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Red White & Bloom and Aleafia Health mutually agree to terminate binding letter agreement

(Globe Newswire) Toronto — Red White & Bloom Brands Inc. and Aleafia Health Inc. are announcing the mutual termination of the binding letter agreement entered into between the parties on June 6, 2023 in respect of the proposed business combination transaction, as detailed in the joint press release issued on June 7, 2023.

The termination is without liability or cost to either party.

Pursuant to the letter agreement, and as a pre-requisite to closing the previously announced proposed transaction, the approval of holders of Aleafia convertible debentures issued under the amended and restated debenture indenture providing for the issue of certain convertible debentures dated as of June 27, 2022 between Aleafia and Computershare Trust Company of Canada, as the trustee, as supplemented by: (a) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5 per cent Series A Secured Convertible Debentures due June 30, 2024); (b) the second supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5 per cent series B Secured Convertible Debentures due June 30, 2026), and (c) the third supplemental indenture dated as of June 27, 2022 (providing for the issue of 8.50 per cent Series C Secured Debentures due June 30, 2028) was required to settle all outstanding amounts due to them for an aggregate amount of $6 million in exchange for the cancellation of all Aleafia convertible debentures.

While Aleafia had received support in writing from certain holders of the outstanding Aleafia convertible debentures, certain other holders representing more than 33 1/3 per cent of the outstanding Aleafia convertible debentures, as represented by their designated representatives, have communicated to Aleafia and RWB that they will not accept the terms of the settlement set out in the letter agreement. As a result, a key condition of the proposed transaction cannot be satisfied and the parties have mutually agreed to terminate the letter agreement.

Pursuant to an assignment of indebtedness and security dated June 6, 2023, NE SPC II LP sold to RWB, all indebtedness of Aleafia and certain of its affiliates in connection with the loan agreement made as of December 24, 2021, as amended on March 28, 2022, June 17, 2022, April 26, 2023, May 15, 2023, and May 31, 2023.

Aleafia is currently in breach of certain covenants under the Aleafia senior secured loan agreement, and while RWB has not, to date, taken steps to formally note Aleafia in default or immediately enforce its security, RWB has not waived any outstanding breaches and has reserved all of its rights and remedies under the Aleafia Senior Secured Loan Agreement and related security. RWB is currently considering all available options.

As a result of the termination of the Letter Agreement, and in light of the status of the Aleafia Senior Secured Loan Agreement, disinterested members of the board of directors of Aleafia continue to explore and evaluate potential strategic alternatives that may be available to Aleafia with the goal of maximizing value for Aleafia stakeholders. Aleafia does not intend to comment further with respect to the ongoing strategic review process unless and until it determines that additional disclosure is appropriate in the circumstances and in accordance with applicable securities laws.