Subsequent Events

6 Months Ended

Jun. 30, 2023

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through August 15, 2023, which is the date these condensed consolidated interim financial statements were issued, and has concluded that the following subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated interim financial statements.

Modification of Lease Agreement

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply a portion of the security deposit to pay one-half of the monthly base rent for the four month period through November 30, 2023; to defer payment of the $2.2 million increase in security deposit to be funded as draws on the tenant improvement allowance through November 30, 2023; and to make pro rata payments of such deferred payments equal to 1/12 of the aggregate amount, concurrently with monthly base rent installments, for the twelve month period commencing January 1, 2024.

Amendment of Senior Secured Debt with LI Lending LLC

In July 2023, the Company entered into a definitive agreement with its senior secured lender, LI Lending, LLC (“Lender”) to extend the maturity date of the related party loan to May 1, 2026, to reduce the interest rate to 12.0% per annum beginning May 1, 2024, and to expand the amount of third-party financings allowed under the December 17, 2020 Amended and Restated Loan and Security Agreement (“Loan”) between 4Front and Lender.

As compensation for the amendment, the Company shall pay an extension fee of $0.52 million payable in cash on May 1, 2024. In addition, the Company shall issue warrants equal to 33% of the loan balance, approximately $17.06 million, wherein each warrant shall be exercisable into one SVS at an exercise price not less than $0.17 through May 1, 2026.

If 4Front obtains a bona fide offer from a third party to refinance the Loan within six months from the amendment date, the Lender will have the option to match the proposed terms of the offer 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 US$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 US$8 million (up to the US$10 million maximum), 100% of the Warrants will become exercisable by cashless exercise.

Under the terms of the amendment, while the related party loan is outstanding, if 4Front unilaterally removes Leonid Gontmakher as its Chief Executive Officer or Karl Chowscano as its President without either cause or Lender consent, the maturity date of the loan will be accelerated to the date that is 30 days after the first unilateral removal.

Grant of Restricted Share Units

On July 27, 2023, the Company issued a total of 9,853,830 restricted share units ("RSUs"), at a deemed issue price of C$0.165 based on the closing price of its Subordinate Voting Shares, to certain officers and employees of the Company in payment of fiscal year-end 2022 bonus entitlements. The RSUs are fully vested as of the grant date and expire upon the earlier of 18 months following the grant date or the occurrence of certain events.