SOL Global Provides Notice of and Background to Litigation Commenced by Lender Seeking $550M+ on $50M 24-Month Loan

Rhea-AI Summary

SOL Global Investments Corp. has filed a U.S. complaint against its offshore hedge fund lender, 1235 Fund LP, over repayment terms concerning a $50 million non-convertible debenture. The issuer seeks to clarify that repayment must be made in cash and not in shares of Verano Holdings or Harvest Health, following a failed transaction involving these companies. The hedge fund initiated litigation in Ontario, claiming damages exceeding $550 million. SOL Global plans to respond legally and asserts it can repay the debenture in cash.

Positive

• SOL Global asserts the ability to repay the $50 million debenture in cash, strengthening its financial position.
• The company is actively engaging legal representation to defend its interests against the hedge fund's claims.

Negative

• Litigation initiated by the lender in Ontario Superior Court could lead to significant legal costs and potential reputational damage.
• The hedge fund's claim for damages exceeds $550 million, presenting a potential threat to SOL Global's financial stability.

SOL Global Investments Corp. ("SOL Global" or the "Company") (CSE: SOL) (OTCPK: SOLCF) (Frankfurt: 9SB) today provides notice and background concerning the copycat litigation commenced against it and others by its lender, an offshore hedge fund, which litigation concerns the same issues as the Company’s previously announced U.S. complaint against that lender.

U.S. Complaint

On February 7, 2021, SOL Global initiated litigation in the State of New York against its lender, 1235 Fund LP, an offshore hedge fund and an affiliate of MMCAP Asset Management, seeking declaratory relief that, among other things, this lender is not entitled to be repaid in any property other than cash. Diligent efforts to prosecute this claim are underway, and the lender must respond to the Complaint in March 2021.

The Company is being represented in the litigation by attorney Alex Spiro of Quinn Emanuel Urquhart & Sullivan, LLP.

The case is SOL Global Investments Corp., et al. v. 1235 Fund LP and MM Asset Management, Inc., Index No. 650858/2021 (Supreme Court, New York).

Background

On July 8, 2019, the Company announced that it had completed a $50,000,000 private placement financing by way of the issue and sale of a senior secured non-convertible debenture ("Debenture"). The Debenture bears interest at 6.0% per annum and will mature on July 5, 2021. A copy of SOL Global’s original press release concerning the Debenture, which clearly states it is a non-convertible debenture, may be viewed at https://www.newswire.ca/news-releases/sol-global-completes-50-million-debenture-financing-and-announces-corporate-update-871790166.html.

If a specific transaction involving Verano Holdings, Inc. (“Verano”) and Harvest Health and Recreation Inc. (“Harvest”) had occurred (the “Harvest Transaction”), the lender would have been repaid in shares of either Verano or Harvest, which would have enabled the lender to cover its short position in Harvest and provided the lender with a reasonable premium of return beyond the stipulated 6%. The Harvest Transaction did not close and thus the Debenture is repayable only in cash.

Nevertheless, on February 5, 2021, the lender wrongfully sent a formal notice purportedly electing to receive, instead of cash, 1,730,794 Verano shares then currently owned by the Company (“Old Verano Shares”) (plus an additional amount of shares if the Old Verano Shares were not freely tradeable). On February 7, the lender took the formal position that the Company’s participation in an exchange of Old Verano Shares for New Verano Shares that occurred automatically as a result of Verano’s subsequent going public transaction is a breach of the Company’s obligations under the Debenture and related agreements. Pursuant to that going public transaction, each Old Verano Share previously held by the Company was exchanged for approximately 7.537 New Verano Shares.

SOL Global firmly rejects all of 1235 Fund LP’s positions. Page one of the Debenture Agreement specifically states that SOL Global “promises to pay to or to the order of Gundy Co. in trust for 1235 Fund LP… as nominee for 1235 Fund LP (hereinafter referred to as the “Lender” or the “Debentureholder”), the principal amount of fifty million dollars ($50,000,000) (the “Principal Amount”) in lawful money of Canada.” Section 6.3 of the Debenture further states: “If any other Event of Default shall occur for any reason, whether voluntary or involuntary, and be continuing, the Lender may by notice to the Borrower declare all or any portion of the outstanding Principal Amount of this Debenture and accrued interest on this Debenture to be due and payable, whereupon the full unpaid amount of this Debenture which shall be so declared due and payable shall be and become immediately due and payable without further notice, demand or presentment.”

In the case of the alleged breach of the Debenture claimed by the lender, its only remedy would be the immediate repayment of the principal of the Debenture in said “lawful money of Canada.” Other related documents also describe payment in the “lawful money of Canada.” The only exception to repayment by cash would have been if the Harvest Transaction had closed. The lender never had any interest in Verano, and repeatedly expressed that view. Furthermore, SOL Global asserts in the U.S. complaint that 1235 Fund LP’s demand in the current circumstances for the delivery of Old Verano Shares (or their equivalent in New Verano Shares, which the lender has no right to in any event pursuant to the terms of the Debenture) to repay the loan would result in a breach of Section 347 of the Criminal Code of Canada, as the effective annual rate of interest would exceed the highest permitted rate of 60% by a significant multiple.

SOL Global has advised the lender that it is in a position to repay the Debenture in cash pursuant to its terms. SOL Global has also advised the lender that as the lender has called a default under the Debenture, SOL Global will demand to repay the Debenture with interest immediately. To address any uncertainty resulting from the lender’s positions, the Company commenced the litigation in New York described above.

Canadian Litigation

On February 25, 2021, the Company was informed that 1235 Fund LP commenced litigation in Ontario Superior Court seeking delivery of the equivalent in New Verano Shares of more Old Verano shares than it previously demanded or in the alternative more than $550 million in damages from SOL Global and others. Joseph Groia of Groia & Company will be acting for SOL Global in this new litigation. SOL Global is considering all of its legal options to respond to this new lawsuit, if and when it is properly served, including asking the Canadian courts to dismiss the claim as these matters are already before the Courts in New York.

SOL Global will consider additional claims and counterclaims against this offshore hedge fund, its investors and principals, and MMCAP and its investors and principals for unlawfully interfering with SOL Global’s business and reputation.

“There has been a great deal of discussion and concern about the role that offshore hedge funds play in the Canadian capital markets. This case can certainly be added to that list,” said Andy DeFrancesco, Chairman and CEO of SOL Global.

SOL Global intends to update its investors and the public about the status of the litigations as information becomes available and in accordance with all applicable securities laws.

About SOL Global Investments Corp.:

SOL Global is a diversified investment and private equity holding company engaged in the small and mid-cap sectors. Our investment partnerships range from minority positions to large strategic holdings with active advisory mandates. SOL Global’s seven primary business segments include Retail, Agriculture, QSR & Hospitality, Media Technology & Gaming, Energy, and New Age Wellness.

Cautionary Statements

This press release contains "forward-looking information" within the meaning of applicable securities laws. All statements contained herein that are not clearly historical in nature may constitute forward-looking information. In some cases, forward-looking information can be identified by words or phrases such as "may", "will", "expect", "likely", "should", "would", "plan", "anticipate", "intend", "potential", "proposed", "estimate", "believe" or the negative of these terms, or other similar words, expressions and grammatical variations thereof, or statements that certain events or conditions "may" or "will" happen, or by discussions of strategy. The forward-looking information contained in this press release includes, without limitation, statements regarding the Company’s intention to litigate the repayment terms of the Debenture and the manner thereof, requesting the dismissal of the lender’s claim in Canadian courts, the Company providing future litigation updates and the Company’s strategic business plans.

Forward-looking information is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances. While we consider these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

By their nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking information in this press release including, without limitation, an unfavorable court ruling or proceeding, adverse publicity resulting from litigation, court or regulatory proceedings, the potentially significant costs of litigation and unexpected disruptions to the operations and business of the Company as a result of the COVID-19 global pandemic including a resurgence in the cases of COVID-19.

Other risk factors include: the risks resulting from investing in the US marijuana industry, which may be legal under certain state and local laws but is currently illegal under U.S. federal law; the risks of investing in securities of private companies which may limit the Company’s ability to sell or otherwise liquidate those securities and realize value; the ability of the Company’s portfolio companies to execute their business and strategic plans as contemplated or at all; reliance on management; the ability of the Company to service its debt; the Company’s ability to obtain additional financing from time to time to pursue its business objectives; competition; litigation; inconsistent public opinion and perception regarding the medical-use and adult-use marijuana industry; and regulatory or political change. Additional risk factors can also be found in the Company's current MD&A, which has been filed on SEDAR and can be accessed at www.sedar.com. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking information.

The forward-looking information contained herein is made as of the date of this press release and is based on the beliefs, estimates, expectations and opinions of management on the date such forward-looking information is made. The Company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210301005580/en/

FAQ

What is SOL Global's current litigation status with 1235 Fund LP?

SOL Global is involved in litigation with 1235 Fund LP regarding repayment terms of a $50 million debenture.

What was the nature of the $50 million debenture issued by SOL Global?

The debenture is a senior secured non-convertible debenture with a 6.0% interest rate, maturing on July 5, 2021.

How is SOL Global responding to the hedge fund's claims?

SOL Global plans to contest the hedge fund's claims in court and assert its right to repay in cash.

What are the implications of the offshore hedge fund litigation for SOL Global investors?

The litigation could lead to significant financial and reputational risks for SOL Global, impacting investor confidence.

What legal representation is SOL Global using in its litigation?

SOL Global is represented by attorney Alex Spiro in New York and Joseph Groia in Ontario.