4Front Ventures entered into a non-binding term sheet with its senior secured lender, LI Lending, to extend the maturity date, reduce the interest payable and expand the third-party financings available under the Dec. 17, 2020, amended and restated loan and security agreement between 4Front and LI on the terms and conditions set out therein.
Under the term sheet, the lender would extend the maturity date of the loan to May 1, 2026, and reduce the interest payable to 12% per year, payable monthly. Previously, the lender advanced $42.5 million accruing interest at 16.5% per year, of which 12.5% is payable monthly, and 4% accrues monthly, with all accrued interest and principal payable on May 1, 2024.
Currently, LI holds a senior secured position on all assets of 4Front and certain of its subsidiaries and the right of consent over any additional financings secured by those assets. The term sheet contemplates that the lender will consent to equipment financing collateralized by 4Front equipment of up to $5 million; secured convertible debt senior to the loan collateralized by all assets of 4Front of up to $10 million; and secured debt senior to the loan collateralized by the assets of new Illinois retail locations of up to $20 million, with LI taking a junior secured position on those assets.
Pursuant to the proposed terms of the extension, LI would receive multiple warrants equal to 33% of the loan balance as of the current maturity date ($17 million) each exercisable into one subordinate voting share of the company for a term equal to the term of the loan and with an exercise price not less than C$0.255 ($0.19) (each a “warrant”). If 4Front obtains a bona fide offer from a third party to refinance the loan within six months of the effective date of the definitive documents effectuating the proposed extension, LI will have the option to match the proposed terms or keep the loan in force. Upon exercise of either option, the lender’s warrant coverage will be reduced to 30% of the loan balance as of the current maturity date. If 4Front obtains permitted secured debt senior to the loan up to $8 million, 75% of the warrants will become exercisable by cashless exercise. If 4Front obtains permitted secured debt senior to the loan in excess of $8 million (up to the $10 million maximum), 100% of the warrants will become exercisable by cashless exercise. The term sheet also contemplates that the lender will receive an origination fee equal to 1% of the loan balance at the current maturity date ($517,000), payable in cash on May 1, 2024.
Under the proposed terms of the extension, while the loan is outstanding, if 4Front unilaterally removes its CEO or consulting president from their current positions without either cause or LI’s consent, the maturity date of the loan will be accelerated to the date that is 30 days after the first unilateral removal.
Leo Gontmakher, the CEO and a director of the company, and Roman Tkachenko, a director of the company, each own 14.28% of LI.
The terms and conditions of the extension are set out in a non-binding term sheet and are subject to the negotiation and entering into by the company and LI of definitive documentation and the approval of the Canadian Securities Exchange. There can be no assurance that the company will enter into these arrangements on the proposed terms and conditions or at all.
