As announced on April 3, 2018, the purchase price for each Subscription Receipt is CAD$0.35. Each Subscription Receipt will be convertible into a non-interest bearing, unsecured convertible note in the principal amount of CAD$0.35 (the "Notes"), such Notes convertible at a conversion price of CAD$0.32 (the "Original Conversion Price") for a period of six years following issuance of the Notes and a number of Common Share purchase warrants (the "Warrants") equal to 50% of the number of Common Shares the holder would receive if the Note were converted at the Original Conversion Price, such Warrants exercisable at an exercise price equal to CAD$0.48 for a period of five years following issuance of the Warrants.
The Subordinated Capital Financing remains subject to completion and execution of definitive documentation satisfactory to the Agents and the Company, each acting reasonably and in good faith, and receipt of all required consents and approvals. The UrtheDailyTM Senior Secured Facility remains subject to the completion and execution of definitive documentation for the Subordinated Capital Financing satisfactory to the senior lenders and the Company, and finalization of definitive documentation for the UrtheDaily™ Senior Secured Facility, which is ongoing. The Subordinated Capital Financing will enable the Company to meet its immediate financing requirements. The UrtheDaily™ Financing (as defined below) remains subject to TSX approval for reliance by the Company on the financial difficulty exemption set out below.
Details of the UrtheDaily™ Financing
Subordinated Capital Financing
As announced on April 3, 2018, the Company has agreed to use commercially reasonable efforts to file and obtain a receipt for a final prospectus within 45 days of closing to qualify the Notes and Warrants issuable on the conversion of the Subscription Receipts, such that the Common Shares underlying the Notes and Warrants become freely tradeable.
The proceeds of the Subordinated Capital Financing will be placed into escrow to be released upon the execution of finalized documentation for the UrtheDaily™ Senior Secured Facility and the qualification of the Notes and the Warrants issuable on the conversion of the Subscription Receipts under a prospectus. The Company will use the proceeds of the Subordinated Capital Financing to help finance the UrtheDaily™ Constellation and for general corporate purposes, with at least 50% of the proceeds being used for the UrtheDaily™ Constellation.
From the date of closing of the Subordinated Capital Financing until the later of (i) the eighteen month anniversary of the closing date and (ii) the date on which no Notes remain outstanding, the holders of the Notes will have the right to participate in any offering of equity securities by the Company to permit the holders of the Notes to maintain their percentage ownership interest of equity securities in the Company as at the date immediately prior to such offering.
The UrtheDaily™ Senior Secured Facility
The UrtheDaily™ Senior Secured Facility will make available to the Company US$142 million in two equal drawdowns subject to such finalized documentation and upon satisfaction of the conditions precedents described below. Details of the arrangement fee and payment terms of the UrtheDaily™ Senior Secured Facility, including a gross revenue royalty and warrants payable to the senior lenders, are set out in our news release of April 3, 2018.
As a condition precedent to the UrtheDaily™ Senior Secured Facility closing, the Company was required to raise subordinated capital of at least US$25 million. The Subordinated Capital Financing is intended to satisfy this condition. In addition, prior to drawdown the Company will be required to refinance an existing credit facility and may be required to raise additional subordinated capital financing to facilitate that refinancing. We continue to be in discussions regarding a conditional backstop commitment to support any such subordinated financing. There can be no assurance that the conditional backstop commitment will be completed.
The availability of the first and second drawdowns will also be subject to the Company maintaining certain maximum leverage and total contracted value ratios, as ordinarily required of debt financing facilities of this type.
The Company expects to be in line to close the facility over the next two weeks, although there can be no assurance that the transaction will be closed on the terms described in the Company's April 3, 2018 release or on any other terms. On closing of the transaction, a copy of the credit agreement will be filed and will be available for viewing and download on SEDAR ( www.sedar.com) and readers are encouraged to review it in its entirety.
The terms of the Subordinated Capital Financing and the UrtheDaily™ Senior Secured Facility (together, the "UrtheDaily™ Financing") were negotiated on an arm's length basis. The Subordinated Capital Financing will not materially affect the control of the Company. No insiders will participate in the Subordinated Capital Financing. Upon closing of the UrtheDaily™ Financing, SMF Investments Limited or its affiliate ("SMF") may become an insider of the Company, as SMF will be issued CAD$10,001,250 principal amount of Notes and 15,626,953 Warrants, which upon the respective conversion and exercise thereof, would result in SMF holding 46,880,859 Common Shares (representing 27.85% of the issued and outstanding Common Shares on a non-diluted basis assuming no participants in the UrtheDaily™ Financing convert or exercise their Notes or Warrants; provided, however, that SMF will be restricted from converting its Notes and exercising its Warrants if such conversion or exercise would result in a new aggregate holding of more than 19.9% of the Common Shares of the Company).
Securities Issuable and Expected Shareholdings after Completion of the UrtheDaily™ Financing
Subordinated Capital Financing
The Notes will not bear any interest and will be convertible into Common Shares at the option of the holder, at any time prior to the six-year anniversary of the issuance of the Notes at the Original Conversion Price of CAD$0.32, which represents 99% of the volume weighted average price of the Common Shares for the five trading days (the "5-day VWAP") ending on April 2, 2018 (the date prior to announcement of the transaction). The conversion price of the Notes will be adjusted down if the Company issues Common Shares (other than issuances in connection with its stock option plan or in the ordinary course of business) below the then-existing conversion price to such lower issuance price, provided that the conversion price may not be adjusted below CAD$0.24 (which represents 74.26% of the 5-day VWAP ending on April 2, 2018). The Notes will also be subject to other customary anti-dilution protections.
Assuming the completion of the Subordinated Capital Financing for CAD$35 million, the Company will issue CAD$35 million of Notes, convertible into (i) 109,375,000 Common Shares (representing 90.06% of the issued and outstanding Common Shares as of the date hereof), assuming conversion at the Original Conversion Price; and (ii) 145,833,333 Common Shares (representing 120.09% of the issued and outstanding Common Shares as of the date hereof), assuming conversion at CAD$0.24 .
