Summary Thoughts on the Sol Global Transaction This was a summary made for another reader who asked about the suit between 1235 Fund and Sol Global:
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"The suit filed in NY was Sol Global filing a suit against 1235 Fund in February, 2021.
1235 Fund filed a counter suit in Ontario/Toronto against Sol Global soon after.
Andy was named (along with his wife) as a "guarantor" for the debt
The filings seem to revolve around weather the "Equity Option" that was provided to 1235 Fund extended beyond the Harvest transaction. 1235 Fund says Yes and claims that the debt was convertible and that was the understanding by both parties since. Sol Global says no.
1. In reviewing the 1235 filing, pages 27 and 28 of the debenture, the four sub sections are the crux of the argument. I think all parties would agree that the first two subsections in part (a) do not apply. The question falls to part (b), and on the face of it one may initially think that 1235 was entitled to an equity option. However, when you review page 28 you will see that both subsections of part (b) were still linked to the Harvest transaction in so far that they depended on the price of the transaction (i.e., the "Verano Acquisition") as well as the VWAP of Harvest 5 days prior. Additionally, the 2nd part of part (b) also references the "Verano Acquisition" (which is a defined term related to only the acquisition by Harvest). Since that acquisition never was consumated (cancelled in March 2020), I find the numbers in question "uncalculable" unless the presumption is "what if" the transaction had closed as was planned.
2. The references to an "equity option" are in reference to "at Maturity Date" and not on an early pre-payment (which 1235 is claiming it is entitled to as part of an involuntary breach of contract resulting from the RTO---and this breach may be one of the few things I believe 1235 Fund is correct on). However, since it is not on the maturity of the debt, it reads that the equity option does not apply (once again).
3. Sol Global put out a tweet referencing a 2019 press release that was claimed to have been reviewed by both 1235 Fund and its general counsel which specifically states that the debt was non-convertible. This adds further credence that the original debt was not meant to be a convertible instrument (into any form of equity). If it is true that 1235 Fund and/or its general counsel did review and approve the press release, than the press release flies in the face of 1235's original claim that all parties understood that the debt was a convertible agreement.
4. Sol Global had made it clear on multiple occasions that prior to the announcement of the Verano RTO that they were operating on the assumption that 1235 Fund was only entitled to a cash payment (see their various filings). So, from a consistency perspective, Sol has made it clear for the past 4 months that they believed it was only a cash payment required.
5. Canada has rules and regulations which apply criminality to any annual interest rates above 60% falling in two components: creating that interest rate and attempting to collect on that interest rate. If those rules apply, it is clear that the amounts that 1235 Fund is attempting to collect would be well in excess of those rates by orders of magnitude.
6. 1235 Fund claims that it is uncharacteristic or unlikely that a firm such as theirs would lend money at a 6% interest rate. However, it fails to mention that it also had a short position with Harvest that they were trying to cover (something they have done in the past), and that if the "Verano Acquisition" by Harvest had gone through, it would have covered that position as well as left them with a healthy return.
Based on the above, It is my opinion, and I am not a a lawyer, that 1235 would have to overcome quite a few claims and hurdles to obtain the amounts it is seeking and would like only receive the debt+accrued interest it was entitled to (~$45MM USD) or something less than the interest rate caps of Canada (i.e., This is far less than the $550MM that they are claiming.
It would also be hard for them to claim bad faith since there is sufficient evidence, in my opinion, that seems to point to the contrary.
As support for this belief, Sol Global, yesterday, announced that they would implement a share repurchase program for up to 5% which they have done before last year and fully executed on.
As further for support, the YOLO ETF, and after all the filings in question, doubled its holdings from 1MM shares to 2MM shares bringing its ownership in SOLCF to 1.4%.
Again, this is just my opinion and I could always be wrong, but I am trying to be objective on the matter (although I am long Sol Global still as a result of this opinion)
I hope that helps"