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FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF
YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024
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NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024
CONVERTIBLE PROMISSORY GRID NOTE
Up to $4,700,0000 December 12, 2022
THIS CONVERTIBLE PROMISSORY GRID NOTE (this “Note”), is effective as of
this 9th day of December, 2022 (the “Effective Date”), by and between Flowerhouse NY LLC, a
New York limited liability company (the “Maker”), NY Farm HoldCo LLC, a Delaware limited
liability company (the “Holder”), and with respect to certain matters provided herein, Jeffrey
Schultz, Gregory Tannor and Siddarth Gupta (Mr. Gupta, together with Messrs. Schultz and
Tannor, the “Founders”).
RECITALS
WHEREAS, Maker and Holder are parties to Bridge Promissory Notes, entered into or
funded between October 11, 2022 and December 2, 2022 (collectively, the “Bridge Note”),
pursuant to which Maker is obligated to pay Maker an aggregate principal amount of $850,000,
plus accrued and unpaid interest thereunder (the “Bridge Note Obligations”).
WHEREAS, in addition to the amounts funded pursuant to the Bridge Note, the Holder
desires to continue funding the Maker’s obligations pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises, the agreements hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby covenant and agree as follows, effective as of the date
first above written:
FOR VALUE RECEIVED, Flowerhouse NY LLC, a New York limited liability
company, having a mailing address of 2736 NY Route 208, Walden, New York 12586 (the
“Maker”) promises to pay to the order of NY Farm HoldCo LLC, a Delaware limited liability
company (the “Holder”) the principal sum of TWO HUNDRED AND FIFTY THOUSAND
Dollars ($250,000), or such other amount as shall then equal the outstanding principal amount of
Advances made hereunder (the “Principal Amount”), plus accrued and unpaid interest on the
Principal Amount outstanding from time to time on this Note from and including the date of each
Advance made hereunder. The date of each Advance made hereunder is and shall be evidenced on
the payment grid attached hereto as Schedule A (the “Payment Grid”) Subject to the terms of this
Note, (i) interest shall accrue on the Principal Amount, with respect to each Advance, from the
date of such Advance, at a rate equal to 6% per annum, and (ii) Maker shall pay to Holder the
Principal Amount and all accrued interest, on December 1, 2023 (the “Maturity Date”). This Note
is being entered into in connection with entry into the Amended and Restated Operating
Agreement of the Maker (the “A&R Operating Agreement”), the effectiveness of which is subject
to and conditioned upon the consummation of the Conversion. Defined terms are set forth in
Exhibit A hereto (the “Definitions Exhibit”). Capitalized terms used but not defined in the
Definitions Exhibit shall have the meanings ascribed to them in A&R Operating Agreement.
1. Principal; Advances. Maker, for value received, hereby promises to pay to the
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Holder, in accordance with the terms and conditions below, the Principal Amount of all money
advanced (each, an “Advance” and collectively the “Advances”). All Advances made hereunder
shall not exceed $4,700,000 in the aggregate (including Conversion of the Bridge Note
Obligations), and shall be evidenced on the payment grid attached hereto as Schedule A (the
“Payment Grid”). Holder is entitled, but not obligated, to Advance up to $4,700,000 hereunder,
including, subject to meeting the Conversion Threshold, the Bridge Note Conversion Advance (as
defined below). Maker shall record each Advance on the Payment Grid (and all notations, updates,
and amendments made thereto) upon its receipt of each Advance. The failure of Maker to record
any Advance on the Payment Grid shall not limit Maker’s obligations to repay such Advance
and/or the interest accrued thereon.
2. Conversion of the Bridge Note. Upon the funding of a minimum of $1,650,000 of
Advances (excluding the Bridge Note Conversion Advance) (the “Conversion Threshold”), the
Holder may convert the Bridge Note Obligations into an Advance hereunder (the “Conversion of
the Bridge Note Obligations”). The Conversion of the Bridge Note Obligations will be recorded
on the Payment Grid as an Advance (the “Bridge Note Conversion Advance”), effective on the
date the Holder delivers notice to Maker of such Conversion of the Bridge Note Obligations. Maker
shall not attempt to cause the interest rate under the Bridge Note Obligations to be reduced and the
maturity date to be extended, in each case in accordance with Section 3(a) thereunder, unless the
Holder fails to fund Advances of at least $250,000 on December 12, 2022, additional Advances of
at least $1,000,000 on or before December 16, 2022, and additional Advances of at least
$1,000,000 on or before December 30, 2022, and all remaining amounts on or before January 13th,
2023 (the “Funding Dates”). If Holder fails to meet the Conversion Threshold or fails to fund
Advances in on the applicable Funding Dates, and does not consummate the Conversion of the
Bridge Note Obligations, all relevant terms and conditions of the promissory notes underlying the
Bridge Note Obligations shall remain in full effect, and each of Holder and Maker reserve their
respective rights thereunder.
3. A&R Operating Agreement. Simultaneously with the Conversion, the Maker, the
Holder, and the members of the Maker, shall enter into the Amended and Restated Operating
Agreement of the Maker, a form of which is attached hereto as Exhibit B (the “A&R Operating
Agreement”). The Founders hereby consent in writing to adoption of the A&R Operating
Agreement upon consummation of the Conversion. Simultaneously with the first Advance
hereunder, the Founders shall deliver signature pages to the A&R Operating Agreement to
Holder’s legal counsel, which shall be released upon consummation of the Conversion. The A&R
Operating Agreement will become effective upon delivery of a Notice of Conversion.
4. Interest; Repayment.
a. Interest and Repayment. Interest shall accrue on all Advances hereunder at
a rate of 6% per annum, accruing with respect to each Advance from the date of each such
Advance, and shall be calculated on the basis of actual number of days elapsed over a year of 360
days. For purposes of calculating interest on the Bridge Note Advance, interest shall accrue from
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the date of Conversion of the Bridge Note Obligations.
b. Default Rate. During the continuance of an Event of Default, and
notwithstanding anything else to the contrary contained in this Note or the Term Sheet, interest
payable on the Principal Amount shall be computed at the then applicable interest rate set forth in
this Section 4 plus 5% per annum (the “Default Rate”) and such interest shall be payable upon
demand (“Default Interest”). The failure by the Holder to collect or impose the Default Rate on
one occasion shall not be deemed a waiver by the Holder of this Note of its right to impose the
Default Rate in any other instance. Any Default Interest shall be payable in cash and shall remain
an obligation of the Maker, notwithstanding consummation of the Conversion.
5. Collection Costs. Maker shall pay all costs and expenses, including without
limitation any attorneys’ fees and disbursements that may be incurred by the Holder or any
subsequent holder of this Note in connection with the enforcement or collection of this Note or
any security for this Note (including further attorneys’ fees in connection with any proceedings in
the United States Bankruptcy Court), and any costs of collection.
6. Prepayment. This Note may not be prepaid by Maker prior to the Maturity Date, in
whole or in part, without the prior written consent of the Holder, which may be provided or
withheld in the sole and absolute discretion of Holder.
7. Conversion. Subject to Holder advancing the Conversion Threshold hereunder, this
Note (including the Conversion of the Bridge Note Obligations, and including all principal and
interest hereunder) shall be convertible into Units of the Maker in accordance with the following
provisions:
a. Conversion at the Election of the Holder or Maker. Subject to Holder
advancing not less than the Conversion Threshold, and consummating the Conversion of the
Bridge Note Obligations, during the period commencing on January 1, 2023 and terminating on
the Maturity Date, the Holder shall have the right, but not the obligation, to deliver a notice of
conversion to the Maker (a “Holder Notice of Conversion”), electing to convert the Note into the
Conversion Units, in accordance with the below mechanics, and the Maker shall have the right,
but not the obligation, to deliver a notice of conversion to the Maker (a “Maker Notice of
Conversion”, and together with a Holder Notice of Conversion, a “Notice of Conversion”),
electing to convert the Note into the Conversion Units, in accordance with the below mechanics,
if holder has not delivered a Holder Notice of Conversion as of January 15th, 2023 and if an Event
of Default is not then occurring. There shall be no Event of Default then occurring during the
consummation of a Notice of Conversion, and the Founders shall deliver a certificate to Holder that
no Event of Default is then occurring in connection with consummation of a Conversion in
connection therewith and that the representations and warranties made by the Maker and Founders
herein were true and complete at the time made, provided, Holder may waive this requirement as a
condition to Conversion. The Principal Amount and accrued interest (except for Default Interest,
if any, payable in cash at Conversion) shall convert into a number of Units of the Maker, and
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corresponding Percentage Interest (collectively, the “Conversion Units”), that would be purchased
by the Holder using the then outstanding Principal Amount as consideration, at a pre-money
valuation equal to $20,000,000 (the “Conversion Price”). The accrued interest hereunder
(excluding Default Interest, if any) shall be part of the consideration payable at Conversion (i.e.,
surrender of the Note), however, for avoidance of doubt, only the Principal Amount shall be used
for the determination of the number of Conversion Units issuable to the Holder upon
consummation of the Conversion.
As an illustration, if the Principal Amount hereunder at the time of Conversion is $2,500,000
(including Conversion of the Bridge Note Obligations), the Principal Amount and accrued interest
hereunder would convert into Conversion Units reflecting a Percentage Interest of 11.11%,
irrespective of the date of Conversion (i.e., purchasing $2,500,000 of Units at a pre-money
valuation of $20,000,000).
As another illustration, if the Principal Amount hereunder at time of conversion is $4,700,000
(including Conversion of the Bridge Note Obligations), the Principal Amount and accrued interest
hereunder would convert into Conversion Units reflecting a Percentage Interest of 19.02%,
irrespective of the date of Conversion (i.e., purchasing $4,700,000 of Units at a pre-money
valuation of $20,000,000).
b. Maker Notice of Conversion. If the Conversion has not occurred prior to
the Maturity Date, and an Event of Default is not then occurring, Maker may consummate the
Conversion on the Maturity Date by delivering written notice to the Holder (a “Maker Notice of
Conversion” and, together with a Holder Notices of Conversion, a “Notice of Conversion”). There
shall be no Event of Default then occurring during the consummation of a Maker Notice of
Conversion, and the Founders shall deliver a certificate to Holder that no Event of Conversion is
then occurring as a condition to consummation of such Maker consummating the Conversion
underlying such Notice of Conversion.
c. Surrender of Note and Consummation of Conversion. In connection with
delivery of a Notice of Conversion and issuance of the Conversion Units, Holder shall surrender
this Note to Maker (the date on which this Note is surrendered to Maker and the Conversion Units
are issued to Holder, being the “Conversion Date”), except with respect to the Surviving
Obligations. Subject to timely delivery of a Notice of Conversion, the Maker shall issue and shall
deliver to Holder, on the Conversion Date, evidence satisfactory to Holder of the issuance of the
Conversion Units (the “Conversion”). The A&R Operating Agreement shall become effective, in
accordance with its terms, on the Conversion Date, and the Managers of the Maker shall update
Schedule A of such A&R Operating Agreement to reflect the issuance of the Conversion Units to
Holder. The Conversion shall be deemed to have been effected immediately prior to the close of
business on the Conversion Date, and Holder shall be deemed to have become the owner of record
of the Conversion Units of Maker represented thereby pursuant to the terms of the A&R Operating
Agreement as of the Conversion Date.
d. OCM Notification of Conversion. Maker shall notify the New York Office
of Cannabis Management (the “OCM”) and any other requisite Regulatory Authority of the
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consummation of the Conversion as soon as commercially reasonably practicable on or after the
Conversion Date (the “OCM Conversion Notice”). Should Maker and/or Holder be required to
notify OCM of this Note and/or submit any information regarding the Maker, the Holder, the
members of the Holder, and/or the terms of this Agreement or any other agreement between the
Holder and the Maker, then the Holder, on behalf of itself and its members and managers, shall
cooperate with all requests for information and documentation as requested by Maker or by OCM
directly.
e. Reservation of Conversion Units. Maker shall at all times when this Note
shall be outstanding, reserve and keep available out of its authorized but unissued membership
interests, for the purpose of effecting the conversion of this Note contemplated by this Section such
number of its duly authorized Units as shall from time to time be sufficient to effect the Conversion.
Maker shall not be obligated to deliver to Holder any fractional Units issuable upon any conversion
of this Note, but in lieu thereof may make cash payment in respect thereof in any manner permitted
by law.
8. Events of Default.
a. Each of the following shall constitute an “Event of Default” hereunder: (a) the
dissolution, termination of existence, insolvency, business failure, appointment of a receiver for any
part of the property of, assignment for the benefit of creditors, or the commencement of any
proceeding under any state or federal bankruptcy or insolvency law or under laws for relief of
debtors not dismissed within sixty (60) days, in each case, by or against Maker; (b) if the Maker
shall fail to make any payment on this Note when due; (c) written notice from the Holder in the
event of a default by Maker in payment or performance of any other obligation of Maker to the Holder,
if such default is not cured within 15 days of Maker’s receipt of written notice thereof; (d) written
notice from the Holder in the event the Maker is in default or breach of any of the covenants contained
in Section 11 or 12, if such default is not cured within 15 days of Maker’s receipt of such written
notice thereof; (e) written notice from the Holder in the event any of the representations and warranties
of the Maker set forth in Section 10 below were untrue or incorrect when made, if such default is not
cured within 15 days of Maker’s receipt of such written notice thereof, (f) this Note does not convert
within five (5) Business Days of delivery of a Notice of Conversion, following written notice of
such failure to Convert by the Holder. Notwithstanding the foregoing, and unless the parties fail
to agree on a use of proceeds schedule by December 16, 2022, a breach of Section 8(a)(d) shall
not constitute an Event of Default hereunder if Holder fails to fund $1,250,000 hereunder by
December 16, 2022.
b. In addition to and not in any respect in limitation of any other rights or
remedies Holder may have hereunder or under applicable laws, upon demand by the Holder or any
other holder of this Note following occurrence of an Event of Default hereunder, all outstanding
Principal Amount, interest, and all other amounts due hereunder shall become immediately due
and payable in full without presentment, demand, protest or notice of any nature whatsoever, all
of which are hereby waived.
c. Maker hereby waives presentment, demand, protest, notice of dishonor and
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all notices and demands of every kind in connection with the delivery, acceptance, performance
and enforcement of this Note, and waives defenses based upon impairment of or recourse to
collateral and waives all recourse to suretyship and guarantorship defenses generally, including,
but not limited to, any extension or extensions of time for payment or performance which may be
granted to Maker, any impairment of any collateral for the loans evidenced by this Note, any
release of a party liable herefor, any release or exchange of security, and all other indulgences of
any type which may be granted by the holder hereof to Maker.
9. Remedies. Upon the occurrence of any Event of Default, Holder may initiate any
the following remedies, upon written notice to Maker:
a. Holder may declare due and payable (i) all of the Advances outstanding as
of the date of such Event of Default hereunder and (ii) all accrued and unpaid interest on the
Advances (the amounts described in the foregoing clauses (i) and (ii), collectively, the “Default
Obligations”), and, if Maker so declares, such Default Obligations shall automatically become
immediately due and payable without presentment, demand, protest or notice of any kind, all of
which are expressly waived. Upon any such declaration of acceleration, the Principal Amount and
all accrued and unpaid interest shall become immediately due and payable and the Holder shall be
entitled to exercise all of its rights and remedies hereunder, whether at law or in equity. Default
Interest shall accrue on all Advances at the Default Rate, from the date of declaration of an Event
of Default. The failure of the Holder to declare this Note due and payable shall not be a waiver of
the holder’s right to do so in the future, and the Holder shall retain the right to declare this Note
due and payable at any time an Event of Default is continuing.
b. Holder may deliver written notice to Maker and consummate the
Conversion of this Note into the Conversion Shares and, until the consummation of such
Conversion, Default Interest shall accrue and be payable in cash on the Conversion Date.
c. No delay on the part of Holder in the exercise of any power or right under
this Note, or under any other instrument executed pursuant hereto, shall operate as a waiver thereof,
nor shall a single or partial exercise of any power or right preclude other or further exercise thereof
or the exercise of any other power or right. No extension of time of the payment of this Note or
any other modification, amendment or forbearance made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or
affect the liability under this Note, either in part or in whole. No failure on the part of Holder or
any holder hereof to exercise any right or remedy hereunder, whether before or after the occurrence
of an Event of Default, shall constitute a waiver thereof, and no waiver of any past Event of Default
shall constitute a waiver of any future default or of any other Event of Default. No failure to
accelerate the indebtedness evidenced hereby by reason of an Event of Default hereunder or
acceptance of a past due installment, or indulgence granted from time to time shall be construed
to be a waiver of the right to insist upon prompt payment thereafter, or to impose late payment
charges, or shall be deemed to be a novation of this Note or any reinstatement of the indebtedness
evidenced hereby, or a waiver of such right of acceleration or any other right, or be construed so
as to preclude the exercise of any right which Holder or any holder hereof may have, whether by
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the laws of the New York, by agreement or otherwise, and none of the foregoing shall operate to
release, change or affect the liability of Maker under this Note, and Maker hereby expressly waives
(to the extent allowed by law) the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing.
d. Specific Performance. The Parties each acknowledge that the rights of each
Holder to consummate the transactions contemplated hereby, including the Conversion, are
special, unique and of extraordinary character and that, in the event that Maker violates or fails or
refuses to perform any covenant or agreement made by it in this Note, Holder may be without an
adequate remedy at law. The Parties agree, therefore, that in the event that Maker violates or fails
or refuses to perform any covenant or agreement made by Maker in this Agreement, Holder may,
subject to the terms of this Note and in addition to any remedies at Law for damages or other relief,
institute and prosecute an action in any court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
10. Representation and Warranties. The Maker and, where applicable, the Founders, to
the best of their knowledge (except for sections 10(a)-(f); (h); (k); (n); (p); (q), which are not
qualified by knowledge), jointly and severally with the Maker, represent and warrant to the Holder
that the following are true, correct and complete, as of the date hereof and as of the date of each
Advance, (except (i) those made as of a specific date or end of a period which were correct as of
such date or as of the end of such period and (ii) to the extent variations therefrom have been
permitted under the terms of this Agreement or otherwise in writing by the Holder):
a. Corporate Existence and Power. The Maker, PropCo and LicenseCo are
each New York limited liability companies, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, organization or formation, as applicable;
have all requisite power and authority and has or shall have in due course all governmental
licenses, authorizations, permits, consents, and approvals (collectively “Permits”) to (i) own their
assets, (ii) carry on their respective businesses, including without limitation cannabis cultivation
in New York, and (iii) for Maker to execute, deliver, and perform its obligations under this Note
and the A&R Operating Agreement; each are duly qualified as a foreign corporation, and validly
licensed and in good standing, under the laws and regulations of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business requires such qualification
or license; and each Maker is in material compliance with all applicable laws except for the federal
cannabis laws (“Applicable Law”).
b. Corporate Authorization; No Contravention. The execution, delivery and
performance by the Maker of this Note and the A&R Operating Agreement, has been duly
authorized by all necessary corporate organizational action, and the Note and A&R Operating
Agreement (collectively, the “Transaction Documents”) constitutes a legal, valid and binding
obligation of the Maker enforceable in accordance with its terms, and do not and the Maker will
not: (i) contravene, breach or conflict with the terms of any of Maker’s articles of formation or
operating agreement (the “Organizational Documents”); (ii) impose, conflict with or result in the
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creation of any Lien (except Liens, if any, created pursuant to this Note) under, any document
evidencing any contractual obligation to which Maker is a party or any order, injunction, writ or
decree of any governmental authority to which Maker or its property is subject; (iii) conflict with
or result in any breach or contravention of any document evidencing any contractual obligation to
which Maker is a party or any order, injunction, judgment, permit, writ or decree of any
governmental authority to which Maker or its property is subject (excluding the federal cannabis
laws); or violate or breach any Applicable Law (excluding the federal cannabis laws). The Maker
and the Founders jointly and severally represent and warrant that the A&R Operating Agreement
has been duly authorized and approved, including obtaining requisite consents to adoption thereof
by the Maker’s founders, Jeffrey Schultz, Siddarth Gupta and Gregory Tannor (each, a “Founder”
and collectively, the “Founders”).
c. Capitalization. The Maker and the Founders jointly and severally represent
and warrant as follows:
(i) The capitalization of each of Maker, PropCo and LicenseCo,
including the cash capital contributions of each member, including
the Founders, is set forth on Schedule 10(c).
(ii) Maker owns 100% of the equity interests of PropCo.
(iii) Maker is not authorized to issue any additional Membership
Interests, Units or Unit Equivalents to Founders or employees of
Maker or any of its Affiliates, except with respect to the issuance of
(A) any employee equity grants permitted by Section 4.19 of the
A&R Operating Agreement (which shall be deemed to be in effect
for purposes of this section), or (B) in accordance with Section 13 of
this Note.
(iv) Other than the securities listed on Schedule 10(c), there are no other
ownership interest or other securities or participations or other
equivalents (however designated and whether voting or nonvoting)
outstanding in any of the Flowerhouse Group. Except for the
conversion rights with respect to the Conversion Units to be issued
hereunder, and the LicenseCo Purchase Option, there are no
outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal or similar rights) or
agreements, orally or in writing, to purchase or acquire from Maker,
PropCo or LicenseCo, any New Securities or other equity securities
or securities convertible into equity securities.
(v) All of the outstanding membership interests and units of each of
Maker, PropCo and LicenseCo have been duly authorized, are validly
issued, fully paid and nonassessable, and are owned of record and
beneficially by the members listed on Schedule 10(c), free and clear
of all Liens.
d. Organizational Documents.
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(i) The Organizational Documents of LicenseCo solely consist of the
Limited Liability Company Agreement of Flowerhouse Walden
LLC, dated as of March 28, 2022 (the “LicenseCo Operating
Agreement”), and the Certificate of Formation of Flowerhouse
Walden LLC, filed with the New York Department of State on July
28, 2022 (together with the LicenseCo Operating Agreement, the
“LicenseCo Organizational Documents”). True and complete copies
of the LicenseCo Organizational Documents have been provided to
the Holder, and such LicenseCo Organizational Documents have not
been amended or rescinded, and are in full force and effect. No
amendments to the LicenseCo Organizational Documents are
pending. Pursuant to Section 9.04 of the LicenseCo Operating
Agreement, Maker has a right, subject to Section 9.04(a) thereof, to
purchase the remaining 51% of the Membership Interests of
LicenseCo, for the Buy-Out Price (as defined in the LicenseCo
Operating Agreement) (the “LicenseCo Purchase Option”).
(ii) The Organizational Documents of Maker solely consist of the
Limited Liability Company Agreement of Flowerhouse NY LLC,
dated as of February 1, 2022 (the “Existing Maker Operating
Agreement”), and the Certificate of Formation of Flowerhouse NY
LLC, filed with the New York Department of State on January 28,
2022 (together with the Existing Maker Operating Agreement, the
“Maker Organizational Documents”). True and complete copies of
the Maker Organizational Documents have been provided to the
Holder, and such Maker Organizational Documents have not been
amended or rescinded, and are in full force and effect. No
amendments to the Maker Organizational Documents are pending.
e. Subsidiaries. Except for LicenseCo and Flowerhouse Propco LLC, the
Maker does not currently own or control, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, limited liability company, association, or other
business entity. LicenseCo does not currently own or control, directly or indirectly, any interest in
any other corporation, partnership, trust, joint venture, limited liability company, association, or
other business entity. Except as provided in the LicenseCo Operating Agreement, neither Maker
nor LicenseCo is a participant in any joint venture, partnership or similar arrangement.
f. Neither the execution and delivery by the Maker of this Note or the A&R
Operating Agreement, nor the consummation by the Maker of the Conversion in accordance with
the terms hereof (i) violate, conflict with, or result in a default (whether after the giving of notice,
lapse of time or both) under, give rise to a right of termination, acceleration, cancellation or
modification of, or require any notice or approval under, any contract to which the Maker is a party
or by which the Maker’s assets are bound; (ii) conflict with, or result in any violation of, any
provision of the Maker Organizational Documents; (iii) violate or result in a violation of, or
constitute a default under (whether after the giving of notice, lapse of time or both), any provision
of any Applicable Law or governmental order applicable to the Maker; (iv) result in, require or
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trigger any fee, expense, charge, or other payment made or required to be made by the Maker, the
Founders or the Holder to any Person, or (v) result in the creation of any Lien on any properties,
rights or assets of the Maker or its Subsidiaries.
g. Property. Except as set forth on Schedule 10(g), the real property, personal
property and intellectual property, and all other assets that the Flowerhouse Group owns, are free
and clear of all mortgages, deeds of trust, loans and other Liens, except for statutory liens for the
payment of current taxes that are not yet delinquent and encumbrances that arise in the ordinary
course of business and do not materially impair the Flowerhouse Group’s ownership or use of such
property or assets. All real property leased or owned by the Flowerhouse Group are set forth on
Schedule 10(g). With respect to the property and assets it leases, the Flowerhouse Group (i) is in
compliance with such leases, (ii) holds a valid leasehold interest free of any Liens other than those
of the lessors of such property or assets, and (iii) has not subleased, licensed, or otherwise granted
any Person the right to use or occupy such leased real property.
h. Certain Transactions. The Maker and the Founders jointly and severally
represent and warrant that:
Except as set forth on Schedule 10(h), there are no contracts, agreements,
understandings or proposed transactions between Maker and/or LicenseCo, on
the one hand, and any of the Founders, on the other hand. Except as set forth on
Schedule 10(h), neither the Maker nor LicenseCo are obligated to make any
payments to any of the Founders. Except as set forth on Schedule 10(h), none
of the Founders have any direct or indirect ownership interest in any firm or
corporation with which the Flowerhouse Group is affiliated or with which the
Flowerhouse Group has a business relationship, or any firm or corporation
which directly competes with the Flowerhouse Group in New York. Except as
set forth in Schedule 10(h), the Maker and LicenseCo have no obligations to
pay any of the Founders for services provided, or capital advanced to Maker or
LicenseCo. The Founders jointly represent and warrant that they are in strict
compliance with Section 14.2 of the A&R Operating Agreement, which is
deemed to be effective as of the Effective Date for purposes of this Section 9(h).
i. Tax Returns and Payments. There are no federal, state, county, local or
foreign taxes due and payable by the Flowerhouse Group which have not been timely paid. There
have been no examinations or audits of any tax returns or reports by any applicable federal, state,
local or foreign governmental agency. Each member of the Flowerhouse Group has duly and
timely filed all federal, state, county, local and foreign tax returns required to have been filed by it
and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any
year, except where the failure to so file has not resulted in, and would not reasonably be expected
to result in, material adverse effect.
j. Insurance. The Flowerhouse Group has in full force and effect insurance
policies concerning such casualties as would be reasonable and customary for businesses like the
Flowerhouse Group with extended coverage, sufficient in amount (subject to reasonable
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deductions) to allow it to replace any of its properties that might be damaged or destroyed.
k. Governmental and Third Party Authorization. Except with respect to the
OCM Conversion Notice, no approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any governmental authority or any other Person, is necessary or required
in connection with the execution, delivery or performance by, or enforcement against, Maker of
this Note or consummation of the Conversion. Except as provided below, approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any governmental
authority or any other Person, is necessary or required in connection with the execution, delivery
or performance by, or enforcement against, Maker of this Note.
l. Employee Benefits. Neither the Maker nor LicenseCo currently have nor
has ever had an Employee Benefit Plan.
m. The Maker and LicenseCo are and have been in compliance with all
Environmental Laws applicable to its operations and use of the Owned Real Property and Leased
Real Property. LicenseCo has obtained and is and has been in compliance with all Permits required
under Environmental Laws for the operation of its business, except where the failure to so obtain
or comply would not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on LicenseCo. LicenseCo does not generate, transport, treat, store or dispose of
any Hazardous Material, except in compliance in all material respects with all applicable
Environmental Laws, and there has been no Release or presence of or exposure to any Hazardous
Material at, from, under, off or on the any property currently or, to the Maker’s Knowledge,
formerly owned or operated by LicenseCo that would reasonably be expected to result in liability
or requires notification, investigation or remediation by LicenseCo pursuant to any applicable
Environmental Law, except in each case as has not had and would not reasonably be expected to
have a Material Adverse Effect on LicenseCo. Maker has made available to Holder true, correct
and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by LicenseCo pertaining to Hazardous Material in, on, or under any real property or
facility at any time owned, leased or operated by LicenseCo or any of its predecessors, or
concerning compliance by LicenseCo or any of its predecessors with Environmental Laws.
n. Binding Effect. This Note and the A&R Operating Agreement constitutes
the legal, valid and binding obligations of such party, enforceable against such party in accordance
with its respective terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable
principles relating to enforceability, regardless of whether considered in a proceedings in equity
or at law.
o. Litigation. There are no actions, suits, claims, arbitration, charges or
investigations by any governmental authority or any other person or proceedings pending, or to
the actual knowledge of Maker, threatened, at law, in equity, in arbitration or before any
governmental authority or any other person, against Maker or LicenseCo, or to the knowledge of
Maker, any officer, director or employee of Maker or LicenseCo.
p. Cannabis Licenses and other Required Permits. The Maker and the
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Founders jointly and severally represent and warrant that Maker, PropCo and LicenseCo are each
in compliance with, and the LicenseCo Purchase Option complies with, all laws and regulations
pertaining to any and all Permits, consents and other approvals from any governmental authority
issued in connection with, and necessary for, the lawful operation of a cannabis or marijuana
related business, including Adult Use Conditional Cultivator license in New York (OCM-AUCC-
22-000111) (collectively, the “Cannabis Licenses”) and other Permits. Maker and, to the
knowledge of Maker, LicenseCo, is not a party to, or the subject of, any investigation, notice of
apparent liability, violation, forfeiture, or other order or complaint issued by or before any
governmental authority or any other proceedings which could, in any manner, threaten or adversely
affect its ability to obtain or maintain any such Cannabis Licenses or other Permits, or give rise to
any order of forfeiture. Maker and the Founders have no reason to believe that such Cannabis
Licenses and other Permits will not be granted or obtained in the ordinary course, or otherwise
revoked. Maker has filed or shall file, and cause LicenseCo to file, in a timely manner, all material
reports, applications, documents, and information required to be filed pursuant to applicable rules
and regulations or requests of every regulatory body having jurisdiction over any of its Cannabis
Licenses or other Permits.
q. Indebtedness. The Maker and the Founders jointly and severally represent
and warrant that except for the obligations to Holder, the Maker, PropCo and LicenseCo do not
have any indebtedness for borrowed money as of the date of this Note and, subject to Section 12(c),
Preview
FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 CONVERTIBLE PROMISSORY GRID NOTE Up to $4,700,0000 December 12, 2022 THIS CONVERTIBLE PROMISSORY GRID NOTE (this “Note”), is effective as of this 9th day of December, 2022 (the “Effective Date”), by and between Flowerhouse NY LLC, a New York limited liability company (the “Maker”), NY Farm HoldCo LLC, a Delaware limited liability company (the “Holder”), and with respect to certain matters provided herein, Jeffrey Schultz, Gregory Tannor and Siddarth Gupta (Mr. Gupta, together with Messrs. Schultz and Tannor, the “Founders”). RECITALS WHEREAS, Maker and Holder are parties to Bridge Promissory Notes, entered into or funded between October 11, 2022 and December 2, 2022 (collectively, the “Bridge Note”), pursuant to which Maker is obligated to pay Maker an aggregate principal amount of $850,000, plus accrued and unpaid interest thereunder (the “Bridge Note Obligations”). WHEREAS, in addition to the amounts funded pursuant to the Bridge Note, the Holder desires to continue funding the Maker’s obligations pursuant to the terms set forth herein. NOW, THEREFORE, in consideration of the premises, the agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as follows, effective as of the date first above written: FOR VALUE RECEIVED, Flowerhouse NY LLC, a New York limited liability company, having a mailing address of 2736 NY Route 208, Walden, New York 12586 (the “Maker”) promises to pay to the order of NY Farm HoldCo LLC, a Delaware limited liability company (the “Holder”) the principal sum of TWO HUNDRED AND FIFTY THOUSAND Dollars ($250,000), or such other amount as shall then equal the outstanding principal amount of Advances made hereunder (the “Principal Amount”), plus accrued and unpaid interest on the Principal Amount outstanding from time to time on this Note from and including the date of each Advance made hereunder. The date of each Advance made hereunder is and shall be evidenced on the payment grid attached hereto as Schedule A (the “Payment Grid”) Subject to the terms of this Note, (i) interest shall accrue on the Principal Amount, with respect to each Advance, from the date of such Advance, at a rate equal to 6% per annum, and (ii) Maker shall pay to Holder the Principal Amount and all accrued interest, on December 1, 2023 (the “Maturity Date”). This Note is being entered into in connection with entry into the Amended and Restated Operating Agreement of the Maker (the “A&R Operating Agreement”), the effectiveness of which is subject to and conditioned upon the consummation of the Conversion. Defined terms are set forth in Exhibit A hereto (the “Definitions Exhibit”). Capitalized terms used but not defined in the Definitions Exhibit shall have the meanings ascribed to them in A&R Operating Agreement. 1. Principal; Advances. Maker, for value received, hereby promises to pay to the 1 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 Holder, in accordance with the terms and conditions below, the Principal Amount of all money advanced (each, an “Advance” and collectively the “Advances”). All Advances made hereunder shall not exceed $4,700,000 in the aggregate (including Conversion of the Bridge Note Obligations), and shall be evidenced on the payment grid attached hereto as Schedule A (the “Payment Grid”). Holder is entitled, but not obligated, to Advance up to $4,700,000 hereunder, including, subject to meeting the Conversion Threshold, the Bridge Note Conversion Advance (as defined below). Maker shall record each Advance on the Payment Grid (and all notations, updates, and amendments made thereto) upon its receipt of each Advance. The failure of Maker to record any Advance on the Payment Grid shall not limit Maker’s obligations to repay such Advance and/or the interest accrued thereon. 2. Conversion of the Bridge Note. Upon the funding of a minimum of $1,650,000 of Advances (excluding the Bridge Note Conversion Advance) (the “Conversion Threshold”), the Holder may convert the Bridge Note Obligations into an Advance hereunder (the “Conversion of the Bridge Note Obligations”). The Conversion of the Bridge Note Obligations will be recorded on the Payment Grid as an Advance (the “Bridge Note Conversion Advance”), effective on the date the Holder delivers notice to Maker of such Conversion of the Bridge Note Obligations. Maker shall not attempt to cause the interest rate under the Bridge Note Obligations to be reduced and the maturity date to be extended, in each case in accordance with Section 3(a) thereunder, unless the Holder fails to fund Advances of at least $250,000 on December 12, 2022, additional Advances of at least $1,000,000 on or before December 16, 2022, and additional Advances of at least $1,000,000 on or before December 30, 2022, and all remaining amounts on or before January 13th, 2023 (the “Funding Dates”). If Holder fails to meet the Conversion Threshold or fails to fund Advances in on the applicable Funding Dates, and does not consummate the Conversion of the Bridge Note Obligations, all relevant terms and conditions of the promissory notes underlying the Bridge Note Obligations shall remain in full effect, and each of Holder and Maker reserve their respective rights thereunder. 3. A&R Operating Agreement. Simultaneously with the Conversion, the Maker, the Holder, and the members of the Maker, shall enter into the Amended and Restated Operating Agreement of the Maker, a form of which is attached hereto as Exhibit B (the “A&R Operating Agreement”). The Founders hereby consent in writing to adoption of the A&R Operating Agreement upon consummation of the Conversion. Simultaneously with the first Advance hereunder, the Founders shall deliver signature pages to the A&R Operating Agreement to Holder’s legal counsel, which shall be released upon consummation of the Conversion. The A&R Operating Agreement will become effective upon delivery of a Notice of Conversion. 4. Interest; Repayment. a. Interest and Repayment. Interest shall accrue on all Advances hereunder at a rate of 6% per annum, accruing with respect to each Advance from the date of each such Advance, and shall be calculated on the basis of actual number of days elapsed over a year of 360 days. For purposes of calculating interest on the Bridge Note Advance, interest shall accrue from 2 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 the date of Conversion of the Bridge Note Obligations. b. Default Rate. During the continuance of an Event of Default, and notwithstanding anything else to the contrary contained in this Note or the Term Sheet, interest payable on the Principal Amount shall be computed at the then applicable interest rate set forth in this Section 4 plus 5% per annum (the “Default Rate”) and such interest shall be payable upon demand (“Default Interest”). The failure by the Holder to collect or impose the Default Rate on one occasion shall not be deemed a waiver by the Holder of this Note of its right to impose the Default Rate in any other instance. Any Default Interest shall be payable in cash and shall remain an obligation of the Maker, notwithstanding consummation of the Conversion. 5. Collection Costs. Maker shall pay all costs and expenses, including without limitation any attorneys’ fees and disbursements that may be incurred by the Holder or any subsequent holder of this Note in connection with the enforcement or collection of this Note or any security for this Note (including further attorneys’ fees in connection with any proceedings in the United States Bankruptcy Court), and any costs of collection. 6. Prepayment. This Note may not be prepaid by Maker prior to the Maturity Date, in whole or in part, without the prior written consent of the Holder, which may be provided or withheld in the sole and absolute discretion of Holder. 7. Conversion. Subject to Holder advancing the Conversion Threshold hereunder, this Note (including the Conversion of the Bridge Note Obligations, and including all principal and interest hereunder) shall be convertible into Units of the Maker in accordance with the following provisions: a. Conversion at the Election of the Holder or Maker. Subject to Holder advancing not less than the Conversion Threshold, and consummating the Conversion of the Bridge Note Obligations, during the period commencing on January 1, 2023 and terminating on the Maturity Date, the Holder shall have the right, but not the obligation, to deliver a notice of conversion to the Maker (a “Holder Notice of Conversion”), electing to convert the Note into the Conversion Units, in accordance with the below mechanics, and the Maker shall have the right, but not the obligation, to deliver a notice of conversion to the Maker (a “Maker Notice of Conversion”, and together with a Holder Notice of Conversion, a “Notice of Conversion”), electing to convert the Note into the Conversion Units, in accordance with the below mechanics, if holder has not delivered a Holder Notice of Conversion as of January 15th, 2023 and if an Event of Default is not then occurring. There shall be no Event of Default then occurring during the consummation of a Notice of Conversion, and the Founders shall deliver a certificate to Holder that no Event of Default is then occurring in connection with consummation of a Conversion in connection therewith and that the representations and warranties made by the Maker and Founders herein were true and complete at the time made, provided, Holder may waive this requirement as a condition to Conversion. The Principal Amount and accrued interest (except for Default Interest, if any, payable in cash at Conversion) shall convert into a number of Units of the Maker, and 3 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 corresponding Percentage Interest (collectively, the “Conversion Units”), that would be purchased by the Holder using the then outstanding Principal Amount as consideration, at a pre-money valuation equal to $20,000,000 (the “Conversion Price”). The accrued interest hereunder (excluding Default Interest, if any) shall be part of the consideration payable at Conversion (i.e., surrender of the Note), however, for avoidance of doubt, only the Principal Amount shall be used for the determination of the number of Conversion Units issuable to the Holder upon consummation of the Conversion. As an illustration, if the Principal Amount hereunder at the time of Conversion is $2,500,000 (including Conversion of the Bridge Note Obligations), the Principal Amount and accrued interest hereunder would convert into Conversion Units reflecting a Percentage Interest of 11.11%, irrespective of the date of Conversion (i.e., purchasing $2,500,000 of Units at a pre-money valuation of $20,000,000). As another illustration, if the Principal Amount hereunder at time of conversion is $4,700,000 (including Conversion of the Bridge Note Obligations), the Principal Amount and accrued interest hereunder would convert into Conversion Units reflecting a Percentage Interest of 19.02%, irrespective of the date of Conversion (i.e., purchasing $4,700,000 of Units at a pre-money valuation of $20,000,000). b. Maker Notice of Conversion. If the Conversion has not occurred prior to the Maturity Date, and an Event of Default is not then occurring, Maker may consummate the Conversion on the Maturity Date by delivering written notice to the Holder (a “Maker Notice of Conversion” and, together with a Holder Notices of Conversion, a “Notice of Conversion”). There shall be no Event of Default then occurring during the consummation of a Maker Notice of Conversion, and the Founders shall deliver a certificate to Holder that no Event of Conversion is then occurring as a condition to consummation of such Maker consummating the Conversion underlying such Notice of Conversion. c. Surrender of Note and Consummation of Conversion. In connection with delivery of a Notice of Conversion and issuance of the Conversion Units, Holder shall surrender this Note to Maker (the date on which this Note is surrendered to Maker and the Conversion Units are issued to Holder, being the “Conversion Date”), except with respect to the Surviving Obligations. Subject to timely delivery of a Notice of Conversion, the Maker shall issue and shall deliver to Holder, on the Conversion Date, evidence satisfactory to Holder of the issuance of the Conversion Units (the “Conversion”). The A&R Operating Agreement shall become effective, in accordance with its terms, on the Conversion Date, and the Managers of the Maker shall update Schedule A of such A&R Operating Agreement to reflect the issuance of the Conversion Units to Holder. The Conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date, and Holder shall be deemed to have become the owner of record of the Conversion Units of Maker represented thereby pursuant to the terms of the A&R Operating Agreement as of the Conversion Date. d. OCM Notification of Conversion. Maker shall notify the New York Office of Cannabis Management (the “OCM”) and any other requisite Regulatory Authority of the 4 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 consummation of the Conversion as soon as commercially reasonably practicable on or after the Conversion Date (the “OCM Conversion Notice”). Should Maker and/or Holder be required to notify OCM of this Note and/or submit any information regarding the Maker, the Holder, the members of the Holder, and/or the terms of this Agreement or any other agreement between the Holder and the Maker, then the Holder, on behalf of itself and its members and managers, shall cooperate with all requests for information and documentation as requested by Maker or by OCM directly. e. Reservation of Conversion Units. Maker shall at all times when this Note shall be outstanding, reserve and keep available out of its authorized but unissued membership interests, for the purpose of effecting the conversion of this Note contemplated by this Section such number of its duly authorized Units as shall from time to time be sufficient to effect the Conversion. Maker shall not be obligated to deliver to Holder any fractional Units issuable upon any conversion of this Note, but in lieu thereof may make cash payment in respect thereof in any manner permitted by law. 8. Events of Default. a. Each of the following shall constitute an “Event of Default” hereunder: (a) the dissolution, termination of existence, insolvency, business failure, appointment of a receiver for any part of the property of, assignment for the benefit of creditors, or the commencement of any proceeding under any state or federal bankruptcy or insolvency law or under laws for relief of debtors not dismissed within sixty (60) days, in each case, by or against Maker; (b) if the Maker shall fail to make any payment on this Note when due; (c) written notice from the Holder in the event of a default by Maker in payment or performance of any other obligation of Maker to the Holder, if such default is not cured within 15 days of Maker’s receipt of written notice thereof; (d) written notice from the Holder in the event the Maker is in default or breach of any of the covenants contained in Section 11 or 12, if such default is not cured within 15 days of Maker’s receipt of such written notice thereof; (e) written notice from the Holder in the event any of the representations and warranties of the Maker set forth in Section 10 below were untrue or incorrect when made, if such default is not cured within 15 days of Maker’s receipt of such written notice thereof, (f) this Note does not convert within five (5) Business Days of delivery of a Notice of Conversion, following written notice of such failure to Convert by the Holder. Notwithstanding the foregoing, and unless the parties fail to agree on a use of proceeds schedule by December 16, 2022, a breach of Section 8(a)(d) shall not constitute an Event of Default hereunder if Holder fails to fund $1,250,000 hereunder by December 16, 2022. b. In addition to and not in any respect in limitation of any other rights or remedies Holder may have hereunder or under applicable laws, upon demand by the Holder or any other holder of this Note following occurrence of an Event of Default hereunder, all outstanding Principal Amount, interest, and all other amounts due hereunder shall become immediately due and payable in full without presentment, demand, protest or notice of any nature whatsoever, all of which are hereby waived. c. Maker hereby waives presentment, demand, protest, notice of dishonor and 5 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 all notices and demands of every kind in connection with the delivery, acceptance, performance and enforcement of this Note, and waives defenses based upon impairment of or recourse to collateral and waives all recourse to suretyship and guarantorship defenses generally, including, but not limited to, any extension or extensions of time for payment or performance which may be granted to Maker, any impairment of any collateral for the loans evidenced by this Note, any release of a party liable herefor, any release or exchange of security, and all other indulgences of any type which may be granted by the holder hereof to Maker. 9. Remedies. Upon the occurrence of any Event of Default, Holder may initiate any the following remedies, upon written notice to Maker: a. Holder may declare due and payable (i) all of the Advances outstanding as of the date of such Event of Default hereunder and (ii) all accrued and unpaid interest on the Advances (the amounts described in the foregoing clauses (i) and (ii), collectively, the “Default Obligations”), and, if Maker so declares, such Default Obligations shall automatically become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are expressly waived. Upon any such declaration of acceleration, the Principal Amount and all accrued and unpaid interest shall become immediately due and payable and the Holder shall be entitled to exercise all of its rights and remedies hereunder, whether at law or in equity. Default Interest shall accrue on all Advances at the Default Rate, from the date of declaration of an Event of Default. The failure of the Holder to declare this Note due and payable shall not be a waiver of the holder’s right to do so in the future, and the Holder shall retain the right to declare this Note due and payable at any time an Event of Default is continuing. b. Holder may deliver written notice to Maker and consummate the Conversion of this Note into the Conversion Shares and, until the consummation of such Conversion, Default Interest shall accrue and be payable in cash on the Conversion Date. c. No delay on the part of Holder in the exercise of any power or right under this Note, or under any other instrument executed pursuant hereto, shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. No extension of time of the payment of this Note or any other modification, amendment or forbearance made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or affect the liability under this Note, either in part or in whole. No failure on the part of Holder or any holder hereof to exercise any right or remedy hereunder, whether before or after the occurrence of an Event of Default, shall constitute a waiver thereof, and no waiver of any past Event of Default shall constitute a waiver of any future default or of any other Event of Default. No failure to accelerate the indebtedness evidenced hereby by reason of an Event of Default hereunder or acceptance of a past due installment, or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter, or to impose late payment charges, or shall be deemed to be a novation of this Note or any reinstatement of the indebtedness evidenced hereby, or a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right which Holder or any holder hereof may have, whether by 6 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 the laws of the New York, by agreement or otherwise, and none of the foregoing shall operate to release, change or affect the liability of Maker under this Note, and Maker hereby expressly waives (to the extent allowed by law) the benefit of any statute or rule of law or equity which would produce a result contrary to or in conflict with the foregoing. d. Specific Performance. The Parties each acknowledge that the rights of each Holder to consummate the transactions contemplated hereby, including the Conversion, are special, unique and of extraordinary character and that, in the event that Maker violates or fails or refuses to perform any covenant or agreement made by it in this Note, Holder may be without an adequate remedy at law. The Parties agree, therefore, that in the event that Maker violates or fails or refuses to perform any covenant or agreement made by Maker in this Agreement, Holder may, subject to the terms of this Note and in addition to any remedies at Law for damages or other relief, institute and prosecute an action in any court of competent jurisdiction to enforce specific performance of such covenant or agreement or seek any other equitable relief. 10. Representation and Warranties. The Maker and, where applicable, the Founders, to the best of their knowledge (except for sections 10(a)-(f); (h); (k); (n); (p); (q), which are not qualified by knowledge), jointly and severally with the Maker, represent and warrant to the Holder that the following are true, correct and complete, as of the date hereof and as of the date of each Advance, (except (i) those made as of a specific date or end of a period which were correct as of such date or as of the end of such period and (ii) to the extent variations therefrom have been permitted under the terms of this Agreement or otherwise in writing by the Holder): a. Corporate Existence and Power. The Maker, PropCo and LicenseCo are each New York limited liability companies, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, organization or formation, as applicable; have all requisite power and authority and has or shall have in due course all governmental licenses, authorizations, permits, consents, and approvals (collectively “Permits”) to (i) own their assets, (ii) carry on their respective businesses, including without limitation cannabis cultivation in New York, and (iii) for Maker to execute, deliver, and perform its obligations under this Note and the A&R Operating Agreement; each are duly qualified as a foreign corporation, and validly licensed and in good standing, under the laws and regulations of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and each Maker is in material compliance with all applicable laws except for the federal cannabis laws (“Applicable Law”). b. Corporate Authorization; No Contravention. The execution, delivery and performance by the Maker of this Note and the A&R Operating Agreement, has been duly authorized by all necessary corporate organizational action, and the Note and A&R Operating Agreement (collectively, the “Transaction Documents”) constitutes a legal, valid and binding obligation of the Maker enforceable in accordance with its terms, and do not and the Maker will not: (i) contravene, breach or conflict with the terms of any of Maker’s articles of formation or operating agreement (the “Organizational Documents”); (ii) impose, conflict with or result in the 7 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 creation of any Lien (except Liens, if any, created pursuant to this Note) under, any document evidencing any contractual obligation to which Maker is a party or any order, injunction, writ or decree of any governmental authority to which Maker or its property is subject; (iii) conflict with or result in any breach or contravention of any document evidencing any contractual obligation to which Maker is a party or any order, injunction, judgment, permit, writ or decree of any governmental authority to which Maker or its property is subject (excluding the federal cannabis laws); or violate or breach any Applicable Law (excluding the federal cannabis laws). The Maker and the Founders jointly and severally represent and warrant that the A&R Operating Agreement has been duly authorized and approved, including obtaining requisite consents to adoption thereof by the Maker’s founders, Jeffrey Schultz, Siddarth Gupta and Gregory Tannor (each, a “Founder” and collectively, the “Founders”). c. Capitalization. The Maker and the Founders jointly and severally represent and warrant as follows: (i) The capitalization of each of Maker, PropCo and LicenseCo, including the cash capital contributions of each member, including the Founders, is set forth on Schedule 10(c). (ii) Maker owns 100% of the equity interests of PropCo. (iii) Maker is not authorized to issue any additional Membership Interests, Units or Unit Equivalents to Founders or employees of Maker or any of its Affiliates, except with respect to the issuance of (A) any employee equity grants permitted by Section 4.19 of the A&R Operating Agreement (which shall be deemed to be in effect for purposes of this section), or (B) in accordance with Section 13 of this Note. (iv) Other than the securities listed on Schedule 10(c), there are no other ownership interest or other securities or participations or other equivalents (however designated and whether voting or nonvoting) outstanding in any of the Flowerhouse Group. Except for the conversion rights with respect to the Conversion Units to be issued hereunder, and the LicenseCo Purchase Option, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from Maker, PropCo or LicenseCo, any New Securities or other equity securities or securities convertible into equity securities. (v) All of the outstanding membership interests and units of each of Maker, PropCo and LicenseCo have been duly authorized, are validly issued, fully paid and nonassessable, and are owned of record and beneficially by the members listed on Schedule 10(c), free and clear of all Liens. d. Organizational Documents. 8 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 (i) The Organizational Documents of LicenseCo solely consist of the Limited Liability Company Agreement of Flowerhouse Walden LLC, dated as of March 28, 2022 (the “LicenseCo Operating Agreement”), and the Certificate of Formation of Flowerhouse Walden LLC, filed with the New York Department of State on July 28, 2022 (together with the LicenseCo Operating Agreement, the “LicenseCo Organizational Documents”). True and complete copies of the LicenseCo Organizational Documents have been provided to the Holder, and such LicenseCo Organizational Documents have not been amended or rescinded, and are in full force and effect. No amendments to the LicenseCo Organizational Documents are pending. Pursuant to Section 9.04 of the LicenseCo Operating Agreement, Maker has a right, subject to Section 9.04(a) thereof, to purchase the remaining 51% of the Membership Interests of LicenseCo, for the Buy-Out Price (as defined in the LicenseCo Operating Agreement) (the “LicenseCo Purchase Option”). (ii) The Organizational Documents of Maker solely consist of the Limited Liability Company Agreement of Flowerhouse NY LLC, dated as of February 1, 2022 (the “Existing Maker Operating Agreement”), and the Certificate of Formation of Flowerhouse NY LLC, filed with the New York Department of State on January 28, 2022 (together with the Existing Maker Operating Agreement, the “Maker Organizational Documents”). True and complete copies of the Maker Organizational Documents have been provided to the Holder, and such Maker Organizational Documents have not been amended or rescinded, and are in full force and effect. No amendments to the Maker Organizational Documents are pending. e. Subsidiaries. Except for LicenseCo and Flowerhouse Propco LLC, the Maker does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. LicenseCo does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. Except as provided in the LicenseCo Operating Agreement, neither Maker nor LicenseCo is a participant in any joint venture, partnership or similar arrangement. f. Neither the execution and delivery by the Maker of this Note or the A&R Operating Agreement, nor the consummation by the Maker of the Conversion in accordance with the terms hereof (i) violate, conflict with, or result in a default (whether after the giving of notice, lapse of time or both) under, give rise to a right of termination, acceleration, cancellation or modification of, or require any notice or approval under, any contract to which the Maker is a party or by which the Maker’s assets are bound; (ii) conflict with, or result in any violation of, any provision of the Maker Organizational Documents; (iii) violate or result in a violation of, or constitute a default under (whether after the giving of notice, lapse of time or both), any provision of any Applicable Law or governmental order applicable to the Maker; (iv) result in, require or 9 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 trigger any fee, expense, charge, or other payment made or required to be made by the Maker, the Founders or the Holder to any Person, or (v) result in the creation of any Lien on any properties, rights or assets of the Maker or its Subsidiaries. g. Property. Except as set forth on Schedule 10(g), the real property, personal property and intellectual property, and all other assets that the Flowerhouse Group owns, are free and clear of all mortgages, deeds of trust, loans and other Liens, except for statutory liens for the payment of current taxes that are not yet delinquent and encumbrances that arise in the ordinary course of business and do not materially impair the Flowerhouse Group’s ownership or use of such property or assets. All real property leased or owned by the Flowerhouse Group are set forth on Schedule 10(g). With respect to the property and assets it leases, the Flowerhouse Group (i) is in compliance with such leases, (ii) holds a valid leasehold interest free of any Liens other than those of the lessors of such property or assets, and (iii) has not subleased, licensed, or otherwise granted any Person the right to use or occupy such leased real property. h. Certain Transactions. The Maker and the Founders jointly and severally represent and warrant that: Except as set forth on Schedule 10(h), there are no contracts, agreements, understandings or proposed transactions between Maker and/or LicenseCo, on the one hand, and any of the Founders, on the other hand. Except as set forth on Schedule 10(h), neither the Maker nor LicenseCo are obligated to make any payments to any of the Founders. Except as set forth on Schedule 10(h), none of the Founders have any direct or indirect ownership interest in any firm or corporation with which the Flowerhouse Group is affiliated or with which the Flowerhouse Group has a business relationship, or any firm or corporation which directly competes with the Flowerhouse Group in New York. Except as set forth in Schedule 10(h), the Maker and LicenseCo have no obligations to pay any of the Founders for services provided, or capital advanced to Maker or LicenseCo. The Founders jointly represent and warrant that they are in strict compliance with Section 14.2 of the A&R Operating Agreement, which is deemed to be effective as of the Effective Date for purposes of this Section 9(h). i. Tax Returns and Payments. There are no federal, state, county, local or foreign taxes due and payable by the Flowerhouse Group which have not been timely paid. There have been no examinations or audits of any tax returns or reports by any applicable federal, state, local or foreign governmental agency. Each member of the Flowerhouse Group has duly and timely filed all federal, state, county, local and foreign tax returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year, except where the failure to so file has not resulted in, and would not reasonably be expected to result in, material adverse effect. j. Insurance. The Flowerhouse Group has in full force and effect insurance policies concerning such casualties as would be reasonable and customary for businesses like the Flowerhouse Group with extended coverage, sufficient in amount (subject to reasonable 10 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 deductions) to allow it to replace any of its properties that might be damaged or destroyed. k. Governmental and Third Party Authorization. Except with respect to the OCM Conversion Notice, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other Person, is necessary or required in connection with the execution, delivery or performance by, or enforcement against, Maker of this Note or consummation of the Conversion. Except as provided below, approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other Person, is necessary or required in connection with the execution, delivery or performance by, or enforcement against, Maker of this Note. l. Employee Benefits. Neither the Maker nor LicenseCo currently have nor has ever had an Employee Benefit Plan. m. The Maker and LicenseCo are and have been in compliance with all Environmental Laws applicable to its operations and use of the Owned Real Property and Leased Real Property. LicenseCo has obtained and is and has been in compliance with all Permits required under Environmental Laws for the operation of its business, except where the failure to so obtain or comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on LicenseCo. LicenseCo does not generate, transport, treat, store or dispose of any Hazardous Material, except in compliance in all material respects with all applicable Environmental Laws, and there has been no Release or presence of or exposure to any Hazardous Material at, from, under, off or on the any property currently or, to the Maker’s Knowledge, formerly owned or operated by LicenseCo that would reasonably be expected to result in liability or requires notification, investigation or remediation by LicenseCo pursuant to any applicable Environmental Law, except in each case as has not had and would not reasonably be expected to have a Material Adverse Effect on LicenseCo. Maker has made available to Holder true, correct and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by LicenseCo pertaining to Hazardous Material in, on, or under any real property or facility at any time owned, leased or operated by LicenseCo or any of its predecessors, or concerning compliance by LicenseCo or any of its predecessors with Environmental Laws. n. Binding Effect. This Note and the A&R Operating Agreement constitutes the legal, valid and binding obligations of such party, enforceable against such party in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability, regardless of whether considered in a proceedings in equity or at law. o. Litigation. There are no actions, suits, claims, arbitration, charges or investigations by any governmental authority or any other person or proceedings pending, or to the actual knowledge of Maker, threatened, at law, in equity, in arbitration or before any governmental authority or any other person, against Maker or LicenseCo, or to the knowledge of Maker, any officer, director or employee of Maker or LicenseCo. p. Cannabis Licenses and other Required Permits. The Maker and the 11 FILED: NEWID: D2641525-817B-4897-9341-7144EAA07AFF YORK COUNTY CLERK 02/14/2024 04:26 PM INDEX NO. 650805/2024 DocuSign Envelope NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/14/2024 Founders jointly and severally represent and warrant that Maker, PropCo and LicenseCo are each in compliance with, and the LicenseCo Purchase Option complies with, all laws and regulations pertaining to any and all Permits, consents and other approvals from any governmental authority issued in connection with, and necessary for, the lawful operation of a cannabis or marijuana related business, including Adult Use Conditional Cultivator license in New York (OCM-AUCC- 22-000111) (collectively, the “Cannabis Licenses”) and other Permits. Maker and, to the knowledge of Maker, LicenseCo, is not a party to, or the subject of, any investigation, notice of apparent liability, violation, forfeiture, or other order or complaint issued by or before any governmental authority or any other proceedings which could, in any manner, threaten or adversely affect its ability to obtain or maintain any such Cannabis Licenses or other Permits, or give rise to any order of forfeiture. Maker and the Founders have no reason to believe that such Cannabis Licenses and other Permits will not be granted or obtained in the ordinary course, or otherwise revoked. Maker has filed or shall file, and cause LicenseCo to file, in a timely manner, all material reports, applications, documents, and information required to be filed pursuant to applicable rules and regulations or requests of every regulatory body having jurisdiction over any of its Cannabis Licenses or other Permits. q. Indebtedness. The Maker and the Founders jointly and severally represent and warrant that except for the obligations to Holder, the Maker, PropCo and LicenseCo do not have any indebtedness for borrowed money as of the date of this Note and, subject to Section 12(c),