Tilray to acquire all issued, outstanding common shares of Hexo

Hexo (HEXO) announced that it has entered into a definitive arrangement agreement with Tilray Brands (TLRY) for a transaction whereby Tilray will acquire all of the issued and outstanding common shares of the company, subject to approval by the holders of HEXO Shares and the satisfaction or waiver of other closing conditions. Under the terms of the Arrangement Agreement, HEXO Shareholders will receive 0.4352 of a share of Tilray common stock in exchange for each HEXO Share held, which implies a purchase price of US$1.25 per HEXO Share based on the volume weighted average price of Tilray Shares on the Nasdaq Stock Market for the 60-day period ended on April 5, 2023. Warrants and other convertible securities of HEXO will be adjusted in accordance with their terms such that the holders thereof will be entitled to receive, upon exercise or vesting thereof, Tilray Shares, after adjustments to reflect the Arrangement and account for the Exchange Ratio. Pursuant to the Waiver and Amendment Agreement, Tilray has agreed, among other things, to waive the requirement under the Amended Senior Secured Note that HEXO achieve a positive Adjusted EBITDA (as defined therein) for the quarter ending April 30, 2023 and for subsequent quarters, and to amend the covenant set out under the Amended Senior Secured Note to reduce the minimum unrestricted cash balance required to be maintained by HEXO from US$20 million to US$4 million. In consideration for the waivers and amendments provided under the Waiver and Amendment Agreement, HEXO has agreed to pay, and in certain cases accelerate the payment of, various amounts owing to Tilray under the existing Services Agreement between HEXO and a subsidiary of Tilray, the Amended Senior Secured Note and other commercial agreements between the parties and to pay various waiver, amendment and termination fees, which payments in the aggregate total approximately US$18.5 million, with an initial payment of approximately US$9.2 million made concurrently with entry into the Arrangement Agreement, a second payment of US$1 million in cash or by way of transfer of real property, to be made no later than May 1, 2023 and a final payment of approximately US$2.2 million to be made on the business day preceding the closing date of the Arrangement. Of the Aggregate Payment, US$6.0 million is being paid today through the transfer to Tilray of HEXO’s real estate properties located in Fort Collins, Colorado, and US$1 million will be paid either in cash, if HEXO successfully completes a sale of its Brantford, Ontario property to a third party under an ongoing sales process, or failing that, by way of transfer of this property to Tilray not later than May 1, 2023. The Waiver and Amendment Agreement also provides for the possibility of an additional cash payment of up to US$10 million by HEXO to Tilray in consideration for the termination of the Services Agreement between the parties, but this additional payment would only be payable in the event HEXO generates a sufficient amount of unrestricted cash from any asset sales or 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. Upon completion of the Arrangement, existing Tilray and HEXO Shareholders are expected to respectively own approximately 97.0% and 3.0% of Tilray on a pro forma basis.