An anonymous director reports
ZENABIS FILES COURT PROCEEDINGS SEEKING JUDICIAL INTERPRETATION OF DEBENTURE
Zenabis Global Inc.'s wholly owned subsidiary, Zenabis Investments Ltd., has filed a petition with the Supreme Court of British Columbia for a determination of the amount required to repay and terminate its fifth amended and restated debenture and to obtain discharges of the debenture and related security. The debenture is held by a subsidiary of Sundial Growers Inc., another licensed cannabis producer and a competitor of Zenabis.
The purpose of the petition is to seek the court's determination of the correct calculation of the amount required to exercise an option to buy out the amended royalty provided for in the debenture (which Zenabis contends is nil based on current facts and circumstances and the debenture lender asserts is $13.7-million), whether the amended royalty is secured by the same security charging the debenture as well as related security (which the debenture lender contends and Zenabis Investments disputes), and whether certain prepayment amounts and default fees are payable under the debenture (which the debenture lender contends and Zenabis Investments disputes).
As previously announced on Jan. 22, 2021, the company entered into a credit agreement with a Canadian private debt fund, as agent on behalf of certain lenders, in respect of a committed revolving credit facility in a principal amount of up to $60-million, subject to borrowing base requirements based on eligible receivables, inventory and real estate. The proceeds of the credit facility are intended to be used to prepay the debenture, which has an outstanding principal balance of approximately $51,875,000, and for general corporate purposes. The obligation of the facility lenders to make advances under the credit facility, including the initial advance, is subject to the satisfaction of a number of conditions precedent, including, as is standard, payout and discharge of the debenture and the related security. Regrettably, after several attempts, Zenabis Investments and the debenture lender are unable to agree on the amount required to prepay and terminate the debenture and discharge the related security.
To date, all amounts owing to the debenture lender have been paid. In early January, 2021, Zenabis Investments received notice from the debenture lender alleging a variety of defaults under the terms of the debenture. None of the alleged defaults are for failure to make payments of principal or interest. As previously announced on Jan. 6, 2021, the company believes the debenture lender's allegations of default to be spurious and without merit and to have been an ill-disguised attempt to circumvent a fair and competitive process to acquire the company by improperly foreclosing the equity of the company or compelling Zenabis to enter into a transaction with Sundial.
Accordingly, Zenabis Investments has filed a petition with the court to seek judicial determination of the payout amount, although there can be no assurances that the court will rule in Zenabis's favour on all or any of the issues in dispute or that Zenabis will be able to access and draw down all or any amounts under the credit facility and prepay and terminate the debenture and discharge all security thereunder.
Zenabis is a significant Canadian licensed cultivator of medical and recreational cannabis. Zenabis employs staff from coast to coast, across facilities in Atholville, N.B., Langley, B.C., and Stellarton, N.S. Zenabis currently has 111,200 kilograms of licensed cannabis cultivation space across three licensed facilities in Canada, together with its cannabis import, export and processing joint venture, ZenPharm, operating from Birzebbuga, Malta.
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