| Item 1.01. | Entry into a Material Definitive Agreement. |
Underwriting Agreement
On November 19, 2021, in connection with DIRTT Environmental Solutions Ltd.’s (the “Company”) underwritten public offering (the “Offering”) of C$35.0 million aggregate principal amount of the Company’s 6.25% convertible unsecured subordinated debentures due 2026 (the “Debentures”), the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with National Bank Financial Inc., Craig-Hallum Capital Group LLC, Raymond James Ltd. and Paradigm Capital Inc. (collectively, the “Underwriters”). Pursuant to the Underwriting Agreement, the Company granted the Underwriters an over-allotment option, exercisable in whole or in part at any time up to the 30th day following the closing of the Offering, to purchase up to an additional C$5.25 million aggregate principal amount of Debentures on the same terms as the Debentures offered in the Offering. The Underwriting Agreement contains customary representations and warranties, agreements and obligations, closing conditions and termination provisions.
The Underwriting Agreement also provides that the Company will indemnify the Underwriters and their directors, officers, partners, agents, employees and advisors against certain liabilities and expenses. The Offering is expected to close on or about December 1, 2021, subject to customary closing conditions.
The Debentures are being concurrently offered in the United States and Canada (excluding Quebec) pursuant to a “shelf” registration statement on Form S-3 (No. 333-251660) filed with the Securities and Exchange Commission under United States law and a short form prospectus under Canadian law. The Company intends to use a portion of the net proceeds of the Offering, together with cash reserves on hand, to fund its anticipated 2022 capital expenditure program of approximately $7.0 million, comprised of approximately $2.5 million related to refreshes of DIRTT Experience Centers, continued enhancement of the Company’s customer relationship management system and website redesign, approximately $2.5 million on software development and approximately $2.0 million on manufacturing and other capital upgrades. The remaining net proceeds of the Offering are expected to be used, initially, to support the continued funding of the Company’s manufacturing and commercial activities as the coronavirus (“COVID-19”) pandemic recovery occurs, and to provide incremental liquidity to support the Company’s operations and growth objectives.
The Underwriting Agreement is filed as Exhibit 1.1 hereto, and the terms and conditions thereof are incorporated herein by reference. The foregoing description of the Underwriting Agreement is qualified in its entirety by reference to such exhibit.
Royal Bank of Canada Credit Agreement Amendment
As previously disclosed, on November 15, 2021, the Company, DIRTT Environmental Solutions, Inc. and the Royal Bank of Canada (“RBC”) entered into the First Amendment and Consent to Loan Agreement (the “RBC Facility Amendment”). The RBC Facility Amendment amended the loan agreement, dated February 12, 2021, by and among the Company, DIRTT Environmental Solutions, Inc. and RBC to, among other things, permit the Company to issue additional convertible unsecured debentures in an aggregate principal amount not to exceed $C50.0 million.
The RBC Facility Amendment is filed as Exhibit 10.1 hereto, and the terms and conditions thereof are incorporated herein by reference. The foregoing description of the RBC Facility Amendment is qualified in its entirety by reference to such exhibit.
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements that involve substantial risks and uncertainties including, without limitation, statements regarding the anticipated closing of the Offering. The words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed or implied in such statements. Due to the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that could have an adverse effect on our business, financial condition, results of operations and growth prospects include, but are not limited to, the uncertainties related to market conditions and the completion of the Offering on the anticipated terms or at all, the severity and duration of the COVID-19 pandemic and related economic repercussions and other risks described under the headings “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020 and our subsequently filed Quarterly Reports on Form 10-Q. The forward-looking statements speak only as of the date made and, other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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