MedMen Enterprises Inc. (“MedMen” or the “Company”) (CSE: MMEN) (OTCQX: MMNFF), a premier American cannabis retailer, today announced that it has extended the maturity date of the term loans (the “Term Loans”) and made certain other amendments (collectively, the “Amendments”) to its Commercial Loan Agreement, of an aggregate outstanding principal balance of approximately US$114.3 million, dated as of October 1, 2018 (as amended and/or otherwise modified, the “Commercial Loan Agreement”) entered into by its subsidiary MM CAN USA, Inc. The Amendments extend the stated maturity date of the Term Loans for a period of six months and provide that certain definitive documentation with respect to the conditional purchase of the Term Loans by a note holder under the Company’s Senior Secured Convertible Securities Purchase Agreement dated August 17, 2021 must be entered within 45 days or the stated maturity date of the Term Loans become due.
“MedMen will utilize this six-month grace period to realize fair value for significant assets that are no longer core to our market strategy,” said Michael Serruya, Chief Executive Officer. “We have a longstanding relationship with our lenders and appreciate their support as we execute against an evolved business plan.”
Amendments to the Term Loans
The Company will prepay US$20.0 million on the Term Loans and pay a fee of US$1.0 million to the lenders in consideration of the Amendments, which fee will be paid in Class B Subordinate Voting Shares (“Shares”) at a price of US$0.12447 (C$0.15825) for a total of 8,021,593 Shares (the “Fee Shares”), with any difference in realized net proceeds that is less than US$1.0 million from the sale of the Fee Shares during a 30-day period, to the extent such Fee Shares are sold, reimbursed in cash. The Amendments require that the Company make a mandatory prepayment in the event of the sale of certain assets. Also, covenants related to strategic actions MedMen must implement if it is unable to pay the Term Loan by the extended maturity date.
The issuance of the Fee Shares as part of the Amendments triggered the right of holders of convertible notes under the Convertible Securities Purchase Agreement to be issued warrants in order to maintain their pro rata ownership interest (on a partially diluted basis) in the Shares. A total of 6,682,567 warrants (the “Top-up Warrants”), each entitling the holder to purchase one Share at a purchase price of US$0.1615 (C$0.205) will be issued to the holders of convertible notes under the Convertible Securities Purchase Agreement.
Pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”), the issuance of the Top-Up Warrants constitutes a “related party transaction” to the extent that the relevant holder of convertible notes under the Convertible Securities Purchase Agreement is an insider of the Company. The Company is relying on exemptions from the formal valuation and minority approval requirements of MI 61-101, specifically: (i) the valuation requirement of MI 61-101 by virtue of the exemption contained in Section 5.5(b), as the Shares are not listed on a market specified in MI 61-101, and (ii) the minority shareholder approval requirement of MI 61-101 by virtue of the exemption contained in Section 5.7(1)(a) of MI 61- 101, as the fair market value of the Top-up Warrants being issued does not exceed 25% of the Company’s market capitalization (as determined under MI 61-101). A material change report is not expected to be filed by the Company 21 days before the issuance of the Top-up Warrants as the details of the Amendments were only agreed as of February 1, 2022. In the view of the Company, this was reasonable in the circumstances because the Term Loans were due to mature on January 31, 2022.
