HEXO Corp. (TSX:HEXO) (NASDAQ:HEXO) has entered into an amending agreement to the transaction agreement with Tilray Brands, Inc. (NASDAQ:TLRY) (TSX:TLRY) and HT Investments MA LLC. Separately, the company has entered into an amending agreement to the equity purchase agreement with 2692106 Ontario Inc. and KAOS Capital Ltd.
Transaction Agreement Amendments
On June 14, 2022, in view of current stock market conditions and in order to reduce closing risk related to the pre-amendment minimum liquidity closing condition, the company entered into the amending agreement to the transaction agreement pursuant to which HEXO, Tilray Brands and HTI agreed to:
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reduce the minimum liquidity interim covenant and closing condition from $100 million to CA$70 million ($54.13 million) with such amount to be determined after giving effect to a release of all conditions in any blocked accounts and restricted cash of the company and its subsidiaries and including net cash proceeds expected to be received from the company’s captive D&O insurance policy;
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extend the outside date from July 1, 2022 to August 1, 2022 and to extend the date past which the outside date cannot be extended to November 30, 2022;
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extend the date by which the company must use best efforts to obtain shareholder approval from June 15, 2022 to July 15, 2022;
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reduce the amendment share price from $0.54 to CA$0.40;
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amend the condition regarding Tilray’s right to appoint nominees and an observer to the company’s board of directors such that Tilray will be entitled to appoint two directors and one observer to the company’s board of directors;
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amend and restate the purchased note to reflect a reduction in Tilray Brands’ conversion price from CA$0.85 to CA$0.40;
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amend and restate the assignment and assumption agreement to reflect certain changes to the purchase price and consideration.
Additionally, Tilray has irrevocably waived any non-compliance by HEXO with the minimum liquidity interim covenant contained in the transaction agreement for all periods prior to the date of the amending agreement for all purposes, including with respect to Tilray’s ability to terminate the transaction agreement for any such non-compliance.
“The strategic partnership with Tilray Brands significantly improves HEXO’s capital structure and provides the opportunity to accelerate our growth in global markets,” stated Charlie Bowman, president & CEO of HEXO. “Challenging stock market conditions have necessitated amendments to the agreement, but this is a critical step in unlocking the shareholder value held within the company.”
Standby Agreement Amendments
In view of the company’s current share price, the investor has formally agreed, for a period of three months, to reduce the minimum price condition included in the standby agreement from the CA$0.30 to CA$0.10 per share. This will ensure the company may, during such three month period, draw upon the financing commitment contemplated by the standby agreement even if its share price were to fall below CA$0.30 per share.
In addition, the investor has agreed to allow the company to commence the process of drawing upon the standby commitment immediately following receipt of necessary regulatory approvals without having to wait until the first five trading days of the next calendar month as previously contemplated by the standby agreement.
Subsequent draws will continue to be available only during the first five trading days of any month during the term of the standby commitment. Given the current market and macro-economic conditions, the company believes that this is a positive development that will help ensure that it can have immediate access to capital as contemplated by the standby agreement. The company is not required to pay the investor any additional consideration in connection with these amendments to the standby agreement.
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