Sol Global Investments Corp. (SOLCF)

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

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Mon, March 1, 2021, 8:17 AM

SOLCF
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SOL Global Has Advised Lender It Is in Position to Repay Debenture in Cash Pursuant to Terms of Loan

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 Wellnesshttps://finance.yahoo.com/news/sol-global-provides-notice-background-141700327.html