to an
Americann, in its sole and absolute discretion;
b) A Phase I environmental inspection prepared by an
environmental engineering company acceptable to Americann, acquired at
WGP's sole cost and expense, of the Property and acceptable to
Americann in its sole and absolute discretion. In the event the Phase
I inspection report recommends a Phase II environmental inspection,
WGP shall promptly order such Phase II environmental inspection at its
sole cost and expense, certified to Americann, which shall be
acceptable to Americann at its sole and absolute discretion;
c) Building elevations, drawings of interior partitions,
electrical equipment, lighting and HVAC locations and specifications
and other features of the facility reasonably requested by Americann;
d) Evidence satisfactory to Americann that the Property can be
acquired and a cultivation and growing facility can be constructed on
the Property, in accordance with the specifications approved by
Americann, for an amount not exceeding the Commitment Limit;
e) An insurance Policy insuring the Property against fire and
casualty, and insuring Americann against general liability, naming
Americann as "an additional insured", in form and substance acceptable
Americann;
f) Evidence that all costs and expenses for labor, materials,
supplies, and equipment used in the construction of any improvements
on the Property have been paid in full;
g) Evidence that all taxes, fees and other charges relating to
the Property, and in connection with the execution, delivery and
recording of the Security Documents shall have been paid, and all
delinquent taxes, assessments or other governmental charges or liens
affecting the Property, if any, shall have been paid. WGP shall
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provide a treasurer's tax certificates disclosing that no general and
special taxes or assessments encumbering the Property are delinquent
and that the Property does not lie within any special or general
assessment district except as approved by Americann;
h) A certificate evidencing WGP's good standing issued by the
Illinois Secretary of State (or comparable office), as of a date
within ten (10) days of the Closing Date;
i) An appraisal by a real estate appraiser reasonably acceptable
to Americann that shows an appraised value of the Property equal to or
greater than the purchase price to be paid by WGP for the Property;
j) At WGP's sole cost and expense, a current ALTA improvement
survey plat of the Property acceptable to Americann and the title
company issuing the title policy indicating, without limitation, that
all foundations or other improvements currently constructed are
located within the lot lines, without infringement on established
easements or rights-of-way and not in violation of any ordinance
including zoning ordinances which impose lot line setback requirements
and parking requirements. The survey shall show the legal description
of the Property as it will be insured by the title company, the
courses and distances of the Property lot lines, all appurtenant
service easements, setbacks, building lines and width of abutting
streets, distance to nearest intersecting streets affording ingress
and egress to and from the Property, and the location and dimensions
of all encroachments, improvements, above or below ground easements
and utilities, and designated parking spaces. The surveyor shall also
certify whether or not any portion of the Property is located within a
Federal Emergency Management Agency identified flood-prone area of a
community and if located thereon, state the map number and whether or
not the Property appears in the "Flood Hazard Area." The survey must
be certified as accurate by a licensed surveyor in Illinois and
contain a certificate imprinted thereon in the form approved by the
ALTA stating that the survey is made for the benefit of Americann and
the title company issuing the title policy;
k) Evidence that any and all other requirements which may be set
forth in the Security Documents, as reasonably determined necessary by
Americann in its sole and absolute discretion, have been met; and
l) Such other documents relating to the Loan as Americann or its
counsel may reasonably request.
4. Closing.
4.1 The Closing of the Loan will take place at the offices of Americann not
less than 60 days after Americann receives WGP's notice pursuant to Section 2.4
that it has agreed to proceed with the Loan. Subject to the foregoing, the
Closing will take place at a mutually agreeable time and date. However, if the
closing has not taken place by July 15, 2015, due to no fault of Americann or
WGP, then either party may terminate this Agreement by written notice to the
other, and neither party will have any liability to the other party.
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5. Termination.
5.1 In the event that the Closing shall not have occurred on or before July
15, 2015 due to Americann's or WGP's failure to satisfy the conditions set forth
in this Agreement (and the non-breaching party's failure to waive such
unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party after such date by
delivering a written notice to that effect to the other, and may recover damages
for such breach. Notwithstanding the above, if WGP does not use its best efforts
to provide Americann with the documentation/information specified in Section 3
within 5 days after Americann receives WGP's notice pursuant to Section 2.4 that
it has agreed to proceed with the loan, WGP will pay Americann, as liquidated
damages and not as a penalty, an amount equal to the breakup fee, plus
Americann's legal, accounting, consulting, travel, and other out-of-pocket
expenses incurred in connection with the transaction contemplated by this
Agreement. If Americann is ready to close the Loan, but WGP refuses to execute
the documents required to close the Loan, WGP will pay Americann, as liquidated
damages and not as a penalty, an amount equal to the breakup fee, plus
Americann's legal, accounting, consulting, travel, and other out-of-pocket
expenses incurred in connection with the transaction contemplated by this
Agreement.
6. Miscellaneous.
6.1 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than Illinois.
6.2 Arbitration. Any dispute or claim involving this Agreement will be
settled through binding arbitration pursuant to the Commercial Arbitration Rules
of the American Arbitration Association in Denver, Colorado.
6.3 Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
6.4 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
6.5 Severability. If any provision of this Agreement is prohibited by law
or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
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hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
6.6 Amendments. Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
Americann and WGP. Without limiting the foregoing, WGP confirms that Americann
has not made any commitment or promises or has any other obligation to provide
any financing to WGP or otherwise.
6.7 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party) or by electronic mail; or (iii) one Business
Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be:
If to Americann:
Americann, Inc.
0000 Xxxxxxxx Xxxx. Xxxx 000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile:
Attention: Xxxxxxx Xxxxx
E-mail: xxx@xxxxxxxxx-xxx.xxx
With a copy to:
Xxxx & Xxxx, LLC
0000 Xxxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 303-839-5414
Attention: Xxxxxxx Xxxx, Esq.
E-mail: xxxxxxxxxx@xxx.xxx
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If to WGP:
p-1411 Xxxx Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxxx, XX 00000
Telephone:
Facsimile:
Attention:
E-mail:
6.8 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party.
6.9 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
6.10 Negotiations with Third Parties. Until this Agreement is terminated
pursuant to its provisions, WGP will not, directly or indirectly, negotiate with
any third party with respect to obtaining financing to acquire the Property or
construct and equip a marijuana cultivation and growing facility. For purposes
of the foregoing, financing includes any type of debt or equity financing, or
financing obtained from a joint venture or other enterprise.
6.11 Additional Capital. Americann will have the first right of refusal to
provide any additional capital which WGP may require to acquire the Property,
construct and equip a marijuana cultivation and growing facility, and/or for
start-up costs and expenses.
6.12 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.13 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
6.14 Remedies. Each party having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
6.15 Usury Savings Clause. It is the intent of Americann and WGP in the
making to contract in strict compliance with applicable usury laws. In the
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furtherance thereof, Americann and WGP stipulate and agree that none of the
terms and provisions contained herein, or in any note or security agreement, or
in any other instrument executed in connection herewith, shall ever be construed
to create a contract to pay for the use, forbearance, or detention of money,
interest at a rate in excess of the maximum interest rate permitted to be
charged by applicable law; that neither WGP nor any guarantor, endorser, or
other party now or hereafter becoming liable for payment of any obligations to
Americann shall ever be required to pay interest on the Loan or required by the
Security Documents at a rate in excess of the maximum interest that may be
lawfully charged under applicable law, and the provisions of this Section shall
control over all other provisions of this Agreement, the Security Documents, and
any other instruments now or hereafter executed in connection herewith which may
be in apparent conflict herewith. Americann expressly disavows any intention to
charge or collect excessive or unearned interest or finance charges in the event
that maturity of the Loan is accelerated. If the maturity of the Loan shall be
accelerated for any reason or if the principal of the Loan obligations are paid
prior to the end of the term, and as a result thereof the interest received for
the actual period of existence of the Loan obligations exceeds the applicable
maximum lawful rate, Americann shall, at its option, either refund to WGP the
amount of such excess or credit the amount of such excess against the principal
balance of the Loan then outstanding (without prepayment premium or similar
charge) and thereby shall render inapplicable any and all penalties of any kind
provided by applicable law as a result of such excess interest. In the event
that Americann shall contract for, charge, or receive any amount or amounts
which are deemed to constitute interest which would increase the effective
interest rate on the obligations evidenced by the Notes to a rate in excess of
that permitted to be charged by applicable law, all such amounts deemed to
constitute interest in excess of the lawful rate shall, upon such determination,
at the option of Americann, be either immediately returned to WGP or credited
against the principal balance of the amounts then outstanding (without
prepayment premium or similar charge), in which event any and all penalties of
any kind under applicable law as a result of such excess interest shall be
inapplicable. By execution of this Agreement, WGP acknowledges that it believes
the obligations to be non-usurious, and agrees that if, at any time, WGP should
have reason to believe that the Loan obligations are in fact usurious, it will
give Americann notice of such condition, and WGP agrees that Americann shall
have ninety (90) days in which to make appropriate refund or other adjustment in
order to correct such condition if in fact such exists. The term "applicable
law" as used in this Section shall mean the laws of the State of Illinois or the
laws of the United States, whichever laws allow the greater rate of interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
[Signature Page Follows]
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IN WITNESS WHEREOF, Americann and WGP have caused their respective
signature page to this loan to be duly executed as of the date first written
above.
AMERICANN, INC.
By: /s/ Xxxxxxx Xxxxx
----------------------------
Name: Xxxxxxx Xxxxx
Title: President
WELLNESS GROUP PHARMS, LLC
By:-----------------------------
Name: Xxxx Xxxxxx
Title: Manager
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Annex No. 1 to the Loan Agreement
Between AmeriCann, Inc. and Wellness Group Pharms, LLC
This Annex No. 1 ("Annex No. 1") is made as of February 23, 2015 between:
1. AmeriCann, Inc. ("AmeriCann"); and
2. Wellness Group Pharms, LLC ("WGP").
Whereas, the parties entered into a loan agreement dated September 21, 2014,
which is attached hereto as Exhibit No. 1 ("Loan Agreement");
Whereas, WGP received notification from the Illinois Department of Agriculture
on February 2, 2014, that WGP was selected to receive an operating permit to
construct and operate a marijuana cultivation and growing facility (the
"Facility") in Illinois State Police District 22, which is attached hereto as
Exhibit No. 2;
Whereas, WGP has contracted with Aspen American Insurance Company to put in
place the bond described in and required by Exhibit No. 2. The contract with
Aspen American Insurance Company, pursuant to which Aspen American Insurance
Company will issue the bond, is attached hereto as Exhibit No. 3;
Whereas, WGP requires funds in an amount and on conditions different than stated
in the Loan Agreement;
Whereas, due to the change in the relationship between the parties specified in
the Loan Agreement, the parties agree to amend the Loan Agreement as follows:
1. The New Loan (the "New Loan")
1.1 New Loan amount: $2,772,724, subject to clause 7.4
End of Term: End of Pilot Program (currently December
Interest rate: 31, 2017) 18% per annum
1.2 The New Loan shall be designated as working capital for WGP to
undertake and carry out operations in the Facility.
1.3 WGP shall treat all amounts received from AmeriCann under the
Loan Agreement, and under this Annex No. 1, as a debt obligation
due to AmeriCann and shall be reflected as such on its balance
sheet.
1.4 WGP shall not contract for any additional debt without first
obtaining AmeriCann's approval. If AmeriCann consents to WGP
contracting for any additional debt, all and any such additional
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debt approved by AmeriCann shall be subordinate to AmeriCann's
senior position.
1.5 Any and all security instruments provided to AmeriCann to secure
any and all amounts paid out by AmeriCann shall be first-ranking
security positions.
1.6 Clauses 1.3, 1.4, and 1.5 above shall not apply in the event
AmeriCann totally converts the New Loan into a share in gross
revenue under clause 13.1 below.
1.7 Clause 1.4 shall not apply in the event clause 11.2 becomes
applicable.
1.8 Interest on the New Loan shall initially accrue and be added to
the New Loan as principal until the first calendar month in which
WGP commences operations in the Facility ("Accrued Interest").
During this period, Accrued Interest becoming principal shall be
paid along with the New Loan principal and the Accrued Consulting
Fee in accordance with clauses 6.3 and 6.4 of this Annex No. 1.
1.9 The Parties agree to negotiate extension of the term of the loan,
in good faith, if the term of the Pilot Program is extended by
the State of Illinois.
2. Drawdown No. 1 on the New Loan
2.1 Drawdown No. 1 shall be in the amount of $600,000.
2.2 AmeriCann shall undertake the necessary procedures to initiate a
wire transfer for $400,000 to Aspen American Insurance Company
before 12:00pm MT Monday, February 23, 2015, and shall deliver to
WGP by the close of business on February 24, 2015 a certified
check payable to the Department of Agriculture for $200,000.
Failure of AmeriCann to comply with the terms of this clause 2.2
shall render this Annex No. 1, and the Loan Agreement,
terminated, and neither party shall have any rights or
obligations to the other party under this Annex No. 1 or the Loan
Agreement.
3. Designation of Drawdown Xx. 0
Xxxxxxxx Xx. 0 xxxxx xx designated as follows:
3.1 $400,000 shall be placed in escrow to the secure the bond
contract constituting Exhibit No. 3.
3.2 $200,000 shall be paid to the Illinois Department of Agriculture
for the license fee described in and required by Exhibit No. 2.
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4. Documentation Evidencing and Securing Drawdown No. 1
4.1 The parties shall enter into a Commercial Promissory Note for
Drawdown No. 1 simultaneously with the signing of this Annex No.
1, and the executed Commercial Promissory Note shall constitute
Exhibit No. 4 to this Annex No. 1.
4.2 The parties shall enter into a Security Agreement for Drawdown
No. 1 simultaneously with the signing of this Annex No. 1 and the
executed Security Agreement shall constitute Exhibit No. 5 to
this Annex No. 1. The executed Security Agreement shall secure
all amounts of the New Loan paid out.
5. Additional Drawdowns on the New Loan
5.1 Additional drawdowns on the New Loan shall be in the amounts and
paid out in accordance with the draw schedule and by the
deadlines specified in Exhibit No. 6 to this Annex No. 1
("Working Capital Draw Schedule and Construction Budget").
5.2 The parties shall enter into a Commercial Promissory Note for any
and all additional drawdowns on the New Loan on the day preceding
the day AmeriCann is to undertake the necessary procedures to pay
out any and all additional drawdowns. The executed Commercial
Promissory Notes shall be attached to, and become a component
part of, this Annex No. 1.
5.3 The executed Security Agreement constituting Exhibit No. 5 to
this Annex No. 1 shall also secure any and all additional
drawdowns of the New Loan.
6. Repayment of the New Loan, and Payment of Accrued Interest and the
Accrued Consulting Fee.
6.1 Repayment of the New Loan by WGP to AmeriCann, and simultaneous
payment of Accrued Interest and the Accrued Consulting Fee as
defined in clause 7.4 below, shall be in monthly installments
commencing with the calendar month in which WGP begins operations
in the Facility based on the principles described in this Section
6.
6.2 The amount of the monthly payment shall be determined on the
first business day of the month on the basis of the calculations
described in this Section 6 and in particular on the basis of
clauses 6.3 and 6.4 below.
6.3 WGP shall be allowed to maintain a total of $250,000 in cash on
hand and in all of its bank accounts, as working reserve capital.
If WGP has total balances of $250,000 or less as cash on hand and
in all of its bank accounts on the first business day of a
particular month, there shall be no repayment of the New Loan or
payment of Accrued Interest and the Accrued Consulting Fee.
6.4 Subject to clause 12.7, if the cash on hand and the balances in
all of WGP's bank accounts exceed $250,000 on the first business
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day of a particular month, ninety percent (90%) of the balance
exceeding $250,000 shall be paid to AmeriCann as a monthly
installment for repayment of the New Loan and for payment of
Accrued Interest and the Accrued Consulting Fee. WGP may
distribute the remaining ten percent (10%) of the balance
exceeding $250,000 in that particular month in its discretion.
6.5 If WGP is to make a monthly installment for repayment of the New
Loan and for payment of Accrued Interest and the Accrued
Consulting Fee to AmeriCann under clause 6.4 above, the payment
shall be made to AmeriCann by the 10th day of that particular
month.
6.6 WGP shall disclose any and all bank accounts to which it is the
beneficiary to AmeriCann while this Section 6 is in force and
applicable, and WGP shall disclose the relevant accounting
records to account for any and all cash on hand. For the
avoidance of doubt, cash on hand means any monies to which WGP
comes into possession or to which WGP obtains legal title due to
its operations in the Facility.
6.7 WGP shall disclose the amount of cash on hand and the balance of
any and all bank accounts to which it is the beneficiary to
AmeriCann as near to the first business day in a particular month
as is reasonably possible, but no later than on the first
business day of a particular month. This disclosure shall be made
by presenting the accounting ledgers showing cash on hand and by
presenting the bank statements for any and all bank accounts to
which WGP is the beneficiary. WGP shall have a right to demand
the accounting ledgers showing cash on hand and the bank
statements showing the balance of any and all bank accounts on
the first business day of a particular month if it suspects that
a significant payment of cash or a deposit to an account was made
between the date WGP disclosed all balances of its accounts and
the first business day of the month.
6.8 WGP shall not pay any cash or transfer any funds from any and all
of its bank accounts at any time other than in the ordinary
course of its business. WGP shall not allow any funds or
receivable due to it from the ordinary course of its business to
be paid in cash to a third party or to be transferred to an
account other than to an account to which it is the beneficiary.
For the avoidance of doubt, this prohibition on paying cash and
transferring funds is intended to prohibit WGP from making any
distribution to any party that may be related to WGP or have an
interest in WGP's business in the Facility; for the avoidance of
doubt, this prohibition on paying cash and transferring funds is
intended to prohibit WGP from avoiding repayment of the New Loan
and the Accrued Consulting Fee due to this Section 6 being in
force.
6.9 This Section 6 shall lose force upon full repayment of the New
Loan and the Accrued Consulting Fee and WGP may then distribute
cash and funds from its bank accounts in its full discretion.
6.10 WGP will have the right, but not the obligation, to commence
making repayment of the New Loan and payment of the Accrued
Consulting Fee at any time without penalty.
4
6.11 On or before the fifth day of each month, AmeriCann shall provide
a monthly statement to WGP reflecting the balance due on the New
Loan, plus any Accrued Consulting Fee, and any Accrued Interest,
net of any payments made by WGP.
7. Consultancy Arrangement
7.1 The parties agree to prepare and enter into, with all reasonable
haste, a consulting services contract ("Consultancy Contract")
that will take into account the principles specified in this
Annex No. 1 and specified in particular in this Section 7.
AmeriCann shall deliver a draft of the Consultancy Contract to
WGP for review.
7.2 The term of the Consultancy Contract shall be for a minimum
period of twelve (12) years commencing on March 1, 2015. The
Consultancy Contract shall expire simultaneously with the Lease
Contract described in Section 12 of this Annex No. 1.
7.3 The consulting fee payable by WGP to AmeriCann under the
Consultancy Contract shall be a monthly fee of Twenty Thousand
Dollars ($20,000) per month (the "Consulting Fee").
7.4 The Consulting Fee shall initially accrue and be added to the New
Loan as principal until the first calendar month in which WGP
commences operations in the Facility (the "Accrued Consulting
Fee"). WGP shall pay the Accrued Consulting Fee as specified in
Section 6 of this Annex No. 1 and in particular clauses 6.3 and
6.4. WGP will have the right, but not the obligation, to commence
making Consulting Fee payments at any time prior to the time
required under Section 6 of this Annex No. 1.
7.5 In the calendar month immediately after the calendar month in
which WGP commences operations in the Facility, WGP shall pay the
Consulting Fee by the 10th day of the month for which the
Consulting Fee shall be due. AmeriCann shall issue an invoice for
the Consulting Fee by the first day of each month (or the first
business day after the first day of the month if the first day of
the month lands on a non-business day) for the month for which
the Consulting Fee shall be due.
7.6 WGP shall not assign its rights and obligations under the
Consultancy Contract to a party that assumes WGP's obligations
thereunder without the prior written consent of AmeriCann.
7.7 Any deviation in the Consultancy Contract from the principles in
this Section 7 may only be through an instrument in writing
signed by the parties hereto.
8. Formation of an Executive Committee
8.1 The parties agree to the formation of an Executive Committee for
purposes of performing management over construction of the
Facility and over the subsequent operation of the Facility.
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8.1.i. AmeriCann acknowledges that management and administration
decisions, specifically matters relating to personnel, marketing
and other incurred day to day operating expenses, are to be
controlled by WGP, and not by the Executive Committee.
8.2 The Executive Committee shall have decision-making authority over
all significant decisions related to construction of the Facility
and subsequent operation of the Facility. AmeriCann acknowledges
that certain Construction Services Contract dated September 28,
2014, by and between WGP and Icon Construction Services, LLC
("Construction Contract"), which is attached hereto as Exhibit
No. 8. AmeriCann and the Executive Committee shall honor and
comply with the Construction Contract for the first phase of the
project. AmeriCann intends to utilize Icon Construction for
future phases of the project. AmeriCann will pay for the total
construction costs, including all interior finishes and
production equipment and systems necessary for the production of
cannabis products as contemplated by WGP and AmeriCann and as
described herein, but if the actual costs for the first phase of
the project exceed the Construction Budget, the difference will
be added to the Working Capital Loan to WGP. If necessary, this
will be determined by an independent arbitrator.
8.2.i In the event that AmeriCann has provided the full allotment of
capital according to the Working Capital Draw Schedule and
Construction Budget, and Icon Construction Services, LLC has
failed to meet the construction schedule, except for good cause
or reasons of force majeure, AmeriCann reserves the right to
terminate the construction contract and replace Icon Construction
with another qualified contractor to complete the project within
the required timeframe.
8.3 The parties agree to prepare with all reasonable haste additional
guidance concerning what will constitute a significant decision
and what types of decisions will not be determined by the
Executive Committee.
8.4 The Executive Committee shall consist of three persons. One
representative shall be appointed by WGP, one representative
shall be appointed by AmeriCann, and one independent
representative with cannabis or horticultural industry experience
shall be appointed. AmeriCann shall have the right to appoint
this representative as well as to replace this independent
representative at its sole discretion.
8.5 The Executive Committee shall be responsible for determining
issues by a majority vote.
8.6 AmeriCann will pay any compensation that may be required to the
independent representative for serving on the Executive
Committee. None of these costs will be added to the project's
construction or operating costs.
6
9. Meetings of the Executive Committee
9.1 The Executive Committee shall meet as frequently as deemed
necessary by the Executive Committee. Any single member of the
Executive Committee may call a meeting upon at least 48 hours'
notice. It is expected that during any phases of construction and
design meetings for future phases that meetings would be more
frequent.
9.2 Meetings of the Executive Committee may take place by phone or
other electronic means.
9.3 Upon convening, the WGP representative shall act as a secretary,
to take notes during the meeting and to record the voting on
issues addressed during the meeting.
9.4 The secretary shall circulate the notes/a report to the other
members of the Executive Committee by email within two (2)
business days following the meeting.
10. The Property Transaction
10.1 The land to be acquired for the Facility consists of 701,769 sq.
ft. or approximately 16.1 acres located in Xxxx, Illinois at 000
Xxxx Xxxxx Xxxx (the "Property"). The contract to acquire the
land under which WGP is the purchasing party is attached hereto
as Exhibit No. 7, which also consists of a Second Amendment to
the Agreement for Purchase.
10.2 AmeriCann shall become the purchasing party in the transaction to
acquire ownership of the Property. WGP shall take the necessary
legal steps to assign the right to acquire ownership of the
Property to AmeriCann.
11. Construction of the Facility
11.1 AmeriCann shall construct the Facility on the Property, based on
the Construction Contract. The first phase of construction of the
Facility, which shall be an approximate 27,000 square foot
pre-engineered building, shall be completed so that WGP, in
accordance with plans and specifications as presented in WGP's
application to the State of Illinois, may commence operations
within six (6) months from the calendar month in which the
Illinois Department of Agriculture issued the operating permit to
construct and operate the Facility.
11.2 Subject to clause 11.3 below, in the event that AmeriCann fails
to make capital disbursements required by the project in
accordance with the amount and time requirements set forth in the
Working Capital Draw Schedule and Construction Budget attached
hereto as Exhibit No. 6, any provisions in this Annex No. 1 and
any provisions in the Loan Agreement, that are not by their
nature provisions for repayment of a loan in a loan contract
shall become void (but the Lease Contract will continue in full
force and effect, without Turnover Rent or Performance Fee). All
loan disbursements made as of the date that the additional
contract terms become void shall be repayable to AmeriCann under
their same repayment terms and conditions. Any Accrued Consulting
7
Fees shall be converted to loans payable under the same terms and
conditions as other disbursements under this Annex No. 1 and the
Loan Agreement. The Security Agreement shall stay in effect
regarding existing disbursements, Accrued Consulting Fees, and
any other accrued fees and costs. Should this clause 11.2 become
applicable, WGP shall have the right to raise capital to complete
the project in the event that AmeriCann fails to make required
capital disbursements, and AmeriCann must subordinate its rights
under the Security Agreement to any new source of financing by
WGP.
11.3 The parties hereby jointly acknowledge that all time frames for
payout of the capital disbursements required by the Working
Capital Draw Schedule and Construction Budget in Exhibit No. 6
are approximate as of the date this Annex No. 1 is signed and the
deadlines for payouts under the Working Capital Draw Schedule and
Construction Budget being Exhibit No. 6 shall therefore be
subject to a thirty (30) day grace period. Furthermore, it may
occur that certain capital disbursements are paid out in amounts
greater than required by the Working Capital Draw Schedule and
Construction Budget being Exhibit No. 6 and in such case, the
overpayment shall be credited to later amounts required to be
paid out under the Working Capital Draw Schedule and Construction
Budget in Exhibit No. 6. Overpayments shall therefore be
cumulative so that the total amount of overpayments may be
credited to any subsequent payout specified in the Working
Capital Schedule and Construction Budget in Exhibit No. 6.
11.4 AmeriCann will deliver for WGP's use as the tenant, a completed
facility for the cultivation and processing of cannabis and
cannabis-related products. AmeriCann will not provide any
cannabis seeds, cuttings or any other cannabis material.
AmeriCann does not cultivate, process, or distribute cannabis.
WGP, as a licensed cannabis cultivator and processor in the State
of Illinois shall be responsible for all cannabis related
material. WGP shall be responsible for all operating expenses
including staffing, utilities, maintenance, replace of fixtures,
and other items.
12. The Lease Contract Between the Parties
12.1 The parties agree to prepare and enter into, with all reasonable
haste, a lease ("Lease Contract") for the Facility, with
AmeriCann as the landlord and WGP as the tenant, which will take
into account the principles specified in this Annex No. 1 and
specified in particular in this Section 12.
12.2 The term of the Lease Contract shall be for a period of twelve
(12) years commencing from the month in which both a final and
enforceable occupancy certificate is issued for the Facility, and
WGP has been granted approval by the State of Illinois to
commence production operations in the Facility. If the first
month of the lease does not begin on the first day of the month,
rent for that month shall be prorated for the number of days in
the month the lease is in force.
8
12.3 The Lease Contract shall be a triple net lease, with base rent
amounting to $6.00 per square foot of completed useable area of
the Facility per month ("Base Rent"), plus a Performance
Fee/Turnover Rent as defined in clause 12.4 below. AmeriCann
hereby waives the collection of Base Rent in 2015; payment of
Base Rent shall therefore commence on January 1, 2016. Starting
with the month in which WGP commences operations in the Facility
and for a period of up to three (3) months, WGP shall have the
option at its own discretion to add the Base Rent to the working
capital loan, and in such case the Base Rent shall become
characterized as a Performance Fee.
12.4 Turnover rent (or the "Performance Fee" as defined below) shall
be equal to 25% of gross monthly sales of all "usable cannabis"
as defined by Section 10(w) of the Illinois Compassionate Use of
Medical Cannabis Pilot Program Act [410 ILCS 130/10] (the "Act")
and 20% of gross monthly sales of all "medical cannabis infused
product" as defined by Section 10(q) of the Act ("Turnover
Rent"). Starting with the month in which WGP commences operations
in the Facility and for a period of up to three (3) months, WGP
shall have the option at its own discretion to add the Turnover
Rent to the working capital loan, and in such case the Turnover
Rent shall become characterized as a Performance Fee. The
Turnover Rent and/or Performance Fee will not apply in the event
the provisions of clause 11.2 become applicable as set forth
therein.
12.5 The portion of the Turnover Rent paid on the sale of medical
cannabis infused products described in clause 12.4 above shall be
paid under an exclusive license within the State of Illinois
granted by AmeriCann to WGP of AmeriCann's Intellectual Property,
Brand, Good Manufacturing Practices and Standard Operating
Procedures for all extraction and infused products produced from
the project. This fee may be adjusted down for individual product
lines. WGP acknowledges all IP, Brands, GMPs and SOPs are the
property of AmeriCann. AmeriCann is responsible, at AmeriCann's
sole cost and expense, for the design, acquisition and
installation of all equipment necessary to engage in the
described process as identified in the Working Capital Draw
Schedule and Construction Budget.
12.6 Once Base Rent and Turnover Rent/Performance Fee become due and
payable after the rent-free period granted under 12.3 expires,
Base Rent and Turnover Rent may be subject to accrual if WGP's
cash on hand and the balances in all of WGP's bank accounts do
not exceed $250,000 as described in clause 6.3 above. In such
case the Base Rent and Turnover Rent/Performance Fee that are
subject to accrual shall become principal as part of the New Loan
and shall be paid as principal on the New Loan in accordance with
clauses 6.3 and 6.4 above.
12.7 If WGP is able to make a payment to AmeriCann because cash on
hand and the balances in all of WGP's bank accounts exceed
$250,000, but the funds available to WGP to make a payment to
AmeriCann do not exceed the amount of Base Rent and Turnover
Rent/Performance Fee due for that particular month, the amount
available to WGP shall be designated as Base Rent and Turnover
Rent/Performance Fee. (Base Rent and Turnover Rent/Performance
Fee shall have priority over repayment of the New Loan and
payment of Accrued Interest and the Accrued Consulting Fee under
clause 6.4.) If the full amount of Base Rent and Turnover
Rent/Performance Fee due in any particular month is not paid due
9
to WGP having insufficient funds exceeding $250,000, any amount
of Base Rent and Turnover Rent/Performance Fee due but not paid
in that particular month shall be subject to accrual as part of
the New Loan in accordance with clause 12.6 above.
12.8 AmeriCann shall issue an invoice for the Base Rent and the
Turnover Rent by the first day of each month (or the first
business day after the first day of the month if the first day of
the month lands on a non-business day) for the month for which
the Base Rent and the Turnover Rent shall be due. Base Rent and
any Turnover Rent/Performance Fee due shall be paid by the 10th
day of the month for which the payment is due.
13. New Relationship Between the Parties
13.1 AmeriCann shall have the right to convert the New Loan into a
percentage of gross revenue received from operation of the
Facility. The conversion rate shall be one- half of a percent
(0.5%) for every five hundred thousand dollars ($500,000)
converted into gross revenue. The conversion increments may be
prorated for lesser amounts converted.
13.2 During the term of the Lease Contract, WGP and its members, and
their directors, agents, officers, or board members, shall not
undertake or be involved in any cannabis cultivation or
processing (extraction or infused products) business in the State
of Illinois, except in connection with WGP's operation of the
Facility, without the prior written consent of AmeriCann. WGP and
AmeriCann may explore other opportunities within the cannabis
industry in other states at their own discretion.
13.3 AmeriCann shall have the option to designate one or more people
to become members in WGP. Collectively, these individuals will
pay $110,000 to Cannabis Pharms, LLC, one of the current members
of WGP, for a 7.5% stake to share in the profits and losses in
WGP. None of those who become new members in WGP will be members
of management, officers, directors or employees of AmeriCann or
related as family to anyone who serves in this capacity. New
membership in WGP by any person is strictly subject to approval
by the State of Illinois as required under the Act. This option
must be exercised by written notice from AmeriCann to WGP within
12 months following execution of this Annex No. 1. If written
notice is not so provided, or funding is not provided timely, the
option lapses automatically. If the option is exercised, said
person(s) must execute an appropriate subscription agreement, and
a counterpart to the WGP operating agreement.
13.4 AmeriCann has granted an option to WGP to acquire stock in
AmeriCann. A draft of the Stock Option Agreement constitutes
Exhibit No. 9 to this Annex No. 1.
10
14. Compliance with Law and Regulatory Approval
14.1 If any portion of the Loan Agreement, this Annex No. 1, the
Promissory Note, or the Security Agreement are determined to be
violative of the Act, Illinois law or are inconsistent with the
requirements of any regulations issued by the State of Illinois,
the parties agree to undertake good faith efforts amend the
applicable document(s) to cure any regulatory or legal defects.
Under no circumstances other than the express written consent of
AmeriCann, however, will WGP be relieved of its obligation to
make full and timely payments of all money that has been loaned
and distributed to it by AmeriCann, and such monetary
distributions shall remain subject to the Security Agreement.
14.2 WGP shall have a duty to make the necessary and timely
notifications to the State of Illinois as required by Illinois
law with respect to obtaining and retaining a license to conduct
business in the legal marijuana industry in the State of
Illinois. This includes making all timely disclosures and
requests for permission as regulated by the Illinois Department
of Agriculture and any other state or municipal agencies with
regulatory jurisdiction over WGP.
15. Final Provisions
15.1 Any provision of the Loan Agreement, not specifically amended by
this Annex No. 1 shall remain in force. In case of any conflict
or inconsistency between the Loan Agreement, and this Annex No.
1, the provisions of this Annex No. 1 shall prevail.
15.2 If any provision of this Annex No. 1 is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be
prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and
enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining
provisions of this Annex No. 1 so long as this Annex No. 1 as so
modified continues to express, without material change, the
original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the
respective expectations or reciprocal obligations of the parties
or the practical realization of the benefits that would otherwise
be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or
unenforceable provision(s) with a valid provision(s), the effect
of which comes as close as possible to that of the prohibited,
invalid or unenforceable provision(s).
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IN WITNESS WHEREOF, AmeriCann and WGP have caused their respective
signature page to this Annex No. 1 to be duly executed as of the date first
written above.
AMERICANN, INC.
By:/s/ Xxxxxxx Xxxxx
------------------------
Name: Xxxxxxx Xxxxx
Title: President
WELLNESS GROUP PHARMS, LLC
By:/s/ Xxxx Xxxxxx
---------------------
Name: Xxxx Xxxxxx
Title: Manager
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EXHIBIT 6
WELLNESS GROUP PHARMS
SUMMARY WORKING CAPITAL AND CONSTRUCTION BUDGET
FUNDING SCHEDULE
Working Capital Construction
Budget (Section Budget (Section
Date 5.1 of Annex No. 1) 11.2 of Annex 1) Total Cumulative
---------- ------------------ ----------------- ----- ----------
2/20/2015 600,000 0 600,000 600,000
3/2/2015 178,000 201,333 379,333 979,333
4/6/2015 0 399,833 399,833 1,379,166
5/4/2015 0 713,378 713,378 2,092,544
6/1/2015 71,580 789,258 860,838 2,653,382
7/6/2015 121,080 615,758 736,838 3,690,220
8/3/2015 131,080 493,060 624,140 4,314,360
9/7/2015 292,217 292,217 4,606,577
10/5/2015 290,616 290,616 4,897,193
11/2/2015 240,617 240,617 5,137,810
12/5/2015 282,512 282,512 5,420,322
1/4/2016 282,510 282,510 5,702,832
2/1/2016 282,512 282,512 5,985,344
---------- --------- ---------
2,772,724 3,212,620 5,985,344
