good natured Products Inc. (the “Company” or “good natured®”) (TSX-V: GDNP) today announced it has entered into a Letter of Offer with Business Development Bank of Canada (“BDC”) to provide financing (“BDC Financing”) for the previously announced acquisition of Shepherd Thermoforming & Packaging Inc. (“Shepherd”).
Concurrent with the BDC Letter of Offer, good natured® also announced execution of an amending agreement (the “Amending Agreement”) with the shareholders of Shepherd (the “Vendor”) amending some of the provisions of the previously disclosed Share Purchase Agreement announced on March 3, 2020 (the “Share Purchase Agreement”).
The key terms of the BDC Financing include the following:
- a drawdown of approximately $1.7 million USD under the Company’s existing $5 million USD M&A credit facility with BDC announced in June 2019;
- a $6 million CAD mortgage to support the acquisition of the real estate at Shepherd; and
- a conversion of $1 million CAD of the Company’s existing long term credit facility into common shares in good natured® at a price per share of $0.15 (the “Debt for Shares Transaction”), and issuance of loan bonus shares (described in more detail below).
The Amending Agreement locks in the effective date for transfer of the economics relating to the Share Purchase Agreement at April 30, 2020, provides for increasing the Vendor financing component from $1 million to $1.35 million CAD, extends the outside date for closing from April 30, 2020 to May 31, 2020 and allows for the $6 million CAD in BDC mortgage financing.
The parties remain focused on closing the acquisition of Shepherd as soon as possible during May.
The Amending Agreement provides that cash and working capital adjustments will be calculated at a month-end cutoff as of the end of April, even if the actual closing slips into May, which in effect transfers the benefit and risk of the Shepherd business to good natured® as of and from May 1, 2020.
The $6 million CAD mortgage was obtained at an interest rate of 6.8% and an amortization period of 25 years, with payments commencing in October 2020.
In addition, as an incentive to BDC to provide the financing described above, good natured® has agreed to issue 3,000,000 common shares as a loan bonus to BDC at the closing of the Shepherd acquisition, subject to TSX-V approval.
“I would like to recognize BDC and their commitment to supporting the growth of good natured® and sustainable businesses overall in Canada. Their ongoing support has made our success possible,” said Paul Antoniadis, CEO of good natured®. “Our history of working together with the Shepherd family made it possible for us to come to swift agreement on these amended terms, which benefit both parties and allow us to close on this important acquisition for all good natured® stakeholders.”
“We continue to be very excited about our partnership with good natured®, which gives us all the opportunity to build on the legacy of our business that was started by our father, Barry Shepherd, in 1984,” said Todd Shepherd, President of Shepherd Thermoforming & Packaging Inc. “Our customers are increasingly requesting plant-based alternatives, so joining with good natured®, as we have on several projects over the past four to five years, will accelerate our ability to meet this growing demand.”
The closing of the transaction is expected to be April 30, 2020 or soon thereafter in early May 2020 with an effective date of April 30, 2020.
Closing of the transaction (including the Debt for Shares Transaction) remains subject to approval of the TSX Venture Exchange and other customary closing conditions related to the BDC Financing.
The Amending Agreement and Letter of Offer will be made available on the Company’s SEDAR profile at http://www.sedar.com.
The Company concurrently announced that it has granted share-based incentive compensation to directors and officers of the Company.
Pursuant to the Company’s Omnibus Equity Incentive Compensation Plan it has granted (i) stock options exercisable for up to 1,033,389 common shares in the Company (“Company Shares”), (ii) 1,050,000 restricted share units (“RSUs”) vesting over a period of 3 years from the date of grant; and (iii) 1,525,000 RSUs vesting over a period of 2 years from the date of grant.
The stock options are exercisable at $0.15 per Company Share, with a 4-year vesting term to be vested 1/48 per month over a 48 month period.
Each RSU will entitle the holder to receive either one Company Share from treasury, the cash equivalent of one Company Share or a combination of cash and Company Shares, as the Board may determine in its sole discretion on settlement.
The RSUs will vest over a period of 2 or 3 years as applicable, and on or following each annual vesting date the vested portion of the RSUs will be settled.