LXRandCo Inc (TSX: LXR), a Montréal-based omni-channel retailer of branded vintage luxury handbags and accessories, has launched a private placement to raise about $5 million.
The investors are affiliates of Gibraltar & Co, a Canadian consumer-focused private investment firm, and Star Orange Enterprise Pte Ltd, an affiliate of Rattha Group.
LXR will use the proceeds to fund its strategic plan, which includes expanding the company’s retail network in Canada and the United States.
In 2017, Gibraltar Growth Corp, a Canadian special purpose acquisition corporation (SPAC), acquired LXR Produits de Luxe International Inc for $82.5 million. The SPAC was renamed LXRandCo.
LXRandCo Announces Non-Brokered Private Placement
MONTREAL, Feb. 25, 2019 /CNW/ – LXRandCo, Inc. (“LXRandCo” or the “Company”) (TSX: LXR, LXR.WT), an international omni-channel retailer of branded vintage luxury handbags and accessories, is pleased to announce a non-brokered private placement (the “Private Placement”) to Gibraltar & Company, Inc., Gibraltar Brands, Inc. and Gibraltar Ventures Fund One Limited Partnership (collectively, “Gibraltar”), which are insiders or affiliates of insiders of the Company, and Star Orange Enterprise Pte. Ltd. (an affiliate of the Rattha Group)(“Rattha”), of 12,500,000 Class B Shares (the “Shares”) in the capital of the Company at a price of $0.40 per Share. The price of $0.40 per Share is equal to a 63% premium to the 5-day volume weighted average trading price of the Shares on TSX leading up to February 4, 2019, the date LXRandCo entered into a binding agreement in respect of the Private Placement. Currently, LXRandCo has 15,676,012 Shares issued and outstanding. Assuming the Private Placement is completed, there will be a 79.74% dilution to the current issued and outstanding Shares of the Company on a pre-Private Placement basis.
The net proceeds of the Private Placement shall be used to fund the execution of LXRandCo’s revised strategic plan. The Company’s plan through 2020 is focused on disciplined revenue growth, margin expansion and sustainable cash flow generation, and includes prudent expansion of the Company’s retail network (store count) in the U.S. and Canada, as well as initiatives intended to expand the underpenetrated e-commerce and wholesale channels. The plan also includes initiatives focused on gross margin expansion, cost management, and working capital management. The proceeds shall also be used for general working capital purposes.
The Private Placement is made upon the unanimous recommendation of the Company’s special committee of independent directors (the “Special Committee”) which was formed in August 2018 to identify and evaluate a broad range of strategic and financing alternatives for the Company. The recommendation of the Special Committee to pursue the Private Placement comes following the Special Committee’s extensive review of alternatives available to the Company. Closing of the Private Placement is subject to receipt of all necessary corporate and regulatory approvals, including the approval of the Toronto Stock Exchange (“TSX”). In this regard, the Private Placement would result in the issuance of a number of Shares to insiders which is greater than 10% of the currently issued and outstanding common shares of the Company and would materially affect control of the Company. Closing of the Private Placement is anticipated to occur on or about March 4, 2019.
Gibraltar and affiliates currently beneficially own, or control or direct, directly or indirectly approximately 3,466,500 Shares, representing 22.2% of Shares as of the date hereof. Upon completion of the Private Placement, Gibraltar and affiliates would beneficially own, or control or direct, directly or indirectly 9,716,500 Shares, representing 34.5% of the issued and outstanding Shares of the Company. In addition, it is expected that Rattha would become an insider of the Company following closing of the Private Placement, holding 6,250,000 Shares representing approximately 22.2% of the Shares.
As Gibraltar are insiders or affiliates of insiders of the Company, the Private Placement constitutes a related party transaction under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) and the Company would ordinarily be required to obtain shareholder approval on a disinterested basis pursuant to Section 604(a) – (i) (transactions which materially affect control of the issuer) and (ii) (issuance of listed securities greater than 10% to insiders) of the TSX Company Manual (the “Manual”).
The Company is in serious financial difficulty as a result of lower sales negatively affecting cash flow and the corresponding difficulty of the Company to secure sufficient third-party financing over the last 12 months due to numerous factors including the previously disclosed restatement of its financial statements, the decreasing share price of LXRandCo on the TSX, and general market conditions. Given the situation, the Company has immediate capital needs and cannot fund its current obligations necessary in order to comply with the terms of its credit facility. Pursuant to Section 604(e) of the Manual, the Company has applied for an exemption from the shareholder approval requirements of the TSX, on the basis of financial hardship, given that the Company is in serious financial difficulty with limited alternatives and the immediacy of the Company’s need to address its financial obligations through the Private Placement does not afford it sufficient time to hold a special shareholders meeting. If granted, the Company will avail itself of the shareholder approval exemption.
The Company expects that, as a consequence of its financial hardship application, the TSX will place LXRandCo under remedial delisting review, which is normal practice when a listed issuer seeks to rely on this exemption. No assurance can be provided as to the outcome of such review and therefore, continued qualification for listing on the TSX.
The Company is also relying on the formal valuation exemption in section 5.5(g) of MI 61-101 and the minority approval exemption in section 5.7(1)(e) of MI 61-101 based on the board of directors of the Company, acting in good faith, having determined, and the Company’s independent directors, acting in good faith, unanimously having determined that the Company is in serious financial difficulty with limited alternatives, that the Private Placement is designed to improve the Company’s financial position, that the terms of the Private Placement are reasonable in the Company’s circumstances, that the immediacy of the Company’s need for financing through the Private Placement does not afford it sufficient time to hold a special shareholders meeting, and that the Private Placement is fair to, and in the best interests of, the shareholders of the Company.
Mr. Camillo di Prata and Mr. Joseph Mimran, directors of the Company, are related parties to Gibraltar and, as such, declared their respective interests to the board of directors of the Company in connection with the Private Placement and did not vote on the resolution in respect of the Private Placement.
The Shares will be subject to a statutory hold period of four months plus a day from the date of issuance in accordance with applicable securities legislation.
LXRandCo is an international omni-channel retailer of branded vintage luxury handbags and other personal luxury products. LXRandCo sources and authenticates high-quality, pre-owned products from iconic brands such as Hermès, Louis Vuitton, Gucci and Chanel, among others, and sells them at attractive prices through: a retail network of stores located primarily in major department stores in the United States and Canada; wholesale operations primarily in the United States; and its own e-commerce website, www.lxrco.com.
For further information: Nadine Eap, Interim Chief Financial Officer, LXRandCo, Inc., +1 (514) 564-9993 ext :037, firstname.lastname@example.org; Lawrence Chamberlain, Investor Relations, LodeRock Advisors, +1 (416) 519-4196, email@example.com