SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2023

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE 13 — SUBSEQUENT EVENTS

The Company’s management evaluated subsequent events through the date on which the financial statements were issued. Other than the item listed below, there have been no subsequent events that occurred during such period that have required adjustment or disclosure in the financial statements.

Loan Portfolio Acquisition Agreement

Overview

On February 18, 2024, the Company entered into a Purchase Agreement (the “Loan Portfolio Acquisition Agreement”) with Chicago Atlantic Loan Portfolio, LLC, a Delaware limited liability company (“CALP”). The Loan Portfolio Acquisition Agreement provides that, subject to the conditions set forth in the Loan Portfolio Acquisition Agreement, at the closing of the transactions contemplated by the Loan Portfolio Acquisition Agreement (the “Closing”, and the date on which the Closing occurs, the “Closing Date”), the Company will issue to CALP shares of the Company’s common stock (the “Stock Issuance”) in consideration for acquiring a portfolio of loans (the “Loan Portfolio” and together with the Stock Issuance, the “Loan Portfolio Acquisition") from CALP (the “Loan Purchase” and together with the Stock Issuance, the “Transactions”).

The Board, on the recommendation of a special committee (the “Special Committee”) comprised solely of all of the independent directors of the Company, has approved the Loan Portfolio Acquisition Agreement and the Transactions contemplated thereby.

As of January 1, 2024, the Loan Portfolio comprised 24 loans with an aggregate value of approximately $130 million. CALP has agreed to use reasonable best efforts to add 4 loans with an aggregate value of approximately $43 million to the Loan Portfolio prior to the Closing. The Company and CALP may also agree to the addition of other loans to the Loan Portfolio prior to the Closing. The inclusion and/or addition of certain loans to the Loan Portfolio requires third-party consents, and/or such loans may need to be acquired by CALP, and there can be no assurance that any additional loans will be added to the Loan Portfolio prior to the Closing. Certain loans may also be removed from the Loan Portfolio upon the agreement of the Company and CALP, if required third-party consents are not obtained, or upon the repayment of the loans.

The Transactions; Valuations

At the Closing, (x) CALP shall sell and transfer to the Company, and the Company shall purchase and acquire from CALP, the Loan Portfolio, including all of CALP’s right, title and interest in, to and under each loan in the Loan Portfolio, the loan documents, collateral and files relating to each loan in the Loan Portfolio, and all amounts received by CALP after the Closing Cut-off Time (as defined below) arising under or in connection with each such loan (the “Contributed Investment Assets”), and (y) the Company shall issue and sell to CALP, and CALP shall purchase and acquire from the Company, such number of newly issued shares of the Company’s common stock (the “Purchased Shares”) equal to (i) the fair value of the Contributed Investment Assets (the “Contributed Investment Assets Fair Value”) as of the Closing Cut-off Time, divided by (ii) the SSIC NAV Per Share. The “SSIC NAV Per Share” means the SSIC NAV (as defined below) divided by the number of outstanding shares of the Company’s common stock as of the Closing Cut-off Time.

Promptly, and within twenty-four (24) hours following 5:00 p.m. Central time on the second day (excluding Sundays and holidays) immediately prior to the Closing Date (the “Closing Cut-off Time”), the Company will deliver to CALP a calculation of the net asset value of the Company (the “SSIC NAV”) and the Contributed Investment Assets Fair Value as of the Closing Cut-off Time, in each case using the valuation policies and procedures of the Company (the “Calculation Notice”). To the extent that CALP does not agree with the calculation of the SSIC NAV or the Contributed Investment Assets Fair Value presented by the Company and set forth in the Calculation Notice, the parties shall negotiate in good faith to agree upon the calculation of the SSIC NAV or the Contributed Investment Assets Fair Value, as the case may be, prior to Closing.

Closing Conditions

Consummation of the Transactions is subject to certain closing conditions, including (1) requisite approvals of the Company’s stockholders, (2) finalization of the Contributed Investment Assets Fair Value and SSIC NAV calculations, (3) the absence of certain legal impediments or challenges to the consummation of the Transactions by a governmental entity, (4) the effectiveness of a registration statement registering the issuance of the new shares of the Company’s common stock and the listing of the new shares of the Company’s common stock on the NASDAQ Global Market, (5) the Purchased Shares, after giving effect to the Stock Issuance, would collectively constitute at least 65%, but no more than 75%, of the total issued and outstanding shares of the Company’s common stock, (6) the absence of a “material adverse effect” on the applicable party (or the Adviser) and (7) subject to certain exceptions, the accuracy of the representations, warranties and other factual statements and compliance with the covenants set forth in the Loan Portfolio Acquisition Agreement.

No-Solicitation

The Loan Portfolio Acquisition Agreement provides that the Company must immediately terminate any existing discussions and negotiations regarding any competing proposals and may not solicit competing proposals, or, subject to certain exceptions, enter into discussions or negotiations or provide information in connection with any competing proposal. However, the Board may, subject to certain conditions (including engaging in negotiations with CALP, if CALP wishes to negotiate), change its recommendation to the stockholders of the Company and, subject to payment by the Company of a termination fee in an amount of $6,046,613 (the “Termination Fee”), terminate the Loan Portfolio Acquisition Agreement to enter into a definitive agreement with respect to a superior proposal if the Board (acting on the recommendation of the Special Committee) determines in good faith, after consultation with its outside financial advisor and outside legal counsel that the failure to take such action would be reasonably likely to constitute a breach of the standard of conduct applicable to the directors of the Company under applicable law (taking into account, among other factors, any changes to the Loan Portfolio Acquisition Agreement proposed by CALP).

Termination; Termination Fees

The Loan Portfolio Acquisition Agreement contains certain reciprocal termination rights for both parties, including if the Transactions are not consummated on or before November 18, 2024 or if the requisite approvals of the Company stockholders are not obtained. In addition, the Loan Portfolio Acquisition Agreement contains certain termination rights for the Company and CALP, including the right of the Company to terminate the Agreement in order for the Company to enter into a definitive agreement with respect to a superior proposal, subject to complying with certain requirements and the payment by the Company to CALP of the Termination Fee. CALP also has a right to terminate the Loan Portfolio Acquisition Agreement in the event the Board changes its recommendation to the stockholders of the Company (subject to payment of the Termination Fee) or in the event the Company or the Board materially breaches their respective nonsolicitation obligations (subject to payment of the Termination Fee in certain circumstances). The Termination Fee is also payable in the event of certain other terminations when a competing proposal has been made public (or was otherwise known to the Board) and was not withdrawn prior to termination and a definitive agreement is entered into a competing proposal or a competing proposal is consummated within twelve months after such termination.

Representations, Warranties and Covenants

The Loan Portfolio Acquisition Agreement contains customary representations and warranties by each of the Company and CALP and certain statements regarding the Adviser. The Loan Portfolio Acquisition Agreement also contains customary covenants, including, among others, covenants relating to the operation of each of the Company’s and CALP’s businesses during the period prior to Closing. The Company has agreed to convene and hold a stockholder meeting for the purpose of obtaining the approvals required of its stockholders and has agreed that the Board will, subject to certain exceptions, recommend that the Company stockholders approve the applicable proposals in connection with the Transactions.

Indemnification

Subject to the terms of the Loan Portfolio Acquisition Agreement, CALP will indemnify the Company for damages, losses, liabilities and expenses suffered by the Company arising out of any inaccuracy, misrepresentation or breach of certain representations of CALP with respect to the Contributed Investment Assets, subject to certain per-claim and aggregate deductibles. CALP’s maximum liability with respect to claims of indemnification by the Company will not exceed the value of such number of Purchased Shares (the “Holdback Shares”) equal to the lesser of: (x) the quotient of (i) $10,000,000 divided by (ii) the SSIC NAV Per Share or (y) 3% of the total issued and outstanding shares of the Company’s common stock after giving effect to the Stock Issuance. From the time of the issuance of the Holdback Shares until the six month anniversary of the Closing Date (the “Holdback Release Date”), CALP will not be allowed to sell, transfer, distribute, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any Holdback Shares (the “Transfer Restrictions”). Upon the Holdback Release Date, the Holdback Shares that are not subject to pending claims will cease to be subject to the Transfer Restrictions.

Expenses

All fees and expenses incurred in connection with the Transactions will be borne by the party incurring such fees or expenses except that transfer and similar taxes incurred in connection with the consummation of the Transactions will be borne by the Company.

Voting Agreement

On February 18, 2024, CALP, SSC, Silver Spike Holdings, LP (“Silver Spike Holdings”), the managing member of SSC, and Scott Gordon, managing member of the general partner of Silver Spike Holdings, entered into a Voting Agreement (the “Voting Agreement”), pursuant to which, among other things, SSC has agreed (i) to vote all shares of the Company’s common stock beneficially owned by SSC in favor of the Transactions, (ii) to vote against any competing proposal or a superior proposal and (iii)  not enter into any contract, option or other arrangement or understanding with respect to the transfer of any shares of the Company’s common stock beneficially owned by SSC, other than certain customary exceptions.

The Voting Agreement will terminate upon the earliest to occur of: (i) the mutual consent of CALP and SSC, (ii) the termination of the Loan Portfolio Acquisition Agreement in accordance with its terms or (iii) the Closing. SSC has also the right to terminate the Voting Agreement if the Loan Portfolio Acquisition Agreement is amended in a manner materially averse to SSC without SSC’s consent.

General

The foregoing description of the Loan Portfolio Acquisition Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Loan Portfolio Acquisition Agreement. The representations, warranties, covenants and agreements contained in the Loan Portfolio Acquisition Agreement were made only for purposes of the Loan Portfolio Acquisition Agreement and as of specific dates; were solely for the benefit of the parties to the Loan Portfolio Acquisition Agreement (except as may be expressly set forth in the Loan Portfolio Acquisition Agreement); may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Loan Portfolio Acquisition Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors and security holders should not rely on such representations, warranties, covenants or agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any of the parties to the Loan Portfolio Acquisition Agreement or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, covenants and agreements may change after the date of the Loan Portfolio Acquisition Agreement, which subsequent information may or may not be fully reflected in public disclosures by the parties to the Loan Portfolio Acquisition Agreement.

Investment Strategy Change

On February 20, 2024, the Company announced that the Board unanimously approved an expansion of the Company’s investment strategy to permit investments in companies outside of the cannabis and health and wellness sectors that otherwise meet the Company’s investment criteria. The investment strategy change is expected to become effective on or about April 22, 2024.

Distributions

On March 6, 2024, the Company's Board approved a cash dividend of $0.25/share. The dividend is payable on March 28, 2024 to stockholders of record on March 20, 2024.