First Tranche Raised Gross Proceeds of US$11.5
Million; Second Tranche Proceeds of US$13.5 Million Deposited into
Escrow
HEXO Corp. (TSX: HEXO; NASDAQ: HEXO) (“HEXO” or the
“Company”) announced today that it has closed the first of
two tranches of a non-brokered private placement (the “Private
Placement”) consisting of the issuance of newly created Series
1 Preferred Shares (the “Preferred Shares”) to a single
institutional investor. The first tranche consisted of the issuance
of 11,500,000 Preferred Shares at an issue price of US$1.00 per
Preferred Share for gross proceeds to the Company of US$11,500,000.
The Preferred Shares are non-voting and are entitled to a
preference over the common shares of the Company with respect to
the payment of dividends and distributions and in the event of
liquidation or dissolution up to the liquidation and redemption
price of US$1.22 per Preferred Share (the “Preferred Share
Liquidation and Redemption Price”).
US$13,500,000 was also deposited into escrow by the investor
(the “Escrowed Amount”) representing the second tranche of
the Private Placement. Upon satisfaction or waiver of all closing
conditions set forth in the arrangement agreement (the
“Arrangement Agreement”) dated April 10, 2023 between Tilray
Brands, Inc. (“Tilray”) and the Company (the “Release
Condition”), the Company will receive the Escrowed Amount and
will issue 13,500,000 Preferred Shares to the investor. The
Escrowed Amount will be returned to the investor if the Release
Condition is not satisfied on or before August 31, 2023.
Concurrently with the Private Placement, and in satisfaction of
a condition precedent to the obligation of the investor to acquire
the Preferred Shares, the Company and Tilray have amended the
Arrangement Agreement and the Plan of Arrangement such that Tilray
has agreed, subject to the satisfaction or waiver of the conditions
precedent set out in the Arrangement Agreement, as amended, to
acquire all outstanding Preferred Shares based on the applicable
Preferred Share Exchange Ratio pursuant to the Plan of Arrangement
(the “Arrangement Amendments”). “Preferred Share Exchange
Ratio” means such fraction of a share of Tilray common stock (a
“Tilray Share”) equal to the quotient obtained from
dividing: (1) the Preferred Share Liquidation and Redemption Price
(US$1.22) per Preferred Share, by (2) the lower of (a) the closing
price of the Tilray Shares on the Nasdaq Stock Market
(“Nasdaq”), and (b) the five day volume-weighted average
trading price (“VWAP”) of a Tilray Share on the Nasdaq, each
calculated as of the end of the third business day immediately
prior to the effective date of the arrangement.
In connection with the Arrangement Amendments, HEXO and Tilray
have also agreed to amend the Waiver and Amendment Agreement
entered into on April 10, 2023 (“Waiver and Amendment
Agreement”). The Waiver and Amendment Agreement provides for,
among other things, a waiver by Tilray of, and the amendment to,
certain covenants under the amended and restated senior secured
convertible note due 2026 issued by the Company and held by Tilray
(the “Amended Senior Secured Note”) to mitigate the risk of
covenant breaches by HEXO until the consummation of the Arrangement
and to allow HEXO to use existing cash resources to satisfy the
Company’s ongoing payment and contractual obligations and operate
its business, in consideration for the payment of certain cash and
non-cash consideration by HEXO to Tilray as previously disclosed.
The consent and amendment to the Waiver and Amendment Agreement
agreed to in connection with the Arrangement Amendments (the
“Consent and Amendment to the Waiver and Amendment
Agreement”) provides for, among other things, Tilray’s
agreement that in consideration for payment of US$100,000 by the
Company to Tilray, the minimum liquidity threshold set out in
Section 9(M) of the Amended Senior Secured Note is reduced from
US$4,000,000 to US$1 for the duration of the applicable Waiver
Period (as defined in the Waiver and Amendment Agreement).
As previously disclosed, the Waiver and Amendment Agreement
provides for the possibility of an additional cash payment by HEXO
to Tilray of up to US$10,000,000 in consideration for the
termination of the Services Agreement between the parties, which
additional payment is payable, among other, in the event HEXO
generates a sufficient amount of unrestricted cash from any
financing of HEXO permitted by Tilray after the signature of the
Waiver and Amendment and prior to closing, and subject to the
satisfaction of certain other conditions described in the Waiver
and Amendment Agreement. On this basis, the Consent and Amendment
to the Waiver and Amendment Agreement provides that an amount equal
to US$6,400,000 shall be paid immediately by HEXO to Tilray out of
the gross proceeds received by HEXO under the first tranche of the
Private Placement, and shall be applied in accordance with the
provisions of the Waiver and Amendment Agreement. In addition, upon
satisfaction of the applicable Release Condition, an additional
amount equal to US$6,000,000 shall be paid by HEXO to Tilray under
the second tranche of the Private Placement and shall be applied in
accordance with the provisions of the Waiver and Amendment
Agreement. HEXO is not required to make any further payment to
Tilray from the aggregate gross proceeds received under the Private
Placement.
After payment of the amounts set out above under the Consent and
Amendment to the Waiver and Amendment Agreement, the Company
intends to use the remaining net proceeds from the Private
Placement to pay certain ongoing expenses, liabilities, contractual
commitments and otherwise provide additional liquidity for
operations.
The Board of the Company and the independent Special Committee
of the Company formed to consider and make recommendations in
connection with the Arrangement each determined that the Private
Placement, the Arrangement Amendments and the Consent and Amendment
to the Waiver and Amendment Agreement do not change their previous
determinations and recommendations in connection with the
Arrangement, including that the Arrangement is in the best
interests of the Company and is fair to the shareholders of the
Company.
If the Arrangement Agreement is terminated, and subject to
approval by HEXO shareholders, the holder of Preferred Shares may
convert their Preferred Shares into a number of common shares of
the Company determined by dividing the Preferred Share Liquidation
and Redemption Price by the five day VWAP of a common share of the
Company on the date notice of conversion is provided by the
holder.
Subject to compliance with the applicable provisions of the
Business Corporations Act (Ontario), any outstanding Preferred
Shares will be automatically redeemed for cash at the Redemption
Price on the earlier of (i) the 12-month anniversary of the issue
date, and (ii) the 30th day following the date of the requisite
approval by HEXO shareholders.
The Company received conditional approval of the TSX for the
Private Placement on May 31, 2023. The conditional approval of the
TSX includes the conditional listing of up to 30,500,000 additional
Common Shares of the Company which would be issuable (solely in the
event the Arrangement Agreement is terminated) upon conversion of
the Series 1 Preferred Shares. In such event, the TSX would require
as a condition to such issuance of common shares of the Company
upon conversion that such issuance be approved by security holders
of the Company by a majority of vote cast, on the basis that: (i)
the conversion price could be below market price less the maximum
allowable discount under TSX private placement rules; (ii) dilution
could exceed 25% of the current issued and outstanding Shares; and
(iii) such issuance of common shares of the Company could have a
material effect on control of the Company.
The Arrangement Amendments and the Consent and Amendment to the
Waiver and Amendment Agreement relating to the Private Placement
will be filed under HEXO’s profiles on SEDAR (www.sedar.com) and on
EDGAR (www.sec.gov).
For additional details on the Arrangement, please see the
Company’s news releases dated April 10, 2023 and May 16, 2023 filed
under its profile on SEDAR.
Advisors
Canaccord Genuity Corp. and ATB Capital Markets Inc. acted as
financial advisors to the Company with respect to the Private
Placement.
About HEXO Corp.
HEXO is an award-winning licensed producer of premium products
for the global cannabis market. HEXO delivers a thoughtfully
curated portfolio of both recreational and therapeutic cannabis
products that inspire customer loyalty. HEXO’s brands include HEXO,
Redecan, Original Stash, Bake Sale and T 2.0, as well as medical
cannabis products.
HEXO’s world-class Canadian grow sites are unmatched in size,
technological advantage and yield of high-quality cannabis, driving
innovation through every step of the process. HEXO operates three
major grow sites in Ontario and Québec, including one of the
largest growth facilities in North America. HEXO Corp. is a
publicly traded company under the tickers (TSX: HEXO) and (NASDAQ:
HEXO).
Forward-Looking Statements
This press release contains forward-looking information and
forward-looking statements within the meaning of applicable
securities laws (“Forward-Looking Statements”).
Forward-Looking Statements relate to future events or future
performance, reflect current expectations or beliefs regarding
future events and are typically identified by words such as
“anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”,
“likely”, “may”, “plan”, “seek”, “should”, “will” and similar
expressions suggesting future outcomes or statements regarding an
outlook. These include, but are not limited to, statements with
respect to the Private Placement and Arrangement, including the
expected timing of closing and various steps to be completed in
connection with the foregoing and other statements that are not
historical facts.
Forward-Looking Statements are made based upon certain
assumptions and other important factors that, if untrue, could
cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such statements. There can
be no assurance that such Forward-Looking Statements will prove to
be accurate. Such Forward-Looking Statements are based on numerous
assumptions, including assumptions regarding the ability to
complete the Arrangement on the contemplated terms, that the
conditions precedent to closing of the Arrangement can be
satisfied, and assumptions regarding present and future business
strategies, local and global economic conditions, and the
environment in which the Company operates.
Although the Company believes that the Forward-Looking
Statements in this news release are based on certain expectations
and assumptions that are current, reasonable and complete, these
statements are by their nature based on assumptions and involve
known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the
Company or Tilray to be materially different from any future
results, performance or achievements expressed or implied by the
Forward-Looking Statements. Forward-looking statements are subject
to a variety of risks, uncertainties and other factors which could
cause actual events or results to differ from those expressed or
implied by forward-looking statements, including, without
limitation: there can be no certainty that the Arrangement will be
completed; and general business, economic, competitive, political,
regulatory and social uncertainties, including uncertainty related
to the cannabis markets.
Forward-Looking Statements should not be read as guarantees of
future performance or results. Readers are cautioned not to place
undue reliance on these Forward-Looking Statements, which speak
only as of the date of this press release. Events or circumstances
could cause the Company’s actual results to differ materially from
those estimated or projected and expressed in, or implied by, these
Forward-Looking Statements. Important factors that could cause
actual results to differ from these Forward-Looking Statements are
included in the “Risk Factors” section of the Company’s Annual
Information Form, as supplemented by the “Risks and Uncertainties”
section of the Company’s Management Discussion and Analysis for the
three and six months ended January 31, 2023 (“Q2 2023
MD&A”).
Readers are further cautioned that the lists of factors
enumerated in the “Risk Factors” section of the Company’s Annual
Information Form and the “Risks and Uncertainties” section of the
Q2 2023 MD&A that may affect future results are not exhaustive.
Investors and others should carefully consider the foregoing
factors and other uncertainties and potential events and should not
rely on the Company’s Forward-Looking Statements to make decisions
with respect to the Company. The Company disclaims any intention or
obligation, except to the extent required by law, to update or
revise any Forward-Looking Statements as a result of new
information or future events, or for any other reason.
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version on businesswire.com: https://www.businesswire.com/news/home/20230601006014/en/
For media or investor inquiries:
invest@hexo.com
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