but he has to 'run the numbers' - the people at Hexo says there's no alternative - as stated below
Reasons for Special Committee Recommendation
In recommending the Arrangement, the Special Committee considered and evaluated a number of factors, including:
- The fact that there is currently substantial doubt as to the ability of HEXO to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern, and the high likelihood and imminence of potential breaches of the minimum liquidity and Adjusted EBITDA covenants by HEXO in the near term absent agreeing to the Arrangement and the Waiver and Amendment Agreement on the terms acceptable to Tilray.
- As HEXO had reported in its Q2 2023 management’s discussion and analysis, it had a significant working capital deficiency and reduced cash and cash equivalents and, despite its best efforts, the Company was unable to secure any form of public or private equity or debt financing to alleviate its near-term liquidity issues. HEXO had further reported in its Q2 2023 filings that it had commenced discussions with Tilray regarding potential amendments to and/or covenant relief under the Amended Senior Secured Note and cautioned that there could be no assurance that HEXO would be able obtain favourable waivers and/or covenant relief from Tilray under the Amended Senior Secured Note or that its cost savings initiatives would yield sufficient liquidity to meet the minimum liquidity covenant or generate positive Adjusted EBITDA to meet its covenant requirements and execute on its business plan. The Special Committee determined that Tilray would simply not provide the waivers and amendments sought by HEXO, otherwise than on the terms of the Arrangement Agreement and the Waiver and Amendment Agreement.
- The extensive contractual prohibitions, restrictions, covenants and other terms of the Amended Senior Secured Note, various constraints on HEXO’s ability to access the public capital markets, HEXO’s level of existing secured indebtedness under the Amended Senior Secured Note, HEXO’s currently available cash resources and financial condition, HEXO’s future monthly payment obligations to Tilray under various agreements, the Amended Senior Secured Note and other contractual commitments, among other factors, make it extremely challenging and unlikely for HEXO to be able to secure additional funding from debt or equity markets in an amount sufficient to finance its business and operations in order to meet its obligations and avoid defaulting in the near term under the Amended Senior Secured Note, unless it were to have agreed to the Arrangement and the Waiver and Amendment Agreement on terms acceptable to Tilray.
- The assessment 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 HEXO Shareholders while preserving HEXO as a continuing business for the benefit of all stakeholders. The verbal Formal Valuation reflected Haywood’s determination that, as at the date thereof, subject to the assumptions, limitations and qualifications to be contained in the written Formal Valuation, the consideration to be received by HEXO Shareholders based on the Exchange Ratio under the Arrangement is fair, from a financial point of view.