UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:
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x | Preliminary Proxy Statement |
| o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| o | Definitive Proxy Statement |
| o | Definitive Additional Materials |
| o | Soliciting Material Pursuant to § 240.14a-12 |
Skye Bioscience, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Payment of Filing Fee (check the appropriate box): |
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| o | No fee required. |
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| x | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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| o | Fee paid previously with preliminary materials. |
PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION
August 12, 2022
Dear Stockholders of Skye Bioscience, Inc.:
We are excited to invite you to attend the special meeting of the stockholders (the “SKYE Meeting”) of Skye Bioscience, Inc. (“SKYE”), to, among other matters, approve the proposed business combination between SKYE and Emerald Health Therapeutics, Inc. (the “Transaction”). The SKYE Meeting will take place via live audio webcast at https://web.viewproxy.com/skye/2022, on [●] at 9:00 a.m. (Pacific time).
YOUR VOTE IS IMPORTANT. Whether or not you expect to attend the SKYE Meeting virtually, please submit your vote as soon as possible. We urge you to read the enclosed materials carefully and to promptly vote by following the instructions in the enclosed materials.
We thank you for your consideration and continued support.
Sincerely,
Punt Dhillon
Chief Executive Officer and Chair of the
Board of Directors of Skye Bioscience, Inc.
NOTICE OF SPECIAL MEETING OF SKYE STOCKHOLDERS
to be held [●],
NOTICE IS HEREBY GIVEN that a special meeting (the “SKYE Meeting”) of the stockholders (“SKYE Stockholders”) of Skye Bioscience, Inc., a Nevada corporation (“SKYE”), will be held online on [●] at 9:00 a.m. (Pacific time) via live webcast at https://web.viewproxy.com/skye/2022. There will be no physical location for SKYE Stockholders to attend. Online check-in will begin at 8:00 a.m. (Pacific time), and we encourage you to allow ample time for the online check-in procedures.
The SKYE Meeting is being called for the following purposes:
1.To consider and vote on a proposal to adopt the Arrangement Agreement, dated as of May 11, 2022, as amended on June 14, 2022 and July 15, 2022, (the “Arrangement Agreement”) between SKYE and Emerald Health Therapeutics, Inc. (“EHT”), and to approve the transactions contemplated thereby, including the proposed arrangement (the “Arrangement”) involving, among other things, the acquisition by SKYE of all of the outstanding EHT Shares (the “Arrangement Proposal”);
2.To consider and vote on a proposal to establish SKYE’s 2022 Employee Stock Purchase Plan (the “ESPP”) (the “ESPP Proposal”);
3.To consider and vote on a proposal to adopt and approve SKYE’s Amended and Restated 2014 Omnibus Incentive Plan (the “A&R 2014 Incentive Plan”) (the “Incentive Plan Proposal”);
4.To ratify the appointment of Friedman LLP as SKYE’s independent registered public accounting firm for the fiscal year ending December 31, 2022 (the “Independent Registered Public Accountants Proposal”); and
5.To consider and vote on a proposal to adjourn the SKYE Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the Arrangement Proposal, the Incentive Plan Proposal, the ESPP Proposal or the Independent Registered Public Accountants Proposal (the “Adjournment Proposal”).
The Arrangement Proposal, the ESPP Proposal, the Incentive Plan Proposal, the Independent Registered Public Accountants Proposal and the Adjournment Proposal are together referred to as the “SKYE Proposals”.
On May 11, 2022, after careful consideration, the Special Committee (the “Special Committee”) of the board of directors of SKYE (the “SKYE Board”) unanimously concluded that the Arrangement Agreement and the Arrangement are fair to, advisable, and in the best interests of SKYE and its stockholders and recommended that the SKYE Board approve the Arrangement Agreement and the Arrangement. Following the meeting of the Special Committee, on May 11, 2022, the SKYE Board, taking into consideration the unanimous recommendation of the Special Committee, approved the Arrangement Agreement and determined that the Arrangement Agreement and the transactions contemplated thereby, including the Arrangement, are fair to, advisable and in the best interests of SKYE and its stockholders.
The SKYE Board unanimously recommends that stockholders vote “FOR” (a) the Arrangement Proposal, (b) the ESPP Proposal, (c) the Incentive Plan Proposal, (d) the Independent Registered Public Accountants Proposal and (e) the Adjournment Proposal. Please note that it is a condition to closing the Arrangement that a majority of SKYE Shares outstanding and entitled to vote at the SKYE Meeting, other than the SKYE Shares held by (a) Emerald Health Sciences, Inc. or its affiliates, (b) directors or officers of EHT or SKYE and (c) any immediate family members (as defined in Item 404 of Regulation S-K) of any of the officers or directors of EHT or SKYE, vote in favor of the Arrangement Proposal (the “SKYE Disinterested Shareholder Approval”).
Specific details of the matters proposed to be put before the SKYE Meeting are set forth in this proxy statement, which accompanies this Notice of Special Meeting of SKYE Stockholders (“Notice of SKYE Meeting”). Copies of the Arrangement Agreement, the ESPP and the A&R 2014 Incentive Plan are attached as Appendix A, Appendix C, and Appendix D, respectively, to the proxy statement and are available for inspection by SKYE Stockholders on the U.S. Securities and Exchange Commission website at www.sec.gov under SKYE’s SEC profile. SKYE Stockholders should carefully read this proxy statement, including any documents incorporated by reference, and the appendices in their entirety
for more detailed information concerning the Arrangement and the other transactions contemplated by the Arrangement Agreement.
The record date for determining the SKYE Stockholders entitled to receive notice of and vote at the SKYE Meeting is the close of business on [●] (the “Record Date”). Only SKYE Stockholders of record at the close of business on the Record Date are entitled to vote at the SKYE Meeting or any adjournment thereof.
Whether or not you are able to virtually attend the SKYE Meeting, you are encouraged to provide voting instructions in accordance with the instructions on the enclosed form of proxy or voting instruction form provided to you by your broker, investment dealer or other intermediary as soon as possible by (1) visiting the internet site listed on the enclosed SKYE proxy card, (2) calling the toll-free number listed on the enclosed SKYE proxy card, or (3) submitting your enclosed SKYE proxy card by mail by using the provided self-addressed, stamped envelope. To be counted at the SKYE Meeting, a SKYE Stockholder’s voting instructions must be received by 11:59 p.m. (Pacific time) on [●]. Please note, if you received a voting instruction form and you hold your shares through a broker, investment dealer or other intermediary, you must provide your instructions to your broker, investment dealer or other intermediary as specified in the voting instruction form and by the deadline set out therein (which may be an earlier time than set out above).
SKYE Stockholders who are planning to provide voting instructions in accordance with the enclosed form of proxy or voting instruction form are encouraged to review the proxy statement carefully before submitting such form.
If you are a SKYE Stockholder and have any questions, please contact Alliance Advisors, our proxy solicitation agent, by telephone at (866) 407-1801 toll-free in North America or at (209)-692-6064 for collect calls outside of North America or by email at SKYE@allianceadvisors.com.
DATED August 12, 2022.
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| BY ORDER OF THE BOARD OF DIRECTORS |
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| (signed) “Punit Dhillon” |
| Punit Dhillon |
| Chief Executive Officer |
TABLE OF CONTENTS
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| Background to the Arrangement | |
| Reasons for the Arrangement | |
| Recommendation of the SKYE Board | |
| EHT Realization Process | |
| Description of the Plan of Arrangement | |
| Procedure for the Plan of Arrangement to Become Effective | |
| Appraisal and Dissenters’ Rights | |
| Opinion of SKYE’s Financial Advisor | |
| Interests of SKYE’s Directors and Management in the Arrangement | |
| Court Approval | |
| Regulatory Matters | |
| Canadian Securities Law Matters | |
| U.S. Securities Law Matters | |
| Pro Forma Ownership of the Resulting Issuer | |
| Anticipated Accounting Treatment | |
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| Support Agreements | |
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| Overview | |
| Quantitative and Qualitative Disclosures of Market Risk | |
| EHT Realization Process | |
| Trading Price and Volume of EHT Shares | |
| Additional Information Concerning EHT | |
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| Security Ownership of Certain Beneficial Owners and Management | |
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PROXY STATEMENT
This proxy statement is being furnished to the stockholders (the “SKYE Stockholders”) of Skye Bioscience, Inc. , a Nevada corporation (“SKYE”), in connection with the solicitation of proxies by the management of SKYE for use at the special meeting of SKYE Stockholders (the “SKYE Meeting”) to be held at the date, time and place and for the purposes set forth in the attached Notice of SKYE Meeting.
DEFINED TERMS
This proxy statement contains defined terms. For a glossary of defined terms used herein, see Appendix F to this proxy statement.
QUESTIONS AND ANSWERS ABOUT THE ARRANGEMENT AND THE SKYE MEETING
General Questions and Answers about the Arrangement
Q:What is SKYE and EHT proposing?
A:SKYE is proposing to acquire EHT and its assets pursuant to an Arrangement under the BCBCA. Under the terms of the Arrangement, EHT Shareholders will receive 1.95 SKYE Shares for each EHT Share. SKYE Stockholders will continue to hold their SKYE Shares, which will remain outstanding. The Arrangement will, among other things, include the following:
•All outstanding EHT Shares will be exchanged for SKYE Shares as described under the section titled “What will EHT Shareholders receive for their EHT shares under the Arrangement?” below;
•SKYE Stockholders will retain their SKYE Shares; and
•EHT will become a wholly-owned subsidiary of SKYE.
The Arrangement will be carried out in accordance with the Arrangement Agreement dated May 11, 2022 between SKYE and EHT, as amended on June 14, 2022 and July 15, 2022 (the “Arrangement Agreement”) and the documents referred to in the Arrangement Agreement. Upon the completion of the Arrangement, it is expected (based on the outstanding shares of SKYE and EHT as of August 10, 2022) that the Exchange Ratio will result in EHT Shareholders owning approximately 46% of the outstanding shares of the Resulting Issuer, and SKYE Stockholders owning approximately 54% of the outstanding shares of the Resulting Issuer.
Following the closing, the business of the Resulting Issuer will be the current business of SKYE. In this proxy statement, the term “Resulting Issuer” means, following the closing of the Arrangement, SKYE.
Q:Why are EHT and SKYE proposing to combine?
A:The SKYE Board believes that the Arrangement will provide the funds needed by SKYE to advance its lead clinical candidate, SBI-100, through a Phase 2 clinical trial.
Q:What will I receive for my shares under the Arrangement?
A:Under the Arrangement, SKYE Stockholders will retain their SKYE Shares.
Q:What are EHT Shareholders receiving in connection with the Arrangement?
A:The agreed Exchange Ratio is 1.95. This means that upon completion of the Arrangement, each holder of EHT shares will receive 1.95 SKYE Shares for each EHT Share. Upon completion of the Arrangement, it is expected (based on the outstanding shares of SKYE and EHT as of August 10, 2022) that the Exchange Ratio will result in EHT Shareholders owning approximately 46% of the outstanding shares of the Resulting Issuer, and existing SKYE Stockholders owning approximately 54% of the outstanding shares of the Resulting Issuer, following the completion of the Arrangement.
Q:How will EHT Options and EHT Warrants be treated under the Arrangement?
A:At the Effective Time, (i) all EHT options to purchase EHT Shares (the “EHT Options”) granted under EHT’s Omnibus Incentive Plan that are outstanding as of the Effective Time, will be exchanged into options to purchase shares of SKYE Common Stock, with the number of shares underlying each option (and the exercise price of such option) adjusted based on the Exchange Ratio, with the options retaining the same term to expiry, conditions to and manner of exercise and other terms and conditions as the EHT Options and (ii) each of the warrants to acquire EHT Shares (the “EHT Warrants”) will be exchanged into warrants to acquire SKYE Common Stock after adjustments to reflect the Arrangement and to account for the Exchange Ratio, with each warrant retaining the same term to expiry, conditions to and manner of exercise and other terms and conditions of the EHT Warrants.
Q:Who will manage the Resulting Issuer following the Arrangement?
Q:What approvals are required for the Arrangement to be implemented?
A:The completion of the Arrangement requires approval from the EHT Shareholders, receipt of the Final Order from the Court, and receipt of the Required Regulatory Approvals. Additionally, as a condition to closing the Arrangement, a majority of SKYE Shares outstanding and entitled to vote at the SKYE Meeting, other than the SKYE Shares held by (a) EHS or its affiliates, (b) directors or officers of EHT or SKYE and (c) any immediate family members (as defined in Item 404 of Regulation S-K) of any of the officers or directors of EHT or SKYE, must vote in favor of the Arrangement Proposal (the “SKYE Disinterested Shareholder Approval”).
Q:When will the Arrangement become effective?
A:Subject to obtaining the approvals and the court order described above, as well as the satisfaction or waiver of all other conditions precedent set out in the Arrangement Agreement, it is anticipated that the Arrangement will be completed in the fourth quarter of 2022.
Q:What will happen to EHT if the Arrangement is completed?
A:If the Arrangement is completed, SKYE will acquire all outstanding EHT Shares and EHT will become a wholly-owned subsidiary of SKYE. If the Arrangement is completed, SKYE intends to have the EHT Shares delisted from the CSE.
Q:What will happen if the EHT Arrangement Resolution is not approved or the Arrangement Agreement is terminated?
A:If the EHT Arrangement Resolution is not approved, the Arrangement Agreement may be terminated by either EHT or SKYE, and in the event it is terminated, EHT will be required to pay SKYE a termination fee in the amount of C$500,000. Both parties may be required to pay the other party a termination fee of C$500,000 if the Arrangement Agreement is terminated in certain circumstances as described in this proxy statement. If the Arrangement Agreement is terminated and the Arrangement is not completed, the market price of SKYE’s Shares may be materially adversely affected. See “The Arrangement Agreement and Related Agreements - Termination” and “Risk Factors - Risks Related to the Arrangement”. Q:Are there risks I should consider in deciding whether to vote for the proposed Arrangement?
A:Yes. The proposed Arrangement is subject to a number of risks and uncertainties. There can be no certainty that all conditions precedent to the Arrangement will be satisfied or waived, and, accordingly, the Arrangement may not be completed. For example: (i) the Required Regulatory Approvals may not be obtained ; (ii) the Arrangement may be terminated in certain circumstances and the termination amount provided under the Arrangement Agreement may discourage other parties from attempting to acquire EHT or SKYE; and (iii) if the Arrangement is consummated, the difficulties that management of the Resulting Issuer may encounter in the process of winding down the operations of EHT could have an adverse effect on the level of expenses and operating results of the Resulting Issuer. If the Arrangement Agreement is terminated and the Arrangement is not completed, the market price of SKYE’s Shares may be materially adversely affected. See “The Arrangement Agreement and Related Agreements - Termination” and “Risk Factors - Risks Related to the Arrangement”.
Before deciding whether to vote for or against the Arrangement, you should carefully consider these and other risks as well as the more detailed discussion of risks found in the section entitled “Risk Factors - Risks Related to the Arrangement” and other information included in this proxy statement. SKYE Stockholder Questions and Answers
Q:When and where is the SKYE Meeting?
A:The SKYE Meeting will be held on [●] at 9:00 a.m. (Pacific time). The SKYE Meeting will be completely virtual and conducted via live audio webcast . SKYE Stockholders will be able to attend the SKYE Meeting by first registering at https://web.viewproxy.com/skye/2022. SKYE Stockholders will receive a meeting invitation by e-mail with such stockholders unique join link along with a password prior to the meeting date. SKYE Stockholders will be able to listen, vote and submit questions during the virtual meeting.
We have created and implemented the virtual format to facilitate stockholder attendance and participation by enabling stockholders to participate fully, and equally, from any location around the world, at no cost. However, you will bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies. A virtual meeting makes it possible for more stockholders (regardless of size, resources or physical location) to have direct access to information more quickly, while saving the company and our stockholders time and money, especially as physical attendance at meetings has dwindled. We also believe that the online tools we have selected will increase stockholder communication. For example, the virtual format allows stockholders to communicate with us in advance of, and during, the SKYE Meeting so they can ask questions of our board of directors or management. During the live Q&A session of the SKYE Meeting, we may answer questions as they come in and address those asked in advance, to the extent relevant to the business of the SKYE Meeting, as time permits.
Both stockholders of record and street name stockholders will be able to attend the SKYE Meeting via live audio webcast, submit their questions during the meeting and vote their shares electronically at the meeting. If you are a registered holder, your virtual control number will be on your proxy card. If you hold your shares beneficially through a bank, broker or other nominee, you may attend the SKYE Meeting so long as you demonstrate proof of stock ownership. Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at https://web.viewproxy.com/skye/2022. If you hold your shares beneficially through a bank, broker or other nominee and wish to vote your shares at the SKYE Meeting, you must obtain and provide a legal proxy from your bank, broker or other nominee during registration and you will be assigned a virtual control number in order to vote your shares during the meeting. On the day of the SKYE Meeting, you may only vote during the meeting by e-mailing a copy of your legal proxy to VirtualMeeting@viewproxy.com in advance of the meeting.
There will be technicians ready to assist you with any technical difficulties you may have accessing the SKYE Meeting live audio webcast. Please be sure to check in by 8 a.m. (Pacific time) on [●], the day of the SKYE Meeting, so that any technical difficulties may be addressed before the meeting live audio webcast begins. If you encounter any difficulties accessing the webcast during the check-in or meeting time, please email VirtualMeeting@viewproxy.com or call 866-612-8937, and we encourage you to allow ample time for the online check-in procedures.
Q:What am I voting on?
You are being asked to consider and vote on the following proposals:
•Proposal 1: To consider and vote on a proposal to adopt the Arrangement Agreement, dated as of May 11, 2022, as amended on June 14, 2022 and July 15, 2022 (the “Arrangement Agreement”) between SKYE and Emerald Health Therapeutics, Inc. (“EHT”), a copy of which is attached as Appendix A, and to approve the transactions contemplated thereby, including the proposed arrangement (the “Arrangement”) involving, among other things, the acquisition by the Company of all of the outstanding EHT Shares (the “Arrangement Proposal”); •Proposal 2: To consider and vote on a proposal to establish the Company’s 2022 Employee Stock Purchase Plan the “ESPP”), a copy of which is attached as Appendix C (the “ESPP Proposal”); •Proposal 3: To consider and vote on a proposal to adopt and approve the Company’s Amended and Restated 2014 Omnibus Incentive Plan (the “A&R 2014 Incentive Plan”), a copy of which is attached as Appendix D (the “Incentive Plan Proposal”); •Proposal 4: To consider and vote on a proposal for the ratification of the appointment of Friedman LLP as SKYE’s independent registered public accounting firm for the fiscal year end December 31, 2022 (the “Independent Registered Public Accountants Proposal”); and
•Proposal 5: To consider and vote on a proposal to adjourn the SKYE Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the Arrangement Proposal, the Incentive Plan Proposal, the ESPP Proposal or the Independent Registered Public Accountants Proposal (the “Adjournment Proposal”).
The Arrangement Proposal, the ESPP Proposal, Incentive Plan Proposal, Independent Registered Public Accountants Proposal and the Adjournment Proposal are together referred to as the “SKYE Proposals”.
Please note that obtaining the SKYE Disinterested Shareholder Approval is a condition to closing the Arrangement.
Q:How many SKYE Shares are outstanding?
A:As of the Record Date, [●] SKYE Shares were issued and outstanding.
Q:How many votes do I get?
A:Each SKYE Share is entitled to one vote. Dissenters’ rights are not applicable to any of the matters being voted upon.
Q:Who is soliciting my proxy?
A:Your proxy is being solicited by the board of directors of SKYE. This proxy statement is furnished in connection with that solicitation. While it is anticipated that solicitation for proxies for the SKYE Meeting will be made primarily by mail, proxies may be solicited personally or by telephone by the directors and regular employees of SKYE at a nominal cost paid by SKYE. In addition, SKYE has engaged Alliance Advisors as proxy solicitation agent in connection with the SKYE Meeting.
If you have questions or need assistance completing your form of proxy or voting instruction form, please contact SKYE’s proxy solicitation agent, Alliance Advisors, by telephone at (866) 407-1801 (toll-free in North America) or (209)-692-6064 (collect call outside North America), or by email at SKYE@allianceadvisors.com.
Q:Where can I find the voting results of the SKYE Meeting?
A:We intend to release preliminary results at the SKYE Meeting. SKYE will publish the final results in a Current Report on Form 8-K with the SEC within four (4) business days following the SKYE Meeting.
Q:How does the SKYE Board recommend that I vote on the SKYE Proposals?
A:The SKYE Board has unanimously determined that the SKYE Proposals are in the best interests of SKYE and recommends that the SKYE Stockholders vote FOR the SKYE Proposals.
Q: What approvals are required by SKYE Stockholders at the SKYE Meeting?
A:The vote required to approve all of the proposals listed herein assumes the presence of a quorum.
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| No. | Proposal | Votes Necessary |
| 1. | Arrangement Proposal | It is a condition to closing the Arrangement that a majority of SKYE Shares outstanding and entitled to vote at the SKYE Meeting, other than the SKYE Shares held by (a) EHS or its affiliates, (b) directors or officers of EHT or SKYE and (c) any immediate family members (as defined in Item 404 of Regulation S-K) of any of the officers or directors of EHT or SKYE, vote for the Arrangement Proposal (the “SKYE Disinterested Shareholder Approval”). An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the ESPP Proposal, so long as a quorum is present. |
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| 2. | ESPP Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the ESPP Proposal. An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the ESPP Proposal, so long as a quorum is present. |
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| 3. | Incentive Plan Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the Incentive Plan Proposal. An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the Incentive Plan Proposal, so long as a quorum is present. |
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| 4. | Independent Registered Public Accountants Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the Independent Registered Public Accountants Proposal.
An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the Independent Registered Public Accountants Proposal, so long as a quorum is present.
The approval of this proposal is a routine proposal on which a broker or other nominee has discretionary authority to vote. Accordingly, no broker non-votes will likely result from this proposal.
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| 5. | Adjournment Proposal | Approval requires the affirmative vote of the majority of votes cast at the SKYE Meeting on the Adjournment Proposal. An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the Adjournment Proposal. |
Q:How do I vote on the SKYE Proposals?
A:You should carefully read and consider the information contained in this proxy statement. Registered SKYE Stockholders should then vote by (1) visiting the internet site listed on the enclosed SKYE proxy card, (2) calling the toll-free number listed on the enclosed SKYE proxy card or (3) submitting your enclosed SKYE proxy card by mail by using the provided self-addressed, pre-paid envelope. If you submit a proxy to vote your SKYE Shares via the internet or by telephone, you must do so no later than 11:59 p.m. on [●], (Pacific time). If you submit a proxy to vote your shares by mail, your completed SKYE proxy card must be received no later than 11:59 p.m. (Pacific time) on [●] (or if the SKYE Meeting is postponed or adjourned prior to the date of the postponed or adjourned SKYE Meeting). See “General Information about the SKYE Meeting and Voting - Registered SKYE Stockholders”. If you hold your SKYE Shares through a bank, broker or other nominee, please follow the instructions on the voting instruction form provided
Q:Should I send in my proxy now?
A:Yes. To ensure your vote is counted, you should immediately vote as described in the immediately preceding Q&A. You are encouraged to vote well in advance of the proxy cut-off at 11:59 p.m. (Pacific time) on [●] (or if the SKYE Meeting is postponed or adjourned, prior to the date of the postponed or adjourned SKYE Meeting).
Q:If my SKYE Shares are held through a bank, broker or other nominee, will they vote my SKYE Shares for me?
A:Except for routine matters, a broker will vote the SKYE Shares held by you only if you provide instructions to such broker on how to vote or which election to make. If you fail to give proper instructions, those SKYE Shares will not be voted on your behalf. SKYE Stockholders should instruct their brokers to vote their SKYE Shares on their behalf by following the directions on the voting instruction form provided to them by their intermediaries. The Arrangement Proposal, the Incentive Plan Proposal, the ESPP Proposal, and the Adjournment Proposal are not routine matters. The Independent Registered Public Accountants Proposal is a routine matter. Unless your intermediary gives you its legal proxy to vote the SKYE Shares at the SKYE Meeting, you cannot vote those SKYE Shares owned by you at the SKYE Meeting. See “General Information about the SKYE Meeting and Voting - Beneficial SKYE Stockholders”. Q:Can I revoke my vote after I have voted by proxy?
A:Yes. A SKYE Stockholder executing the enclosed form of proxy has the right to revoke it by either attending the SKYE Meeting and voting at the SKYE Meeting or providing a new proxy dated as at a later date or by submitting a new proxy by telephone or internet, provided that the new proxy is received 11:59 p.m. (Pacific time) on [●] (or if the SKYE Meeting is postponed or adjourned, prior the date of the postponed or adjourned SKYE Meeting). A registered SKYE Stockholder may also revoke any prior proxy without providing new voting instructions by clearly indicating in writing that such SKYE Stockholder wants to revoke his, her or its proxy and delivering this written document to (i) the registered office of SKYE at Skye Bioscience, Inc., 11250 El Camino Real, Suite 100, San Diego, CA 92130, at any time up to and including the last Business Day preceding the day of the SKYE Meeting, or any adjournment of the SKYE Meeting, or (ii) the Chair of the SKYE Meeting at the SKYE Meeting or any postponement or adjournment thereof and prior to the vote in respect of the SKYE Proposals or in any other way permitted by law. Voting at the SKYE Meeting also will have the effect of revoking any prior vote.
Q:Who can help answer my questions?
A:If you have any questions about this proxy statement or the matters described in this proxy statement, please contact Alliance Advisors by email or at the numbers below. SKYE Stockholders who would like additional copies, without charge, of this proxy statement or have additional questions about the procedures for voting SKYE Shares or making an election, should contact their broker or Alliance Advisors by email, or at the numbers below.
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| Toll-Free Number: | (866) 407-1801 |
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| By Email: | SKYE@allianceadvisors.com |
ACCOUNTING PRINCIPLES
The historical financial statements of EHT included in this proxy statement are prepared in accordance with IFRS as issued by the IASB and are reported in Canadian dollars. The pro forma unaudited balance sheet of the Resulting Issuer included in this proxy statement is reported in United States dollars and has been prepared in accordance with GAAP.
EXCHANGE RATE INFORMATION
The following table sets forth, for the periods indicated, the high, low, average and period-end daily average rates of exchange for US$1.00, expressed in Canadian dollars, posted by the Bank of Canada:
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| Year Ended December 31 |
| 2021 | | 2020 | | 2019 |
| (C$) | | (C$) | | (C$) |
| Highest rate during the period | 1.29 | | 1.45 | | 1.36 |
| Lowest rate during the period | 1.20 | | 1.27 | | 1.30 |
| Average rate for the period | 1.25 | | 1.34 | | 1.33 |
| Rate at the end of the period | 1.27 | | 1.27 | | 1.30 |
On August 10, 2022, the daily average rate of exchange posted by the Bank of Canada for the conversion of U.S. dollars into Canadian dollars was US$1.00 equals C$1.29.
NOTICE REGARDING INFORMATION
NO U.S. SECURITIES REGULATORY AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE.
SKYE has not authorized any Person to give any information or to make any representation in connection with the Arrangement or any other matters to be considered at the SKYE Meeting other than those contained in this proxy statement. If any such information or representation is given or made, such information or representation should not be relied upon as having been authorized or as being accurate. For greater certainty, to the extent that any information provided on SKYE’s website or by the proxy solicitation agent is inconsistent with this proxy statement, the information provided in this proxy statement should be relied upon.
This proxy statement does not constitute an offer to buy, or a solicitation of an offer to sell, any securities, or the solicitation of a proxy, by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such an offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation.
SKYE Stockholders should not construe the contents of this proxy statement as legal, tax or financial advice and should consult with their own legal, tax, financial or other professional advisors.
All summaries of, and references to, the Arrangement Agreement, the Plan of Arrangement the SKYE Support Agreements and the EHT Support Agreements in this proxy statement are qualified in their entirety by, in the case of the Arrangement Agreement, the complete text of the Arrangement Agreement, a copy of which is attached as Appendix A to this proxy statement and is available on SKYE’s EDGAR profile at www.sec.gov, and in the case of the Plan of Arrangement, the complete text of the Plan of Arrangement, a copy of which is attached as Appendix B to this proxy statement, and in the case of the SKYE Support Agreements and EHT Support Agreements, the complete text of the SKYE Support Agreements and EHT Support Agreements, which can be located on SKYE’s EDGAR profile at www.sec.gov. SKYE Stockholders are urged to carefully read the full text of the Plan of Arrangement and the Arrangement Agreement. This proxy statement is dated August 12, 2022. Information contained in this proxy statement is given as of August 10, 2022, unless otherwise specifically stated and except for information contained in documents incorporated by reference herein, which is given as at the respective dates stated in such documents.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this proxy statement, including the documents incorporated by reference herein, constitutes forward-looking information or forward-looking statements within the meaning of Section 27A of the U.S. Securities Act and Section 21E of the U.S. Securities Exchange Act, which are intended to be covered by the safe harbor created by such sections and other applicable Laws. The forward-looking statements are expressly qualified by this cautionary statement. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future, and readers are cautioned that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook of SKYE or the Resulting Issuer. Forward-looking statements are typically identified by words such as “expect”, “intend”, “anticipate”, “believe”, “contemplate”, “foresee”, “forecast”, “future”, “could”, “enable”, “potential”, “estimate”, “project”, “goal”, “plan”, “seek”, “strive”, “will”, “would” “may” and “should” and similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements reflect current beliefs of management of SKYE with respect to future events and are based on information currently available to each respective management including based on reasonable assumptions, estimates, internal and external analysis and opinions of management of SKYE concerning their experience, perception of trends, current conditions and expected developments as well as other factors that each respective management believes to be relevant as at the date such statements are made. Forward-looking statements involve significant known and unknown risks and uncertainties. Many factors could cause actual results, performance or achievement to be materially different from any future forward-looking statements. SKYE’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. SKYE can give no assurance that such estimates, beliefs and assumptions will prove to be correct. In particular, certain statements included in the sections entitled “Description of the Arrangement - Reasons for the Arrangement” and “Risk Factors - Risks Related to the Resulting Issuer” are forward-looking statements. Any information or statements that are contained in this proxy statement, including the documents incorporated by reference herein, that are not statements of historical fact may be deemed to be forward-looking statements, including, but not limited to, statements with regards to:
•expectations regarding whether the Arrangement will be consummated, including whether conditions to the consummation of the Arrangement will be satisfied, or the anticipated timing or closing of the Arrangement;
•expectations regarding receipt of all Required Regulatory Approvals, shareholder approvals, Court approvals and satisfaction of other customary closing conditions;
•estimates of the value of the EHT assets and the costs and expenses associated with the wind-down of EHT’s former business;
• estimates of the expected costs to wind down EHT’s business, the expected annual ongoing expenses that would result from the acquisition of EHT and the expected costs of SKYE to consummate the Arrangement;
•expectations of future balance sheet strength and future equity, including expectations for the effects of the Arrangement on the Resulting Issuer’s financial position, cash flow and growth prospects;
•any other strategic and financial benefits in connection with the Arrangement, including any anticipated future results and pro-forma financial information relating to the Resulting Issuer;
•the anticipated value of the Consideration to be received by the EHT Shareholders, which may fluctuate in value due to trading prices of the SKYE Shares forming the Consideration;
•expectations regarding the size and composition of the board of directors of the Resulting Issuer; and
•the EHT Realization Process.
Certain material factors or assumptions are applied in making forward-looking statements. With respect to the Arrangement and this proxy statement, the expectations and assumptions expressed or implied in the forward-looking statements, include, but are not limited to the ability of the parties to receive, in a timely manner and on satisfactory terms, EHT Shareholder Approval, SKYE Disinterested Shareholder Approval, Required Regulatory Approvals and Court approvals for the Arrangement, the ability of the parties to satisfy, in a timely manner, the conditions to the closing of the Arrangement and other expectations and assumptions concerning the Arrangement.
The forward-looking statements contained in this proxy statement, including documents incorporated by reference herein, are subject to inherent risks and uncertainties and other factors which could cause actual results to differ materially from those anticipated by the forward-looking statements. The factors which could cause results to differ from current expectations include, but are not limited to:
•the inherent uncertainty associated with financial or other projections or outlooks;
•risks assumptions and expectations described in SKYE’s critical accounting policies and estimates;
•the adoption and impact of certain accounting pronouncements;
•SKYE’s future financial and operating performance;
•the commercial and business plans of SKYE;
•the ability of EHT and SKYE to complete the Arrangement;
•SKYE’s ability to maintain a strong financial position and secure additional financing;
•the ability of EHT and SKYE to maximize the utilization of their existing assets and investments;
•that the completion of the Arrangement is subject to the satisfaction or waiver of a number of conditions as set forth in the Arrangement Agreement;
•some or all the expected benefits of the Arrangement may fail to materialize or may not occur within the time periods anticipated by EHT and SKYE;
•the risk associated with EHT’s and SKYE’s ability to obtain the approval of the Transaction by their shareholders required to consummate the Transaction and the timing of the closing of the Transaction, including the risk that the conditions to the Transaction are not satisfied on a timely basis or at all;
•the risk that a consent or authorization that may be required for the Transaction is not obtained or is obtained subject to conditions that are not anticipated;
•the outcome of any legal proceedings that may be instituted against the parties and others related to the Arrangement Agreement;
•unanticipated difficulties or expenditures relating to the Transaction;
•risks relating to the value of SKYE Shares to be issued in connection with the Transaction;
•the diversion of management time on Transaction-related issues;
•the Exchange Ratio is fixed and there can be no assurance that the market value of the SKYE Shares that the holders of EHT Shares may receive on the Effective Date will equal or exceed the market value of the EHT Shares held by such EHT Shareholders prior to the Effective Date;
•changes in tax laws, regulations or future assessments; and
•risks or delays arising from or relating to the ongoing COVID-19 pandemic.
The foregoing risks or other risks arising in connection with the failure of the Arrangement, including the diversion of management attention from conducting the business of SKYE, may have a material adverse effect on SKYE’s business operations, financial results and share price.
Readers are cautioned that the foregoing list of factors is not exhaustive. Other risks and uncertainties not presently known to SKYE or that SKYE presently believes are not material could also cause actual results or events to differ materially from those expressed in the forward-looking statements contained herein.
Additional information on these and other factors that could affect the operations or financial results of SKYE or the Resulting Issuer are included in reports filed by SKYE with applicable securities regulatory authorities and may be accessed through EDGAR (www.sec.gov). These risks and other factors are also discussed in more detail in this Proxy statement under “Risk Factors”. Readers are encouraged to read such section in detail.
The forward-looking statements contained in this proxy statement, including the documents incorporated by reference herein, are expressly qualified in their entirety by this cautionary statement. SKYE cannot guarantee that the results or events expressed or implied in any forward-looking statement and information will materialize and accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect SKYE’s expectations only as of the date of this proxy statement (or in the case of forward-looking statements in a document incorporated by reference herein, as of the date indicated in such document). SKYE disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
SUMMARY
This summary highlights the key aspects of the matters to be considered at the SKYE Meeting, but does not contain all of the information that is important to you. You should carefully read this entire document and the other documents we refer you to for a more complete understanding of the matters being considered at the meetings. This summary is qualified in its entirely by the more detailed information appearing elsewhere in this proxy statement, including the Appendices (which are incorporated into and form part of this proxy statement). Certain capitalized terms used in this summary are defined in the Glossary of Defined Terms found in Appendix F of this proxy statement. The Companies
EHT
EHT is a publicly traded company with headquarters in Victoria, British Columbia, Canada. The EHT Shares are listed on the Canadian Securities Exchange (“CSE”) under the trading symbol “EMH”. EHT also trades on the OTCQB, operated by OTC Markets Group under the ticker symbol “EMHTF”.
Since 2015, EHT has been primarily engaged in the production and sale of recreational and medical cannabis in Canada. Information on the business of EHT can be found in the documents filed by EHT with the applicable Canadian securities regulatory authorities and filed on www.sedar.com. For additional information about EHT, see “Information Concerning EHT”. SKYE
SKYE is a preclinical pharmaceutical company focused on the discovery, development and commercialization of a novel class of cannabinoid derivatives to modulate the endocannabinoid system, which has been shown to play a vital role in overall human health and, notably, in multiple ocular indications. SKYE is developing novel cannabinoid derivatives through its own directed research efforts and multiple license agreements.
The SKYE Shares are quoted on the OTCQB under the symbol “SKYE”. SKYE’s head office and registered office is located at 11250 El Camino Real, Suite 100, San Diego CA 92130.
Skye Bioscience, Inc. 2022 Employee Stock Purchase Plan
The SKYE Board adopted the Skye Bioscience, Inc. 2022 Employee Stock Purchase Plan (the “ESPP”) on June 14, 2022, subject to approval by the SKYE Stockholders. The ESPP is being submitted for stockholder approval in order to ensure that certain components of the ESPP meet the requirements of Section 423 of the Code. If the ESPP is not approved by the requisite SKYE Stockholders, the ESPP will not become effective.
The ESPP is designed to provide employees of SKYE and its participating subsidiaries with the opportunity to purchase SKYE Common Stock at a discount through accumulated payroll deductions during successive offering periods. The SKYE Board believes that the ESPP enhances such employees’ sense of participation in our performance, aligns their interests with those of SKYE Stockholders, and is a necessary and powerful incentive and retention tool that benefits our stockholders. Accordingly, the SKYE Board believes that approval of the ESPP is in the best interests of the Company and the Board recommends that stockholders vote FOR approval of the ESPP Proposal.
Skye Bioscience, Inc. 2014 Amended and Restated Omnibus Incentive Plan
On June 14, 2022, in anticipation of the closing of the transactions contemplated by the Arrangement, the SKYE Board unanimously approved the Skye Bioscience, Inc. Amended and Restated 2014 Omnibus Incentive (as amended, the “A&R 2014 Incentive Plan” or the “Plan”), subject to stockholder approval. The A&R 2014 Incentive Plan, among other things, amends the Company’s 2014 Omnibus Incentive Plan to (a) enable the issuance of equity awards in compliance with Canadian securities laws and the rules and regulations of the Canadian Stock Exchange, (b) fix the number of shares that can be issued under the A&R 2014 Incentive Plan to 91,219,570, provided that each January 1 beginning in 2023 and ending on (and including) January 1, 2032 the number of shares will increase by 5% of the outstanding shares of Common Stock as of the prior December 31, unless the Board decides to a lesser increase and (c) change the governing law section from California to Nevada. We are requesting that our stockholders approve the A&R 2014 Incentive Plan.
The SKYE Board originally approved the Company’s 2014 Omnibus Incentive Plan effective on October 31, 2014. The Company’s 2014 Omnibus Incentive Plan was subsequently amended in October 2018 and August 2020. The purpose of the A&R 2014 Incentive Plan is to promote our long-term success and the creation of stockholder value by (a) encouraging our employees, outside directors and consultants to focus on critical long-range objectives, (b) encouraging the attraction
and retention of employees, outside directors and consultants with exceptional qualifications and (c) linking our employees, outside directors and consultants directly to stockholder interests through increased stock ownership.
We believe equity incentive compensation is a critical component to our compensation practices and allows us to incentivize our employees and more closely align their efforts with the creation of long-term stockholder value. In order to continue with our equity compensation practices, we feel it is important for stockholders to approve the A&R 2014 Incentive Plan the Board recommends that stockholders vote FOR the Incentive Plan Proposal.
Background to the Arrangement
On May 11, 2022, EHT and SKYE entered into the Arrangement Agreement, as amended on June 14, 2022 and July 15, 2022, which sets out the terms and conditions for implementing the Arrangement. The Arrangement Agreement is the result of extensive arm’s length negotiations conducted among Representatives of EHT and SKYE.
A summary of the material events leading to the negotiation of the Arrangement and the material meetings, negotiations and discussions between EHT and SKYE and their respective advisors that preceded the execution of the Arrangement Agreement and public announcement of the Arrangement is included in this proxy statement under “Description of the Arrangement - Background to the Arrangement”. Reasons for the Arrangement
The SKYE Board believes that the Arrangement will provide the funds needed by SKYE to advance its lead clinical candidate, SBI-100 Ophthalmic Emulsion (“SBI-100”), through a Phase 2 clinical trial.
The following are some of the reasons considered by the SKYE Board in making its recommendation:
•Ability to fund SKYE’s Phase I and Phase II clinical studies for SBI-100 and achieve meaningful data inflection points;
•The Arrangement would be a more time and cost effective means to access capital than other options considered, including other financing and strategic options considered by the SKYE Board; and
•One of the facilities to be acquired from EHT, is a vacant licensed laboratory which will provide SKYE with the option of conducting its research and development activities in house.
Recommendation of the SKYE Board
On May 11, 2022, after careful consideration, consultation with its legal and financial advisors and its review of the SKYE Fairness Opinion, the SKYE Special Committee unanimously determined that the Arrangement Agreement and related transactions and agreements, are in the best interests of, and are advisable to, SKYE and the SKYE Stockholders.
Following the meeting of the SKYE Special Committee, on May 11, 2022, the SKYE Board, taking into consideration the unanimous recommendation of the SKYE Special Committee, approved the Arrangement Agreement and determined that the Arrangement Agreement and the transactions contemplated thereby, including the Arrangement, are fair to, advisable and in the best interests of SKYE and its stockholders.
The SKYE Board unanimously recommends that the stockholders vote “FOR” (a) the Arrangement Proposal, (b) the ESPP Proposal, (c) the Incentive Plan Proposal (d) the Adjournment Proposal, and (e) the Independent Registered Public Accountants Proposal. Please note that obtaining the SKYE Disinterested Shareholder Approval is a condition to closing the Arrangement.
SKYE Fairness Opinion
On May 11, 2022, at a meeting of the SKYE Special Committee, Scalar CA, LLC (referred to as “Scalar”), rendered its oral opinion to the SKYE Special Committee, subsequently confirmed in writing, as to the fairness, from a financial point of view, as of such date, to the holders of SKYE Common Stock of the Exchange Ratio pursuant to the Arrangement Agreement, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Scalar in preparing its opinion.
The full text of Scalar’s written opinion, dated May 11, 2022, which sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Scalar in
connection with the opinion, is attached to this proxy statement as Appendix E. The summary of Scalar’s opinion in this proxy statement is qualified in its entirety by reference to the full text of Scalar’s written opinion. Scalar’s advisory services and opinion were provided for the information and assistance of the SKYE Board and the opinion does not constitute a recommendation as to how any SKYE Shareholder should vote with respect to the Arrangement or any other matter. Interests of Directors and Management in the Arrangement
Court Approval
Interim Order
On July 14, 2022, the Court granted the Interim Order ratifying and confirming the calling of the EHT Meeting and confirming certain procedural matters in respect of the EHT Meeting, and other matters.
Final Order
An arrangement under the BCBCA requires Court approval. Subject to the terms of the Arrangement Agreement, and upon obtaining EHT Shareholder Approval in the manner required by the Interim Order, EHT will apply to the Court for the Final Order. The application for the Final Order approving the Arrangement is scheduled for August 25, 2022 at 9:45 a.m. (Vancouver Time), or as soon after that date as is practicable. At the Final Order hearing, any EHT Shareholder or holder of EHT Options or EHT Warrants or other interested party who wishes to participate or to be represented or to present evidence or argument may do so, subject to filing with the Court and serving upon EHT and SKYE a Notice of Appearance in accordance with the terms of the Interim Order.
The Court has broad discretion under the BCBCA when making orders with respect to the Arrangement and the Court, in hearing the application for the Final Order, will consider, among other things, the fairness and reasonableness of the Arrangement to the parties affected, including EHT Shareholders and holders of EHT Options, EHT Warrants and other stakeholders as the Court determines appropriate, both from a substantive and a procedural point of view. The Court may approve the Arrangement as proposed or as amended, in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court thinks appropriate. Depending on the nature of any required amendments, EHT and SKYE may determine not to proceed with the Arrangement.
Regulatory Matters
Stock Exchange Approval
It is a condition to the closing that Skye obtain (i) the conditional approval by the CSE of the listing of the SKYE Common Stock and (ii) the conditional approval of CSE to list the Consideration Shares and any SKYE Shares issuable upon the exercise of any Replacement Warrants and Replacement Options (the “Stock Exchange Approval”).
Pro Forma Ownership of the Resulting Issuer
Upon completion of the Transaction, it is estimated that the Exchange Ratio will result in EHT Shareholders and SKYE Stockholders owning approximately 46% and 54%, respectively, of the outstanding shares of the Resulting Issuer. No current holder of EHT Shares, other than Emerald Health Sciences, Inc., is expected to own 5% or more of the outstanding common stock of the Resulting Issuer.
Stock Exchange Listing and Reporting Issuer Status
The SKYE Shares are currently quoted on the OTCQB under the symbol “SKYE”. SKYE will apply to list the SKYE Shares issuable under the Arrangement on the CSE and it is a condition of closing that SKYE will have obtained approval for this listing (subject to customary conditions). If the Arrangement is completed, SKYE intends to have the EHT Shares delisted from the CSE. SKYE expects that the SKYE Shares also will continue to be quoted on the OTCQB.
EHT Realization Process
On November 29, 2021, EHT announced that it was undertaking the EHT Realization Process. Pursuant to the Arrangement Agreement EHT is permitted to undertake the EHT Realization Process but is not obligated to complete any of the actions of the EHT Realization Process. See "Information Concerning EHT - EHT Realization Process" for further information on the EHT Realization Process. The implementation of the EHT Realization Process and the specific actions or steps taken by EHT set out in respect of the EHT Realization Process of the Arrangement Agreement will not be considered in determining whether a representation or warranty of EHT hereunder has been breached. Subsequent to the date of the Arrangement Agreement EHT will not take any action in connection with the EHT Realization Process other than such steps or actions as are reasonably necessary to effect the EHT Realization Process set out in the Arrangement Agreement, without the prior written consent or approval of SKYE, acting reasonably, taking into account regulatory, tax and operational considerations, and shall not take any such action which is contrary to law or requires the consent or approval of any third party or Governmental Authority without first obtaining such consent or approval. In completing the EHT Realization Process, EHT has agreed to (a) consult with SKYE on the structuring of any transaction proposed pursuant to the EHT Realization Process; (b) provide SKYE a reasonable opportunity to review and provide comments and input on any agreement and the terms of any arrangement which will form part of the EHT Realization Process prior to the execution of such agreement and give due consideration to any such comments and input, acting reasonably; (c) use reasonable efforts to complete any transaction in a tax efficient manner including taking into consideration the tax attributes of both EHT and SKYE including following completion of the Arrangement; and (d) take into consideration regulatory, tax and operational considerations of both EHT and SKYE, including following completion of the Arrangement, including, pursuant to comments or input from SKYE, in proceeding with any transaction which forms the part of the EHT Realization Process.
The Arrangement Agreement
The Arrangement Agreement provides for, among other things, the conditions that need to be satisfied or waived prior to the filing of the Articles of Arrangement and the implementation of the Plan of Arrangement. The following is a summary of certain terms of the Arrangement Agreement and is qualified in its entirety by the full text of the Arrangement Agreement, a copy of which is attached to this proxy statement as Appendix A and is available on EDGAR at www.sec.gov under SKYE’s EDGAR profile. Covenants, Representations and Warranties
Conditions to the Arrangement
The obligations of EHT and SKYE to complete the Arrangement are subject to the satisfaction or waiver of certain conditions set out in the Arrangement Agreement which are summarized in this proxy statement. These conditions include, among other things, obtaining the EHT Shareholder Approval and the SKYE Disinterested Shareholder Approval, the Final Order and the Required Regulatory Approvals and the absence of a Material Adverse Effect with respect to EHT and SKYE. See “The Arrangement Agreement and Related Agreements - Conditions to Completion of the Arrangement” for additional information.
Non-Solicitation Provisions
Each of EHT and SKYE is subject to restrictions on its ability to solicit proposals from third parties with respect to Acquisition Proposals, to provide non-public information to, or to participate or engage in discussions or negotiations with third parties or take certain other actions regarding any Acquisition Proposal, with customary exceptions for unsolicited Acquisition Proposals in the event, among other things, that such Party’s board of directors determines in good faith that such Acquisition Proposals are, or could reasonably be expected to lead to, a Superior Proposal. See “The Arrangement Agreement and Related Agreements - Covenants Regarding Non-Solicitation” for additional information. Termination - Termination of the Arrangement Agreement
The Arrangement Agreement contains certain termination rights for each of EHT and SKYE, subject to certain limitations on termination set out in the Arrangement Agreement and in certain circumstances the payment of the EHT Termination Amount or the SKYE Termination Amount, as applicable, including but not limited to the right of either Party to terminate in the event that: (a) the Arrangement has not occurred on or before the Outside Date, which Outside Date may be extended for up to 45 days in the event that the Required Regulatory Approvals have not been obtained; (b) no Law being in effect that makes the Transaction illegal or otherwise prevents the Parties from completing the Transaction, (c) the approval of the EHT Resolution by EHT Shareholders is not obtained; (d) the approval of the SKYE Resolutions by SKYE Stockholders is not obtained; (e) there is an EHT Change in Recommendation; (f) there is a SKYE Change in Recommendation, or (g) it enters into a written agreement with respect to a Superior Proposal. See “The Arrangement Agreement and Related Agreements - Termination” for additional information. Termination - Termination Amount
The obligations of EHT and SKYE to consummate the Arrangement are subject to certain conditions, including, but not limited to, (a) obtaining the Final Order, (b) obtaining the EHT Shareholder Approval and the SKYE Stockholder Approval, (c) the Required Regulatory Approvals having been obtained, (d) no Law being in effect that makes the Transaction illegal or otherwise prevents the parties from completing the Transaction, (e) no Material Adverse Effect having occurred in respect of the other Party, (f) subject to certain materiality exceptions, the accuracy of the representations and warranties of the other Party, and (g) the performance in all material respects by the other Party of its covenants under the Arrangement Agreement.
A termination amount of C$500,000 is payable in certain circumstances. These include if (i) the Arrangement Agreement is terminated by either Party (A) due to a Change in Recommendation by the other Party; (B) if the other Party is in material breach of its non-solicitation covenants under the Arrangement Agreement; (ii) the Arrangement Agreement is terminated by the other Party to enter into an agreement with respect to a Superior Proposal; or (iii) the other Party is unable to obtain shareholder approval or has committed a willful breach of its representations, warranties or covenants and (A) prior to such termination, an Acquisition Proposal was publicly announced for the other party, and (B) within 12 months of the termination of the Arrangement Agreement, the other party completes an Acquisition Proposal or enters into an Acquisition Proposal and such Acquisition Proposal is subsequently completed (provided that the term “Acquisition Proposal” in this paragraph has the meaning given to such term in this Proxy statement except that a reference to “20 per cent” should instead refer to “50 per cent”). See “The Arrangement Agreement and Related Agreements - Termination Amounts” for additional information. Procedure for the Arrangement to Become Effective
The Arrangement will be implemented by way of a Court approved Plan of Arrangement under the BCBCA pursuant to the terms of the Arrangement Agreement. The following procedural steps must be taken in order for the Arrangement to become effective:
•the Arrangement must be approved by the EHT Shareholders in the manner set forth in the Interim Order;
•the Court must grant the Final Order approving the Arrangement; and
Effect of the Arrangement
If the EHT Resolution is passed, the SKYE Disinterested Shareholder Approval is obtained and all other conditions to closing of the Arrangement are satisfied or waived and the Arrangement is completed, among other things, SKYE will acquire all of the issued and outstanding EHT Shares and EHT will become a wholly-owned subsidiary of SKYE.
Pursuant to the Arrangement, each EHT Shareholder (other than EHT Dissenting Shareholders) will receive, for each EHT Share held, 1.95 SKYE Shares.
Board of Directors of the Resulting Issuer
The Arrangement Agreement and related documents provide that, after completion of the Transaction, the board of directors of the Resulting Issuer will consist of five members. The board of directors of the Resulting Issuer will include the four existing SKYE Board members, being Punit Dhillon (who is also presently a director of EHT), Dr. Praveen Tyle, Dr. Margaret Dalesandro and Dr. Keith Ward, and one of the present EHT Board members, being Bobby Rai, each of whom shall have applied to obtain security clearances as required by the Cannabis Act (Canada). See “Governance and Management of the Resulting Issuer - Board of Directors of the Resulting Issuer” for additional information. Mr. Dhillon will be the chairman of the board of directors of the Resulting Issuer.
Executive Officers and Principal Offices of Resulting Issuer
The Meeting
The purpose of the SKYE Meeting is for SKYE Stockholders to consider and vote on a proposal to approve the Arrangement Proposal, the ESPP Proposal, the Incentive Plan Proposal, the Independent Registered Public Accountants Proposal and the Adjournment Proposal.
The SKYE Board recommends that SKYE Stockholders vote FOR the Arrangement Proposal, the ESPP Proposal, the Incentive Plan Proposal, the Independent Registered Public Accountants Proposal and the Adjournment Proposal.
Anticipated Accounting Treatment
It is anticipated that the Arrangement will be accounted for by SKYE as either a financing transaction or an asset acquisition of EHT rather than as a business combination under ASC 805, Business Combinations.
Support Agreements
SKYE and certain holders of EHT Shares (the “EHT Support Agreement Shareholders”) have entered into support agreements (the “EHT Support Agreements”), pursuant to which the EHT Support Agreement Shareholders agreed, among other things, to vote their EHT Shares in favor of the approval of the Arrangement and against any alternative proposal. The EHT Support Agreements terminate upon the occurrence of certain events, including the termination of the Arrangement Agreement in accordance with its terms.
EHT and certain holders of SKYE Common Stock (the “SKYE Support Agreement Shareholders”) have entered into support agreements (the “SKYE Support Agreements”) pursuant to which the SKYE Support Agreement Shareholders agreed, among other things, to vote their shares of SKYE Common Stock in favor of the adoption of the Arrangement Agreement and against any alternative proposal. The SKYE Support Agreements terminate upon the occurrence of certain events, including the termination of the Arrangement Agreement in accordance with its terms.
No Fractional Shares
In no event shall any EHT Shareholder be entitled to a fractional SKYE Share. Where the aggregate number of SKYE Shares to be issued to an EHT Shareholder as Consideration under the Arrangement would result in a fraction of a SKYE Share being issuable, the number of SKYE Shares to be received by such EHT Shareholder shall be rounded down to the nearest whole SKYE Share.
Risk Factors
RISK FACTORS
The following risk factors should be considered by SKYE Stockholders in evaluating whether to approve the Arrangement Proposal. These risk factors should be considered in conjunction with the other information contained in or incorporated by reference into this proxy statement. These risk factors relate to the Arrangement. For information on risks and uncertainties relating to the business of SKYE, see the risks described in Part I, Item A, “Risk Factors” in SKYE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 28, 2022 and the section of this proxy statement entitled “Additional Information Concerning SKYE and Documents Incorporated by Reference by SKYE”. Risks Related to the Arrangement
Conditions precedent to closing of the Arrangement
The completion of the Arrangement is subject to a number of conditions precedent, some of which are outside SKYE’s control, including receipt of the Final Order, receipt of EHT Shareholder Approval, receipt of SKYE Disinterested Shareholder Approval and receipt of Required Regulatory Approvals.
In addition, the completion of the Arrangement by EHT and SKYE is conditional on, among other things, no Material Adverse Effect having occurred, or having been disclosed to the public (if previously undisclosed to the public) in respect of the other Party.
There can be no certainty, nor can SKYE provide any assurance, that all conditions precedent to the Arrangement will be satisfied or waived, or, if satisfied or waived, when they will be satisfied or waived and, accordingly, the Arrangement may not be completed. If the Arrangement is not completed, the market price of SKYE Shares may be adversely affected.
The Regulatory Approvals may not be obtained or, if obtained, may not be obtained on a favorable basis
To complete the Arrangement, each of EHT and SKYE must make certain filings with and obtain certain consents and approvals from various governmental and regulatory authorities. The Required Regulatory Approvals have not been obtained yet. The regulatory approval processes may take a lengthy period of time to complete, which could delay the completion of the Arrangement. If obtained, the Required Regulatory Approvals may be conditioned, with the conditions imposed by the applicable Governmental Entity not being acceptable to either EHT or SKYE, or, if acceptable, not being on terms that are favorable to the Resulting Issuer. There can be no assurance as to the outcome of the regulatory approval processes, including the undertakings and conditions that may be required for approval or whether the Regulatory Approvals will be obtained. If not obtained, or if obtained on terms that are not satisfactory to either EHT or SKYE, the Arrangement may not be completed.
Market price of the SKYE Shares
If, for any reason, the Arrangement is not completed or its completion is materially delayed and/or the Arrangement Agreement is terminated, the market price of SKYE Shares may be materially adversely affected. Depending on the reasons for terminating the Arrangement Agreement, SKYE’s business, financial condition or results of operations could also be subject to various material adverse consequences, including as the result of paying the EHT Termination Amount, or the expenses related to the transaction.
Termination in certain circumstances
Each of EHT and SKYE has the right, in certain circumstances, in addition to termination rights relating to the failure to satisfy the conditions of closing, to terminate the Arrangement. Accordingly, there can be no certainty, nor can SKYE provide any assurance that the Arrangement will not be terminated by either EHT or SKYE prior to the completion of the Arrangement. In addition, if the Arrangement is not completed by the Outside Date (subject to the right of either Party to extend such Outside Date by up to an additional 45 days if the Required Regulatory Approvals have not been obtained by such date as further described in the Arrangement Agreement), either EHT or SKYE may choose to terminate the Arrangement Agreement. The Arrangement Agreement also includes termination amounts payable if the Arrangement Agreement is terminated in certain circumstances.
The Termination Amounts provided under the Arrangement Agreement may discourage other parties from attempting to acquire SKYE or EHT
Under the Arrangement Agreement, each of EHT and SKYE is required to pay to the other a termination amount of C$500,000 in the event the Arrangement Agreement is terminated in connection with entry into a Superior Proposal. This
termination amount may discourage other parties from attempting to acquire SKYE Shares or otherwise make an Acquisition Proposal to SKYE, even if those parties would be willing to offer SKYE Stockholders a benefit greater than what the Transaction offers.
Uncertainty surrounding the Arrangement
As the Arrangement is dependent upon receipt, among other things, of the Required Regulatory Approvals and satisfaction of certain other conditions, its completion is uncertain. If the Arrangement is not completed for any reason, there are risks that the announcement of the Arrangement and the dedication of SKYE’s resources to the completion thereof could have a negative impact on their respective relationships with their stakeholders and could have a material adverse effect on the current and future operations, financial condition and prospects of SKYE.
In addition, SKYE will incur significant transaction expenses in connection with the Arrangement, regardless of whether the Arrangement is completed.
Restrictions from pursuing business opportunities
SKYE is subject to customary non-solicitation provisions under the Arrangement Agreement, pursuant to which, the Parties are restricted from soliciting, initiating or knowingly encouraging any Acquisition Proposal, among other things. The Arrangement Agreement also restricts them from taking specified actions until the Arrangement is completed without the consent of the other Party. These restrictions may prevent SKYE from pursuing attractive business opportunities that may arise prior to the completion of the Arrangement.
Risks associated with a fixed exchange ratio
The Exchange Ratio is fixed and will not increase or decrease due to fluctuations in the market price of EHT Shares or SKYE Shares. The market price of EHT Shares or SKYE Shares could each fluctuate significantly prior to the Effective Date in response to various factors and events, including, without limitation, as a result of the differences between EHT’s and SKYE’s actual financial or operating results and those expected by projections or recommendations, changes in general economic or market conditions, and broad market fluctuations. There can be no assurance that the trading price of SKYE Shares will not decline following the completion of the Arrangement.
Risks associated with securities litigation related to the Arrangement Agreement
Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions. SKYE and EHT may become involved in this type of litigation in connection with the Transaction, and the Resulting Issuer may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of the Resulting Issuer.
The foregoing risks or other risks arising in connection with the failure of the Arrangement, including the diversion of management attention from conducting the business of SKYE, may have a material adverse effect on SKYE’s business operations, financial results and share price.
Risks Related to the Resulting Issuer
Following the closing, the business of the Resulting Issuer will be the current business of SKYE. The business and operations of the Resulting Issuer will be subject to the risks described in the documents of SKYE incorporated by reference in this proxy statement, including, without limitation, the risks described in SKYE’s Annual Report filed on Form 10-K for the year ended December 31, 2021, and certain unexpected, unforeseen or unknown risks. The Resulting Issuer’s business, financial condition, results of operations and cash flows could be materially adversely affected by any of these risks. The market or trading price of SKYE’s securities could decline due to any of these risks. Additional risks not presently known to SKYE or that SKYE currently considers immaterial may also prove to be material and may impair the SKYE’s continued business and operations. In addition to risks associated with SKYE’s business and operations, the following additional risks are associated with the Resulting Issuer.
Risks related to the wind-down of EHT’s operations
The Resulting Issuer intends to continue to wind down the operations of EHT and focus on the business of SKYE following the closing. The ability to realize the benefits of the Arrangement may depend in part on successfully winding down the operations of EHT, including, but not limited to: the sale of EHT facilities at terms favorable to SKYE, the timely termination of obsolete contracts, the implementation of cost-cutting measures necessary to maximize the remaining asset
balance, the effective management of the termination of remaining personnel and related severance payments, the implementation of a successful transition plan, which includes the effective cessation of regulatory requirements related to operating in the cannabis industry and the successful migration of historical data.
Other risks resulting from the EHT assets and discontinued operations that could diminish the assets being acquired by SKYE include unforeseen expenses, liabilities, or potential off-balance sheet liabilities.
The difficulties that management of the Resulting Issuer encounters in the transition, integration and wind-down processes could have an adverse effect on the level of expenses, and operating results of the Resulting Issuer. As a result of these factors, it is possible that any anticipated benefits from the Arrangement will not be realized.
The issuance and future sale of SKYE Shares could affect the market price
SKYE currently expects to issue and make available for issuance at the Effective Time an aggregate of 416,270,585 SKYE Shares. The issuance of these shares, and the sale of SKYE Shares in the public market from time to time, could depress the market price for SKYE Shares.
Highly Regulated Industry and Evolving Regulatory Landscape
EHT operates in a highly regulated and rapidly evolving market. The laws, regulations and guidelines generally applicable to the cannabis industry domestically and internationally may change in ways currently unforeseen. EHT’s operations are subject to a variety of laws, regulations, guidelines and policies, whether in Canada, the United States or elsewhere, relating to the cultivation, manufacture, import, export, management, transportation, storage, packaging/labeling, advertising and promotion, sale, health and safety and disposal of cannabis, including, but not limited to, the Cannabis Act (Canada), any regulations thereunder, and laws, regulations, guidelines and policies relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment, and applicable stock exchange rules and regulations.
Additionally, because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry that are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property is never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture. As EHT is a participant in the cannabis industry, if the assets of EHT are ultimately seized by law enforcement and subsequent civil asset forfeiture, this could have a material adverse effect on SKYE’s business operations, financial results and share price.
Risks related to security clearances for directors and officers of the Resulting Issuer
One or more of the Resulting Issuer’s Canadian subsidiaries will hold licenses pursuant to the Cannabis Act. The Cannabis Act and the Cannabis Regulations require several individuals to hold a valid security clearance, including directors, officers, and large shareholders of a licensee, including officers and directors of those companies who can exert direct control over a licensee, and those employees who hold key positions within a licensee as specified by the Minister. Under the Cannabis Regulations, the Minister may refuse to grant security clearances to individuals with associations to organized crime or with past convictions for, or an association with, drug trafficking, corruption, or violent offenses. Individuals who have histories of nonviolent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants) are not precluded from participating in the legal cannabis industry in Canada, and the grant of security clearance to such individuals is at the discretion of the Minister and such applications are reviewed on a case-by-case basis.
There is no assurance that any of our existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by an employee to maintain or renew his or her security clearance may impair our licensees’ operations. Further, if an employee with security clearance leaves, an inability to find a suitable replacement who has a security clearance required by the Cannabis Act in a timely manner, or at all, may also impair our licensees’ operations.
The Resulting Issuer might be involved in litigation claims and legal proceedings.
The Resulting Issuer may become party to litigation from time to time in the ordinary course of business which could adversely affect its business. Should any litigation in which the Resulting Issuer becomes involved be determined against the Resulting Issuer, such a decision could adversely affect the Resulting Issuer’s ability to continue operating and the market price for its shares and could use significant resources. Even if the Resulting Issuer is involved in litigation and wins, litigation can redirect significant resources.
THE ESPP PROPOSAL
Background and Proposed Share Request
The ESPP authorizes for issuance 28,000,000 shares of SKYE Common Stock. This initial share reserve represents less than 5.65% of outstanding shares of SKYE Common Stock on August 10, 2022. The number of shares reserved for issuance under the ESPP will increase on January 1st of each calendar year beginning in 2023 and ending in and including 2032 by an amount equal to the lesser of (a) 0.5% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the SKYE Board. We cannot precisely predict our share usage under the ESPP as it will depend on a range of factors including the level of employee participation, the contribution rates of participants, the trading price of SKYE Common Stock and future hiring activity.
SKYE operates in a highly competitive and challenging marketplace in which its success depends to a great extent on its ability to attract and retain high-caliber employees. If approved, the ESPP is expected to be a significant part of SKYE’s overall equity compensation strategy, especially with respect to SKYE’s non-executive employees. SKYE believes that offering the ESPP is important to its ability to maintain competitiveness. By providing eligible employees with a convenient means of acquiring an equity interest in the Company through payroll deductions, we expect to enhance such employees’ sense of participation in the affairs of the Company and its participating subsidiaries and provide an incentive for continued employment.
Summary of the ESPP
A summary of the principal provisions of the ESPP is set forth below. The summary is qualified by reference to the full text of the ESPP, which is attached as Appendix C to this Proxy Statement. Purpose
The ESPP has been designed to assist SKYE’s eligible employees in acquiring a stock ownership interest in SKYE and to encourage our eligible employees to remain in our employment.
Components of the ESPP
The ESPP is comprised of two distinct components in order to provide increased flexibility to grant options to purchase shares under the ESPP. Specifically, the ESPP authorizes (1) the grant of options to U.S. employees that are intended to qualify for favorable U.S. federal tax treatment under Section 423 of the Code (the “Section 423 Component”) and (2) the grant of options that are not intended to be tax-qualified under Section 423 of the Code to facilitate participation for employees located outside of the U.S. who do not benefit from favorable U.S. federal tax treatment and to provide flexibility to comply with non-U.S. law and other considerations (the “Non-Section 423 Component”). The administrator of the ESPP, as described below under the heading “Administration,” currently intends to offer the Non-Section 423 Component to both U.S. and non-U.S. employees. Unless determined otherwise by the administrator, this Non-Section 423 Component will be operated on terms and conditions substantially similar to the Section 423 Component, except without the application of the $25,000 limit as discussed below under the heading “Participation in an Offering.”
Securities Subject to the ESPP
A total of 28,000,000 shares of SKYE Common Stock are initially reserved for issuance under the ESPP. This number will be increased on January 1st of each calendar year beginning in 2023 and ending in and including 2032 by a number of shares equal to the lesser of (a) 0.5% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by our Board, provided that in no event will the number of shares issued or transferred pursuant to rights granted under the ESPP exceed an aggregate of 50,275,000 shares.
Unless stockholder approval is obtained in accordance with Canadian securities law, the total number of shares, calculated on a fully diluted basis, available for issuance under the Non-Section 423 Component to participants in Canada who are directors or executive officers of the Company, or their associates or permitted assigns (collectively, “Related Persons”) may not exceed 10% of our outstanding securities, and may not exceed 5% of our outstanding securities per Related Person. If such stockholder approval is not obtained, the total number of shares, calculated on a fully diluted basis, issued under the Non-Section 423 Component within 12 months to Related Persons may not exceed 10% of our outstanding securities, or 5% of our outstanding securities per Related Person.
The number of shares subject to the ESPP may be adjusted for changes in our capitalization and certain corporate transactions, as described below under the heading “Adjustments.”
Administration
The SKYE Board or a committee of the SKYE Board will administer and will have authority to interpret the terms of the ESPP and determine eligibility of participants. The Compensation Committee of the Board of Directors will be the initial administrator of the ESPP.
Eligibility
The administrator may designate certain of our subsidiaries as participating “designated subsidiaries” in the ESPP and may change these designations from time to time. Employees of the Company and its participating designated subsidiaries are eligible to participate in the ESPP if they meet the eligibility requirements under the ESPP established from time to time by the administrator. However, an employee may not be granted rights to purchase shares under the ESPP if such employee, immediately after the grant, would own (directly or through attribution) shares possessing 5% or more of the total combined voting power or value of all classes of common shares or other classes of shares.
Eligible employees become participants in the ESPP by enrolling and authorizing payroll deductions by the deadline established by the administrator prior to the first day of the applicable offering period. Non-employee directors and consultants are not eligible to participate in the ESPP. Employees who choose not to participate, or are not eligible to participate at the start of an offering period but who become eligible thereafter, may enroll in any subsequent offering period.
As of August 10, 2022, SKYE had nine employees who were eligible to participate in the ESPP had the ESPP been in operation on such date and the subsidiaries for whom such employees work had been designated as participating subsidiaries under the ESPP.
Participation in an Offering
Offering Periods and Purchase Periods. SKYE Common Stock will be offered under the ESPP during offering periods. The length of the offering periods under the ESPP will be determined by the administrator and may be up to 27 months long. Employee payroll deductions will be used to purchase shares on each purchase date during an offering period. The purchase dates for each offering period will be the final trading day in the offering period. Offering periods under the ESPP will commence when determined by the administrator. The administrator may, in its discretion, modify the terms of future offering periods.
Enrollment and Contributions. The ESPP permits participants to purchase common stock through payroll deductions of up to a specified percentage of their eligible compensation. The administrator will establish a maximum percentage of eligible compensation each participant may elect for each offering period, and may change the maximum percentage prospectively. The administrator will also establish a maximum number of shares that may be purchased by a participant during any offering period. Unless established otherwise by the administrator, the maximum number of shares that may be purchased by a participant during any purchase period is 175,000 shares if there are two or more purchase periods in each offering period, or 350,000 shares if there is only one purchase period during each offering period. No employee will be permitted to accrue the right to purchase stock under the Section 423 Component at a rate in excess of $25,000 worth of shares during any calendar year in which such a purchase right is outstanding (based on the fair market value per share of our common stock as of the first day of the offering period). In non-U.S. jurisdictions where participation in the ESPP through payroll deductions is prohibited, the administrator may provide that an eligible employee may elect to participate through contributions to the participant’s account under the ESPP in a form acceptable to the administrator in lieu of or in addition to payroll deductions.
Purchase Rights. On the first trading day of each offering period, each participant will automatically be granted an option to purchase shares of our common stock. The option will expire at the end of the applicable offering period and will be exercised at that time to the extent of the payroll deductions accumulated during the offering period.
Purchase Price. The purchase price of the shares, in the absence of a contrary designation by the administrator, will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the final trading day of the offering period. The fair market value per share of SKYE Common Stock under the ESPP generally is the closing sales price of SKYE Common Stock as reported on the applicable securities market (the OTC Electronic Bulletin Board for U.S. participants or the Canadian Securities Exchange for participants in Canada) on the date for which fair market value is being determined, or if there is no closing sales price for a share of SKYE Common Stock on the date in question, the closing sales price for a share of common stock on the last preceding date for which such quotation exists. As of August 10, 2022, the closing price of a share of SKYE Common Stock was $0.03.
Withdrawal and Termination of Employment. Participants may voluntarily end their participation in the ESPP at any time during a specified period prior to the end of the applicable offering period and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation in the ESPP ends automatically upon a participant’s termination of employment.
Adjustments
In the event of certain non-reciprocal transactions or events affecting SKYE Common Stock, such as any stock dividend or other distribution, change in control, reorganization, merger, consolidation or other corporate transaction which affects the shares of our common stock such that an adjustment is determined by the administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits under the ESPP or with respect to any outstanding rights under the Plan, the administrator will make equitable adjustments to the ESPP and outstanding rights. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control, the administrator may provide for (1) except in the case of a Canadian participant, either the replacement of outstanding rights with other rights or property or termination of outstanding rights in exchange for cash, (2) the assumption or substitution of outstanding rights by the successor or survivor corporation or parent or subsidiary thereof, if any, (3) the adjustment in the number, kind and class of shares of stock subject to outstanding rights and/or in the terms and conditions of outstanding rights, (4) the use of participants’ accumulated payroll deductions to purchase stock on a new purchase date prior to the next scheduled purchase date and termination of any rights under ongoing offering periods or (5) the termination of all outstanding rights.
Transferability
A participant may not transfer rights granted under the ESPP other than by will or the laws of descent and distribution, and such rights are generally exercisable only by the participant.
Plan Amendment and Termination
The administrator may amend, suspend or terminate the ESPP at any time. However, stockholder approval will be obtained for any amendment that increases the aggregate number or changes the type of shares that may be sold pursuant to rights under the ESPP or changes the corporations or classes of corporations whose employees are eligible to participate in the ESPP.
Certain U.S. Federal Income Tax Consequences
The U.S. federal income tax consequences of the ESPP under current income tax law are summarized in the following discussion which deals with the general tax principles applicable to the ESPP, and is intended for general information only. Other federal taxes and foreign, state and local income taxes are not discussed, and may vary depending on individual circumstances and from locality to locality.
As described above, the ESPP has a Section 423 Component and a Non-Section 423 Component. The tax consequences for a participant will depend on whether the participant participates in the Section 423 Component or the Non-Section 423 Component. This summary assumes that the Section 423 Component complies with Section 423 of the Code.
Tax Consequences to U.S. Participants in the Section 423 Component
The Section 423 Component of the ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Section 423 of the Code. Under the applicable Code provisions, no income will be taxable to a participant until the sale or other disposition of the shares purchased under the ESPP. This means that an eligible employee will not recognize taxable income on the date the employee is granted an option under the ESPP. In addition, the employee will not recognize taxable income upon the purchase of shares. Upon such sale or disposition, the participant generally will be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the date of grant and more than one year from the date of purchase, or if the participant dies while holding the shares, the participant (or the participant’s estate) will recognize ordinary income measured as the lesser of (1) the excess of the fair market value of the shares at the time of such sale or disposition (or death) over the purchase price or (2) an amount equal to the applicable discount from the fair market value of the shares as of the date of grant. Any additional gain will be treated as long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for the difference between the sale price and the purchase price.
If the shares are sold or otherwise disposed of before the expiration of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price and SKYE will be entitled to a tax deduction for compensation expense in the amount of ordinary income recognized by the employee. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares were held following the date they were purchased by the participant prior to disposing of them. If the shares are sold or otherwise disposed of before the expiration of the holding periods described above but are sold for a price that is less than the purchase price, the participant will recognize ordinary income equal to the excess of the fair market value of the shares on the date of purchase over the purchase price (and SKYE will be entitled to a corresponding deduction), but the participant generally will be able to report a capital loss equal to the difference between the sales price of the shares and the fair market value of the shares on the date of purchase.
Tax Consequences to U.S. Participants in the Non-Section 423 Component
A participant in the Non-Section 423 Component will have compensation income equal to the value of the common stock on the day the participant purchased the common stock less the purchase price.
When a participant sells the common stock the participant purchased under the Non-Section 423 Component, the participant also will have a capital gain or loss equal to the difference between the sales proceeds and the value of the common stock on the day it was purchased. This capital gain or loss will be long-term if the participant held the common stock for more than one year and otherwise will be short-term.
SKYE is entitled to a deduction for amounts taxed as ordinary income to a participant to the extent of ordinary income recognized upon a purchase made under the Non-Section 423 Component.
New Plan Benefits
Benefits under the ESPP will depend on the employees’ enrollment and contribution elections, and the fair market value of the shares at various future dates. Therefore, it is not possible to determine the benefits that will be received in the future by participants in the ESPP.
Interest of Certain Persons in the ESPP
Stockholders should understand that our executive officers may be considered to have an interest in the approval of the ESPP because they may in the future be eligible to participate in the ESPP. Nevertheless, the SKYE Board believes that it is important to provide incentives and promote the retention of experienced officers by adopting the ESPP.
Board Recommendation
The SKYE Board unanimously recommends that you vote “FOR” the approval of the Skye Bioscience, Inc. 2022 Employee Stock Purchase Plan.
THE INCENTIVE PLAN PROPOSAL
On June 14, 2022, in anticipation of the closing of the transactions contemplated by the Arrangement, our Board unanimously approved the Skye Bioscience, Inc. Amended and Restated 2014 Omnibus Incentive (as amended, the “A&R 2014 Incentive Plan” or the “Plan”), subject to stockholder approval. The A&R 2014 Incentive Plan, among other things, amends the Company’s 2014 Omnibus Incentive Plan to (a) enable the issuance of equity awards in compliance with Canadian securities laws and the rules and regulations of the Canadian Stock Exchange, (b) fix the number of shares that can be issued under the A&R 2014 Incentive Plan to 91,219,570, provided that each January 1 beginning in 2023 and ending on (and including ) January 1, 2032 the number of shares will increase by 5% of the outstanding shares of Common Stock as of the prior December31, unless the Board decides to a lesser increase and (c) change the governing law section from California to Nevada. We are requesting that our stockholders approve the A&R 2014 Incentive Plan.
The Board originally approved the Company’s 2014 Omnibus Incentive Plan effective on October 31, 2014. The Company’s 2014 Omnibus Incentive Plan was subsequently amended in October 2018 and August 2020. The purpose of the A&R 2014 Incentive Plan is to promote our long-term success and the creation of stockholder value by (a) encouraging our employees, outside directors and consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of employees, outside directors and consultants with exceptional qualifications and (c) linking our employees, outside directors and consultants directly to stockholder interests through increased stock ownership.
We believe equity incentive compensation is a critical component to our compensation practices and allows us to incentivize our employees and more closely align their efforts with the creation of long-term stockholder value. In order to continue with our equity compensation practices, we feel it is important for stockholders to approve the A&R 2014 Incentive Plan.
Key Data
As of August 10, 2022, 37,755,000 options to purchase an aggregate of 37,755,000 shares of Common Stock were outstanding under the 2014 Omnibus Incentive Plan at exercise prices ranging from $0.04 to $0.31 per share, or a weighted average per share exercise price of $0.06; 106,250 shares of Common Stock have been issued under the 2014 Omnibus Incentive Plan; 4,000,000 restricted stock units (“RSUs”) have been issued under the 2014 Omnibus Incentive Plan and 13,764,595 shares of Common Stock were available for future issuance under the 2014 Omnibus Incentive Plan. As of August 10, 2022, the closing price per share of Skye’s Common Stock was $0.03 as reported on OTCQB.
Summary of the A&R 2014 Stock Incentive Plan
The following summary of the material features of the A&R 2014 Incentive Plan is qualified by reference to the terms of the A&R 2014 Incentive Plan, the full text of which is attached to this Proxy Statement as Appendix D. The A&R 2014 Incentive Plan has also been filed electronically with the SEC together with this Proxy Statement and can be accessed on the SEC’s website at www.sec.gov.
Material Terms of the Plan
The Plan permits flexibility in types of awards, and specific terms of awards, which will allow future awards to be based on then-current objectives for aligning compensation with increasing long-term shareholder value.
The Compensation Committee of the Board of Directors (the “Committee") will generally administer the Plan. The Committee has full power and authority to determine when and to whom awards will be granted, including the type, amount, form of payment and other terms and conditions of each award, consistent with the provisions of the Plan. In addition, the Committee has the authority to interpret the Plan and the awards granted under the Plan, and establish rules and regulations for the administration of the Plan.
The Committee may delegate certain administrative duties associated with the Plan to our officers, including the maintenance of records of the awards and the interpretation of the terms of the awards. Awards under the Plan may be granted to any person who is (i) an employee, (ii) a non-employee member of the Board or the board of directors of any of our subsidiaries, or (iii) a consultant who provides services to us or our subsidiaries, subject to applicable law. The Committee shall consider such factors as it deems pertinent in determining the type and amount of their respective awards. As of August 10, 2022, there were three non-employee directors, nine employees and four consultants who are eligible for awards under the Plan.
The Plan will terminate on June 14, 2032, unless all shares available for issuance have been issued, the Plan is earlier terminated by the Board , or the Plan is extended by an amendment approved by our shareholders. No awards may be made after the termination date. However, unless otherwise expressly provided in an applicable award agreement, any award
granted under the Plan prior to the termination date may extend beyond the end of such period through the award's normal expiration date. The maximum term of options granted pursuant to the Plan shall be no more than ten years from the date of grant.
As of August 10, 2022, the aggregate number of shares of the common stock authorized for issuance as awards (and incentive stock options) under the Plan is 49,592,511.
Unless security holder approval is obtained in accordance with applicable securities laws, the following limitations shall apply to the Plan and all awards granted under the Plan: (a) the number of securities, calculated on a fully diluted basis, reserved for issuance under the awards granted under the Plan to: (1) Related Persons (as defined in the Plan), shall not exceed 10% of the outstanding securities of the Company, or (2) a Related Person (as defined in the Plan), shall not exceed 5% of the outstanding securities of the Company; and (b) the number of securities, calculated on a fully diluted basis, issued within 12 months, to: (1) Related Persons (as defined in the Plan), shall not exceed 10% of the outstanding securities of the Company, or (2) a Related Person (as defined in the Plan), shall not exceed 5% of the outstanding securities of the Company.
Shares that were once subject to issuance upon the exercise or vesting of awards may again become available for future grants under the Plan if (i) an award is cancelled, forfeited, expired or terminated or (ii) shares of common stock are used to pay the exercise price or withholding taxes related to an award.
Under the Plan, the Committee can grant stock options, stock appreciation rights, restricted stock, stock units and performance units and other stock-based and cash-based awards. Subject to the limitations set forth in the Plan, the terms and conditions of each award shall generally be governed by the particular document or agreement granting the award. The terms and conditions set forth in an award agreement may include, as appropriate:
a.deemed issuance date;
b.expiration date;
c.number of shares covered by the award;
d.acceptable means of payment;
e.price per share payable upon exercise;
f.applicable vesting schedule;
g.individual performance criteria;
h.company or group performance criteria;
i.continued employment requirement; or
j.any other terms or conditions deemed appropriate by the Committee, in each case not inconsistent with the Plan
Stock Options and Stock Appreciation Rights. The holder of an option will be entitled to purchase a number of shares of common stock at an exercise price not less than 100% of the fair market value of a share on the date of grant during a specified time period, as determined by the Committee. The option exercise price shall be paid in cash or in such other form if and to the extent permitted by the Plan. Subject to applicable law, the exercise price of an option may be reduced without shareholder approval.
The holder of a stock appreciation right will be entitled to receive, in cash or stock (as determined by the Committee), value with respect to a specific number of shares equal to or otherwise based on the excess of the market value of a share at the time of exercise over the exercise price of the right.
Restricted Stock and Stock Units. The holder of restricted stock will own shares of common stock subject to restrictions imposed by the Committee and subject to forfeiture to us if the holder does not satisfy certain requirements (including, for example, continued employment with us) for a specified period of time. The holder of restricted stock units will have the right, subject to any restrictions imposed by the Committee, to receive shares of common stock, or a cash payment equal to the fair market value of those shares, at some future date determined by the Committee, provided that the holder has satisfied certain requirements (including, for example, continued employment with us until such future date).
Performance Awards. Performance stock or cash awards may be granted by the Committee at its sole discretion, upon the attainment of performance goals as set by the Committee.
Unless otherwise provided by the Committee, awards under the Plan may only be transferred by will or the laws of descent and distribution. The Committee may permit further transferability pursuant to conditions and limitations that it may impose, except that no transfers for consideration will be permitted.
In the event of any stock dividend, stock split, combination of shares, extraordinary dividend of cash and/or assets, recapitalization, reorganization or any similar event, the Committee is entitled to appropriately and equitably adjust the number and kind of shares or other securities which are subject to the Plan or subject to any award under the Plan.
Subject to any restrictive terms which may be set forth in award agreements, in the event we are a party to a merger or other reorganization, outstanding awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding awards by the surviving corporation or its parent, for their continuation by us (if we are a surviving corporation), for accelerated vesting and, except in the case of stock options issued to a participant that is a Canadian person, accelerated expiration, settlement in cash or settlement in cash equivalents.
The Board may generally amend or terminate the Plan as determined to be advisable. Shareholder approval may also be required for certain amendments pursuant to the Internal Revenue Code, the rules of any market in which we participate, or rules of the SEC. No amendment or alteration of the Plan may be made which would impair the rights of any participant under any outstanding award, without such participant's consent, provided that no consent is required with respect to any amendment or alteration if the Committee determines that such amendment or alteration is either:
a.required or advisable in order for us, the Plan or the award to satisfy any law or regulation or to meet the requirements of any accounting standard, or
b.not reasonably likely to significantly diminish the benefits provided under such award, or that any such diminishment has been adequately compensated.
U.S. Federal Income Tax Consequences
The following discussion of tax consequences relates only to U.S. federal income tax matters. The tax consequences of participating in the Plan may vary according to country of participation. Also, the tax consequences of participating in the Plan may vary with respect to individual situations and it should be noted that income tax laws, regulations and interpretations thereof change frequently. Participants should rely upon their own tax advisors for advice concerning the specific tax consequences applicable to them, including the applicability and effect of state, local and foreign tax laws.
Stock Options and Stock Appreciation Rights
Some of the options issued under the Plan are intended to constitute “incentive stock options” within the meaning of Section 422 of the Code, while other options granted under the Plan are non-qualified stock options. The Code provides for tax treatment of stock options qualifying as incentive stock options that may be more favorable to employees than the tax treatment accorded non-qualified stock options. Generally, upon the exercise of an incentive stock option, the optionee will recognize no income for U.S. federal income tax purposes, although the optionee may subsequently recognize income if the shares are disposed of prior to the holding period described below. The difference between the exercise price of the incentive stock option and the fair market value of the stock at the time of purchase is an item of tax preference that may require payment of an alternative minimum tax.
On the sale of shares acquired by exercise of an incentive stock option (assuming that the sale does not occur within two years following the date of grant of the option or within one year following the date of exercise), any gain will be taxed to the optionee as long-term capital gain. Except with respect to death or permanent and total disability (in which case the optionee has one year to exercise and obtain incentive stock option treatment), an optionee has three months after termination of employment in which to exercise an incentive stock option and retain incentive stock option tax treatment at exercise. An option exercised more than three months after an optionee’s termination of employment, including termination due to retirement, cannot qualify for the tax treatment accorded incentive stock options. Such option would be treated as a non-qualified stock option instead.
In contrast, upon the exercise of a non-qualified option, the optionee recognizes taxable income (subject to withholding) in an amount equal to the difference between the fair market value of the shares on the date of exercise and the exercise price. Upon any sale of such shares by the optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the non-qualified option will be treated generally as capital gain or loss.
Participants will not realize taxable income upon the grant of a stock appreciation right. Upon the exercise of a stock appreciation right, the participant will recognize ordinary income (subject to withholding by the Company) in an amount equal to the cash or fair market value of the shares of stock received on the date of exercise of the stock appreciation right. The participant will generally have a tax basis in any shares of stock received on the exercise of a stock appreciation right that equals the fair market value of such shares on the date of exercise. Subject to the limitations discussed below, the Company will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the participant under the foregoing rules.
Subject to the discussion below under “Certain Tax Code Limitations on Deductibility,” under rules applicable to U.S. corporations, no deduction is available to the employer corporation upon the grant or exercise of an incentive stock option (although a deduction may be available if the employee sells the shares so purchased before the applicable holding period
expires), whereas, upon exercise of a non -qualified stock option or stock appreciation right, the employer corporation is entitled to a deduction in an amount equal to the income recognized by the employee.
Stock Awards
A participant generally will not have taxable income upon the grant of stock awards, such as restricted stock or restricted stock units. Instead, he or she will recognize ordinary compensation income in the first taxable year in which his or her interest in the stock underlying the award becomes either (i) freely transferable or (ii) no longer subject to substantial risk of forfeiture. In general, a participant will recognize ordinary compensation income in an amount equal to the fair market value of the stock when it first becomes transferable or is no longer subject to a substantial risk of forfeiture, unless the participant makes an election to be taxed on the fair market value of the stock underlying the award when it is received.
An employee will be subject to withholding for federal, and generally for state and local, income taxes at the time the employee recognizes income under the rules described above with respect to an award of restricted stock or restricted stock units. The tax basis of a participant in the stock received will equal the amount recognized by the employee as compensation income under the rules described in the preceding paragraph, and the employee’s holding period in such shares will commence on the date income is so recognized. Upon later disposition of stock received that has been held for the requisite holding period, the employee will generally recognize capital gain or loss equal to the difference between the amount received in the disposition and the amount previously recognized as compensation income.
Subject to the discussion below under “Certain Tax Code Limitations on Deductibility,” we will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the participant under the foregoing rules to the extent the deduction is allocable to “effectively connected income” which is subject to U.S. federal income tax.
Certain Tax Code Limitations on Deductibility
Section 162(m), as amended by the Tax Cuts and Jobs Act (the “TCJA”), no longer provides for the exclusion of certain performance-based compensation from Section 162(m)’s $1 million limit on tax deductibility for compensation paid to “covered employees.” Accordingly, with respect to performance-based compensation granted or awarded after November 2, 2017, the availability of the exclusion under Section 162(m) is no longer a consideration with respect to deductibility structuring performance awards. The Committee may award compensation that is or may become non-deductible, and expects to consider whether it believes such grants are in the best interest of the Company, balancing tax efficiency with long-term strategic objectives.
Code Section 409A
Section 409A of the Code generally provides that any deferred compensation arrangement must satisfy specific requirements, both in operation and in form, regarding (1) the timing of payment, (2) the advance election of deferrals, and (3) restrictions on the acceleration of payment. Failure to comply with Section 409A may result in the early taxation (plus interest) to the participant of deferred compensation and the imposition of a 20% penalty on the participant on such deferred amounts included in the participant’s income. We intend to structure awards under the Plan in a manner that is designed to be exempt from or comply with Section 409A.
Code Section 457A
Section 457A of the Code has significantly changed the rules applicable to deferred compensation paid to U.S. persons by certain foreign corporations and other entities. We expect that stock options, stock-settled stock appreciation rights, restricted stock and restricted stock units granted under the Plan will be exempt from Section 457A. However, stock appreciation rights that may be settled in cash may be subject to Section 457A, as well as cash awards or stock units that are not paid within one year after vesting.
Section 457A requires that any compensation paid under a deferred compensation plan of a nonqualified entity must be included in the participant’s income at the time such amounts are no longer subject to a substantial risk of forfeiture. Therefore, stock appreciation rights that may be settled in cash as well as cash awards or stock units that are not paid within one year after vesting may result in income inclusion upon vesting, even though the participant has not exercised the stock appreciation right or received delivery of cash or shares of stock at that time. We currently intend to grant awards that are exempt from Section 457A.
Existing Plan Benefits – Awards to Certain Persons Granted as of August 10, 2022
The table below sets forth summary information concerning the number of shares of our common stock subject to stock options granted to certain persons under the Plan as of August 10, 2022.
| | | | | | | | | | | |
| 2014 Omnibus Incentive Plan |
| Name and Position | Value ($) | | Number of Options |
| | | | | | | | | | | |
| Punit Dhillon, Chief Executive Officer and Director | $ | 610,680 | | | 12,290,000 | |
| Kaitlyn Arsenault, Chief Financial Officer | 269,240 | | 3,770,000 | |
| All current executive officers as a group (2) persons | 879,920 | | 16,060,000 | |
| All current non-executive directors as a group (3) persons | 81,350 | | 925,000 | |
| All current non-executive officer employees as a group (1) persons | 172,040 | | 3,770,000 | |
No associates of our directors, executive officers and nominees hold awards under the Plan and no other person has received or is to receive 5% of such awards.
Equity Compensation Plan Information
The table below includes the following information as of August 10, 2022 for the Plan. Shares available for issuance under the Plan can be granted pursuant to stock options, stock appreciation rights, restricted stock, restricted stock unit awards, performance awards and other stock-based or cash-based awards, as selected by the plan administrator.
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of
securities to be
issued upon exercise
of outstanding
options and rights (a) | | Weighted-average
exercise price of
outstanding options
and rights | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a) |
| Equity compensation plans approved by security holders | | | | | | |
| Amended and Restated 2014 Omnibus Incentive Plan | | 41,755,000 | | | $ | 0.06 | | | 13,764,595 | |
As of August 10, 2022, 106,250 shares had been issued upon exercise of options granted under the Plan, options to purchase 37,755,000 shares were outstanding, and 13,764,595 shares remained available for future grant. As of August 10, 2022, 4,000,000 RSUs have been issued under the Plan.
Board Recommendation
The Skye Board recommends a vote “FOR” the proposal to approve the Amended and Restated 2014 Omnibus Incentive Plan.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS PROPOSAL
The Board has selected Friedman, LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2022 and has further directed that management submit the selection of independent registered public accountants for ratification by the stockholders at the SKYE Meeting.
Stockholder ratification of the selection of Friedman, LLP as the Company’s independent registered public accountants is not required by Nevada law, the Company’s amended and restated articles of incorporation, or the Company’s amended and restated bylaws. However, the Board is submitting the selection of Friedman, LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Board will reconsider whether to retain that firm. Even if the selection is ratified, the Board in its discretion may direct the appointment of different independent registered public accountants at any time during the year if the Board determines that such a change would be in the best interests of the Company and its stockholders.
The affirmative vote of the majority of the votes cast at the SKYE Meeting will be required to ratify the selection of Friedman LLP. An abstention or other failure to vote will have no effect on the outcome of the Independent Registered Public Accountants Proposal, so long as a quorum is present. The approval of this proposal is a routine proposal on which a
broker or other nominee has discretionary authority to vote. Accordingly, no broker non-votes will likely result from this proposal.
Independent Registered Public Accountants’ Fees
Professional services rendered by Friedman LLP for the audit of our annual consolidated financial statements included in our Annual Report on Form 10-K and quarterly reviews of the unaudited interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements commenced during the three-month period ending June 30, 2022. There have been no audit related fees, tax fees or any other fees charged by or paid to Friedman LLP to date.
Board Recommendation
The SKYE Board unanimously recommends that you vote “FOR” to ratify the selection of Friedman LLP as independent registered public accounting firm for the fiscal year ending December 31, 2022.
The affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote at the meeting will be required to ratify the selection of Friedman LLP. Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative votes. The approval of this proposal is a routine proposal on which a broker or other nominee has discretionary authority to vote. Accordingly, no broker non-votes will likely result from this proposal.
THE ADJOURNMENT PROPOSAL
If, at the SKYE Meeting, the SKYE Board determines it is necessary or appropriate to adjourn the SKYE Meeting to solicit additional proxies if there are not sufficient votes to approve the Arrangement Proposal, the ESPP Proposal, the Incentive Plan Proposal, or the Independent Registered Public Accountants Proposal, SKYE intends to move to vote on the Adjournment Proposal.
For example, the SKYE Board may make such a determination if the number of shares of Common Stock represented and voting in favor of the Arrangement Proposal at the SKYE Meeting is not sufficient to adopt and approve such proposal, as applicable, in order to enable the SKYE Board to solicit additional proxies in respect of such proposal. If the SKYE Board determines that it is necessary or appropriate, SKYE will ask its stockholders to vote upon the Adjournment Proposal and not the applicable proposals.
In this proposal, SKYE is asking you to authorize the holder of any proxy solicited by the SKYE Board to vote in favor of the Adjournment Proposal. If the SKYE stockholders approve the Adjournment Proposal, SKYE could adjourn the SKYE Meeting and any adjourned session of the SKYE Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously voted.
Among other things, approval of the Adjournment Proposal could mean that, even if SKYE had received proxies representing a sufficient number of votes against the aforementioned proposal to defeat such proposals, SKYE could adjourn the SKYE Meeting without a vote and seek to convince the holders of those shares to change their votes. Additionally, SKYE may seek to adjourn the SKYE Meeting if a quorum is not present or otherwise at the discretion of the chairman of the SKYE Meeting.
The SKYE Board recommends that you vote “FOR” the Adjournment Proposal.
GENERAL INFORMATION ABOUT THE SKYE MEETING AND VOTING
This proxy statement is being provided to SKYE Stockholders as part of a solicitation of proxies by the SKYE Board for use at the SKYE Meeting to be held at the time and place specified below and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement provides SKYE Stockholders with information they need to know to be able to vote or instruct their vote to be cast at the SKYE Meeting.
Date, Time and Place
The SKYE Meeting will be held online via live audio webcast on [●] at 9:00 a.m. (Pacific time).
The SKYE Meeting will be completely virtual and conducted via live audio webcast. SKYE Stockholders will be able to attend the SKYE Meeting by first registering at https://web.viewproxy.com/skye/2022. SKYE Stockholders will receive a meeting invitation by e-mail with such stockholders unique join link along with a password prior to the meeting date. SKYE Stockholders will be able to listen, vote and submit questions during the virtual meeting.
We have created and implemented the virtual format to facilitate stockholder attendance and participation by enabling stockholders to participate fully, and equally, from any location around the world, at no cost. However, you will bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies. A virtual meeting makes it possible for more stockholders (regardless of size, resources or physical location) to have direct access to information more quickly, while saving the company and our stockholders time and money, especially as physical attendance at meetings has dwindled. We also believe that the online tools we have selected will increase stockholder communication. For example, the virtual format allows stockholders to communicate with us in advance of, and during, the SKYE Meeting so they can ask questions of our board of directors or management. During the live Q&A session of the SKYE Meeting, we may answer questions as they come in and address those asked in advance, to the extent relevant to the business of the SKYE Meeting, as time permits.
Both stockholders of record and street name stockholders will be able to attend the SKYE Meeting via live audio webcast, submit their questions during the meeting and vote their shares electronically at the meeting. If you are a registered holder, your virtual control number will be on your proxy card. If you hold your shares beneficially through a bank, broker, or other nominee, you may attend the SKYE Meeting so long as you demonstrate proof of stock ownership. Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at https://web.viewproxy.com/skye/2022. If you hold your shares beneficially through a bank, broker or other nominee and wish to vote your shares at the SKYE Meeting, you must provide a legal proxy from your bank, broker or other nominee during registration and you will be assigned a virtual control number in order to vote your shares during the meeting. On the day of the SKYE Meeting, you may only vote during the meeting by e-mailing a copy of your legal proxy to VirtualMeeting@viewproxy.com in advance of the meeting.
There will be technicians ready to assist you with any technical difficulties you may have accessing the SKYE Meeting live audio webcast. Please be sure to check in by 8:00 a.m. (Pacific Time) on [●], the day of the SKYE Meeting, so that any technical difficulties may be addressed before the meeting live audio webcast begins. If you encounter any difficulties accessing the webcast during the check-in or meeting time, please email VirtualMeeting@viewproxy.com or call 866-612-8937.
SKYE intends to mail this proxy statement and the enclosed form of proxy to the SKYE Stockholders entitled to vote at the SKYE Meeting on or about [●].
Purpose of the SKYE Meeting
The SKYE Meeting is being called for the following purposes:
1.To consider and vote on a proposal to adopt the Arrangement Agreement, dated as of May 11, 2022, as amended on June 14, 2022 and July 15, 2022 (the “Arrangement Agreement”) between the Company and Emerald Health Therapeutics, Inc. (“EHT”), a copy of which is attached as Appendix A to the proxy statement, and to approve the transactions contemplated thereby, including the proposed arrangement (the “Arrangement”) involving, among other things, the acquisition by the Company of all of the outstanding EHT Shares (the “Arrangement Proposal”); 2.To consider and vote on a proposal to establish the Company’s 2022 Employee Stock Purchase Plan (the “ESPP”), a copy of which is attached as Appendix C to the proxy statement (the “ESPP Proposal”);
3.To consider and vote on a proposal to adopt and approve SKYE’s Amended and Restated 2014 Omnibus Incentive Plan (the “A&R 2014 Incentive Plan”), a copy of which is attached as Appendix D to the proxy statement (the “Incentive Plan Proposal”); 4.To consider and vote on a proposal for the ratification of the appointment of Friedman LLP as SKYE’s independent registered public accounting firm for the fiscal year end December 31, 2022 (the “Independent Registered Public Accountants Proposal”); and
5.To consider and vote on a proposal to adjourn the SKYE Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the Arrangement Proposal, the Incentive Plan Proposal, the ESPP Proposal or the Independent Registered Public Accountants Proposal (the “Adjournment Proposal”).
The Arrangement Proposal, the ESPP Proposal, the Incentive Plan Proposal, Independent Registered Public Accountants Proposal and the Adjournment Proposal are together referred to as the “SKYE Proposals”.
Recommendation of the SKYE Board
The SKYE Board unanimously recommends that SKYE Stockholders vote “FOR” the SKYE Proposals. Please note that it is a condition to closing the Arrangement that a majority of SKYE Shares outstanding and entitled to vote at the SKYE Meeting, other than the SKYE Shares held by (a) Emerald Health Sciences, Inc. or its affiliates, (b) directors or officers of EHT or SKYE and (c) any immediate family members (as defined in Item 404 of Regulation S-K) of any of the officers or directors of EHT or SKYE vote for the Arrangement Proposal (the “SKYE Disinterested Shareholder Approval”).
SKYE Stockholders should carefully read this proxy statement, including any documents incorporated by reference, and the appendices in their entirety for more detailed information concerning the Arrangement and the other transactions contemplated by the Arrangement Agreement.
Persons Entitled to Vote
Only registered SKYE Stockholders are entitled to vote at the SKYE Meeting. Each registered SKYE Stockholder has one vote for each SKYE Share held at the close of business on the Record Date. As of the Record Date, there were [●] SKYE Shares outstanding.
Record Date and Entitlement to Vote
Only holders of record of SKYE Common Stock at the close of business on [●], will be entitled to notice of, and to vote at, the SKYE Meeting or any adjournments or postponements thereof.
As of the Record Date, there were [●] shares of SKYE Common Stock outstanding and entitled to vote at the SKYE Meeting. Each share of SKYE Common Stock outstanding on the Record Date entitles the holder thereof to one vote on each proposal to be considered at the SKYE Meeting.
Solicitation of Proxies
This proxy statement is furnished by the board of directors of SKYE in connection with the solicitation of proxies for use at the SKYE Meeting to be held virtually at https://web.viewproxy.com/skye/2022 on [●], at 9:00 a.m. (Pacific time), and at any postponements or adjournments of the SKYE Meeting.
The solicitation of proxies by this proxy statement is being made by or on behalf of the board of directorsof SKYE. It is expected that the solicitation will be made primarily by mail, but proxies may also be solicited by telephone, over the internet or in writing. In addition, SKYE has retained the services of Alliance Advisors to solicit proxies for a fee of approximately $20,290, and SKYE has also agreed to reimburse out-of-pocket expenses of up to $3,000 and to indemnify it against certain liabilities arising out of or in connection with such engagement. The cost of the solicitation will be borne by SKYE.
Quorum
The presence at the SKYE Meeting, by remote participation or represented by proxy, of the holders of a majority of the voting power of the stock issued and outstanding and entitled to vote thereat as of the Record Date, will constitute a quorum for the transaction of business at the SKYE Meeting.
Required Vote
The vote required to approve all of the proposals listed herein assumes the presence of a quorum.
| | | | | | | | |
| No. | Proposal | Votes Necessary |
| 1. | Arrangement Proposal | It is a condition to closing the Arrangement that a majority of SKYE Shares outstanding and entitled to vote at the SKYE Meeting, other than the SKYE Shares held by (a) EHS or its affiliates, (b) directors or officers of EHT or SKYE and (c) any immediate family members (as defined in Item 404 of Regulation S-K) of any of the officers or directors of EHT or SKYE, vote for the Arrangement Proposal (the “SKYE Disinterested Shareholder Approval”).
An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the Arrangement Proposal, so long as a quorum is present. |
| | |
| 2. | ESPP Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the ESPP Proposal. An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the ESPP Proposal, so long as a quorum is present. |
| | |
| 3. | Incentive Plan Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the Incentive Plan Proposal. An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the Incentive Plan Proposal, so long as a quorum is present. |
| | |
| 4. | Independent Registered Public Accountants Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the Independent Registered Public Accountants Proposal.
An abstention or other failure to vote will have no effect on the outcome of the Independent Registered Public Accountants Proposal, so long as a quorum is present.
The approval of this proposal is a routine proposal on which a broker or other nominee has discretionary authority to vote. Accordingly, no broker non-votes will likely result from this proposal. |
| | |
| 5. | Adjournment Proposal | Approval requires the affirmative vote of a majority of votes cast at the SKYE Meeting on the Adjournment Proposal. An abstention, a broker non-vote or other failure to vote will have no effect on the outcome of the Adjournment Proposal. |
| | |
Abstentions will count for the purpose of determining the presence of a quorum for the transaction of business at the SKYE Meeting.
Registered SKYE Stockholders
If you are a registered SKYE Stockholder, there are two ways in which you can vote your SKYE Shares. You can either vote online at the SKYE Meeting or you can vote by proxy. As indicated on the form of proxy, you may vote your SKYE Shares by mail, phone or Internet following the instructions provided.
| | | | | |
| Internet: | Go to www.fcrvote.com/SKYE and enter the 11-digit control number printed on the enclosed SKYE proxy card to access and follow the instructions on the screen. Internet voting facilities for SKYE stockholders of record are available 24 hours a day. |
| |
| Phone: | Call the toll-free telephone number provided on the enclosed SKYE proxy card and following the prompted instructions. You will need to enter the 11-digit control number. Telephone voting facilities for SKYE stockholders of record are available 24 hours a day. |
| |
| Mail: | Complete, sign and date the enclosed SKYE proxy card and return your completed SKYE proxy card in the enclosed postage paid envelope provided to:
Alliance Advisors 200 Broadacres Drive 3rd Floor Bloomfield, NJ 07003 |
| |
| Virtually at the Meeting: | Registered SKYE Stockholders can vote at the appropriate times by completing a ballot online during the SKYE Meeting. It is anticipated that once voting has opened during the SKYE Meeting, the proposals and voting choices will be displayed and you will be able to vote by selecting your voting choices from the options shown on the screen. You must click submit for your vote to be counted. |
Whether you vote by internet, phone, or mail, your SKYE proxy card must be received no later than 11:59 pm on [●] (Pacific Time). We strongly urge you to vote in advance by proxy by signing and dating the enclosed SKYE proxy card and returning it in the postage-paid envelope provided or by voting via the internet or by telephone before the SKYE Meeting by following the instructions provided on the enclosed SKYE proxy card and above.
If you are a SKYE Stockholder and would like to examine the complete list of SKYE Stockholders entitled to vote at the SKYE Meeting, please contact SKYE’s Investor Relations department at (858) 410-0266, by email at ir@skyebioscience.com, or by going to SKYE’s Investor Relations page on its website at https://ir.SKYE.com/investor-relations and clicking on the link titled “Financial Info” to make alternate arrangements. A complete list of SKYE Stockholders entitled to vote at the SKYE Meeting will also be available for inspection during the SKYE Stockholder through the virtual meeting website.
Beneficial SKYE Stockholders
If your SKYE Shares are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your SKYE Shares without instructions from you. Brokers are not expected to have discretionary authority to vote for any of the proposals. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker. Many brokers solicit voting instructions over the Internet or by telephone.
As the beneficial owner, you are also invited to attend the SKYE Meeting. However, you may not vote shares held in street name during the meeting unless you obtain a proxy, executed in your favor, from the holder of record (i.e., your broker).
Voting of Proxies
If you have properly filled out, signed and delivered your proxy, then your proxyholder can vote your SKYE Shares for you at the SKYE Meeting. The SKYE Shares represented by the proxy will be voted or withheld from voting in accordance with the instructions of the SKYE Stockholder on any ballot that may be called for and, if the SKYE Stockholder specifies a choice with respect to any matter to be acted upon, the SKYE Shares will be voted accordingly. If a choice is not so specified with respect to any such matter, and the persons named in the enclosed form of proxy have been appointed as proxyholder, the SKYE Shares represented by such proxy will be voted FOR the SKYE Proposals.
The enclosed form of proxy confers discretionary authority upon the proxy nominee with respect to any amendments or variations to the matters identified in the Notice of SKYE Meeting and any other matters which may properly come before the SKYE Meeting. If any such amendments or variations are proposed to the matters described in the Notice of SKYE Meeting or if any other matters properly come before the SKYE Meeting, the proxyholder may vote your SKYE Shares as he or she considers best. The SKYE Board is not currently aware of any amendments to the matters to be presented for action at the SKYE Meeting or of any other matters to be presented for action at the SKYE Meeting.
Revocation of Proxies
A registered SKYE Stockholder who has submitted a proxy may revoke it at any time prior to it being exercised. If the SKYE Stockholder is a registered holder, the SKYE Stockholder can do this in one of three ways: First, before the SKYE Meeting, deliver a signed notice of revocation of proxy to the Secretary of SKYE at the address specified below. Second, complete and submit a later-dated SKYE proxy card. Third, attend the SKYE Meeting and vote at the meeting. Attendance at the SKYE Meeting alone will not revoke a previous proxy; rather, the registered SKYE Stockholder must also vote at the SKYE Meeting in order to revoke the previously submitted proxy.
To change proxy directions by mail, SKYE Stockholders should send any notice of revocation or a completed new SKYE proxy card, as the case may be, to SKYE’s proxy advisor at the following address:
Alliance Advisors
200 Broadacres Drive
3rd Floor
Bloomfield, NJ 07003
If you have instructed a broker to vote your shares and wish to change your vote, you must follow directions received from your broker to change those instructions.
Shares Beneficially Held by Principal Holders of Securities and Directors and Executive Officers
On the Record Date, there were [●] outstanding SKYE Shares. Each SKYE Share carries the right to one vote.
On the Record Date, directors and executive officers of SKYE and their affiliates beneficially owned and had the right to vote 1,000,000 SKYE Shares, representing less than 1% of the total outstanding SKYE Shares.
DESCRIPTION OF THE ARRANGEMENT
Background to the Arrangement
On May 11, 2022, EHT and SKYE entered into the Arrangement Agreement, which sets out the terms and conditions for implementing the Arrangement. The Arrangement Agreement is the result of extensive arm’s length negotiations among the SKYE Special Committee and the EHT Special Committee and their respective legal and financial advisors. The following is a summary of the principal events leading up to the execution and public announcement of the Arrangement Agreement.
The SKYE Board and SKYE senior management team regularly review and consider SKYE’s long-term strategic plans and objectives, including business combinations, acquisitions, and other strategic opportunities. As part of this ongoing evaluation, the SKYE Board, together with SKYE’s senior management team, has from time to time considered various opportunities to enhance stockholder value, including the possibility of a strategic combination with other companies.
On October 26, 2021, SKYE’s Chief Executive Officer, Mr. Dhillon, met with the SKYE Board in the Company’s standard quarterly board meeting and discussed the merits and strategic rationale for a potential transaction with EHT. It was noted in this discussion that a transaction with EHT could add value to SKYE by being an efficient way to acquire the necessary funding and working capital to support the development of SBI-100 through Phase 2 clinical development. Representatives of SKYE’s outside legal counsel, Morrison & Foerster LLP reviewed with the SKYE Board certain legal matters, including the SKYE Board’s fiduciary duties in relation to a potential acquisition of EHT.
Following discussion, the SKYE Board determined it to be in the best interests of SKYE and its stockholders to establish a special committee (the “SKYE Special Committee”) consisting of independent SKYE directors to consider and negotiate a potential transaction with EHT, as two of the SKYE directors, Mr. Dhillon and Jim Heppell, were also directors of EHT. For additional information on the interests of the directors and officers of SKYE in the Transaction, please see the section in this proxy statement entitled “Description of the Arrangement - Interests of Directors and Management in the Arrangement”.
On the same day, the SKYE Special Committee was formed and Dr. Margaret Dalesandro and Dr. Praveen Tyle were appointed as the members of the SKYE Special Committee, each of whom were determined to be an independent board member and disinterested with respect to any transaction with EHT. Dr. Praveen Tyle was appointed as the chairman of the SKYE Special Committee. The SKYE Board also determined that, in the event that SKYE were to proceed with a potential acquisition of EHT, the consummation of such acquisition would be conditioned on the approval of a majority of disinterested SKYE Stockholders voting on the transaction.
On November 16, 2021, following execution of a mutual CDA, the EHT Chief Executive Officer, Riaz Bandali, and Mr. Dhillon, engaged in a discussion as to whether SKYE and EHT would benefit in pursuing a strategic transaction with each other, as EHT was evaluating strategic alternatives outside of its core business. On November 17th and 18th the parties discussed the merits of a strategic transaction and Mr. Dhillon presented SKYE’s clinical development strategy of its lead candidate SBI-100 to EHT management.
On November 21, 2021, EHT engaged Vantage Point Advisors (“Vantage Point”), financial advisor to EHT, to assist it in identifying potential acquisition or merger candidates involved in the pharmaceutical development of cannabinoids. Following this engagement, Vantage Point reached out to SKYE’s Special Committee Chair, Dr. Tyle, to further discuss a potential strategic transaction between SKYE and EHT.
On December 14, 2021, Dr. Keith Ward was appointed as a member of the SKYE Board and as a member of the SKYE Special Committee.
From December 17, 2021 to February 16, 2022, the SKYE Special Committee and its advisors, including its legal advisors Fasken Martineau DuMoulin LLP (“Fasken”), performed a preliminary due diligence review of EHT and its assets. Between February 16, 2022, and May 11, 2022, representatives of SKYE and EHT, and their respective advisors, participated in numerous due diligence sessions on SKYE and EHT’s respective business and legal, financial and regulatory matters.
Following completion of its initial due diligence, including a review of EHT’s net asset value, costs associated with winding down the operations of EHT, and comparable transactions, and with the assistance of its outside legal advisors, SKYE prepared an initial draft of a non-binding term sheet (the “Term Sheet”) regarding a strategic transaction between the two companies. On December 17, 2021, Skye sent an initial draft of the Term Sheet to EHT.
Late in January 2022, the SKYE Special Committee received a revised draft of the Term Sheet from EHT. Following delivery of the revised Term Sheet to Skye, the EHT Special Committee and EHT management had extensive discussions and negotiations with the SKYE Special Committee and SKYE management and further revised versions of the Term Sheet were exchanged by the parties.
On February 18, 2022, EHT and SKYE executed the Term Sheet. The Term Sheet provided, among other things, for an exclusivity period expiring April 18, 2022 during which EHT would not be permitted to take any actions with respect to potential alternative transactions, provided that EHT was permitted to continue to take actions to dispose of its cannabis related assets. As a result, EHT and SKYE ceased all discussions with other parties regarding a potential business combination.
Following the execution of the Term Sheet, the SKYE Special Committee and SKYE management, with the assistance of its advisors, conducted a comprehensive due diligence review of EHT’s assets and financial condition. A number of formal and informal meetings and presentations took place between EHT and its advisors and SKYE and its advisors, during which information regarding SKYE and its business, assets, and financial condition was provided to EHT and information regarding EHT and its business, assets, and financial condition was provided to SKYE.
On March 10, 2022, the SKYE Special Committee met to discuss the proposed transaction, including the status of ongoing operational, legal, tax and financial due diligence of EHT.
A draft of the Arrangement Agreement was provided by legal counsel to SKYE to legal counsel to EHT on March 11, 2022.
On March 15, 2022, the SKYE Special Committee met to discuss the proposed transaction, including the status of ongoing operational, legal, tax and financial due diligence of EHT.
A revised Arrangement Agreement was provided by legal counsel to EHT to legal counsel for SKYE on March 19, 2022. Following receipt, on March 24, 2022, the SKYE Special Committee and its advisors met to discuss the revised Arrangement Agreement and ongoing operational, legal, tax and financial due diligence of EHT.
On March 30, 2022, legal counsel for EHT sent to legal counsel for SKYE a form of support agreement (the “EHT Support Agreement”) to be entered into by SKYE and certain EHT Shareholders in connection with the Arrangement Agreement providing for such shareholders to agree to vote their shares in favour of the Arrangement Agreement and not to vote their shares in any way that may delay, prevent, interfere, or impede the Arrangement. For additional information, see the section in this proxy statement entitled “Support Agreements”.
On March 31, 2022, the SKYE Special Committee met to discuss the revised draft of the status of the Arrangement Agreement and ongoing operational, legal, tax and financial due diligence of EHT. During this meeting, SKYE’s Chief Financial Officer, Ms. Kaitlyn Arsenault reviewed the preliminary legal due diligence report provided by SKYE’s U.S. counsel which identified ancillary agreements to be executed in connection with the Arrangement Agreement.
On April 1, 2022, SKYE sent a revised draft of the Arrangement Agreement to EHT.
On April 7, 2022, the SKYE Special Committee met to discuss the proposed transaction, including the status of ongoing operational, legal, tax and financial due diligence of EHT. During this meeting, Ms. Arsenault reviewed the preliminary legal due diligence report provided by SKYE’s Canadian counsel.
On April 14, 2022, EHT and SKYE executed a letter agreement which extended the exclusivity period of the Term Sheet to April 27, 2022. The exclusivity period was further extended on April 26, 2022 (to May 9, 2022) and again on May 9, 2022 (to May 12, 2022).
On April 21, 2022 the SKYE Special Committee met to discuss the status of the proposed transaction, including the status and current findings of SKYE’s operational, tax, financial and legal due diligence and certain key issues in the Arrangement Agreement. The discussions with the SKYE Special Committee included the conveyance key decision points related to the rollover of equity compensation awards into the SKYE Incentive Plan, resulting management composition, and regulatory considerations. Additionally, Ms. Arsenault reviewed a preliminary proforma cash flow projection with the Special Committee based on due diligence to date.
On April 25, 2022, legal counsel to EHT received from legal counsel to SKYE a draft support agreement (the "SKYE Support Agreement") to be entered into by EHT and certain SKYE Shareholders in connection with the Arrangement Agreement providing for such shareholders to agree to vote their shares in favor of the Arrangement and not to vote their
shares in any way that may delay, prevent, interfere, or impede the Arrangement. For additional information, see the section of the proxy statement entitled “Support Agreements”.
On April 28, 2022 the SKYE Special Committee met to discuss certain matters relating to the proposed transaction. Representatives of SKYE’s financial advisor, Scalar CA, LLC (“Scalar”), reviewed Scalar’s preliminary financial analysis of the Arrangement with the SKYE Special Committee, including the variables associated with the EHT valuation. Following extensive discussion, the SKYE Special Committee resolved that it would propose a lower Exchange Ratio to EHT to reflect the risk profile associated with the EHT valuation.
On May 4, 2022 members of the SKYE Special Committee met with representatives of EHT and SKYE proposed certain revisions to the Exchange Ratio.
The members of the SKYE Special Committee held numerous telephone calls with representatives of EHT’s Special Committee over the period of May 6, 2022 to May 8, 2022 to discuss the Exchange Ratio.
Negotiations with respect to the final terms of the Arrangement Agreement were conducted by the parties while maintaining continuous communication with, and direction from, the SKYE Special Committee regarding the key remaining issues.
On May 11, 2022, a formal meeting of the SKYE Special Committee was held to consider approval of the Arrangement Agreement and the transactions contemplated by the Arrangement Agreement. SKYE’s legal advisors summarized for the SKYE Special Committee the final terms of the Arrangement Agreement and SKYE’s management reviewed the final due diligence reports from its advisors. Representatives of Scalar reviewed its financial analysis of the Arrangement with the SKYE Special Committee, and rendered to the SKYE Special Committee an oral opinion (subsequently confirmed in writing) that, as of such date and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Scalar in preparing its opinion (attached as Appendix E to this proxy statement), the Exchange Ratio pursuant to the Arrangement Agreement was fair, from a financial point of view, to the holders of SKYE Common Stock. After discussion, the SKYE Special Committee unanimously concluded that the Arrangement Agreement and the Arrangement are fair to, advisable, and in the best interests of SKYE and its stockholders. Following the Special Committee meeting, the SKYE Board unanimously approved the Arrangement Agreement and determined that the Arrangement Agreement and the transactions contemplated thereby, including the Arrangement, are fair to, advisable and in the best interests of SKYE and its stockholders.
Throughout the remainder of the day on May 11, 2022, counsel to EHT and SKYE finalized the Arrangement Agreement and the Support Agreements. The Arrangement Agreement and the Support Agreements were executed on May 11, 2022 and the Arrangement Agreement was publicly announced on the morning of May 12, 2022.
On May 18, 2022, Emerald Health Sciences, Inc. entered into a SKYE Support Agreement and an EHT Support Agreement.
On June 14, 2022, Skye and EHT entered into an amendment to the Arrangement Agreement to reflect certain changes to the post-closing board of directors of Skye and to waive the closing condition in the Arrangement Agreement requiring Skye to obtain a waiver from Emerald Health Biotechnology Espana S.L. (“EHB SL”) for payment of any change of control payments under the Exclusive Sponsored Research Agreement, dated October 11, 2021 between EHB SL and Skye that may arise as a result of the transactions contemplated by the Arrangement Agreement.
On July 15, 2022, Skye and EHT entered into a second amendment to the Arrangement Agreement to amend the definition of "Outside Date" in the Arrangement Agreement and to extend the date by which the special meeting of Skye stockholders must be convened.
Reasons for the Arrangement
In the course of reaching its decision to approve the Arrangement Agreement, the SKYE Special Committee and SKYE Board held numerous meetings, consulted with its senior management, advisors and legal counsel, reviewed a significant amount of information and considered numerous reasons, including, among others:
•SKYE’s need for capital to support the pre-clinical and clinical development of its product candidates, including the funds needed by SKYE to advance its lead clinical candidate, SBI-100, through a Phase 2 clinical trial;
•the expectation that the Arrangement Agreement and the transactions contemplated thereby would be a more time- and cost-effective means to access capital than other options considered;
•the SKYE Board’s belief that no alternatives to the Arrangement were reasonably likely to create greater value for SKYE’s stockholders, after reviewing the various financing and other strategic options to enhance stockholder value that were considered by the SKYE Board;
•the historical operations, resources, and assets of EHT;
•the projected financial position, operations, management structure, geographic locations, operating plans, cash burn rate and financial projections of SKYE post-acquisition (including the ability to support the SKYE’s planned clinical trials and operations);
•the likelihood that the Arrangement will be consummated on a timely basis and the viable strategic alternatives for SKYE if the Arrangement does not occur (including, among other things, SKYE’s financial prospects and access to the capital needed to continue successful operations);
•the structure and terms of the Arrangement, including:
◦the reciprocal nature of the terms of the Arrangement Agreement and the other transaction documents, including the parties’ representations, warranties and covenants and the SKYE Board’s determination that those terms and conditions were appropriate in a strategic transaction of this type;
◦the conditions to the completion of the Arrangement, and the SKYE Board’s view that while the completion of the Arrangement is subject to various conditions, including certain approvals, such conditions and approvals were likely to be satisfied in a timely manner;
◦the provisions of the Arrangement Agreement designed to restrict the ability of the Parties to solicit third party Acquisition Proposals but affording both sides the ability to consider and pursue an unsolicited Superior Proposal, the provisions of the Arrangement Agreement providing for the payment of the EHT Termination Amount or the SKYE Termination Amount, as applicable, under specified circumstances relating to the termination of the Arrangement Agreement following the occurrence of an Acquisition Proposal and the conclusion of the SKYE Board that those provisions were an appropriate and reasonable means to increase the likelihood that the Arrangement will be completed;
•the oral opinion of Scalar (subsequently confirmed in writing) rendered to the SKYE Special Committee on May 11, 2022, to the effect that, as of such date and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Scalar in preparing its opinion (attached as Appendix D to this proxy statement), the Exchange Ratio pursuant to the Arrangement Agreement was fair, from a financial point of view, to the holders of SKYE Common Stock, as more fully described below under the section of the proxy statement titled “Description of the Arrangement - Opinion of SKYE’s Financial Advisor ”; •the support agreements, pursuant to which certain directors, officers and stockholders of SKYE and EHT, respectively, have agreed, solely in their capacity as stockholders of SKYE and EHT, respectively, to vote all of their shares of SKYE common stock or EHT Common Stock, as the case may be, in favor of the adoption or approval, respectively, of the Arrangement Agreement; and
•the determination of the SKYE Special Committee that the Arrangement Agreement, the related documents and agreements, and the transactions contemplated by the foregoing, including the Plan of Arrangement, were advisable and are fair to and in the best interests of SKYE and its stockholders, and the recommendation of the SKYE Special Committee that the SKYE Board approve the foregoing.
The SKYE Special Committee and SKYE Board also considered a number of uncertainties and risks in its deliberations concerning the Arrangement and potential conflicts of interest, including the following:
•the possible diversion of management attention for an extended period of time during the pendency of the Arrangement and, following closing, the winding down of EHT and implementation of any remaining actions of the EHT Realization Process;
•the risk that, because the Exchange Ratio under the Arrangement Agreement was fixed as of the time of execution of the Arrangement Agreement and would not be adjusted for changes in the market prices of SKYE Shares or EHT Shares, the trading price of the SKYE Shares to be issued to EHT Shareholders upon the consummation of the Arrangement could be significantly higher than it was at the time the Arrangement Agreement was entered into, and the fact that the Arrangement Agreement does not provide SKYE with a price-based termination right or other similar protection;
•the fact that the SKYE Stockholders will not be permitted to seek appraisal of their shares in connection with the Arrangement;
•the risk that EHT Shareholders will exercise Dissent Rights in connection with the Arrangement;
•the substantial costs to be incurred in connection with the Arrangement, including those that could be incurred regardless of whether the Arrangement is consummated;
•the ability of the EHT Board, in certain circumstances, to terminate the Arrangement Agreement or change its recommendation that EHT Shareholders approve the Arrangement;
•that SKYE would be required to pay to EHT a termination amount of C$500,000 in the event the SKYE Board were to terminate the Arrangement Agreement under certain circumstances;
•the fact that certain representations and warranties in the Arrangement Agreement do not survive the closing of the transaction and the potential risk of liabilities that may arise post-closing;
•the potential reduction of EHT’s net cash or net assets prior to Closing, including any unforeseen impacts related to the market risk as it relates to the sale of EHT’s facilities and the EHT Realization Process; and
The foregoing discussion of the information and factors that the SKYE Special Committee and SKYE Board considered is not intended to be exhaustive, but rather is meant to include the material factors that the SKYE Board considered.
The SKYE Special Committee and SKYE Board considered all of these factors as a whole and, on balance, concluded that the potential benefits of the Arrangement outweighed the risks and uncertainties of the Arrangement. In addition, the SKYE Special Committee and SKYE Board was aware of and considered the interests of its directors and executive officers that are different from, or in addition to, the interests of SKYE Stockholders generally described in the section entitled “Description of the Arrangement - Interests of SKYE’s Directors and Management in the Arrangement”. In view of the wide variety of factors considered by the SKYE Special Committee and the SKYE Board in connection with the evaluation of the Arrangement and the complexity of these matters, the SKYE Special Committee and the SKYE Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the SKYE Special Committee and SKYE Board may have given different weight to different factors. The SKYE Special Committee and SKYE Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, SKYE’s management, and financial and legal advisors, and considered the factors overall to be favorable to, and to support, its determination. The foregoing description of the SKYE Special Committee and SKYE Board’s consideration of the factors supporting the Arrangement is forward-looking in nature. This information should be read in light of the factors discussed in the section entitled “Information Concerning Forward-Looking Statements”. Recommendation of the SKYE Board
On May 11, 2022, after careful consideration, the SKYE Special Committee unanimously concluded that the Arrangement Agreement and the Arrangement are fair to, advisable, and in the best interests of SKYE and its stockholders and recommended that the SKYE Board approve the Arrangement Agreement and the Arrangement. Following the meeting of the Special Committee, on May 11, 2022, the SKYE Board, taking into consideration the unanimous recommendation of the Special Committee, approved the Arrangement Agreement and determined that the Arrangement Agreement and the transactions contemplated thereby, including the Arrangement, are fair to, advisable and in the best interests of SKYE and its stockholders.
The SKYE Board unanimously recommends that the stockholders vote “FOR” the Arrangement Proposal.
EHT Realization Process
On November 29, 2021, EHT announced that it was undertaking a process to effect its exit from the cannabis industry as disclosed in EHT’s press release dated November 39, 2021, the particulars of which are set out in Schedule “D” to the Arrangement Agreement (the “EHT Realization Process”). Pursuant to the Arrangement Agreement EHT is permitted to undertake the EHT Realization Process but is not obligated to complete any of the actions of the EHT Realization Process. The implementation of the EHT Realization Process and the specific actions or steps taken by EHT set out in respect of the EHT Realization Process of the Arrangement Agreement will not be considered in determining whether a representation or warranty of EHT hereunder has been breached. Subsequent to the date of the Arrangement Agreement EHT will not take any action in connection with the EHT Realization Process other than such steps or actions as are reasonably necessary to effect the EHT Realization Process set out in the Arrangement Agreement, without the prior written consent or approval of SKYE, acting reasonably, taking into account regulatory, tax and operational considerations, and shall not take any such action which is contrary to law or requires the consent or approval of any third party or Governmental Authority without first obtaining such consent or approval.
In completing the EHT Realization Process, EHT has agreed to (a) consult with SKYE on the structuring of any transaction proposed pursuant to the EHT Realization Process; (b) provide SKYE a reasonable opportunity to review and
provide comments and input on any agreement and the terms of any arrangement which will form part of the EHT Realization Process prior to the execution of such agreement and give due consideration to any such comments and input, acting reasonably; (c) use reasonable efforts to complete any transaction in a tax efficient manner including taking into consideration the tax attributes of both EHT and SKYE including following completion of the Arrangement, including, pursuant to comments or input from SKYE; and (d) take into consideration regulatory, tax and operational considerations of both EHT and SKYE, including following completion of the Arrangement, including, pursuant to comments or input from SKYE, in proceeding with any transaction which forms the part of the EHT Realization Process.
Description of the Plan of Arrangement
The following summary of certain transaction steps of the Plan of Arrangement is qualified in its entirety by reference to the full text of the Plan of Arrangement, a copy of which is attached as Appendix B to this proxy statement. The Arrangement is being implemented pursuant to a plan of arrangement under the laws of the Province of British Columbia. The purpose of the Plan of Arrangement is to facilitate a series of transactions which will occur in a specific sequence and as a consequence, SKYE will acquire all of the outstanding EHT Shares.
Pursuant to the Arrangement, commencing at the Effective Time, each of the following events or transactions shall occur and be deemed to occur in the following sequence, in each case, without any further authorization, act or formality on the part of any person:
1.at the Effective Time,
(a)each EHT Share held by a Dissenting Shareholder who is ultimately determined to be entitled to be paid the fair value of the Dissent Shares in respect of which such EHT Dissenting Shareholder has exercised Dissent Rights shall be, and shall be deemed to be transferred by the holder thereof, without any further act or formality on its part, to SKYE (free and clear of all Liens) and SKYE shall thereupon be obliged to pay the amount therefor determined and payable; such EHT Dissenting Shareholder will cease to be the holder thereof or to have any rights as a holder in respect of such EHT Share other than the right to be paid the fair value of such EHT Share determined and payable in accordance with their Dissent Rights under the laws of British Columbia, as modified by the Plan of Arrangement and the Interim Order; and
(b)at the same time as the preceding step occurs, the name of each EHT Dissenting Shareholder shall be removed from the register of the EHT Shares and such EHT Shares shall be automatically cancelled at the Effective Date;
2.immediately after the preceding steps:
(a)each EHT Share outstanding immediately prior to the Effective Time (other than Dissent Shares held by EHT Dissenting Shareholders who are ultimately determined to be entitled to be paid the fair value of their Dissent Shares as determined in accordance with their Dissent Rights under the laws of British Columbia, as modified by the Plan of Arrangement and the Interim Order) shall be and shall be deemed to be transferred by the holder thereof to SKYE (free and clear of all Liens) in exchange for the issuance of the Consideration Shares;
(b)at the same time as that preceding step occurs, the holder of each EHT Share transferred to SKYE pursuant to the preceding step shall cease to be the holder thereof, or to have any rights as a holder thereof other than the right to receive the Consideration issuable in respect of each EHT Share held pursuant to the preceding step and shall be removed from the register of the EHT Shares and legal and beneficial title to each such EHT Share shall be transferred to SKYE and SKYE will be and be deemed to be the transferee and legal and beneficial owner of such EHT Share (free and clear of any Liens) and will be entered in the central securities register of EHT as the sole holder thereof; and
(c)SKYE will be the holder of all of the outstanding EHT Shares;
3.at the same time as the steps in item 2 occur:
(a)each EHT Option, to the extent it has not been exercised as of the Effective Date, will cease to represent an option or other right to acquire EHT Shares, will be exchanged by the holder thereof, without any further act or formality and free and clear of all Liens, for a Replacement Option to purchase a number of SKYE Shares equal to the product of the Exchange Ratio, rounded down to nearest whole decimal place, multiplied by the number of EHT Shares issuable on exercise of such EHT Option immediately prior to the Effective Time (rounded down to the next whole number of SKYE Shares) for an exercise price per SKYE Share equal to the exercise price per share of such EHT Option immediately prior to the Effective Time divided by the Exchange Ratio and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a Replacement Option being exercisable for a fraction of a SKYE Share, then the number of SKYE Shares
subject to such Replacement Option shall be rounded down to the next whole number of SKYE Shares), and the EHT Options shall thereupon be cancelled. The term to expiry, conditions to and manner of exercise and other terms and conditions of each of the Replacement Options shall be the same as the terms and conditions of the EHT Option for which it is exchanged and shall be governed by the terms of the SKYE Amended Omnibus Incentive Plan. Any document previously evidencing an EHT Option shall thereafter evidence and be deemed to evidence such Replacement Option and no certificates evidencing the Replacement Options be issued. It is intended that subsection 7(1.4) of the Tax Act apply to such exchange of options. Accordingly, and notwithstanding the foregoing, if required, the exercise price of a Replacement Option will be increased such that the in-the-money amount of the Replacement Option immediately after the exchange does not exceed the In-The-Money Amount of the EHT Option immediately before the exchange;
(b)each EHT Warrant, to the extent it has not been exercised as at the Effective Date, will be exchanged by the holder thereof, without any further act or formality and free and clear of all Liens, for a Replacement Warrant to purchase a number of SKYE Shares equal to the product of the Exchange Ratio multiplied by the number of EHT Shares issuable on exercise of such EHT Warrant immediately prior to the Effective Time for an exercise price per SKYE Share equal to the exercise price per share of such EHT Warrant immediately prior to the Effective Time divided by the Exchange Ratio, rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a Replacement Warrant being exercisable for a fraction of a SKYE Share, then the number of SKYE Shares subject to such Replacement Warrant shall be rounded down to the next whole number of SKYE Shares) and the EHT Warrants shall thereupon be cancelled. The term to expiry, conditions to and manner of exercise and other terms and conditions of each of the Replacement Warrants shall be the same as the terms and conditions of the EHT Warrant for which it is exchanged. Any document previously evidencing an EHT Warrant shall thereafter evidence and be deemed to evidence such Replacement Warrant and no certificates evidencing the Replacement Warrants shall be issued;
(c)the EHT Omnibus Incentive Plan shall be terminated and, for greater certainty, all rights thereunder to receive any securities of EHT formerly held by EHT Securityholders shall be extinguished; and
4.no person shall have any rights, liabilities or other obligations in respect of the share capital of EHT other than SKYE and each holder of EHT Shares, EHT Options or EHT Warrants outstanding immediately prior to the Effective Time, with respect to each step set out above applicable to such holder, shall be deemed, at the time such step occurs, to have executed and delivered all consents, releases, assignments and waivers, statutory or otherwise, required to transfer all EHT Shares, EHT Options or EHT Warrants held by such holder in accordance with such step.
Payment of Arrangement Consideration
Following receipt of the Final Order and on or prior to the Effective Date, SKYE shall deliver or cause to be delivered to the Depositary in escrow pending the Effective Time, sufficient SKYE Shares (and any treasury directions addressed to SKYE’s transfer agent as may be necessary) to satisfy the aggregate Consideration to be paid to the EHT Shareholders (other than EHT Dissenting Shareholders) under the Arrangement.
Paramountcy
From and after the Effective Time: (i) the Plan of Arrangement shall take precedence and priority over any and all rights related to the securities of EHT issued prior to the Effective Time; (ii) the rights and obligations of the holders of the securities of EHT and any trustee and transfer agent therefor, shall be solely as provided for in the Plan of Arrangement; and (iii) all actions, causes of action, claims or proceedings (actual or contingent and whether or not previously asserted) based on or in any way relating to any securities of EHT shall be deemed to have been settled, compromised, released and determined without liability except as set forth in the Plan of Arrangement.
Amendments to the Plan of Arrangement
EHT and SKYE reserve the right to amend, modify and/or supplement the Plan of Arrangement at any time and from time to time prior to the Effective Time, provided that any such amendment, modification or supplement must be: (i) set out in writing, (ii) approved by EHT and SKYE, (iii) filed with the Court, and, if made following the EHT Meeting, approved by the Court, and (iv) communicated to or approved by the EHT Shareholders if and as required by the Court. Any amendment, modification or supplement to the Plan of Arrangement may be proposed by EHT at any time prior to the EHT Meeting (provided SKYE shall have consented thereto, such consent not to be unreasonably withheld or delayed) with or without any other prior notice or communication and, if so proposed and accepted by the persons voting at the EHT Meeting (other than as may be required under the Interim Order), will become part of the Plan of Arrangement for all
purposes. Any amendment, modification or supplement to the Plan of Arrangement that is approved or directed by the Court following the EHT Meeting will be effective only if such amendment, modification or supplement (i) is consented to by each of EHT and SKYE and (ii) if required by the Court or applicable Law, is consented to by the EHT Shareholders voting in the manner directed by the Court. Any amendment, modification or supplement to the Plan of Arrangement may be made following the Effective Date but shall only be effective if it is consented to by each of EHT and SKYE provided that such amendment, modification or supplement concerns a matter which, in the reasonable opinion of EHT and SKYE, is of an administrative nature required to better give effect to the implementation of the Plan of Arrangement and is not adverse to the financial or economic interests of EHT and SKYE or any former EHT Securityholder.
Procedure for the Plan of Arrangement to Become Effective
The Arrangement will be implemented by way of a Court approved Plan of Arrangement under Section 288 of the BCBCA pursuant to the terms of the Arrangement Agreement. The following procedural steps must be taken in order for the Arrangement to become effective:
•the Arrangement must be approved by the EHT Shareholders in the manner set forth in the Interim Order; and
•the Court must grant the Final Order approving the Arrangement.
Appraisal and Dissenters’ Rights
Holders of SKYE Shares will not have any appraisal or dissenters rights in connection with the Arrangement.
Registered holders of EHT Shares may exercise Dissent Rights with respect to the EHT Arrangement Resolutions pursuant to and in the manner set forth under Division 2 of Part 8 of the BCBCA, as modified by the Plan of Arrangement and the Interim Order, provided that, notwithstanding Section 242(1)(a) of the BCBCA, the notice of dissent in respect of the EHT Arrangement Resolution must be sent to EHT by holders who wish to exercise dissent and must be received by EHT not later than 5:00 p.m. (Vancouver time) on the second Business Day before the EHT Meeting (or if the EHT Meeting is postponed or adjourned, at least 48 hours (excluding non-business days) prior to the date of the postponed or adjourned EHT Meeting).
The procedures for dissenting to the EHT Arrangement Resolution require strict compliance with the applicable dissent procedures. A registered holder of EHT Shares is entitled to be paid the fair value of the EHT Shares held by such holder if (i) such holder exercises Dissent Rights in accordance with Division 2 of Part 8 of the BCBCA, as modified by the Plan of Arrangement and the Interim Order and (ii) the Arrangement becomes effective. If, as of the Effective Date, the aggregate number of EHT Shares in respect of which Shareholders have duly and validly exercised Dissent Rights, or have instituted proceedings to exercise Dissent Rights, exceeds 5% of the EHT Shares then outstanding, EHT or SKYE is entitled, in its discretion, not to complete the Arrangement.
The following description of the dissent procedures is not a comprehensive statement of the procedures to be followed by a Dissenting Shareholder who seeks payment of the fair value of its EHT Shares and is qualified in its entirety by reference to the full text of the Plan of Arrangement, the Interim Order and Division 2 of Part 8 of the BCBCA.
The Court hearing the application for the Final Order has the discretion to alter the Dissent Rights described herein.
EHT Shareholders who duly exercise Dissent Rights and who:
•ultimately are entitled to be paid fair value for their EHT Shares (as determined in accordance with the BCBCA), which fair value, notwithstanding anything to the contrary contained in Division 2 of Part 8 of the BCBCA, shall be determined as of the close of business on the day before the EHT Arrangement Resolution was adopted at the Meeting, shall be paid an amount equal to such fair value by SKYE, and will be deemed to have transferred those EHT Shares as of the Effective Time to SKYE, without any further act or formality, and free and clear of all liens, claims and encumbrances, and shall not be entitled to any other payment or consideration, including any payment that would be payable under the Arrangement had such holder not exercised their Dissent Rights in respect of such EHT Shares; or
•ultimately not entitled, for any reason, to be paid fair value for their EHT Shares, shall be deemed to have participated in the Arrangement, as of the Effective Time, on the same basis as a holder of EHT Shares who has not exercised Dissent Rights.
Opinion of SKYE’s Financial Advisor
On May 11, 2022, at a meeting of the SKYE Special Committee, Scalar rendered its oral opinion to the SKYE Special Committee, subsequently confirmed in writing, as to the fairness, from a financial point of view, as of such date, to the holders of SKYE Common Stock of the Exchange Ratio pursuant to the Arrangement Agreement (without giving effect to any impact of the transactions contemplated by the Arrangement Agreement on any particular SKYE Shareholder (as defined in the Arrangement Agreement) other than in its capacity as a holder of SKYE Common Stock), based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Scalar in preparing its opinion.
The full text of Scalar’s written opinion, dated May 11, 2022, which sets forth the procedures followed, assumptions made, matters considered, qualifications and limitations on the review undertaken, and other matters considered by Scalar in connection with the opinion, is attached to this proxy statement as Appendix E. The summary of Scalar’s opinion in this proxy statement is qualified in its entirety by reference to the full text of Scalar’s written opinion. Scalar’s advisory services and opinion were provided for the information and assistance of the SKYE Board and the opinion does not constitute a recommendation as to how any SKYE Shareholder should vote with respect to the Arrangement or any other matter. In arriving at its opinion, Scalar, among other things:
•reviewed a draft, dated May 10, 2022, of the Arrangement Agreement, and other related legal documents concerning the Arrangement Agreement;
•reviewed certain publicly available financial statements and other business and financial information of SKYE;
•reviewed the unaudited financial statements for the year ending December 31, 2021 concerning EHT;
•reviewed the audited financial statements for the years ending December 31, 2020 and December 31, 2019 concerning EHT;
•discussed the rationale, timeline, and process leading up to the execution of the Arrangement Agreement as well as the operations, financial condition, future prospects and projected operations, and performance of SKYE and EHT with senior executives of SKYE;
•reviewed the Broker Opinion of Value dated May 11, 2022 (referred to as the “BOV”) related to certain EHT real estate located in St-Eustache, Quebec (referred to as “VDL”);
•reviewed EHT’s projected financial statements (referred to as the “Wind-down Forecast”) prepared and provided by SKYE management (referred to as “Management”) related to the estimated future cash flows of EHT (including Management’s views of the risks and uncertainties in achieving such projections);
•analyzed relevant, publicly available information related to the pharmaceutical and biotechnology industry in general as well as the websites of SKYE and EHT; and
•performed other analyses, reviewed other information, and considered other factors Scalar deemed appropriate for providing its opinion.
In performing its analysis and rendering its opinion with respect to the Exchange Ratio, Scalar relied upon and assumed, without assuming liability or responsibility for independent verification, the accuracy and completeness of information that was publicly available or was furnished, or otherwise made available to Scalar or discussed with or reviewed by Scalar. Scalar further relied upon the assurances of the management of SKYE that the financial information provided had been prepared on a reasonable basis in accordance with industry practice, and that they were not aware of any information or facts that would make any information provided to Scalar inaccurate, incomplete or misleading.
Without limiting the generality of the foregoing, for the purpose of its opinion, Scalar assumed with respect to financial forecasts, estimates and other forward-looking information reviewed by Scalar, that such information had been reasonably prepared based on assumptions reflecting the best then-currently available estimates and judgments of Management as to the expected future results of operations and financial condition of EHT. Scalar assumed no responsibility for and expressed no opinion as to any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based. Scalar relied upon, with SKYE’s consent, the assumptions of Management and third party data sources, as to all accounting, legal, tax and financial reporting matters with respect to EHT and the Arrangement Agreement, and that SKYE had been advised by counsel as to all legal matters with respect to the Arrangement Agreement, including whether all procedures required by law in connection with the Arrangement Agreement have been duly, validly and timely taken.
In arriving at its opinion, Scalar assumed that the Arrangement Agreement will not be modified or amended in any material aspects. Scalar relied upon and assumed, without independent verification, that (i) the representations and warranties of all parties to the Arrangement Agreement are correct and (ii) there has been no material change in the assets, financial condition, business or prospects of SKYE and EHT since the date of the most recent financial statements and other
information made available to Scalar. Additionally, Scalar assumed that all necessary governmental and regulatory approvals and consents required for the Arrangement will be obtained in a manner that will not adversely affect SKYE or the contemplated benefits to the parties of the Arrangement Agreement. Scalar also assumed that the Arrangement will have the tax consequences described in discussions with, and materials furnished to Scalar by, representatives of SKYE. Scalar’s opinion did not address any legal, regulatory, taxation, or accounting matters, as to which Scalar understood that SKYE obtained such advice as SKYE deemed necessary from qualified professionals, and Scalar assumed the accuracy and veracity of all assessments made by such advisors to SKYE with respect to such matters.
In arriving at its opinion, Scalar did not perform any appraisals or valuations of any specific assets or liabilities (fixed, contingent or other) of SKYE or EHT, nor did Scalar evaluate the solvency of SKYE or EHT under any state or federal law relating to bankruptcy, insolvency or similar matters. Without limiting the generality of the foregoing, Scalar undertook no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which SKYE or EHT was a party or may be subject, and at the direction of SKYE and with its consent, Scalar’s opinion made no assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.
Scalar’s opinion does not constitute legal, regulatory, accounting, insurance, tax or other similar professional advice and does not address (i) the underlying decision of the SKYE Board to proceed with or effect the Arrangement, (ii) the terms of the Arrangement (other than the Exchange Ratio to the extent expressly addressed therein) or any arrangements, understandings, agreements or documents related to the Arrangement, (iii) the fairness of the Arrangement (other than with respect to the Exchange Ratio to the extent expressly addressed therein) or any other transaction to SKYE or SKYE’s equity holders or creditors or any other person or entity, (iv) the relative merits of the Arrangement as compared to any alternative strategy or transaction that might exist for SKYE, or the effect of any other transaction which it may consider in the future, (v) the tax, accounting or legal consequences of the Arrangement, or (vi) the solvency, creditworthiness, fair market value or fair value of any of SKYE, EHT or their respective assets under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters.
Scalar’s opinion was necessarily based upon the information available to it and facts and circumstances as they existed and were subject to evaluation on the date of Scalar’s written opinion; events occurring after such date could materially affect the assumptions used in preparing Scalar’s opinion. Scalar did not undertake to update, reaffirm or revise its opinion or otherwise comment upon any events occurring after the date of its written opinion (including the amendments to the Arrangement that were entered into after such date), material information provided to Scalar after such date, or any change in facts or circumstances that occur after such date, and Scalar does not have any obligation to update, revise or reaffirm its opinion.
Scalar’s opinion was provided to the SKYE Board in connection with its evaluation of the Arrangement and is not intended to be, and does not constitute, a recommendation to any SKYE Shareholder as to how such SKYE Shareholder should act or vote with respect to the Arrangement or any other matter.
Scalar’s opinion addresses solely the fairness to the SKYE Shareholders of the Exchange Ratio, from a financial point of view, and does not address any other terms or agreements relating to the Arrangement Agreement. Scalar was not requested to opine as to, and its opinion did not address, the basic business decision to proceed with or effect the Arrangement, the market prices of the equity, the merits of the Arrangement relative to any alternative transaction or business strategy that may be available to SKYE, or the fairness of the Arrangement to any other class of securities, creditor or other constituency of SKYE.
Furthermore, Scalar expressed no opinion with respect to the amount or nature of compensation to any officer, director or employee of any party to the Arrangement Agreement, or any class of such persons, relative to the consideration to be paid in the Arrangement or with respect to the fairness of any such compensation. Scalar’s opinion should not be constructed as creating any fiduciary duty of Scalar to any other party. To the extent any of the foregoing assumptions or any of the facts on which Scalar’s opinion was based prove to be untrue in any material respect, Scalar’s opinion cannot and should not be relied upon.
Summary of Scalar’s Financial Analysis
The following is a summary of the material financial analyses delivered by Scalar to the SKYE Special Committee in connection with rendering the opinion described above. The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, Scalar. Scalar may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be Scalar’s view of the actual value of EHT. Some of the summaries of the financial analyses set forth below include information presented in tabular format. In order
to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses performed by Scalar. Considering the data in the tables below without considering all financial analyses or factors or the full narrative description of such analyses or factors, including the methodologies and assumptions underlying such analyses or factors, could create a misleading or incomplete view of the processes underlying Scalar’s financial analyses and its opinion.
In performing its analyses, Scalar made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of SKYE or any other parties to the Arrangement Agreement. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of SKYE, EHT, Scalar or any other person assumes responsibility if future results are materially different from those forecasted. In addition, these analyses do not purport to be appraisals or reflect the prices at which businesses or securities may actually be sold. Accordingly, the assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject to substantial uncertainty.
Liquidation Analysis. Scalar considered the Wind-down Forecast prepared and provided by Management for use by Scalar in connection with the rendering of its opinion. The Wind-Down Forecast reflected the estimated cash liquidation value of EHT’s property, plant, and equipment (other than the value of the VDL property, which is described below) and other assets, as well as restructuring costs and other EHT costs that would be assumed by SKYE in the Arrangement, in each case, in an orderly sale by SKYE as a going concern. With respect to the VDL property, Scalar considered the range of values in the BOV, which ranged from C$11.9 million to C$18.75 million.
Based on the foregoing, Scalar calculated the following range of equity values for EHT:
| | | | | | | | | | | | | | | | | |
| in Actual USD | Equity Value
Range |
| Low | | Middle | | High |
| Liquidation Value, Pre-Arrangement | $18,220,000 | | $20,601,000 | | $23,481,000 |
| EHT Costs Assumed by SKYE | ($562,000) | | ($562,000) | | ($562,000) |
| Liquidation Value to SKYE | $17,658,000 | | $20,039,000 | | $22,919,000 |
In connection with its liquidation analysis with respect to EHT, Scalar noted that the implied transaction consideration of $19,599,457 (based on the Exchange Ratio and the closing stock prices for SKYE’s and EHT’s common stock as of the close of trading on May 10, 2022) was in line with the foregoing reference range for the equity value of EHT to SKYE, which in Scalar’s view supported its assessment of the financial fairness of the Exchange Ratio.
Solely for informational reference purposes, Scalar also reviewed the historical stock price range for SKYE’s and EHT’s common stock, and EHT’s market capitalization of $6,558,180 as of the close of trading on May 10, 2022.
General
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Scalar’s opinion. In arriving at its fairness determination, Scalar considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Scalar made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses.
Scalar’s financial analyses and opinion were only one of many factors taken into consideration by the SKYE Board and the SKYE Special Committee in its evaluation of the Transaction. Consequently, the analyses described above should not be viewed as determinative of the views of the SKYE Board, SKYE Special Committee or Management with respect to the Exchange Ratio or as to whether the SKYE Board or SKYE Special Committee would have been willing to determine that a different Exchange Ratio was fair. The consideration for the transaction was determined through arm’s-length negotiations between the SKYE and EHT and was approved by the SKYE Special Committee and the SKYE Board. Scalar provided advice to SKYE during these negotiations. Scalar did not, however, recommend any specific amount of consideration to SKYE, the SKYE Special Committee or the SKYE Board or that any specific amount of consideration constituted the only appropriate consideration for the Arrangement. The foregoing summary does not purport to be a complete description of the analyses performed by Scalar in connection with its opinion and is qualified in its entirety by reference to the written opinion of Scalar attached hereto as Appendix E.
Scalar was engaged by SKYE to act as its financial advisor and Scalar received a fee from SKYE for providing its services. Scalar also received a fee for rendering its opinion. No portion of these fees was refundable or contingent upon the consummation of a transaction or the conclusion reached in Scalar’s opinion. SKYE has also agreed to indemnify Scalar against certain liabilities and reimburse Scalar for certain expenses in connection with Scalar’s services. Scalar may, in the future, provide financial advisory and valuation services to SKYE and may receive fees for the rendering of such services.
In the ordinary course of business, certain of Scalar’s employees and affiliates, or entities in which they have invested, may hold or trade, for their own accounts and the accounts of their investors, securities of SKYE and EHT and, accordingly, may at any time hold a long or short position in such securities.
The issuance of Scalar’s opinion was approved by an authorized committee of Scalar.
The SKYE Board selected Scalar as its financial advisor in connection with the Transaction based on Scalar’s reputation and industry experience. Scalar is a leading independent valuation firm that has substantial experience in transactions similar to the Arrangement.
Interests of SKYE’s Directors and Management in the Arrangement
In considering the recommendation of the SKYE Board with respect to the Arrangement, SKYE Stockholders should be aware that certain members of SKYE management and the SKYE Board may have interests in the Arrangement that may be in addition to or different from the interests of SKYE stockholders generally, which may create actual or potential conflicts of interest in connection the Arrangement. The SKYE Special Committee and the SKYE Board were aware of these interests and considered them along with the other matters described above in “Description of the Arrangement - Reasons for the Arrangement”. These interests include the following: Ownership of EHT Options and EHT Shares
| | | | | | | | | | | | | | | | | | | | |
| | Securities of EHT Beneficially Owned, Directly or Indirectly over which
Control or Direction is Exercised |
Name and Province or State
and Country of Residence | | Positions(s)/Title at SKYE | | EHT Shares | | EHT Options |
| Punit Dhillon | | Chief Executive Officer and
Chairman of the Board | | 1,858,361 | | 800,000 |
| Jim Heppell | | Former Director | | 1,740,799 | | 850,000 |
Consulting Agreement with Jim Heppell
On May 18, 2022, Jim Heppell resigned as a member of SKYE’s board of directors, audit committee, compensation committee, and nominating and corporate governance committee. Mr. Heppell’s resignation as a director was to focus on other commitments and is not the result of any disagreement with Skye on any matter relating to Skye’s operations, policies or practices.
On May 18, 2022, the Company also entered into a consulting agreement (the “Consulting Agreement”) with Mr. Heppell, pursuant to which Mr. Heppell will oversee SKYE’s operations in Canada. Mr. Heppell is entitled to the following compensation under the Consulting Agreement: (i) a fee of $6,300 per month, which fee will be increased to $16,600 per month upon the closing of the transaction contemplated by the Arrangement Agreement, (ii) the grant of a stock option to purchase four million shares of SKYE’s common stock, which options shall be exercisable only if the transactions contemplated by the Arrangement Agreement is consummated and shall vest fifty percent (50%) up front and fifty percent (50%) upon the satisfaction of certain performance milestones. Additionally, the Consulting Agreement provides Mr. Heppell with a termination payment in an amount equal to the monthly fees through the then remaining term of the Agreement if Mr. Heppell’s engagement is terminated by SKYE without Cause (as such term is defined in the Consulting Agreement) and provides for a release of claims against SKYE.
Affiliate Relationships
Mr. Heppell is the Chairman and CEO of Emerald Health Sciences. As of August 10, 2022, EHS owns 22.5% of the outstanding common stock of SKYE.
Each of Mr. Heppell and Mr. Dhillon are current members of the board of directors of EHT. Due to conflicts of interest, neither Mr. Heppell or Mr. Dhillon served on the SKYE Special Committee or EHT Special Committee that reviewed and negotiated the Arrangement on the behalf of SKYE and EHT.
Transaction Bonuses and Salary Increases.
In connection with the Transaction, on May 25, 2022, the SKYE Board approved incentive recommendations and updates to compensation for certain of SKYE’s directors and officers. Specifically, (i) Mr. Dhillon is to receive (a) a $148,000 cash bonus, of which 50% was paid on June 3, 2022 and 50% will be paid upon completion of the Transaction , and (b) an increase to his yearly base salary to $450,000 and an increase in his bonus target from 50% to 60% effective as of June 1, 2022, (ii) Kaitlyn Arsenault is to receive (a) an increase to her yearly salary to $340,000 and an increase in her bonus target from 35% to 40% effective as of June 1, 2022 and (b) a $111,000 cash bonus, of which 50% was paid on June 3, 2022 and 50% will be paid upon completion of the Transaction. (iii) Praveen Tyle received a $30,000 cash bonus on June 3, 2022, (iv) Margaret Dalesandro received a $15,000 cash bonus on [June 3, 2022, (v) Keith Ward received a $15,000 cash bonus on June 3, 2022.
EHT and Skye Consulting Agreement
At the request of EHT, on July 11, 2022, SKYE and EHT entered into a consulting agreement (the “EHT-SKYE Consulting Agreement”) pursuant to which representatives of SKYE will provide administrative assistance to EHT to assist EHT in satisfying its financial reporting, operational and regulatory obligations. EHT will pay SKYE US$150 for each hour of services provided by SKYE. The term of the EHT-SKYE Consulting Agreement ends on the date of the closing or termination of the Arrangement, and both EHT and SKYE can terminate such agreement upon thirty (30) days notice.
Court Approval
Interim Order
On July 14, 2022, the Court granted the Interim Order facilitating the calling of the EHT Meeting and prescribing the conduct of the EHT Meeting, and other matters.
Final Order
An arrangement under the BCBCA requires Court approval. Subject to the terms of the Arrangement Agreement, and upon obtaining EHT Shareholder Approval in the manner required by the Interim Order, EHT will apply to the Court for the Final Order. The application for the Final Order approving the Arrangement is scheduled for August 25, 2022 at 9:45am (Vancouver Time), or as soon after that date as is practicable. At the Final Order hearing, any EHT Shareholder or holder of EHT Options or EHT Warrants or other interested party who wishes to participate or to be represented or to present evidence or argument may do so, subject to filing with the Court and serving upon EHT and SKYE a Notice of Appearance in accordance with the terms of the Interim Order. In the event that the hearing is postponed, adjourned or rescheduled then, subject to further order of the Court, only those persons having previously served a Notice of Appearance in compliance with the Interim Order will be given notice of the postponement, adjournment or rescheduled date.
The Court will be advised, prior to the hearing, that the Court’s approval of the Arrangement (and determination of the fairness thereof), will constitute the basis for reliance on the exemption from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(10) thereof, with respect to the issuance and distribution of the SKYE Shares to be issued by SKYE to EHT Shareholders pursuant to the Arrangement and with respect to the issuance and distribution of the Replacement Options and Replacement Warrants to be issued to holders of EHT Options and EHT Warrants respectively.
The Court has broad discretion under the BCBCA when making orders with respect to the Arrangement and the Court, in hearing the application for the Final Order, will consider, among other things, the fairness and reasonableness of the Arrangement to the parties affected, including EHT Shareholders and holders of EHT Options, EHT Warrants, and any other interested party as the Court determines appropriate, both from a substantive and a procedural point of view. The Court may approve the Arrangement as proposed or as amended, in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court thinks fit. Depending on the nature of any required amendments, EHT and SKYE may determine not to proceed with the Arrangement.
Assuming the Final Order is granted and the other conditions to closing contained in the Arrangement Agreement are satisfied or waived to the extent legally permissible, then Articles of Arrangement will be filed to give effect to the Arrangement.
Regulatory Matters
Health Canada Notification
On April 29, 2022, EHT submitted the required formal notification to Health Canada. Since then, EHT has responded to further information requests from Health Canada.
Stock Exchange Approval
It is a condition to the closing that Skye obtain (i) the conditional approval by the CSE of the listing of the SKYE Common Stock and (ii) the conditional approval of CSE to list the Consideration Shares and any SKYE Shares issuable upon the exercise of any Replacement Warrants and Replacement Options (the “Stock Exchange Approval”).
If the Arrangement is completed, SKYE intends to have the EHT Shares delisted from the CSE and the OTCQB. In addition, SKYE currently expects to list the SKYE Shares on the CSE at, or as soon as practicable following, the Effective Time, which will trade in Canadian dollars.
FINRA Notification
It is a condition to the closing that SKYE obtain any required approvals from, or making any required notices to, the Financial Industry Regulatory Authority, Inc (“FINRA”). SKYE intends to submit to FINRA the information required by FINRA Rule 6490 prior to the closing of the transactions contemplated by the Arrangement Agreement.
Canadian Securities Law Matters
Canadian Reporting Obligations of EHT
EHT is a reporting issuer (or the equivalent) in each of the provinces of Canada and SKYE will apply to have EHT cease to be a reporting issuer in such provinces following completion of the Arrangement. EHT Shares are currently listed on the CSE under the symbol "EMH" and quoted for trading on the OTCQB Venture Market, operated by OTC Markets Group under the ticker symbol “EMHTF”. If the Arrangement is completed, SKYE intends to have the EHT Shares delisted from the CSE.
Canadian Reporting Obligations of SKYE
SKYE is not currently a reporting issuer in any province or territory of Canada and, if the Arrangement is completed, SKYE will, as a result of the Arrangement, have reporting issuer status (or the equivalent) in all provinces of Canada upon the completion of the Arrangement.
Pursuant to NI 71-102, provided that not more than 50% of SKYE’s outstanding voting securities carrying votes for the election of directors are owned directly or indirectly by residents of Canada, SKYE will be exempt from Canadian statutory financial and certain other continuous and timely reporting requirements, including the requirement for insiders of SKYE to file reports with respect to trades of SKYE securities, provided further that SKYE complies with the requirements of U.S. Securities Laws and U.S. market requirements in respect of all financial and other continuous and timely reporting matters and SKYE files with the relevant Canadian Securities Administrators copies of its documents filed with the SEC under the U.S. Exchange Act.
Qualification - Resale of SKYE Shares
The SKYE Shares received pursuant to the Arrangement will not be legended and may be resold through registered dealers in each of the provinces of Canada provided that (i) the trade is not a “control distribution” as defined National Instrument 45-102 – Resale of Securities of the Canadian Securities Administrators, (ii) no unusual effort is made to prepare the market or to create a demand for the SKYE Shares, as the case may be, (iii) no extraordinary commission or consideration is paid to a person or company in respect of such sale, and (iv) if the selling security holder is an insider or officer of SKYE, the selling security holder has no reasonable grounds to believe that SKYE is in default of applicable Canadian Securities Laws. Recipients of SKYE Shares are urged to obtain legal advice to ensure that their resale of such securities complies with applicable Canadian Securities Laws.
U.S. Securities Law Matters
Exemption Relied Upon from the Registration Requirements of the U.S. Securities Act
The SKYE Shares to be issued pursuant to the Arrangement have not been and will not be registered under the U.S. Securities Act and will be issued in reliance on the exemption afforded by Section 3(a)(10) of the U.S. Securities Act.
Section 3(a)(10) of the U.S. Securities Act exempts from registration the offer and sale of a security which is issued in specified exchange transactions where, among other things, the fairness of the terms and conditions of such exchange are approved by a court of authorized government entity after a hearing on the fairness of such terms and conditions, at which all persons to whom it is proposed to issue securities in such exchange have the right to appear, by a court or governmental authority expressly authorized by Law to grant such approval and to hold such a hearing. Accordingly, the Final Order, if granted by the Court, constitutes a basis for the exemption from the registration requirements of the U.S. Securities Act with respect to the SKYE Shares issued in connection with the Arrangement.
Pro Forma Ownership of the Resulting Issuer
Upon completion of the Transaction, it is estimated that the Exchange Ratio will result in EHT Shareholders and SKYE Stockholders owning approximately 46% and 54%, respectively, of the outstanding shares of the Resulting Issuer.
Anticipated Accounting Treatment
It is anticipated that the Arrangement will be accounted for by SKYE as an asset acquisition of EHT rather than as a business combination under ASC 805, Business Combinations.
In making this determination, SKYE reviewed the guidance per ASC 805, Business Combinations under U.S. generally accepted accounting principles (“GAAP”) to determine if the set of activities acquired in the transaction constitute a business. Per SKYE’s evaluation, it determined that the assets acquired in the transaction are the inputs but that there are no revenue producing activities (outputs) and because no organized workforce will be acquired, that the set will not meet the definition of a business under GAAP and will therefore be accounted for as an asset acquisition.
If the transaction is determined to be an asset acquisition, SKYE will measure EHT’s assets acquired at their relative fair values, including net tangible and identifiable intangible assets acquired and liabilities assumed, as of the closing of the Arrangement. Definite lived intangible assets will be amortized over their estimated useful lives. Intangible assets with indefinite useful lives will not be amortized but will be tested for impairment at least annually. Intangible assets are also tested for impairment when certain indicators are present. The final purchase price and fair value assessment of assets and liabilities for accounting purposes will be based in part on a detailed valuation that has not yet been completed.
Support Agreements
EHT and certain holders of Skye Common Stock (the “SKYE Support Agreement Shareholders”) have entered into support agreements (the “SKYE Support Agreements”) pursuant to which the SKYE Support Agreement Shareholders agreed, among other things, to vote their shares of SKYE Common Stock in favor of the adoption of the Arrangement Agreement and against any alternative proposal. The SKYE Support Agreements terminate upon the occurrence of certain events, including the termination of the Arrangement Agreement in accordance with its terms.
The SKYE Support Agreement Shareholders beneficially own, directly or indirectly, or exercise control or direction over, in the aggregate, SKYE Shares representing approximately 22.76% of the outstanding SKYE Shares as of the date of this proxy statement and have agreed, subject to the terms of the SKYE Support Agreement, to, inter alia, vote their SKYE Shares in favor of the Arrangement and any other matters necessary for the consummation of the Arrangement.
Skye and certain holders of EHT Shares (the “EHT Support Agreement Shareholders”) have entered into support agreements (the “EHT Support Agreements”), pursuant to which the EHT Support Agreement Shareholders agreed, among other things, to vote their EHT Shares in favor of the approval of the Arrangement and against any alternative proposal. The EHT Support Agreements terminate upon the occurrence of certain events, including the termination of the Arrangement Agreement in accordance with its terms.
The EHT Support Agreement Shareholders beneficially own, directly or indirectly, or exercise control or direction over, in the aggregate, EHT Shares representing approximately 1.7% of the outstanding EHT Shares as of the date of this proxy statement and have agreed, subject to the terms of the EHT Support Agreement, to, inter alia, vote their EHT Shares in favor of the Arrangement and any other matters necessary for the consummation of the Arrangement.
The foregoing is a summary of the principal terms of the SKYE Support Agreements and EHT Support Agreements. This summary does not purport to be complete and is qualified in its entirety by the complete text of the SKYE Support Agreements and EHT Support Agreement, copies of which are available on EDGAR at www.sec.gov.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited pro forma condensed combined balance sheet and related notes give effect to the Arrangement involving SKYE and EHT.
The unaudited pro forma condensed combined balance sheet as of March 31, 2022 combines SKYE’s and EHT’s historical unaudited balance sheets as of March 31, 2022. The unaudited pro forma condensed combined balance sheet as of March 31, 2022 is presented as if the acquisition of EHT by SKYE had occurred on March 31, 2022. The transaction accounting adjustments for the acquisition consist of those necessary to account for the acquisition. For accounting purposes, the Arrangement is accounted for as an asset acquisition in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, as SKYE is acquiring inputs with non-substantive processes, no outputs and no assembled workforce.
This proxy statement contains only a pro forma balance sheet; it does not include pro forma income statements. We excluded the pro forma income statements because we believe they would not be useful or meaningful to shareholders for the following reasons:
•In November 2021, EHT announced that it would exit the cannabis cultivation and production industry and consider other strategic opportunities. Since the announcement, EHT commenced a realization process (See “Information Concerning EHT - EHT Realization Process”) that entailed laying off almost its entire workforce, liquidating substantially all its remaining assets and winding down operations. •After June 30, 2022, EHT expects to have no substantial revenue-generating activities from the cultivation and production of cannabis and only three employees: EHT’s sole executive officer who is overseeing the wind-down, an investor relations employee who we expect to transition to SKYE and a facility manager at the cultivation and production facility, discussed below, who is required to be on site per relevant regulations. Upon the closing of the Arrangement, SKYE expects that EHT will have no revenue-generating activities from the cultivation and production of cannabis and the remaining assets will consist primarily of cash and cash equivalents and real estate.
•Post-closing, SKYE intends to use the funds obtained from the acquisition of EHT to fund SKYE’s clinical studies.
•EHT currently owns a licensed cultivation and production facility which is currently held for sale.
•EHT also owns a vacant lab facility which SKYE is evaluating to determine whether it is suitable to perform its research and development and manufacturing activities. If SKYE determines that it is not suitable or otherwise determines that a sale of the property is in SKYE’s best interest, SKYE will attempt to sell the property.
•SKYE views this transaction as an alternative financing given the cash and cash equivalents held by EHT and targeted the acquisition price to largely represent the liquidation value of EHT, which factored in the present value of EHT’s future wind-down costs.
Wind down costs consist primarily of employee payroll and benefits, legal fees related to the liquidation of EHT’s assets and closing of the transaction, other professional fees for accounting, tax and audit, tax payments, the advisory fee related to the sale of Verdelite, insurance, contract terminations fees and operational costs through the cease operations date at each site.
SKYE estimates that EHT will incur the following costs in the periods specified below to wind-down its operations:
| | | | | | | | |
| Quarter ending: | | (USD)* |
| June 30, 2022 | | $ | 2,098,627 | |
| September 30, 2022 | | 2,244,191 | |
| December 31, 2022 | | 776,878 | |
| March 31, 2023 | | 709,287 | |
| Thereafter | | 42,789 | |
| Total future estimated costs: | | $ | 5,871,772 | |
In addition, SKYE expects to incur increased operating costs post closing as a result of the acquisition which it does not consider to be “wind-down” costs of EHT. These costs are estimated to be between $500,000 and $600,000 annually. These costs relate to the expected hiring of two EHT employees, ongoing legal and professional fees related to the listing on the Canadian Stock Exchange, increased board fees, minimum operational costs to maintain the Avalite facility and other incidental costs.
SKYE excluded costs related to compensation expense that are expected to be triggered upon the closing of the Arrangement and direct costs expected to liquidate EHT’s assets of $827,540 and $1,811,653, respectively, from the wind-down costs disclosed in the table above. Such costs are included in the pro forma condensed combined balance sheet as transaction accounting adjustments.
SKYE expects to incur aggregate transaction costs of $1,678,156 in connection with the Arrangement, of which $339,590 were expensed, $1,292,194 have been considered part of the transaction consideration and $46,372, representing estimated equity issuance costs, have been included as an offset to equity.
Given the shift in, and wind-down of, EHT’s business as described above, SKYE believes EHT’s historical income statements are not reflective of what SKYE’s shareholders should expect from the Arrangement. Accordingly, SKYE has excluded, pro forma income statements that otherwise would have been required.
The historical balance sheets of SKYE and EHT have been adjusted in the accompanying unaudited pro forma condensed combined balance sheet to give effect to pro forma events that are transaction accounting adjustments that are necessary to account for the transaction. The pro forma adjustments are based upon available information and certain assumptions that SKYE management believes are reasonable. The assumptions underlying the pro forma adjustments in the accompanying notes are described in more detail in the notes below, which should be read in conjunction with this unaudited pro forma condensed combined balance sheet. These assumptions are based on preliminary estimates and information. Accordingly, the actual adjustments on the consolidated financial statements upon the completion of the transaction may materially differ from the pro forma adjustments.
The following unaudited pro forma condensed combined financial statements are prepared for illustrative purposes only and are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated as of the date indicated or that may be achieved in the future. They also may not be useful in predicting the future financial condition and results of operations of the combined company. Our actual financial condition and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SKYE
| | | | | | EHT
(US GAAP)
(CAD) | | EHT
(Converted to U.S. GAAP and translated to USD from CAD) | | Transaction Accounting Adjustments | | Pro Forma Combined |
| Note A | | | | | | Notes B, C | | Note D | | Note E | | |
| ASSETS | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 6,006,869 | | | | | | | C$ | 16,040,691 | | | $ | 12,843,781 | | | $ | — | | | $ | 18,850,650 | |
| Restricted cash | 4,572 | | | | | | | — | | | — | | | — | | | 4,572 | |
| Accounts receivable | — | | | | | | | 1,617,255 | | | 1,294,936 | | | — | | | 1,294,936 | |
| Prepaid expenses | 822,541 | | | | | | | 1,982,192 | | | 1,587,141 | | | (1,587,141) | | (a) | 822,541 | |
| Prepaid expenses - related party | 48,908 | | | | | | | — | | | — | | | — | | | 48,908 | |
| Inventory | — | | | | | | | 555,538 | | | 444,819 | | | (444,819) | | (a) | — | |
| Other current assets | 109,750 | | | | | | | — | | | — | | | — | | | 109,750 | |
| Assets held for sale | — | | | | | | | 16,354,037 | | | 13,094,678 | | | (4,446,748) | | (b) | 8,647,930 | |
| Total current assets | 6,992,640 | | | | | | | 36,549,713 | | | 29,265,355 | | | (6,478,708) | | | 29,779,287 | |
| | | | | | | | | | | | | |
| Property, plant and equipment, net | 80,768 | | | | | | | 1,829,261 | | | 1,464,690 | | | (1,464,690) | | (c) | 80,768 | |
| Deposits on materials and equipment | — | | | | | | | 119,022 | | | 95,301 | | | (95,301) | | (d) | — | |
| Operating lease right-of-use asset | 128,935 | | | | | | | — | | | — | | | — | | | 128,935 | |
| Promissory note receivable | — | | | | | | | 407,793 | | | 326,520 | | | (34,913) | | (d) | 291,607 | |
| Other asset | 8,309 | | | | | | | — | | | — | | | — | | | 8,309 | |
| Total assets | $ | 7,210,652 | | | | | | | C$ | 38,905,790 | | | $ | 31,151,866 | | | $ | (8,073,612) | | | $ | 30,288,905 | |
| | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | |
| Accounts payable | $ | 878,720 | | | | | | | C$ | 4,914,407 | | | $ | 3,934,966 | | | $ | — | | | $ | 4,813,686 | |
| Accounts payable - related parties | 24,026 | | | | | | | 17,862 | | | 14,302 | | | — | | | 38,328 | |
| Accrued interest - related party | 218,039 | | | | | | | — | | | — | | | — | | | 218,039 | |
| Accrued payroll liabilities | 237,037 | | | | | | | — | | | — | | | 754,180 | | (e) | 991,217 | |
| Insurance premium loan payable | 214,307 | | | | | | | 715,488 | | | 572,891 | | | — | | | 787,198 | |
| Other current liabilities | 378,106 | | | | | | | — | | | — | | | 1,338,566 | | (f) | 1,716,672 | |
| Derivative liability | 16,077 | | | | | | | — | | | — | | | — | | | 16,077 | |
| Multi-draw credit agreement - related party | 450,000 | | | | | | | — | | | — | | | — | | | 450,000 | |
| Convertible multi-draw credit agreement - related party, net of discount | 1,679,741 | | | | | | | — | | | — | | | — | | | 1,679,741 | |
| Current liabilities held for sale | — | | | | | | | 3,588,719 | | | 2,873,487 | | | (2,873,487) | | (g) | — | |
| Operating lease liability, current portion | 85,601 | | | | | | | — | | | — | | | — | | | 85,601 | |
| Total current liabilities | 4,181,654 | | | | | | | 9,236,476 | | | 7,395,646 | | | (780,741) | | | 10,796,559 | |
| | | | | | | | | | | | | |
| Non-current liabilities | | | | | | | | | | | | | |
| Operating lease liability, net of current portion | 55,906 | | | | | | | — | | | — | | | — | | | 55,906 | |
| Total liabilities | 4,237,560 | | | | | | | 9,236,476 | | | 7,395,646 | | | (780,741) | | | 10,852,465 | |
| | | | | | | | | | | | | |
| Stockholders’ equity | | | | | | | | | | | | | |
| Preferred stock, $0.001 par value; 50,000,000 shares authorized at March 31, 2022; no shares issued and outstanding at March 31, 2022 | — | | | | | | | — | | | — | | | — | | | — | |
| Common stock, $0.001 par value; 5,000,000,000 shares authorized; 912,195,697 shares issued and outstanding at March 31, 2022 | 495,925 | | | | | | | — | | | — | | | 416,271 | | (h) | 912,196 | |
| Additional paid-in-capital | 52,776,729 | | | | | | | 281,381,826 | | | 225,302,428 | | | (209,181,990) | | (i) | 68,897,167 | |
| Accumulated other comprehensive income | — | | | | | | | (245,078) | | | (196,234) | | | 196,234 | | (j) | — | |
| Accumulated deficit | (50,299,562) | | | | | | | (251,467,434) | | | (201,349,974) | | | 201,276,614 | | | (50,372,922) | |
| Total stockholders’ equity | 2,973,092 | | | | | | | 29,669,314 | | | 23,756,220 | | | (7,292,871) | | | 19,436,440 | |
| Total liabilities and stockholders’ equity | $ | 7,210,652 | | | | | | | C$ | 38,905,790 | | | $ | 31,151,866 | | | $ | (8,073,612) | | | $ | 30,288,906 | |
See notes to the unaudited pro forma condensed combined financial information.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
Note 1 - Basis of Presentation
The unaudited pro forma condensed combined balance sheet as of March 31, 2022 assumes that the acquisition was completed on March 31, 2022.
The unaudited pro forma condensed combined balance sheet is presented for informational purposes only and is not necessarily indicative of the combined financial position had the acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position that the Resulting Issuer will experience after the completion of the acquisition.
EHT’s unaudited condensed consolidated balance sheet was prepared in accordance with IFRS as issued by the IASB and is presented in Canadian dollars. Adjustments made to translate the historical condensed combined balance sheet of EHT from Canadian dollars (“CAD”) to US dollars (“USD”) and convert the historical condensed combined balance sheet of EHT from IFRS to GAAP, as issued by FASB, are discussed in greater detail in Note 2.
Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are factually supportable and directly attributable to the acquisition. The unaudited pro forma condensed combined balance sheet does not reflect the cost of any integration activities or benefits from the acquisition.
Note 2 - Pro Forma Adjustments
The following pro forma adjustments give effect to the acquisition.
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2022
| | | | | |
| Note A | Derived from the unaudited condensed consolidated financial statements of SKYE as of March 31, 2022 incorporated by reference in this proxy statement / prospectus. |
| Note B | Derived from the unaudited condensed interim consolidated financial statements of EHT as of March 31, 2022 included elsewhere in this proxy statement / prospectus. |
| Note C | Management determined that no adjustments were needed in order to convert the unaudited condensed interim consolidated financial statements of EHT as of March 31, 2022 from IFRS to US GAAP for the purpose of the pro forma financial information. |
| | | | | |
| Note D | Derived from the unaudited condensed interim consolidated financial statements of EHT as of March 31, 2022 and translated from Canadian dollars (“C$”) to USD. The indicated exchange rate used to translate C$ to USD at March 31, 2022 was the rate of 0.8007 as set out in the table below. |
| | | | | | | | | | | | | | | | | |
| EHT | | Exchange | | EHT |
| (Converted to U.S. GAAP) | | Rate | | (Converted to U.S. GAAP) |
| (CAD) | | 0.8007 | | (USD) |
| ASSETS | | | | | |
| | | | | |
| Current | | | | | |
| Cash and cash equivalents | C$ | 16,040,691 | | | | | $ | 12,843,781 | |
| Accounts receivable | 1,617,255 | | | | | 1,294,936 |
| Prepaid expenses | 1,982,192 | | | | | 1,587,141 |
| Inventory | 555,538 | | | | | 444,819 |
| Assets held for sale | 16,354,037 | | | | | 13,094,678 |
| Total current assets | 36,549,713 | | | | 29,265,355 |
| | | | | |
| Property, Plant and equipment, net | 1,829,261 | | | | | 1,464,690 |
| Deposits on materials and equipment | 119,022 | | | | | 95,301 |
| Promissory note receivable | 407,793 | | | | | 326,520 |
| Total assets | C$ | 38,905,790 | | | | | $ | 31,151,866 | |
| | | | | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| Current liabilities | | | | | |
| Accounts payable and accrued liabilities | $ | 4,914,407 | | | | | $ | 3,934,966 | |
| Accounts payable - related parties | 17,862 | | | | | 14,302 |
| Insurance premium loan payable | 715,488 | | | | | 572,891 |
| Current liabilities held for sale | 3,588,719 | | | | | 2,873,487 |
| Total current liabilities | 9,236,476 | | | | 7,395,646 |
| | | | | |
| SHAREHOLDERS' EQUITY | | | | | |
| Additional paid-in-capital | 281,381,826 | | | | | 225,302,428 |
| Accumulated other comprehensive income | (245,078) | | | | | (196,234) | |
| Accumulated deficit | (251,467,434) | | | | | (201,349,974) | |
| TOTAL SHAREHOLDERS' EQUITY | 29,669,314 | | | | 23,756,220 |
| TOTAL LIABILITIES AND EQUITY | C$ | 38,905,790 | | | | | $ | 31,151,866 | |
| | | | | |
| Note E | The transaction accounting adjustments are summarized as follows: |
a.Prepaid expenses, Inventory and Deposits on materials and equipment are reduced to reflect adjustments to estimated fair value to SKYE.
b.Assets held for sale is decreased by estimated direct costs to liquidate EHT’s assets of $1,811,653, including legal costs, advisory fees and other professional fees. In addition, assets held for sale were reduced by $2,635,095 reflect the fair value to SKYE.
c.Property plant and equipment is adjusted based on a relative fair value allocation to reflect the amount of consideration attributable to the Avalite lab facility which management of SKYE plans to evaluate and currently has no current plans to liquidate.
d.Deposits on materials and equipment and promissory note receivable are reduced to reflect adjustments to estimated fair value to SKYE.
e.Accrued payroll liabilities is adjusted to reflect (i) the severance provision in the COO’s executive employment agreement which provides for total payments in the amount of $480,420, (ii) an in-substance severance arrangement, with a former member of the SKYE Board of Directors which provides for total payments in the amount of $200,400, and (iii) the achievement of a performance condition tied to the closing of the EHT acquisition, which impacts the vesting of one tranche of the stock options granted for an aggregate of 2,000,000
shares of SKYE common stock. This tranche is subject to other vesting provisions meeting the criteria for liability classification, and has an estimated grant date fair value of $73,360.
f.Other current liabilities is adjusted to reflect the accrual for estimated transaction costs of $1,292,194 and the accrual for equity issuance costs of $46,372.
g.Current liabilities held for sale were reduced by the amount of the remaining lease liability related to the Richmond lease which is expected to be terminated prior to closing.
h.Common stock is increased by $416,271 to reflect the par value ($0.001) of 416,270,585 SKYE shares expected to be issued as consideration for all the outstanding shares of EHT. The SKYE shares were valued at $0.038 per share or $15,818,282, plus the issuance of convertible securities for an aggregate fair value of $691,438, transaction costs of $1,292,194 and liabilities assumed of $5,276,339 (the “Purchase Consideration”). The following table summarizes the relative fair value allocation for the preliminary purchase price as of the acquisition date as if the the acquisition was accounted for as an asset acquisition.
| | | | | | | | |
| EHT relative fair value allocation: | | March 31, 2022 |
| | |
| Purchase Consideration | | |
| Common stock | | $ | 15,818,282 | |
| Stock options issued | | 38,918 | |
| Warrants issued | | 652,520 | |
| Transaction costs | | 1,292,194 | |
| Total consideration | | $ | 17,801,914 | |
| | |
| Assets acquired | | |
| Cash and cash equivalents | | $ | 12,843,781 | |
| Accounts receivable | | 1,294,936 | |
| Property, plant and equipment | | — | |
| Current assets held for sale (property, plant and equipment) | | 8,384,886 | |
| Current assets held for sale (intangible assets) | | 99,482 | |
| Current assets held for sale (equity investment) | | 163,561 | |
| Other receivable | | 291,607 | |
| Accounts payable and other current liabilities | | (5,276,339) | |
| Liabilities held for sale | | — | |
| Total net assets acquired | | $ | 17,801,914 | |
i.Additional paid-in capital is adjusted to reflect the following:
(i) The total value of the shares of common stock expected to be issued as consideration for the Acquisition of $15,818,282 less the associated par value of $416,271 recorded in Common stock (“f” above) and less equity issuance costs of $$46,372.
(ii) The estimated fair value of warrants issued as consideration for the Acquisition in the amount of $652,520. These warrants represent EHT warrants outstanding as of March 31, 2022 which will be converted into warrants to purchase shares of SKYE common stock at the agreed-upon exchange ratio of 1.95. The chart below summarizes the details of these warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EHT Warrants | | EHT Exercise
Price (CAD) | | Number of
EHT Warrants
Outstanding | | Adjusted Exercise
Price (USD) | | Term
(Years) | | Number of
SKYE Warrants
Issued and Outstanding |
| November 2019 | | $ | 0.75 | | | 4,385,965 | | | $ | 0.48 | | | 5 | | 8,552,631 | |
| December 2019 | | 0.39 | | | 5,172,942 | | | 0.25 | | | 5 | | 10,087,236 | |
| February 2020 | | 0.39 | | | 7,596,551 | | | 0.25 | | | 5 | | 14,813,274 | |
| February 2020 | | 0.39 | | | 2,748,276 | | | 0.25 | | | 5 | | 5,359,138 | |
| June 2020 | | 0.27 | | | 11,351,351 | | | 0.17 | | | 5 | | 22,135,134 | |
| | | | 31,255,085 | | | | | | | 60,947,413 | |
The assumptions used to value these warrants are as follows:
| | | | | | | | |
| | March 31, 2022 |
| Dividend yield | | 0.00% |
| Volatility | | 107.6%- 126.3% |
| Risk-free interest rate | | 1.74 - 2.43% |
| Expected term (years) | | 1.17 - 2.88 |
(iii) The estimated fair value of options issued as consideration for the Acquisition in the amount of $38,918. These options represent EHT options outstanding as of March 31, 2022 totaling 5,814,356, which will be converted into options to acquire shares of SKYE common stock at the agreed-upon exchange ratio of 1.95 for a total of 11,337,994 SKYE options. The assumptions to value these options is as follows:.
| | | | | | | | |
| | March 31, 2022 |
| Dividend yield | | 0.00% |
| Volatility | | 52.5 - 128.3% |
| Risk-free interest rate | | 0.17-2.45% |
| Expected term (years) | | 0.03 - 4.11 |
(iv) The grant date fair value of $73,360 for one of two tranches of a stock option grant to a former member of the SKYE Board of Directors that provides for 2,000,000 shares of SKYE common stock, subject to an exercise contingency related to the satisfaction of a performance based provision tied to closing of the acquisition. This tranche meets the criteria for equity classification.
(v) The elimination of the historical equity of EHT.
h. Accumulated other comprehensive income and Accumulated deficit are adjusted to reflect the elimination of the remaining historical equity balances of EHT as well as the applicable effects of the acquisition transactions as presented above.
THE ARRANGEMENT AGREEMENT AND RELATED AGREEMENTS
The following is a summary of the principal terms of the Arrangement Agreement. This summary does not purport to be complete and may not contain all of the information about the Arrangement Agreement that is important to SKYE Stockholders. The rights and obligations of the Parties are governed by the express terms and conditions of the Arrangement Agreement and not by this summary or any other information contained in this proxy statement. This summary is qualified in its entirety by, in the case of the Arrangement Agreement, the complete text of the Arrangement Agreement, a copy of which is attached to this proxy statement as Appendix A and is available on EDGAR at www.sec.gov, and in the case of the Plan of Arrangement, the complete text of the Plan of Arrangement, a copy of which is attached at Appendix B to this proxy statement. On May 11, 2022, SKYE entered into an Arrangement Agreement with EHT, pursuant to which SKYE and EHT agreed that, subject to the terms and conditions set forth in the Arrangement Agreement, SKYE will acquire all of the outstanding EHT Shares pursuant to a Plan of Arrangement under the BCBCA. The Arrangement Agreement was amended on June 14, 2022 and July 15, 2022. Upon completion of the Arrangement, EHT Shareholders (other than EHT Dissenting Shareholders) will receive, for each EHT Share held, 1.95 SKYE Common Shares.
The terms of the Arrangement Agreement were the result of arm’s length negotiation between EHT and SKYE and their respective advisors.
Representations and Warranties
Except for its status as the contractual document that establishes and governs the legal relations among EHT and SKYE with respect to the Arrangement, EHT and SKYE do not intend for the Arrangement Agreement to be a source of factual, business or operational information about EHT or SKYE. The Arrangement Agreement contains representations and warranties made by EHT to SKYE, and by SKYE to EHT, which are summarized below. These representations and warranties have been made by each Party solely for the benefit of the other Party and:
•were not intended as statements of fact, but rather as a way of allocating the risk to one of the Parties if those statements prove to be inaccurate;
•have been qualified by certain confidential disclosures that were made to the other Party in connection with the negotiation of the Arrangement Agreement, which disclosures are not reflected in the Arrangement Agreement; and
•may apply standards of materiality (including, in the case of EHT, an EHT Material Adverse Effect and in the case of SKYE, a SKYE Material Adverse Effect) that may be different from that considered material to EHT Shareholders or SKYE Stockholders, or that may have been used for the purpose of allocating risk between the Parties rather than for the purpose of establishing facts.
Moreover, information concerning the subject matter of the representations and warranties in the Arrangement Agreement were made as of specific dates specified therein and may have changed since the date of the Arrangement Agreement. For the foregoing reasons, you should not rely on the representations and warranties contained in the Arrangement Agreement as statements of factual information at the time they were made or otherwise.
The representations and warranties provided by EHT in favor of SKYE relate to, among other things:
(a)corporate organization and similar corporate matters, including the qualification to do business under applicable law, corporate standing and corporate power and authority of EHT to enter into the Arrangement Agreement and perform its obligations thereunder;
(b)capital structure and equity securities;
(c)authority and board approval to enter into the Arrangement Agreement, the execution and delivery of the Arrangement Agreement by EHT and the performance by it of its obligations thereunder, and the completion of the Arrangement not resulting in a violation, conflict or default under EHT’s or its Subsidiaries’ constating documents;
(d)EHT’s ownership of its Subsidiaries, and certain matters with respect to the EHT Subsidiaries;
(e)“reporting issuer” status of EHT, the listing on the CSE of the EHT Shares and compliance with the requirements of the CSE and the OTCQX;
(f)U.S. Securities Laws matters;
(g)the EHT Resolution being the only vote of the EHT Securityholders necessary to adopt the Arrangement Agreement;
(h)EHT and its Subsidiaries’ compliance with Laws and their respective constating documents;
(i)authorizations obtained by EHT and its Subsidiaries in connection with carrying on their business; the delivery to SKYE of accurate and complete copies of the Organizational Documents of each EHT Subsidiary that constitutes a “significant subsidiary” of EHT;
(j)that no steps or proceedings have been taken, instituted or are pending for the dissolution, winding-up or liquidation of EHT or any EHT Subsidiaries and no board approvals have been given to commence any such proceeding;
(k)the absence of any voting trust or similar agreement, other than the EHT Support Agreements;
(l)EHT’s timely and accurate filing of public documents;
(m)the absence of outstanding or unresolved comments with respect to EHT’s public filings and there being no ongoing review or investigation by the securities commission or the CSE;
(n)EHT’s financial statements and financial reporting controls;
(o)the absence of undisclosed liabilities;
(p)litigation matters;
(q)employment and labor matters;
(r)EHT Benefit Plans;
(s)possession of material permits required by applicable laws;
(t)material contracts, including the absence of violation or breach of each such contract that would result in an EHT Material Adverse Effect;
(u)title to property matters;
(v)environmental matters;
(w)taxes;
(x)EHT’s insurance matters;
(y)rights to intellectual property;
(z)access to information, data privacy, and security;
(aa)related party transactions;
(bb)the absence of certain changes or events and the absence of an EHT Material Adverse Effect;
(cc)restrictions on business activities;
(dd)EHT’s compliance with Laws
(ee)performance under material contracts;
(ff)brokers and other expenses;
(gg)delivery of the EHT Fairness Opinion;
(hh)regulatory compliance matters; and
(ii)that none of the information supplied or to be supplied by or on behalf of EHT for inclusion or incorporation by reference in this proxy statement does, at the time this proxy statement is mailed to EHT Shareholders, or will, at the time of the EHT Meeting, contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein, necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading or necessary to correct any statement of a material fact in any earlier communication with respect to the solicitation of proxies for the EHT Meeting which has become false or misleading.
The representations and warranties provided by SKYE in favor of EHT relate to, among other things:
(a)corporate organization and similar corporate matters, including the qualification to do business under applicable law, corporate standing and corporate power and authority of SKYE to enter into the Arrangement Agreement and perform its obligations thereunder;
(b)capital structure and equity securities;
(c)authority and board approval to enter into the Arrangement Agreement, the execution and delivery of the Arrangement Agreement by SKYE, and the performance by it of its obligations thereunder and the completion of the Arrangement not resulting in a violation, conflict or default under SKYE’s or its Subsidiaries’ constating documents;
(d)SKYE’s ownership of its Subsidiaries and certain matters with respect to the SKYE Subsidiaries;
(e)reporting issuer status of SKYE, the listing on the Nasdaq of the SKYE Shares and compliance with the requirements of the Nasdaq;
(f)U.S. Securities Laws matters;
(g)the SKYE Shareholder Approval being the only vote of the holders of any class or series of SKYE’s capital stock necessary to adopt the Arrangement Agreement;
(h)SKYE and its Subsidiaries’ compliance with Laws and their respective constating documents;
(i)authorizations obtained by SKYE and its Subsidiaries in connection with carrying on their business; the delivery to EHT of accurate and complete copies of the Organizational Documents of SKYE and each SKYE Subsidiary that constitutes a “significant subsidiary” of SKYE;
(j)that no steps or proceedings have been taken, instituted or are pending for the dissolution, winding-up or liquidation of SKYE or any SKYE Subsidiaries and no board approvals have been given to commence any such proceeding;
(k)the absence of any voting trust or similar agreement, other than the SKYE Support Agreements;
(l)SKYE s timely and accurate filing of public documents;
(m)the absence of outstanding or unresolved comments with respect to SKYE’s public filings and there being no ongoing review or investigation by a securities authority or stock exchange;
(n)SKYE’s financial statements and financial reporting controls;
(o)the absence of undisclosed liabilities;
(p)litigation matters;
(q)employment and labour matters;
(r)SKYE Benefit Plans;
(s)possession of material permits required by applicable laws;
(t)material contracts, including the absence of violation or breach of each such contract that would result in a SKYE Material Adverse Effect;
(u)title to property matters;
(v)environmental matters;
(w)taxes;
(x)SKYE’s insurance matters;
(y)rights to intellectual property;
(z)access to information, data privacy and security;
(aa)related party transactions;
(bb)the absence of certain changes or events and the absence of a SKYE’s Material Adverse Effect;
(cc)restrictions on business activities;
(dd)SKYE’s compliance with Laws;
(ee)performance under material contracts;
(ff)brokers and other expenses;
(gg)delivery of the SKYE Fairness Opinion;
(hh)regulatory compliance matters; and
(ii)that none of the information supplied or to be supplied by or on behalf of SKYE for inclusion or incorporation by reference in (a) any registration statement, proxy statement or proxy statement required in connection with the transactions contemplated in the Arrangement Agreement will, at the time such document is filed with the SEC or becomes effective under the U.S. Securities Act or (b) this proxy statement will, at the time this proxy statement is mailed to SKYE Stockholders, or at the time of the SKYE Meeting, contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein, necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading or necessary to correct any statement of a material fact in any earlier communication with respect to the solicitation of proxies for the SKYE Meeting which has become false or misleading.
The representations and warranties of EHT and SKYE contained in the Arrangement Agreement shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which the Arrangement Agreement is terminated in accordance with its terms. Notwithstanding the termination of the Arrangement Agreement prior to the Effective Time, and the resulting expiration of the representations and warranties, each Party to the Arrangement Agreement may be liable for any damages arising out of willful breach of any provision of the Arrangement Agreement.
Covenants
General
In the Arrangement Agreement, each of EHT and SKYE has agreed to certain covenants, including customary covenants relating to the operation of their respective businesses in the ordinary course, to use commercially reasonable efforts to satisfy the conditions precedent to their respective obligations under the Arrangement Agreement and the Plan of Arrangement, and to obtain the requisite regulatory approvals set out in the Arrangement Agreement, as described below.
SKYE Interim Covenants Regarding Conduct of Business
The Arrangement Agreement includes a general covenant by SKYE in favor of EHT that, prior to the earlier of the Effective Time and the termination of the Arrangement Agreement, except as expressly provided for in the SKYE Disclosure Letter, as required by applicable Law, as expressly permitted by the Arrangement Agreement or with the prior written consent of EHT, SKYE and the SKYE Subsidiaries will (a) conduct the business and operations of SKYE and the SKYE Subsidiaries, taken as a whole, in all material respects in the ordinary course of business, and (b) use commercially reasonable best efforts to preserve intact and maintain the current business organizations and operations of SKYE and the SKYE Subsidiaries, maintain in effect all existing material SKYE Permits, maintain their assets and properties in good working order and condition, ordinary wear and tear excepted, maintain insurance on their tangible assets and businesses in such amounts and against such risks and losses as are currently in effect and maintain their existing relations and goodwill with Governmental Entities, key employees, lessors, suppliers, customers, regulators, distributors, landlords, creditors, licensors, licensees and other Persons having business relationships with them.
Without limiting the generality of the foregoing, and except as expressly provided for in the SKYE Disclosure Letter, as required by applicable Law, as expressly permitted by the Arrangement Agreement or with the prior written consent of EHT, SKYE has agreed it will not, and will not permit any of the wholly-owned SKYE Subsidiaries to, among other things:
(a)(A) declare, set aside or pay any dividends on, or make any other distribution in respect of any outstanding capital stock of, or other equity interests in, or other securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of specific events) into or exchangeable for any shares of capital stock of, SKYE or any of the SKYE Subsidiaries; (B) split, combine or reclassify any capital stock of, or other equity interests in, SKYE or any of the SKYE Subsidiaries; or (C) purchase, redeem or otherwise acquire, or offer to purchase, redeem or otherwise acquire, any capital stock of, or other equity interests in or outstanding securities of, SKYE or any of the SKYE Subsidiaries, except as required by the terms of any capital stock or equity interest of any SKYE Subsidiary or as contemplated or permitted by the terms of any SKYE Benefit Plan in effect as at the date of the Arrangement Agreement (including any award agreement applicable to any SKYE Option or SKYE RSU outstanding on the date of the Arrangement Agreement or issued in accordance with the Arrangement Agreement);
(b)except for (A) issuances of SKYE Common Stock in respect of any exercise of SKYE Options or settlement of any SKYE RSUs outstanding on the date of the Arrangement Agreement, (B) the issuance of SKYE Common Stock issued pursuant to the exercise of SKYE Options or the vesting of SKYE RSUs, in each case if necessary to effectuate exercise or the withholding of Taxes, (C) the issuance of SKYE Common Stock issued pursuant to the exercise of SKYE Warrants, (D) transactions solely between or among SKYE and its wholly-owned Subsidiaries, and (E) issuance of SKYE Options and SKYE RSUs in the Ordinary Course pursuant to the existing SKYE Benefit Plan, issue, sell, pledge, dispose of or encumber, or agree to or authorize the issuance, sale, pledge, disposition or encumbrance of or purchase or redeem or propose or agree to the purchase or redemption of, (x) any shares of its capital stock or other ownership interest in SKYE or any of the SKYE Subsidiaries, (y) any securities convertible into or exchangeable or exercisable for any such shares or ownership interest or (z) any rights, warrants or options to acquire or with respect to any such shares of capital stock, ownership interest or convertible or exchangeable securities;
(c)except as required by the terms of any SKYE Benefit Plan or applicable Laws, (A) enter into, adopt or terminate any material SKYE Benefit Plan, other than entering into employment agreements in the Ordinary Course that can be terminated within thirty (30) days without penalty or payment of severance, (B) amend any SKYE Benefit Plan, other than amendments in the Ordinary Course (including, for the avoidance of doubt, annual renewals of welfare benefit plans) that do not materially increase the cost to SKYE of maintaining such SKYE Benefit Plan, (C) increase the compensation or severance payable to any current or former employee or director, except in the Ordinary Course consistent with past practice in respect of compensation of employees whose annual base salary is less than US$250,000 or with a title below Chief Development Officer, (D) grant or award, or pay or award, any severance or termination pay, bonuses, retention or incentive compensation, to any current or former employee or director, other than issuance of SKYE Options or SKYE RSUs in the Ordinary Course pursuant to the existing SKYE Benefit Plan, (E) hire or terminate the employment of any employee with an annual base salary greater than or equal to US$250,000 or with a title equal to Chief Development Officer or above, other than terminations for cause, (F) recall any laid off or furloughed employees to the workplace, or return any employees to the workplace, other than in compliance with applicable Laws, (G) implement any layoffs, furloughs or reductions in hours with respect to any officers or employees of SKYE or any of the SKYE Subsidiaries, (H) modify, extend or enter into any employment agreements or (I) recognize or certify any unions, employee representative bodies or other labour organizations as the bargaining representative for any employees of SKYE or
any of the SKYE Subsidiaries; waive the restrictive covenant obligations of any SKYE Employee or any of the SKYE Subsidiaries;
(d)waive the restrictive covenant obligations of any SKYE Employee or any of the SKYE Subsidiaries;
(e)(A) in the case of SKYE, amend or permit the adoption of any amendment to the SKYE Organizational Documents, or (B) in the case of any of the SKYE Subsidiaries, except for amendments that would not materially restrict the operation of their businesses, amend or permit the adoption of any amendment to the SKYE Organizational Documents;
(f)(A) merge, consolidate, combine or amalgamate with any Person or announce, authorize, propose or recommend any such merger, consolidation, combination or amalgamation (other than the Arrangement) or (B) acquire or agree to acquire (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, exchanging, licensing or by any other manner), any properties, assets, business or any corporation, partnership, association or other business organization or division thereof, in each case other than acquisitions of inventory or other assets in the Ordinary Course or pursuant to existing Contracts which are listed in the SKYE Disclosure Letter;
(g)consummate, authorize, recommend, propose or announce any intention to adopt a plan of complete or partial liquidation, bankruptcy or dissolution of SKYE or any of the SKYE Subsidiaries, or a restructuring, recapitalization or other reorganization of SKYE or any of the SKYE Subsidiaries of a similar nature;
(h)authorize, make or commit to make capital expenditures, except to the extent that capital expenditures are required to repair damage resulting from insured casualty events or capital expenditures required on an emergency basis or for the safety of individuals, assets or the environment;
(i)sell, lease, exchange or otherwise dispose of, or agree to sell, lease, exchange or otherwise dispose of, any of its assets or properties (including shares of any SKYE Subsidiary), other than (A) in the Ordinary Course and pursuant to a Contract of SKYE or any of the SKYE Subsidiaries in effect on the date of the Arrangement Agreement and listed in the SKYE Disclosure Letter, or (B) among SKYE and its wholly-owned Subsidiaries or among wholly-owned Subsidiaries of SKYE;
(j)fail to maintain the SKYE Intellectual Property or any other material Intellectual Property owned by SKYE or any of the SKYE Subsidiaries, or maintain rights in material Intellectual Property, in the Ordinary Course, provided, that the foregoing shall not require SKYE or any of the SKYE Subsidiaries to take any action to alter the terms of any license or other Contract with respect to material Intellectual Property;
(k)(A) incur, create or suffer to exist any Lien other than (1) Liens in existence on the date of the Arrangement Agreement or (2) Permitted Liens, or (B) incur, create, assume or guarantee any Indebtedness, other than transactions solely between or among SKYE and its wholly-owned Subsidiaries or solely between or among wholly-owned Subsidiaries of SKYE, and in each case guarantees thereof;
(l)make any pre-payment under an existing Indebtedness;
(m)except as disclosed in the SKYE Disclosure Letter, other than the settlement of any Actions reflected or reserved against on the SKYE Balance Sheet (or in the notes thereto) for an amount not in excess of such reserve, settle or offer or propose to settle, any Action in excess of $200,000 (excluding (A) any audit, claim or Action in respect of Taxes, which shall be governed exclusively by Section 4.1(2)(p) of the Arrangement Agreement and (B) any stockholder litigation against SKYE, EHT or their respective directors or officers relating to the transactions contemplated by the Arrangement Agreement) involving solely the payment of monetary damages by SKYE or any of the SKYE Subsidiaries of any amount exceeding $200,000 in the aggregate (but excluding any amounts paid on behalf of SKYE or any of the SKYE Subsidiaries by any applicable insurance policy maintained by SKYE or any of the SKYE Subsidiaries); provided, however, that neither SKYE nor any of the SKYE Subsidiaries shall settle or compromise any Action if such settlement or compromise (1) involves a material conduct remedy or material injunctive or similar relief, (2) involves an admission of criminal wrongdoing by SKYE or any of the SKYE Subsidiaries, (3) has a materially restrictive impact on the business of SKYE or any of the SKYE Subsidiaries or (4) brought by any present, former or purported holder of any of its securities in connection with the transactions contemplated by the Arrangement Agreement or the Arrangement;
(n)change in any material respect any of its financial accounting principles, practices or methods that would materially affect the consolidated assets, liabilities or results of operations of SKYE and the SKYE Subsidiaries, except as required by U.S. GAAP or applicable Law;
(o)(A) enter into any lease for real property or (B) terminate, amend, assign, transfer, modify, supplement, deliver a notice of termination under, fail to renew or waive or accelerate any rights or defer any liabilities under any material SKYE Real Property Lease;
(p)(A) make (other than in the Ordinary Course), change or rescind any material election relating to Taxes (including any such election for any joint venture, partnership, limited liability company or other investment where SKYE has the authority to make such binding election), (B) amend any Tax Return that is reasonably likely to result in a material increase to a Tax liability (other than any amendment to claim a benefit provided by the CARES Act),
(C) settle or compromise any Tax claim or assessment by any Taxing Authority, or surrender any right to claim a refund, offset or other reduction in Tax liability, except where the amount of any such settlements or compromises or foregone refunds does not exceed $200,000 in the aggregate, (D) change any material method of Tax accounting or any Tax accounting period from those employed in the preparation of its Tax Returns that have been filed for prior taxable years or (E) fail to timely pay any material Tax or file any material Tax Return when due (taking into account any valid extension of time within which to pay or file) and in a manner which is true, correct and complete in all material respects;
(q)except as expressly permitted in the Arrangement Agreement and other than in the Ordinary Course, (A) enter into or assume any Contract that would have been a SKYE Material Contract (excluding any SKYE Benefit Plan) had it been entered into prior to the date of the Arrangement Agreement or (B) fail to comply in all material respects with, terminate, materially amend, assign, transfer, materially modify, materially supplement, deliver a notice of termination under or waive or accelerate any material rights or defer any material liabilities under any SKYE Material Contract (excluding any SKYE Benefit Plan) or any Contract (excluding any SKYE Benefit Plan) that would have been a SKYE Material Contract had it been entered into prior to the date of the Arrangement Agreement, excluding any termination upon expiration of a term in accordance with the terms of such SKYE Material Contract;
(r)fail to maintain in full force and effect in all material respects, or fail to replace or renew, the insurance policies of SKYE and the SKYE Subsidiaries; or
(s)agree to take any action that is prohibited by the foregoing.
EHT Interim Covenants Regarding Conduct of Business
The Arrangement Agreement includes a general covenant by EHT in favor of SKYE that, prior to the earlier of the Effective Time and the termination of the Arrangement Agreement, except as expressly provided for in the EHT Disclosure Letter, as required by applicable Law, as expressly permitted by the Arrangement Agreement or with the prior written consent of EHT, SKYE and the EHT Subsidiaries shall (a) conduct the business and operations of EHT and the EHT Subsidiaries, taken as a whole, in all material respects in the ordinary course of business, and (b) use commercially reasonable efforts to preserve intact and maintain the current business organizations and operations of EHT and the EHT Subsidiaries, maintain in effect all existing material EHT Permits and maintain their existing relations and goodwill with Governmental Entities, key employees, lessors, suppliers, customers, regulators, distributors, landlords, creditors, licensors, licensees and other Persons having business relationships with them. Notwithstanding the foregoing, neither EHT nor any of the EHT Subsidiaries are prohibited from taking commercially reasonable actions required in response to the COVID-19 pandemic.
Without limiting the generality of the foregoing, and except pursuant to the EHT Realization Process, as required by applicable Law, as expressly permitted by the Arrangement Agreement or with the prior written consent of SKYE, EHT has agreed it will not, and will not permit any of the wholly-owned EHT Subsidiaries to, among other things:
(a)declare, set aside or pay any dividends on, or make any other distribution in respect of any outstanding share capital of, or other equity interests in, or other securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of specific events) into or exchangeable for any share capital of, EHT or any of the EHT Subsidiaries, except for (1) regular quarterly cash dividends payable by EHT in respect of EHT Shares and (2) dividends or distributions by a wholly-owned Subsidiary of EHT to EHT or another wholly-owned Subsidiary of EHT; or (B) split, combine or reclassify any share capital of, or other equity interests in, EHT or any of the EHT Subsidiaries;
(b)other than for (A) issuances of EHT Shares in respect of any exercise of EHT Options outstanding on the date of the Arrangement Agreement, (B) the issuance of EHT Shares issued pursuant to the exercise of EHT Options if necessary to effectuate exercise or the withholding of Taxes, (C) the issuance of EHT Shares issued pursuant to the exercise of EHT Warrants, and (D) transactions solely between or among EHT and its wholly-owned Subsidiaries, (E) the issuance of EHT Options in the Ordinary Course pursuant to the EHT Omnibus Incentive Plan, issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, (x) any shares or other ownership interest in EHT or any of the EHT Subsidiaries, (y) any securities convertible into or exchangeable or exercisable for any such shares or ownership interest; and (z) any rights, warrants or options to acquire or with respect to any such shares of capital stock, ownership interest or convertible or exchangeable securities;
(c)other than as required by the terms of any EHT Benefit Plan, (A) enter into, adopt or terminate any material EHT Benefit Plan, other than entering into employment agreements in the Ordinary Course that can be terminated within thirty (30) days without penalty or payment of severance, (B) amend any EHT Benefit Plan, other than amendments in the Ordinary Course (including, for the avoidance of doubt, annual renewals of welfare benefit
plans) that do not materially increase the cost to EHT of maintaining such EHT Benefit Plan, (C) increase the compensation or severance payable to any current or former employee or director, except in the Ordinary Course consistent with past practice in respect of compensation of employees whose annual base salary is less than $200,000 or with a title below Chief Operating Officer, (D) grant or award, or pay or award, any severance or termination pay, bonuses, retention or incentive compensation, to any current or former employee or director, (E) hire or terminate the employment of any employee with an annual base salary greater than or equal to $200,000 or with a title equal to Chief Operating Officer or above, other than terminations for cause, (F) recall any laid off or furloughed employees to the workplace, or return any employees to the workplace, other than in compliance with applicable Laws, (G) modify, extend or enter into any employment agreements or (H) recognize or certify any unions, employee representative bodies or other labor organizations as the bargaining representative for any employees of EHT or any of the EHT Subsidiaries;
(d)in the case of EHT, amend or permit the adoption of any amendment to the EHT Organizational Documents;
(e)(A) merge, consolidate, combine or amalgamate with any Person or announce, authorize, propose or recommend any such merger, consolidation, combination or amalgamation (other than the Arrangement) or (B) acquire or agree to acquire (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, exchanging, licensing or by any other manner), any properties, assets, business or any corporation, partnership, association or other business organization or division thereof, in each case other than acquisitions of inventory or other assets in the Ordinary Course;
(f)consummate, authorize, recommend, propose or announce any intention to adopt a plan of complete or partial liquidation, bankruptcy or dissolution of EHT or any EHT Subsidiary or a restructuring, recapitalization, sale of or other reorganization of EHT or any of any EHT Subsidiary of a similar nature (including a sale of shares of any EHT Subsidiary);
(g)change in any material respect any of its financial accounting principles, practices or methods that would materially affect the consolidated assets, liabilities or results of operations of EHT and the EHT Subsidiaries, except as required by IFRS or applicable Law;
(h)(A) make (other than in the Ordinary Course), change or rescind any material election relating to Taxes (including any such election for any joint venture, partnership, limited liability company or other investment where EHT has the authority to make such binding election), (B) amend any Tax Return that is reasonably likely to result in a material increase to a Tax liability, (C) settle or compromise any Tax claim or assessment by any Taxing Authority, or surrender any right to claim a refund, offset or other reduction in Tax liability, except where the amount of any such settlements or compromises or foregone refunds does not exceed $200,000 in the aggregate, (D) change any material method of Tax accounting or any Tax accounting period from those employed in the preparation of its Tax Returns that have been filed for prior taxable years or (E) fail to timely pay any material Tax or file any material Tax Return when due (taking into account any valid extension of time within which to pay or file) and in a manner which is true, correct and complete in all material respects;
(i)fail to maintain in full force and effect in all material respects, or fail to replace or renew, the material insurance policies of EHT and the EHT Subsidiaries to the extent commercially reasonable in EHT’s business judgment in light of prevailing conditions in the insurance market; or
(j)agree to take any action that is prohibited by the foregoing.
Without limiting the generality of the foregoing, except (i) as required by applicable Law, (ii) as expressly permitted or required by this Agreement, or (iii) with the prior written consent of SKYE (which consent shall not be unreasonably withheld, conditioned or delayed), during the Pre-Closing Period, EHT shall, and shall cause any of the EHT Subsidiaries to (A) duly and timely file with the appropriate Governmental Entity all material Tax Returns required to be filed, which shall be correct and complete in all material respects, (B) pay, withhold, collect and remit to the appropriate Governmental Entity in a timely fashion all amounts required to be so paid, withheld, collected or remitted; (C) keep SKYE reasonably informed of any material events, discussions, notices or changes with respect to any Tax investigation, and (D) consider in good faith any reasonable requests by SKYE that EHT or the EHT Subsidiaries take any action regarding Tax filing matters, including the filing of notices of appeal and other actions in respect of notices of assessment from the applicable Governmental Entity.
Notwithstanding any provision set forth in the Arrangement Agreement, with respect to the EHT Realization Process and in accordance with Section 4.12, subsequent to May 11, 2022: (i) EHT shall only take such steps or pursue actions as are reasonably necessary to effect the transactions set out in Schedule “D”, and shall not take any other steps or actions with respect to the alienation, in any manner whatsoever, of any of the EHT Assets nor shall EHT terminate any agreements, take on any obligations or otherwise modify its business or activities, except with the prior written consent of SKYE or as otherwise permitted by the Arrangement Agreement; and (ii) EHT shall take all steps necessary to ensure that the EHT Subsidiaries shall comply with the provisions of this section.
To the extent required, from the date hereof until the end of the Pre-Closing Period, in relation to the EHT Permits, EHT (which, for purposes of this section, shall include the EHT Subsidiaries) shall duly and timely file any notice or advance notice required under the Cannabis Act (Canada) and all regulations thereunder, as well as any other notice or advance notice required under any other Food and Drug Law.
During the Pre-Closing Period, EHT will, at the request of SKYE, provide such reasonable commercial assistance as is necessary for the directors and officers of SKYE to make an application to obtain security clearance under the Cannabis Act (Canada) (provided, for greater certainty, that obtaining such security clearance shall not be a condition to Closing).
During the Pre-Closing Period, EHT will, at the request of SKYE, provide to SKYE such reasonable commercial assistance as is necessary for the purpose of SKYE preparing a transition plan to meet applicable financial reporting and tax reporting requirements going forward following Closing (provided, for greater certainty, that completion of such plan shall not be a condition to Closing).
To the extent received during the Pre-Closing Period, upon receipt by Avalite of a notice of renewal sent by the Controlled Substances Compliance Division, EHT shall proceed to duly and timely make an application to renew the dealer’s license held by Avalite under the Controlled Drugs and Substances Act (Canada) and shall diligently pursue such application.
In the event the closing of the sale of EHTC set out in Schedule “D” is scheduled to occur during the Pre-Closing Period, EHT shall not proceed with the closing of such sale unless it has, prior to such closing, transferred from EHTC to EHT: (i) all shares of Avalite; (ii) all intellectual property, license agreements and receivables held or owed to EHTC relating to agreements with FlowerPod, LLC; and (iii) the entirety of its operating cash, by way of dividend or in such other manner as is reasonably acceptable to SKYE.
Covenants Relating to the Arrangement
Each of EHT and SKYE further covenanted, from the date of the Arrangement Agreement until the earlier of the termination date of the Arrangement Agreement and the Effective Time, that, among other things:
(a)it shall and shall cause its Subsidiaries to, use commercially reasonable efforts to satisfy (or cause the satisfaction of) all of the conditions precedent required to be fulfilled by it in the Arrangement Agreement to the extent the same is within its control and to take, or cause to be taken, all other actions and to do, or cause to be done, all other things necessary, proper or advisable under all Laws to complete the Arrangement, including using commercially reasonable efforts to promptly:
(i)obtain all necessary waivers, consents and approvals required from, and provide all required notices to, persons party to loan agreements, leases, licenses and other Contracts or Permits;
(ii)obtain all necessary Permits as are required to be obtained by it under all Law;
(iii)defend all lawsuits or other legal, regulatory or other proceedings against it challenging or affecting the Arrangement or the Arrangement Agreement, and oppose, lift or rescind any injunction or restraining order or other order or action seeking to stop, or otherwise adversely affecting, the ability of the Parties to consummate the Arrangement; and
(iv)cooperate with the other Party in connection with the performance by it and its Subsidiaries of their obligations hereunder;
(b)it shall not deliberately take any action, refrain from taking any commercially reasonable action, or permit any action to be taken or not taken, which is inconsistent with the Arrangement Agreement or which would reasonably be expected to materially delay or impede the consummation of the Arrangement, or that will have, or would reasonably be expected to have, the effect of materially delaying, impairing or impeding the granting of the Regulatory Approvals.
Additionally, SKYE has further covenanted and agreed to:
(c)use commercially reasonable efforts to, prior to the completion of the Arrangement, obtain the Stock Exchange Approval; and
(d)allot and reserve for issuance a sufficient number of SKYE Shares to meet the obligations of SKYE under the Plan of Arrangement.
Regulatory Approvals
Pursuant to the terms of the Arrangement Agreement, each of EHT and SKYE shall make all notifications, filings, applications and submissions with Governmental Entities required or advisable in connection with the Regulatory Approvals, including the Required Regulatory Approvals, and shall use its commercially reasonable efforts to obtain as soon as reasonably practicable and maintain the Regulatory Approvals, including the Required Regulatory Approvals.
Additionally, each Party is required to, among other things:
(a)make all notifications, filings, applications and submissions with Governmental Entities required or advisable in connection with the Regulatory Approvals, including the Required Regulatory Approvals, and shall use its commercially reasonable efforts to obtain as soon as reasonably practicable and maintain the Regulatory Approvals, including the Required Regulatory Approvals.
(b)In the case of the Stock Exchange Approval, agree that an initial Listing Statement shall be submitted to the CSE no later than the date of the EHT Circular.
(c)cooperate with one another in connection with obtaining the Regulatory Approvals, including providing or submitting on a timely basis, and as promptly as practicable, all documentation and information that is required, or in the opinion of a Party, acting reasonably, advisable, in connection with obtaining the Regulatory Approvals and use their commercially reasonable efforts to ensure that such information does not contain a misrepresentation; provided, however, that neither Party need provide information that is not in its possession or not otherwise reasonably available to it.
(d)(i) cooperate with and keep one another fully informed as to the status of and the processes and proceedings relating to obtaining the Regulatory Approvals and shall promptly notify each other of any material communication from any Governmental Entity in respect of the Arrangement or the Arrangement Agreement, (ii) respond, as soon as reasonably practicable, to any reasonable requests for information from a Governmental Entity in connection with obtaining a Regulatory Approval, and (iii) not make any submissions or filings to any Governmental Entity related to the transactions contemplated by the Arrangement Agreement, or participate in any meetings or any material conversations with any Governmental Entity in respect of any filings, submissions, investigations or other inquiries or matters related to the transactions contemplated by the Arrangement Agreement, unless it consults with the other Party in advance and, to the extent not precluded by such Governmental Entity, gives the other Party a reasonable opportunity to review drafts of any submissions or filings (and will give due consideration to any comments received from such other Party) and to attend and participate in any communications.
(e)SKYE and EHT will not, and will not permit any of their respective Subsidiaries to, acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any Person, or otherwise acquire or agree to acquire any assets or equity, if the entering into of an agreement relating to or the consummation of such acquisition, merger or consolidation would at the time of entry into such agreement, reasonably be expected to (i) materially increase the likelihood of any Governmental Entity entering an Order prohibiting the consummation of the transactions contemplated by the Arrangement Agreement or (ii) prevent, materially impede or materially delay the receipt of the Required Regulatory Approvals.
(f)If any objections are asserted with respect to the transactions contemplated by the Arrangement Agreement under any Law, or if any proceeding is instituted or threatened by any Governmental Entity challenging or which could lead to a challenge of any of the transactions contemplated by the Arrangement Agreement as not in compliance with Law or as not satisfying any applicable legal text under a Law necessary to obtain the Regulatory Approvals, the Parties shall use their commercially reasonable efforts consistent with the terms of the Arrangement Agreement to resolve such objection or proceeding, as the case may be, so as to allow the Effective Time to occur on or prior to the Outside Date.
(g)Notwithstanding anything to the contrary in the Arrangement Agreement, no Party is permitted or required to divest or to offer to divest any of their assets or properties or to agree to any behavioral remedy, undertaking, commitment, or restriction on the operations of SKYE or EHT in order to secure any Regulatory Approval except with the express consent of both SKYE and EHT.
Access and Information
Each of EHT and SKYE have agreed to give the other Party and its Representatives, upon reasonable notice, reasonable access during normal business hours to its and its Subsidiaries’ (a) premises, (b) property and assets (including books and records), (c) contracts and leases, (d) senior personnel and Representatives and (e) such financial and operating data or other information with respect to the assets or business of such Party and its Subsidiaries as the other reasonably requests, all in accordance with the terms of the Arrangement Agreement.
Insurance and Indemnification
The Arrangement Agreement provides that, prior to the Effective Date, EHT shall, and SKYE may (to the extent determined to be necessary or appropriate by the SKYE Board), purchase customary “tail” policies of directors’ and officers’ liability insurance providing protection no less favorable in the aggregate to the protection provided by the policies maintained by EHT and its Subsidiaries or SKYE and its Subsidiaries, as applicable, which are in effect
immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date.
SKYE will or will cause EHT and its Subsidiaries or SKYE and its Subsidiaries, as applicable, to, maintain such tail policies in effect without any reduction in scope or coverage until January 31, 2023.
SKYE will, from and after the Effective Time, honour all rights to indemnification or exculpation existing as of the date of the Arrangement Agreement in favour of present and former officers and directors of EHT and its Subsidiaries, including all rights pursuant to the Organizational Documents of such entities and any contractual rights. SKYE has acknowledged that such rights shall survive the completion of the Plan of Arrangement and shall continue in full force and effect.
SKYE Covenants Regarding Convertible Securities
The SKYE Board will not accelerate the vesting of the SKYE Options and the SKYE Board will otherwise deal with such securities in accordance with their terms and will take all actions necessary or advisable to ensure that such securities are not affected by the implementation of the Transaction. SKYE shall take all steps in advance of the Effective Date reasonably required by EHT to facilitate the registration of the SKYE Shares underlying the Replacement Warrants and Replacement Options.
EHT Covenants Regarding Convertible Securities
The EHT Board shall not accelerate the vesting of any issued and outstanding EHT Options or EHT RSUs and the EHT Board will otherwise deal with such securities in accordance with their terms.
EHT Covenants regarding Nasdaq Listing
EHT agrees to provide to SKYE or Nasdaq any documents or disclosures reasonably required by Nasdaq with regard to SKYE’s ongoing listing qualification process for the SKYE Common Stock.
Cooperation with Auditors
Each of SKYE and EHT agree to use their best efforts to cooperate with, and cause its auditor to cooperate with, the other Party to provide any financial statements and any other related information required for the EHT Circular, this proxy statement and any other filings related to the Required Regulatory Approvals including as to any reconciliation or conversion into IFRS or U.S. GAAP, as the case may be.
EHT Realization Process
SKYE acknowledged and agreed that the implementation of the EHT Realization Process and the specific actions outlined below were not to be considered in determining whether a representation or warranty of EHT has been breached:
•Termination of the lease agreement between EHTC and 0826239 B.C. LTD. in respect of the EHT Leased Real Property located at 6980 Number 9 Road, Richmond, BC V6W 1G5 and the sale of the greenhouses and other assets owned by EHTC and located thereon.
•Sale of all of the shares of Verdélite Sciences, Inc. and Verdélite Property Holdings, Inc. held by EHT.
•Termination of the subscription agreement between 1306562 BC Ltd., Segev LLP and EHTC dated December 15, 2021.
•Termination of all agreements among EHTC and HYTN Beverage Corp. and assigned by the latter to HYTN Cannabis Inc.
•Termination of all of the EHT and EHT Subsidiaries employees by June 30, 2022 and payment of termination packages in connection therewith in amounts which shall not exceed 110% of the amounts approved by the EHT Board of Directors by way of a director consent on February 25, 2022.
•Termination of the extraction and white label agreement between EHTC and Valens Agritech Ltd. dated November 12, 2019.
•Vertical short-form amalgamation of Emerald Health Naturals Inc. with EHT.
•Termination of all agreements between EHTC and FlowerPod LLC and sale of all shares of FlowerPod LLC held by EHTC
•Transfer of the following, held by EHTC, to EHT: (i) all shares of Avalite; (ii) all intellectual property, license agreements and receivables held or owed to EHTC relating to agreements with FlowerPod, LLC; and (iii) the entirety of its operating cash, by way of dividend or as otherwise directed by SKYE.
•Sale of all the shares of EHTC held by EHT to a third party, provided that the aforementioned item is completed prior to closing of such sale (collectively, the “Realization Actions”).
In completing the EHT Realization Process, EHT will (a) consult with SKYE on the structuring of any transaction proposed pursuant to the EHT Realization Process; (b) provide SKYE a reasonable opportunity to review and provide comments and input on any agreement and the terms of any arrangement proposed to be entered into by EHT to effect any transaction which forms a part of the EHT Realization Process prior to the execution of such agreement and give due consideration to any such comments and input, acting reasonably; (c) use reasonable efforts to complete any transaction which forms a part of the EHT Realization Process in a tax efficient manner including taking into consideration the tax attributes of both EHT and SKYE including following completion of the Arrangement, including, for greater certainty, pursuant to comments or input from SKYE; and (d) take into consideration regulatory, tax and operational considerations of both EHT and SKYE, including following completion of the Arrangement, including, for greater certainty, pursuant to comments or input from SKYE, in proceeding with any transaction which forms the part of the EHT Realization Process.
In the event the closing of the sale of EHTC set out in the EHT Realization Process is scheduled to occur prior to the expiry of the Arrangement Agreement, EHT has agreed not proceed with the closing of such sale unless it has, prior to such closing, transferred from EHTC to EHT: (i) all shares of Avalite; (ii) all intellectual property, license agreements and receivables held or owed to EHTC relating to agreements with FlowerPod, LLC; and (iii) the entirety of its operating cash, by way of dividend or in such other manner as is reasonably acceptable to SKYE.
Pre-Closing Reorganization
EHT will use best efforts to effect such reorganization of its business, operations, subsidiaries and assets or such other transactions (each, a “Pre-Acquisition Reorganization”) as SKYE may reasonably request prior to the Effective Date, and the Arrangement, if required, will be modified accordingly; provided, however, that EHT need not effect a Pre-Acquisition Reorganization which would impede or materially delay the consummation of the Arrangement or completion of any of the transactions set out above in the EHT Realization Process section. Without limiting the foregoing and other than as set forth in the paragraph above, SKYE will use its commercially reasonable efforts to obtain all necessary consents, approvals or waivers from any persons to effect each Pre-Acquisition Reorganization, and EHT will cooperate with SKYE in structuring, planning and implementing any such Pre-Acquisition Reorganization.
SKYE must provide written notice to EHT of any proposed Pre-Acquisition Reorganization (which notice will include full particulars of all material steps and transactions with respect to such Pre-Acquisition Reorganization) at least 15 Business days prior to the mailing date of the EHT Meeting. In addition:
(a)any Pre-Acquisition Reorganization will not become effective unless the Parties will have confirmed in writing the satisfaction or waiver of all conditions in their respective favor set forth in Article 6 and will have confirmed in writing that they are prepared to promptly and without condition proceed to effect the Arrangement;
(b)any Pre-Acquisition Reorganization will be effective as close as reasonably practical to the Effective Date and, in any event, after all Regulatory Approvals are obtained;
(c)any Pre-Acquisition Reorganization will not prejudice EHT or the EHT Shareholders in any material respect;
(d)any Pre-Acquisition Reorganization will not require EHT to obtain the approval of the EHT Shareholders unless the Parties otherwise agree;
(e)any Pre-Acquisition Reorganization will not require any filings with, notifications to or approvals of any Governmental Authority or third party which may not be made, effected or obtained prior to the Effective Date;
(f)any Pre-Acquisition Reorganization will not require EHT to contravene any applicable Laws, its organizational documents or any EHT Material Contract; and
(g)EHT will not be obligated to take any action that could result in any Taxes being imposed on, or any adverse Tax or other consequences to, any EHT Shareholder or holder of EHT Options or EHT Warrants greater than the Taxes or more onerous than the other consequences to such party in connection with the consummation of the Arrangement in the absence of any Pre-Acquisition Reorganization.
EHT and SKYE acknowledge and agree that the planning for and implementation of any Pre-Acquisition Reorganization will not be considered a breach of any covenant under the Arrangement Agreement and will not be considered in determining whether a representation or warranty of EHT hereunder has been breached (including where any such Pre-Acquisition Reorganization requires the consent of any third party under contract).
EHT and SKYE will work cooperatively and use commercially reasonable efforts to prepare prior to the Effective Time all documentation necessary and do such other acts and things as are necessary to give effect to such Pre-Acquisition Reorganization. For greater certainty, EHT will not be liable for the failure of SKYE to benefit from any anticipated Tax efficiency as a result of a Pre-Acquisition Reorganization.
SKYE agrees that it will be responsible for all costs and expenses associated with any Pre-Acquisition Reorganization to be carried out at its request and shall indemnify and save harmless EHT and its affiliates from and against any and all liabilities, losses, damages, claims, costs, expenses, interest awards, judgements and penalties suffered or incurred by any of them in connection with or as a result of any such Pre-Acquisition Reorganization (including in respect of any reversal, modification or termination of a Pre-Acquisition Reorganization).
Covenants Regarding Non-Solicitation
Pursuant to the Arrangement Agreement except as provided in the Arrangement Agreement, each of EHT and SKYE has agreed to not directly or indirectly, through any Representatives, or authorize any Representative to:
(a)solicit, initiate or knowingly encourage or otherwise facilitate (including by way of furnishing or providing copies of, access to, or disclosure of, any confidential information, properties, facilities, books or records of a Party or any Subsidiary) any Acquisition Proposal in respect of such Party or any inquiries, proposals or offers relating to any Acquisition Proposal or that could reasonably be expected to lead to an Acquisition Proposal in respect of such Party;
(b)enter into, engage in, continue or otherwise participate in any discussions or negotiations with any person (other than the other Party) regarding any Acquisition Proposal in respect of such Party or any inquiries, proposals or offers relating to any Acquisition Proposal or that could reasonably be expected to constitute or lead to an Acquisition Proposal in respect of such Party;
(c)make a Change In Recommendation; or
(d)accept, approve, endorse or recommend, execute or enter into, or publicly propose to accept, approve, execute or enter into, any letter of intent, agreement in principle, agreement, arrangement, offer or understanding in respect of an Acquisition Proposal (other than a confidentiality and standstill agreement permitted to be entered into in accordance with the Arrangement Agreement).
Pursuant to the terms of the Arrangement Agreement, each of EHT and SKYE agreed to, and to cause its Representatives to, immediately cease and terminate, and cause to be terminated, any existing solicitation, encouragement, discussion, negotiation, or other activities commenced prior to the date of the Arrangement Agreement with any person (other than the other Party) with respect to any inquiry, proposal or offer that constitutes or could reasonably be expected to constitute or lead to, an Acquisition Proposal, and in connection therewith, each Party agreed to:
(a)immediately discontinue access to and disclosure of any of its confidential information, including any data room and any confidential information, properties, facilities, books and records of such Party or of any of its Subsidiaries; and
(b)within two Business Days of the date of the Arrangement Agreement, request and exercise all rights it has under any confidentiality agreement at the date of the Arrangement Agreement related to any Acquisition Proposal, including an Acquisition Proposal made prior to the date of the Arrangement Agreement, (i) the return or destruction of all copies of any confidential information regarding such Party or any of its Subsidiaries provided to any person relating to an Acquisition Proposal or any inquiry, proposal or offer that could reasonably be expected to lead to an Acquisition Proposal and (ii) the destruction of all material including or incorporating or otherwise reflecting such confidential information regarding such Party or any of its Subsidiaries.
In the Arrangement Agreement, each Party represented that it had not, as of the date of the Arrangement Agreement and in the 12 months prior to the date of the Arrangement Agreement, waived any confidentiality, standstill, non-disclosure, non-solicitation or similar agreement or restriction to which such Party or any of its Subsidiaries is a party. Each Party further agreed to use commercially reasonable efforts to enforce each confidentiality, standstill, non-disclosure, non-solicitation or similar agreement, restriction or covenant to which it or its Subsidiaries is a party and relates to a potential Acquisition Proposal (including a potential Acquisition Proposal made prior to the date of the Arrangement Agreement) and neither it, nor any of its Subsidiaries have or will, without the prior written consent of the other Party (which may be withheld or delayed in the other Party’s sole and absolute discretion), release any Person from, or waive, amend, suspend or otherwise modify such Person’s obligations, or any of its Subsidiaries, under any such confidentiality, standstill, non-disclosure, non-solicitation or similar agreement to which the Party or any of its Subsidiaries is a party. Notwithstanding the foregoing, the Parties acknowledged and agreed that the automatic termination or release of any such agreement, restriction or covenant in accordance with their terms will not be a violation of the non-solicitation provisions of the Arrangement Agreement.
Each Party further agreed to advise its Representatives of the prohibitions set out in the non-solicitation provisions of the Arrangement Agreement and to advise such Representatives that any violation of the restrictions set forth in the non-solicitation provisions of the Arrangement Agreement by a Party’s Representatives is deemed to be a breach of the non-solicitation provisions of the Arrangement Agreement by such Party.
Notification of Acquisition Proposals
Pursuant to the terms of the Arrangement Agreement, if a Party or any of its Representatives receives an Acquisition Proposal or any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to an Acquisition Proposal after the date of the Arrangement Agreement, or any request for copies of, access to, or disclosure of, confidential information relating to such Party or any Subsidiary in connection with such an Acquisition Proposal, inquiry, proposal or offer, such Party shall as soon as practicable and in any event within 24 hours of the receipt thereof notify the other Party (at first orally and then in writing) of such Acquisition Proposal, inquiry, proposal, offer or request.
Such notice shall include a description of the material terms and conditions of such Acquisition Proposal, inquiry, proposal, offer or request and the identity of all persons making the Acquisition Proposal, inquiry, proposal, offer or request and such Party shall provide the other Party with unredacted copies of all written documents, correspondence or other material received in respect of, from or on behalf of any such person or any other information reasonably necessary to keep the other Party informed in all material respects of the Acquisition Proposal. The Party receiving the Acquisition Proposal, inquiry, proposal, offer or request shall keep the other Party informed on a current basis of the status of material or substantive developments and (to the extent such Party is permitted pursuant to the terms of the Arrangement Agreement to enter into discussions or negotiations regarding any such Acquisition Proposal), the status of discussions and negotiations with respect to any such Acquisition Proposal, inquiry, proposal, offer or request or change thereof and shall provide the other Party with copies of all material or substantive correspondence if in writing or electronic form, and if not in writing or electronic form, a description of the material terms of such correspondence sent or communicated to such Party by or on behalf of any person making any such Acquisition Proposal, inquiry, proposal, offer or request or change thereof.
Responding to an Acquisition Proposal
Notwithstanding any provision of the Arrangement Agreement, if at any time following the date of the Arrangement Agreement and prior to, in the case of SKYE, the approval of the SKYE Resolution by the SKYE Stockholders, and, in the case of EHT, the approval of the EHT Resolution by the EHT Shareholders, a Party receives an Acquisition Proposal that did not result from a breach of the non-solicitation provisions of the Arrangement Agreement (it being understood that a Party will not be in breach of the non-solicitation provisions of the Arrangement Agreement if such Party or its Representatives contact the Person who has made an Acquisition Proposal for the sole purpose of clarifying the terms and conditions of such Acquisition Proposal), such Party and its Representatives may engage in or participate in discussions or negotiations regarding such Acquisition Proposal, and may provide copies of, access to or disclosure of information, properties, facilities, books or records of such Party or its Subsidiaries to the person or persons making such Acquisition Proposal, if and only if:
(a)the special committee of such Party first determines in good faith, after consultation with its financial advisors and its outside legal counsel, that such Acquisition Proposal constitutes or could reasonably be expected to constitute or lead to a Superior Proposal;
(b)the person or persons making such Acquisition Proposal was not restricted from making such Acquisition Proposal pursuant to an existing confidentiality, standstill, non-disclosure, use, business purpose or similar restriction with such Party or its Subsidiaries;
(c)such Party has been, and continues to be, in compliance with its obligations under the non-solicitation provisions of the Arrangement Agreement in all material respects;
(d)prior to providing any such copies, access, or disclosure, such Party enters into a confidentiality and standstill agreement with the person or persons making such Acquisition Proposal substantially in the same form as the Confidentiality Agreement and which will not contain an exclusivity provision or other term which would restrict in any manner such Party’s ability to consummate the transactions hereunder or to comply with termination of the Arrangement Agreement its disclosure obligations to the other Party hereunder and any such copies, access or disclosure provided to the person or persons making such Acquisition Proposal shall have already been (or will simultaneously be) provided to the other Party; and
(e)such Party promptly provides the other Party with: (i) written notice stating such Party’s intention to participate in such discussions or negotiations and to provide such copies, access or disclosure; and (ii) prior to providing any such copies, access or disclosure, a true, complete and final executed copy of the confidentiality and standstill agreement, permitted pursuant to the terms of the Arrangement Agreement.
Right to Match
If a Party receives an Acquisition Proposal that constitutes a Superior Proposal (the “Receiving Party”) prior to, in the case of EHT being the Receiving Party, the approval of the EHT Resolution by the EHT Shareholders, and in the case of SKYE being the Receiving Party, the approval of the SKYE Resolutions by the SKYE Shareholders, the Receiving Party may,
subject to the terms of the Arrangement Agreement, enter into a definitive agreement with respect to such Superior Proposal, if and only if:
(a)the person or persons making such Superior Proposal was not restricted from making such Superior Proposal pursuant to an existing confidentiality, standstill, non-disclosure, use, business purposes or similar restriction with the Receiving Party or its Subsidiaries;
(b)the Receiving Party has delivered to the other Party a written notice of the determination of the Receiving Party’s board of directors that such Acquisition Proposal constitutes a Superior Proposal and of the intention of the Receiving Party’s board of directors to enter into such definitive agreement with respect to such Superior Proposal, together with a written notice from the Receiving Party’s board of directors regarding the value (or range of values) in financial terms that the board of directors, in consultation with its financial advisors, has determined should be ascribed to any non-cash consideration offered under such Superior Proposal (the “Superior Proposal Notice”);
(c)the Receiving Party has provided the other Party a copy of the proposed definitive agreement for the Superior Proposal and all supporting materials, including any financing documents supplied to a Receiving Party in connection therewith;
(d)at least five Business Days (the “Matching Period”) have elapsed from the date that is the later of the date on which the other Party received the Superior Proposal Notice and the date on which such other Party received a copy of the definitive agreement and all supporting materials;
(e)during any Matching Period, such other Party has had the opportunity to offer to amend the Arrangement Agreement and the Arrangement in order for such Acquisition Proposal to cease to be a Superior Proposal;
(f)after the Matching Period, the Receiving Party’s board of directors has determined in good faith, after consultation with its outside legal counsel and financial advisors, that such Acquisition Proposal continues to constitute a Superior Proposal (if applicable, compared to the terms of the Arrangement as proposed to be amended by the other Party under the Arrangement Agreement) and that the failure by the board of directors to take such action would be inconsistent with its fiduciary duties; and
(g)prior to or concurrently with entering into such definitive agreement the Receiving Party terminates the Arrangement Agreement pursuant to the termination provisions of the Arrangement Agreement, and pays the SKYE Termination Amount or the EHT Termination Amount, as applicable.
During the Matching Period, or such longer period as the Receiving Party may approve in writing for such purpose: (a) the Receiving Party’s board of directors shall review any offer made by the other Party pursuant to the terms of the Arrangement Agreement to amend the terms of the Arrangement Agreement and the Arrangement in good faith in order to determine whether such proposal would, upon acceptance, result in the Acquisition Proposal previously constituting a Superior Proposal ceasing to be a Superior Proposal; and (b) the Receiving Party shall negotiate, and cause its Representatives to negotiate, in good faith with the other Party to make such amendments to the terms of the Arrangement Agreement and the Arrangement as would enable the other Party to proceed with the transactions contemplated by the Arrangement Agreement on such amended terms. If the Receiving Party’s board of directors determines that such Acquisition Proposal would cease to be a Superior Proposal, the Receiving Party shall promptly so advise the other Party and the Parties shall amend the Arrangement Agreement to reflect such offer made by the other Party, and shall take and cause to be taken all such actions as are necessary to give effect to the foregoing.
Each successive amendment or modification to any Acquisition Proposal that results in an increase in, or modification of, the consideration (or value of such consideration) to be received by the Receiving Party or its shareholders or other material terms or conditions thereof shall constitute a new Acquisition Proposal for the purposes of the Arrangement Agreement, and the other Party will be afforded a new five Business Day Matching Period from the later of the date on which such other Party received the Superior Proposal Notice and the date on which such other Party received all of the materials with respect to the new Superior Proposal from the Receiving Party.
The Receiving Party’s board of directors shall promptly reaffirm the EHT Board Recommendation or the SKYE Board Recommendation, as the case may be, by press release after any Acquisition Proposal which is not determined to be a Superior Proposal is publicly announced or the Receiving Party’s board of directors determines that a proposed amendment to the terms of the Arrangement Agreement by the other Party pursuant to the terms of the Arrangement Agreement would result in an Acquisition Proposal no longer being a Superior Proposal. The Receiving Party shall provide the other Party and its outside legal counsel with a reasonable opportunity to review the form and content of any such press release and shall make all reasonable amendments to such press release as requested by the other Party and its counsel.
If the Receiving Party provides a Superior Proposal Notice to the other Party on a date that is less than 10 Business Days before the EHT Meeting or the SKYE Meeting, as the case may be, the other Party will be entitled to require the Receiving Party to proceed with or adjourn or postpone such EHT Meeting or SKYE Meeting, as the case may be, in accordance with
the terms of the Arrangement Agreement to a date specified by the other Party that is not more than 10 Business Days after the scheduled date of the EHT Meeting or the SKYE Meeting, as the case may be, provided that in no event shall such adjourned or postponed meeting be held on a date that is less than five Business Days prior to the Outside Date.
Conditions to Completion of the Arrangement
Mutual Conditions
The respective obligations of EHT and SKYE to implement the Arrangement and complete the transactions contemplated by the Arrangement Agreement are subject to the fulfillment of each of the following conditions precedent on or before the Effective Time, each of which may only be waived, in whole or in part, with the mutual consent of the Parties:
(a)the Interim Order and the Final Order shall have been obtained on terms consistent with the Arrangement Agreement;
(b)the EHT Arrangement Resolution shall have been passed by the EHT Shareholders at the EHT Meeting in accordance with the Interim Order;
(c)the SKYE Shareholder Approval shall have been obtained at the SKYE Meeting in accordance with Law;
(d)each of the Required Regulatory Approvals shall have been made, given or obtained, on terms satisfactory to the Parties, each acting reasonably, and each such Required Regulatory Approval shall be in full force and effect;
(e)SKYE shall have maintained its OTCQB listing;
(f)the Consideration Shares, Replacement Warrants and Replacement Options to be issued under the Arrangement shall be exempt from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(10) thereof;
(g)the distribution of Consideration Shares, Replacement Warrants and Replacement Options pursuant to the Arrangement shall be exempt from the prospectus and registration requirements of applicable Canadian Securities Law either by virtue of exemptive relief from the securities regulatory authorities of each of the provinces of Canada or by virtue of applicable exemptions under Canadian Securities Laws and shall not be subject to resale restrictions under applicable Canadian Securities Laws (other than as applicable to control persons) or pursuant to Section 2.6 of National Instrument 45-102 – Resale of Securities of the Canadian Securities Administrators);
(h)EHT shall not have sold, transferred or otherwise alienated to a third party the EHT Real Property owned by Avalite located at 9295 198 St #104, Langley, BC V1M 3J9;
(i)other than in connection with the EHT Realization Process, EHT and the EHT Subsidiaries shall have maintained all EHT Permits and shall be in good standing pursuant thereto, evidence of which shall be provided to SKYE to its satisfaction, acting reasonably;
(j)receipt by each of EHT and SKYE of (i) a waiver of all change of control benefits otherwise accruing to continuing management as a result of the Arrangement from the member of EHT management set out in the EHT Disclosure Letter and (ii) waivers of all change of control benefits otherwise accruing to continuing management under outstanding SKYE RSUs and SKYE Options as a result of the Arrangement from members of SKYE management set out in the SKYE Disclosure Letter; and
(k)no Law is in effect that makes the completion of the Transaction illegal or otherwise prohibits or enjoins the Parties from completing the Transaction.
Additional Conditions in Favor of SKYE
The obligation of SKYE to complete the Arrangement is subject to the fulfillment of each of the following additional conditions precedent on or before the Effective Time (each of which is for the exclusive benefit of SKYE and may be waived by SKYE, in whole or in part, at any time):
(a)all covenants of EHT under the Arrangement Agreement to be performed on or before the Effective Date which have not been waived by SKYE shall have been duly performed by EHT in all material respects, and SKYE shall have received a certificate of EHT addressed to SKYE and dated the Effective Date, signed on behalf of EHT by a senior executive officer of EHT, confirming the same as at the Effective Date;
(b)(i) the representations and warranties of EHT set forth in the capital structure, organization, good standing and qualification and corporate authority and approval provisions of Appendix C of the Arrangement Agreement shall be true and correct in all respects as of the date of the Arrangement Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, the accuracy of which shall be determined as of that specified date), except for such failures to be so true and correct that are de minimis; (ii) the representations and warranties of EHT with respect to its Subsidiaries shall be true and correct in all material respects (disregarding for such purposes any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of the date of the Arrangement Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made
as of a specified date, the accuracy of which shall be determined as of that specified date); and (iii) all other representations and warranties made by EHT in the Arrangement Agreement shall be true and correct in all respects (disregarding for such purpose any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of th
