Item
1.01
Entry into a Material Definitive Agreement.
On
December 1, 2017, Ethema Health Corporation, a Colorado corporation (the “
Company
”) and its wholly owned subsidiaries
Ethema Clinic Muskoka Inc., an Ontario corporation, Cranberry Cove Holdings Ltd., an Ontario corporation and Seastone Delray Healthcare
LLC, a Florida limited liability company (the “
Subsidiaries
”) closed on a private offering (the “
Private
Offering
”) to raise up to USD$1,500,000 in capital. Pursuant to the Private Offering, the Company and the Subsidiaries
jointly and severally issued one senior secured convertible promissory note (the "
Note
"), bearing a principal
amount of up to $1,650,000 in total, to Leonite Capital, LLC, a Delaware limited liability company (the “
Investor
”).
The
Note bears interest at the rate of 6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue
discount for a total of $450,000. The Company issued the Investor 1,650,000 shares of the Company’s common stock in connection
with the closing, and paid $20,000 of the Investor’s legal fees. The Note’s initial maturity date is June 1, 2018.
During the term of the Note the Company and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest.
The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights.
The
Note provides that the parties shall use their reasonable best efforts to close on the remaining $1,200,000 of availability under
the Note by January 1, 2018 (the “
Balance Tranche
”). As a condition to the closing of the Balance Tranche,
the parties must finalize and enter into additional agreements related to the Private Offering, including, but not limited to,
(i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000
shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Securities
Pledge Agreement under which the Company and the Subsidiaries will grant the Investor a blanket lien on their assets, and the
Company will pledge its equity ownership in the Subsidiaries. Upon the closing of the Balance Tranche the maturity date of the
Note will become December 1, 2018.
Amounts
under the Note are convertible, at the Investors request, into shares of the Company’s common stock at an initial price
of $0.06 per share, subject to adjustment.
The
Note was offered and issued without registration under the Securities Act of 1933, as amended (the “Se
curities Act
”),
in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act, as provided in Rule 506 of Regulation D promulgated
thereunder. The Note, and the shares of common stock issuable upon exercise of the conversion features of the Note, under the
Warrant Agreement, and otherwise in the Private Offering, have not been registered under the Securities Act, or any other applicable
securities laws, and unless so registered may not be offered or sold in the United States, except pursuant to an exemption from
the registration requirements of the Securities Act.
The
foregoing description of the Note does not purport to be complete and is qualified in its entirety by reference to the Note, a
copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.