Hycroft Mining Holding Corp (HYMC)

[Tradernick5]

Mudrick Capital ****
Lawyer's response: After asking for the calculation of the $44.82 Strike Price anti-dilution and the 17.5% from Jones et al

Reply from David S. Stone
Partner
Neal, Gerber & Eisenberg LLP
email: [e-mail]
www.nge.com
Two North LaSalle Street
Suite 1700
Chicago, Illinois 60602-3801
T [phone]
F [phone]

Your communication to Mudrick Capital has been forwarded to my attention as legal counsel to Hycroft Mining Holding Corporation (“HYMC”). As provided to the Warrant Representative pursuant to Section 5.2 of the assumed Seller Warrant Agreement and as included on HYMC’s website, I have attached in response to your unsubstantiated allegations, the Warrant Adjustment Certificate setting forth the calculations adjusting the warrant exercise price and the number of shares into which each warrant is exercisable, as calculated pursuant to and in accordance with the terms of the Seller Warrant Agreement.



Further, as provided to John Conner, the authorized Warrant Representative, in response to a similar previous inquiry, he was advised, in relevant part, as follows:



[A]s you are aware, HYMC assumed the obligations and liabilities of Hycroft Mining Corporation ("Seller") in connection with the business combination with HYMC and has treated such business combination as a Fundamental Change under the Warrant Agreement. Pursuant to Section 5.2 of the Warrant Agreement, HYMC provided you with the Warrant Adjustment Certificate (attached) detailing the calculations made by HYMC to adjust the exercise price and the number of shares into which each Warrant is exercisable consistent with the requirements of Section 5.1(d) of the Warrant Agreement. Previously, Seller had provided the notice pursuant to Section 7.1(c) of the Warrant Agreement (attached), which included a disclosure of the disparity between the then current exercise price of the warrants ($5.03 per shares as of May 1, 2020) and the expected value of the underlying Seller common stock prior to consummation of the business combination (ranging from approximately $1.01 per share to $1.12 per share depending upon the number of shares of HYMC Class A common stock redeemed and the number of shares of HYMC Class A common stock issued to Seller and Seller’s noteholders in the business combination). Accordingly, prior to the business combination, the Warrants were substantially out of the money by a significant multiple of value. Further, following completion of the business combination and assumption of the Warrants by HYMC, the stockholders of Seller received 0.1116 shares of HYMC common stock per share of Seller common stock in Seller’s pro rata liquidating distribution of HYMC shares received by Seller in the business combination as part of Seller’s plan of dissolution approved by Seller’s stockholders.



All of these calculations are set forth in detail in the Warrant Adjustment Certificate and consistent with the language of Section 5.1 – Mechanical Adjustments, subsection (d) of the Warrant Agreement, which provides that upon a Fundamental Change, the rights of the Warrant Holders will be adjusted based upon the consideration received by Seller's stockholders in such transaction. Specifically, the applicable proviso in Section 5.1(d) of the Warrant Agreement explicitly states that the securities to be received by the Warrant Holder upon exercise of a Warrant “following such Fundamental Change shall be calculated on the applicable Exercise Date in a manner consistent with, and on terms as nearly as equivalent as practicable to, the provisions of Section 1.1qq [Per Warrant Share Number] and Section 4.1 [Exercise Price] with respect to the aggregate consideration received by the holders of shares of [Seller common stock] in such Fundamental Change.” This means that the Warrant Holders’ rights shall be adjusted to convert into HYMC Shares—the same securities received by Seller and distributed to Seller's stockholders immediately following the business combination in the plan of liquidation —on terms as nearly as equivalent as practicable as such Warrant Holder would have received if such Warrant had been exercised immediately prior to the business combination. The Warrant Agreement, however, does not extend into the capital structure of HYMC, nor does the adjustment of the Warrant Holders’ rights depend upon the capital structure of HYMC. Rather, the required adjustment of the Warrant Holders’ rights is based solely upon the consideration that is received by Seller’s stockholders in any Fundamental Change. As Section 5.1(d) also states: "the Holder of each Warrant outstanding immediately prior to the occurrence of such Fundamental Change will have the right upon subsequent exercise (and payment of the applicable Exercise Price) to receive . . . the kind and amount (subject to the proviso of this sentence [set forth above]) of stock . . . that such Holder would have received if such Warrant had been exercised pursuant to the terms hereof immediately prior thereto.” Accordingly, as Seller's stockholders did not receive any form of anti-dilution protection with regard to HYMC's capital structure, neither are the Warrant Holders entitled to anti-dilution protection with regard to such Warrants; but are placed in a position as “equivalent as practicable” with respect to the per Warrant share number and exercise price as if such Warrants had been exercised immediately prior to the Fundamental Change.





David S. Stone
Partner
Neal, Gerber & Eisenberg LLP
email: [e-mail]

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