Tilray Arrangement Determined to be Fair to
Shareholders and in the Best Interests of the Company
No Viable Alternatives for HEXO Other Than
the Arrangement with Tilray
Shareholders Encouraged to Vote In Advance
of the Special Meeting on June 14, 2023
Shareholders Who Have Questions or Need
Assistance Voting Should Contact Kingsdale Advisors, by phone at
1-866-581-1489 (North America Toll Free) or 416-623-2516 (Outside
North America), or by email at
contactus@kingsdaleadvisors.com
For more information, please visit
www.HEXOVOTE.com
HEXO Corp. (TSX: HEXO; NASDAQ: HEXO) (“HEXO” or the
“Company”) announced today the mailing of the management
information circular (the “Circular”) for the special
meeting (the “Meeting”) of the common shareholders of the
Company (the “Shareholders”), to be held virtually on June
14, 2023 at 10:00 a.m. (Eastern Time) in accordance with an interim
order of the Ontario Superior Court of Justice (Commercial List)
obtained on May 10, 2023. The Circular and related materials have
also been filed under HEXO’s profiles on SEDAR (www.sedar.com) and
on EDGAR (www.sec.gov).
The Meeting has been called for Shareholders to vote on the
previously announced arrangement agreement (the “Arrangement
Agreement”) with Tilray Brands, Inc. (“Tilray”), whereby
Tilray will acquire all of the issued and outstanding common shares
of the Company (the “Company Shares”). Shareholders will
receive 0.4352 of a share of Tilray common stock (the “Tilray
Shares”) for each whole Company Share held (the
“Arrangement”).
The Company’s Board of Directors (the “Board”) (excluding
certain conflicted directors) and the special committee comprised
solely of independent directors of the Company (the “Special
Committee”) unanimously recommend that Shareholders vote
FOR the Arrangement at the
Meeting. The Board and the Special Committee have determined that
the Arrangement, as well as the previously announced and
concurrently signed Waiver and Amendment Agreement entered into by
the Company and Tilray (the “Waiver and Amendment
Agreement”), are in the best interests of the Company and that
the Arrangement is fair to Shareholders.
The Circular includes full details of the recommendations of the
Board and the Special Committee and the Arrangement, including the
various factors considered by the Board and the Special Committee
in making their respective recommendations. The Circular also
includes the formal valuation (the “Formal Valuation”) and
fairness opinion (the “Fairness Opinion”) of the independent
valuator selected by the Special Committee, Haywood Securities Inc.
(“Haywood”), an independent Canadian investment bank with
strong cannabis industry experience.
Specifically, Haywood concluded as follows:
- the fair market value of the Company Shares is nil ($0),
and
- the consideration to be received by Shareholders pursuant to
the Arrangement is fair, from a financial point of view, subject to
the assumptions, limitations and qualifications contained in the
Fairness Opinion.
Shareholders are advised to consult the Circular for a more
detailed list of the various factors considered by the Special
Committee and the Board in making their respective determinations
and recommendations and to carefully review the risk factors, the
Formal Valuation, the Fairness Opinion and the other details
described in the Circular in considering whether or not to vote in
favour of the Arrangement.
FACTORS CONSIDERED BY THE SPECIAL COMMITTEE AND THE BOARD IN
RECOMMENDING THAT SHAREHOLDERS VOTE IN FAVOUR OF THE
ARRANGEMENT:
- No Viable Alternatives to the
Arrangement with Tilray. There are a number of factors
that made it extremely challenging for the Company to secure any
additional funding to finance its business and operations in order
to meet its obligations and avoid defaulting in the near term,
including:
- The extensive contractual prohibitions, restrictions, covenants
and other terms of the amended and restated senior secured
convertible note due 2026 issued by the Company and held by Tilray
(the “Amended Senior Secured Note”);
- The regulatory and other constraints on the Company’s ability
to access the public capital markets;
- The Company’s high level of secured indebtedness;
- The Company’s diminishing cash resources and financial
condition; and
- The Company’s contractual commitments, including its future
monthly payment obligations to Tilray.
Therefore, the Special Committee and the
Board determined that there would have been a significant
likelihood of the Company defaulting on its covenants under the
Amended Senior Secured Note if the Company had not been able to
agree on a strategic transaction with Tilray. In addition, the
Special Committee determined that Tilray would not provide any
waivers or amendments in respect of those covenants, otherwise than
on the terms of the Arrangement Agreement and the Waiver and
Amendment Agreement.
Consequently, the
Special Committee and the Board determined that there is no viable
strategic, corporate or financing alternative available to the
Company, other than a transaction with Tilray, concluded on terms
acceptable to Tilray, that would deliver some acceptable and fair
value for Shareholders while preserving the Company as a continuing
business for the benefit of all stakeholders. The foregoing
determination was accepted by Haywood as independent valuator and
provider of the Fairness Opinion.
- Independent Valuation Concludes Fair
Market Value of Company Shares is Nil ($0). The independent valuator, Haywood, concluded
that, subject to the assumptions, limitations and qualifications
contained in the Formal Valuation and Fairness Opinion as of April
9, 2023: (i) the fair market value of the Company Shares is nil,
and (ii) the consideration to be received by Shareholders pursuant
to the Arrangement is fair, from a financial point of view.
- Bleak Prospects for the Company if
Arrangement is not Approved and Completed. The Company
has consistently reported operating losses and has yet to generate
positive cash flows or earnings. The Company remained subject to,
amongst other covenants, a minimum liquidity covenant of US$20
million under the Amended Senior Secured Note as well as a
requirement to achieve Adjusted EBITDA of not less than US$1.00
for each of the Company’s quarters beginning with the quarter
ending April 30, 2023. If the Arrangement is not completed, the
Company will be confronted with immediate default of covenants
under the Amended Senior Secured Note, with no assurance that
Tilray would agree to waive or permit such default other than as
contemplated under the Amended Senior Secured Note, and the Company
would then be facing the prospect of a near-term insolvency event.
In such circumstances, the trading value of the Company Shares
would likely decline significantly from the current trading price,
and potentially would have little to no economic value. In
addition, the provisions of the Amended Senior Secured Note make it
extremely unlikely that any third party would be willing either to
acquire all of the Company Shares or that the Company would
otherwise be able to secure any other strategic, corporate or
financing alternative, in the form of debt or equity.
- Ongoing Equity Participation in
Combined Entity; Greater Liquidity. Following the
completion of the Arrangement, Shareholders will hold Tilray Shares
and participate in any future increases in the value of Tilray
Shares. Shareholders will thereby continue to participate in the
value realized with the development and operation of the Company’s
assets and business within Tilray. In addition, once the
Arrangement is consummated, Shareholders will hold Tilray Shares
which, given the greater number of shares and the diversified
resource portfolio of the combined entity, should provide
Shareholders with greater liquidity and long-term prospects of
potential accretion in their investment.
- Access to Tilray’s Strategic
Footprint, Operational Scale and Strong Management Team.
The Arrangement will provide Shareholders with exposure to Tilray’s
diversified portfolio of operating assets with its operations in
research, cultivation, and distribution across Canada and
internationally, as well as to Tilray’s management team, which has
extensive experience and a strong track record in consumer-packaged
goods and cannabis. If the Arrangement is approved, the resulting
organization is expected to benefit from increased economies of
scale to better compete in an increasingly competitive cannabis
production industry and should have an enhanced capital markets and
financial profile.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU
OWN
Shareholders are encouraged to vote in advance of the meeting,
in accordance with the instructions accompanying the form of proxy
or voting instruction form mailed to Shareholders together with the
Circular. Further details and voting instructions can be found in
the Circular or at www.HEXOVOTE.com.
The Company has retained Kingsdale Advisors to act as strategic
shareholder advisor and proxy solicitation agent, and Kingsdale
Advisors is available to answer information requests from
Shareholders with regard to shareholder approval of the Arrangement
and related matters. Communications with Kingsdale Advisors may be
made by telephone at 1-866-581-1489 toll-free in North America or
at 416-623-2516 outside of North America, or by email at
contactus@kingsdaleadvisors.com. To keep current with and obtain
information about voting your Company Shares, please visit
www.HEXOVOTE.com.
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 Arrangement, including the expected timing of
closing and various steps to be completed in connection with the
Arrangement, statements with respect to the impact of the
Arrangement on the value of the Tilray Shares, 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, if the Arrangement is not completed, the Company
will be confronted with immediate or near term default under the
Amended Senior Secured Note and there may be a significant decline
in the trading value of the Company Shares; Shareholders will
receive a fixed number of Tilray Shares which will not be adjusted
to reflect any change in the market value of the Tilray Shares or
Company Shares prior to the closing of the Arrangement; the Company
will incur costs even if the Arrangement is not completed and may
have to pay a company termination fee or a reimbursement fee to
Tilray; while the Arrangement is pending, the Company is restricted
from taking many actions; there can be no assurance that the
anticipated benefits of the Arrangement will be realized as
forecasted, including that the integration of Tilray and the
Company will occur as planned and/or that any potential synergies
will be achieved; the Company will not continue as a public company
and potential opportunity for growth will be eliminated; the
Arrangement may divert the attention of the Company’s management;
the Company’s business relationships may be subject to disruption
due to uncertainty associated with the Arrangement; Shareholders
interest in the Company’s business will be diluted; the business of
Tilray after completion of the Arrangement will be subject to the
risks currently affecting the businesses of Tilray and the Company;
certain third parties may have the right to terminate their
contracts, agreements or other arrangements with the Company as a
result of the change of control of the Company that would occur
upon completion of the Arrangement and therefore Tilray may not
have the full benefit of the rights and assets it is seeking to
acquire through its acquisition of the Company pursuant to the
Arrangement; 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230516005513/en/
For media or investor inquiries: invest@hexo.com
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