An anonymous director reports
GTEC ENTERS INTO TERM SHEET FOR $4.5 MILLION DEBT FINANCING
On March 13, 2020, GTEC Holdings Ltd. executed a non-binding term sheet with Trichome Financial Corp. for a non-brokered senior secured debt financing of $4.5-million.
The term sheet provides for a senior secured loan in the amount of $4.5-million for a term of 24 months, with an annual interest rate of 9.5 per cent to be paid monthly. Beginning on the date that is 12 months following the closing date, the borrower shall also repay $100,000 of the outstanding principal amount each month until maturity.
The proceeds of the loan will be used for an early repayment of the company's existing $3.7-million senior secured loan (maturing June 11, 2020) and general working capital as the company pursues opportunities to increase its packaging capacity and product offering for recreational CPG format sales, which include seven-gram product offering SKUs (stock-keeping units), prerolls and vape pens.
The company previously reported that it had sufficient financial resources to fulfill all debt obligations due in the second half of fiscal 2020, without further equity financing or assuming additional debt obligations. Management continues to remain confident that it has the financial resources to fulfill its debt obligations without the proposed financing; however, the company's financial resources are contingent on various items beyond its control, mainly: accounts receivables, the closing of the sale of non-core/non-operational assets (Kelowna warehouse and Vancouver retail store), and a significant GST refund pending from the Canada Revenue Agency. The company's revenue is generated primarily on the production and sale of its cannabis products, and in the event of a government imposed shutdown of non-essential businesses, as preventative measures for the Covid-19 virus, or in the event of a staff member testing positive or coming into contact with someone who has tested positive for the Covid-19 virus, the company could potentially have its operations affected, which could have implications on its financial resources.
As a result of the aforementioned items, the company's board of directors has elected to pursuing the financing in an effort to mitigate risk associated with near-term debt obligations.
The financing remains subject to negotiation of definitive documentation, completion of satisfactory due diligence by both parties, board approval for the definitive documentation by both parties and approval of the TSX Venture Exchange, as well as other conditions precedent. The financing cannot proceed until these conditions have been satisfied.
The financing terms include a one-time set-up fee and an original issue discount which Trichome will deduct from the proceeds of the financing before advancing to the company. Trichome will also be issued common shares of GTEC in an amount equal to 16.05 per cent of the net loan proceeds as described in the term sheet, which share price shall be calculated at the lower of either (i) the closing price of GTEC on the date of execution of the term sheet (nine cents); or (ii) the closing price of GTEC on the last trading date prior to the closing of the financing. The maximum number of shares to be issued as part of the additional consideration shall not exceed 11 million shares. The issued shares will be subject to a statutory four-month-and-a-day hold in accordance with applicable securities laws and the policies of the TSX Venture Exchange. No other broker fees or brokers' warrants are proposed to be issued in connection with the financing.
About GTEC Holdings Ltd.
GTEC is a specialized cannabis company that produces and distributes highly sought-after ultrapremium cannabis products in Canada. The company has four licensed and operational assets and is currently distributing cannabis through medical and recreational sales channels. GTEC's products are currently achieving amongst the highest gross margins and retail pricing within its sector in Canada.
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