Item 1.01 Entry into a Material Definitive Agreement.
On February 15, 2023
(the “Effective Date”), TILT Holdings Inc. (the “Company”) and its subsidiaries, Jimmy Jang, L.P., Baker Technologies,
Inc., Commonwealth Alternative Care, Inc., and Jupiter Research, LLC (“Jupiter”, and collectively, the “Subsidiary Borrowers”)
entered into a First Amendment (the “NPA Amendment”) to the Junior Secured Note Purchase Agreement, dated November 1, 2019
(the “2019 Junior Notes NPA”), with Jordan Geotas, as the noteholder representative (the “Noteholder Representative”)
on behalf of the noteholders under the 2019 Junior Notes NPA (the “Holders”) and refinanced US$38,000,000 in aggregate principal
amount of secured promissory notes issued originally under the 2019 Junior Notes NPA (the “2023 Refinanced Notes”). Neither
the Company nor the Subsidiary Borrowers received any new proceeds from the Holders as a result of the NPA Amendment.
The 2023 Refinanced Notes
mature on February 15, 2026, 36 months from the Effective Date, and bear interest at the greater of 16% or the prime rate plus 8.5% payable
monthly. The interest rate is subject to increase by 1% annually if the aggregate principal amount outstanding under the 2023 Refinanced
Notes is greater than US$30,000,000 on the first anniversary of the Effective Date or greater than US$22,000,000 on the second anniversary
of the Effective Date.
Pursuant to the NPA Amendment,
the Subsidiary Borrowers also issued by way of private placement secured promissory notes (“2023 New Notes”) in the aggregate
principal amount of US$8,260,185 to the Holders with a maturity date of February 15, 2027, 48 months from the Effective Date. The consideration
for the 2023 New Notes was paid by an offset of an existing unsecured obligation owed by the Subsidiary Borrowers to the Holders. The
Noteholder Representative will also act as noteholder representative for the 2023 New Notes. The 2023 New Notes will bear interest at
the greater of 16% or the prime rate plus 8.5% payable quarterly.
The Subsidiary Borrowers
are obligated to pay an aggregate of US$5,000,000 of principal on the 2023 Refinanced Notes on each anniversary of the Effective Date
of the 2023 Refinanced Notes, as well as an annual payment at the beginning of each calendar year the 2023 Refinanced Notes are outstanding
that is equal to 50% of the Company’s unrestricted cash greater than US$10,000,000 at the end of the prior calendar year. The Subsidiary
Borrowers are also obligated to make mandatory prepayments of net cash proceeds from asset sales, casualty and condemnation awards, future
equity or debt issuances and the settlement of certain third-party assets.
No principal payments
will be due on the 2023 New Notes before their maturity date unless and until the 2023 Refinanced Notes are paid in full. Once the 2023
Refinanced Notes are paid in full, the Subsidiary Borrowers’ obligations to make principal payments will be the same as previously
existed under the 2023 Refinanced Notes and described above. Any interest or principal payments under the 2023 New Notes due before the
maturity date of the 2023 Refinanced Notes may, at the Subsidiary Borrowers’ election, be paid by increasing the principal amount
of the 2023 New Notes on a dollar-for-dollar basis.
The 2023 Refinanced Notes and the 2023 New Notes
(collectively, the “2023 Notes”) are secured by a first priority security interest in all of the assets of the Subsidiary
Borrowers, except that the Holders will receive a second priority security interest in the assets that are already pledged by Jupiter
under its revolving credit facility with Entrepreneur Growth Capital, LLC. The 2023 Notes are also guaranteed by the Company and all subsidiaries
of the Company. The equity interests in all subsidiaries of the Company have also been pledged as security for the obligations under the
2023 Refinanced Notes.
The NPA Amendment includes
affirmative and negative covenants (including financial maintenance covenants), events of default, representations and warranties that
are customary for debt securities of this type. The 2023 Notes may be accelerated and all remedies may be exercised by the Holders in
case of an event of default under the 2023 Notes, which includes events that customarily constitute an event of default for debt securities
of this type as well as upon a change of control, the termination of Gary F. Santo’s or Dana Arvidson’s employment for any
reason and the failure by the Company to appoint a replacement for either within 90 days that is approved to the Noteholder Representative,
and the Company’s annual budget for 2023 not being approved by the Company’s Board of Directors prior to March 14, 2023.
The Noteholder Representative
will be paid US$2,000,000 over the term of the 2023 Refinanced Notes in quarterly installments.
In connection with the
NPA Amendment, the Company also issued to each Holder a warrant (each a “Warrant,” collectively the “Warrants”)
to purchase 2,421.05 common shares of the Company for every US$1,000 principal amount of the 2023 Refinanced Notes held by each Holder,
for a total aggregate of 91,999,901 Warrants. Each Warrant is exercisable at any time prior to its expiration for one common share of
the Company at an exercise price of US$0.07084 per common share. The Warrants expire on February 15, 2030 and contain customary anti-dilution
adjustment provisions.
In addition, pursuant
to the NPA Amendment, the Company agreed to limit the number of directors on the Company’s board of directors (the “Board”)
to five, of which two directors will be designated by the Noteholder Representative. The Company has also agreed to permit the Noteholder
Representative or its designee to attend all meetings of the Board in a non-voting observer capacity. Such person shall be subject to
customary confidentiality obligations.
Mark Scatterday, a former
director of the Company, through an affiliated entity, Mak One LLLP, holds US$18,810,000 in principal amount of the 2023 Refinanced Notes,
US$4,021,703 in principal amount of the 2023 New Notes and 45,539,951 Warrants. As a result, together with his beneficial ownership of
the Company’s other securities, Mr. Scatterday beneficially owns approximately 18.5% of the Company’s issued and outstanding
common shares.
The 2023 Notes and Warrants
were offered and issued in reliance on exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Act”) and/or Regulation D promulgated under the Act and the Warrants were offered and issued in reliance on an exemption
from the prospectus requirements of applicable Canadian securities laws.
The
foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the form of Warrant
Certificate, the NPA Amendment, the Amended and Restated Pledge Agreement, the Amended and Restated Security Agreement, the Amended
and Restated Guaranty, the Amended and Restated Canadian Security Agreement, the Trademark Security Agreement, the Canadian
Trademark Security Agreement, the Patent Security Agreement, the Canadian Patent Security Agreement, the form of 2023 Refinanced
Notes and the form of 2023 New Notes, which are filed herewith as Exhibits 4.1, 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8,
10.9, 10.10 and 10.11, respectively and incorporated by reference herein.