Form of Promissory Note
Principal Amount: US$ $855,000.00
Issue Date: July [●], 2019
FOR VALUE RECEIVED, GENERAL CANNABIS CORP., a Colorado corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of SBI INVESTMENTS LLC, 2014-1, a statutory series of a Delaware limited liability company, or its registered assigns (the Holder), the principal sum of US $855,000.00 (the Principal Amount), together with interest thereon, as set forth in this Promissory Note at maturity or upon acceleration or otherwise, as set forth herein (this Note). This Note is being issued pursuant to that certain Promissory Note Purchase Agreement (the Purchase Agreement) entered into on or around July [●], 2019 (the “Issue Date”). The full consideration paid to the Borrower for this Note is US$750,000.00, due to an original issuance discount of approximately 12% (the “OID”) and a credit of the Holder’s transaction expenses of $5,000.00, together in an aggregate amount of US$105,000.00, and such OID and credit shall be applied in full upon the issuance of the Note on the Issue Date. At the Issue Date, the outstanding Principal Amount under this Note shall be US$855,000.00. All payments due hereunder shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term business day shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
The following additional terms shall also apply to this Note:
ARTICLE I. PRINCIPAL TERMS
Interest. The outstanding Principal Amount of this Note shall accrue interest at the rate of ten percent (10%) per annum, (with the understanding that the initial three (3) months of such interest shall be guaranteed). Any amount of principal or interest on this Note, which is not paid on or before the Maturity Date (as defined below), shall bear interest at the rate of the lesser of (i) twenty-four percent (24%) per annum or (ii) the maximum amount allowed by law, from the due date thereof until the same is paid (Default Interest). Interest shall commence accruing on the date that this Note is issued and shall be computed on the basis of a 365-day year and the actual number of days elapsed.
Maturity Date. The maturity date of this Note shall be the day that is three (3) months after the Issue Date (the Maturity Date), and is the date upon which the Principal Amount, as well as all accrued and unpaid interest and other fees, shall be due and payable.
Waiver and Consent. To the fullest extent permitted by law, the Borrower waives demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold the Borrower liable with respect to this Note.
Prepayment. This Note may not be prepaid, in whole or in part, at any time without the prior written consent of the Holder. Except as otherwise required by law or by the provisions of this Note, payments received by the Holder hereunder shall be applied first against interest accrued on this Note and next in reduction of the outstanding Principal Amount of this Note.
Standing of Note. This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the Holder thereof.
ARTICLE II. CERTAIN COVENANTS
Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holders written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of its capital stock other than dividends on shares of its common stock solely in the form of additional shares of common stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders rights plan which is approved by a majority of the Borrowers disinterested directors.
Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holders written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of its capital stock or any warrants, rights or options to purchase or acquire any such shares.
Restriction on Fundamental Transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not directly or indirectly, in one or more related transactions (i) effect any merger or consolidation of the Borrower with or into another entity, (ii) effect any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) effect any purchase offer, tender offer or exchange offer (whether by the Borrower or another entity) pursuant to which holders of capital stock are permitted to sell, tender or exchange their shares for other securities, cash or property, (iv) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another person or entity or group of persons or entities whereby such other person or entity or group acquires more than 50% of the voting power of the outstanding shares of any class of capital stock (not including any shares of capital stock held by the other person or entity or other group thereof making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination) or (v) effect any acquisition of all or substantially all of the assets or capital stock of another entity (each a Fundamental Transaction).
Section 3(a)(10) Transactions. If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act of 1933, as amended (the Securities Act), then a liquidated damages charge of 100% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment, an addition to the balance of this Note, or a combination of both forms of payment, as determined by the Holder. The liquidated damages charge in this Section 2.4 shall be in addition to, and not in substitution of, any of the other rights of the Holder under this Note.
Reverse Split Penalty. If at any time while this Note is outstanding, the Borrower effectuates a reverse split with respect to its common stock, then a liquidated damages charge of 15% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment, an addition to the balance of this Note, or a combination of both forms of payment, as determined by the Holder. The liquidated damages charge in this Section 2.5 shall be in addition to, and not in substitution of, any of the other rights of the Holder under this Note.
Restriction on Section 3(a)(9) Transactions. So long as this Note is outstanding, the Borrower shall not enter into any 3(a)(9) Transaction with any party other than the Holder, without prior written consent of the Holder. In the event that the Borrower does enter into, or makes any issuance of common stock related to a 3(a)(9) Transaction while this Note is outstanding, a liquidated damages charge of 15% of the outstanding principal balance of this Note, but not less than $20,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note. A 3(a)(9) Transaction means a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(9) of the Securities Act. The liquidated damages charge in this Section 2.6 shall be in addition to, and not in substitution of, any of the other rights of the Holder under this Note.
ARTICLE III. EVENTS OF DEFAULT
The occurrence of any of the following events shall each be an Event of Default, with no right to notice or the right to cure except as specifically stated:
Failure to Pay Principal or Interest. The Borrower fails to pay the Principal Amount hereof or interest thereon when due on this Note, whether at the Maturity Date, upon acceleration, or otherwise.
Breach of Covenants. The Borrower breaches any covenant or other term or condition contained in this Note or any other documents entered into between the Holder and Borrower, and such breach continues for a period of three (3) days after written notice thereof to the Borrower from the Holder or five (5) days after the Borrower should have been aware of the breach.
Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, is or becomes false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note.
Receiver or Trustee. The Borrower or any subsidiary of the Borrower makes an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
Judgments. Any money judgment, writ or similar process is entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and remains unvacated, unbonded or unstayed for a period of ten (10) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors are instituted by or against the Borrower or any subsidiary of the Borrower.
Delisting of Common Stock. The Borrower fails to maintain the listing or quotation of its common stock on the OTCQX or an equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE American.
Failure to Comply with the Exchange Act. The Borrower fails to comply with the reporting requirements of the Exchange Act of 1934, as amended (the Exchange Act), (including but not limited to becoming delinquent in its filings), and/or the Borrower ceases to be subject to the reporting requirements of the Exchange Act.
Liquidation. The Borrower commences any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
Cessation of Operations. The Borrower ceases operations or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrowers ability to continue as a going concern shall not be an admission that the Borrower cannot pay its debts as they become due.
Financial Statement Restatement. The Borrower replaces its auditor, or issues a restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statements, have constituted a material adverse effect on the Borrower or the rights of the Holder with respect to this Note.
Reverse Splits. The Borrower effectuates a reverse split of its common stock without twenty (20) days prior written notice to the Holder.
Cross-Default. Notwithstanding anything to the contrary contained in this Note, the Purchase Agreement or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the agreements or the other instruments, including but not limited to any promissory notes or convertible promissory notes currently outstanding, or hereafter issued, by the Borrower, to the Holder or any 3rd party (the Other Agreements), shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.
Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrowers filing of a Form 8-K pursuant to Regulation FD on that same date.
No bid. At any time while this Note is outstanding, the lowest trading price on the OTCQX or other applicable principal trading market for its common stock is equal to or less than $0.01.
Prohibition on Variable Securities. So long as this Note is outstanding, the Borrower shall not, without written consent of the Holder, issue any Variable Security (as defined herein) to a party that is not the Holder. A Variable Security shall mean any security issued after the Issue Date by the Borrower that (a) has or may have conversion rights of any kind, contingent, conditional or otherwise in which the number of shares that may be issued pursuant to such conversion right varies with the market price of common stock; (b) is or may become convertible into common stock (including without limitation convertible debt, warrants or convertible preferred stock), with a conversion or exercise price that varies with the market price of the common stock, even if such security only becomes convertible or exercisable following an event of default, the passage of time, or another trigger event or condition; (c) was issued or may be issued in the future in exchange for or in connection with any contract, security, or instrument, whether convertible or not, where the number of shares of common stock issued or to be issued is based upon or related in any way to the market price of the common stock, including, but not limited to, common stock issued in connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or any other similar settlement or exchange; or (d) was issued pursuant to any equity line financing transaction.
Fundamental Transaction. The Borrower enters into any agreement to engage in or otherwise consummate, directly or indirectly, any Fundamental Transaction.
Upon the occurrence of any Event of Default specified in this Article 3, this Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 1.50 multiplied by the then outstanding entire balance of this Note (including principal and accrued and unpaid interest) plus Default Interest, if any, and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
ARTICLE IV. MISCELLANEOUS
Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or electronic mail delivery, with accurate confirmation generated, at the address designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower:
General Cannabis Corp.
6565 E. Evans Avenue
Denver, CO 80224
with a copy that shall not constitute notice to:
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Murray A. Indick, Esq.
Phone: 415 ###-###-####
If to the Holder:
SBI Investments LLC, 2014-1
107 Grand Street, 7th Floor
New York, NY 10013
Attention: Jonathan Juchno, Principal
Phone: 646 ###-###-####
with a copy that shall not constitute notice to:
K&L Gates LLP
200 S. Biscayne Blvd., Ste. 3900
Miami, FL 33131
Attention: John D. Owens, III, Esq.
Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term Note and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Borrower hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Borrower
without the prior signed written consent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Borrower does not obtain the prior signed written consent of the Holder). This Note or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to any third party, in whole or in part, without the need to obtain the Borrowers consent thereto. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys fees.
Governing Law. This Note shall be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflicts of law (whether of the State of New York or any other jurisdiction).
Exclusive Jurisdiction. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall only be commenced in the state and federal courts sitting in New York, New York (the New York Courts). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law.
JURY TRIAL WAIVER. THE BORROWER AND THE HOLDER HEREBY IRREVOCABLY WAIVE A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE.
Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding Principal Amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder therefor.
Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such power as though no such law has been enacted.
** signature page to follow **
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer on the Issue Date.
GENERAL CANNABIS CORP.
Name: Michael R. Feinsod
Title: Chief Executive Officer