HEXO Corp. (HEXO) Announces Early Conversion Option for Debentures

May 18, 2020 12:45 PM EDT
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HEXO Corp. (NYSE: HEXO) today announced that holders of $29.86 million aggregate principal amount of the Company’s 8% unsecured convertible debentures maturing December 5, 2022 (the “Debentures”) have accepted an opportunity offered by the Company to voluntarily convert all or a portion of their Debentures for ‎Conversion ‎Units (as defined below) (the “Early Conversion Option”).

The Company offered the Early Conversion Option to all holders of the $70 million aggregate principal amount of the Debentures (the “Debentureholders”), subject to acceptance by ‎Debentureholders (each an “Electing Debentureholder”) holding a minimum of $20 million aggregate principal amount of the ‎Debentures by May 17, 2020. The Early Conversion Option was limited to $30 million aggregate ‎principal ‎amount of the Debentures being converted, with Electing Debentureholders for more than this ‎‎maximum amount being limited to converting their pro ‎rata portion of the $30 million ‎aggregate principal amount of Debentures to be ‎converted.

Upon completion of the Early Conversion Option, Electing Debentureholders will receive for the principal ‎amount of their Debentures to be converted, units of the ‎Company (the “Conversion Units”) issued at a price of ‎‎$0.80 per Conversion Unit, instead of ‎Common Shares otherwise issuable on conversion of the Debentures at the ‎existing conversion price of ‎‎$3.16 per share or, at the option of the Debentureholders, at the market price at the time of ‎maturity, in each case as ‎currently provided for under the Debentures. Each Conversion Unit will consist of one ‎Common ‎Share (a “Conversion Share”) and one-half of one common share purchase warrant of the ‎Company ‎‎(each whole warrant, a “Conversion Warrant”). Each Conversion Warrant will be ‎exercisable by the holder to ‎purchase one Common Share (a “Conversion Warrant Share”) at an ‎exercise price of $1.00 per share for a period ‎of three years from issuance. ‎The Conversion Shares will be subject to restrictions against resale for a period of ‎‎one year from issuance as part of the terms of the Early Conversion Option. In addition, the Conversion Warrants ‎and Conversion Warrant Shares will be subject ‎to resale restrictions ending 4 months and one day from issuance ‎of the Conversion ‎Warrants under applicable securities laws. The implementation of the Early Conversion Option ‎and the issuance of the ‎Conversion Shares, Conversion Warrants and Conversion Warrant Shares is subject ‎to the ‎approval of the Toronto Stock Exchange and the New York Stock Exchange.‎

The Company believes the completion of the Early Conversion Option will provide the Company with balance sheet flexibility and will reduce annual debt servicing costs for the Company.

The Early Conversion Option will not affect the rights of those Debentureholders who have not ‎accepted it. ‎Debentureholders who have not accepted the Early Conversion Option will not be entitled to ‎the benefit of the Early ‎Conversion Option and will not receive the Conversion Units issuable upon ‎conversion of the Debentures subject to ‎the Early Conversion Option, and will retain their full ‎rights under the Debentures including their existing conversion ‎rights.‎

In the event that the conditions for the completion of the Early Conversion Option are satisfied, it is expected ‎that ‎the completion of the Early Conversion Option will occur on or about May 25, 2020.‎

Certain insiders of the Company holding, directly or ‎indirectly, $7.92‎‎ million principal amount of Debentures have accepted the Early Conversion Option, each of which constitutes a “related ‎party transaction” within the meaning of Multilateral Instrument 61-101 - Protection of Minority ‎Security Holders in Special Transactions (“MI 61-101”). The issuance of the Conversion Units to the insiders under the Early Conversion Option will be exempt ‎from the formal valuation and minority shareholder approval requirements of MI 61-101, as the ‎fair market value of the Conversion Units issuable to, and the consideration payable by, such persons does not ‎exceed 25% of the Company’s market capitalization.‎

No securities regulatory authority has either approved or disapproved of the contents of this press release. This press release is for information purposes only and shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

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