Hempco Food and Fiber Inc. (“Hempco”) (HEMP.V) is pleased to announce that further to the joint news release dated April 16, 2019 with Aurora Cannabis Inc. (“Aurora”) (ACB) (ACB.TO) ( Frankfurt : 21P; WKN: A1C4WM), it has entered into a definitive arrangement agreement (the “Arrangement Agreement”). Subject to the terms and conditions of the Arrangement Agreement, Aurora has agreed to acquire all of the issued and outstanding common shares of Hempco not already owned by it (“Hempco Shares”) in exchange for common shares of Aurora (“Aurora Shares”)(the “Transaction”). Aurora currently owns 32,872,294 Hempco common shares (approximately 51.4% of the issued and outstanding Hempco common shares on an undiluted basis) and a convertible debenture in the face amount of $5,000,000 , which may be converted at any time at Aurora’s election into Hempco common shares at a conversion price of $1.18 per conversion share. If all of the principal amount of this convertible debenture were converted Aurora would receive an additional 4,237,288 Hempco common shares (approximately 52% on a fully diluted basis, or 54.5% on a partially diluted basis).
Under the terms of the Arrangement Agreement, Aurora will, upon completion of the Transaction, issue approximately 0.08659 Aurora Shares in exchange for each Hempco Share (the “Exchange Ratio“) not already owned by Aurora. The Exchange Ratio was based on relative share values of $1.04 per Hempco Share, representing a 14% premium to the share price on April 15, 2019 , and $12.01 per Aurora Share , representing the volume-weighted average price per Aurora Share on the Toronto Stock Exchange for the five-trading-day period ending on April 11, 2019 – the day before the parties signed the binding letter agreement concerning the Transaction . Hempco shareholders will not receive any cash in the Transaction. In addition, each outstanding stock option to acquire Hempco Shares will, following completion of the Transaction, entitle the holder to receive, upon the exercise thereof, approximately 0.08659 Aurora Shares for each Hempco Share, at a price adjusted in accordance with the Exchange Ratio, and otherwise on the same terms and conditions as the original option or warrant.
The Transaction will be effected by way of a court-approved plan of arrangement under the provisions of the Business Corporations Act ( British Columbia ) (the “Arrangement“).
The board of directors of Hempco (the “Hempco Board“) formed a committee of independent directors (the “Hempco Independent Committee“) to, among other things, review and evaluate the terms of the Transaction, to obtain and supervise the preparation of a formal valuation of the Hempco Shares, to make a recommendation to the Hempco Board in respect of the Transaction, and to negotiate the terms and conditions of the Arrangement Agreement and related matters.
Fort Capital Partners was retained by the Hempco Independent Committee to provide, under the supervision of the Hempco Independent Committee, an independent formal valuation (the “Formal Valuation“) prepared in accordance with Multilateral Instrument 61-101 – Protection of Minority Securityholders in Special Transactions (“MI 61-101“), and has concluded that, based upon and subject to the assumptions, limitations and qualifications contained in its written valuation, as at April 12, 2019 , the fair market value of the Hempco Shares is in the range of C$0.75 to C$1.07 per such share.
Fort Capital Partners has also provided the Hempco Independent Committee and the Hempco Board with a fairness opinion (the “Fairness Opinion“) that, based upon and subject to the assumptions, limitations and qualifications contained in the Fairness Opinion, the consideration to be received by Hempco shareholders pursuant to the Arrangement is fair, from a financial point of view, to such Hempco shareholders.
The Arrangement was unanimously recommended by the Hempco Independent Committee to the Hempco Board. The Hempco Board (other than directors who are not independent of Aurora accordingly abstained from voting on the transactions contemplated by the Arrangement Agreement), after receiving the unanimous recommendation of the Hempco Independent Committee, as well as the Formal Valuation and the Fairness Opinion, has unanimously determined that the consideration to be received by Hempco shareholders pursuant to the Arrangement is fair from a financial point of view to Hempco shareholders, and that the Arrangement is in the best interests of Hempco. Therefore, the Hempco Board has approved both the Arrangement and the Arrangement Agreement, and recommends that Hempco shareholders vote in favour of the Arrangement.
All of the directors and officers of Hempco (who hold in the aggregate approximately 4.5% of the issued and outstanding Hempco Shares on a non-diluted basis) have entered into support agreements with Aurora pursuant to which they have agreed, among other things, to support the Transaction and vote their Hempco Shares in favour of the Arrangement.
Completion of the Arrangement is subject to approval by the Supreme Court of British Columbia and the affirmative vote of Hempco shareholders at a special meeting of shareholders that is expected to be held on August 13, 2019 (the “Meeting“). At the Meeting, the Arrangement will require approval by at least two-thirds (66⅔%) of the votes cast by Hempco shareholders present in person or represented by proxy and entitled to vote at the Meeting and a majority of the votes cast by Hempco shareholders after excluding the votes cast by certain “related parties”, as such term is defined in MI 61-101. Aurora is such a “related party”.
The Arrangement is subject to customary conditions, including support of the transaction by directors and officers of Hempco and receipt of applicable regulatory and third-party approvals, and consents as may be required to effect and complete the transaction, including approval of the Toronto Stock Exchange and New York Stock Exchange (in respect of Aurora) and the TSX Venture Exchange (in respect of Hempco). The Arrangement Agreements includes customary provisions, including fiduciary-out provisions – covenants to not solicit other acquisition proposals and the right to match any superior proposal. In addition, the Arrangement Agreement contains a reciprocal expense reimbursement provision of up to $200,000 payable to the other party if the transaction is terminated in certain circumstances.
Assuming that all requisite approvals are received, Aurora and Hempco expect to close the proposed Arrangement in the third quarter of 2019 or such other date as the parties may agree. Until closing, Hempco will continue to be managed by the Hempco Board and John Ross , Hempco’s Chief Financial Officer and interim Chief Executive Officer. Upon completion of the Arrangement, all of the members of the Hempco Board will resign and the current management team of Aurora will manage Hempco after completion of the Arrangement.
The terms of the Arrangement will be described in further detail in the management information circular of Hempco to be filed with regulatory authorities and mailed to Hempco shareholders in July 2019 in accordance with applicable securities laws.
In connection with the Arrangement, the parties have entered into a loan agreement whereby Aurora has agreed to provide to Hempco a loan of up to $4 million to be disbursed in accordance with such loan agreement and a budget agreed to between the parties.
Hempco security holders and other interested parties are advised to read the materials relating to the proposed Arrangement, including the Arrangement Agreement, that will be filed by Hempco with securities regulatory authorities in Canada when they become available. Anyone may obtain copies of these documents, when available, free of charge, at the Canadian Securities Administrators’ website at www.sedar.com.
For more than 12 years Hempco has been a trusted and respected pioneer, innovator and provider of quality, hemp-based foods, hemp fiber and hemp nutraceuticals. Hempco produces and markets the brands PLANET HEMP™ and PRAISE, hemp-based foods and nutritional supplements for people and animals. Hempco is expanding its processing ability to meet global demands in a 56,000 sq. ft. facility located at Nisku, Alberta . Hempco’s common shares trade on the TSX Venture Exchange under the symbol “HEMP”.
Forward looking statements
This news release includes statements containing certain “forward-looking information” within the meaning of applicable securities law (“forward-looking statements”). Forward-looking statements are frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements in this news release include, but are not limited to, statements with respect to the anticipated closing of the Arrangement, the anticipated consideration to be received by Hempco shareholders, the timing and satisfaction of closing conditions including: (i) Hempco shareholder approval; (ii) court approval of the Arrangement; (iii) the availability of termination rights available to the parties under the Arrangement Agreement; (iv) stock exchange approval; and (vi) other closing conditions, including, without limitation, the operation and performance of the Hempco business in the ordinary course until the closing of the Arrangement. These statements are only predictions. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management of Hempco at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Hempco is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Hempco Food and Fiber Inc.