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
(Amendment No. 1)2)
| Filed by the Registrantþ | |||
| Filed by a Party other than the Registrant¨ | |||
| Check the appropriate box: | |
| þ | Preliminary Proxy Statement |
| ¨ | Confidential, for |
| ¨ | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material |
Acreage Holdings, Inc.
(Name of Registrant as Specified In Its Charter)
| ACREAGE HOLDINGS, INC. |
| (Name of Registrant as Specified In Its Charter) |
| (Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
| Payment of Filing Fee (Check the appropriate box): | ||
| ¨ | No fee required. | |
| þ | ||
| Fee paid previously with preliminary materials. | ||
| ¨ | ||
No securities regulatory authority or stock exchange in Canada, the United States or any other jurisdiction has expressed an opinion about, or passed upon the fairness or merits of, the transactions described in this document, the securities offered pursuant to such transactions or the adequacy of the information contained in this document and it is an offense to claim otherwise.
NOTICE OF SPECIAL MEETING OF FLOATING SHAREHOLDERS
to be held September 16, 2020March 15, 2023
and
PROXY STATEMENT AND MANAGEMENT INFORMATION CIRCULAR
with respect to a proposed
AMENDED PLAN OF ARRANGEMENT
involving
ACREAGE HOLDINGS, INC.,
SECURITYHOLDERSHOLDERS OF CLASS D SUBORDINATE VOTING SHARES OF ACREAGE HOLDINGS, INC.
and,
CANOPY GROWTH CORPORATION and
CANOPY USA, LLC
RECOMMENDATION TO FLOATING SHAREHOLDERS:
THE BOARD OF DIRECTORS OF ACREAGE HOLDINGS, INC. RECOMMENDS THAT FLOATING SHAREHOLDERS VOTE IN FAVORFAVOUR OF THE AMENDMENTARRANGEMENT RESOLUTION
These materials are important and require your immediate attention. They require shareholders of Acreage Holdings, Inc. (“Acreage”) to make important decisions. If you are in doubt as to how to make such decisions, please contact your financial, legal or other professional advisor.
The accompanying proxy statement and management information circular is dated AugustFebruary [¨], 2020 and is first being mailed to shareholders of Acreage on or about August 21, 2020.2023
These materials are important and require your immediate attention. They require holders (the “Floating Shareholders”) of Class D subordinate voting shares of Acreage Holdings, Inc. (“Acreage”) to make important decisions. If you are in doubt as to how to make such decisions, please contact your financial, legal or other professional advisor. The accompanying proxy statement and management information circular is dated February [¨], 2023 and is first being mailed to Floating Shareholders on or about February [¨], 2023. If you have any questions or require assistance, please contact Morrow Sodali, the strategic shareholder advisor and proxy solicitation agent for Acreage, by telephone at 1.888.444.0623 toll-free in North America (+1.289.695.3075 collect) or by e-mail at assistance@morrowsodali.com, or your professional advisor. |
If you have any questions or require assistance, please contact Kingsdale Advisors, the strategic shareholder advisor and proxy solicitation agent for Acreage, by telephoneMorrow Sodali at 1-877-657-58561.888.444.0623 toll-free in North America (+1-416-867-2272 collect)or 1.289.695.3075 outside of North America or by e-mailemail at contactus@kingsdaleadvisors.com, or your professional advisor.
August [¨], 2020assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
August [¨], 20202023
Dear Floating Shareholder:
The Board of Directors (the “Acreage Board”) of Acreage Holdings, Inc. (“Acreage”) cordially invites you to attend the special meeting (the “Meeting”) of holders (the “Floating Shareholders”) of Acreage’s issued and outstanding Class D subordinate voting shares (the “Floating Shares”) to be held at 11:12:00 a.m.p.m. (New York time) on September 16, 2020. In light of the recent coronavirus (COVID-19) outbreak and in order to address potential issues arising from the unprecedented public health impact of the novel coronavirus (COVID-19), comply with applicable public health directives that may be in force at the time of the Meeting, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, theMarch 15, 2023. The Meeting will be held in a virtual format which will be conducted via live webcast online at web.lumiagm.com/221798142244671399 (password: Acreage2020acreage2023). Floating Shareholders will not need, to, or be able to, physically attend the Meeting. Floating Shareholders will have an equal opportunity to attend, ask questions and vote at the Meeting online regardless of their geographic location. Inside this document, you will find important information and instructions about how to participate in the Meeting.location or equity ownership.
On JuneOctober 24, 2020,2022, Acreage entered into a proposalan arrangement agreement (the “Floating Share Arrangement Agreement”) with Canopy Growth Corporation (“Canopy Growth”) (TSX: WEED, NASDAQ: CGC) and Canopy USA, LLC (“Canopy USA”), pursuant to which, sets out, among other things,subject to approval of the Floating Shareholders and the terms and conditions upon whichof the parties are proposing to enter into an amending agreement (the “Amending Agreement”) to amend the existing arrangement agreement between Acreage and Canopy Growth dated April 18, 2019, as amended on May 15, 2019 (the “ExistingFloating Share Arrangement Agreement,”), amend Canopy USA will acquire all of the issued and restate the existingoutstanding Floating Shares by way of a court-approved plan of arrangement (the “Amended Plan ofFloating Share Arrangement”) and implement the Amended Plan of Arrangement pursuant. Pursuant to the Business Corporations Act (British Columbia)Floating Share Arrangement, Canopy USA will acquire all of the issued and outstanding Floating Shares on the basis of 0.45 of a common share of Canopy (each whole share, a “Canopy Share”) for each Floating Share held at the time of the acquisition of the Floating Shares (the “Amended ArrangementConsideration Shares”).
At the Meeting, you will be asked to consider and approve a special resolution authorizing and approving (i) the Amended Arrangement, (ii) the Amending Agreement, (iii) the Amended Plan of Arrangement, and (iv) the second amended and restated equity incentive plan (the “Amended and Restated Omnibus Equity Incentive Plan”).Floating Share Arrangement.
Please complete the enclosed form of proxy and submit it to our transfer agent and registrar, Odyssey Trust Company, as soon as possible but not later than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of the Meeting or any adjournment or postponement thereof.
Pursuant to the Amended Plan of Arrangement, among other things, Canopy Growth will make an aggregate cash payment of US$37,500,024 to the Shareholders and certain holders of securities exchangeable for Existing Shares and Acreage will complete a capital reorganization (the “Capital Reorganization”) whereby: (i) each Class A subordinate voting share (each, an “Existing SVS”) will be exchanged for 0.7 of a Class E subordinate voting share (each whole share, a “Fixed Share”) and 0.3 of a Class D subordinate voting share (each whole share, a “Floating Share”); (ii) each Class B proportionate voting share (each, an “Existing PVS”) will be exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each Class C multiple voting share (each, an “Existing MVS”, and together with the Existing SVS and Existing MVS, the “Existing Shares”) will be exchanged for 0.7 of a new multiple voting share (each whole share, a “Fixed Multiple Share”) and 0.3 of a Floating Share. Each Fixed Existing MVS will be entitled to 4,300 votes at all meetings of Shareholders with each Fixed Share and each Floating Share entitled to one vote per share at such meetings.
As a condition to implementation of the Amended Arrangement, an affiliate of Canopy Growth (the “Lender”) will advance the first tranche of US$50,000,000 of a loan of up to US$100,000,000 (the “Loan”) to an affiliate of the Company that operates solely in the hemp industry in full compliance with all applicable laws (“Hempco”) pursuant to a secured debenture (the “Debenture”).
Pursuant to the Amended Plan of Arrangement, upon the occurrence of a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States or waiver thereof (at the discretion of Canopy Growth), Canopy Growth will, subject to the satisfaction or waiver of certain closing conditions set out in the Amended Arrangement Agreement: (i) acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on the basis of 0.3048 of a common share in the capital of Canopy Growth (a “Canopy Growth Share”) for each Fixed Share held at the time of the acquisition of the Fixed Shares (the “Acquisition Time”), subject to adjustment inIn accordance with the terms of the Amended Plan ofFloating Share Arrangement (the “Agreement, Canopy Call Option”); and (ii) have the right (but not the obligation) (the “Floating Call Option”), exercisable for a period of 30 days following the Floating Rate Dateirrevocably waived its option to acquire all of the issued and outstanding Floating Shares. Upon exercise of the Floating Call Option, Canopy Growth may acquire the Floating Shares for cash or forunder the plan of arrangement implemented on September 23, 2020 involving Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equaland Acreage (the “Existing Arrangement”) pursuant to the volume-weighted average trading pricearrangement agreement between Canopy and Acreage dated April 18, 2019, as amended (the “Existing Arrangement Agreement”).
In accordance with the terms of the Floating Shares onShare Arrangement Agreement, Canopy will, subject to the Canadian Securities Exchangeterms and conditions therein, exercise its option pursuant to the Existing Arrangement Agreement (the “CSEFixed Call Option”) (or other recognized stock exchange on which the Floatingto acquire Acreage’s outstanding Class E subordinate voting shares (the “Fixed Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise)”), representing approximately 70% of the Canopy Call Option, subject to a minimum amounttotal shares of US$6.41. If paid in Canopy Growth Shares, each Floating Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the New York Stock ExchangeAcreage (the “NYSEAcreage Shares”) (oras at the date hereof, at a fixed exchange ratio of 0.3048 of a Canopy Share for each Fixed Share held, such other recognized stock exchange on whichexercise to occur no later than five business days following the satisfaction of all required conditions. Canopy Growth Shares are primarily traded if not then traded onhas announced that it expects Canopy USA to complete the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option (the “Floating Ratio”). The Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to the Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant tounder the Floating Call Option, if exercised, will take place concurrently with the closingShare Arrangement immediately prior to completion of the acquisition of the Fixed Shares pursuant to the CanopyFixed Call Option. It is proposed thatCompletion of the Canopyacquisition of the Fixed Shares following exercise of the Fixed Call Option andis subject to the satisfaction or waiver of certain conditions set forth in the Existing Arrangement Agreement.
Upon completion of: (i) the acquisition of the Floating Call Option will expire 10 years from the Amendment Time. There can be no guarantee asShares pursuant to the valueFloating Share Arrangement; and (ii) the acquisition of athe Fixed Shares pursuant to the Existing Arrangement, Canopy Growth Share atUSA will own 100% of the Acquisition Time.issued and outstanding Acreage Shares.
The Special CommitteeAcreage Board and a special committee comprised of three independent members of the Acreage Board (the “Special Committee”) considered alternatives and a number of factors with respect to the Floating Share Arrangement including, among others, the following:
| (a) |
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| (b) |
| (c) |
| (d) | Participate at the Onset of Canopy |
| (e) |
| (f) | |
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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| (g) | Support of Floating Shareholders. Certain directors and current and former officers of Acreage entered into voting support agreements pursuant to |
| (h) | Superior Proposal. Pursuant to the Floating Share Arrangement Agreement, the Acreage Board remains able to respond to an unsolicited written Acquisition Proposal (as defined in the Circular) on |
For additional information with respect to these and other anticipated benefits of the AmendedFloating Share Arrangement, see the section in the proxy statement and management information circular accompanying this letter (the “Circular”) entitled “The AmendedFloating Share Arrangement – Reasons for the AmendedFloating Share Arrangement”.
TheTo be adopted, the special resolution approving the AmendedFloating Share Arrangement the Amending Agreement, the Amended Plan of Arrangement and the Amended and Restated Omnibus Equity Incentive Plan (the “AmendmentArrangement Resolution”) must be approved by by: (i) at least 66⅔% of thethe votes cast by Floating Shareholders, present virtually or represented by proxy and entitled to vote at the Meeting by the holdersMeeting; and (ii) in accordance with Multilateral Instrument 61-101 – Protection of Existing Shares, voting together as a single class. In addition, the Amendment Resolution is subject to approval byMinority Security Holders in Special Transactions (“MI 61-101”), a simple majority of votes cast by the holders of Existing SVS and Existing PVS,Floating Shareholders, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes in respect of ExistingFloating Shares which are owned, held, controlled or directed by Mr. Kevin Murphy. The Amendment Resolution is also subject to the approval of a simple majority of the votes cast by the holdersany “interested party”, any “related party” of outstanding Existing SVS, Existing PVS and Existing MVS, voting together as a single class, excluding the votesan “interested party” or any “joint actor” (as such terms are defined in respect of Existing Shares which are owned, held, controlled or directed by Mr. Murphy.MI 61-101) (together, the “Interested Parties”). Abstentions and broker non-votes will not have any effect on the approval of the AmendmentArrangement Resolution. The votes attaching to the Floating Shares held by the Interested Parties will be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of MI 61-101.
Eight Capital has delivereddelivered an opinion dated October 24, 2022 to the special committeeSpecial Committee which states that, as of the date thereof, and based upon and subject to the assumptions, qualifications and limitations contained therein, the number of Canopy Shares per Floating Share to be received by the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) (the “Eight Capital Fairness Opinion”).
In addition, the Acreage Board (the “received an opinion from Canaccord Genuity Corp. (“Special CommitteeCanaccord Genuity”), which states that, as of the date thereof, and based upon and subject to the assumptions, qualificationsqualifications, explanations and limitations set out therein,forth therein, and such other matters as Canaccord Genuity considered relevant, the considerationnumber of Consideration Shares to be receivedreceived by theFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the AmendedFloating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (the(other than Canopy USA, Canopy and/or their respective affiliates) (the “NewCanaccord Genuity Fairness Opinion” and, together with the Eight Capital Fairness Opinion, the “Fairness Opinions”).
After consulting with Acreage management and receiving advice and assistance offrom its financial and legal advisors, and after careful consideration of alternatives and a number of alternatives and factors, including, among others, receipt of the unanimous recommendation from the Special Committee, the New Fairness OpinionOpinions and the factors set out in the Circular under the heading “Reasons for the AmendedFloating Share Arrangement”, the members of the Acreage Board unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each having declared histheir interest in the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstainedabstained from voting in respect thereof) determined that the AmendedFloating Share Arrangement and entry into the ProposalFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to Floating Shareholders and recommend that Floating Shareholders vote FOR the AmendmentArrangement Resolution. The accompanying Circular describes the background to the Acreage Board’s determinations and recommendations.
The accompanying Circular contains a detailed description of the AmendedFloating Share Arrangement and includes other information to assist you in considering the matters to be voted upon which we encourage you to carefully consider. If you require assistance, you should consult your financial, tax, legal and other professional advisors.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Your vote is important regardless of the number of ExistingFloating Shares you own. All Floating Shareholders are encouraged to take the time to complete, sign, date and return the applicable form of proxy in accordance with the instructions set out therein and in the accompanying Circular so that your ExistingFloating Shares are voted at the Meeting in accordance with your instructions. If you are a non-registered Floating Shareholder and hold your ExistingFloating Shares through a broker, custodian, nominee or other intermediary, please follow their instructions.
Please vote as soon as possible.
While certain matters, such as the timing of the receipt of court approval and the satisfaction of certain other conditions, are beyond Acreage’s control, if the requisite approvals are obtained from Floating Shareholders, it is anticipated that the AmendedFloating Share Arrangement will be completed in Septemberthe second half of 2020.2023.
Enclosed is a letter of transmittal for registered Shareholders explaining how you can deposit your Existing Shares and obtain the Fixed Shares and Floating Shares in exchange therefor in connection with the Capital Reorganization. The letter of transmittal will also be available on the Company’s website at [] as well as on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar or by contacting Odyssey Trust Company (using the information set out on the back of the accompanying Circular).
If you have any questions regarding the submission of your proxy, please contact Odyssey Trust Company, at its NorthNorth American toll-free number: 1-888-290-1175 or Kingsdale Advisors,Morrow Sodali, the strategic advisor and the proxy solicitationsolicitation agent for Acreage, by telephone at 1-877-657-58561.888.444.0623 toll-free in North America (+1-416-867-2272(1.289.695.3075 collect) oror by e-mail at contactus@kingsdaleadvisors.comassistance@morrowsodali.com.
On behalf of Acreage, I would like to thank all ShareholdersAcreage shareholders for your ongoing support.
Sincerely,
“William C. Van Faasen”Peter Caldini
William C. Van Faasen
Interim Chief Executive Officer
Acreage Holdings, Inc.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
TO BE COUNTED VOTES MUST BE RECEIVED BY ODYSSEY TRUST COMPANY NO LATER THAN 12:00 P.M. (EASTERN STANDARD TIME) ON MARCH 13, 2023
The time limit for the deposit of proxies/voting instruction forms may be waived or extended by the Chair of the Meeting at his discretion without notice.
In order to ensure that your proxy/voting instruction form is received in time for Acreage Holdings, Inc.’s Special Shareholder Meeting to be held on March 15, 2023, we recommend that you vote in any of the following ways:
VOTING | BENEFICIAL (NON-REGISTERED) If your shares are held with a broker, bank | REGISTERED |
 | BY INTERNET Go to www.proxyvote.com and follow the instructions. You will need your 16-digit control number found on your voting instruction form. | Go to https://login.odysseytrust.com/pxlogin and follow the instructions. You will need your 12-digit control number, which is on your proxy form. |
 | BY PHONE: Canada: In English: 1-800-474-7493 In French: 1-800-474-7501 U.S.A.:1-800-454-8683 | N/A |
 | BY FACSIMILE: Canada: Fax your voting instruction form to 1-905-507-7793 or toll-free to 1-866-623-5305 in order to ensure that your vote is received before the deadline. | N/A |
| BY MAIL Complete and return the voting instruction form and return it in the envelope provided. | Complete, sign and date your proxy form and return it in the envelope provided or mail to: Odyssey Trust Company Attention: Proxy Department 323 – 409 Granville Street, Vancouver, BC V6C 1T2 |
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that a special meeting (the “Meeting”) of the holders (the “Existing SVSFloating Shareholders”) of Class AD subordinate voting shares (the “Existing SVS”), the holders (the “Existing PVS Shareholders”) of Class B proportionate voting shares (the “Existing PVS”) and the holders (the “Existing MVS Shareholders” and, together with the Existing SVS Shareholders and the Proportionate Shareholders, (the “Shareholders”) of Class C multiple voting shares (the “Existing MVS”, and together with the Existing SVS and the Existing PVS, the “ExistingFloating Shares”) of Acreage Holdings, Inc. (“Acreage” or the “Company”) will be held on September 16, 2020March 15, 2023 at 11:12:00 a.m.p.m. (New York time) for the following purposes:
| 1. | to consider pursuant to an interim order of the Supreme Court of British Columbia (the “Court”) dated January 18, 2023, as varied on [ |
| 2. | to transact such other business as may properly be brought before the Meeting or any adjournment or postponement thereof. |
The Circular provides additional information relating to the matters to be addressed at the Meeting, including the AmendedFloating Share Arrangement.
The full text of the Amendedplan of arrangement (the “Floating Share Plan of Arrangement”) effecting the Amending AgreementFloating Share Arrangement and the Amendment Interim Order are attached to the Circular as Appendix “C”, Appendix “B” and Appendix “E”“F”, respectively. A copy of the Floating Share Arrangement Agreement has been filed under Acreage’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar.
Additional information relating to the matters to be brought before the Meeting is set forth in the Circular which accompanies this Notice.
The Company’s board of directors (the “Acreage Board”) unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) recommends that Floating Shareholders vote FOR the AmendmentArrangement Resolution. It is a condition to the completion of the execution of the Amended Arrangement Agreement and the implementation of the AmendedFloating Share Arrangement that the AmendmentArrangement Resolution is adopted at the Meeting.
The Acreage Board fixed August 13, 2020,February 10, 2023 as the record date for the Meeting (the “Record Date”). Floating Shareholders of record at the close of business on the Record Date are entitled to notice of the Meeting and to vote thereat or at any adjournment or postponement thereof on the basis of: (i)of one vote for each Existing SVS held; (ii) 40 votes for each Existing PVS held; and (iii) 3,000 votes for each Existing MVSFloating Share held. To be adopted, the AmendmentArrangement Resolution must be approved by: (i) at least 66⅔% of the votes cast by Floating Shareholders, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class;Meeting; and (ii) in accordance with Multilateral Instrument 61-101 – Protection of Minority SecurityholdersSecurity Holders in Special Transactions (“MI 61-101”), a simple majority of votes cast by the holders of Existing SVS and Existing PVS,Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes cast by any “interested party”, any “related party” of an “interested party” or any “joint actor” (as such terms are defined in MI 61-101) (the(together, the “Interested Parties”); and (iii) in accordance with Ontario Securities Commission Rule 56-501 (“OSC Rule 56-501”) and National Instrument 41-101 – General Prospectus Requirements (“NI 41-101”), a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes cast by any affiliates of the Company and securities held directly or indirectly by control persons of the Company (the “Related Parties”). Abstentions and broker non-votes will not have any effect on the approval of the AmendmentArrangement Resolution. Since all of the holders of Existing MVS are Interested Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101. The votes attaching to the Existing SVS and Existing PVSFloating Shares held by the Interested Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of MI 61-101. In addition, since Mr. Murphy, the sole holder of Existing MVS, is a Related Party, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. The votes attaching to the Existing SVS and Existing PVS held by the Related Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101.
Meeting Format
The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Floating Shareholders will not need, or be able, to attend the Meeting in person.
To address potential issues arising from the unprecedented public health impact of the novel coronavirus (COVID-19), comply with applicable public health directives that may be in force at the time of the Meeting, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, weAcreage will be holding the Meeting in a virtual only format. Floating Shareholders will not need, to, or be able, to physically attend the Meeting.Meeting in person. Registered Floating Shareholders (“Registered Shareholders”) and duly appointed proxyholders are entitled to vote at the Meeting either by attending virtually or by submitting a form of proxy, as described in the Circular under the headings, “General Proxy Information” and “How to Vote Your Shares”.
In order to attend, participate in or vote at the Meeting (including for voting and asking questions at the Meeting) or vote at the Meeting, Registered Shareholders and duly appointed proxyholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting. To join as a guest please visit the Meeting online at web.lumiagm.com/221798142244671399 and select “Join as a Guest” when prompted.
Non-Registered
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Non-registered Floating Shareholders (being(being beneficial Floating Shareholders who hold their ExistingFloating Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able to attend the Meeting as a guest and view the webcast but will not be able to participate in or vote at the Meeting. Registered Shareholders may attend, participate in and vote at the Meeting or may be represented by proxy. Registered Shareholders and duly appointed proxyholders will be able to access the Meeting at web.lumiagm.com/221798142.244671399. Registered Shareholders may enter the Meeting by clicking “I have a login” and entering a username and password before the start of the Meeting.
Registered Shareholders: The control number located on the form of proxy is the username. The password for the MeetingMeeting is “Acreage2020”“acreage2023” (case sensitive). If as a Registered Shareholder you use your control number to access the MeetingMeeting and you accepthave previously voted, you do not need to vote again when the terms and conditions,polls open. By voting at the meeting, you will be revoking any and all previously submitted proxies for the Meeting and will be provided with the opportunityopportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previouslypreviously submitted proxy, you will not be able to participate at the Meeting online and can only attend the meetingMeeting as a guest.guest.
Duly appointed proxyholders: Floating Shareholders who wish to appoint a third -partythird-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who have appointed themselveswish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or voting instruction form, as applicable, AND register the proxyholder in advance of the proxy cut-off at 11:12:00 a.m.p.m. (New York time) on September 14, 2020.March 13, 2023. Following registration of a proxyholder, Odyssey Trust Company will provide duly appointed proxyholders with a username by e-mail after the voting deadline has passed. The password for the Meeting is “Acreage2020”“acreage2023” (case sensitive). Non-RegisteredNon-registered Floating Shareholders who have not duly appointed themselves as proxyholder will be able to attend the Meeting as a guest but will not be able to participate in or vote at the Meeting.
If you are a Registered Shareholder and are unable to attend the Meeting virtually, please exercise your right to vote by completing, signing, dating and returning the applicable accompanying form of proxy to Odyssey Trust Company, the transfer agent of the Company as soon as possible, so that as large a representation as possible may be had at the Meeting. To be valid, completed proxy forms must be signed, dated and deposited with Odyssey Trust Company using one of the following methods:
| By Mail or Hand Delivery: | Odyssey Trust Company Attention: Proxy Department 323 – 409 Granville Street, Vancouver, BC V6C 1T2 |
| By Internet: | https:// |
Proxies must be deposited with Odyssey Trust Company not later than 11:12:00 a.m.p.m. (New York time) on September 14, 2020,March 13, 2023, or, if the Meeting is adjourned or postponed, not later than 48 hours, excluding Saturdays, Sundays and holidays, preceding the time of such reconvened Meeting or any adjournment or postponement thereof. The Chair of the Meeting shall have the discretion to waive or extend the proxy deadlines without notice.
If you are unable to attend the Meeting, we encourage you to complete and return the enclosed form of proxy as soon as possible so that as large a representation as possible may be had at the Meeting. If a Floating Shareholder receives more than one form of proxy because such holder owns ExistingFloating Shares of different classes and/or registered in different names or addresses, each form of proxy must be completed and returned in order to ensure all ExistingFloating Shares are voted.
Registered Shareholders have the right to dissent with respect to the AmendmentArrangement Resolution and, if the AmendmentArrangement Resolution is adopted, to be paid the fair value of their ExistingFloating Shares in accordance with the provisions of the BCBCA as modified by the AmendedFloating Share Plan of Arrangement, the Amendment Interim Order and the final order of the Court approving the AmendedFloating Share Plan of Arrangement (the “Amendment Final Order”), as described in the accompanying Circular under the heading “Dissent Rights”. Failure to strictly comply with the requirements with respect to the dissent rights set forth in the BCBCA, as modified by the AmendedFloating Share Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order may result in the loss of any right to dissent. Persons who are beneficial owners of ExistingFloating Shares registered in the name of a broker, custodian, nominee or other intermediary and who wish to dissent must make arrangements for the ExistingFloating Shares beneficially owned by them to be registered in their name prior to the time thetheir written objection to the AmendmentArrangement Resolution is required to be received by the Company or, alternatively, make arrangements for the registered holder of such ExistingFloating Shares to dissent on their behalf.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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If you are a Registered Shareholder and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance with the instructions provided to you by your broker or other intermediary, as applicable.
Enclosed is a letter of transmittal for registered Shareholders explaining how you can deposit your Existing Shares and obtain the Fixed Shares and Floating Shares in exchange therefor in connection with the Capital Reorganization. The letter of transmittal will also be available on the Company’s website at [¨] as well as on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar or by contacting Odyssey Trust Company (using the information set out on the back of the accompanying Circular).
If you have any questions or require assistance, please contact Kingsdale Advisors,Morrow Sodali, our strategic shareholder advisor andand proxy solicitation agent, by telephone at 1-877-657-58561.888.444.0623 toll-free in North America (+1-416-867-2272(1.289.695.3075 collect callscalls outside of North America) or by e-mail at contactus@kingsdaleadvisors.com,assistance@morrowsodali.com, or your professional advisor.advisor.
DATED at New York, New York this [¨] day of August, 2020.February, 2023.
BY ORDER OF THE BOARD OF DIRECTORS
Acreage Holdings, Inc. |
Please visit http://investors.acreageholdings.com/ for additional information.
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QUESTIONS AND ANSWERS ABOUT THE AMENDEDFLOATING SHARE ARRANGEMENT THE POTENTIAL ACQUISITION AND THE MEETING
The information contained below is of a summary nature and therefore is not complete. This summary information is qualified in its entirety by the more detailed information contained elsewhere in or incorporated by reference into this Circular, including the Appendices hereto and the form of proxy, and the Capital Reorganization Letter of Transmittal, each of which are important and should be reviewed carefully. Capitalized terms used in these questions and answers but not otherwise defined herein have the meanings set forth in the “GlossaryAppendix “A” – Glossary of Terms”Terms in this Circular. See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors”.
Q&A ON THE AMENDEDFLOATING SHARE ARRANGEMENT
General
Q: What are the Floating Shareholders being asked to vote on?
A: Floating Shareholders are being asked to vote on a special resolution, the full text of which is set forth in Appendix “B” to this Circular, authorizing and approving, among other things, approve: (i) the Amended Arrangement; (ii) the Amending Agreement; (iii) the Amended Plan of Arrangement to terminate the Existing Canopy Option and provide for the Canopy Call Option and the Floating Call Option;Share Arrangement involving Acreage, Canopy and (iv)Canopy USA. If the AmendedFloating Share Arrangement is approved by the Floating Shareholders, Canopy USA will acquire all of the issued and Restated Omnibus Equity Incentive Plan.outstanding Floating Shares for consideration equal to 0.45 of a Canopy Share in exchange for each Floating Share held.
See “The AmendedFloating Share Arrangement – Required Shareholder Approvals”.
Q: What changes are being proposed to the Existing Canopy Option?
A: Under the Existing Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Existing SVS (after each Existing MVS and Existing PVS is converted into an Existing SVS) in exchange for 0.5818 of a Canopy Growth Share for each Existing SVS, subject to adjustment in certain circumstances as set out in the Arrangement Agreement.
As described in greater detail below, the Amended Plan of Arrangement will include, the Capital Reorganization pursuant to which, among other things (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) each outstanding Existing PVS will be exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each outstanding Existing MVS will be exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Under the Amended Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will (i) acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on the basis of the Exchange Ratio for each Fixed Share held at the Acquisition Time; and (ii) have the right (but not the obligation) exercisable for a period of 30 days following the Floating Rate Date, to exercise the Floating Call Option to acquire all of the issued and outstanding Floating Shares. The Existing Canopy Option expires on December 27, 2026. Under the Amended Arrangement, the Canopy Call Option will expire 10 years from the Amendment Time.
If Canopy Growth exercises the Floating Call Option, it may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Fixed Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option.
See “The Amended Arrangement – Principal Steps of the Amended Arrangement”.
Q: What will I receive for my Shares upon implementation of the Amended Plan of Arrangement?
A: If implemented, at the Amendment Time, Canopy Growth will pay the Aggregate Amendment Option Payment of US$37,500,024 on a pro rata basis to each Shareholder, High Street Holder and USCo2 Holder and each of the holders thereof will be entitled to receive approximately $[¨] per Existing SVS (assuming the conversion or exchange of such Eligible Securities for Existing SVS) based on the number of outstanding Existing Shares as of the date hereof. In addition, among other things, the Company will complete the Capital Reorganization whereby, (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) each outstanding Existing PVS will be exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each outstanding Existing MVS will be exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. No fractional Fixed Shares, Fixed Multiple Shares or Floating Shares will be issued pursuant to the Capital Reorganization. Each Fixed Multiple Share will be entitled to 4,300 votes at all meetings of Shareholders and each Fixed Share and each Floating Share will be entitled to one vote per share at such meetings.
See “The Amended Arrangement – Principal Steps of the Amended Arrangement”, “Transaction Agreements – Amending Agreement – Amended Plan of Arrangement” and “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth Consideration – Treatment of Fractional Consideration”.
Q: What will I receive for my Fixed Shares upon exercise (or deemed exercise) of the Canopy Call Option?
A: Under the Amended Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) in exchange for 0.3048 of a Canopy Growth Share for each Fixed Share held at the Acquisition Time, subject to adjustment in accordance with the terms of the Amended Arrangement, for each Fixed Share held at the Acquisition Time.
See “The Amended Arrangement – Principal Steps of the Amended Arrangement”, “The Amended Arrangement – Description of the AmendedFloating Share Arrangement” “Transaction Agreements – Amending Agreement – Amended Plan of Arrangement”, and “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth Consideration – Treatment of Fractional Consideration”.
Q: What will I receive for my Floating Shares if Canopy Growth exercisesupon completion of the Floating Call Option?Share Arrangement?
A: Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subjectPursuant to the satisfaction or waiverFloating Share Plan of the Acquisition Closing Conditions,Arrangement, among other things, Canopy GrowthUSA will have the right (but not the obligation) exercisable for a period of 30 days following the Floating Rate Date, to exercise the Floating Call Option to acquire all of the issued and outstanding Floating Shares.
Canopy Growth may acquire the Floating Shares for cash orconsideration equal to 0.45 of a Canopy Growth Shares or a combination thereof,Share in Canopy Growth’s sole discretion. If paid in cash, the price perexchange for each Floating Share shall be equal to the volume-weighted average trading priceheld. Upon completion of the Floating Shares on the CSE (or other recognized stock exchange on which theShare Arrangement, each Floating Shareholder will no longer hold any Floating Shares, are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Fixed Sharebut instead, will be exchanged for ahold such number of Canopy Growth Shares as is equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior topreviously held by the Acquisition Date.Floating Shareholder, multiplied by the Exchange Ratio. For example, if you currently hold 1,000 Floating Shares, you will hold 450 Canopy Shares upon completion of the Floating Share Arrangement. No fractional Canopy Growth Shares will be issued to a Floating Shareholder pursuant to the terms of the Amended PlanFloating Share Arrangement.
As of Arrangement. Thethe Record Date, the maximum number of Canopy Shares that may be received by the Floating Call Option cannot be exercised unlessShareholders pursuant to the Canopy Call Option is exercised (or deemed to be exercised). The acquisitionterms of the Floating Share Arrangement, and assuming all securities convertible, exchangeable or exercisable for Floating Shares pursuantare so converted, exchanged or exercised prior to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to theFloating Share Arrangement, is approximately [¨] Canopy Call Option.
At the time of the Meeting, Shareholders will not know whether or not the Floating Call Option will be exercised by Canopy Growth and, if exercised, whether Shareholders will receive cash, Canopy Growth Shares or a combination thereof in consideration for their Floating Shares. In addition, at the time of the Meeting, Shareholders will not know the value to be received in exchange for their Floating Shares, assuming that the Floating Call Option is exercised, as the Floating Ratio is based upon the future value of the Floating Shares, determined as of the date of the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event. Within 30 days of the exercise (or deemed exercise) of the Canopy Call Option, Canopy Growth must decide whether or not to exercise the Floating Call Option and publicly announce whether the consideration for the Floating Shares will be comprised of cash, Canopy Growth Shares or a combination thereof.
See “The Amended Arrangement – Description of the Amended Arrangement”, “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement” and “Transaction Agreements – AmendingFloating Share Arrangement Agreement - Amended Plan of– Floating Share Arrangement”.
Q: What will happen to my AcreageFloating Options, Acreage Compensation OptionsFloating Warrants and Acreage RSUs pursuantFloating Share Units pursuant to the Amended Plan of Arrangement?Floating Share Arrangement?
A: At the Amendment Time, on the terms and subjectPursuant to the conditions ofFloating Share Arrangement, commencing at the Amended Plan of Arrangement,Effective Time, each AcreageFloating Option, Acreage RSUFloating Warrant and Acreage Compensation OptionFloating Share Unit that is outstanding immediately prior to the AmendmentEffective Time will be exchanged for a Fixed Share Replacement Security to acquire 0.7 of a Fixed Share and a Floating Share Replacement Security to acquire 0.3 of a Floating Share in order to account for the Capital Reorganization. The exercise price payable in respect of the Fixed Share Replacement Securities and Floating Share Replacement Securities will be multiplied by 0.7 or 0.3, as applicable, to reflect the Capital Reorganization.
At the Acquisition Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each Fixed Share Replacement Security will be exchanged for aa Replacement Option,Option, Replacement RSUs orWarrant and Replacement Compensation Options, as applicable,Share Unit, respectively, to acquire from Canopy GrowthCanopy such number of Canopy Growth Shares asas is equal to: (i) the number of FixedFloating Shares that were issuable upon exercise of such Fixed Share Replacement Security immediately prior to the Acquisition Time, multiplied by (ii) the Exchange Ratio in effect immediately prior to the Acquisition Time (provided that if the foregoing would result in the issuance of a fraction of a Canopy Growth Share, then the number of Canopy Growth Shares to be issued will be rounded down to the nearest whole number).
If the Floating Call Option is exercised and Canopy Growth acquires the Floating Shares at the Acquisition Time, on the terms and subject to the conditions of the Amended Plan of Arrangement, each Floating Share Replacement Security will be exchanged for a Replacement Option, Replacement RSUs or Replacement Compensation Options, as applicable, to acquire from Canopy Growth such number of Canopy Growth Shares as is equal to: (i) the number of Floating Shares that were issuable upon exercise of such Floating Share Replacement SecuritySecurity immediately prior to the AcquisitionEffective Time, multiplied by (ii) the Floating RatioExchange Ratio (provided that if any holder of Replacement Options, Replacement Warrants or Replacement Share Units, following the foregoingexchange pursuant to the terms of the Floating Share Plan of Arrangement, is holding, in aggregate, Replacement Options, Replacement Warrants or Replacement Share Units that would result in the issuance of a fraction of a Canopy Growth Share, then the number of Canopy Growth Shares to be issued pursuant to such Replacement Options, Replacement Warrants or Replacement Share Units will be roundedbe rounded down to the nearest whole number). The Replacement Options and Replacement Warrants will provide for an exercise price per Replacement Option or Replacement Warrant (rounded up to the nearest whole cent), as applicable, equal to the quotient obtained when: (i) the exercise price per Floating Share that would otherwise be payable pursuant to the Replacement Option or Replacement Warrant, as applicable, it replaces is divided by (ii) the Exchange Ratio, and any document evidencing a Floating Option or Floating Warrant, as applicable, will thereafter evidence and be deemed to evidence such Replacement Option or Replacement Warrant, respectively.
See “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement”.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside
of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Q:What happened to the Floating Call Option?
A: Pursuant to the floating share arrangement agreement, canopy irrevocably waived its floating call option. Subject to the provisions of the Floating Share Arrangement Agreement, the Fixed Call Option pursuant to the Existing Arrangement to acquire all of the issued and outstanding Fixed Shares (following the automatic conversion of the Fixed Multiple Shares), representing approximately 70% of the total issued and outstanding Acreage Shares as of the date hereof, at a fixed exchange ratio of 0.3048 of a Canopy Share for each Fixed Share, is required to be exercised no later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares.
See “The Floating Share Arrangement – Description of the Floating Share Arrangement”.
Q: What will happen to my High Street Units and USCo2 Shares that are currently convertible or exchangeable into Existing SVS pursuant tofollowing the Amended Plan ofFloating Share Arrangement?
A: InConcurrently with the execution of the Floating Share Arrangement Agreement, Acreage amended the High Street Operating Agreement to: (i) allow Canopy USA to have a call right on the High Street Units effective immediately following the earlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each holder of High Street Units to exchange their High Street Units for Canopy Shares as described in further detail in such amendment; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to reflectcarry out the Capital Reorganization,purpose and intention of the transactions contemplated in the Floating Share Arrangement.
The USCo2 Constating Documents will be amended prior to the closing of the Floating Share Arrangement to: (i) allow Canopy USA to have a call right on the USCo2 floating shares effective immediately following the Amendmentearlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each shareholder to exchange their floating shares for Canopy Shares; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Floating Share Arrangement.
Immediately following the Effective Time, all High Street Units and USCo2 Shares may be exchanged for Floating Shares and Fixed Shares, which will then be exercisable, convertible or exchangeable on the basis of 0.7 of a Fixed Share and 0.3 of a Floating Share in respect of each Existing SVS that otherwise would have been issuable upon such exercise, conversion or exchange.
If the Canopy Call Option and the Floating Call Option are exercised, following the Acquisition Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeableexchanged for Canopy Growth Shares on the basis of the Exchange Ratio and the Fixed Exchange Ratio, as applicable. Upon the closing of the Floating Ratio.Share Arrangement, or if the Floating Share Arrangement does not close but the Existing Arrangement closes, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Shares and Floating Shares in accordance with the provisions of such amendments.
See “The “AmendedThe Floating Share Arrangement – Treatment of High Street Holders and USCo2 Holders” Holders” and “Securities “Securities Law Matters – U.S. Securities Laws – Exemption from U.S. Registration”.
Q: What areWhen will the consequences of the Amending Agreement becoming effective at the Amendment Time?Floating Share Arrangement be completed?
A: IfSubject to receipt of Shareholder Approval, the Amendment Resolution is adoptedInterim Order and the AmendingFinal Order, and all other required approvals from the stock exchanges on which the Canopy Shares are listed, and the satisfaction or waiver of all other conditions specified in the Floating Share Arrangement Agreement, the Floating Share Arrangement is executed, the Amending Agreement will provide for, among other things: (i) the implementation of the Amended Plan of Arrangement; and (ii) amendments to the definition of Canopy Growth Approved Share Threshold (being the maximum number of Shares that may be issued without the consent of Canopy Growth and without reducing the Exchange Ratio) to reduce the number of shares of the Company available to be issued by the Company such that, following the Amendment Time, the Company may issue a maximum of 32,700,000 shares (or convertible securities in proportion to the foregoing), which will include (a) 3,700,000 Option Shares; (b) 8,700,000 Floating Shares other than the Option Shares; and (c) 20,300,000 Fixed Shares. Notwithstanding the foregoing, the Amending Agreement provides that the Company may not issue any equity securities, without Canopy Growth’s prior consent, other than: (i) upon the exercise or conversion of convertible securities outstanding as of the Amendment Date; (ii) contractual commitments existing as of the Amendment Date; (iii) the Option Shares; (iv) the issuance of up to US$3,000,000 worth of Fixed Shares pursuant to an at-the-market offeringexpected to be completed no more than four times during any one-year period; (v) the issuance of up to 500,000 Fixed Shares in connection with debt financing transactions that are otherwise in compliance with the terms of the Arrangement Agreement, as amended by the Amending Agreement; or (vi) pursuant to one private placement or public offering of securities during any one-year period for aggregate gross proceeds of up to US$20,000,000, subject to specific limitations as set out in the Amending Agreement.second half of 2023.
In addition, the Amending Agreement will provide for, among other things: (i) various Canopy Growth rights that extend beyond the Acquisition Date and continue until the End Date, including, among others, rights to nominate a majority of the Acreage Board following the Acquisition Time, rights to designate all replacement officers, following the resignation or termination, as applicable, of the officers following the Acquisition Time, restrictions on the Company’s ability to incur certain indebtedness without Canopy Growth’s consent; (ii) restrictive covenants in respect of the business conduct in favor of Canopy Growth; (iii) termination of non-competition and exclusivity rights granted to the Company by Canopy Growth in the Arrangement Agreement in the event that the Company does not meet certain specified financial targets on an annual basis during the term of the Canopy Call Option as further described below; (iv) implementation of further restrictions on the Company’s ability to operate its business, including its ability to hire certain employees or make certain payments or incur any non-trade-payable debt without Canopy Growth’s consent in the event that the Company does not meet certain specified financial targets on a quarterly basis during the term of the Canopy Call Option as further described below; (v) a specified set of criteria that each new director and officer, as applicable, is required to meet, unless the consent of Canopy Growth is obtained; and (vi) termination of the Arrangement Agreement and Canopy Growth’s obligation to complete the acquisition of the Fixed Shares pursuant to the Canopy Call Option in the event that the Company does not meet certain specified financial targets in the trailing 12 month period as further described below.
See“Regulatory Matters”, “Transaction Agreements – Amending Agreement”.
Q: What happens if Acreage does not meet or exceed the targets related to the Initial Business Plan?
A: In the event that Acreage has not satisfied: (i) 90%The Floating Share Arrangement Agreement – Conditions for Completion of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, measured on a quarterly basis, an Interim Failure to Perform will occurFloating Share Arrangement” and the Austerity Measures shall become applicable and provide significant restrictions on Acreage’s ability to take certain actions otherwise permitted by the Amended Arrangement Agreement; (ii) 80% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, as determined on an annual basis (commencing in respect of the fiscal year ending December 31, 2021), a Material Failure to Perform will occur and (a) certain restrictive covenants applicable to Canopy Growth under the Amended Arrangement Agreement will cease to apply in order to permit Canopy Growth to acquire, or conditionally acquire, a competitor of the Company in the United States should it wish to do so, and (b) an event of default under the Debenture will likely occur resulting in the Loan becoming immediately due and payable; and (iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan for the trailing 12 month period ending on the date that is 30 days prior to the proposed Acquisition Time, a Failure to Perform shall occur and a material adverse impact will be deemed to have occurred for purposes of Section 6.2(2)(h) of the Arrangement Agreement and Canopy Growth will not be required to complete the Acquisition of the Fixed Shares pursuant to the Canopy Call Option.
See “Transaction Agreements - Amending– Floating Share Arrangement Agreement - Covenants Regarding Acreage’s Business Plans”, “Business Plan Requirements” and “Risk Factors”.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Q: What assumptions used to formulate the Initial Business Plan are most likely to cause a Failure to Perform, a Material Failure to Perform and/or an Interim Failure to Perform to occur?
A: The Initial Business Plan was prepared based on the current expectations of management and the Acreage Board with respect to the anticipated results of Acreage’s business for each of the fiscal years ending December 31, 2020 through December 31, 2029, which management and the Acreage Board believe are based on reasonable assumptions as of the date hereof. There can be no certainty that the assumptions underlying the Consolidated Adj. EBITDA Targets or the Pro-Forma Net Revenue Targets set out in the Initial Business Plan will prove to be accurate and the results of Acreage may deviate from the expectations of management and the Acreage Board described under the heading “Business Plan Requirements” in this Circular. These risks to achieving the targets set out in the Initial Business Plan include, among others, adverse regulatory changes in the Identified States, the failure to adequately raise the capital necessary to operate Acreage’s business, the inability to attract and retain appropriate employees and those other items identified under the heading “Risk Factors”. If Acreage does not meet the targets in the Initial Business Plan, there may be an Interim Failure to Perform, a Material Failure to Perform and, depending on when the Canopy Call Option is exercised, a Failure to Perform may occur.
See “Risk Factors”.
Q: If the Austerity Measures are implemented at any point in time, what implications would the Austerity Measures have for Acreage’s business and Acreage’s ability to avoid a Material Failure to Perform or a Failure to Perform?
A: In the event of an Interim Failure to Perform and the imposition of the Austerity Measures, the likelihood that, absent Canopy Growth’s consent to facilitate Acreage taking actions necessary to alleviate such Interim Failure to Perform, there will be a Material Failure to Perform and, if the Canopy Call Option is exercised, a Failure to Perform would be increased. Accordingly, the requirement of Canopy Growth to complete the Acquisition pursuant to the Canopy Call Option may be jeopardized; however, Canopy Growth would have the option, in its sole discretion, to waive such rights and complete the Acquisition notwithstanding any such Failure to Perform.
Q: When will the Amendment Time occur?
A: Subject to obtaining the Amendment Final Order as well as the satisfaction of all other conditions precedent set out in the Proposal Agreement, it is anticipated that the Amendment Time will occur in September, 2020. The Acquisition forming part of the Amended Arrangement will be completed upon occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event (at the discretion of Canopy Growth), subject to the satisfaction or waiver of the Acquisition Closing Conditions as described in the Circular.
See “Transaction Agreements - The Proposal Agreement - Conditions for Implementation of the Amended Arrangement” and “Transaction Agreements - Amending Agreement”.
Q: What will happen if the AmendmentArrangement Resolution is not adoptedapproved or the AmendedFloating Share Arrangement is not implemented for any reason?
A: If the Amendment Resolution is not approved, the Proposal Agreement will terminate and ceasePursuant to be effective and the Existing Arrangement, including the terms of the Existing Canopy Option, will remain in place,Floating Share Arrangement Agreement, the Capital Reorganization will notFloating Share Arrangement Agreement may be completed, the proposed amendmentsterminated prior to the Effective Time by either Acreage or Canopy if, among other things, the Shareholder Approval is not obtained at the Meeting in accordance with the Interim Order. Upon termination of the Floating Share Arrangement Agreement, Canopy will not be effective,no longer have the Debentureright to exercise its Floating Call Option pursuant to the Floating Share Arrangement; however, Canopy will not be entered intoretain its Fixed Call Option pursuant to the Existing Arrangement, and the Initial Advance will not be made to Hempco. Canopy Growthas such will continue to be required to acquire the Existing SVS in accordance with the Existing Canopy OptionFixed Shares upon the occurrence or waiver (at the discretion of Canopy Growth)Canopy’s discretion) of the Triggering Event and the satisfaction or waiver of the Acquisition Closing Conditions. In addition, the A&R License will continue to govern the relationship between the parties thereto. If the Acreage Board makes a Change in Recommendation, the Amendment Resolution is not approved and the Proposal Agreement is subsequently terminated, Acreage will be required to pay the Termination Expense Reimbursement to Canopy Growth in the amount of US$3,000,000; provided, however, that Acreage will not be required to make such payment if the Change in Recommendation was the result of a Purchaser Material Adverse Effect (as defined in the Arrangement Agreement).
See “Risk Factors -– Risks Relating to the Floating Share Arrangement – The Floating Share Arrangement may not be completed”, “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement – Acreage could fail to receive the necessary approvals required to complete the Floating Share Arrangement”, “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement – Canopy may not complete the Floating Share Arrangement if the Canopy Amendment Proposal is not adopted or CBG and Greenstar do not exchange their Canopy Shares”, “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement – Risks if the AmendedFloating Share Arrangement is not completed and Canopy acquires the Fixed Shares”, and “Transaction Agreements – The Floating Share Arrangement is Not Approved and the Existing Arrangement Remains in Effect”, “Transaction Agreements - The Proposal AgreementAgreement – Termination of Proposal AgreementFloating Share Arrangement Agreement” and “Transaction Agreements - The Proposal“The Floating Share Arrangement Agreement – Termination of Proposal Agreement – Expenses of the Amended Arrangement - Termination Expense ReimbursementThe Fixed Call Option”..”
Q: When is Canopy Growth expected to exercisewill the CanopyFixed Call Option?Option be exercised?
A: IfPursuant to the Amendment Resolution is adopted andterms of the AmendingFloating Share Arrangement Agreement, is executed, the Existing Canopy Option expires on December 27, 2026. Under the Amended Arrangement, the CanopyFixed Call Option expires 10 years from the Amendment Time. Canopy Growth is contractually obligatedrequired to exercise the Canopy Call Option upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event; provided that the acquisitionbe exercised within five Business Days of the Fixed Shares is subject to the satisfaction or waiver of the Acquisition Closing Conditions. Canopy Growth may, in its sole discretion, elect to exercise the Floating Call Option within 30 days ofConditions being satisfied, being: (i) the exercise (or deemed exercise)approval of the Canopy Amendment Proposal at the Canopy Meeting; and (ii) CBG and Greenstar each electing (in their sole discretion) to exchange the Canopy Shares they currently hold for Exchangeable Canopy Shares.
If the Fixed Call Option.Option Conditions are not satisfied by the Exercise Outside Date, Acreage may terminate the Floating Share Arrangement Agreement, and Canopy will be obligated to pay the Canopy Expense Reimbursement to Acreage.
See “The AmendedFloating Share Arrangement – Description of the AmendedFloating Share Arrangement”, “The AmendedFloating Share Arrangement – Timing for ImplementationCompletion of the AmendedFloating Share Arrangement”, “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement” or the Amended Plan ofFloating Share Arrangement, a copy of which is attached as Appendix “C” to this Circular.
Q: Will the Existing SVSFloating Shares or Fixed Shares continue to trade following the AmendmentEffective Date?
A: No,No. It is expected that Canopy USA will apply to: (i) have the Existing SVS will cease to trade onFloating Shares delisted from the CSE, the OTCQX and the Frankfurt Stock ExchangeFSE as promptly as possible following the AmendmentEffective Date; and (ii) have the Fixed Shares delisted from the CSE, the OTCQX and the FSE as promptly as possible following the Acquisition Date. Following the Capital Reorganization,In addition, following completion of each of the Fixed SharesFloating Share Arrangement and the Floating SharesAcquisition, as applicable, it is expected that Canopy USA will apply to have Acreage cease to be listed on the CSE. Any Person who acquires Fixed Shares or Floating Shares following the Amendment Date (whether from a new issuance from treasury orreporting issuer in all jurisdictions in which it is a transfer)reporting issuer and thus will acquire such Fixed Shares and Floating Shares subject to the terms and conditions of the Amended Plan of Arrangement, including the Canopy Call Optionterminate Acreage’s reporting obligations in Canada and the Floating Call Option.United States.
See “Regulatory Matters -– Stock Exchange Matters”.
Q: WhoWhat will behappen to the directors and officers of Acreage following implementationcompletion of the Amended Plan of Arrangement and the Acquisition?Floating Share Arrangement?
A: Following the Amendment Time, it is not currently expected that there will be any changePursuant to the directors and officers of Acreage. During the Amendment Interim Period, other than the existing directors and officers of the Company, Acreage cannot nominate or appoint, as applicable, any individual to serve as a director or officerterms of the CompanyFloating Share Arrangement Agreement, Acreage has agreed that does not meet the Required Director Criteria or the Required Officer Criteria, as applicable. At the Acquisition Time, eachAcreage and its Subsidiaries will use their best efforts to cause all of the directors and officers are expectedof Acreage and its Subsidiaries to resignprovide resignations and Canopy Growthmutual releases prior to the Effective Time, failing which, Acreage and its Subsidiaries will be entitled to designate all replacementterminate such directors and officers effective as at the Effective Time. In addition, Acreage has agreed to filluse commercially reasonable efforts to cause any directors and officers receiving severance payments to execute full and final mutual releases releasing each of such vacancies In the event that the Floating Call Option is not exercised, Canopy Growth will have the right, until the End Date,director or officer, Acreage and its Subsidiaries from all liability and obligations owed to nominate a majorityone another, including in respect of the directors on the Acreage Board.any change of control entitlements in favour of Acreage.
See “Transaction Agreements – Amending Agreement – Covenants Regarding Acreage’s Directors and OfficersIf you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.”.
Q. Will the Exchange Ratio and/or the Floating Ratio be reduced prior to the Triggering Event Date?
A: The Exchange Ratio and the Floating Ratio will only be reduced in the event that Acreage breaches certain covenants set out in the Amended Arrangement Agreement with respect to the maximum number of Fixed Shares and Floating Shares it may issue during the Amendment Interim Period, or, in the case of the Exchange Ratio, if Acreage is required to make a Payout.iv
Q: Are there any risks I should consider in connection with the AmendedFloating Share Arrangement?
A: Yes. Floating Shareholders should carefully consider the risk factors set out in this Circular before deciding to vote or instructing their vote to be cast to approve the Arrangement Resolution. In addition to the risk factors set out in this Circular, Floating Shareholders should also carefully consider the risk factors applicable to Acreage set out in the Acreage Annual Report under the heading “Risk Factors”, a copy of which is available under Acreage’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar, and the risk factors applicable to Canopy referred to in Appendix “G” to this Circular.
See “Risk Factors” and Appendix “G” – “Information Concerning Canopy”.
Q: Are there any risks I should consider in connection with holding Canopy Shares following the consummation of the Floating Share Arrangement?
A: Yes. There are a number ofFloating Shareholders should carefully consider the risk factors relatingapplicable to Canopy referred to in Appendix “G” to this Circular. These include the risk that if Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage, without structural amendments to Canopy’s interest in Canopy USA, the listing of the Canopy Shares on the Nasdaq Stock Market may be jeopardized.
The Canopy Shares are currently listed on the TSX and the Nasdaq. So long as Canopy continues to be listed on the TSX and the Nasdaq, Canopy must comply with their requirements and guidelines when conducting business, particularly when pursuing opportunities in the United States. In October 2017, the TSX issued the TSX Staff Notice, which notes that listed issuers with ongoing business activities that are in violation of United States federal law regarding marijuana are not compliant with the TSX Listing Requirements. While the Nasdaq has not issued official rules specific to the Amended Arrangement,cannabis or hemp industry, stock exchanges in the Acquisition, andUnited States, including the business and operationsNasdaq, have historically refused to list certain cannabis related businesses, including cannabis retailers, that operate primarily in the United States. Canopy has advised that it expects to consolidate the financial statements of eachCanopy USA in accordance with U.S. GAAP, including the financial statements of Acreage, Wana and Jetty once those acquisitions have been completed by Canopy Growth, allUSA. Canopy has received a letter from Nasdaq Regulation stating, among other things, their position that companies that consolidate “the assets and revenues generated from activities in violation under federal law cannot continue to list on Nasdaq”. Failure to comply with any requirements imposed by the Nasdaq could result in the delisting of which should be carefully considered. These risks include, among others: the significant restrictionCanopy Shares from the Nasdaq, or the denial of any application to have additional securities listed on the ability of the Company to conduct its business in the ordinary course in the event that certain Pro-Forma Net Revenue Targets and Consolidated Adj. EBITDA Targets for each applicable fiscal year of the Initial Business Plan are not met; the Company may be unable to raise additional funds as needed, the scope of the Company’s operations or growth may be reduced and, as a result, the Company may be unable to fulfil its long-term goals; the Company may breach its restrictive covenants under the Arrangement Agreement,Nasdaq, which could result in Canopy Growth not having to complete the Acquisition at the Acquisition Time; and the possibility that Canopy Growth will exercise the Canopy Call Option and not exercise the Floating Call Option, and the depressinghave a material adverse effect on the trading price of the Floating Shares that would likely havethe Canopy Shares.
See Appendix “G” – “Information Concerning Canopy” and “Risk Factors - Canopy is subject to certain restrictions of the TSX and the Nasdaq, which may constrain is ability to expand its business in the United States”, “Risk Factors - If Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage without structural amendments to Canopy’s interest in Canopy USA, the listing of the Canopy Shares on the Nasdaq Stock Market may be jeopardized” and “Risk Factors - Delisting of Canopy Shares from the Nasdaq Could Adversely Impact Liquidity of Canopy Shares”.
Q: Given the significant restrictions on issuing Company Debt and securities of Acreage, how does Acreage anticipate financing its business on an on-going basis?
A: Acreage has refined its business strategy by taking steps to target cash flow positive operations and its expectation is that all future growth of Acreage will be principally driven by its operational success. Such steps will include the proposed Non-Core Divestitures and limitation of the Company’s business to the Identified States. Depending upon the timing of the Acquisition and the state of Acreage’s business, Acreage may need to obtain additional financing and, any such financing must be done in accordance with the restrictions contained in the Amended Arrangement Agreement or with the consent of Canopy Growth.
Q: Are Floating Shareholders entitled to Dissent Rights?
A: Yes. Under the Amendment Interim Order, Registered Shareholders are entitled tomay exercise Dissent Rights ifwith respect to the AmendmentArrangement Resolution is approved, but only if such Registered Shareholders follow the procedures specifiedpursuant to and in the BCBCA, as modified by the Amended Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order. If you wishmanner set forth under Sections 237 to exercise Dissent Rights, you should review the requirements summarized in this Circular carefully and consult with your legal advisor. Any failure by a Shareholder to fully comply with the provisions247 of the BCBCA, as modified by the AmendedFloating Share Plan of Arrangement, the Amendment Interim Order andand the Amendment Final Order, provided that, notwithstanding Section 242 of the BCBCA, the written objection to the Arrangement Resolution must be sent to Acreage by holders who wish to dissent and be received by Acreage not later than 5:00 p.m. (Vancouver time) on the date that is two Business Days immediately prior to the Meeting or any date to which the Meeting may result inbe postponed or adjourned.
Registered Shareholders who wish to dissent should take note that the loss of that holder’s Dissent Rights.procedures for dissenting from the Arrangement Resolution require strict compliance with the applicable dissent procedures, and are advised to consult with their legal advisors.
See “Dissenting Shareholders’Dissent Rights”.
Q: Do Shareholders, High Street Holders and USCo2 Holders need to provide a letterAppendix “H” – “Division 2 of transmittal or take any other steps to receive their portionPart 8 of the Aggregate Amendment Option Payment?
A: No. All holders of Shares, High Street Units and USCo2 Shares as of the close of business on the Business Day immediately prior to the Amendment Date will be entitled to receive their pro rata share of the Amendment Consideration without taking any further action.
See “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth ConsiderationBCBCA”.
Q: Should I send in my Capital Reorganization Letter of Transmittal and Existing Share certificates now?
A: All Registered Shareholders should complete, sign and return the Capital Reorganization Letter of Transmittal with accompanying Existing Share certificate(s) or direct registration advice to the Transfer Agent as soon as possible. If the Amendment Resolution is adopted and the Amending Agreement is executed, all deposits of Existing Shares, as applicable, made under the Capital Reorganization Letter of Transmittal are irrevocable.
Any certificate(s) or direct registration advice that immediately prior to the Amendment Time represent Existing Shares shall be deemed after the Amendment Time to represent only the right to receive certificate(s) or a direct registration advice representing the Shares to be issued in exchange therefor upon surrender thereof.
See “The Amended Arrangement - Capital Reorganization Letter of Transmittal”.
Background
Q: What iswas the process that led to the proposed amendments to the Plan ofFloating Share Arrangement and the Arrangement Agreement?Agreement?
A: Since inception,The entry by Acreage, made significant investmentsCanopy and Canopy USA into its business for growth, operational and capital needs and suffered substantial losses. Following implementation of the ExistingFloating Share Arrangement on June 27, 2019, Acreage attempted to leverage the Existing Canopy Option and Acreage’s relationship with Canopy Growth in pursuit of various alternatives to finance Acreage’s business, including certain potential acquisition alternatives; however, these efforts were not successful. Given the structural limitations on financing alternatives imposed on companies operating in the U.S. cannabis industryAgreement, and the challenging capital markets conditions thatproposed Floating Share Arrangement, is the result of arm’s length negotiations among representatives of Acreage, faced in the latter half of 2019, efforts to secure third party financing in late 2019 were unsuccessful. Canopy Growth’s regulatory and compliance constraints restricted its ability to directly or indirectly invest in Acreage. Faced with a working capital shortfall, Acreage embarked on various financing alternatives throughout much of the past year. The Arrangement Agreement contained a number of constraints on Acreage which prevented it from pursuing financingCanopy USA and M&A transactions which fell outside a narrow set of parameters without Canopy Growth’s consent. Acreage considered a number of potential financing proposals; however, it did not identify any options which were satisfactory to Acreagetheir respective legal and complied with the Arrangement Agreement.
Initially, when discussing the terms upon which the Existing Arrangement would be amended, Canopy Growth indicated that it would be willing to consider alternatives to assist Acreage, provided that any such alternatives would be subject to a concurrent reduction of the Existing Exchange Ratio to 0.1 of a Canopy Growth Share to align with the then current trading prices of the Existing SVS and the Canopy Growth Shares. Through extensive negotiations with Canopy Growth, the Company was ultimately able to negotiate an improved exchange ratio of 0.3048 of a Canopy Growth Share for each Fixed Share as well as the issuance of the Floating Shares, which are anticipated to provide additional upside to Shareholders.
financial advisors. A summary of the material events leading up to the negotiation of the ProposalFloating Share Arrangement Agreement and the AmendedFloating Share Arrangement and the material meetings, negotiations and discussions between Acreage, Canopy and Canopy GrowthUSA and their respective legal and financial advisors that preceded the execution of the ProposalFloating Share Arrangement Agreement and the public announcement of the AmendedFloating Share Arrangement is included in this Circular under the heading “The AmendedFloating Share Arrangement -– Background to the AmendedFloating Share Arrangement”.
See also “The Floating Share Arrangement – Background to the Floating Share Arrangement”, “Reasons for the AmendedFloating Share Arrangement” and “Cautionary Statement Regarding Forward-Looking Information”.
Q: Has a fairness opinion been provided on the AmendedFloating Share Arrangement?
A: Yes, theYes. The Special Committee received the NewEight Capital Fairness Opinion, pursuant toOpinion, in which Eight Capital provided its opinionstated that, as atof the date of each such opinionthereof, and based upon and subject to the assumptions, qualifications and limitations set outcontained therein, and such other matters as Eight Capital considered relevant, the Considerationnumber of Canopy Shares per Floating Share to be received by the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the AmendedFloating Share Arrangement is fair, from a financial point of view, to the Shareholders. The NewFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates). A copy of the Eight Capital Fairness Opinion can be found inis attached as Appendix “D” to this Circular.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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In addition, the Acreage Board received the Canaccord Genuity Fairness Opinion, pursuant to which Canaccord Genuity stated that, as of the date of such opinion, and based on and subject to the assumptions, qualifications, explanations and limitations set forth therein, and such other matters as Canaccord Genuity considered relevant, the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates), a copy of which is attached as Appendix “E” to this Circular.
See “The Amended ArrangementFloating Share Arrangement – NewEight Capital Fairness Opinion” and “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”.
Q: Does the Acreage Board support the amendments to the Arrangement Agreement and the Amended Plan ofFloating Share Arrangement?
A: Yes. The Acreage Board, hasafter consultation with Acreage management and receipt of advice and assistance from its financial and legal advisors, and after careful consideration of alternatives and a number of factors, including, among others, the unanimous recommendation of the Special Committee, the Eight Capital Fairness Opinion, the Canaccord Genuity Fairness Opinion and the factors set out under the heading “The Floating Share Arrangement – Reasons for the Floating Share Arrangement”, unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) determined that the AmendedFloating Share Arrangement and entry into the ProposalFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to Floating Shareholders and approved and authorized Acreage to enter into the Floating Share Arrangement Agreement and related agreements. Accordingly, the Acreage Board unanimously (with the exception of Kevin Murphy, John Boehner, Brian Mulroney and Peter Caldini, each of whom declared their interest in the transactions contemplated by the Floating Share Arrangement Agreement and the connected transactions and abstained from voting in respect thereof) recommends that Floating Shareholders vote FOR the AmendmentArrangement Resolution.
In making its recommendation,See “The Floating Share Arrangement – Background to the Acreage Board consulted with Acreage managementFloating Share Arrangement” and received the advice and assistance of its financial and legal advisors, and carefully considered a number of alternatives and factors including, among others, the unanimous recommendation of the Special Committee and the New Fairness Opinion and the factors described in this Circular under the heading “The Floating Share Arrangement – Reasons for the ArrangementFloating Share Arrangement””. All directors and officers, including Mr. Murphy, entered into Voting Agreements with Canopy Growth pursuant to which each of them has agreed to vote their Shares in favor of the Amendment Resolution.
See “The Amended Arrangement – Background to the Amended Arrangement”, “The Amended Arrangement – Recommendation of the Special Committee”, “The Amended Arrangement – Recommendation of the Acreage Board” and “The Arrangement – Reasons for the Arrangement”.
Q: What strategic benefits have been realized by Acreage through its relationship with Canopy Growth since the implementation of the Existing Arrangement and will the A&R License and the Amended Arrangement Agreement provide any additional benefits?
A: Acreage has commenced selling products under Canopy Growth’s Tweed brand in multiple states and Acreage anticipates that it will continue to take advantage of opportunities to market and sell products under Canopy Growth brands. As a condition to the Amending Agreement becoming effective, a subsidiary of Canopy Growth will provide Hempco with a US$100,000,000 loan pursuant to the Debenture, of which US$50,000,000 will be advanced at the Amendment Time. This will provide Acreage with the necessary funding to operate in the CBD market. Acreage anticipates that the operations of Hempco will be profitable and drive overall value for Shareholders.
See “The Amended Arrangement – Reasons for the Amended Arrangement” and “Cautionary Note Regarding Forward-Looking Information”.
Approvals
Q: What approvals are required of Floating Shareholders at the Meeting?
A: To be adopted,In order for the AmendmentFloating Share Arrangement to become effective, as provided in the Interim Order and by the BCBCA, the Arrangement Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the AmendmentArrangement Resolution by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting; and (ii) not less than a simple majority of votes cast by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of61-101. Should Floating Shareholders fail to approve the votes castArrangement Resolution by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote atrequisite majorities, the Meeting, voting together as a single class, excluding the votes of the Related Parties. Abstentions and broker non-votesFloating Share Arrangement will not have any effect on the approval of the Amendment Resolution.be completed.
See the sections in the Circular entitled “The Amended Arrangement – Required Shareholder Approvals”, “The AmendedFloating Share Arrangement – InterestsApproval of Certain Persons in the Amended Arrangement”, “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101” and “Securities Law Matters – Canadian Securities Laws – Restricted Securities Matters Resolution”.
Q: Are there voting agreements or lock-ups?
A: TheYes. Concurrently with the execution of the Floating Share Arrangement Agreement, the Acreage Locked-Up Shareholders have entered into the Voting Agreements with Canopy Growthand Canopy USA, pursuant to which thesuch Acreage Locked-Up Shareholders, havein their capacities as securityholders and not in their capacities as directors or officers of Acreage agreed, among other things: (i) to vote or cause to be voted all of their Existing SharesAcreage Holder Securities in favorfavour of the Amendment Resolution.Arrangement Resolution and against any matter that could reasonably be expected to adversely affect the successful completion of the Floating Share Arrangement; (ii) not to exercise any Dissent Rights; and (iii) not to sell, transfer, otherwise convey or encumber any of their Acreage Holder Securities prior to the Record Date, subject to certain exceptions.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
vi
As of the Record Date, to the knowledge of Acreage, the Acreage Locked-Up Shareholders, collectively, beneficially owned, or exercised controlcontrol or direction over, [] Existing SVS, [] Existing PVSan aggregate of [¨] Floating Shares, representing approximately [¨]% of the issued and 168,000 Existing MVS, representingoutstanding Floating Shares on a non-diluted basis,basis.
Of the votes attaching to the Floating Shares held by Acreage Locked-Up Shareholders, approximately [][¨]% of the outstanding Existing SVS, approximately []%votes attaching to the Floating Shares will be excluded for the purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101.
As of the outstanding Existing PVS and 100%Record Date, to the knowledge of Acreage, the outstanding Existing MVS. The Interested Parties that are Acreage Locked-Up Shareholders own,also beneficially owned, or exercised control or direct approximately []% of the outstanding Existing SVS, approximately []% of the outstanding Existing PVSdirection over, [¨] High Street Units, [¨] Floating Options and 100% of the outstanding Existing MVS subject to the Voting Agreements. On an aggregate basis, the Interested Parties own, control or direct approximately [¨]% of the outstanding voting rights in the Company. Floating Share Units.
See “Transaction Agreements – Voting Agreements”.
Q: What other conditions need tomust be satisfied forto complete the Amended Arrangement to become effective?Floating Share Arrangement?
A: The AmendmentPursuant to the Floating Share Arrangement Agreement, among other things, the following conditions must be satisfied to complete the Floating Share Arrangement: (i) the Arrangement Resolution must be approved and adopted by the Floating Shareholders at the Meeting in accordance with the Amendment Interim Order and applicable Law. In addition,Law; (ii) each of the AmendmentInterim Order and the Final Order must be issued by the Court. The necessary approvals from the CSE must also behave been obtained to list the Fixed Shares andon terms consistent with the Floating Shares. Furthermore, it isShare Arrangement Agreement, and must not have been set aside or modified in a conditionmanner unacceptable to either Acreage, Canopy or Canopy USA, each acting reasonably, on appeal or otherwise; (iii) all Regulatory Approvals must have been obtained or received on terms that certain agreements are entered into or amended, as applicable, including the Amending Agreement, the Housekeeping Amendments and the Credit Agreement Amendment.
For a full description of the conditions listed above and the other conditionsacceptable to the implementation of the Arrangement, see “Transaction Agreements – Proposal Agreement –Parties, each acting reasonably; and (iv) all Acquisition Closing Conditions for Implementation of the Amended Arrangement”.
Q: What othermust have been satisfied or, if permitted, waived (excluding conditions are required tothat by their terms cannot be satisfied or waived foruntil the Acquisition to be completed pursuant to the Amended Arrangement?
A: The Acquisition is dependent on the satisfaction of the Acquisition Regulatory Approvals, which includes approval: (i) under the HSR Act; (ii) by certain of the state cannabis regulatory authorities that govern Acreage’s operations in each state in which it or its managed entities then carry on business; and (iii) by each of the stock exchanges on which the Canopy Growth Shares are then listed and posted for trading to permit Canopy Growth to acquire all of the issued and outstanding Shares and to permit the listing of the Consideration Shares, and any Canopy Growth Shares issuable upon the exercise of Replacement Options, Replacement RSUs and Replacement Compensation Options. In addition, the Acquisition is subject to other Regulatory Approvals, and the satisfaction or waiver of other closing conditions.
For a full description of the conditions to the consummation of the Acquisition, see “Transaction Agreements – The Arrangement Agreement – Conditions for Completion of the Acquisition”, “Regulatory Approvals – HSR Act” and “Regulatory Approvals – Stock Exchange Matters”Effective Time).
Operational Constraints and Canopy Growth Rights
Q: What operational constraints will be imposed on Acreage by Canopy Growth during the Amendment Interim Period?
A: During the Amendment Interim Period, Acreage will, and will cause each of its Subsidiaries to, conduct its and their business only in the ordinary course and in accordance with, in all material respects, all applicable Laws, with the exception of the Controlled Substances Act as it applies to marijuana, and use commercially reasonable efforts to maintain and preserve its and their business. The operations of Acreage during the Amendment Interim Period remain subject to the operational covenants under the Arrangement Agreement as well as the additional operational covenants under the Amending Agreement as described under “Transaction Agreements – Amending Agreement”, which include, but are not limited to, restrictions on the ability of the Company and its Subsidiaries to issue any securities and incur any debt obligations, in each case, other than in certain limited circumstances.
Pursuant to the Arrangement Agreement, during the Interim Period, Acreage will be required to obtain Canopy Growth’s approval prior to taking certain actions, including, without limitation, amendments to its constating documents and/or capitalization, distributions on its outstanding securities or otherwise, amendments to its employment, retention and/or compensation arrangements, incurring debt above certain thresholds, or otherwise taking any actions that would be reasonably expected to result in a Company Material Adverse Effect.
The Amending Agreement also precludes the Company from entering into any contract in respect of Company Debt if, among other restrictions: (i) such contract would be materially inconsistent with market standards for companies operating in the United States cannabis industry; (ii) such contract prohibits a prepayment of the principal amount of such Company Debt, requires a make-whole payment for the interest owing during the remainder of the term of such contract or charges a prepayment fee in an amount greater than 3.0% of the principal amount to be repaid; (iii) such contract would provide for interest payments to be paid through the issuance of securities as opposed to cash; or (iv) such contract has a principal amount of more than US$10,000,000 or a Cost of Capital that is greater than 30.0% per annum; provided that, if such Company Debt is fully secured by cash in a blocked account, the Cost of Capital may not be greater than 3.0% per annum. Notwithstanding the foregoing, Canopy Growth’s consent will not be required for Acreage or any of its Subsidiaries to enter into a maximum of two transactions for Company Debt during any one-year period, in accordance with the following terms: (i) the principal amount of the Company Debt per transaction may not exceed US$10,000,000, (ii) the Company Debt is not convertible into any securities; and (iii) the contract does not provide for the issuance of more than 500,000 Shares (or securities convertible into or exchangeable for 500,000 Shares). The Amending Agreement will also require the Company to limit its operations to the Identified States, subject to obtaining Canopy Growth’s consent.
For a description of the additional restrictions on the activities of Acreage during the Amendment Interim Period, see “Transaction Agreements – Proposal Agreement – Covenants”, “Transaction Agreements –Amendments to the Arrangement Agreement” and “Transaction Agreements – Amending Agreement – Covenants Regarding Acreage’s Business Plans”.
Q: If Canopy Growth does not exercise the Floating Call Option, during the period following the Acquisition Date until the End Date, will there be any covenants in favor of Canopy Growth?
A: The Amending Agreement will provide for certain covenants of Acreage regarding its business and operations that will be effective from the Acquisition Time until the End Date, including, among other things:
See “Transaction Agreements – Amending AgreementFloating Share Arrangement Agreement – Covenants Following the Acquisition Time until the End Date”.
In addition, pursuant to the A&R License, following the Acquisition Time, the Company is required to pay a royalty to Canopy Growth equal to a percentage of all gross revenue generated by the Company as a resultConditions for Completion of the use of the rights granted pursuant to the A&R License. Moreover, revenue under the Management Service Agreements, if any, will no longer be required to be paid to Acreage by the Target Cannabis Operators, if any, following the Acquisition Time.
Q: If Canopy Growth does not exercise the Floating Call Option, following the Acquisition Time, what Acreage activities will require Canopy Growth’s approval?
A: During the period from the Acquisition Date until the End Date, there will be a number of restrictions imposed on both the Company and its Subsidiaries, subject to obtaining Canopy Growth’s approval, including, without limitation, restrictions regarding:
See “Transaction Agreements – Amending Agreement – Covenants Following the Acquisition Time until the End Date”.
Q: What are the expected consequences of limiting Acreage’s ability to operate to the Identified States?
A: With a reduced geographic footprint, Acreage will be able to focus its strategic plan on deploying its capital in a manner that Acreage believes will be immediately accretive. Given that Acreage has recently faced challenges raising capital and, when available, the cost of capital has been high in recent financings, a focus on the Identified States is anticipated to allow Acreage to improve its results from the Identified States while maximizing potential margins on sales and scaling its production capabilities (where Acreage’s licenses permit).
See “Cautionary Note Regarding Forward-Looking Information”.
Hempco Business
Q: Can Canopy Growth compete with Acreage’s business or the business of Hempco?
A: There is no restriction in respect of Canopy Growth’s ability to compete with the business of Hempco, provided that the activities carried on by Canopy Growth do not violate applicable Laws, including, without limitation, Federal Cannabis Laws. Notwithstanding the foregoing, in the event of a Material Failure to Perform, Canopy Growth will no longer be restricted from operating within the United States in violation of Federal Cannabis Laws.
Q: What are the expected benefits to Shareholders of the Hempco business?
A: The potential enhancement of profitability and the potential consequent ability to attract new investors could be a value driver for Shareholders.
See “Cautionary Note Regarding Forward-Looking Information”.
Q: What is the expected use of the net proceeds of the Initial Advance of US$50,000,000 to Hempco pursuant to the Debenture?
A: Acreage is developing a multi-pronged approach for the business of Hempco, including a store-within-a-store concept to sell CBD exclusive products, and a wholesale and OMNI channel approach. These various delivery methods require capital assets and additional operating costs to support the business strategy.
See “Cautionary Note Regarding Forward-Looking InformationShare Arrangement”.
Tax Consequences
Q: What are the Canadian federal income tax consequences of the Amended Arrangement?
A: It is expected that Shareholders who are residents of Canada for the purposes of the Tax Act and who hold their Existing SVS as capital property will be deemed to have disposed of a property and realize a capital gain from the receipt of a portion of the Aggregate Amendment Option Payment as consideration for granting the Canopy Call Option and the Floating Call Option. If the Canopy Call Option and/or the Floating Call Option are exercised (or deemed to be exercised), Shareholders who are resident in Canada should no longer be deemed to have disposed of property in the year in which the Canopy Call Option and the Floating Call Option were granted. Instead, the amount of the Aggregate Amendment Option Payment received by such Shareholder should be included in the Shareholder’s proceeds of disposition from the disposition of the Fixed Shares and/or the Floating Shares to Canopy. In such case, a tax election may be available to provide for a full or partial tax-deferred rollover.
Shareholders who are not residents of Canada for the purposes of the Tax Act will not be subject to tax under the Tax Act on the capital gain deemed to be realized in respect of the receipt of a portion of the Aggregate Amendment Option Payment as consideration for granting the Canopy Call Option and the Floating Call Option.
Shareholders who hold their Existing SVS as capital property and who exchange their Existing SVS for 0.7 of a Fixed Share and 0.3 of a Floating Share pursuant to the Capital Reorganization will be deemed to have disposed of their Existing SVS for proceeds equal to their adjusted cost base of those shares and will acquire the Fixed Shares and Floating Shares at an aggregate adjusted cost base equal to that amount. As a result, the Capital Reorganization will not result in a recognition of a capital gain or loss for Canadian income tax purposes.
For a summary of certain material Canadian income tax consequences of the Arrangement, see “Certain Canadian Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice to any particular Shareholder. Shareholders should consult their own tax advisors with respect to their particular circumstances.
Q: What are the Canadian federal income tax consequences of the Acquisition?
A: Generally, Shareholders who are residents of Canada for the purposes of the Tax Act, who have received a portion of the Aggregate Amendment Option Payment pursuant to the Arrangement, and who dispose of their Fixed Shares and/or Floating Shares to Canopy Growth pursuant to the Acquisition will be considered to have realized a capital gain (or capital loss) for the purposes of the Tax Act as a result of the Acquisition unless the Shareholder makes a Joint Tax Election with Canopy Growth following the Acquisition.
Shareholders who are not residents of Canada for the purposes of the Tax Act (a Non-Canadian Holder) generally should not be subject to tax under the Tax Act on any capital gain realized in respect of the Acquisition provided that the Fixed Shares and/or Floating Shares are not “taxable Canadian property” to such Shareholder for purposes of the Tax Act.
For a summary of certain material Canadian income tax consequences of the Acquisition, see “Certain Canadian Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice to any particular Shareholder. Shareholders should consult their own tax advisors with respect to their particular circumstances.
Q: What are the United States federal income tax consequences associated with the Option Premium?
A: Pursuant to the Plan of Arrangement, Canopy Growth paid the Option Premium to all holders of Existing Shares, High Street Holders and USCo2 Holders as consideration for the grant of the Existing Canopy Option. It was intended, for U.S. federal income tax purposes, that the payment of the Option Premium, would be treated as a part of a continuing, open transaction that generally did not result in immediate recognition of income to the Shareholders and certain other securityholders. However, given the amendments to the Existing Arrangement pursuant to the Amended Arrangement, it is now expected that U.S. Holders who have received a portion of the Option Premium will be required to report (to the extent not previously included in income) the portion of the Option Premium they received as short-term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective. Non-U.S. Holders will only be subject to U.S. federal income tax to the extent described below with respect to Non-U.S. Holders generally for gain recognized in connection with the Acquisition.
For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, including the Option Premium, see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to them of the Amended Arrangement in general and based on their particular circumstances.
Q: What are the United States federal income tax consequences of the Aggregate Amendment Option Payment?
A: The U.S. federal income tax treatment of the Aggregate Amendment Option Payment is unclear. The Aggregate Amendment Option Payment will be paid to the Shareholders, High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their portion of the Aggregate Amendment Option Payment.
Non U.S. Holders will generally be limited in their recognition of gain or income upon receipt of the Aggregate Amendment Option Payment and should consult with their own tax advisors to determine the extent that such income or gain will be recognized.
The amount of cash received with respect to the Aggregate Amendment Option Payment may not be sufficient to meet the tax obligations of the Shareholders triggered with respect to the Option Premium and the Aggregate Amendment Option Payment described above.
For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, including the payment of the Aggregate Amendment Option Payment, see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to them of the Amended Arrangement in general and based on their particular circumstances.
Q: What are the United States federal income tax consequences of the Capital Reorganization?Floating Share Arrangement?
A: Acreage will undertake the Capital Reorganization whereby each outstanding Existing Share will be exchanged for Fixed Shares (or Fixed Multiple Shares) and Floating Shares. For U.S. federal income tax purposes, the Company intends that the Capital Reorganization will be treatedFloating Share Arrangement is expected not to qualify as a “recapitalization” within the meaning ofreorganization under Section 368(a)(1)(E) of the Code. Assuming the Capital Reorganization qualifies asCode and is expected to be a recapitalization, the Shareholders generally will not recognize gain or loss in the exchange of Existing Shares for Fixed Shares (or Fixed Multiple Shares) and Floating Shares.fully taxable transaction. The tax basis of the Shares received by a Shareholder in the Capital Reorganization will generally the same as the basis of the Existing Shares surrendered in exchange therefor. A Shareholder must allocate its tax basis in its Existing Shares between the Fixed Shares (or Fixed Multiple Shares) and Floating Shares that the Shareholder receives in proportion to their relative fair market values determined on the date of the Capital Reorganization. The holding period of the Fixed Shares (or Fixed Multiple Shares) and Floating Shares received will include such holder’s holding period in the Existing Shares with respect to which the Fixed Shares (or Fixed Multiple Shares) and Floating Shares were exchanged.
For a summary of certain U.S. federal income tax consequencestreatment of the AmendedFloating Share Arrangement is based on the series of steps contemplated in connection with the Floating Share Arrangement Agreement, including the Capital Reorganization, see “Certain United States Federal Income Tax Considerations.” Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to themexercise of the Amended Arrangement in generalFixed Call Option and based on their particular circumstances.
Q: What are the United States federal income tax consequencescompletion of the Acquisition?
A: Under the Existing Arrangement, it was intended that (i) the Plan of Arrangement and culminating Acquisition (as defined in the Existing Arrangement) wouldFloating Share Arrangement. These transactions will generally be treated as a single integrated transaction for U.S. federal income tax purposes (ii) such Acquisition wouldof determining qualification as a reorganization. In order to qualify as a “reorganization”reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and the Treasury Regulations promulgated thereunder, each as in effect on the date of the Existing Arrangement, and (iii) such Acquisition would not be treated as a taxable transaction pursuant to Section 367(a) of the Code and the Treasury Regulations promulgated thereunder, each as in effect on such date (which assumed that certain factual requirementsCanopy would be met with respectrequired to the ownership, value and operationsacquire an amount of Canopy Growth and Acreage, certain five-percent shareholders of Canopy Growth immediately after the Acquisition enter into gain recognition agreements as required by the applicable U.S. Treasury Regulations, and certain reporting requirements would be met (collectively the “Section 367 Requirements”))
Under the Amended Arrangement, it is intended that the steps of the Acquisition will be treated as a single integrated transaction for U.S. federal income tax purposes, and will involve Canopy Growth acquiring all of the Fixed Shares (and New Multiple Shares exchanged into Fixed Shares), and, if applicable, the Floating Shares, in three steps: first, each New Multiple Share outstanding immediately prior to the Acquisition Time shall be exchanged for one Fixed Share; second, Canopy Growth will acquire the Fixed Shares held by Acreage Non-U.S. Shareholders (other than those Acreage Non-U.S. Shareholders that exercise Dissent Rights) and, to the extent Canopy Growth exercises the Floating Call Option, the Floating Shares, in a direct exchange of those Fixed Shares and Floating Shares if applicable,in connection with these transactions which represents “control” (as defined in Section 368(c) of the Code) of Acreage in exchange solely for Canopy Growth Shares (or,Shares. After the completion of these transactions, Canopy USA rather than Canopy will be in “control” of Acreage causing the event a Canopy Change of Control has occurred prior“control” requirement not to the Acquisition Date, the Alternate Consideration); and third, Canopy Growth will acquire the remaining Fixed Shares held by Acreage U.S. Shareholders (other than those Acreage U.S. Shareholdersbe satisfied. In addition, it is expected that exercise Dissent Rights) in the Merger in exchange for Canopy Growth Shares (or, in the event a Canopy Change of Control has occurred prior to the Acquisition Date, the Alternate Consideration). Canopy Growth will have the option, but not the obligation, to acquire the Floating Shares.
The description of the U.S. federal income tax consequences of the Acquisition that follows is based on the assumption that U.S. Holders who received a portion of the Option Premium will be required to report such Option Premium (to the extent not previously included in income) as short-term capital gain in the taxable year in which the Amended Planand some or all of Arrangement becomes effective, and that the Aggregate Amendment Option PaymentPayments which were paid in cash to shareholders of Acreage under the terms of (and defined in) the Existing Arrangement Agreement will be treated as ordinary income upon receipt.
Underother consideration in determining whether Canopy acquired control of Acreage in exchange solely for Canopy Shares. Based on the Amended Planvalue of Arrangement, if Canopy Growth does not acquireShares as of the date of the Floating Shares,Share Arrangement Agreement, such cash consideration is expected to cause the Acquisition willcontrol requirement not to be satisfied. Accordingly, the Floating Share Arrangement is expected not to qualify as a reorganization for U.S. federal income tax purposes and, therefore, will bepurposes.
Assuming the Floating Share Arrangement does not qualify as a fully taxable transaction in whichreorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Growth Shares in exchange for FixedFloating Shares in the Mergerwould generally will recognize a capital gain or loss equal to the difference between the fair market value of the Canopy Growth Shares received and the U.S. Holder’s adjusted tax basis in the FixedFloating Shares exchanged therefor. The gain or loss would generally be determined separately for each block of FixedFloating Shares (i.e.(i.e., FixedFloating Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of FixedFloating Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations.
Even if both the Fixed Shares and the Floating Shares are acquiredIf you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by Canopy Growth in the Acquisition, the Acquisition may not qualify as a reorganizationemail at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for U.S. federal income tax purposes. Certain factors that affect the U.S. federal income tax treatment of the Acquisition will not be determinable until the Acquisition Date, including whether the Floating Consideration is paid in Floating Share Consideration, Floating Cash Consideration or a combination thereof, and the value of the Canopy Growth Shares received in the Acquisition. Depending on these and other factors, the Acquisition may be treated as a taxable transaction in which gain or loss is generally recognized for U.S. federal income tax purposes, or it may be treated as a reorganization for U.S. federal income tax purposes (and which also meet the Section 367 Requirements)additional information. Neither Acreage nor Canopy Growth have sought, nor expect to seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein.
If the Acquisition qualifies as a “reorganization” under Section 368(a) of the Code, and the Section 367 Requirements are met, it is expected that a U.S. Holder receiving Canopy Growth Shares in exchange for its Shares in connection with the Acquisition will not generally recognize gain or loss on the exchange.
Even if the Acquisition qualifies as a reorganization, there is a risk that the Acquisition could fail to meet the Section 367 Requirements. If the Acquisition fails to meet the Section 367 Requirements, the transaction will be taxable to U.S. Shareholders as described above, notwithstanding that it was a reorganization under the Code.vii
The rules described above for U.S. Holders should generally also apply to a Non-U.S. Holder that directly exchanges its Floating Shares for Canopy Growth Shares, except that any such gain recognized by a Non-U.S. Holder generally will not be subject to U.S. federal income tax unlessunless: (i) the gain is “effectively connected” with such Non U. S.Non-U.S. Holder’s conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that such Non-U.S. Holder maintains in the United States if that is required by an applicable income tax treaty as a condition for subjecting such person to U.S. taxation on a net income basis,basis; or (ii) the Non-U.S. Holder is an individual, is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist.
ForThe foregoing is a brief summary of certain U.S.the material United States federal income tax consequences ofonly and is not intended to be, nor should it be construed to be, legal or tax advice. Floating Shareholders should carefully read the Acquisition seeinformation in this Circular under the heading “Certain United States Federal Income Tax Considerations”. Such, which qualifies the summary is not intended to be legal or tax advice.set forth above. Floating Shareholders are urged to consult their own tax advisors with respect to U.S.determine the particular tax consequences to them of the Floating Share Arrangement.
See “Certain United States Federal Income Tax Considerations”.
Q: What are the Canadian federal income tax consequences of the Acquisition in general and based on their particular circumstances.Floating Share Arrangement?
A: Pursuant to the Floating Share Arrangement, a Canadian Holder, other than a Dissenting Canadian Holder, will transfer the Canadian Holder’s Floating Shares to Canopy USA for Canopy Shares. Such Canadian Holder will realize a capital gain (or a capital loss) equal to the amount by which the fair market value of the Canopy Shares received exceeds (or is exceeded by) the aggregate of the adjusted cost base of the Floating Shares transferred and any reasonable costs of disposition. The cost of the Canopy Shares acquired will be equal to the fair market value thereof. This cost will be averaged with the adjusted cost base of all other Canopy Shares (if any) held by such Canadian Holder as capital property for the purpose of determining the adjusted cost base of each Canopy Share held by such Canadian Holder. Such capital gain (or capital loss) will be subject to the tax treatment described below under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Capital Losses”.
The foregoing summary is of a general nature and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Floating Shareholder. Accordingly, Floating Shareholders should consult their own tax advisors for advice with respect to the income tax consequences to them of disposing of their Floating Shares pursuant to the Floating Share Arrangement, and holding and disposing of Canopy Shares, having regard to their own particular circumstances.
See “Certain Canadian Federal Income Tax Considerations”.
Questions
Q: Who can help answer my questions?
A: If you have any questions about this Circular or the matters described in this Circular, please contact Kingsdale AdvisorsMorrow Sodali or your professional advisor. Floating Shareholders who would like additional copies, without charge, of this Circular or have additional questions about the procedures for voting ExistingFloating Shares, should contact their broker or Kingsdale AdvisorsMorrow Sodali by e-mail, or at the telephone number below.
| North American Toll Free: | ||
| Outside North America Collect: | ||
| By E-mail: |
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Q: What is householding and how does it affect me?
A: The SEC permits companies to send a single set of proxy materials to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each shareholder continues to receive a separate notice of the meeting and proxy card. If your shares are held in “street name,” you will receive your proxy card or other voting information from your bank, broker or other nominee and you will return your proxy card(s) to your bank, broker or other nominee. You should vote on and sign each proxy card you receive as provided in this Circular. To request that only one copy of any of these materials be mailed to your household, please contact your bank, broker or other nominee.
Q&A ON PROXY VOTING
Q: When and where is the Meeting?
A: The Meeting will be held at 12:00 p.m. (New York time) on March 15, 2023. The Meeting will be held in a virtual format, via live webcast online at web.lumiagm.com/244671399 (password: acreage2023). In order to attend, participate, vote or ask questions at the Meeting, Floating Shareholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting. To join as a guest, please visit the Meeting online at web.lumiagm.com/244671399 and select “Join as a Guest” when prompted. Registered Shareholders and duly appointed proxyholders will be able to access the Meeting online at web.lumiagm.com/244671399. Such Persons may enter the Meeting by clicking “I have a login” and entering a username and password before the start of the Meeting. The control number located on the form of proxy is the username. The password for the Meeting is “acreage2023” (case sensitive).
See “General Proxy Information – Meeting Format”.
Q: Who is entitled to vote on the AmendmentArrangement Resolution?
A: The record date for determining the Floating Shareholders entitled to receive notice of and to vote at the Meeting was August 13, 2020.February 10, 2023. Only Floating Shareholders of record as of the close of business on the Record Date are entitled to receive notice of and to vote at the Meeting. Any securities of the Company, High Street or USCo2 that were not exercised or exchanged for ExistingFloating Shares prior to the Record Date are not permitted to vote on the AmendmentArrangement Resolution.
Q: What if I acquire ownership of ExistingFloating Shares after the Record Date?
A: You will not be entitled to vote ExistingFloating Shares acquired after the Record Date at the Meeting. Only Persons owning ExistingFloating Shares as of the Record Date are entitled to vote at the Meeting. However, Floating Shareholders who acquire Floating Shares after the Record Date will still be able to receive the Aggregate Amendment Option PaymentCanopy Shares as consideration for their Floating Shares if they hold Existingsuch Floating Shares asupon closing of the close of business on the Amendment Date.Floating Share Arrangement.
Q: What do I need to do now in order to vote on the AmendmentArrangement Resolution?
A: You should carefully read and consider the information contained in this Circular.
The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. To address potential issues arising from the unprecedented public health impact of COVID-19, comply with applicable public health directives that may be in force at the time of the Meeting, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, we will be holding the Meeting in a virtual only format webcast, as described in thethis Circular under the headings, “General Proxy Information” and “How to Vote Your Shares”.
In order to attend, participate in (including asking questions) or vote at the Meeting, (including for voting and asking questions at the Meeting), Registered Shareholders and duly appointed proxyholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting. To join as a guest please visit the Meeting online at web.lumiagm.com/221798142244671399 and select “Join as a Guest” when prompted.prompted.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Registered Shareholders and dulyduly appointed proxyholders will be able to access the Meeting online at web.lumiagm.com/221798142.244671399. Such persons may then enter the Meeting by clicking “I have a login” and entering a username and password before the start of the Meeting:
| · | Registered Shareholders: The control number located on the form of proxy is the username. The password for the Meeting is |
| · | Duly appointed proxyholders: Floating Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or VIF, as applicable, AND register the proxyholder. See “How to Vote Your Shares |
If you are a Non-Registered Shareholder and wish to attend, participate in or vote at the Meeting, you have to insert your own name in the space provided on the VIF sent to you by your Intermediary, follow all of the applicable instructions provided by your Intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing your Intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your Intermediary.
There are three ways to submit your vote by proxy, in accordance with the instructions on the form of proxy:
| By Mail or Hand Delivery: | Odyssey Trust Company Attention: Proxy Department 323 – 409 Granville Street, Vancouver, BC V6C 1T2 |
| By Internet: | https:// |
Each completed form of proxy must be submitted no later than 11:12:00 a.m.p.m. (New York time) on September 14, 2020,March 13, 2023, or, in the event that the Meeting is adjourned or postponed, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of the reconvened Meeting or any adjournment or postponement thereof.
If you hold your ExistingFloating Shares through an Intermediary, please follow the instructions provided by such Intermediary to ensure that your vote is counted at the Meeting and contact your Intermediary for instructions and assistance in delivering the share certificate(s) representing those shares.
See “General Proxy Information” and “How to Vote Your Shares”.
Q: Should I send in my proxy now?
A: Yes. Once you have carefully read and considered the information contained in this Circular, to ensure your vote is counted, you need to complete and submit the enclosed form of proxy or, if applicable, provide your Intermediary with voting instructions.a completed VIF. You are encouraged to vote well in advance of the proxy cut-off at 11:12:00 a.m.p.m. (New York time) on September 14, 2020March 13, 2023 (or if the Meeting is postponed or adjourned, not later than 48 hours (excluding Saturdays, Sundays and holidays) before the time for holding the postponed or adjourned meeting).
See “General Proxy Information” and “How to Vote Your Shares”.
Q: What happens if I sign and submit the form of proxy sent to me?
A: Signing and depositing the enclosed form of proxy gives authority to the Person(s) designated by management of Acreage on such form to vote your ExistingFloating Shares at the Meeting. If the instructions in a proxy given to Acreage’s management are specified, the ExistingFloating Shares represented by such proxy will be voted for or against in accordance with your instructions on any poll that may be called for. If a choice is not specified, the ExistingFloating Shares represented by a proxy given to Acreage’s management will be voted FOR the approval of the AmendmentArrangement Resolution as described in this Circular.
See “General Proxy Information” and “How to Vote Your Shares”.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Q: Can I appoint someone other than the Person(s) designated by management of Acreage to vote my ExistingFloating Shares?
A: Yes. Floating Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or VIF and register the proxyholder in advance of the proxy cut-off at 11:12:00 a.m.p.m. (New York time) on September 14, 2020March 13, 2023 to attend the Meeting virtually.
See “General Proxy Information” and “How to Vote Your Shares”.
Q: What if amendments are made to these matters or if other matters are brought before the Meeting?
A: The form of proxy accompanying this Circular confers discretionary authority upon the proxy nominee with respect to any amendments or variations to matters identified in the Notice of Meeting and any other matters that may properly come before the Meeting or any postponement or adjournment thereof. As of the date of this Circular, Acreage’s management is not aware of any such amendments or variations, or of other matters to be presented for consideration at the Meeting. However, if any amendments to matters identified in the accompanying Notice of Meeting or any other matters which are not now known to management should properly come before the Meeting or any postponement or adjournment thereof, the ExistingFloating Shares represented by properly executed proxies given in favorfavour of the Person(s) designated by management of Acreage in the enclosed form of proxy will be voted on such matters pursuant to such discretionary authority.
See “General Proxy Information” and “How to Vote Your Shares”.
Q: Can I change my vote after I have voted by proxy?
A: Yes. A Registered Shareholder who has given a proxy may revoke the proxy at any time prior to use by: (i) depositingdepositing an instrument in writing, including another completed form of proxy, executed by such Registered ShareholderShareholder or by his or her attorney authorized in writing, or, by electronic signature, or, if the Registered Shareholder is a corporation, by an authorizedauthorized officer or attorney thereof, or (ii) by transmitting by telephonefacsimile or other electronic means, a revocation signed subject to the BCBCA, by electronic signature: (i)revocation: (x) to the head office of the Company, located at 366 Madison Avenue, 11th14th Floor, NewNew York, New YorkYork, 10017, at any time prior to 5:00 p.m. (New York time) on the last Business Day preceding the day of the MeetingMeeting or any adjournment or postponement thereof; (ii)(y) with the Chair of the Meeting on the day of the Meeting oror any adjournment or postponement thereof, prior to the start of the Meeting or any adjournment or postponementpostponement thereof; or (iii)(z) in any other manner permitted by Law.Law. If as a Registered Shareholder you are using your control number to access the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided with the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, you will need to attend the Meeting as a guest and will not be able to participate in the Meeting.
Only Registered Shareholders have the right to revoke a proxy. A Non-Registered Shareholder who has submitted a form of proxy may revoke it by contacting the Intermediary through which its ExistingFloating Shares are held and following the instructions of the Intermediary respecting the revocation of proxies.
See “General Proxy Information” and “How to Vote Your Shares”.
Q: Who will count the votes?
A: Acreage’s transfer agent, Odyssey Trust Company, will count and tabulate the votes received for the Meeting.
If you have any questions please contact Morrow Sodali at 1.888.444.0623 toll-free in North America or 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.
Please visit http://investors.acreageholdings.com/ for additional information.
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Q: If my ExistingFloating Shares are held by my Intermediary, will they vote my ExistingFloating Shares?
A: Generally, Non-Registered Shareholders who have not waived the right to receive Meeting Materials will be sent either:
| (a) | a VIF which is not signed by the Intermediary and which, when properly completed and signed by the Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. Typically, the VIF will consist of a one-page pre-printed form. Sometimes, instead of the one-page pre-printed form, the VIF will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label with a bar-code and other information. In order for the form of proxy to validly constitute a VIF, the Non-Registered Shareholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company; or |
| (b) | a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of |
If an Intermediary holds your ExistingFloating Shares in “street name,” your Intermediary will vote your ExistingFloating Shares only if you provide instructions on how to vote by filling out the VIF sent to you by your Intermediary with this Circular.
Acreage may utilize the Broadridge QuickVoteTM service to assist NOBOs with voting their Floating Shares. NOBOs of Acreage may be contacted by Morrow Sodali, which is soliciting proxies on behalf of Acreage’s management, to obtain voting instructions over the telephone, and relaying them to Broadridge (on behalf of the Floating Shareholder’s intermediary). While representatives of Morrow Sodali are soliciting proxies on behalf of Acreage’s management, Floating Shareholders are not required to vote in the manner recommended by the Acreage Board. The QuickVote™ system is intended to assist Floating Shareholders in exercising their votes, however, Floating Shareholders are not obligated to vote using the QuickVote™ system, and a Floating Shareholder may vote (or change or revoke their votes) at any other time and in any other applicable manner described in this Circular. Any voting instructions provided by a Floating Shareholder will be recorded and such Floating Shareholder will receive a letter from Broadridge (on behalf of the Floating Shareholder’s intermediary) as confirmation that their voting instructions have been accepted.
See “General Proxy Information” and “How to Vote Your Shares”.
If you have any questions please contact KingsdaleMorrow Sodali at 1.877.657.58561.888.444.0623 toll-free in North America or +1.416.867.22721.289.695.3075 outside of North America or by email at contactus@kingsdaleadvisors.com. assistance@morrowsodali.com.
Please visit [X]http://investors.acreageholdings.com/ for additional information.information.
ACREAGE HOLDINGS, INC.
CSE: ACRG.UACRG.B.U
OTCQX: ACRGFACRDF
FSE: 0VZ0VZ2
PROXY STATEMENT AND MANAGEMENT INFORMATION CIRCULAR
FOR THE SPECIAL MEETING OF FLOATING SHAREHOLDERS
TO BE HELD ON SEPTEMBER 16, 2020
MARCH 15, 2023
This proxy statement and management information circular (the “Circular”) and accompanying form of proxy are furnished in connection with the solicitation of proxies by the management of Acreage Holdings, Inc. (“Acreage” or the “Company”) for use at the special meeting (the “Meeting”) of holders (the “Existing SVSFloating Shareholders”) of the Class A subordinate voting shares (the “Existing SVS”), the holders (the “Existing PVS Shareholders”) of Class B proportionate voting shares (the “Existing PVS”) and the holders (the “Existing MVS Shareholders” and, together with the Existing SVS Shareholders and the Proportionate Shareholders, the “Shareholders”) of Class C multiple voting shares (the “Existing MVS”, and together with the Existing SVS and the Existing PVS, the “Existing Shares”) of the Company to be held on September 16, 2020March 15, 2023, commencing at 11:12:00 a.m.p.m. (New York time), and at any adjournment or postponement thereof, for the purposes set forth in the accompanying notice of special meeting (the “Notice of Meeting”).Meeting.
The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Floating Shareholders will not need, or be able, to attend the Meeting in person.
All summaries of, and references to, the ProposalFloating Share Arrangement Agreement, the AmendedFloating Share Plan of Arrangement, the AmendmentArrangement Resolution, the Amending Agreement, other related agreements and each of the New Fairness OpinionFairness Opinions in this Circular are qualified in their entirety by reference to the complete text of these documents, each of which is either included as an appendix to this Circular or filed under the Company’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar. Floating Shareholders are urged to carefully read the full text of these documents.
Defined Terms
In this Circular, unless otherwise indicated or the context otherwise requires, terms defined in the Glossary of Terms hereincontained in Appendix “A” hereto shall have the meanings attributed thereto. Words importing the singular include the plural and vice versa and words importing gender include all genders.
Information Contained in this Circular
The information contained in this Circular, unless otherwise indicated, is given as of AugustFebruary [¨], 2020.2023.
No Person is authorized by Acreage to giveprovide any information (including any representations) in connection with the matters to be considered at the Meeting other than the information contained in this Circular. This Circular does not constitute an offer to sell, or a solicitation of an offer to acquire, any securities, or a solicitation of a proxy, by any Person in any jurisdiction in which such an offer or solicitation is not authorized or is unlawful.
Information contained in this Circular should not be construed as legal, tax or financial advice, and Floating Shareholders should consult their own professional advisors concerning the consequences of the AmendedFloating Share Arrangement in their own circumstances.
Neither the ProposalFloating Share Arrangement Agreement (including its fairness or merits), Amending Agreement (including its fairness or merits), AmendedFloating Share Arrangement (including its fairness or merits), AmendedFloating Share Plan of Arrangement (including its fairness or merits) nor this Circular (including the accuracy or adequacy of the information contained in this Circular) has been approved or disapproved by any securities regulatory authority (including any Canadian provincial or territorial securities regulatory authority, the SEC or any other securities regulatory authority), and any representation to the contrary is unlawful.
Information Contained in this Circular Regarding Canopy Growth
Certain information included or incorporated by reference in this Circular pertaining to Canopy, Growth, including, but not limited to, information pertaining to Canopy Growth in Appendix “G” – Information Concerning Canopy Growth and Appendix “H” – Information Concerning Canopy Growth following Completion of the Arrangement, has been furnished by Canopy, Growth, or is derived from Canopy Growth’sCanopy’s publicly available documents. With respect to this information, the Acreage Board has relied exclusively upon Canopy, Growth, without independent verification by the Company. Although the Company does not have any knowledge that would indicate that such information is untrue or incomplete, neither the Company nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information, or for the failure by Canopy Growth to disclose events or information that may affect the completeness or accuracy of such information.
For further information regarding Canopy, Growth, please refer to Canopy Growth’sCanopy’s filings with the securities regulatory authorities which may be obtained under Canopy Growth’sCanopy’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar. See also Appendix “G” – Information Concerning Canopy Growth.
Unless otherwise indicated, all financial information referred tocontained in this Circular was derived from financial statements prepared in accordance with U.S. GAAP.
Acreage publishes theirits consolidated financial statements in U.S. dollars. Unless otherwise indicated in this Circular, all references to “$”, “US$” or “dollars” set forth in this Circular are to United States dollars and references to “Canadian dollars” and “C$” are to the currency of Canada.
The following table sets forth, for each period indicated, the high and low exchange rates, the average exchange rate, and the exchange rate at the end of the period, based on the rate of exchange of one U.S. dollar in exchange for Canadian dollars published by the Bank of Canada.
| Year ended December 31 | Three months ended March 31 | Year ended December 31 | ||||||||||||||||||||||
| 2019 | 2018 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
| High | C$1.3600 | C$1.3642 | C$1.4496 | C$ | 1.3856 | C$ | 1.2942 | C$ | 1.4496 | |||||||||||||||
| Low | C$1.2988 | C$1.2288 | C$1.2970 | C$ | 1.2451 | C$ | 1.2040 | C$ | 1.2718 | |||||||||||||||
| Average | C$1.3269 | C$1.2957 | C$1.3449 | C$ | 1.3011 | C$ | 1.2535 | C$ | 1.3415 | |||||||||||||||
| Closing | C$1.2988 | C$1.3642 | C$1.4187 | C$ | 1.2678 | C$ | 1.2678 | C$ | 1.2732 | |||||||||||||||
On JuneOctober 24, 2020,2022, the Business Day immediately prior to the Announcement Date, the average daily exchange rate as reported by the Bank of Canada was US$1.00 = C$1.35911.3722 or C$1.00 = US$0.7358.0.7288. On August []February [¨], 2020,2023, the average daily exchange rate as reported by the Bank of Canada was US$1.00 = C$0.[¨] or C$1.00 = US$[¨].
This summary is qualified in its entirety by the more detailed information appearing elsewhere in this Circular, including the Appendices (which are incorporated into and form part of this Circular). Terms with initial capital letters in this summary are defined in theAppendix “A” – Glossary of Terms immediately following this summary.Terms.
The Meeting
The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Floating Shareholders will not need, to, or be able, to attend the Meeting in person.
To address potential issues arising from the unprecedented public health impact of COVID-19, comply with applicable public health directives that may be in force at the time of the Meeting, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, weAcreage will be holding the Meeting in a virtual only format.
In order to attend, participate in (including and asking questions) or vote at the Meeting, (including for voting and asking questions at the Meeting),Floating Shareholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting.
See “General Proxy Information” and “How to Vote Your Shares”.
Record Date
Only Floating Shareholders of record at the close of business on August 13, 2020February 10, 2023 will be entitled to receive notice of and to vote at the Meeting, or any adjournment or postponement thereof.
Purpose of the Meeting
The purpose of the Meeting is for Floating Shareholders to consider and vote upon the AmendmentArrangement Resolution and such other proposals as may properly come before the Meeting, and any adjournment or postponement thereof. The Meeting may be postponed at the discretion of the Acreage Board. To beFor the Floating Share Arrangement to be adopted, the AmendmentArrangement Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the AmendmentArrangement Resolution by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class;Meeting; and (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS,Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Interested Parties; and (iii) not less than a simple majorityParties.
Principal Steps of the votes castFloating Share Arrangement
It is a condition to closing of the Floating Share Arrangement that all Acquisition Closing Conditions, being conditions precedent to the completion of the Acquisition set forth in the Existing Arrangement Agreement, shall have been satisfied or, if permitted, waived, excluding conditions that by their terms cannot be satisfied until the holdersAcquisition Effective Time.
Pursuant to the Floating Share Plan of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitledArrangement attached as a schedule to votethe Floating Share Arrangement Agreement, which is attached to this Circular at Appendix “C”, commencing at the Meeting, voting together as a single class, excludingEffective Time, the votesfollowing principal steps shall occur and shall be deemed to occur in the following order without any further act or formality:
| (a) | Dissenting Shareholders. Each Dissenting Share will be, and will be deemed to be, transferred to Canopy USA by the holder thereof, free and clear of all liens, and thereupon each Dissenting Shareholder will cease to have any rights as a holder of such Floating Shares other than a claim against Canopy to be paid the fair value for each Floating Share in respect of which they have exercised Dissent Rights as outlined in the Floating Share Plan of Arrangement. |
| (b) | Transfer of Floating Shares. Each Floating Share held by a Floating Shareholder (other than the Canopy USA, Canopy or their respective affiliates), other than a Dissenting Shareholder, will be transferred, and will be deemed to be transferred, free and clear of all liens, by the holder thereof to Canopy USA for the Consideration Shares (or, in the event a Canopy Change of Control has occurred prior to the Effective Date, the Per Share Consideration), which Consideration Shares or Per Share Consideration, as applicable, shall be paid in accordance with the provisions of the Floating Share Plan of Arrangement. |
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| (c) | Exchange of Floating Options. Each Floating Option will be exchanged for a Replacement Option to acquire from Canopy such number of Canopy Shares as is equal to: (A) the number of Floating Shares that were issuable upon exercise of such Floating Option immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio (provided that if any holder of Replacement Options, following the exchange pursuant to the terms of the Floating Share Plan of Arrangement, is holding, in aggregate, Replacement Options that would result in the issuance of a fraction of a Canopy Share, then the number of Canopy Shares to be issued pursuant to such Replacement Options will be rounded down to the nearest whole number). Such Replacement Options will provide for an exercise price per Replacement Option (rounded up to the nearest whole cent) equal to the quotient obtained when: (i) the exercise price per Floating Share that would otherwise be payable pursuant to the Floating Option it replaces is divided by (ii) the Exchange Ratio, and any document evidencing a Floating Option will thereafter evidence and be deemed to evidence such Replacement Option. Except as provided in the Floating Share Plan of Arrangement, all terms and conditions of a Replacement Option, including the term to expiry, conditions to and manner of exercising, will be the same as the Floating Option for which it was exchanged, and will be governed by the terms of the Canopy Equity Incentive Plan, and the exchange will not provide any optionee with any additional benefits as compared to those under his or her original Floating Option. |
| (d) | Exchange of Floating Warrants. Each Floating Warrant will be exchanged for a Replacement Warrant to acquire from Canopy such number of Canopy Shares as is equal to: (A) the number of Floating Shares that were issuable upon exercise of such Floating Warrant immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio (provided that if any holder of Replacement Warrants, following the exchange pursuant to the terms of the Floating Share Plan of Arrangement, is holding in aggregate, Replacement Warrants that would result in the issuance of a fraction of a Canopy Share, then the number of Canopy Shares to be issued pursuant to such Replacement Warrants will be rounded down to the nearest whole number). Such Replacement Warrants will provide for an exercise price per whole Replacement Warrant (rounded up to the nearest whole cent) equal to the quotient obtained when: (i) the exercise price per Floating Share that would otherwise be payable pursuant to the Floating Warrant it replaces is divided by (ii) the Exchange Ratio, and any document evidencing a Floating Warrant will thereafter evidence and be deemed to evidence such Replacement Warrant. Except as provided in the Floating Share Plan of Arrangement, all terms and conditions of a Replacement Warrant, including the term to expiry, conditions to and manner of exercising, will be the same as the Floating Warrant for which it was exchanged, and the exchange will not provide any holder with any additional benefits as compared to those under his or her original Floating Warrant. |
| (e) | Exchange of Floating Share Units. Each Floating Share Unit will be exchanged for a Replacement Share Unit to acquire from Canopy such number of Canopy Shares as is equal to: (A) the number of Floating Shares that were issuable upon vesting of such Floating Share Unit immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio (provided that if any holder of Replacement Share Units, following the exchange pursuant to the Floating Share Plan of Arrangement, is holding, in aggregate, Replacement Share Units that would result in the issuance of a fraction of a Canopy Share, then the number of Canopy Shares to be issued pursuant to such Replacement Share Units will be rounded down to the nearest whole number). Any document evidencing a Floating Share Unit will thereafter evidence and be deemed to evidence such Replacement Share Unit. Except as provided in the Floating Share Plan of Arrangement, all terms and conditions of a Replacement Share Unit, including the term to expiry, conditions to and manner of exercising, will be the same as the Floating Share Unit for which it was exchanged, and the exchange will not provide any holder with any additional benefits as compared to those under his or her original Floating Share Unit. |
Pursuant to the terms of the Related Parties.Floating Share Arrangement Agreement, the Fixed Call Option pursuant to the Existing Arrangement to acquire all of the issued and outstanding Fixed Shares (following the automatic conversion of the Fixed Multiple Shares) is required to be exercised no later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into the Exchangeable Canopy Shares. See the Existing Arrangement and Acreage’s proxy statement and management information circular dated August 17, 2020 in connection with a special meeting held to approve the Existing Arrangement for further details with respect to the steps of the Existing Arrangement, a copy of each of which is available under Acreage’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.
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See “The Floating Share Arrangement – Principal Steps of the Floating Share Arrangement” or the Floating Share Arrangement, a copy of which is attached as Appendix “C” to this Circular.
Description of the AmendedFloating Share Arrangement
On JuneOctober 24, 2020,2022, Acreage, Canopy Growth and AcreageCanopy USA entered into the ProposalFloating Share Arrangement Agreement, which sets out, among other things, the terms and conditions upon which the AmendedFloating Share Arrangement will be implemented,completed, including the terms of the AmendedFloating Share Plan of Arrangement. The effectiveness ofcompletion of the Amended Arrangement Agreement and the Amending Agreement and the implementation of the AmendedFloating Share Plan of Arrangement is subject to satisfaction or, if permitted, waiver of the Acquisition Closing Conditions, excluding conditions that by their terms cannot be satisfied until the Acquisition Effective Time, and the conditions precedent set out in the Proposal Agreement and the AmendingFloating Share Arrangement Agreement, including, among others, completion of the Canopy Capital Reorganization on or prior to the Exercise Outside Date and obtaining the Shareholder Approval Amendment Regulatory Approvals and the Amendment FinalFinal Order. Upon receipt of Shareholder Approval and the Amendment Regulatory Approvals, the Amendment Final Order and the satisfaction or waiver of all other conditions set out in the ProposalFloating Share Arrangement Agreement, including the Initial Advance of US$50,000,000 to Hempco pursuant to the Debenture and the execution of the Amending Agreement, Canopy Growth and AcreageParties will complete the Required Filing sand implement the AmendedFloating Share Plan of Arrangement. See “The Amended Arrangement - Description of the Amended Arrangement” and “Transaction Agreements – The Proposal AgreementFloating Share Arrangement Agreement”.
Pursuant to the AmendedFloating Share Plan of Arrangement, among other things, the Company’s ArticlesCanopy will be amended to (i) create the classes of Fixed Shares, Floating Shares and Fixed Multiple Shares, and (ii) provide Canopy Growth with the Canopy Call Option and the Floating Call Option. In accordance with the Amended Plan of Arrangement, promptly following the Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basis to the Shareholders, the High Street Holders and the USCo2 Holders. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement. See “Transaction Agreements – Amending Agreement”.
Under the Existing Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Existing SVS (after each Existing MVS and Existing PVS is converted into an Existing SVS) in exchange for 0.5818 of a Canopy Growth Share for each Existing SVS, subject to adjustment in certain circumstances as set out in the Arrangement Agreement. The Amended Plan of Arrangement will result in, among other things, (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) each outstanding Existing PVS will be exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each outstanding Existing MVS will be exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Under the Amended Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will (i) acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on the basis of the Exchange Ratio for each Fixed Share held at the Acquisition Time; and (ii) have the right (but not the obligation) exercisable for a period of 30 days following the Floating Rate Date, to exercise the Floating Call Option to acquire all of the issued and outstanding Floating Shares. The ExistingShares for consideration equal to 0.45 of a Canopy Option expires on December 27, 2026. Under the Amended Arrangement, the Canopy Call Option will expire 10 years from the Amendment Time.
If Canopy Growth exercises theShare in exchange for each Floating Call Option, it may acquireShare held, which represents a premium of 17.2% to the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash,based on the price per Floating Share shall be equal to the volume-weightedvolume weighted average trading priceprices of each of the Floating Shares and the Canopy Shares for the 30-day trading period ending October 24, 2022, on the CSE (or other recognized stock exchange on whichand the Nasdaq, respectively. As of the Record Date, the maximum number of Canopy Shares that may be received by the Floating Shareholders pursuant to the terms of the Floating Share Arrangement, and assuming all securities convertible, exchangeable or exercisable for Floating Shares are primarily traded as determined by volume) for the 30 trading day periodso converted, exchanged or exercised prior to the exercise (or deemed exercise)closing of the Floating Share Arrangement, is approximately [t] Canopy Shares. See “Transaction Agreements – Floating Share Arrangement Agreement”.
Pursuant to the Floating Share Arrangement Agreement, Canopy irrevocably waived its Floating Call Option. Subject to the provisions of the Floating Share Arrangement Agreement, the Fixed Call Option subjectpursuant to the Existing Arrangement to acquire all of the issued and outstanding Fixed Shares (following the automatic conversion of the Fixed Multiple Shares), representing approximately 70% of the total issued and outstanding shares of Acreage as at the date hereof, at a minimum amountfixed exchange ratio of US$6.41. If paid in0.3048 of a Canopy Growth Shares,Share for each Fixed Share, will be exchanged for a number of Canopy Growth Shares equalis required to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to the Amended Plan of Arrangement. The Floating Call Option cannot be exercised unlessno later than five Business Days following the exchange of all Canopy Call Option is exercised (or deemed to be exercised). TheShares held by CBG and Greenstar into Exchangeable Canopy Shares.
Upon completion of: (i) the acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option.
If the Canopy Call Option is exercised (or deemed to be exercised)Share Arrangement; and (ii) the Acquisition of the Fixed Shares is completed, that will result in Canopy Growth becomingfollowing the owner of allexercise of the Fixed Shares onCall Option pursuant to the Acquisition Date, andExisting Arrangement, Canopy USA will own 100% of the Company will become a partially-owned subsidiaryAcreage Shares.
See “The Floating Share Arrangement – Description of Canopy Growth. If the Floating Share Arrangement”.
The Fixed Call Option
The Fixed Call Option is exercisedembedded in the special rights and Canopy Growth acquires the Floating Shares on the Acquisition Date, the Company will be a wholly-owned subsidiary of Canopy Growth and Canopy Growth will continue the operations of Canopy Growth and Acreage on a combined basis. If Canopy Growth completes the Acquisitionrestrictions of the Fixed Shares but does not acquireprovided for in Acreage’s Articles. Pursuant to the Floating Shares atterms of the Existing Arrangement Agreement, Canopy will be required to exercise the Fixed Call Option after the Triggering Event Date and complete the Acquisition Time,unless any of the FloatingCanopy Acquisition Closing Conditions is not satisfied or waived by Canopy. In addition, pursuant to the terms of the Existing Arrangement Agreement, Acreage will not be required to complete the Acquisition unless each of the Acreage Acquisition Closing Conditions is satisfied or waived by Acreage.
Pursuant to the terms of the Existing Arrangement Agreement, the Fixed Call Option may be exercised at any time prior to the Triggering Event Date and before the Fixed Call Option Expiry Date by delivering to the Depositary (with a copy to Acreage) a Fixed Call Option Exercise Notice stating that the Fixed Call Option is being exercised with respect to all (but not less than all) of the Fixed Shares and specifying the Acquisition Date on which the closing of the purchase and sale of the Fixed Shares is to occur.
See “The Floating Share Arrangement Agreement – The Fixed Call Option”.
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Canopy USA
On October 24, 2022, Canopy completed the Reorganization. Following the implementation of the Reorganization, Canopy USA holds the U.S. cannabis investments previously held by Canopy. The transfer of Canopy’s U.S. cannabis investments to Canopy USA is expected to enable Canopy USA, following, among other things, the Meeting, to acquire Acreage, Wana and Jetty. In addition, as of December 9, 2022, Canopy USA controls approximately 25.3% of the issued and outstanding common shares of TerrAscend on a partially-diluted basis, assuming the conversion of 63,492,037 exchangeable shares of TerrAscend into common shares of TerrAscend and the exercise of 22,474,130 common share purchase warrants and an option to acquire 1,072,450 common shares of TerrAscend.
Canopy holds Canopy USA Non-Voting Shares, representing approximately 99.3% of the issued and outstanding shares of Canopy USA on an as-converted basis. The Canopy USA Non-Voting Shares do not carry voting rights, rights to receive dividends or other rights upon dissolution of Canopy USA, but are exchangeable into Canopy USA Common Shares. As of the date hereof, VCo Ventures, a former shareholder of Jetty, holds all of the outstanding Canopy USA Common Shares. Canopy USA retains the Canopy USA Repurchase Right. VCo Ventures has also been granted the right to appoint one member to the Canopy USA board of managers and a put right following Canopy’s conversion of the Canopy USA Non-Voting Shares into Canopy USA Common Shares on the same terms and conditions as the Canopy USA Repurchase Right.
Upon closing of Canopy USA’s acquisition of Acreage, Canopy will terminate,receive additional Canopy USA Non-Voting Shares from Canopy USA in consideration for the issuance of Canopy Shares that shareholders of Acreage will receive in accordance with the terms of the Existing Arrangement Agreement and the Floating Shares shall remain outstanding.Share Arrangement Agreement.
See “The Floating Share Arrangement Agreement – Canopy USA”, Appendix “G” – “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA” and “Information Concerning Canopy – Recent Developments – Ownership of U.S. Cannabis Investments”.
For further information regarding Canopy Growth following completion of the Amended Arrangement, see Appendix “H” – “The Amended Arrangement - Description of the Amended Arrangement”.
Background to the AmendedFloating Share Arrangement
The entry ofby Acreage, Canopy and Canopy GrowthUSA into the ProposalFloating Share Arrangement Agreement, and the proposed AmendedFloating Share Arrangement, is the result of arm’s length discussionsnegotiations among representatives of Acreage, Canopy Growthand Canopy USA and their respective legal and financial advisors. A summary of the material events leading up to the negotiation of the ProposalFloating Share Arrangement Agreement and the AmendedFloating Share Arrangement and the material meetings, negotiations and discussions between Acreage, Canopy and Canopy GrowthUSA and their respective legal and financial advisors that preceded the execution of the ProposalFloating Share Arrangement Agreement and the public announcement of the AmendedFloating Share Arrangement is included in this Circular under the heading “The AmendedFloating Share Arrangement -– Background to the AmendedFloating Share Arrangement”.
Reasons for the AmendedFloating Share Arrangement
In evaluating the AmendedFloating Share Arrangement and in making their respective recommendations, the Special Committee and the Acreage Board each consulted with Acreage management, received the advice and assistance of their respective legal and financial advisors and gave careful consideration to certain constraining terms and conditions imposed upon Acreage pursuant to the Existing Arrangement Agreement, alternatives available to Acreage, the current and expected future financial position of Acreage and all terms of the Proposal Agreement, the Amending Agreement, the Amended Plan ofFloating Share Arrangement the A&R License, the Debenture and the proposed amendments to the Original Credit Agreement. The Special Committee and the Acreage Board consideredalternatives and a number of factors including, among others, the following in determining that the AmendedFloating Share Arrangement and entry into the ProposalFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to ShareholdersFloating Shareholders and authorizing Acreage to enter into the Proposal AgreementFloating Share Arrangement Agreement and related agreements:
| (a) |
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| (b) |
| (c) |
| (d) | Participate at the Onset of Canopy |
| (e) |
| (f) |
1 MJBiz market forecast dated June 2022 of total US cannabis market by 2026.
7
| (g) | Access to Capital. Concurrently with the execution of the Floating Share Arrangement Agreement, Canopy consented to the Amended Credit Facility. The Amended Credit Facility provides, subject to the satisfaction of certain terms and conditions, Acreage with an additional $25 million for immediate draw. The Amended Credit Facility provides capital for Acreage to execute its expansion plans, with additional capital and more flexibility pursuant to the Amended Credit Facility (including the waiver of certain financial covenants through Q1 2024). |
| (h) | Restrictions on Acreage under the Existing Arrangement Agreement. The Existing Arrangement Agreement includes certain covenants, rights and restrictions in favour of Canopy, which include, among others, the right to nominate a majority of the Acreage Board, consent rights on Acreage director and officer appointments, pre-emptive rights, top-up rights, certain audit and inspection rights and restrictions on certain activities, including, but, not limited to, dividend payments, M&A activity, acquisitions, divestitures, debt incurrence, securities issuance and capital raising, in each case without obtaining Canopy’s consent. Acreage is also restricted in its pursuit of strategic and other business opportunities under the Existing Arrangement Agreement without obtaining Canopy’s consent. In the event Canopy does not provide its consent, Acreage may fail to execute on its business objectives and may not be able to pursue strategic and organic growth opportunities. |
| (i) | Financial Constraints under the Existing Arrangement. The Existing Arrangement Agreement restricts Acreage from taking specified actions during the Interim Period, including incurring debt or issuing additional Acreage Shares beyond permitted levels, without Canopy’s consent, which may adversely affect the ability of Acreage to raise the capital necessary to continue as a going concern and execute its business objectives. If Acreage remains subject to the terms of the Existing Arrangement Agreement until the expiry of the Fixed Call Option in 2030 in accordance with the terms of the Existing Arrangement Agreement, there is a significant risk that Acreage will be unable to obtain, or Canopy will not consent to the obtaining of, additional financing and/or obtain the necessary amendments to Acreage’s existing credit agreements to address its inability to meet the covenants thereunder. These restrictions may prevent Acreage from executing its strategic plan and pursuing certain business opportunities that may arise or may result in Acreage defaulting under its existing commitments. See “Risk Factors – The Existing Arrangement Agreement Contains Restrictive Covenants”, “Risk Factors – During the Interim Period, Acreage is Restricted from Taking Certain Actions pursuant to the Existing Arrangement” and “Risk Factors – Securing Additional Financing”. |
| (j) | Certainty of Acquisition of Fixed Shares. Pursuant to the Floating Share Arrangement Agreement, the Fixed Call Option pursuant to the Existing Arrangement to acquire all of the outstanding Fixed Shares, representing approximately 70% of the total Acreage Shares outstanding as at the date hereof, at a Fixed Exchange Ratio of 0.3048 of a Canopy Share for each Fixed Share, is required to be exercised no later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares, in CBG and Greenstar’s sole discretion. |
| (k) | Key Shareholder |
| Shareholder Approval. |
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| Court |
| Dissent |
| Preservation of Right to Make Change in |
| Receipt of |
| Receipt of Canaccord Genuity Fairness Opinion. The Acreage Board received the Canaccord Genuity Fairness Opinion, in which Canaccord Genuity stated that, as of the date of such opinion, and based upon and subject to the assumptions, qualifications, explanations and limitations set forth therein, and such other matters as Canaccord Genuity considered relevant, the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates). Canaccord Genuity is independent of Acreage, Canopy and Canopy USA for purposes of the Floating Share Arrangement and is acting as Acreage’s financial advisor in connection with the Floating Share Arrangement. |
| (r) | Other |
Acreage Board Support
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The Special Committee and the Acreage Board (withalso considered a number of risks, negative factors and potentially adverse implications relating to the Floating Share Arrangement, which are set out under the heading “The Floating Share Arrangement – Reasons for the Floating Share Arrangement”.
The Acreage Board (with the exception of Mr.Kevin Murphy, who declared hisJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared their interest in the transactions contemplatedcontemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof ) respect thereof) unanimously recommended support forapproved the Amended Arrangement.execution of the Floating Share Arrangement Agreement
Special Committee
. The process of evaluating the AmendedFloating Share Plan of Arrangement was led by the Special Committee, which is comprised of independent members of the Acreage Board who are not members of management.
The members of the Special Committee met regularly with its and Acreage’s legal and financial advisors and members of management and communicated directly with representatives of Canopy Growth throughout the process of negotiating the Amended Arrangement. Floating Share Arrangement.
See “The AmendedFloating Share Arrangement – Reasons for the Recommendation”Floating Share Arrangement”.
Approval of the Arrangement Resolution
At the Meeting, Floating Shareholders will be asked to approve the Arrangement Resolution, the full text of which is set out in Appendix “B” to this Circular. In order for the Floating Share Arrangement to become effective, as provided in the Interim Order and by the BCBCA, the Arrangement Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the Arrangement Resolution by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting; and (ii) not less than a simple majority of votes cast by the Floating Shareholders, present virtually or represented by proxy and entitled to vote at the Meeting, excluding the votes of the Interested Parties pursuant to MI 61-101. Should Floating Shareholders fail to approve the Arrangement Resolution by the requisite majorities, the Floating Share Arrangement will not be completed.
See “The Floating Share Arrangement – Approval of the Arrangement Resolution”.
Eight Capital Fairness Opinion
Eight Capital was formally engaged by the Special Committee on May 28, 2020 pursuant to the Eight Capital Engagement Agreement dated September 28, 2022 and accepted by Acreage on October 17, 2022, to provide a long-forman opinion as to the fairness, from a financial point of view, of the Considerationnumber of Canopy Shares per Floating Share to be received by theFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the AmendedFloating Share Arrangement. On June 21, 2020,October 24, 2022, Eight Capital verbally delivered thedelivered its opinion to the Special Committee, which opinion was reconfirmed on June 24, 2020 by Eight Capital and was subsequently confirmed in writing to the effect that, based upon and subject to the scope of review, analyses, assumptions, limitations, qualifications and other matters described therein, the Consideration to be received by the Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders.
and in which Eight Capital based its conclusion instated that, as of the New Fairness Opinion upon a number of quantitativedate thereof, and qualitative factors including, but not limited to the historical trading analysis approach, market capitalization, size and trading liquidity, revenue and EBITDA profile, timing of certain precedent transactions and other financial metrics that Eight Capital considered relevant.
Basedbased upon and subject to the assumptions, qualifications and limitations contained therein, Eight Capital isthe number of the opinion that, as of the date of the New Fairness Opinion, the ConsiderationCanopy Shares per Floating Share to be received by the ShareholdersFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant toto the Amended ArrangementFloating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates).
Pursuant to the Eight Capital Engagement Agreement, Acreage has agreed to pay Eight Capital a fixed fee for the delivery of the Eight Capital Fairness Opinion. In addition, Acreage has agreed to reimburse Eight Capital for its reasonable out-of-pocket expenses and to indemnify Eight Capital against certain liabilities in connection with its engagement, as further described in the indemnity that forms part of the Eight Capital Engagement Agreement. The fee payable to Eight Capital by Acreage in respect of the delivery of the Eight Capital Fairness Opinion is not contingent upon the conclusions reached by Eight Capital in the Eight Capital Fairness Opinion or the consummation of the Floating Share Arrangement.
The summary of the NewEight Capital Fairness Opinion in this Circular is qualified in its entirety by, and should be read in conjunction with, the full text of the NewEight Capital Fairness Opinion attached to this Circular as Appendix “D”. The full text of the NewEight Capital Fairness Opinion describes, among other things, the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the NewEight Capital Fairness Opinion. Floating Shareholders are encouraged to read the NewEight Capital Fairness Opinion carefully in its entirety.
See “The AmendedFloating Share Arrangement – NewEight Capital Fairness Opinion”.
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Recommendation of the Special Committee
The Special Committee, after consultation with Acreage management and receipt of advice and assistance of its and Acreage’s financial and legal advisors and after careful consideration of alternatives and a number of alternatives and factors, including, among others, the NewEight Capital Fairness Opinion and the factors set out below under the heading “Reasons for the AmendedFloating Share Arrangement”, unanimously determined that the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement and related agreements are in the best interestsinterests of Acreage and its minority shareholdersthe Floating Shareholders and unanimously determined to recommendrecommended to the Acreage Board that it approve and authorize Acreage to enter into the Proposal Agreementinto the Floating Share Arrangement Agreement and related agreements.
See “The AmendedFloating Share Arrangement – Recommendation of the Special Committee”.
Canaccord Genuity Fairness Opinion
Canaccord Genuity was formally engaged by Acreage through the Canaccord Genuity Engagement Agreement dated October 20, 2022. The Canaccord Genuity Engagement Agreement provides the terms upon which Canaccord Genuity has agreed to act as a financial advisor to Acreage in connection with the Floating Share Arrangement during the term of the Canaccord Genuity Engagement Agreement.
On October 24, 2022, Canaccord Genuity verbally delivered its opinion to the Acreage Board, which was subsequently confirmed in writing, that, as at the date of such opinion and based upon and subject to the assumptions, qualifications, explanations and limitations set forth therein, and such other matters as Canaccord Genuity considered relevant, the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates). Canaccord Genuity’s opinion was one of many factors considered by the Acreage Board in its evaluation of the Floating Share Arrangement and should not be viewed as determinative of the views of the Acreage Board in its evaluation with respect to the Floating Share Arrangement or the consideration to be received by Floating Shareholders pursuant to the Floating Share Arrangement. The Canaccord Genuity Fairness Opinion was addressed to the Acreage Board and only addresses the fairness to Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates), from a financial point of view, of the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement, and did not and does not address the relative merits of the Floating Share Arrangement as compared to other transactions or business strategies that might be available to Acreage, nor does it address the underlying business decision of Acreage to enter into the Floating Share Arrangement, or any views on any other terms or aspects of the Floating Share Arrangement, or any potential implication of the Floating Share Arrangement or the Transactions. The Canaccord Genuity Fairness Opinion has been provided to members of the Acreage Board (solely in their capacity as directors of Acreage) for their sole use and benefit in connection with, and for the purpose of, their consideration of the Floating Share Arrangement and is not intended to, and should not, be relied upon by any other person or entity (including, without limitation, securityholders, creditors or other constituencies of Acreage) or used for any other purpose.
The summary of the Canaccord Genuity Fairness Opinion in this Circular is qualified in its entirety by, and should be read in conjunction with, the full text of the Canaccord Genuity Fairness Opinion attached to this Circular as Appendix “E”. The full text of the Canaccord Genuity Fairness Opinion describes, among other things, procedures followed, the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the Canaccord Genuity Fairness Opinion. Floating Shareholders are encouraged to read the Canaccord Genuity Fairness Opinion carefully in its entirety.
See “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”.
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Recommendation of the Acreage Board
The Acreage Board,Board, after consultation with Acreage management and receipt of advice and assistance offrom its financial and legal advisors, and after careful consideration of alternatives and a number of alternatives and factors, including, among others, thethe receipt of the unanimous recommendation of the Special Committee, the New Fairness OpinionOpinions and the factors set out below under the heading heading “Reasons for the AmendedFloating Share Arrangement”, unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) determineddetermined that the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to ShareholdersFloating Shareholders and approved and authorized Acreage to enter into the Proposal AgreementFloating Share Arrangement Agreement and related agreements. Accordingly, the Acreage BoardBoard unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) recommends that Shareholders voteFloating Shareholders vote FOR the AmendmentArrangement Resolution.
See “The AmendedFloating Share Arrangement – Recommendation of the Acreage Board”.
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Principal Steps of the Amended Arrangement
Pursuant to the Amended Plan of Arrangement attached to this Circular at Appendix “C”, commencing at the Amendment Time, each of the transactions or events set out below, among others, will occur as set out in the Amended Plan of Arrangement:
Each Person (other than Canopy Growth or any affiliate of Canopy Growth) who, at any time after the Amendment Time and prior to the Acquisition Time, acquires a Fixed Share or a Floating Share, as applicable, will hold Fixed Shares which are subject to the Canopy Call Option and Floating Shares which are subject to the Floating Call Option; provided, that Canopy Growth will not be required to pay, nor will such Person be entitled to receive any payment of the Aggregate Amendment Option Payment. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement.
Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event prior to the Acquisition Closing Outside Date, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Fixed Shares (including the Fixed Shares issued following the automatic conversion of the issued and outstanding Fixed Multiple Shares) in accordance with the Amended Plan of Arrangement. In exchange for each whole Fixed Share, at the Acquisition Time, each holder of a Fixed Share will be entitled to receive 0.3048 of a Canopy Growth Share pursuant to the exercise (or deemed exercise) of the Canopy Call Option. The Floating Call Option is exercisable for a period of 30 days following the exercise (or deemed exercise) of the Canopy Call Option and the acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the acquisition of the Fixed Shares pursuant to the Canopy Call Option. No fractional Canopy Growth Shares will be issued pursuant to the Amended Plan of Arrangement. The Canopy Call Option and the Floating Call Option will expire 10 years from the Amendment Time.
See “The Amended Arrangement – Principal Steps of the Amended Arrangement” or the Amended Plan of Arrangement, a copy of which is attached as Appendix “C” to this Circular.
Treatment of High Street Holders and USCo2 Holders
InConcurrently with the execution of the Floating Share Arrangement Agreement, Acreage amended the High Street Operating Agreement to: (i) allow Canopy USA to have a call right on the High Street Units effective immediately following the earlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each holder of High Street Units to exchange their High Street Units for Canopy Shares as described in further detail in such amendment; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to reflectcarry out the Capital Reorganization,purpose and intention of the transactions contemplated in the Floating Share Arrangement.
The USCo2 Constating Documents will be amended prior to the closing of the Floating Share Arrangement Agreement to: (i) allow Canopy USA to have a call right on the USCo2 floating shares effective immediately following the Amendmentearlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each USCo2 shareholder to exchange their floating shares for Canopy Shares; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Floating Share Arrangement.
Immediately following the Effective Time, all High Street Units and USCo2 Shares may be exchanged for Floating Shares and Fixed Shares, which will then be exercisable, convertible or exchangeableexchanged for Canopy Shares on the basis of 0.7the Exchange Ratio and the Fixed Exchange Ratio, as applicable. Upon the closing of a Fixedthe Floating Share and 0.3 of aArrangement, or if the Floating Share in respect of each Existing SVS that otherwise would have been issuable upon such exercise, conversion or exchange.
Pursuant toArrangement does not close but the Proposal Agreement, at the Amendment Time, High Street Holders and USCo2 Holders are entitled to receive the Aggregate Amendment Option Payment in respect of each Existing SVS they could acquire on exchange of their Common Membership Units or USCo2 Shares. High Street Holders and USCo2 Holders will receive the Aggregate Amendment Option Payment on a pro rata basis with the Shareholders (on an as exchanged for Existing SVS basis) assuming exchange of theirExisting Arrangement closes, all High Street Units and USCo2 Shares respectively,will be exercisable, convertible or exchangeable for Existing SVS in accordance with their terms.
All High Street UnitsCanopy Shares and USCo2Floating Shares that are not exchanged for Shares, prior to the Acquisition Time and that remain outstanding immediately prior to the Acquisition Time shall be treated in accordance with the provisionsprovisions of the certificates, award agreements, indentures or other documents governing such securities as at the Amendment Time. If the Canopy Call Option and the Floating Call Option are exercised, following the Acquisition Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Growth Shares on the basis of the Exchange Ratio and the Floating Ratio.amendments.
See “The AmendedFloating Share Arrangement – Treatment of High Street Holders and USCo2 Holders”.
Timing for Completion of the AmendedFloating Share Arrangement
Subject to the satisfaction or waiver of the conditions in the Proposal Agreement,Floating Share Arrangement Agreement, the AmendedFloating Share Arrangement will become effective at 12:0100 a.m. (Vancouver(Vancouver time) on the AmendmentEffective Date, being the date upon which all of the conditions to the implementationcompletion of the AmendedFloating Share Arrangement as set out in the Proposal AgreementFloating Share Arrangement Agreement have been satisfied or waived in accordance with the Proposal AgreementFloating Share Arrangement Agreement and all documents agreed to be delivered thereunder have been delivered to the satisfaction of the recipient, acting reasonably.
Although Acreage’s, Canopy’s and Canopy Growth’sUSA’s objective is to have the AmendmentEffective Date occur as soon as possible after the Meeting, the AmendmentEffective Date could be delayed for several reasons, including, but not limited to, an objection before the Court at the hearing of the application for the Amendment Final Order or any delay in obtaining any required AmendmentFloating Share Arrangement Regulatory Approvals or Regulatory Approvals. In addition, any delay in satisfaction of the Acquisition Closing Conditions under the Existing Arrangement Agreement will result in a corresponding delay in completion of the Floating Share Arrangement.
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The AmendmentEffective Date will be the date upon which Acreage, Canopy and Canopy GrowthUSA agree in writing following the satisfaction or waiver of all conditions to the implementationcompletion of the AmendedFloating Share Arrangement as set out in the Proposal AgreementFloating Share Arrangement Agreement (excluding any conditions that, by their terms, cannot be satisfied until the AmendmentEffective Date, but subject to the satisfaction or waiver of those conditions). The implementationcompletion of the AmendedFloating Share Arrangement isis expected to occur in September, 2020;the second half of 2023; however, it is possible that completion may be delayed beyond this date if the conditions to the implementationcompletion of the AmendedFloating Share Arrangement cannot be met on a timely basis.
See “The AmendedFloating Share Arrangement – Timing for Completion of the AmendedFloating Share Arrangement”.
Required Shareholder Approvals
Pursuant to the Amendment Interim Order and the BCBCA, in order to be adopted, the AmendmentArrangement Resolution must be approved, with or without variation, by the affirmative vote of at least 66⅔% of the votes cast by holders of Existing SVS, Existing PVS and Existing MVS, with all Shareholders voting together as a single class. In addition, (i) pursuant to MI 61-101, the Amendment Resolution must be approved by at least a simple majority of votes cast by the holders of Existing SVS and Existing PVS,Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, voting together asMeeting.
Pursuant to MI 61-101, the Arrangement Resolution must also be approved by not less than a single classsimple majority of votes cast by the holders of Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, excluding the votes of the Interested Parties pursuant to MI 61-101, and (ii) pursuant to OSC Rule 56-501 and NI 41-101, the Amendment Resolution must be approved by at least a majority of the votes cast by holders of Existing SVS and Existing PVS, voting together as a single class, excluding all Existing Shares held by Related Parties. Since all holders of Existing MVS are Interested Parties and Related Parties, respectively, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained for the purposes of each of MI 61-101, OSC Rule 56-501 and NI 41-101.61-101. The votes attaching to the Existing SVS and Existing PVSFloating Shares held by the Interested Parties and Related Parties, respectively, will also be excluded for the purposes of determining whetherwhether “minority approval” has been obtained for the purposes of MI 61-101, in the case of the Interested Parties, and for the purposes of OSC Rule 56-501 and NI 41-101, in the case of the Interested Parties. Since Mr. Murphy, the sole holder of Existing MVS, is an Interested Party, the votes carried by the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101, OSC Rule 56-501 and NI 41-101.61-101.
See “The AmendedFloating Share Arrangement – Required Shareholder Approvals”.
Capital Reorganization Letter of Transmittal
At the time of sending this Circular to each Shareholder, Acreage is also sending the Capital Reorganization Letter of Transmittal to each Registered Shareholder. Each Registered Shareholder must forward a properly completed and signed Capital Reorganization Letter of Transmittal, with the certificate(s) or direct registration advice representing the Existing Shares, as applicable, together with such other documents and instruments as the Transfer Agent may reasonably require as set forth in the Capital Reorganization Letter of Transmittal, in order to receive the certificate(s) or direct registration advice representing the Shares to which such Shareholder is entitled to in exchange for such Existing Shares under the Capital Reorganization. It is recommended that Shareholders complete, sign and return the Capital Reorganization Letter of Transmittal with the certificate(s) or direct registration advice representing the Existing Shares, together with such other documents and instruments as the Transfer Agent may reasonably require, to the Transfer Agent as soon as possible. If the Amendment Resolution is adopted and the Amending Agreement is executed, all deposits of Existing Shares made under the Capital Reorganization Letter of Transmittal are irrevocable. Copies of the form of Capital Reorganization Letter of Transmittal are available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.
See “The Amended Arrangement - Capital Reorganization Letter of Transmittal”.
Interests of Certain Persons in the AmendedFloating Share Arrangement
In considering the AmendedFloating Share Arrangement and the unanimous recommendation of the Acreage Board (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) with respect to the AmendedFloating Share Arrangement, Floating Shareholders should be aware that certain directors and certain executive officers of the CompanyAcreage have interests in connection with the AmendedFloating Share Arrangement that may present them with actual or potential conflicts of interest in connection with the Amended Arrangement.Floating Share Arrangement and the connected transactions. The Acreage Board and the Special Committee are aware of these interests and considered them along with other matters described under the heading “The Floating Share Arrangement – Reasons for the Floating Share Arrangement”. These interests and benefits are described under the heading “The AmendedFloating Share Arrangement – Interests of Certain Persons in the AmendedFloating Share Arrangement” and “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101”.
Court Approval of the AmendedFloating Share Arrangement and ImplementationCompletion of the AmendedFloating Share Arrangement
The AmendedFloating Share Arrangement requires Court approval under Division 5 of Part 9 of the BCBCA. On August [¨], 2020,January 18, 2023, prior to the mailing of this Circular, the CompanyAcreage obtained the Amendment Interim Order, whichwhich was varied on [t], 2023 to amend the Record Date, the date of the Meeting, the date of the hearing for the Final Order approving the Floating Share Arrangement and any related timelines. The Interim Order provides for the calling and holding of the Meeting, the Dissent Rights and other procedural matters. A copy of the Interim OrderOrder is attached as Appendix “E”“F” to this Circular.
Subject to obtaining Shareholder Approval, the hearing in respect of the Amendment Final Order is currently scheduled to take place on or about [¨t], 20202023 in Vancouver, British Columbia.
See “The AmendedFloating Share Arrangement – Court Approval of the AmendedFloating Share Arrangement and ImplementationCompletion of the AmendedFloating Share Arrangement” and “Securities Law Matters – U.S. Securities Laws”.
EffectEffects of the AmendedFloating Share Arrangement on Shareholders’ Rights
The rights of Floating Shareholders are currently governed by the BCBCA and by Acreage’s Articles. ShareholdersFloating Shareholders receiving Canopy Growth SharesShares pursuant to the AcquisitionFloating Share Arrangement will become shareholders of Canopy, Growth, whichwhich is governed by the CBCA and the articles of incorporation, as amended, and by-lawsby-laws of Canopy Growth.Canopy. Although the rights and privileges of shareholders underunder the CBCA are in many instances comparable to thosethose under the BCBCA, there are several differences. See Appendix “K” “I”– “Comparison of Shareholder Rights under the BCBCA and CBCACBCA” for a comparison of certain of these rights.
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The Existing Arrangement Agreement
Procedures for Payment of Aggregate Amendment Option Payment
Acreage and Canopy Growth Consideration
If the Amendment Resolution is adopted, following receipt of the Amendment Final Order and prior to completing the Required Filings with the Registrar, Canopy Growth shall deliver or cause to be deliveredare parties to the Amendment Option Payment Paying Agent in escrow pending the Amendment Time, sufficient cash to pay the Aggregate Amendment Option Payment payable to the Shareholders, High Street Holders and USCo2 Holders pursuant to the Amended Plan ofExisting Arrangement inAgreement. In accordance with the terms ofExisting Arrangement Agreement, on September 23, 2020, Acreage implemented the Paying Agent Agreement.
As soon as practicable following the Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basis to the Acreage Holders of record as of the Amendment Date. Unless otherwise directed, cheques representing the pro rata portion of the Aggregate Amendment Option Payment payable to an Acreage HolderExisting Arrangement pursuant to the Amended Plan of Arrangement will be issued in the name of the registered holder of such securities. Unless anwhich, among other things, Acreage Holder instructs the Amendment Option Payment Paying Agent to hold a cheque for pick-up, such cheques will be forwarded by mail to the address of the Acreage Holder as shown on the applicable register.
The Company and the Amendment Option Payment Paying Agent will be entitled to deduct and withhold from any consideration otherwise payable to an Acreage Holder, such amounts as the Company, or the Amendment Option Payment Paying Agent is required to deduct and withhold with respect to such payment under any provision of applicable Laws.
See “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth Consideration”.
Tax Consequences to Canadian Holders of the Aggregate Amendment Option Payment and Capital Reorganization
It is expected that Canadian Holders will be deemed to have disposed of a property and realizecompleted a capital gain that will be subject to tax under the Tax Act in respect of the receipt of a portion of the Aggregate Amendment Option Payment as consideration for granting the Canopy Call Option and the Floating Call Option. If the Canopy Call Option and/or the Floating Call Option are exercised (or deemed to be exercised), Canadian Holders should no longer be deemed to have disposed of property in the year in which the Canopy Call Option and the Floating Call Option were granted. Instead, the amount of the Aggregate Amendment Option Payment received by such Shareholder should be included in the Shareholders proceeds of disposition from the disposition of the Fixed Shares and/or the Floating Shares to Canopy, as applicable. In such case, a tax election may be available to provide for a full or partial tax-deferred rollover.
Shareholders who hold their Existingreorganization whereby: (i) each existing Former SVS as capital property and who exchange each of their Existing SVSwas exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share pursuant to the Capital Reorganization will be deemed to have disposed of their Existing SVSShare; (ii) each issued and outstanding Former PVS was exchanged for proceeds equal to their adjusted cost base of those shares and will acquire the28 Fixed Shares and 12 Floating Shares at an aggregate adjusted cost base equal to that amount. As a result, the Capital Reorganization will not result in a recognitionShares; and (iii) each issued and outstanding Former MVS was exchanged for 0.7 of a capital gain or loss for Canadian income tax purposes.Fixed Multiple Share and 0.3 of a Floating Share.
For a summaryA description of certain material Canadian income tax consequences of the Acquisition, see “Certain Canadian Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice to any particular Shareholder. Shareholders should consult their own tax advisors with respect to their particular circumstances.
Tax Consequences to U.S. Holders of Option Premium and Aggregate Amendment Option Payment
Pursuant to the Plan of Arrangement, Canopy Growth paid the Option Premium to all holders of Existing Shares and the High Street Holders and the USCo2 Holders as consideration for the grantprovisions of the Existing Canopy Option.Arrangement Agreement are included in this Circular under the heading “Transaction Agreements – The Existing Arrangement Agreement”. The description is not comprehensive and is qualified in its entirety by the full text of the Existing Arrangement Agreement which has been filed by the Company with the SEC and is available on EDGAR at www.sec.gov/edgar and under the Company’s profile on SEDAR at www.sedar.com
The Company intended, for U.S. federal income tax purposes, that the payment of the Option Premium to U.S. Holders of Existing Shares in exchange for their granting of the Existing Canopy Option would be treated as a part of a continuing, open transaction that generally did not result in immediate income tax consequences to the U.S. Holders of Existing Shares.
Accordingly, it was intended that the Option Premium would not have been includable in income for U.S. Holders of Existing Shares until the earlier of (i) the sale or disposition of such holders’ Existing Shares, (ii) the disposition of such shareholder’s Existing Shares in the Acquisition under the ExistingFloating Share Arrangement or (iii) the lapse or termination of the Existing Canopy Option. As a result of the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option and amendments to the Existing Arrangement pursuant to the Amended Plan of Arrangement, it is now expected that U.S. Holders who received the Option Premium, but have not previously included the Option Premium in income, will be required to report the Option Premium as short-term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective. No ruling has been or will be sought from the U.S. Internal Revenue Service as to the U.S. federal income tax consequences with respect to the payment or receipt of the Option Premium or the Amended Plan of Arrangement.
The U.S. federal income tax treatment of the Aggregate Amendment Option Payment is unclear. The Aggregate Amendment Option Payment will be paid to the Shareholders, High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment.
The Proposal AgreementAgreement
On JuneOctober 24, 2020,2022, Acreage, Canopy Growth and the CompanyCanopy USA entered into the Proposal Agreement,Floating Share Arrangement Agreement, which sets out, among other things, the terms and conditions upon which the AmendedFloating Share Arrangement will be implemented, including the terms of the Amended Plan ofFloating Share Arrangement.
A description of certain provisions of the Proposal AgreementFloating Share Arrangement Agreement are included in this Circular under the heading “Transaction Agreements – The Proposal AgreementFloating Share Arrangement Agreement”. The description is not comprehensive and is qualified in its entirety by the full text of the Proposal AgreementFloating Share Arrangement Agreement which has been filed by the Company with the SEC and is available on EDGAR at www.sec.gov/edgar and under the Company’s profile on SEDAR at www.sedar.com.
Amending AgreementVoting Agreements
If the Amendment Resolution is adopted and the Amending Agreement is executed, the Amending Agreement will provide for, among other things: (i) the implementation of the Amended Plan of Arrangement; and (ii) amendments to the definition of Canopy Growth Approved Share Threshold (being the maximum number of Shares that may be issued without the consent of Canopy Growth and without reducing the Exchange Ratio) to change the number of shares of the Company available to be issued by the Company such that, following the Amendment Time, the Company may issue a maximum of 32,700,000 shares (or convertible securities in proportion to the foregoing), which will include (a) 3,700,000 Option Shares; (b) 8,700,000 Floating Shares other than the Option Shares; and (c) 20,300,000 Fixed Shares. Notwithstanding the foregoing, the Amending Agreement provides that the Company may not issue any equity securities, without Canopy Growth’s prior consent, other than: (i) upon the exercise or conversion of convertible securities outstanding as of the Amendment Date; (ii) contractual commitments existing as of the Amendment Date; (iii) the Option Shares; (iv) the issuance of up to US$3,000,000 worth of Fixed Shares pursuant to an at-the-market offering to be completed no more than four times during any one-year period; (v) the issuance of up to 500,000 Fixed Shares in connection with debt financing transactions that are otherwise in complianceConcurrently with the terms of the Arrangement Agreement, as amended by the Amending Agreement; or (vi) pursuant to one private placement or public offering of securities during any one-year period for aggregate gross proceeds of up to US$20,000,000, subject to specific limitations as set out in the Amending Agreement.
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In addition, the Amending Agreement will provide for, among other things: (i) various Canopy Growth rights that extend beyond the Acquisition Date and continue until the End Date, including, among others, rights to nominate a majority of the Acreage Board following the Acquisition Time , rights to designate all replacement officers, following the resignation or termination, as applicable, of the officers following the Acquisition Time, restrictions on the Company’s ability to incur certain indebtedness without Canopy Growth’s consent; (ii) restrictive covenants in respect of the business conduct in favor of Canopy Growth; (iii) termination of non-competition and exclusivity rights granted to the Company by Canopy Growth in the Arrangement Agreement in the event that the Company does not meet certain specified financial targets on an annual basis during the term of the Canopy Call Option as further described below; (iv) implementation of further restrictions on the Company’s ability to operate its business, including its ability to hire certain employees or make certain payments or incur any non-trade-payable debt without Canopy Growth’s consent in the event that the Company does not meet certain specified financial targets on a quarterly basis during the term of the Canopy Call Option as further described below; (v) a specified set of criteria that each new director and officer, as applicable, is required to meet, unless the consent of Canopy Growth is obtained; and (vi) termination of the Arrangement Agreement and Canopy Growth’s obligation to complete the acquisition of the Fixed Shares pursuant to the Canopy Call Option in the event that the Company does not meet certain specified financial targets in the trailing 12 month period as further described below. Each of the financial targets referred to above is specified in the Amending Agreement and related to the performance of the Company relative to the Initial Business Plan. See “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans” and “Risk Factors”.
The Amending Agreement will preclude the Company from entering into any contract in respect of Company Debt if, among other restrictions: (i) such contract would be materially inconsistent with market standards for companies operating in the United States cannabis industry; (ii) such contract prohibits a prepayment of the principal amount of such Company Debt, requires a make-whole payment for the interest owing during the remainder of the term of such contract or charges a prepayment fee in an amount greater than 3.0% of the principal amount to be repaid; (iii) such contract would provide for interest payments to be paid through the issuance of securities as opposed to cash; or (iv) such contract has a principal amount of more than US$10,000,000 or a Cost of Capital that is greater than 30.0% per annum; provided that, if such Company Debt is fully secured by cash in a blocked account, the Cost of Capital may not be greater than 3.0% per annum. Notwithstanding the foregoing, Canopy Growth’s consent will not be required for Acreage or any of its Subsidiaries to enter into a maximum of two transactions for Company Debt during any one-year period, in accordance with the following terms: (i) the principal amount of the Company Debt per transaction may not exceed US$10,000,000, (ii) the Company Debt may not be convertible into any securities; and (iii) the contract may not provide for the issuance of more than 500,000 Shares (or securities convertible into or exchangeable for 500,000 Shares). See “Transaction Agreements - Amended Arrangement - Amendments to the Arrangement Agreement”
If executed, the Amending Agreement will also provide for certain financial reporting obligations and will prohibit the Company from nominating or appointing any new director or appointing any new officer who does not meet the Required Director Criteria or Required Officer Criteria, as applicable. Pursuant to the Amending Agreement, the Company will agree to submit an Approved Business Plan to Canopy Growth on a quarterly basis that complies with certain specified criteria, including the Initial Business Plan. In the event that the Company has not achieved: (i) 90% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan measured on a quarterly basis, certain additional restrictive covenants will become operative as Austerity Measures for the Company’s business; (ii) 80% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, as determined on an annual basis, certain restrictive covenants applicable to Canopy Growth under the Arrangement Agreement will cease to apply in order to permit Canopy Growth to acquire, or conditionally acquire, a competitor of the Company in the United States should it wish to do so; and (iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan for the trailing 12 month period ending on the date that is 30 days prior to the proposed Acquisition Time, a material adverse impact will be deemed to have occurred for purposes of Section 6.2(2)(h) of the Arrangement Agreement and Canopy Growth will have the right to terminate the Amended Arrangement Agreement, and will not be required to complete the acquisition of the Fixed Shares pursuant to the Canopy Call Option.
The Amending Agreement will also require the Company to limit its operations to the Identified States. In connection with the execution of the ProposalFloating Share Arrangement Agreement, the Company was provided with consent from Canopy Growth to make Non-Core Divestitures. As described below, the Debenture requires that Acreage divest of its assets outside of the Identified States within 18 months of the date the Debenture is executed.
In addition, the Amending Agreement will include certain covenants that will apply following the Acquisition Time until the End Date. Such covenants include, among others, pre-emptive rights and top-up rights in favor of Canopy Growth, restrictions on M&A activities, approval rights for the Company’s quarterly business plan, nomination rights for a majority of the directors on the Acreage Board and certain audit and inspection rights.
The foregoing summary of the Amending Agreement does not purport to be complete and is qualified in its entirety by reference to the Amending Agreement which is attached to this Circular as Appendix “B”.
See “Transaction Agreements – Amending Agreement” and “Risk Factors”.
Voting Agreements
Pursuant to the Proposal Agreement, the Company agreed to deliver the Voting Agreements from each of the Acreage Locked-Up Shareholders. On June 24, 2020, each of the Acreage Locked-Up Shareholders entered into athe Voting AgreementAgreements with Canopy Growth, whereby, among other things, suchand Canopy USA, pursuant to which such Acreage Locked-Up Shareholders, in their capacitiescapacities as security holderssecurityholders and not in their capacities as directors oror officers of the Company haveAcreage agreed, among other things,things: (i) to vote or cause to be voted all of their Acreage Holder SecuritiesSecurities in favorfavour of the AmendmentArrangement Resolution and against any mattermatter that could reasonably bebe expected to adversely affect the successful completion of the Amended Arrangement,Floating Share Arrangement; (ii) not to exercise any dissent rights,Dissent Rights; and (iii) not to sell, transfer, otherwise conveyotherwise convey or encumber any of their Acreage Holder Securities with certain exceptions.
As ofprior to the Record Date, subject to the knowledge of the Company, the Acreage Locked-Up Shareholders beneficially owned, or exercised control or direction over, an aggregate of approximately [¨certain exceptions]% of the votes attached to the Existing Shares on a non-diluted basis. As of the Record Date, to the knowledge of the Company, the Acreage Locked-Up Shareholders also beneficially owned, or exercised control or direction over, [¨] High Street Units, [¨] Existing Options and [¨] Existing RSUs.
. The foregoing summarysummary of the Voting AgreementAgreements does not purport to be complete and is qualified in its entirety by reference to thethe Voting Agreements, which is attached as Schedule C to the Proposal Agreement which hashave been filed by Acreage with the SEC and is available on EDGAR at www.sec.gov/www.sec.gov/edgar and under Acreage’s SEDAR profile at www.sedar.com.
As of the Record Date, to the knowledge of Acreage, the Acreage Locked-Up Shareholders, collectively, beneficially owned, or exercised control or direction over, an aggregate of [t] Floating Shares, representing approximately [t%] of the issued and outstanding Floating Shares on a non-diluted basis.
Of the votes attaching to the Floating Shares held by Acreage Locked-Up Shareholders, approximately 2.37% of the votes attaching to the Floating Shares will be excluded for the purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101.
As of the Record Date, to the knowledge of Acreage, the Acreage Locked-Up Shareholders also beneficially owned, or exercised control or direction over, [t] High Street Units, [t] Floating Options and [t] Floating Share Units.
See “Transaction Agreements – Voting Agreements”.
A&R License14
Amended Credit Facility
ConcurrentConcurrently with the execution of the ProposalFloating Share Arrangement Agreement, on June 24, 2020, the Company, Canopy Growth and each of the LicensorsCompany entered into the A&R License, which amendsCredit Agreement Amendment to amend the Credit Agreement. Under the terms of the Amended Credit Facility, subject to the satisfaction of certain terms and restatesconditions, an additional $25 million is available for immediate draw, and an additional $25 million is available in future periods under a committed accordion option once certain predetermined milestones are achieved and conditions satisfied. In conjunction with entering into the Original License. The primary differences betweenCredit Agreement Amendment, the A&R LicenseLenders waived the requirement for the Company to comply with certain financial covenants, except a minimum cash requirement, through Q1 2024, and new financial covenants have been agreed upon in respect of all periods beginning on and after March 31, 2024, reflecting the OriginalCompany’s growth plan, financial position, and current market conditions. Finally, the Credit Agreement include,Amendment permits Canopy, its affiliates or Canopy USA to acquire control of the Company without limitation:
requiring repayment of all amounts outstanding under the Amended Credit Facility. Acreage intends to use the proceeds of the Amended Credit Facility to fund expansion initiatives and provide additional working capital.
The foregoing summaryAmended Credit Facility will bear interest at Prime plus 5.75% per annum, payable monthly in arrears, with a Prime floor of 5.50%, and a maturity date of January 1, 2026. Under the terms of the A&R License does not purportAmended Credit Facility, at any time after January 1, 2023 and before January 1, 2024, the Company has the option to extend the maturity date to January 1, 2027, for a fee equal to 1.0% of the total amount available to be a complete description of all the parties’ rights and obligationsdrawn under the A&R License andAmended Credit Facility. In connection with the Credit Agreement Amendment, the Company paid an amendment fee of $1.25 million to the Lenders. This summary is qualifiedqualified in its entirety by the full text of the A&R License, a copy of which is attached as Schedule Dreference to the Proposal Agreement,Credit Agreement Amendment, which has been filed by the CompanyAcreage on its SEDAR profile at www.sedar.com and with the SEC and is availableavailable on EDGAR at www.sec.gov/edgarand under the Company’s SEDAR profile at www.sedar.com. edgar.
See “Transaction Agreements – A&R LicenseAmended Credit Facility”.
DebentureTax Receivable Agreement and Bonus Plan Amendments
As a condition to implementationConcurrently with the execution of the AmendedFloating Share Arrangement Agreement, Canopy, Canopy USA, High Street, Acreage Holdings America, Inc. and certain individuals party to the TRA, amended the TRA in accordance with the Third Amendment. Pursuant to the Third Amendment, Canopy, on behalf of Canopy USA agreed to: (i) issue Canopy Shares with a value of approximately $30.5 million to the Amendment Date,TRA Members in exchange for each such individual executing an assignment of rights agreement assigning such individual’s rights under the Lender, an affiliateTRA to Canopy USA, such that following assignment, Canopy USA is the sole member and beneficiary under the TRA; and (ii) fund a payment with a value of Canopy Growth, will enter into the Debenture and provide the Initial Advance of US$50,000,000 to Hempco, an affiliate of the Company that operates solely in the hemp industry, in full compliance with all applicable Laws. The second tranche of US$50,000,000 will be advanced to Hempco if certain conditions are satisfied.
The principal amount of the Loan will bear interest from the date of advance, compounded annually, and be payable on each anniversary of the date of the Debenture in cash in U.S. dollars at a rate of 6.1% per annum. The Loan will mature 10 years from the date of the Initial Advance.
The Loan must be used exclusively for U.S. hemp-related operations and on the express condition that such amount will not be used, directly or indirectly, in connection with or for the operation or benefit of any of Hempco’s affiliates other than Subsidiaries of Hempco exclusively engaged in U.S. hemp-related operations and not directly or indirectly, towards the operation or funding of any activities that are not permissible under applicable Law. The Loan proceeds must be segregated in a distinct bank account and detailed records of debits to such distinct bank account will be maintained by Hempco.
The foregoing summary of the Debenture does not purportapproximately $19.5 million to be complete and is qualified in its entirety by reference to the Debenture, which is attached as Schedule F to the Proposal Agreement, which has been filedmade by the Company in Canopy Shares to certain eligible participants pursuant to the Bonus Plans, as amended on October 24, 2022, both in order to reduce a potential liability of approximately $121 million under the TRA and the Bonus Plans. In connection with the SEC and is availableforegoing, Canopy issued 5,648,927 Canopy Shares with a value of approximately $15.25 million to the TRA Members, with a second payment of approximately $15.25 million in Canopy Shares to occur on EDGAR at www.sec.gov/edgar andthe earlier of: (a) the second Business Day following the date on which the Floating Share Arrangement has been approved; or (b) April 24, 2023. In addition, the TRA Bonuses with an aggregate value of approximately $19.5 million in Canopy Shares will be issued by Canopy to certain eligible participants under the Company’s SEDAR profile at www.sedar.com. Bonus Plans on the closing of the Floating Share Arrangement or, if the Floating Share Arrangement does not close or is terminated but the Existing Arrangement closes, then on the closing of the Acquisition. The TRA Bonuses will be paid to recipients to be determined by Kevin Murphy, the administrator of the Bonus Plans, and may include one or more of Kevin Murphy, John Boehner, Brian Mulroney, and Peter Caldini, each of whom are directors of Acreage and other current and former officers or consultants of Acreage as may be determined by Kevin Murphy. Canopy has also agreed to register the resale of such Canopy Shares under the Securities Act of 1933, as amended.
See “Transaction Agreements – DebentureTax Receivable Agreement and Bonus Plan Amendments”.
Tax Receivable Agreement Amendments
In connection with the RTO, USCo entered into the TRA with certain key individuals, each of whom owns High Street Units. The TRA will be amended to reflect the terms of the Amended Arrangement and make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
Tax Receivable Bonus Plan 1 Amendments
Pursuant to the TRA, certain key individuals are entitled to payment by USCo equal to 65% of the amount of net tax benefits, if any, realized (or deemed to be realized) by USCo attributable to each such member under the terms of the TRA. An additional 20% of such net tax benefits are available for payment to the TRA Parties under the Tax Receivable Bonus Plan 1. Mr. Murphy, as the administrator of the Tax Receivable Bonus Plan 1, has the right to determine the amount each participant receives under the Tax Receivable Bonus Plan 1. Acreage and Canopy Growth have agreed to amend Tax Receivable Bonus Plan 1 to provide, among other things, that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of the Company) as the administrator of the Tax Receivable Bonus Plan 1, and (ii) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
Tax Receivable Bonus Plan 2 Amendments
Mr. Murphy has waived his right to receive 30.77% of the aggregate tax benefit payments to which he may otherwise be entitled under the TRA in order to create a Tax Receivable Bonus Plan 2. Participants in the Tax Receivable Bonus Plan 2 include Mr. Leibowitz, Mr. Doherty, Mr. Daino, Mr. Damashek and Mr. MacDonald. The amount available under the Tax Receivable Bonus Plan 2 will be equal to the payments pursuant to the TRA waived by Mr. Murphy. Mr. Murphy, as the administrator of the Tax Receivable Bonus Plans, has the right to determine the amount each participant receives under the Tax Receivable Bonus Plans. Acreage and Canopy Growth have agreed to amend Tax Receivable Bonus Plan 2 to provide, among other things, that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of the Company) as the administrator of the Tax Receivable Bonus Plan 2, and (ii) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
High Street Operating Agreement Amendments
TheConcurrently with the execution of the Floating Share Arrangement Agreement, Acreage amended the High Street Operating Agreement to: (i) allow Canopy USA to have a call right on the High Street Units effective immediately following the earlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each holder of High Street Units to exchange their High Street Units for Canopy Shares as described in further detail in such amendment; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Floating Share Arrangement.
See “Transaction Agreements – High Street Operating Agreement Amendments”.
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Amendments to USCo2 Constating Documents
The USCo2 Constating Documents will be amended as may be determined byprior to the Company to be necessary, acting reasonably, to (i) reflect the creationclosing of the Fixed Shares andFloating Share Arrangement Agreement to: (i) allow Canopy USA to have a call right on the Floating Shares, (ii) reflectUSCo2 floating shares effective immediately following the amended Exchange Ratio, (iii) otherwise reflect the termsearlier of the Amendedclosing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each USCo2 shareholder to exchange their floating shares for Canopy Shares; and (iv) make any(ii) make other non-substantive changes that the Companyagreed upon by Acreage and Canopy Growth may mutually agree, acting reasonably, arewhich were advisable or necessarynecessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
Amendments to USCo2 Constating Documents
The USCo2 Constating Documents will be amended, as may be determined by the Company to be necessary, acting reasonably, to (i) reflect the creation of the Fixed Shares and the Floating Shares, (ii) reflect the amended Exchange Ratio, (iii) otherwise reflect the terms of the Amended Arrangement, and (iv) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
Business Plan Requirements
As further disclosed in “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans”, pursuant to the Amending Agreement, Acreage will agree to submit an Approved Business Plan to Canopy Growth on a quarterly basis that complies with certain specified criteria, including the Initial Business Plan. The Initial Business Plan contains annual revenue and earnings targets for each of Acreage’s fiscal years ending on December 31, 2020 to December 31, 2029, as outlined below:
| Fiscal Year Ending | Pro-Forma Net Revenue Target (in US$000’s) | Consolidated Adj. EBITDA Target (in US$000’s) |
| 2020 | 166,174 | (22,499) |
| 2021 | 253,296 | 36,720 |
| 2022 | 289,528 | 53,222 |
| 2023 | 375,274 | 102,799 |
| 2024 | 558,599 | 166,744 |
| 2025 | 641,047 | 190,385 |
| 2026 | 740,194 | 218,108 |
| 2027 | 848,498 | 244,402 |
| 2028 | 973,402 | 273,434 |
| 2029 | 1,120,177 | 305,840 |
A number of factors may cause Acreage to fail to meet the Pro-Forma Net Revenue Targets or the Consolidated Adj. EBITDA Targets set forth in the Initial Business Plan and outlined above. See “Risk Factors”.
In the event that Acreage has not satisfied: (i) 90% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, measured on a quarterly basis, an Interim Failure to Perform will occur and the Austerity Measures shall become applicable and provide significant restrictions on Acreage’s ability to take certain actions otherwise permitted by the Amended Arrangement Agreement; (ii) 80% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, as determined on an annual basis (commencing in respect of the fiscal year ending December 31, 2021), a Material Failure to Perform will occur and (a) certain restrictive covenants applicable to Canopy Growth under the Amended Arrangement Agreement will cease to apply in order to permit Canopy Growth to acquire, or conditionally acquire, a competitor of the Company in the United States should it wish to do so, and (b) an event of default under the Debenture will likely occur resulting in the Loan becoming immediately due and payable; and (iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan for the trailing 12 month period ending on the date that is 30 days prior to the proposed Acquisition Time, a Failure to Perform shall occur and a material adverse impact will be deemed to have occurred for purposes of Section 6.2(2)(h) of the Arrangement Agreement and Canopy Growth will not be required to complete the Acquisition of the Fixed Shares pursuant to the Canopy Call Option.Share Arrangement.
Canadian Securities Laws
A general overview of certain requirements of Canadian Securities Laws that may be applicable to Floating Shareholders, AcreageFloating Optionholders, Acreage RSUFloating Share Unit Holders and Acreage Compensation Option HoldersFloating Warrantholders is described in this Circular under the heading “Securities Law Matters – Canadian Securities Laws”. Each securityholder is urged to consult such holder’s professional advisors to determine the Canadian conditions and restrictions applicable under Canadian Securities Laws to trade in the Canopy Growth Shares issuable pursuant to the Acquisition.Floating Share Arrangement.
The issuance of the FixedCanopy Shares and the Floating SharesReplacement Securities pursuant to the Capital Reorganization and the issuance of Canopy Growth Shares pursuant to the AcquisitionFloating Share Arrangement will each constitute a distribution of securities that is exempt from the prospectus requirements of applicable Canadian Securities Laws.
The Fixed Shares and the FloatingCanopy Shares issued pursuant to the Capital Reorganization and the Canopy Growth Shares issued pursuant to the AcquisitionFloating Share Arrangement may be resold in each province and territory of Canada provided that, subject to certain conditions are met.requirements prescribed pursuant to applicable Canadian Securities Laws.
To the extent that a Floating Shareholder resides in a non-Canadian jurisdiction, the Fixed Shares, Floating Shares and the Canopy Growth Shares received by the Shareholdersuch Floating Shareholder pursuant to the AmendedFloating Share Plan of Arrangement may be subject to certain additional trading restrictions under Securities Lawssecurities laws of such jurisdiction. All Floating Shareholders residing outsideoutside Canada are advised to consult their own legal advisors regarding such resale restrictions.restrictions.
See “Securities Law Matters – Canadian Securities Laws”.
Status Under Canadian Securities Laws
Acreage is a reporting issuer in the Provinces of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia and is a registrant under the U.S. Exchange Act. Following the Effective Date and the Acquisition Date, it is expected that Canopy USA will apply to have Acreage cease to be a reporting issuer in all jurisdictions in which it is a reporting issuer and thus will terminate Acreage’s reporting obligations in Canada and the United States.
Canopy is a reporting issuer in each of the provinces and territories of Canada. Following the Effective Date, it is expected that Canopy will remain a reporting issuer in such jurisdictions.
See “Securities Law Matters – Canadian Securities Laws – Status Under Canadian Securities Laws”.
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Multilateral Instrument 61-101
The AmendedFloating Share Arrangement is subject to the requirements of MI 61-101. MI 61-101 regulates certain transactions to ensure equality of treatment among securityholders, generally requiring enhanced disclosure, approval by a majority of securityholders excluding ”interested parties”, “related parties” or “joint actors”,any Interested Parties, independent valuations and, in certain instances, approval and oversight of the transaction by a special committee of independent directors. The protections of MI 61-101 apply to a reporting issuer proposing to carry out aa: (i) “business combination”, which as defined in MI 61-101 includes, among other things, an arrangement as a consequence of which the interest of the holder of an equity security of the issuer (such as the Floating Shares) undertaking the arrangement may be terminated without the holder’s consent, regardless of whether the equity security is replaced with another security; or (ii) a “related party transaction”, which includes a transaction between the issuer and a person that is a related party of the issuer at the time the transaction is agreed to, whether or not there are also other parties to the transaction, as a consequence of which, either through the transaction itself or together with “connected transactions” (as defined in MI 61-101) that terminates, the interestsissuer, directly or indirectly, among other things, materially amends the terms of securityholders without their consent. A transaction suchan outstanding credit facility with the related party. “Connected transactions”, as the Amended Arrangement constitutes a “business combination” for purposes ofdefined in MI 61-101, if,are two or more transactions that have at least one party in common, directly or indirectly, other than transactions related solely to services as an employee, director or consultant, and (i) are negotiated or completed at approximately the same time, or (ii) the completion of at least one of the transactions is conditional on the completion of each of the other transactions. For the purposes of a business combination or a related party transaction, an “interested party” is defined in part in MI 61-101 as a related party of the issuer at the time the Arrangementtransaction is agreed to, a “related party” of Acreage, such as a director or senior officer (as defined in MI 61-101) or a holder of 10% or more of any class of Existing Shares,if the related party is entitledentitled to receive, directly or indirectly, a collateral benefit as a consequence of the transaction, a transaction.
See “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101”collateral benefit” (as defined in MI 61-101).
Third Amendment to the TRA
Pursuant to the Third Amendment, Canopy and Canopy USA have agreed with the TRA Members that Canopy will issue Canopy Shares with a value of approximately $30.5 million to the TRA Members in exchange for the assignment of each TRA Member’s rights under the TRA to Canopy USA, such that Canopy USA will become the only beneficiary of the TRA. The Special Committee has determined that, for the purposes of MI 61-101, the issuance of such Canopy Shares to the TRA Members is a “connected transaction” with respect to the Floating Share Arrangement. Kevin Murphy is a related party of Acreage and, for purposes of MI 61-101, the Special Committee has determined that the value of the benefit to be received by him in respect of the foregoing is approximately $8.77 million, half of which was satisfied by the issuance of 3,254,273 Canopy Shares, with a second payment of approximately $4.385 million in Canopy Shares to occur on the earlier of (a) the second Business Day following the date on which the Floating Share Arrangement has been approved; or (b) April 24, 2023. The number of Canopy Shares to be issued in satisfaction of the TRA Payment shall be equal to the fair market value of such Canopy Shares measured as of the close of trading on the second trading date prior to the relevant date of issuance.
See “Securities Law Matters – Canadian Securities Laws – Third Amendment to the TRA”.
Bonus Plans
In addition, pursuant to the Third Amendment Canopy has also agreed to fund the payment owing by Acreage with respect to the TRA Bonuses by issuing additional Canopy Shares with a value of approximately $19.5 million to those participants in the Bonus Plan as may be determined by Mr. Murphy, as administrator of the Bonus Plans. The recipients may include one or more of the following related parties of Acreage: Kevin Murphy, John Boehner, Brian Mulroney, Peter Caldini, Steve Goertz, Corey Sheahan or Dennis Curran. The Special Committee has concluded that, for purposes of MI 61-101, payment of the TRA Bonuses may constitute a “related party transaction” for purposes of MI 61-101. For purposes of MI 61-101, the Special Committee has determined that the value of the benefit to be received by each of Mr. Murphy, Mr. Boehner, Mr. Mulroney, Mr. Caldini, Mr. Goertz, Mr. Sheahan and Mr. Curran in respect of the foregoing shall not be more $19.15 million in the aggregate as an amount not less than $350,000 has been allocated to an unrelated party, and the Special Committee understands that Mr. Murphy has the discretion to allocate up to the entire balance of $19.15 million to any one of the foregoing.
See “Securities Law Matters – Canadian Securities Laws – Bonus Plans”.
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Amended Credit Facility
The Special Committee has determined that, for purposes of MI 61-101, the payments, entitlementsentry by Acreage into the Amended Credit Facility constitutes a “related party transaction”. See “Transaction Agreements – Amended Credit Facility”. Viridescent is one of the Lenders under the Amended Credit Facility. VRT Agent LLC is an agent for Viridescent, and Kevin Murphy is the President and Chairman of the Board of Directors of Viridescent and therefore a “related party” of Acreage. Under the Amended Credit Facility: (i) subject to the satisfaction of certain terms and conditions, an additional $25 million is available for immediate draw by Acreage, with a further $25 million available in future periods under a committed accordion option once certain predetermined milestones are achieved and conditions satisfied; (ii) the Lenders waived the requirement for Acreage to comply with certain financial covenants, except a minimum cash requirement, through Q1 2024; (iii) new financial covenants have been agreed upon in respect of periods beginning on and after March 31, 2024; and (iv) Canopy, its affiliates or benefitsCanopy USA are permitted to acquire control of Acreage without requiring repayment of all amounts outstanding under the Amended Credit Facility. As a Lender under the Amended Credit Facility, Viridescent committed $15 million of the aggregate $50 million accordion available thereunder. Furthermore, VRT Agent, as co-agent in connection with the Amended Credit Facility, received approximately $16,335 as an agency fee and approximately $375,000 as an amendment fee.
For the purposes of MI 61-101, the Special Committee has determined that the benefit that may be derived, directly or indirectly, by VRT Agent and Viridescent, entities in respect of which Mr. Murphy will or may be entitled to receiveis a director and officer, in connection with the Amended Credit Facility is approximately $391,335.
See “Securities Law Matters – Canadian Securities Laws – Amended Credit Facility”.
Option Agreement – Acreage Debt
On November 15, 2022, the Acreage Debt Optionholder and the Lenders entered into the Option Agreement, which superseded the Letter Agreement, pursuant to which the Acreage Debt Optionholder was granted the right to purchase the Acreage Debt in exchange for the Option Premium payment of $28.5 million, which was deposited into an escrow account. The Acreage Debt Optionholder has the right to exercise its option at its discretion, and the Option Premium will be used towards settlement of the Acreage Debt. In the event that Acreage repays the Acreage Debt on or prior to maturity, the Option Premium will be returned to the Acreage Debt Optionholder. In the event that Acreage defaults on the Acreage Debt and the Acreage Debt Optionholder does not exercise its option to acquire the Acreage Debt, the Option Premium will be released to the Lenders.
The Special Committee has determined that the entry into the Option Agreement is a “connected transaction” with respect to the entry into the Amended Arrangement are classified as “collateral benefits” for purposes of MI 61-101. Since Mr.Credit Agreement, since Kevin Murphy is a “related party” of Acreage, and Viridescent, an entity of which Kevin Murphy is receivingthe President and Chairman of the board of directors, will receive a collateral benefit,share of the Option Premium if the option provided for in the Option Agreement is exercised. In the event that the option under the Option Agreement is ever exercised or the Option Premium is otherwise released to the Lenders, Viridescent, an entity of which Kevin Murphy is the President and Chairman of the board of directors, would receive its pro rata portion of the Option Premium, being $8.55 million.
See “Securities Law Matters – Canadian Securities Laws – Option Agreement – Acreage Debt”.
Valuation Requirements
Acreage is exempt from the formal valuation requirement in MI 61-101 and can rely on the exemption contained in Section 5.5(b) of MI 61-101 with respect to the entry into of the Floating Share Arrangement constitutesAgreement, payment of the TRA Bonuses and entry into the Amended Credit Facility, as Acreage does not have securities listed on the Toronto Stock Exchange, Aequitas NEO Exchange Inc., the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market, or a stock exchange outside of Canada or the United States, other than the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc.
See “Securities Law Matters – Canadian Securities Laws – Option Agreement – Valuation Requirements”.
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Minority Approval
As described above, the Floating Share Arrangement will constitute a “business combination” for Acreage for purposes of MI 61-101 if any related party of Acreage will receive a “collateral benefit” and therefore be an Interested Party for purposes of the Floating Share Arrangement.
As described above, Kevin Murphy is a related party of Acreage and, for purposes of MI 61-101, the Special Committee has determined that the value of the benefit in the form of the TRA Payment to be received by him in respect of the foregoing is approximately $8.77 million. For purposes of MI 61-101, the Special Committee has also determined that the value of the benefit to be received by each of Mr. Murphy, Mr. Boehner, Mr. Mulroney, Mr. Caldini, Mr. Goertz, Mr. Sheahan and Mr. Curran in respect of the Bonus Plans and the TRA Bonuses may be up to $19.15 million as it has assumed that Mr. Murphy may determine to allocate up to the entire balance of the TRA Bonuses to any one of the foregoing. In addition, the Special Committee has determined that the benefit that may be derived, directly or indirectly, by VRT Agent and Viridescent, entities in respect of which Mr. Murphy is a director and officer, is approximately $391,335, in the case of the Amended Credit Facility, for the purposes of MI 61-101. Mr.In addition, in the event that the option under the Option Agreement is ever exercised or the Option Premium is otherwise released to the Lenders, Viridescent, an entity of which Kevin Murphy is also classified as an “interested party”the President and therefore, the Existing Shares held by the Interested Parties will not be counted for purposesChairman of the tabulationboard of the “minority approval” of the Amendment Resolution in accordance with MI 61-101.
Pursuant to an application dated July 8, 2020 made to the OSC, as principal regulator, the Company obtained an order from the OSC dated August [¨], 2020, exempting the Company from the requirements in subsection 8.1(1) of MI 61-101 to obtain minority approval for the Amendment Resolution pursuant to MI 61-101 from the holders of each affected class of Existing Shares, each voting separately as a class. Accordingly, holders of Existing SVS and Existing PVS who are not Interested Parties will vote together as a single class for the purposes of obtaining approval pursuant to MI 61-101. As Mr. Murphy, who is an Interested Party, is the only beneficial holder of Existing MVS, Existing MVS will be excluded entirely from such vote. Aside from having a voting right of 40 votes per share, the holders of the Existing PVS are entitled to the same rights as the holders of the Existing SVS, and no holder thereof is entitled to any privilege, priority or preferences in relation to any other holders of Existing Shares. The holders of Existing SVS comprise: (i) those Shareholders who held either Existing SVS or Existing PVS at the effective time of the Existing Arrangement; and (ii) holders of Existing SVS acquired subsequent to the effective time of the Existing Arrangement. Certain holders of Existing SVS may, therefore, not have received the original Option Premium. The Existing PVS Shareholders comprise those holders of Existing PVS who held such shares at the effective time of the Existing Arrangement and, accordingly, received theirdirectors, would receive its pro rata share of the Option Premium. To the extent that there are adverse U.S. income tax consequences arising from receipt by U.S. holdersportion of the Option Premium, or the Aggregate Amendment Option Payment resultingbeing $8.55 million.
Acreage is exempt from the Amended Arrangement, all holders of Existing PVS will be affected whereas only certain holders of Existing SVS will be affected. As such, the classes of Existing Shares may be differentially affected for U.S. tax purposes. The holders of Existing Shares are advised to consult their own tax advisors“minority approval” requirement with respect to the receiptTRA Bonuses pursuant to Section 5.7(1)(a) of their portionMI 61-101 because, at the time the transaction was agreed to, neither the fair market value of Aggregate Amendment Option Payment based on their particular circumstances. See “Certain United States Federal Income Tax Considerations”.the TRA Bonuses to be paid to “related parties” of Acreage, nor the fair market value of the consideration for, the transaction, insofar as it involves Interested Parties, exceeds 25% of Acreage’s market capitalization. Acreage is also exempt from the “minority approval” requirement with respect to entry into the Amended Credit Facility pursuant to Section 5.7(1)(f) of MI 61-101, as the Amended Credit Facility was entered into on reasonable commercial terms that are not less advantageous to Acreage than if the Amended Credit Facility was obtained from a person dealing at arm’s length with Acreage and the Amended Credit Facility is not (A) convertible, directly or indirectly, into equity or voting securities of Acreage or any of its Subsidiaries, or otherwise participating in nature, or (B) repayable as to principal or interest, directly or indirectly, in equity or voting securities of Acreage or a Subsidiary entity of Acreage. The Amended Credit Facility was approved by the Acreage Board with Kevin Murphy recusing himself from all discussions related thereto, declaring his interest and abstaining from voting thereon.
ForAt the purposes of obtaining “minority approval”time the Floating Share Arrangement was agreed to, each of the Amendment Resolution pursuant to MI 61-101, an aggregatedirectors and executive officers of [¨] Existing SVS (representing approximately [¨]%Acreage and their respective associated and affiliated entities beneficially owned, or exercised control or direction over, less than 1% of the issued and outstanding Existing SVS asshares of each class of Acreage Shares (assuming, in each case, the exercise of Acreage Options held by them, the conversion of all High Street Units held by them and taking into account all vested Acreage Share Units or Acreage Share Units vesting within 60 days of the RecordAnnouncement Date), other than Kevin Murphy, a member of the Acreage Board, and Peter Caldini, the Chief Executive Officer of Acreage and a member of the Acreage Board, who hold approximately 14.04% and 1.30%, respectively, of the outstanding Floating Shares, and approximately 14.18% and 0.87%, respectively, of the outstanding Fixed Shares (assuming, in each case, all relevant securities held by each of Kevin Murphy and Peter Caldini, respectively, which are convertible, exercisable or exchangeable to acquire beneficial ownership of Floating Shares and/or Fixed Shares within 60 days of the Announcement Date are converted, exercised or exchanged into Floating Shares and Fixed Shares). In addition, Kevin Murphy holds 100% of the outstanding Fixed Multiple Shares.
As a result of the foregoing, for purposes of the Floating Share Arrangement, the Interested Parties are Mr. Murphy and Mr. Caldini. Mr. Murphy and Mr. Caldini, collectively, hold an aggregate of [t¨] Existing PVS (representing Floating Shares (approximately [t¨%]% of the issued and outstanding Existing PVS as of the Record Date) and 168,000 Existing MVS (representing approximately 100% of the issued and outstanding Existing MVSoutstanding Floating Shares), as of the Record Date) are required toDate, which Floating Shares shall be excluded.excluded from voting for purposes of determining whether “minority approval” is obtained in respect of the Arrangement Resolution at the Meeting.
See “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101” and “The Amended Arrangement – Interests of Certain Persons in the Amended ArrangementMinority Approval”.
Restricted Securities Matters
The Existing SVS are “restricted shares” within the meaning of OSC Rule 56-501 and “restricted securities” within the meaning of NI 41-101. In connection with the Capital Reorganization, the Fixed Shares and the Floating Shares are being created and distributed, each of which classes will constitute “restricted shares” within the meaning of OSC Rule 56-501 and “restricted securities” within the meaning of NI 41-101. In order to: (a) create and distribute the Fixed Shares, Floating Shares and Fixed Multiple Shares in connection with the Capital Reorganization; and (b) effect distributions of Fixed Shares and/or Floating Shares in the future either pursuant to a prospectus or on a prospectus-exempt basis, in each case, without obtaining minority approval for any such distribution, the Company is seeking minority approval for the Amendment Resolution.
In relation to the Amendment Resolution, pursuant to OSC Rule 56-501 and NI 41-101, “minority approval” means approval by the affirmative vote of a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, voting together as a single class, excluding votes cast by Related Parties. For the purposes of obtaining “minority approval” of the Amendment Resolution pursuant to OSC Rule 56-501 and NI 41-101, an aggregate of [¨] Existing SVS (representing approximately [¨]% of the issued and outstanding Existing SVS as of the Record Date), an aggregate of [¨] Existing PVS (representing approximately [¨]% of the issued and outstanding Existing PVS as of the Record Date) and 168,000 Existing MVS (representing approximately 100% of the issued and outstanding Existing MVS as of the Record Date) are required to be excluded.
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“Securities Law Matters – Canadian Securities Laws – Restricted Securities”.
U.S. Securities Laws
A general overview of certain requirements of U.S. Securities Laws that may be applicable to Floating Shareholders, Acreage Optionholders, Acreage RSUFloating Optionholders, Floating Share Unit Holders and Acreage Compensation Option HoldersFloating Warrantholders is described in this Circular under the heading “Securities Law Matters – U.S. Securities Laws”Laws”. Each securityholder is urged to consult such holder’s professional advisors to determine the U.S. conditions and restrictions applicable to trades in the Canopy Growth Shares issuable pursuant to the Amended Arrangement.Floating Share Arrangement under U.S. Securities Laws.
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The Canopy Growth Shares, Replacement Options, Replacement RSUsShare Units and Replacement Compensation OptionsWarrants to be issued to Floating Shareholders holders of Fixed Share Replacement Securities and holders of Floating Share Replacement Securities, respectively, under the Amended Plan ofFloating Share Arrangement and pursuant to the Acquisition have not been and are not expected to be registered under the U.S. Securities Act or the SecuritiesSecurities Laws of any state of the United States and will be issued in reliance upon the Section 3(a)(10) ExemptionExemption and exemptions provided in respect of the Securities Laws of states of the U.S. in which U.S. Holders resideHolders reside. The Section 3(a)(10) Exemption exempts from registration a security that is issued in exchange for outstanding securities and other property where the terms and conditions of such issuance and exchange are approved, after a hearing upon 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 by a governmental authority expressly authorized by Law to grant such approval. On January 28, 2023, prior to the mailing of this Circular, Acreage obtained the Interim Order, which was varied on [t], 2023 to amend the Record Date, the date of the Meeting, the date of the hearing for the Final Order approving the Floating Share Arrangement and any related timelines. Subject to the approval of the Floating Share Arrangement by the Floating Shareholders, a hearing for the Final Order approving the Floating Share Arrangement is currently expected to take place on [t], 2023. All Floating Shareholders, Floating Optionholders, Floating Share Unit Holders and Floating Warrantholders are entitled to appear and be heard at this hearing, provided that they satisfy the applicable conditions set forth in the Interim Order. The Final Order of the Court will, if granted, constitute the basis for the Section 3(a)(10) Exemption with respect to the Floating Share Arrangement Issued Securities.
Further information applicable to the holders of such securities resident in the United States is disclosed in this Circular under the headingSee “Securities Law Matters – U.S. Securities Laws”.
Regulatory Approvals
Other than the Shareholder Approval, receipt of the Amendment Regulatory ApprovalsInterim Order and the Acquisition Regulatory Approvals,Final Order, state regulatory approvals required in connection with the Companyclosing of the Existing Arrangement and all required approvals from the stock exchanges on which the Canopy Shares are listed for the listing of the Consideration Shares and any Canopy Shares issuable upon the exercise or vesting, as applicable, of Replacement Options, Replacement Share Units and Replacement Warrants, Acreage is not aware of any material approval, consent or other action by any federal, provincial, state or foreign government or any administrative or regulatory agency that would be required to be obtained in order to implementcomplete the Amended ArrangementFloating Share Arrangement. In the event that any such approvals or consents are determined to be required, such approvals or consents will be sought. Any such additional requirements could delay the Acquisition, as applicable.Effective Date or prevent the completion of the Floating Share Arrangement. While there can be no assurance that any regulatory consents or approvals that are determined to be required will be obtained, the CompanyAcreage currently anticipates that any such consents and approvals other than the amendment of federal Laws in the United States to permit the general cultivation, distribution and possession of marijuana or the removal of the regulation of such activities from the federal Laws of the Unites States, that are determined to be required will have been obtained or otherwise resolved by the Amendment DateEffective Date. Subject to receipt of Shareholder Approval, the Interim Order and the Final Order, and all required approvals from the stock exchanges on which the Canopy Shares are listed, and the satisfaction or waiver of all other conditions specified in the Acquisition Date, as applicable.Floating Share Arrangement Agreement, the Floating Share Arrangement is expected to be completed in the second half of 2023.
See “Regulatory Matters”.
Stock Exchange Matters
The Existing SVSFloating Shares are currently listed on the CSE under the symbol “ACRG.U”“ACRG.B.U”, are quoted on the OTCQX underunder the symbol “ACRGF”symbol “ACRDF” and are traded on the Open Market of the Frankfurt Stock ExchangeFSE under the symbol “0VZ”“0VZ2”. ItIt is anticipated that in connection witha condition to the implementation of the Amended Arrangement and completion of the Capital Reorganization, the Existing SVSFloating Share Arrangement that Acreage will be delisted and eachhave obtained approval of the Fixed Shares and Floating Shares will become listed on the CSE in their place.respect of the Floating Share Arrangement, as required.
It is expected that Canopy GrowthUSA will apply toto: (i) have the Floating Shares delisted from the CSE, the OTCQX and the FSE as promptly as possible following the Effective Date; and (ii) have the Fixed Shares delisted from thethe CSE, the OTCQX and the Frankfurt Stock ExchangeFSE as promptly as possible following the Acquisition Date and, if the Floating Call Option is exercised, it is expected that Canopy Growth will also apply to have the Floating Shares delisted from the CSE. In addition, in the event that both the Canopy Call Option and the Floating Call Option are exercised (or deemed exercised), it is expected that Canopy Growth will apply to have Acreage cease to be a reporting issuer in all jurisdictions in which it is a reporting issuer and thus will terminate Acreage’s reporting obligations in Canada and the United States following completion of the Acquisition..
The Canopy Growth Shares are currently listed and posted for trading on the TSX under the symbol “WEED” and on the NYSENasdaq under thethe symbol “CGC”. It is a condition of completion ofSubject to applicable Laws, Canopy has agreed to use its commercially reasonable efforts to obtain all required approvals from the Acquisition that Canopy Growth will have obtained conditional approval of the stock exchange(s)exchanges on which the Canopy Growth Shares are listed for the listing of the Consideration Shares and any Canopy Growth Shares issuable: (i) to Shareholders underissuable upon the Amended Arrangement; (ii) upon exercise or vesting, as applicable, of Replacement Options, Replacement RSUsShare Units and Replacement Compensation Options; and (iii) upon exchange or redemption of High Street Units and USCo2 Shares, subject to customary listing conditions.Warrants. As of the date of this Circular, Canopy Growth has received conditional approval of the TSX for the listing of such Canopy Growth Shares.
See “Regulatory Matters -– Stock Exchange Matters”.
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Risk Factors
Floating Shareholders should carefully consider the risk factors described below under the heading “Risk Factors” before deciding to vote or instruct their vote to be cast to approve the Arrangement Resolution. In addition to the risk factors set out below, Floating Shareholders should also carefully consider the risk factors applicable to Acreage set out in the Acreage Annual Report under the heading “Risk Factors”, a copy of which is available under Acreage’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar, and the risk factors applicable to Canopy referred to in Appendix “G” to this Circular.
Risks Relating to the Floating Share Arrangement
In assessing the Floating Share Arrangement, Floating Shareholders should carefully consider the risks relating to the Floating Share Arrangement. These risks include, but are not limited to: the Floating Share Arrangement may not be completed; risks associated with the Exchange Ratio; market overhang risk; Nasdaq listing and share consolidation; Canopy cannot finance Canopy USA; the Consideration Shares to be received by Floating Shareholders as a result of the Floating Share Arrangement will have different rights from the Floating Shares; anticipated benefits of integration with Canopy USA may not materialize; Canopy may not be able to renegotiate its debt to Greenstar; the anticipated benefits of the strategy involving Canopy USA may not be realized; upon closing of the Floating Share Arrangement, Shareholders will own shares of Canopy, whose management team will not have the ability to direct or manage the operations of Canopy USA; Canopy may issue additional equity securities; the Acquisition will affect the rights of Floating Shareholders; adverse U.S. federal income tax consequences; Canopy may be acquired prior to the Effective Date; Canopy is subject to certain restrictions of the TSX and the Nasdaq, which may constrain its ability to expand its business in the United States; if Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage without structural amendments to Canopy’s interest in Canopy USA, the listing of the Canopy Shares on the Nasdaq Stock Market may be jeopardized; delisting of the Canopy Shares from the Nasdaq could adversely impact the liquidity of the Canopy Shares, which could have a material adverse effect on the trading price of the Canopy Shares or the ability of Canopy to complete future equity financings on terms favourable to it; Canopy’s ability to meet its debt obligations may have an adverse impact on its capital position, business and operations; risk of a change of control of Canopy USA but not Canopy; the Reorganization may not be acceptable to certain of Canopy’s financial lenders or other capital providers; the Canopy Capital Reorganization may lead to overhang and less liquidity; the Canopy Shares may not meet index requirements; prior to the Effective Time, Acreage is restricted from taking certain actions pursuant to the Floating Share Arrangement; and the Fairness Opinions obtained by the Special Committee and the Acreage Board will not reflect changes, circumstances, developments or events that may have occurred or may occur after the date of such Fairness Opinions, and the Management Forecasts delivered in connection with such Fairness Opinions reflect numerous variables, estimates and forecasts made by Acreage’s management at the time the Management Forecasts were prepared.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors – Risks Relating to the Floating Share Arrangement ”.
Risks Relating to the Completion of the Floating Share Arrangement
In assessing the Floating Share Arrangement, Floating Shareholders should carefully consider the risks relating to the completion of the Floating Share Arrangement. These risks include, but are not limited to: the Fixed Call Option is not expected to be exercised in the short term unless the Fixed Call Option Conditions are satisfied; Acreage could fail to receive the necessary approvals required to complete the Floating Share Arrangement; Acreage expects to incur substantial transaction-related costs in connection with the Floating Share Arrangement; securities class actions and derivative lawsuits; interests of directors and officers; Floating Shares may not trade at prices that reflect the Exchange Ratio and will not trade at an intrinsic value; Canopy may not complete the Floating Share Arrangement if the Canopy Amendment Proposal is not adopted or CBG and Greenstar do not exchange their Canopy Shares; ability to integrate successfully; risks if the Floating Share Arrangement is not completed and Canopy acquires the Fixed Shares; risks relating to holding Floating Shares in a company with a majority controlling shareholder; there may not be an active trading market for the Floating Shares; limited ability to pursue strategic and organic growth opportunities without Canopy’s consent; Canopy USA may compete or divert opportunities to its other investees that participate in the U.S. cannabis industry; lowered market price of the Floating Shares; and Canaccord Genuity’s success fee may be increased.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement”.
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Risks if the Floating Share Arrangement is Not Completed and the Existing Arrangement Remains in Effect
In assessing the Floating Share Arrangement, Floating Shareholders should carefully consider the risks if the Floating Share Arrangement is not completed and the Existing Arrangement remains in effect. These risks include, but are not limited to: negative cash flow from operations and going concern; during the Interim Period, Acreage is restricted from taking certain actions pursuant to the Existing Arrangement; the Existing Arrangement Agreement contains restrictive covenants; under the Existing Arrangement Agreement, Acreage will be required to comply with the Initial Business Plan; securing additional financing; and lowered market price of the Acreage Shares.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors – Risks if the Floating Share Arrangement is not Completed and the Existing Arrangement Remains in Effect”.
Risks Relating to the Treatment of Acreage for U.S. and Canadian Tax Purposes
In assessing the Floating Share Arrangement, Floating Shareholders should carefully consider the risks relating to the treatment of Acreage for U.S. and Canadian tax purposes. These risks include, but are not limited to: adverse U.S. federal income tax consequences; and adverse Canadian federal income tax consequences.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors – Risks Relating to the Treatment of Acreage for U.S. and Canadian Tax Purposes”.
Risks Relating to Acreage’s Business
For more information about risks relating to Acreage’s United States cannabis operations, see the Acreage Annual Report filed under Acreage’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar and incorporated by reference herein.
Risks Relating to Canopy’s Business
See “Additional Information Concerning Canopy – Risk Factors” in Appendix “G” to this Circular.
Dissent Rights
Section 238 ofRegistered Shareholders may exercise Dissent Rights with respect to the BCBCA provides registered shareholders of a corporation with the right to dissent from certain resolutions that effect extraordinary corporate transactions or fundamental corporate changes. The Amendment Interim Order expressly provides Registered Shareholders with the right to dissent from the AmendmentArrangement Resolution pursuant to Section 238 of the BCBCAand in the manner set forth inunder Sections 242237 to 247 of the BCBCA, with modifications or supplements toas modified by the provisions of Sections 237 to 247 as provided in the Amended Plan ofFloating Share Arrangement, the Amendmentthe Interim Order and the Amendment Final Order. Any Registered Shareholder who dissents from the Amendment Resolution in compliance withOrder, provided that, notwithstanding Section 238242 of the BCBCA, as modified or supplementedthe written objection to the Arrangement Resolution must be sent to Acreage by the Amended Plan of Arrangement, the Amendment Interim Orderholders who wish to dissent and the Amendment Final Order, will be entitled, if ultimately successful and in the event the Amended Arrangement becomes effective, to be paid the fair value of Existing Shares held by such Dissenting Shareholder determined as of the close of businessreceived by Acreage not later than 5:00 p.m. (Vancouver time) on the lastdate that is two Business Day beforeDays immediately prior to the day onMeeting or any date to which the Amendment Resolution is adopted by Shareholders at the Meeting.Meeting may be postponed or adjourned.
Registered Shareholders who wish to dissent should take note that the procedures for dissenting from the Arrangement Resolution require strict compliance with the applicable dissent procedures. A brief summary of the Dissent Rights available to Registered Shareholders is set forth under the heading “Dissent Rights” in this Circular. However, such summary is qualified in its entirety by the provisions of Section 237 to 247 of the BCBCA, the full text of which is set forth in Appendix “J”“H” to this Circular, and by the Amended Plan ofFloating Share Arrangement Agreement, the Amended Plan ofFloating Share Arrangement, the Amendment Interim Order and the Amendment Final Order. Failure to strictly comply with the requirements with respect to the dissent rights set forth in the BCBCA, the Proposal AgreementFloating Share Arrangement Agreement and the Amendment Interim Order may result in the loss of any right to dissent. Registered Shareholders who wish to dissent from the Arrangement Resolution are advised to consult with their legal advisors.
Any Existing SVS or Existing PVS in respect of which Dissent Rights have been properly exercised and not withdrawn pursuant to the BCBCA, will be entitled to be paid the fair value of such shares in accordance with the BCBCA, as modified by the Amended Plan of Arrangement and the Amendment Interim Order and Amendment Final Order of the Court.
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Anyone who is a beneficial owner of Existing Shares registered in the name of an Intermediary and who wishes to dissent should be aware that only Registered Shareholders are entitled to exercise Dissent Rights.
Risk Factors
Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect
In assessing the Amended Arrangement, Shareholders should carefully consider the risk that the Amended Arrangement is not approved and the Existing Arrangement remains in effect. These risks include, but are not limited to: the fact that the Company has negative working capital and cash flow from operations; the fact that the Arrangement Agreement restricts Acreage from taking specified actions during the Interim Period under the Existing Arrangement, including, without limiting the generality of the foregoing, incurring debt or issuing additional Existing Shares beyond permitted levels, without the consent of Canopy Growth which may adversely affect the ability of Acreage to execute certain business strategies; the fact that, if the Amended Arrangement is not implemented, Acreage will be subject to the restrictive covenants and consent requirements under the Existing Arrangement Agreement; risk that the Company will not be able to secure additional financing it requires for the continued development of the Company’s business; risk that the Company may not be able to access public or private capital on terms more favorable than the terms of the Debenture, or at all; risk that the Company will not be able to secure the additional cash or working capital it may require to continue operations under the Existing Arrangement; risk of a material decline in the price of the Existing SVS or that the Existing SVS trade at a price that is not reflective of the performance of the Company or the trading price of the Canopy Growth Shares based on the exchange ratio under the Existing Arrangement; and risks related to the tax deferral treatment in respect of the Acquisition.
Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth in the event that the Amended Arrangement is not approved and the Existing Arrangement remains in effect.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors - Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect”.
Risks Relating to the Acquisition
In assessing the Amended Arrangement, Shareholders should carefully consider the risk factors relating to the Acquisition. Some of these risks include, but are not limited to: risk that Canopy Growth could fail to complete the Acquisition or the Acquisition may be completed on different terms; risks associated with a fixed exchange ratio; market overhang risk; risk that the Company will incur substantial transaction-related costs in connection with the Acquisition; risk that, prior to the Acquisition being completed, the Company is restricted from taking certain actions; risk that during the Amendment Interim Period, the attention of the Company’s management may be diverted; risk that the Canopy Growth Shares to be received by Shareholders as a result of the Acquisition will have different rights from the Shares; risk that the Company and Canopy Growth may not integrate successfully; risk that Canopy Growth may issue additional equity securities during the Interim Period; risk that the Acquisition will adversely affect the rights of Shareholders; risks related to the tax deferral treatment in respect of the Acquisition; risk that the Exchange Ratio may be decreased in certain circumstances; risk that the A&R License may be terminated early by Canopy Growth; and risk that Canopy Growth may be acquired prior to the Acquisition.
Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following completion of the Acquisition.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors – Risks Related to the Acquisition”.
Risks Relating to the Implementation of the Amended Arrangement
In assessing the Amended Arrangement, Shareholders should carefully consider the risk factors relating to the implementation of the Amended Arrangement. Some of these risks include, but are not limited to: risks that the Company may fail to receive the necessary court and/or regulatory approval; risks that the Company may fail to implement the Amended Arrangement or that the Amended Arrangement may be completed on different terms; risks that the Company will incur substantial transaction-related costs in connection with the Amended Arrangement; risk that, while the Amended Arrangement is pending, the Company is restricted from taking certain actions; risk that the pending Arrangement may divert the attention of the Company’s management; risk that the amount of the Aggregate Amendment Option Payment received may fluctuate; risk of securities class actions and derivative lawsuits; risk that directors and senior officers of the Company may have interests in the Amended Arrangement that are different from those of the Shareholders; risk that the Fixed Shares trade at a significant discount to a price that reflects the performance of the Company or at a price relative to the trading price of the Canopy Growth Shares based upon the Exchange Ratio; the Floating Shares will not trade at an intrinsic value; U.S. Holders who received the Option Premium, and U.S. Holders that receive the payment of the Aggregate Amendment Option Payment, will be subject to U.S. federal income tax; risks related to the tax deferral treatment in respect of the Amended Arrangement; risk that the consideration to be received under the Amended Arrangement may be less than under the Existing Arrangement; risk that the Company will be restricted from taking certain actions in order to raise additional capital; risks associated with non-compliance with the Initial Business Plan; risk that certain U.S. states do not legalize recreational cannabis within a proximate timeframe; the restrictions imposed on the use of the Loan under the Debenture; risk of failure to make Non-Core Divestitures within the prescribed time limit; risk that the Company does not receive meaningful financial contribution from the Management Service Agreement or sublicenses under the A&R License; risk related to the early termination of the A&R License; risk that the Company will not be able to retain or attract directors and officers; risk that the Exchange Ratio may be decreased in certain circumstances risk that the Termination Expense Reimbursement and the terms of the Voting Agreements may discourage other parties from attempting to acquire the Company; and risks related to the deadline to implement the Amended Arrangement.
Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following implementation of the Amended Arrangement.
See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors – Risks Related to the Implementation of the Amended Arrangement”.
Risks Related to the Acquisition by Canopy Growth of the Fixed Shares only and not the Floating Shares
In assessing the Amended Arrangement, Shareholders should carefully consider the possibility that Canopy Growth will only acquire the Fixed Shares and not the Floating Shares and risks related thereto. Some of these risks include, but are not limited to: risks associated with holding securities of a company with a majority controlling shareholder; risk that there may not be an active trading market for the Floating Shares; risk that the Floating Shares will not trade at an intrinsic value; risks that the Company will be restricted from pursuing strategic and organic growth opportunities without Canopy Growth’s consent; risk of loss of revenue under the Management Services Agreements; and risks that Canopy Growth may compete with the Company or divert opportunities to its other investees that participate in the U.S. cannabis industry.
Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following the Acquisition of the Fixed Shares only and not the Floating Shares.
See “ Cautionary Note Regarding Forward-Looking Information” and “Risk Factors - Risks Related to the Acquisition by Canopy Growth of the Fixed Shares only and not the Floating Shares”.
Fees and Expenses
The TerminationExcept as otherwise provided in the Floating Share Arrangement Agreement, including in connection with any Canopy Expense Reimbursement, all out-of-pocket third-party transaction expenses incurred in connection with the Floating Share Arrangement Agreement and the Floating Share Plan of Arrangement and the transactions contemplated thereunder, will be paid by the Party incurring such fees, costs or expenses, whether or not the Floating Share Arrangement is payable byconsummated. Acreage to Canopy Growth upon termination of the Proposal Agreement by Canopy Growth in the event of (a) a Change in Recommendation. or (b) the failure to obtain the Required Shareholder Approval, following a Change in Recommendation; provided, however, that Acreage will not be required to pay the Termination Expense Reimbursement if a Change in Recommendation was made as a result of a Purchaser Material Adverse Effect. See “The Amended Arrangement – The Proposal Agreement – Expenses of the Amended Arrangement - Termination Expense Reimbursement”. See “The Amended Arrangement – The Proposal Agreement – Expenses of the Amended Arrangement - Termination Expense Reimbursement”.
The Company estimates that it will incur fees and related expenses in the amount of approximately US$6,600,000$2,750,000 relating to the Proposal Agreement including, without limitation, financial, advisory, legal and accounting fees, filing fees and the costs of preparing, printing and mailing this Circular.Floating Share Arrangement Agreement,
ConditionsCanopy has agreed that, in the event that the Canopy Capital Reorganization is not completed prior to the Amended Arrangement Becoming EffectiveExercise Outside Date or that CBG or Greenstar do not exchange all of their Canopy Shares into Exchangeable Canopy Shares prior to the Exercise Outside Date, Canopy will forthwith, and in any event within 2 Business Days following the Exercise Outside Date, pay the Canopy Expense Reimbursement to Acreage.
The effectivenesspayment of the Amending AgreementCanopy Expense Reimbursement will not preclude Acreage from seeking damages and the implementationpursuing any and all other remedies that it may have in respect of losses incurred or suffered by it as a result of breach by Canopy or Canopy USA, as applicably, of any representation or warranty, or failure by Canopy or Canopy USA, as applicable, to perform any covenant or satisfy any condition.
See “The Floating Share Arrangement – The Floating Share Arrangement Agreement – Expenses of the Amended PlanFloating Share Arrangement” and “The Floating Share Arrangement – The Floating Share Arrangement Agreement – Expenses Reimbursement”.
Conditions for Completion of the Floating Share Arrangement
Mutual Conditions Precedent
The respective obligations of the Parties to complete the Floating Share Arrangement isare subject to the satisfaction, of the following conditions:conditions, each of which may be waived, in whole or in part, by the mutual consent of the Parties:
| the |
| each of the |
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| no Law |
| the |
| (f) | all Acquisition Closing Conditions, being conditions precedent to the completion of the Acquisition will have |
| (g) | the Floating Share Arrangement Agreement will not have been terminated in accordance with its terms. |
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Conditions Precedent in Favour of Canopy and Canopy USA
The obligation of Canopy and Canopy USA to complete the Floating Share Arrangement is subject to the satisfaction of each of the following conditions, each of which is for the exclusive benefit of Canopy and Canopy USA and which may be waived by Canopy and Canopy USA at any time, in whole or in part, in their sole discretion and without prejudice to any other rights that Canopy and Canopy USA may have:
| (a) | Acreage will have fulfilled or complied with each of its obligations and covenants contained in the Floating Share Arrangement Agreement to be fulfilled or complied with by it on or prior to the Effective Time, except where any failure to perform any such obligations or covenants would not, individually or in the aggregate, be reasonably expected to have a material adverse impact on Acreage; |
| (b) | the representations and warranties of Acreage set forth in the Floating Share Arrangement Agreement will have been true and correct as of the Floating Share Arrangement Agreement and will be true and correct as of the Effective Time , except where any failure or failures of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to result in an Acreage Material Adverse Effect (disregarding any materiality or “Acreage Material Adverse Effect” qualification contained in any such representation and warranty for the purpose of determining whether any such failure or failures would not, individually or in the aggregate, reasonably be expected to result in an Acreage Material Adverse Effect), in each case except for representations and warranties made as of a specified date, the accuracy of which will be determined as of such specified date; |
| (c) | Acreage and each of its Subsidiaries will be in compliance with all applicable Laws, in all material respects in each jurisdiction in which it carries on business, provided that Acreage and each of its Subsidiaries will be in compliance with all applicable Laws with respect to marijuana, except where any non-compliance would not have a material and adverse effect on Acreage or any of its Subsidiaries, except that, Acreage and each of its Subsidiaries will not be required to be in compliance with the Controlled Substances Act, as it applies to marijuana (including any implementing regulations and schedules in effect at the relevant time) or any other U.S. federal Law the violation of which is predicated upon a violation of the Controlled Substances Act as it applies to marijuana; |
| (d) | the USCo2 Constating Documents will have been amended in accordance with the amendments set forth in the Floating Share Arrangement Agreement; |
| (e) | subject to the terms of the Floating Share Arrangement Agreement, Acreage will have completed such Pre-Acquisition Reorganizations as may have been requested by Canopy or Canopy USA in accordance with the Floating Share Arrangement Agreement; and |
| Dissent Rights will not have been exercised with respect to more than 5.0% of the issued and outstanding Floating Shares. |
If, at any time prior to the Effective Time, Canopy or Canopy USA becomes aware of the occurrence, or failure to occur, of any event or state of facts which occurrence or failure results in the failure of the ability of Acreage to satisfy any condition set forth above, Canopy or Canopy USA, as applicable, has agreed to promptly notify Acreage of such occurrence, or failure to occur in accordance with the Floating Share Arrangement Agreement, which notification will specify in reasonable detail such event or state of facts.
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Conditions Precedent in Favour of Acreage
The obligation of Acreage to complete the Floating Share Arrangement is subject to the satisfaction of the following conditions, each of which is for the exclusive benefit of Acreage and which may be waived by Acreage at any time, in whole or in part, in its sole discretion and without prejudice to any other rights that Acreage may have:
| (a) | each of Canopy and Canopy USA will have fulfilled or complied in all material respects with its obligations and covenants contained in the Floating Share Arrangement Agreement to be fulfilled or complied with by it on or prior to the Effective Time; |
| (b) | the representations and warranties of Canopy and Canopy USA set forth in the Floating Share Arrangement Agreement will have been true and correct as of the date of the Floating Share Arrangement Agreement and will be true and correct as of the Effective Time, except where any failure or failures of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to result in a Canopy Material Adverse Effect (disregarding any materiality or “Canopy Material Adverse Effect” qualification contained in any such representation and warranty for the purpose of determining whether any such failure or failures would not, individually or in the aggregate, reasonably be expected to result in a Canopy Material Adverse Effect), except for representations and warranties made as of a specified date, the accuracy of which will be determined as of such specified date; |
| (c) | Canopy |
| the | ||
If, at any time prior to the Amendment Time; and
See “Transaction Documents – Proposal Agreement -Floating Share Arrangement Agreement – Conditions for ImplementationCompletion of the AmendedFloating Share Arrangement”.
Holders of securities of the CompanyFloating Shares should consult their own tax advisors about the applicable Canadian or United States federal, provincial, state and local tax consequences of the AmendedFloating Share Arrangement. See “Certain Canadian Federal Income Tax Considerations” and “Certain United States Federal Income Tax Considerations”.
Pursuant to the Plan of Arrangement, Canopy Growth paid the Option Premium to all holders of Existing Shares and the High Street Holders and the USCo2 Holders as consideration for the grant of the Existing Canopy Option. It was intended, forFor U.S. federal income tax purposes, that the paymentFloating Share Arrangement is expected not to qualify as a reorganization under Section 368(a) of the Option Premium, wouldCode and is expected to be treated as a part of a continuing, open transaction that generally did not result in immediate recognition of income to the Shareholders and certain other securityholders. However, as a result of the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement, it is now expected that U.S. Holders who received the Option Premium, but have not previously included the Option Premium in income, will be required to report the Option Premium as short-term capital gain in thefully taxable year in which the Amended Plan of Arrangement becomes effective.
transaction. The U.S. federal income tax treatment of the Aggregate Amendment Option PaymentFloating Share Arrangement is unclear. The Aggregate Amendment Option Payment will be paid tobased on the Shareholders and High Street Holders and USCo2 Holdersseries of steps contemplated in connection with the reductionFloating Share Arrangement Agreement, including exercise of the Exchange RatioFixed Call Option and completion of the modificationFloating Share Arrangement. These transactions will generally be treated as a single integrated transaction for purposes of determining qualification as a reorganization. In order to qualify as a reorganization within the meaning of Sections 368(a)(1) and 368(a)(2)(E) of the Code, Canopy would be required to acquire an amount of Fixed Shares and Floating Shares in connection with these transactions which represents “control” (as defined in Section 368(c) of the Code) of Acreage in exchange solely for Canopy Shares. After the completion of these transactions, Canopy USA rather than Canopy will be in “control” of Acreage causing the “control” requirement not to be satisfied. In addition, it is expected that the portion of the Option Premium and some or all of Aggregate Amendment Option Payment (each as defined in the Existing Arrangement Agreement) which were paid in cash to shareholders of Acreage under the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment mayArrangement Agreement will be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement.determining whether Canopy acquired control of Acreage expects that the Aggregate Amendment Option Payment would be treated as ordinary income. However, due to the absence of guidance bearing directlyin exchange solely for Canopy Shares. Based on the U.S. federal income tax consequencesvalue of Canopy Shares as of the receiptdate of the Aggregate Amendment Option Payment, this expectationFloating Share Arrangement Agreement, such cash consideration is expected to cause the control requirement not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment.
Non U.S. Holders will generally be limited in their recognition of gain or income upon receipt of their share of the Aggregate Amendment Option Payment and should consult with their own tax advisors to determine the extent that such income or gain will be recognized.
The U.S. federal income tax consequences of the Acquisition pursuant to the Amended Plan of Arrangement are also uncertain. If Canopy Growth does not acquiresatisfied. Accordingly, the Floating Shares, the Acquisition willShare Arrangement is expected not to qualify as a reorganization for U.S. federal income tax purposes and, therefore, will be a fully taxable transaction. Even if both the Fixed Shares andpurposes.
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Assuming the Floating Shares are acquired by Canopy Growth in the Acquisition, the Acquisition mayShare Arrangement does not qualify as a reorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Shares in exchange for Floating Shares would generally recognize capital gain or loss equal to the difference between the fair market value of the Canopy Shares received and the U.S. Holder’s adjusted tax basis in the Floating Shares exchanged therefor. The gain or loss would generally be determined separately for each block of Floating Shares (i.e., Floating Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of Floating Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations
The rules described above for U.S. Holders should generally also apply to a Non-U.S. Holder that directly exchanges its Floating Shares for Canopy Shares, except that any such gain recognized by a Non-U.S. Holder generally will not be subject to U.S. federal income tax purposes. Certain factorsunless: (i) the gain is “effectively connected” with such Non U. S. Holder’s conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that affectsuch Non-U.S. Holder maintains in the U.S. federalUnited States if that is required by an applicable income tax treatmenttreaty as a condition for subjecting such person to U.S. taxation on a net income basis; or (ii) the Non-U.S. Holder is an individual, is present in the United States for 183 or more days in the taxable year of the Acquisition will not be determinable until the Acquisition Date, including whether the Floating Consideration is paid in Floating Share Consideration, Floating Cash Consideration or a combination thereof,sale and the value of the Canopy Growth Shares received in the Acquisition. Depending on these andcertain other factors, the Acquisition may be treated as a taxable transaction in which gain or loss is generally recognized for U.S. federal income tax purposes, or it may be treated as a reorganization for U.S. federal income tax purposes (and which also meets the Section 367 Requirements)conditions exist. Neither Acreage nor Canopy Growth have sought, nor expect to seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein.
For additional information, see the section entitledSee “Certain United States Federal Income Tax Considerations”, “Risk Factors” and “Cautionary Note Regarding Forward-Looking Information”.
For Canadian federal income tax purposes, Canadian Holders will be considered to have disposed of their Floating Shares pursuant to the Floating Share Arrangement and will generally be considered to have realized a capital gain (or capital loss) equal to the amount by which the fair market value of the Canopy Shares received exceeds (or is exceeded by) the aggregate of the adjusted cost base of the Floating Shares transferred and any reasonable costs of disposition.
See “Certain Canadian Federal Income Tax Considerations”, “Risk Factors” and “Cautionary Note Regarding Forward-Looking Information”.
Non-Canadian Holders should generally not be subject to tax under the Tax Act on any capital gain realized in respect of the Floating Share Arrangement provided that the Floating Shares are not “taxable Canadian property” to such Non-Canadian Holder for the purposes of the Tax Act.
Completion of the AmendedFloating Share Arrangement and any subsequent Acquisition may have other tax consequences under the Laws of Canada and the United States, and any such tax consequences aremay not be described in this Circular. United States securityholders of AcreageFloating Shareholders are urged to consult their own tax advisors to determine any particular tax consequences to them of the transactions contemplated in connection with the AmendedFloating Share Arrangement.
For information see “Certain Canadian Federal Income Tax Considerations” and “Certain United States Federal Income Tax Considerations”.
Information Concerning Acreage
For information concerning Acreage, see “Information Concerning Acreage”.
Information Concerning Canopy Growth and Unaudited Pro-Forma Financial Statements
Canopy Growth is a leading cannabis company with operations in countries throughout the world. Canopy Growth produces, distributes and sells a diverse range of cannabis and hemp-based products for both recreational and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, and globally pursuant to applicable international and Canadian legislation, regulations and permits. Canopy Growth’s core operations are in Canada, the United States, Germany, and the UK, with developing opportunity markets in Australia, Denmark, Peru and Brazil. Canopy Growth is a reporting issuer in each of the provinces of Canada, other than Quebec. Canopy Growth’s head and registered office is located at 1 Hershey Drive, Smiths Falls, ON, K7A 0A8. For additional information concerning Canopy, Growth, see Appendix “G” and for information concerning– “Information Concerning Canopy Growth following completion of the Acquisition please see Appendix “H””.
The unaudited pro-forma condensed consolidated financial information of Canopy Growth following completion of the Acquisition, which is included in this Circular at Appendix “I”, has been derived from the unaudited pro-forma condensed consolidated financial statements of Canopy Growth after giving effect to the Acquisition. The unaudited pro forma condensed consolidated statement of financial position as of March 31, 2020 gives pro forma effect to the Completion of the Arrangement as if it were completed as at March 31, 2020. The unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2020 gives pro forma effect to the Completion of the Arrangement as if it were completed on April 1, 2019.
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The pro forma financial information presented in this Circular should be read in conjunction with the (i) the audited consolidated financial statements of Acreage as at and for the year ended March 31, 2020; (iii) the audited consolidated financial statements of Acreage as at and for the year ended December 31, 2019; and (iv) the unaudited condensed interim consolidated financial statements of Acreage for the three months ended March 31, 2020.
NOTICE TO SHAREHOLDERS OUTSIDE OF CANADA
Acreage is a corporationcompany existing under the lawsLaws of the Province of British Columbia. Acreage has prepared this Circular in accordance with the disclosure requirements of Canadian and United States securities laws and the AmendedFloating Share Arrangement is to be carried out in accordance with the laws of the Province of British Columbia. Shareholders of Acreage should be aware that such requirements aremay be different from those in other jurisdictions.
Floating Shareholders who are not residents of Canada for purposes of the Tax Act should be aware that the disposition of securities pursuant to the AmendedFloating Share Arrangement may have tax consequences both in Canada and in any applicable foreign jurisdiction in which the Floating Shareholder is subject to tax. Such foreign tax considerations (other than U.S. federal income tax considerations) are not described herein. It is recommended that Floating Shareholders consult their own tax advisors in this regard.
Information for U.S. Securityholders
The enforcement by Floating Shareholders of civil liabilities under United States federal securities laws may be affected adversely by the fact that Acreage is organized under the laws of a jurisdiction outside the United States.
As a result, it may be difficult or impossible for Floating Shareholders to effect service of process within the United States upon Acreage, or to realize against it upon judgments of courts of the United States predicated upon civil liabilities under the federal Securities Laws of the United States or any applicable Securities Laws of any state of the United States. In addition, Floating Shareholders should not assume that the courts of Canada (i) would enforce judgments of United States courts obtained in actions against such Persons predicated upon civil liabilities under the federal Securities Laws of the United States or any applicable Securities Laws of any state of the United States or (ii) would enforce, in original actions, liabilities against such persons predicated upon civil liabilities under the federal Securities Laws of the United States or any applicable Securities Laws of any state of the United States.
Neither the SEC nor any state securities regulatory authority has approved or disapproved the ProposalFloating Share Arrangement Agreement, the AmendedFloating Share Arrangement, passed upon the merits or fairness of the AmendedFloating Share Arrangement or passed upon the adequacy or accuracy of the disclosure in this Circular. Any representation to the contrary is a criminal offense.
Certain United States Federal Income Tax Considerations
For U.S. federal income tax purposes, the Floating Share Arrangement is expected not to qualify as a reorganization under Section 368(a) of the Aggregate Amendment Option Payment
Code and is expected to be a fully taxable transaction. The U.S. federal income tax treatment of the Aggregate Amendment Option PaymentFloating Share Arrangement is unclear. The Aggregate Amendment Option Payment will be paid tobased on the Shareholders, High Street Holders and USCo2 Holdersseries of steps contemplated in connection with the reductionFloating Share Arrangement Agreement, including exercise of the Exchange RatioFixed Call Option and completion of the modificationFloating Share Arrangement. These transactions will generally be treated as a single integrated transaction for purposes of determining qualification as a reorganization. In order to qualify as a reorganization within the meaning of Sections 368(a)(1) and 368(a)(2)(E) of the Code, Canopy would be required to acquire an amount of Fixed Shares and Floating Shares in connection with these transactions which represents “control” (as defined in Section 368(c) of the Code) of Acreage in exchange solely for Canopy Shares. After the completion of these transactions, Canopy USA rather than Canopy will be in “control” of Acreage causing the “control” requirement not to be satisfied. In addition, it is expected that the portion of the Option Premium and some or all of Aggregate Amendment Option Payments which were paid in cash to shareholders of Acreage under the terms of (and defined in) the Existing Arrangement Agreement will be treated as other consideration in determining whether Canopy Option throughacquired control of Acreage in exchange solely for Canopy Shares. Based on the issuancevalue of Canopy Shares as of the Canopy Call Option anddate of the Floating Call Option underShare Arrangement Agreement, such cash consideration is expected to cause the Amended Plan of Arrangement. Forcontrol requirement not to be satisfied. Accordingly, the Floating Share Arrangement is expected not to qualify as a reorganization for U.S. federal income tax purposes, this payment may be treatedpurposes.
Assuming the Floating Share Arrangement does not qualify as ordinary income, short-terma reorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Shares in exchange for Floating Shares would generally recognize a capital gain option premium that is partor loss equal to the difference between the fair market value of an open transactionthe Canopy Shares received and not immediately includiblethe U.S. Holder’s adjusted tax basis in income,the Floating Shares exchanged therefor. The gain or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Paymentloss would generally be treated as ordinary income. However, duedetermined separately for each block of Floating Shares (i.e., Floating Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of Floating Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to the absence of guidance bearinglimitations
The rules described above for U.S. Holders should generally also apply to a Non-U.S. Holder that directly on theexchanges its Floating Shares for Canopy Shares, except that any such gain recognized by a Non-U.S. Holder generally will not be subject to U.S. federal income tax consequencesunless: (i) the gain is “effectively connected” with such Non U. S. Holder’s conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that such Non-U.S. Holder maintains in the United States if that is required by an applicable income tax treaty as a condition for subjecting such person to U.S. taxation on a net income basis; or (ii) the Non-U.S. Holder is an individual, is present in the United States for 183 or more days in the taxable year of the receipt of the Aggregate Amendment Option Payment, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Paymentsale and certain other conditions exist
Non U.S. Holders will generally be limited in their recognition of gain or income upon receipt of their share of the Aggregate Amendment Option Payment and should consult with their own tax advisors to determine the extent that such income or gain will be recognized. For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, including the payment of the Aggregate Amendment Option Payment, see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to them of the Amended Arrangement in general and based on their particular circumstances.
The foregoing is a brief summary of the material United States federal income tax consequences only. Floating Shareholders should carefully read carefully the information in thethis Circular under the heading “Certain United States Federal Income Tax Considerations”, which qualifies the summary set forth above. Floating Shareholders are urged to consult their own tax advisors to determine the particular tax consequences to them of the AmendedFloating Share Arrangement.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This Circular contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian securities legislation, including future-oriented financial information and financial outlook within the meaning of applicable Canadian securities legislation. Often, but not always, forward-looking statements and information can be identified by the use of words such as “plans”, “expects”“goal”, “strategy”, “expects” or “does not expect”, “is expected”, “estimates”, “project,” “projections”, “forecasts”, “seeks”, “potential”, “proposed”, “intends”, “likely”, “designed to”, “foreseeable future”, “scheduled”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “should”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements or information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or its Subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements or information contained in this Circular. Examples of such statements include statements with respect to the timing and outcome of the AmendedFloating Share Arrangement; the intentions, plans and future actions of Canopy, GrowthCanopy USA and Acreage; the future reporting issuer status of Acreage, financial position or board composition of Canopy, Canopy USA and Acreage; timing for the implementationcompletion of the AmendedFloating Share Arrangement and the Existing Arrangement; the anticipated benefits of the Amended Arrangement, including preserving Shareholder value and the potential upsideFloating Share Arrangement; the likelihood of the Floating Shares;Share Arrangement being completed; the likelihood of the Amended Arrangement being completed; certainAcquisition of the expectations of the Special Committee and the Acreage Board with respect to the potential future value of the Floating Shares; the amount of the up-front payment per Existing Share; the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event; the likelihood of the acquisition of the Existing SVSFixed Shares in accordance with the terms of the Existing Arrangement;Arrangement being completed; the satisfaction or waiver of the closing conditions set out in the Floating Share Arrangement Agreement; the satisfaction or waiver of the conditionsclosing conditions set out in the ProposalExisting Arrangement Agreement; the ability of the Company to complete certain financing transactions and complete the Non-Core Divestitures; the use of proceeds under the Debenture; the ability of Acreage to license the Trademarks, Systems and/or Intellectual Property resulting in increased royalty income; the expected consequences of limiting Acreage’s ability to operate to the Identified States;Amended Credit Facility; the expected benefits to Shareholders of the Hempco business; the expected use of the net proceeds of the Initial Advance to Hempco; the effects of the Existing Arrangement remaining in place;holding Canopy Shares; the timing and outcome of the Acquisition;transactions contemplated by the Floating Share Arrangement and the Existing Arrangement and the anticipated benefits of the Acquisition; the likelihood of entering into a Management Service Agreement; the ability of the Company to comply with the Initial Business Plan, including the Consolidated Adj. EBITDA Targets and the Pro-Forma Net Revenue Targets;thereof; and the potential tax consequences to Floating Shareholders of the AmendedFloating Share Arrangement. To the extent any forward-looking information constitutes future-oriented financial information or financial outlook, such information is being provided to describe the AmendedFloating Share Arrangement, and readers are cautioned this information may not be appropriate for any other purpose, including investment decisions, and the reader should not place undue reliance on such future-oriented financial information and financial outlooks. The Company’s actual financial position and results of operations may differ materially from management’s current expectations and, as a result, the Company’s revenue and earnings may differ materially from those targets contained in the Initial Business Plan, including the Consolidated Adj. EBITDA Targets and the Pro-Forma Net Revenue Targets.expectations. Such future-oriented financial information or financial outlook contained in this Circular may not be an indication of the Company’s actual financial position or results of operations.
Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including the occurrence of changes in U.S. federal Laws regarding the cultivation, distribution or possession of marijuana; the ability of the parties to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and Floating Shareholder approvals; the ability of the parties to satisfy, in a timely manner, the other conditions to the completion of the ProposalFloating Share Arrangement Agreement; the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event prior to the Canopy Call Option Expiry Date; the ability of Canopy, GrowthCanopy USA and the CompanyAcreage to satisfy, in a timely manner, the Acquisition Closing Conditions; risks relating to the value and liquidity of the Floating Shares and the Canopy Shares; Canopy maintaining compliance with Nasdaq and TSX listing requirements; the rights of the Floating Shareholders may differ materially from those of shareholders in Canopy; the successful completion of Canopy USA’s acquisition and integration of Wana and Jetty; expectations regarding future investment, growth and expansion of operations; the possibility of adverse U.S. or Canadian tax consequences; if Canopy USA acquires Wana, Jetty, or the Fixed Shares of Acreage without structural amendments to Canopy’s interest in Canopy USA, the listing of the Canopy Shares on the Nasdaq Stock Market may be jeopardized; the risk of a change of control of either Canopy or Canopy USA; restrictions on Acreage’s ability to pursue certain business opportunities and other restrictions on Acreage’s business; the impact of material non-recurring expenses in connection with the Floating Share Arrangement on Acreage’s future results of operations, cash flows and financial condition; the possibility of securities class action or derivatives lawsuits; in the event that the AmendedFloating Share Arrangement is not implemented,completed but the Acquisition is completed and Canopy becomes the majority shareholder in Acreage, the likelihood of completion ofthat the AcquisitionFloating Shareholders will have little or no influence on the termsconduct of Acreage’s business and affairs; risk of situations in which the Existing Arrangement;interests of Canopy USA and the interests of Acreage or Canopy Shareholders may differ; Acreage’s compliance with the Initial Business Plan; in the event that the AmendedFloating Share Arrangement is implemented,completed, the likelihood of Canopy Growth completing the acquisition ofAcquisition in accordance with the Fixed Shares and/or Floating Shares;Existing Arrangement; risks relatedrelating to certain directors and executive officers of Acreage possibly having interests in the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the Amended Arrangementconnected transactions that are different from those of otherthe Floating Shareholders; risks relating to the possibility that holders of more than 5% of the ExistingFloating Shares may exercise their right to dissent;Dissent Rights; other expectations and assumptions concerning the transactions contemplated between Canopy, GrowthCanopy USA and the Company;Acreage; the available funds of the CompanyAcreage and the anticipated use of such funds; the availability of financing opportunities for the CompanyAcreage and Canopy USA and the risks associated with the completion thereof; regulatory and licensing risks; the ability of Canopy, Canopy USA and Acreage to leverage each other’s respective capabilities and resources; changes in general economic, business and political conditions, including changes in the financial and stock markets; risks relatedrelating to infectious diseases, including the impacts of the COVID-19; legal and regulatory risks inherent in the cannabis industry, including the global regulatory landscape and enforcement related to cannabis, political risks and risks relating to regulatory change; risks relating to anti-money laundering Laws; compliance with extensive government regulation and the interpretation of various Laws regulations and policies; risk associated with divesting certain assets; public opinion and perception of the cannabis industry; and such other risks set forth under the heading “Risk Factors”“Risk Factors” below and those contained in the public filings of the CompanyAcreage filed with Canadian Securities Regulators and available under the Company’sAcreage’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar, including the Acreage Annual Report.
In respect of the forward-looking statements and information concerning the anticipated benefits and completion of the AmendedFloating Share Arrangement and the anticipated timing for completion of the AmendedFloating Share Arrangement, the CompanyAcreage has provided such statements and information in reliance on certain assumptions that the CompanyAcreage believes are reasonable at this time. Although the CompanyAcreage believes that the assumptions and factors used in preparing the forward-looking information or forward-looking statements in this Circular are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. The forward-looking information and forward-looking statements included in this Circular are made as of the date of this Circular and the Company Acreage does not undertake any obligation to publicly update such forward-looking information or forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable Securities Laws. There can be no assurance that the Acquisition, the AmendedFloating Share Arrangement the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event or the acquisition of the Fixed Shares and/orpursuant to the Floating SharesExisting Arrangement will occur, or that such events will occur on the terms and conditions contemplated in this Circular. The Proposal Agreement, theFloating Share Arrangement Agreement or the AmendedFloating Share Arrangement could be modified, restructured or terminated. Forward-looking information is information about the future and is inherently uncertain. There can be no assurance that the forward-looking information will prove to be accurate. Actual results could differ materially from those reflected in the forward-looking information as a result of, among other things, the matters set out or incorporated by reference in this Circular generally and economic and business factors, some of which may be beyond the control of the Company.Acreage. Some of the more important risks and uncertainties that could affect forward-looking information are described further under the heading “Risk Factors”. Additional risks are discussed in the Acreage Annual Report, a copy of which is available under the Company’sAcreage’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar. The CompanyAcreage expressly disclaims any intention or obligation to update or revise any information contained in this Circular (including forward-looking information) except as required by applicable Laws, and Floating Shareholders should not assume that any lack of update to information contained in this Circular means that there has been no change in that information since the date of this Circular and should not place undue reliance on forward-looking information.
CAUTIONARY NOTE REGARDING NON-U.S. GAAP FINANCIAL MEASURES
This Circular contains certain non-U.S. GAAP performance metrics such as EBITDA, Adjusted EBITDA, Capex Adjusted EBITDA, TEV, and Capex Adjusted TEV to evaluate its actual operating performance and for planning and forecasting future periods. Acreage believes that the non-U.S. GAAP measures presented provide relevant and useful information for investors because they clarify actual operating performance, make it easier to compare results with those of other companies and allow investors to review performance in the same way as management. Since these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, net loss or any other measure defined under U.S. GAAP as indicators of the Company’s performance, and they may not be comparable to similarly-named measures from other companies. See the Acreage Annual MD&A and the Acreage Interim MD&A which are incorporated by reference in this Circular for more information, including a reconciliation of non-U.S. GAAP financial performance measures to most directly comparable U.S. GAAP measures.
THIRD-PARTY INFORMATION
This Circular includes financial, market and industry data which was obtained from various publicly available sources and other sources believed by Acreage to be true. Although Acreage believes this information to be reliable, Acreage has not independently verified any of the data from third-party sources referred to in this Circular or analyzed or verified the underlying reports relied upon or referred to by such sources, or ascertained the underlying assumptions relied upon by such sources. Acreage does not make any representation as to the accuracy of such information.
In this Circular and accompanying Notice of Meeting, unless there is something in the subject matter inconsistent therewith, the following terms shall have the respective meanings set out below, words importing the singular number shall include the plural and vice versa and words importing any gender shall include all genders.
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Solicitation of Proxies
This Circular is furnished in connection with the solicitation of proxies by the management of the Company for use at the Meeting to be held at 11:12:00 a.m.p.m. (New York time) on September 16, 2020March 15, 2023 and at any adjournment or postponement thereof for the purposes set forth in the accompanying Notice of Meeting.
The solicitation of proxies will be made primarily by mail and may be supplemented by telephone or other personal contact by the directors, officers and employees of the Company. Directors, officers and employees of the Company will not receive any extra compensation for such activities. The Company has retained Kingsdale AdvisorsMorrow Sodali as its strategic shareholder advisor and proxy solicitation agent and will pay fees of approximately C$125,00075,000 to Kingsdale AdvisorsMorrow Sodali for proxy solicitation services in addition to certain out-of-pocket expenses. In addition, in the event that Shareholder Approval of the Arrangement Resolution is obtained, the Company will pay a success fee of C$25,000 to Morrow Sodali. The Company may pay brokers or other Persons holding ExistingFloating Shares in their own names, or in the names of nominees, for their reasonable expenses for sending forms of proxy and this Circular to beneficial owners of ExistingFloating Shares and obtaining proxies therefrom. The cost of any such solicitation will be borne by the Company.
Acreage may utilize the Broadridge QuickVote™ service to assist NOBOs with voting their Floating Shares. NOBOs of Acreage may be contacted by Morrow Sodali, which is soliciting proxies on behalf of Acreage’s management, to obtain voting instructions over the telephone, and relaying them to Broadridge (on behalf of the Floating Shareholder’s intermediary). While representatives of Morrow Sodali are soliciting proxies on behalf of Acreage’s management, Floating Shareholders are not required to vote in the manner recommended by the Acreage Board. The QuickVote™ system is intended to assist Floating Shareholders in exercising their votes, however, Floating Shareholders are not obligated to vote using the QuickVote™ system, and a Floating Shareholder may vote (or change or revoke their votes) at any other time and in any other applicable manner described in this Circular. Any voting instructions provided by a Floating Shareholder will be recorded and such Floating Shareholder will receive a letter from Broadridge (on behalf of the Floating Shareholder’s intermediary) as confirmation that their voting instructions have been accepted.
No Person is authorized to giveprovide any information or to make any representation other than those contained in this Circular and, if given or made, such information or representation should not be relied upon as having been authorized by the Company. The delivery of this Circular shall not, under any circumstances, create an implication that there has not been any change in the information set forth herein since the date hereof.
Meeting Format
The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Floating Shareholders will not need, or be able, to attend the Meeting in person.
To address potential issues arising from the unprecedented public health impact of COVID-19, comply with applicable public health directives that may be in force at the time of the Meeting, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, we will be holding the Meeting in a virtual only format. Shareholders will not need to, or be able to, physically attend the Meeting.
The Meeting will be conducted via live webcast. In order to attend, participate, vote or ask questions at the Meeting, Floating Shareholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting. To join as a guest please visit the Meeting online at web.lumiagm.com/221798142244671399 and select “Join as a Guest” when prompted.
Registered Shareholders and duly appointed proxyholders will be able to access the Meeting online at web.lumiagm.com/221798142.244671399. Such Persons may enter the Meeting by clicking “I have a login” and entering a username and password before the start of the Meeting:
| · | Registered Shareholders: The control number located on the form of proxy is the username. The password for the Meeting is |
| · | Duly appointed proxyholders: Floating Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or VIF, as applicable, ANDregister the proxyholder in advance of the proxy cut-off at |
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Appointment of a Third-Party as a Proxy
The following applies to Floating Shareholders who wish to appoint a Person, other than the management nominees set forth in the form of proxy or VIF, as proxyholder, including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting.
Floating Shareholders who wish to appoint a third-party proxyholder to attend, participate in or vote at the Meeting as their proxy MUST submit their proxy or VIF (as applicable) appointing such third-party proxyholder AND register the third-party proxyholder, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your proxy or VIF. Failure to register the proxyholder will result in the proxyholder not receiving a username to attend, participate in or vote at the Meeting.
| · | Step 1 - Submit your proxy or VIF: To appoint a third-party proxyholder, insert such Person's name in the blank space provided in the form of proxy or VIF (if permitted) and follow the instructions for submitting such form of proxy or VIF. This must be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or VIF. If you are a Non-Registered Shareholder located in the United States, you must also provide the Transfer Agent with a duly completed legal proxy if you wish to attend, participate in or vote at the Meeting or, if permitted, appoint a third-party as your proxyholder. See “General Proxy Information – Legal Proxy – U.S. Non-Registered Shareholders” for additional details. |
| · | Step 2 - Register your proxyholder: To register a proxyholder, Floating Shareholders MUSTsend an email to |
If you are a Non-Registered Shareholder and wish to attend, participate in or vote at the Meeting, you have to insert your own name in the space provided on the VIF sent to you by your Intermediary, follow all of the applicable instructions provided by your Intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing your Intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your Intermediary.
The Persons named in the form of proxy accompanying this Circular are directors and/or officers of the Company. A ShareholderFloating Shareholder has the right to appoint a Person (who need not be a Floating Shareholder), other than the Persons whose names appear in such form of proxy, to attend and act for and on behalf of such Floating Shareholder at the Meeting virtually and at any adjournment or postponement thereof. Such right may be exercised by either striking out the names of the Person specified in the form of proxy and inserting the name of the Person to be appointed in the blank space provided in the form of proxy, or by completing another proper form of proxy and, in either case, delivering the completed and executed proxy to the Transfer Agent in time for use at the Meeting in the manner specified in the Notice of Meeting or depositing the completed and executed form of proxy with the Chair of the Meeting prior to the commencement of the Meeting or any adjournment or postponement thereof.Meeting.
Legal Proxy – U.S. Non-Registered Shareholders
If you are a Non-Registered Shareholder located in the United States and wish to attend, participate in or vote at the Meeting or, if permitted, appoint a third-party as your proxyholder, in addition to the steps described herein, you must obtain a valid legal proxy from your Intermediary. Follow the instructions from your Intermediary included with the legal proxy form and VIF sent to you, or contact your Intermediary to request a legal proxy form or a legal proxy if you have not received one. After obtaining a valid legal proxy from your Intermediary, you must then submit such legal proxy to the Transfer Agent. Requests for registration from Non-Registered Shareholders located in the United States that wish to attend, participate in or vote at the Meeting or, if permitted, appoint a third-party as their proxyholder must be sent by e-mail to Acreage@odysseytrust.comappointee@odysseytrust.com and received by 11:12:00 a.m. (Newp.m. (New York time) on September 14, 2020.March 13, 2023.
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Record Date
Only Floating Shareholders of record as of the close of business on August 13, 2020February 10, 2023 will be entitled to vote at the Meeting. No Floating Shareholder who becomes a Floating Shareholder after the Record Date shall be entitled to notice of, or to vote at, the Meeting.
Your vote is important. Please read the information below so that your ExistingFloating Shares are properly voted.
Registered Shareholders and Non-Registered Shareholders
How you vote your ExistingFloating Shares depends on whether you are a Registered Shareholder or a Non-Registered Shareholder. In either case, there are two ways you can vote at the Meeting – by appointing a proxyholder or by virtually attending the Meeting.
Registered Shareholder
You are a Registered Shareholder if you hold one or more share certificates or other evidence of ownership representing Floating Shares, in each case, which indicate your name and the number of ExistingFloating Shares which you own. As a Registered Shareholder, you will receive a form of proxy from the Transfer Agent representing the ExistingFloating Shares you hold. If you are a Registered Shareholder refer to “How to Vote – Registered Shareholders” below.
Non-Registered Shareholder
You are a Non-Registered Shareholder if an Intermediary such as a securities dealer, broker, bank, trust company or other nominee holds your ExistingFloating Shares for you, or for someone else on your behalf, registered in the name of the nominee. In accordance with Securities Laws, the Company distributes copies of its Meeting materials to Non-Registered Shareholders to Intermediaries for onward distribution to Non-Registered Shareholders. As a Non-Registered Shareholder, you will most likely receive a VIF from Broadridge on behalf of the Intermediary holding your ExistingFloating Shares. It is also possible, however that in some cases you may receive a form of proxy directly from the Intermediary holding your ExistingFloating Shares. If you are a Non-Registered Shareholder, refer to “How to Vote – Non-Registered Shareholders” below.
Intermediaries who hold ExistingFloating Shares in “street name” for a Non-Registered Shareholder typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from Non-Registered Shareholder. However, Intermediaries are not allowed to exercise their voting discretion with respect to the approval of matters that are “non-routine,” such as approval of the AmendmentArrangement Resolution, without specific instructions from the Non-Registered Shareholder. Broker non-votes refers to ExistingFloating Shares held by an Intermediary that are present virtually or otherwise represented at the Meeting, but with respect to which the Intermediary is not instructed by the Non-Registered Shareholder to vote on the particular proposal and the Intermediary does not have discretionary voting power with respect to such proposal. Because all proposals for the Meeting are non-routine and non-discretionary, Acreage anticipates that there will not be any broker non-votes in connection with the AmendmentArrangement Resolution. If an Intermediary holds your ExistingFloating Shares in “street name,” your Intermediary will vote your ExistingFloating Shares only if you provide instructions on how to vote by filling out the VIF sent to you by your Intermediary with this Circular.
How to Vote – Registered Shareholders
If you are a Registered Shareholder you may either vote by proxy or online at the Meeting.
Submitting Votes by Proxy
There are three ways to submit your vote by proxy, in accordance with the instructions on the form of proxy:
| By Mail or Hand Delivery: | Odyssey Trust Company Attention: Proxy Department 323 – 409 Granville Street, Vancouver, BC V6C 1T2 |
| By Internet: | https:// |
Each completed form of proxy must be submitted no later than 11:12:00 a.m.p.m. (New York time) on September 14, 2020,March 13, 2023, or, in the event that the Meeting is adjourned or postponed, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of the reconvened Meeting or any adjournment or postponement thereof.
If you are voting by facsimile or internet, you will need the pre-printed control number and holder account number on your form of proxy.
A form of proxy submitted by mail must be in writing, dated the date on which you signed it and signed by you (or your authorized attorney). If such a form of proxy is being submitted on behalf of a corporate Floating Shareholder, the form of proxy must be signed by an authorized officer or attorney of that corporation, whose title should be indicated, and the corporate seal affixed if the corporation has a corporate seal. A form of proxy executed by a Person acting as attorney or in some other representative capacity should state such Person’s capacity following his or her signature and should be accompanied by the appropriate instrument evidencing qualification and authority to act. If a form of proxy submitted by mail is not dated, it will be deemed to bear the date on which it was sent to you.
Revocation of Proxies
A Registered Shareholder who has given a proxy may revoke the proxy at any time prior to use by: (i) depositing an instrument in writing, including another completed form of proxy, executed by such Registered Shareholder or by his or her attorney authorized in writing or by electronic signature, or, if the Registered Shareholder is a corporation, by an authorized officer or attorney thereof, or by transmitting by telephone or electronic means, a revocation signed, subject to the BCBCA, by electronic signature: (i) to the head office of the Company, located at 366 Madison Avenue, 11th14th Floor, NewNew York, New York 10017, at any time prior to 5:00 p.m. (New York time) on the last Business Day preceding the day of the Meeting or any adjournment or postponement thereof; (ii) with the Chair of the Meeting on the day of the Meeting or any adjournment or postponement thereof, prior to the start of the Meeting or any adjournment or postponement thereof; or (iii) in any other manner permitted by Law.
Exercise of Discretion by Proxies
The ExistingFloating Shares represented by a valid form of proxy will be voted on any ballot that may be conducted at the Meeting, or at any adjournment or postponement thereof, in accordance with the instructions contained on the form of proxy and, if the Floating Shareholder specifies a choice with respect to any matter to be acted on, the ExistingFloating Shares will be voted accordingly. In the absence of instructions, the Persons named in the form of proxy will vote such ExistingFloating Shares FOR the AmendmentArrangement Resolution.
The enclosed form of proxy, when properly completed and signed, confers discretionary authority upon the Persons named therein to vote on any amendments to or variations of the matters described in the Notice of Meeting and on other matters, if any, which may properly be brought before the Meeting or any adjournment or postponement thereof, whether or not any amendments variations or other matters are routine or contested. As at the date hereof, management of the Company knows of no such amendments or variations or other matters to be brought before the Meeting. However, if any other matter which is not now known to management of the Company should properly be brought before the Meeting, or any adjournment or postponement thereof, the ExistingFloating Shares represented by such proxy will be voted on such matter in accordance with the judgment of the Persons named as proxy thereon.
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Signing of Proxy
The form of proxy must be signed by a Registered Shareholder or the duly appointed attorney thereof authorized in writing or, if the Registered Shareholder is a corporation, by an authorized officer of such corporation. A form of proxy signed by the Person acting as attorney of the Registered Shareholder or in some other representative capacity, including an officer of a corporation which is a Registered Shareholder, should indicate the capacity in which such Person is signing. A Registered Shareholder or his or her attorney may sign the form of proxy or a power of attorney authorizing the creation of a proxy by electronic signature provided that the means of electronic signature permits a reliable determination that the document was created or communicated by or on behalf of such Registered Shareholder or by or on behalf of his or her attorney, as the case may be.
How to Vote – Non-Registered Shareholders
Only Registered Shareholders of the Company, or the Persons they appoint as their proxy, are entitled to attend, participate in and vote at the Meeting. The ExistingFloating Shares of a Non-Registered Shareholder)Shareholder who beneficially owns ExistingFloating Shares will generally be registered in the name of either:
| (a) | an Intermediary with whom the Non-Registered Shareholder deals in respect of their |
| (b) | a clearing agency (such as CDS Clearing and Depository Services Inc.) of which the Intermediary is a participant. |
In accordance with the requirements of NINational Instrument 54-101Communication with Beneficial Owners of Securities of a Reporting Issuer, the Company has distributed copies of the Notice of Meeting, this Circular and the accompanying form of proxy (collectively, the “Meeting Materials”) to the Intermediaries for onward distribution to Non-Registered Shareholders. Intermediaries are required to forward the Meeting Materials to Non-Registered Shareholders unless the Non-Registered Shareholders have waived the right to receive them. Intermediaries often use service companies such as Broadridge to forward the Meeting Materials to Non-Registered Shareholders. Generally, Non-Registered Shareholders who have not waived the right to receive Meeting Materials will be given either:
| (a) | a VIF which is not signed by the Intermediary and which, when properly completed and signed by the Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. Typically, the VIF will consist of a one page pre-printed form. Sometimes, instead of the one page pre-printed form, the VIF will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label with a bar-code and other information. In order for the form of proxy to validly constitute a VIF, the Non-Registered Shareholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company; or |
| (b) | a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of |
In either case, the purpose of these procedures is to permit Non-Registered Shareholders to direct the voting of the ExistingFloating Shares they beneficially own. Should a Non-Registered Shareholder who receives either a VIF or a form of proxy wish to attend and vote at the Meeting (or have another Person attend and vote on its behalf), the Non-Registered Shareholder should strike out the names of the Persons named in the form of proxy and insert the Non-Registered Shareholder’s (or such other Person’s) name in the blank space provided or, in the case of a VIF, follow the directions indicated on the form. Non-Registered Shareholders should carefully follow the instructions of their Intermediaries and their service companies, including those instructions regarding when and where the VIF or the form of proxy is to be delivered.
A Non-Registered Shareholder who has submitted a form of proxy may revoke it by contacting the Intermediary through which its ExistingFloating Shares are held and following the instructions of the Intermediary respecting the revocation of proxies.
Quorum
The quorum for the Meeting will be two Persons present virtually, each being a Floating Shareholder entitled to vote thereat or a duly appointed proxy for an absent Floating Shareholder so entitled, representing in the aggregate 25% of the votes attached to the issued and outstanding ExistingFloating Shares entitled to vote at such meeting.the Meeting. In the event that a quorum is not present at the time fixed for holding the Meeting, the Meeting shall stand adjourned to such date and to such time and place as may be determined by the Floating Shareholders present at the Meeting.
Abstentions (as described in the section entitled “The AmendedFloating Share Arrangement—Required Shareholder Approvals”) are not counted for the purpose of determining whether a quorum is present. Because brokers do not have discretionary authority to vote on any of the proposals at the Meeting, if you do not instruct your bank, broker or other nominee to vote your ExistingFloating Shares, your ExistingFloating Shares will not be voted (“broker non-votes”non-votes”) and are not counted for the purpose of determining the presence of a quorum.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Acreage Board has fixed August 13, 2020 (the “Record Date”)February 10, 2023 as the record dateRecord Date for the determination of the ShareholdersFloating Shareholders entitled to receive the Notice of Meeting. Shareholders of record at the close of business on the Record Date will be entitled to vote at the Meeting or at any adjournment or postponement thereof on the basis of: (i)of one vote for each Existing SVS held; (ii) 40 votes for each Existing PVS held; and (iii) 3,000 votes for each Existing MVS held.
Floating Share held.
To be adopted, the AmendmentArrangement Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the AmendmentArrangement Resolution by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class;Meeting; and (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS,Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single classMeeting, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Related Parties.61-101. Abstentions and broker non-votes will not have any effect on the approval of the AmendmentArrangement Resolution.
Since all of the holders of Existing MVS are Interested Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101. TheThe votes attaching to the Existing SVS and Existing PVSFloating Shares held by the Interested Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of MI 61-101. In addition, since all of the holders of Existing MVS are Related Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. The votes attaching to the Existing SVS and Existing PVS held by the Related Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101. See “The AmendedFloating Share Arrangement – Required Shareholder Approvals”, and “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101” and “Securities Law Matters – Canadian Securities Laws – Restricted Securities Matters”.
The authorized capitalshare structure of the Company consists of an unlimited number of Existing SVS,Fixed Shares, an unlimited number of Existing PVSFloating Shares and 168,000 Existing MVS. As of [¨], 2020, the Company had: (i) [¨] Existing SVS outstanding; (ii) [¨] Existing PVS outstanding; and (iii) 168,000 Existing MVS outstanding.
Each Existing PVS is convertible at the option of the holder thereof into 40 Existing SVS. Each Existing MVS is convertible, at the option of the holder, into one Existing SVS. Each Existing MVS shall automatically convert, without any action on the part of the holder, into one Existing SVS upon the Acquisition Date.
The Existing SVS are “restricted securities” within the meaning of such term under applicable Canadian Securities Laws.117,600 Fixed Multiple Shares. As of the date of this Circular, the Existing SVS represent approximately [¨]% of the voting rights attached to outstanding ExistingCompany had: (i) 79,046,738 Fixed Shares the Existing PVS represent approximately [¨]% of the voting rights attached to outstanding Existing Shares and the Existing MVS represent approximately [¨]% of the voting rights attached to outstanding Existing Shares.
On November 14, 2018, Acreage, Odyssey Trust Company, as trustee for the benefit of the holders of Existing SVS (in such capacity, the “Trustee”), Mr. Murphy and Murphy Capital, LLC, being the only Existing MVS Shareholders, entered into a coattail agreement (the “Coattail Agreement”) under which the Existing MVS Shareholders, as the only holders of Existing MVS, and holders of High Street Units, are prohibited from selling, directly or indirectly, any Existing MVS or High Street Units pursuant to a takeover bid, if applicable securities legislation would have required the same offer to be made to the Existing SVS Shareholders had the sale been a sale of Existing SVS rather than Existing MVS or High Street Units. The prohibition does not apply if a concurrent offer is made to purchase Existing SVS if: (i) the price per Existing SVS under such concurrent offer is at least as high as the price to be paid for the Existing MVS or High Street Units, assuming their conversion to Existing SVS;outstanding; (ii) the percentage of Existing SVS to be taken up under such concurrent offer is at least as high as the percentage of Existing MVS or High Street Units to be sold; (iii) such concurrent offer is unconditional, other than the right not to take up and pay for any Existing SVS tendered if no Existing MVS or High Street Units are purchased; and (iv) such concurrent offer is in all other material respects identical to the offer for Existing MVS or High Street Units. The Coattail Agreement does not apply to prevent the sale or transfer of High Street Units to Mr. Murphy and members of his immediate family, or a Person or company controlled by Mr. Murphy or a member of his immediate family. If Existing SVS Shareholders representing not less than 10% of the then outstanding Existing SVS determine that the Existing MVS Shareholders or the Company have breached or intend to breach any provision of the Coattail Agreement, they may by written requisition require the Trustee to take such action as is specified in the requisition in connection with the breach or intended breach, and the Trustee is to forthwith take such action or any other action it considers necessary to enforce its rights under the Coattail Agreement on behalf of the Existing SVS Shareholders. The obligation of the Trustee to take such action on behalf of the Existing SVS Shareholders is conditional upon the provision to the Trustee of such funds and indemnity as it may reasonably require in respect of any costs or expenses it may incur in connection with such action. Existing SVS Shareholders may not institute any action or proceeding, or exercise any other remedy to enforce rights under the Coattail Agreement unless they have submitted such a requisition, and provided such funds and indemnity, to the Trustee, and the Trustee shall have failed to act within 30 days of receipt thereof. As a condition to the completion of the Amended Arrangement, the Housekeeping Amendments shall have been made on terms satisfactory to each of the Company and Canopy Growth, each acting reasonably, which includes, but is not limited to amendments to the terms of the Coattail Agreement to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Arrangement. Such amendments to the Coattail Agreement will be made to provide the proposed holders of Fixed Shares and34,114,596 Floating Shares with the same rights against the proposed holders ofoutstanding; and (iii) 117,600 Fixed Multiple Shares as the Existing SVS Shareholders under the Coattail Agreement as at the date of this Circular.outstanding.
As of the date hereof, neither Canopy, GrowthCanopy USA nor any of itstheir respective affiliates owns, or controls or directs, directly or indirectly, any ExistingFloating Shares.
Additional information concerning the rights attaching to the ExistingFloating Shares can be found in the Acreage Annual Report, a copy of which has been filed on SEDAR at www.sedar.com under the Company’s profile and with the SEC and available on EDGAR at www.sec.gov/edgar.
As of the date of this Circular, to the knowledge of the directors and executive officers of the Company, except as set out below, no Person beneficially owns, or controls or directs, directly or indirectly, ExistingAcreage Shares carrying 10% or more of the voting rights attached to any class of ExistingAcreage Shares.
| Name, Jurisdiction of Residence | Number of Shares (1)(3) | Class of Shares | Method of Ownership | Percentage of Class (1)(2) | Percentage of Voting Rights of the Existing Shares | Number of Shares (3) | Class of Shares | Method of Ownership | Percentage of Class (1)(2) |
Kevin Murphy (Texas, United States) | 168,000 | Existing MVS | Record and Beneficially | 100% | [¨]% | 117,600 | Fixed Multiple Shares | Record and Beneficially | 100% |
| [¨](2) | Existing PVS | Beneficial | [¨]% | 728,707(1) | Floating Shares | Beneficial | 2.14% | ||
| [¨] | Existing SVS | Record and Beneficially | [¨]% | 1,496,040(2) | Fixed Shares | Record and Beneficially | 1.89% | ||
Notes:
(1) On a non-diluted basis, without giving effect to the exercise of securities convertible, redeemable or exchangeable into Existing SVS.
(2) [¨] of the Existing PVS195,000 Floating Shares are registered in the name of Murphy Capital, LLC, an entity over which Mr.Kevin Murphy exercises direction or control, and [¨] Existing PVScontrol.
(2) 455,000 Fixed Shares are registered in the name of TheMurphy Capital, LLC, an entity over which Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises directiondirection or control.
(3) Mr.Kevin Murphy also owns [¨]holds 15,957,908 High Street Units, which High Street Units are redeemable or exchangeable, as applicable, subject to contractual restrictions, for newly-issued Existing SVS on a one-to-one basis.an aggregate of up to 11,170,535 Fixed Shares and 4,787,372 Floating Shares.
THE AMENDED ARRANGEMENTFLOATING SHARE ARRANGEMENT
At the Meeting, Floating Shareholders will be asked to consider and, if thought advisable, to pass, with or without amendment, the AmendmentArrangement Resolution to approve, (i) the AmendedFloating Share Arrangement, (ii) the Amending Agreement,Floating Share Arrangement Agreement; and (iii) the Amended PlanFloating Share Plan of Arrangement. The Floating Share Arrangement, and (iv) the Amended and Restated Omnibus Equity Incentive Plan. The Proposal Agreement, the Amended Arrangement, the Acquisition, the AmendedFloating Share Plan of Arrangement, the terms of the AmendingFloating Share Arrangement Agreement and related agreements and the Amended and Restated Omnibus Equity Incentive Plan are summarized below. This summary does not purport to be complete and is qualified in its entirety by reference to the ProposalFloating Share Arrangement Agreement and the Amending Agreement, the AmendedFloating Share Plan of Arrangement and the Amended and Restated Omnibus Equity Incentive Plan, copies of which are attached as a schedule to the Proposal Agreement.Arrangement. A copy of the Proposal Agreement,Floating Share Arrangement Agreement, including the schedules thereto, has been filed on the Company’s SEDAR profile at www.sedar.com and with the SEC and is available on EDGAR at www.sec.gov/edgar. A copyedgar. The Floating Share Plan of the Amending Agreement is alsoArrangement is attached as Appendix “B” of this Circular. A copy ofa schedule to the Amended Plan ofFloating Share Arrangement Agreement and is also attached as Appendix “C” of this Circular. A copy of the Amended and Restated Omnibus Equity Incentive Plan is also attached as Appendix “F” of this Circular.
To be adopted, the AmendmentArrangement Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the AmendmentArrangement Resolution by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting; and (ii) not less than a simple majority of votes cast by Floating Shareholders, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the61-101.
The votes cast by the holderseach of Existing SVS, Existing PVSKevin Murphy and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votesPeter Caldini, each of the Related Parties.
Since Mr. Murphy, the sole holder of Existing MVS,whom is an Interested Party, the votes cast by Mr. Murphy as a holder of Existing MVS will not be consideredcounted for purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101. The votes attaching to the Existing SVS and Existing PVS held by the Interested Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of MI 61-101. In addition, since Mr. Murphy is a Related Party , the votes cast by Mr. Murphy as a holder of Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. The votes attaching to the Existing SVS and Existing PVS held by the Related Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101. See “The AmendedFloating Share Arrangement – Required Shareholder Approvals”, “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101”, “Securities Law Matters – Canadian Securities Laws – Restricted Securities Matters” and “Interests of Certain Persons in the AmendedFloating Share Arrangement”. A copy of the AmendmentArrangement Resolution is set out in Appendix “A”“B” of this Circular.
After consulting with AcreageAcreage’s management and receiving advice and assistance offrom its financial and legal advisors, and after careful consideration of alternatives and a number of alternatives and factors, including, among others, receipt of the unanimous recommendation from the Special Committee, the New Fairness OpinionOpinions and the factors set out below under the heading “Reasons for the AmendedFloating Share Arrangement”, the members of the Acreage Board unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney, and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) determined that the AmendedFloating Share Arrangement and entry into the ProposalFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to the Floating Shareholders and recommend that Floating Shareholders vote FOR the AmendmentArrangement Resolution.
Unless otherwise directed in properly completed forms of proxy, it is the intention of the Persons named in the enclosed form of proxy to vote FOR the AmendmentArrangement Resolution. If you do not specify how you want your ExistingFloating Shares to be voted at the Meeting, the Persons named as proxyholders in the enclosed form of proxy will cast the votes represented by your proxy at the Meeting FOR the AmendmentArrangement Resolution.
If the AmendmentArrangement Resolution is adopted at the Meeting, the Amendment Final Order approving the AmendedFloating Share Plan of ArrangementArrangement is issued by the Court, and the applicable conditions to the implementationcompletion of the Amended ArrangementFloating Share Arrangement are satisfied or waived, the AmendedFixed Call Option Conditions are satisfied and the Acquisition Closing Conditions are satisfied or, if permitted, waived (excluding conditions that by their terms cannot be satisfied until the Acquisition Effective Time), the Floating Share Arrangement is expected to take effect at 12:01 a.m. (Vancouver time) on the Amendment Date, which is expected to occur in September, 2020,the second half of 2023, or such other date as may be agreed by Canopy, GrowthCanopy USA and the Company.
Principal Steps of the AmendedFloating Share Arrangement
UnderIt is a condition to closing of the AmendedFloating Share Arrangement that all Acquisition Closing Conditions, being conditions precedent to the completion of the Acquisition set forth in the Existing Arrangement Agreement, shall have been satisfied or, if permitted, waived, excluding conditions that by their terms cannot be satisfied until the Acquisition Effective Time.
Pursuant to the Floating Share Plan of Arrangement attached as a schedule to the Floating Share Arrangement Agreement, which is attached to this Circular at Appendix “C”, commencing at the AmendmentEffective Time, the following principal steps shall occur and shall be deemed to occur in the following order without any further act or formality:
| (b) |
Each Person (other than Canopy Growth or any affiliate of Canopy Growth) who, at any time after the Amendment Time and prior to the Acquisition Time, acquires a Fixed Share or a Floating Share, will hold Fixed Shares which are subject to the Canopy Call Option, and Floating Shares which are subject to the Floating Call Option; provided that, Canopy Growth will not be required to pay, nor will such Person be entitled to receive, any payment of the Aggregate Amendment Option Payment. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement.
Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event prior to the Acquisition Closing Outside Date, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Fixed Shares (including the Fixed Shares issued following the automatic conversion of the issued and outstanding Fixed Multiple Shares) in accordance with the Amended Plan of Arrangement. The Floating Call Option is exercisable for a period of 30 days following the exercise (or deemed exercise) of the Canopy Call Option and the acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the acquisition of the Fixed Shares pursuant to the Canopy Call Option. No fractional Canopy Growth Shares will be issued pursuant to the Amended Plan of Arrangement. The Canopy Call Option and the Floating Call Option will expire 10 years from the Amendment Time.
Pursuant to the Amended Plan of Arrangement attached to this Circular at Appendix “C”, commencing at the Acquisition Time, each of the transactions or events set out below, among others, will occur as set out in the Amended Plan of Arrangement:
| Exchange of Floating |
If the Floating Call Option is exercised, on the date on which Canopy Growth delivers the Floating Call Option Exercise Notice to Acreage, Canopy Growth will publicly announce, by way of press release: (i) its determination that the Floating Consideration will be comprised solely of Floating Share Consideration, (ii) its determination that the Floating Consideration will be comprised solely of Floating Cash Consideration, or (iii) its determination that the Floating Consideration to be received for each Floating Share held shall be comprised of a proportion of Floating Share Consideration and a proportion of Floating Cash Consideration, and thereafter the following steps will occur concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option, as set out above:
DescriptionPursuant to the terms of the AmendedFloating Share Arrangement Agreement, the Fixed Call Option pursuant to the Existing Arrangement to acquire all of the issued and outstanding Fixed Shares (following the automatic conversion of the Fixed Multiple Shares) is required to be exercised no later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares. See the Existing Arrangement and Acreage’s proxy statement and management information circular dated August 17, 2020 in connection with a special meeting held to approve the Existing Arrangement for further details with respect to the steps of the Existing Arrangement, a copy of each of which is available under Acreage’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.
Description of the Floating Share Arrangement
On JuneOctober 24, 2020,2022, Acreage, Canopy Growth and AcreageCanopy USA entered into the ProposalFloating Share Arrangement Agreement, which sets out, among other things, the terms and conditions upon which the AmendedFloating Share Arrangement will be implemented,completed, including the terms of the AmendedFloating Share Plan of Arrangement. The effectivenesscompletion of the Amending Agreement and the implementation of the AmendedFloating Share Plan of Arrangement is subject to satisfaction or, if permitted, waiver of the Acquisition Closing Conditions, excluding conditions that by their terms cannot be satisfied until the Acquisition Effective Time, and the conditions precedent set out in the ProposalFloating Share Arrangement Agreement, including, among others, completion of the Canopy Capital Reorganization on or prior to the Exercise Outside Date and obtaining the Shareholder Approval Amendment Regulatory Approvals and the Amendment Final Order.Order. Upon receipt of Shareholder Approval and the Amendment Regulatory Approvals, the Amendment Final Order and the satisfaction or waiver of all other conditions set out in the ProposalFloating Share Arrangement Agreement, including the Initial Advance of US$50,000,000 to Hempco pursuant to the Debenture, Canopy Growth and AcreageParties will execute the Amending Agreement, complete the Required Filings and implement the AmendedFloating Share Plan of Arrangement. See “Transaction Agreements – The ProposalFloating Share Arrangement Agreement”.
Pursuant to the Floating Share Plan of Arrangement, among other things, Canopy will acquire all of the issued and outstanding Floating Shares for consideration equal to 0.45 of a Canopy Share in exchange for each Floating Share held, which represents a premium of 17.2% to the Floating Shares based on the volume weighted average prices of the Floating Shares and the Canopy Shares for the 30-day trading period ending October 24, 2022, on the CSE and the Nasdaq, respectively. As of the Record Date, the maximum number of Canopy Shares that may be received by the Floating Shareholders pursuant to the terms of the Floating Share Arrangement, and assuming all securities convertible, exchangeable or exercisable for Floating Shares are so converted, exchanged or exercised prior to the closing of the Floating Share Arrangement, is approximately [t] Canopy Shares. See “Transaction Agreements – Floating Share Arrangement Agreement”.
Pursuant to the Amended Plan ofFloating Share Arrangement among other things, (i) the Company’s Articles will be amended to create the classes of Fixed Shares, Floating Shares and Fixed Multiple Shares, and (ii) provideAgreement, Canopy Growth with the Canopy Call Option and the irrevocably waived its Floating Call Option. In accordance with the Amended Plan of Arrangement, promptly following the Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basisSubject to the Shareholders, the High Street Holders and the USCo2 Holders. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement. See “Transaction Agreements – Amending Agreement”.
If the Amending Agreement is executed, upon the occurrence or waiver (at the discretion of Canopy Growth)provisions of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise)Floating Share Arrangement Agreement, the CanopyFixed Call Option and subjectpursuant to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will (i)Existing Arrangement to acquire all of thethe issued and outstanding Fixed Shares (following(following the mandatoryautomatic conversion of thethe Fixed Multiple Shares into Fixed Shares) on the basis, representing approximately 70% of the Exchange Ratio fortotal issued and outstanding Acreage Shares as at the date hereof, at a fixed exchange ratio of 0.3048 of a Canopy Share for each Fixed Share, held at the Acquisition Time; and (ii) have the right (but not the obligation) exercisable for a period of 30 daysis required to be exercised no later than five Business Days following the Floating Rate Date, to exercise the Floating Call Option to acquireexchange of all of the issuedCanopy Shares held by CBG and outstanding FloatingGreenstar into Exchangeable Canopy Shares. Canopy Growth may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Floating Share will be exchanged for a number of Canopy Growth Shares equal to
Upon completion of: (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to the Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option.
If the Canopy Call Option is exercised (or deemed to be exercised)Share Arrangement; and (ii) the Acquisition of the Fixed Shares following the exercise of the Fixed Call Option pursuant to the Existing Arrangement, Canopy USA will own 100% of the issued and outstanding Acreage Shares.
Canopy intends to amend the Canopy Articles to create a new class of Exchangeable Canopy Shares in the capital of Canopy and to add a right to convert Canopy Shares into Exchangeable Canopy Shares, which Canopy Amendment Proposal is completed,subject to the approval of Canopy Shareholders at the Canopy Meeting.
Pursuant to the terms of the Floating Share Arrangement Agreement, the Fixed Call Option is required to be exercised within five Business Days of the Fixed Call Option Conditions being satisfied, being: (i) the approval of the Canopy Amendment Proposal at the Canopy Meeting; and (ii) CBG and Greenstar each electing (in their sole discretion) to exchange the Canopy Shares they currently hold for Exchangeable Canopy Shares.
The Canopy Amendment Proposal must be approved by at least 66⅔% of the votes cast on a special resolution by Canopy Shareholders present in person or represented by proxy at the Canopy Meeting. Greenstar and CBG, each of which are indirect, wholly owned subsidiaries of CBI, have entered into a voting and support agreement with Canopy pursuant to which they have agreed, among other things, to vote in favour of the Canopy Amendment Proposal. Pursuant to the early warning report filed under Canopy’s profile on SEDAR by CBG and Greenstar dated October 26, 2022, CBG and Greenstar have disclosed that, will resultsubject to a final decision in Canopy Growth becoming the owner oftheir sole discretion, it is their current intention to exchange all of the Fixed Shares onCanopy Shares which they currently hold for Exchangeable Canopy Shares if the Acquisition Date,Reorganization is completed and the Company will become a partially-owned subsidiary of Canopy Growth. Amendment Proposal is approved at the Canopy Meeting. The Reorganization was completed on October 24, 2022.
If the Canopy Capital Reorganization is not completed prior to the Exercise Outside Date, or CBG or Greenstar do not exchange all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares prior to the Exercise Outside Date, Canopy will be obliged to pay Acreage $2.0 million as an expense reimbursement. Acreage may terminate the Floating Share Arrangement Agreement in the event that the Fixed Call Option is not exercised by the Exercise Outside Date, or the Canopy Capital Reorganization is not completed prior to the Exercise Outside Date.
The Fixed Call Option is embedded in the special rights and Canopy Growth acquires the Floating Shares on the Acquisition Date, the Company will be a wholly-owned subsidiary of Canopy Growth and Canopy Growth will continue the operations of Canopy Growth and Acreage on a combined basis. If Canopy Growth completes the Acquisitionrestrictions of the Fixed Shares but does not acquireprovided for in Acreage’s Articles. Pursuant to the Floating Shares atterms of the Existing Arrangement Agreement, Canopy will be required to exercise the Fixed Call Option after the Triggering Event Date and complete the Acquisition Time,unless any of the Floating Call OptionCanopy Acquisition Closing Conditions is not satisfied or waived by Canopy. In addition, pursuant to the terms of the Existing Arrangement Agreement, Acreage will terminate, andnot be required to complete the Floating Shares shall remain outstanding.Acquisition unless each of the Acreage Acquisition Closing Conditions is satisfied or waived by Acreage.
InThe Canopy Acquisition Closing Conditions, which may be waived by Canopy, include, but are not limited to, the eventfollowing:
| (a) | All Material Representations of Acreage contained in the Existing Arrangement Agreement shall have been true and correct as of the date of the Existing Arrangement Agreement; |
| (b) | All material Acquisition Regulatory Approvals shall have been obtained or received on terms that are acceptable to Canopy, acting reasonably; |
| (c) | No Law shall be in effect and no proceeding shall otherwise have been taken that makes the consummation of the Acquisition illegal, or otherwise prohibits or enjoins Acreage or Canopy from consummating the Acquisition; |
| (d) | Acreage and each of its Subsidiaries shall be in compliance with all applicable Laws, in all material respects in each jurisdiction in which it carries on business, provided that Acreage and each of its Subsidiaries shall be in compliance with all applicable Laws with respect to marijuana, except where any non-compliance would not have a material and adverse effect on Acreage or any of its Subsidiaries, and except that if Canopy has waived the Triggering Event Date to exercise the Fixed Call Option, Acreage and each of its Subsidiaries shall not be required to be in compliance with United States federal Laws with respect to marijuana; |
| (e) | Acreage shall have completed such Pre-Acquisition Reorganizations as may have been requested by Canopy so as to ensure that, as a result of the Acquisition, Acreage will not be in default, or subject to the revocation, of authorizations that have been issued to Acreage which would otherwise cause a material adverse effect in respect of Acreage; |
| (f) | Acreage shall not have been subject to an Insolvency Event during the Interim Period which remains uncured as at the Acquisition Effective Time; |
| (g) | Acreage’s Debt-to-Equity Ratio at the Acquisition Effective Time shall be 0.5:1.0 or less; and |
| (h) | Acreage shall have fulfilled or complied with each of the obligations and covenants of Acreage contained in the Existing Arrangement Agreement to be fulfilled or complied with by it on or prior to the Acquisition Effective Time, except where any failure to perform any such obligations or covenants would not, individually or in the aggregate, be reasonably expected to have a material adverse impact on Acreage. |
The Acreage Acquisition Closing Conditions, which may be waived by Acreage. include, but are not limited to, the following:
| (a) | All Acquisition Regulatory Approvals, the failure of which to obtain would, individually or in the aggregate, be reasonably expected to have a material adverse effect in respect of Canopy or would be reasonably expected to be material and adverse to the Acreage’s securityholders, shall have been obtained or received on terms that are acceptable to Acreage, acting reasonably; |
| (b) | Following receipt by the Depositary of the Fixed Call Option Exercise Notice or a Triggering Event Notice, as the case may be, and prior to the Acquisition Date, Canopy shall have deposited or caused to be deposited with the Depositary in escrow, the consideration to be issued pursuant to the Acquisition; |
| (c) | Canopy shall not have been subject to an Insolvency Event during the Interim Period which remains uncured as at the Acquisition Effective Time; and |
| (d) | Any shares or securities to be issued pursuant to the Acquisition shall be approved for listing on a recognized stock exchange, subject only to the satisfaction of the customary listing conditions of such stock exchange, and not subject to resale restrictions in Canada by the recipients thereof. |
Pursuant to the terms of the Existing Arrangement Agreement, the Fixed Call Option may be exercised prior to the Triggering Event Date and before the Fixed Call Option Expiry Date by delivering to the Depositary (with a copy to Acreage) a Fixed Call Option Exercise Notice stating that the CanopyFixed Call Option is being exercised with respect to all (but not less than all) of the Fixed Shares and specifying the Floating Call Option are exercised (or deemed to be exercised), assuming the conversion of all outstanding securities of Acreage, on the Acquisition Date existing Acreage Holders would own approximately [¨]%on which the closing of the outstanding Canopy Growth Shares on a fully diluted basispurchase and existing Canopy Growth Shareholders would own approximately [¨]% of the outstanding Canopy Growth Shares on a fully diluted basis, based on the number of securities of Acreage (on an as converted to Fixed Share basis) and Canopy Growth issued and outstanding assale of the Announcement Date. If Acreage issues the maximum number ofFixed Shares permittedis to be issued under the Canopy Growth Approved Share Threshold, on the Acquisition Date, existing Acreage Holders would own approximately [¨]% of the outstanding Canopy Growth Shares on a fully diluted basis and existing Canopy Growth Shareholders would own approximately [¨]% of the outstanding Canopy Growth Shares on a fully diluted basis, based on the number of securities of Acreage and Canopy Growth issued and outstanding as of the Announcement Date.
For further information regarding Canopy Growth following completion of the Amended Arrangement, see Appendix “H” – “Information Relating to Canopy Growth following Completion of the Acquisition”.
Amended and Restated Omnibus Equity Incentive Planoccur.
Pursuant to the Amendment Resolution,terms of the Existing Omnibus Incentive Plan is proposedArrangement Agreement, a material adverse effect will have been deemed to be replaced with the Amended and Restated Omnibus Equity Incentive Plan to reflect the Capital Reorganization and the creation of the Fixed Shares and Floating Shares. In addition, the Amended and Restated Omnibus Equity Incentive Plan is proposed to permit the acceleration of awards thereunderoccur in the event thatof a holder’s employment is terminated byFailure to Perform. Under such circumstances, Canopy will retain the Company followingright, but not be required, to complete the Acquisition.
On October 24, 2022, Canopy completed the Reorganization. Following the implementation of the Amended Arrangement, or if such holder resignsReorganization, Canopy USA holds the U.S. cannabis investments previously held by Canopy, including the Wana Option and the Jetty Option. The transfer of Canopy’s U.S. cannabis investments to Canopy USA is expected to enable Canopy USA, following, among other things, the one year anniversaryMeeting, to acquire Acreage, Wana and Jetty. In addition, as of the implementationDecember 9, 2022, Canopy USA controls approximately 25.3% of the Amended Arrangement,issued and will not requireoutstanding common shares of TerrAscend on a minimum restriction period in such instances.partially-diluted basis, assuming the conversion of 63,492,037 exchangeable shares of TerrAscend into common shares of TerrAscend and the exercise of 22,474,130 common share purchase warrants and an option to acquire 1,072,450 common shares of TerrAscend.
SeeCanopy holds Canopy USA Non-Voting Shares, representing approximately 99.3% of the Amendedissued and Restated Omnibus Equity Incentive Plan attachedoutstanding shares of Canopy USA on an as-converted basis. The Canopy USA Non-Voting Shares do not carry voting rights, rights to receive dividends or other rights upon dissolution of Canopy USA, but are exchangeable into Canopy USA Common Shares. As of the date hereof, VCo Ventures, a former shareholder of Jetty, holds all of the outstanding Canopy USA Common Shares. Canopy USA retains a call right (the “Canopy USA Repurchase Right”) to repurchase all shares of Canopy USA that have been issued to VCo Ventures at a price per Canopy USA Common Share equal to the greater of fair market value as Appendix “F” hereto.determined by an appraiser appointed by Canopy USA and $2 million in the aggregate; provided that if the repurchase occurs prior to March 31, 2023, the Canopy USA Repurchase Right can be exercised at the initial subscription price. Canopy has the right to appoint two of the four members of the Canopy USA board of managers. VCo Ventures has the right to appoint one member to the Canopy USA board of managers, and a put right following Canopy’s conversion of the Canopy USA Non-Voting Shares into Canopy USA Common Shares on the same terms and conditions as the Canopy USA Repurchase Right.
BackgroundUpon closing of Canopy USA’s acquisition of Acreage, Canopy will receive additional Canopy USA Non-Voting Shares from Canopy USA in consideration for the issuance of Canopy Shares that shareholders of Acreage will receive in accordance with the terms of the Existing Arrangement Agreement and the Floating Share Arrangement Agreement.
Please refer to Appendix “G” – “Information Concerning Canopy” for additional information with respect to the Amended ArrangementReorganization and Canopy USA.
On April 18, 2019, the Company and Canopy entered into the Initial Arrangement Agreement and on June 27, 2019, the Company and Canopy implemented the Initial Plan of Arrangement contemplated by the Initial Arrangement Agreement. Pursuant to the Initial Plan of Arrangement, Canopy was granted an option to acquire all of the issued and outstanding shares of Acreage in exchange for the payment of 0.5818 of a Canopy Share for each Former SVS held (with the Former PVS and Former MVS being automatically converted to Former SVS immediately prior to consummation of the acquisition by Canopy of all of the issued and outstanding Former SVS), which original exchange ratio was subject to adjustment in accordance with the Initial Arrangement Agreement. Canopy was required to exercise the option to acquire the Former SVS pursuant to the Initial Plan of Arrangement upon a Triggering Event and, subject to the satisfaction or waiver of certain closing conditions set out in the Initial Arrangement Agreement, Canopy was required to acquire all of the issued and outstanding Former SVS (following the automatic conversion of the Former PVS and Former MVS into Former SVS).
On June 24, 2020, AcreageCanopy and Canopy GrowthAcreage entered into the Proposal Agreement which,to, among other things, sets outamend the terms and conditions for implementing the Amended Arrangement. The entering into of the ProposalInitial Arrangement Agreement is the result of extensive arm’s length negotiations among representatives of Acreage, Canopy Growth and their respective legal and financial advisors.
Since inception, Acreage made significant investments into its business for growth, operational and capital needs and suffered substantial losses. Following implementation of the Existing Arrangement on June 27, 2019, Acreage attempted to leverage the Existing Canopy Option and Acreage’s relationship with Canopy Growth in pursuit of various alternatives to finance Acreage’s business, including certain potential acquisition alternatives; however, these efforts were not successful. Given the structural limitations on financing alternatives imposed on companies operating in the U.S. cannabis industry and the challenging capital markets conditions that Acreage faced in the latter half of 2019, efforts to secure third party financing in late 2019 were unsuccessful. In particular, Acreage’s financing and strategic acquisition efforts were impacted by Acreage’s declining share price over the second half of 2019 and counterparties failing to value the Existing Canopy Option and Acreage’s relationship with Canopy Growth in the manner anticipated by Acreage. As a result of regulatory and compliance constraints, Canopy Growth was, and remains, restricted in its ability to directly or indirectly invest in Acreage.
Faced with a working capital shortfall in the fall of 2019, Acreage pursued various financing alternatives, including a strategy to raise US$100,000,000 from Poppins, with Poppins being funded by a number of potential counterparties. On February 7, 2020, Acreage announced (i) that one of its Subsidiaries entered into a credit facility (the “Credit Facility”) with an institutional lender (the “Institutional Lender”) pursuant to which a US$100,000,000 credit facility was established, with US$49,000,000 expected to be available upon the initial drawdown under the Credit Facility, subject to Acreage providing sufficient cash collateral; (ii) the entry into of non-binding letters of intent pursuant to which Poppins would provide a loan to a Subsidiary of Acreage in the amount of US$50,000,000 to provide cash collateral as security for the US$49,000,000 to be drawn under the Credit Facility; and (iii) a proposed private placement of units of Acreage for gross proceeds of US$30,000,000, including the Option for the subscribers to increase the aggregate Private Placement size by a further US$20,000,000.
On February 10, 2020, Acreage announced the closing of the Private Placement. Subsequently, on March 17, 2020, Acreage announced that it was only able to drawdown on US$21,000,000 pursuant to the Credit Facility with the Institutional Lender as it was only able to raise $22,000,000 from Poppins pursuant to the Original Credit Agreement, with US$21,000,000 of such amount provided by Mr. Murphy. The Company planned on raising US$50,000,000 pursuant to the Private Placement and the exercise of the Option; however, as a result of a decrease in the price of the Existing SVS, subscribers under the Private Placement did not exercise the Option. As a result of only being able to complete a portion of the targeted financing from Poppins and the Option not being exercised, Acreage remained significantly under-capitalized.
Throughout March of 2020, Acreage pursued additional financing sources through the assistance of several investment dealers and financial advisors. In addition, Acreage was approached by various parties regarding opportunities (the “Acquisition Opportunities”). Given the Existing Canopy Option and the terms of the Initial Plan of Arrangement Agreement, proceeding with a certain potential Acquisition Opportunity (the “Proposed Acquisition Opportunity”) would have required the consent of Canopy Growth. In late March, William Van Faasen, at the time, an independent director on the Acreage Board, and Mr. James Doherty, Acreage’s Corporate Secretary and General Counsel, participated in a call with Mr. David Klein, Canopy Growth’s Chief Executive Officer to discuss the preliminary potential benefits of the Proposed Acquisition Opportunity and Acreage’s rationale for pursuing it as well as Acreage’s strained financial circumstances and Acreage’s need to focus on achieving breakeven cashflow and EBITDA.
On April 3, 2020, the Acreage Board met to discuss Acreage’s strategic alternatives, including the Proposed Acquisition Opportunity and the various financing alternatives that were being considered. On April 10, 2020, Acreage retained Foros to assist Acreage with exploring its strategic alternatives, including with Canopy Growth or other parties.
On April 14, 2020, a conference call was held among Mr. Van Faasen, a representative of Foros, and Mr. Klein. On this conference call, Mr. Klein reiterated Acreage’s need to prioritize achieving breakeven cashflow and EBITDA and indicated that Canopy Growth would be willing to consider alternatives to assist Acreage, provided that any such alternatives would be subject to a concurrent reduction ofimplement the Existing Exchange RatioArrangement, which, among other things, proposed to 0.1reduce the exchange ratio to 0.3048 of a Canopy Growth Share for each Fixed Share (from 0.5818 of a Canopy Share for each Former SVS), subject to alignadjustment in accordance with the then current trading prices of the Existing SVS and the Canopy Growth Shares. In addition, to address capital shortfalls and growth stagnation, and to mitigate against future business failures, the Parties began discussing potential amendments to the Existing Arrangement.
Throughout March and April, the COVID-19 pandemic further adversely impacted the sources of available capital and the terms of the financing options available to Acreage. Prospective lenders to Acreage proposed terms that included high interest rates and/or excessive costs of capital for Acreage and its Subsidiaries. The terms of certain of these proposals required Canopy Growth’s consent to avoid a breach of theInitial Arrangement Agreement by Acreage. For loans that included the issuance of Existing SVS, the effective cost of capitaland provide for an option to Canopy Growth was significantly higher due to the trading price of the Existing SVS relative to the Existing Exchange Ratio.
From mid-April to late May, 2020, Canopy Growth and Acreage engaged in various discussions regarding a number of potential financing options available to Acreage.
In early May, 2020, Mr. Murphy provided Mr. Klein with two term sheets from third parties that Acreage had entered into and which contemplated (i) a short-term bridge financing in the amount of US$15,000,000, and (ii) a secured term credit facility in the amount of up to US$50,000,000, which included an obligation to sell US$5,000,000 of Existing SVS on a monthly basis to be placed in a blocked account as well as a requirement to pledgeacquire all of the outstanding shares of Acreage’s Subsidiaries (collectively, the “Proposed Financing Transactions”).
On May 11, 2020, Mr. Murphy provided Mr. Phillip Shaer, Canopy Growth’s Chief Legal Officer, withFloating Shares at a formal request for consent to certain aspects of the Proposed Financing Transactions, as such transactions had been further negotiated since the date of the term sheets entered into in respect thereof. On May 15, 2020, Mr. Shaer sent two letters to Mr. Murphy by way of e-mail and confirmed that Canopy Growth refused to consent to the Proposed Financing Transactions.
On May 15, 2020, Mr. Michael Lee, Canopy Growth’s Chief Financial Officer, contacted Mr. Glen Leibowitz, Acreage’s Chief Financial Officer, and advised Mr. Leibowitz that Canopy Growth would not consent to the Proposed Financing Transactions. Mr. Lee reiterated that Canopy Growth would only consider strategic alternatives in connection with a concurrent reduction of the Existing Exchange Ratio.
Following receipt of the letters from Mr. Shaer, Mr. Klein, Mr. Murphy and Mr. Van Faasen had a call on the afternoon of May 15, 2020. On this call, Mr. Klein suggested an alternative to the Proposed Financing Transactions, pursuant to which Canopy Growth would provide a loan of up to US$50,000,000 to a wholly-owned Subsidiary of Acreage operating solely in the hemp industry in full compliance with all applicable Laws. Mr. Klein also indicated that a third party may be willing to provide up to US$20,000,000 of short-term bridge financing to Acreage. The proposal from Canopy Growth was contingent on amending the Existing Arrangement to substantially reduce the Existing Exchange Ratio and restructure the Acreage share capital to provide for Fixed Shares and Floating Shares. Mr. Klein also indicated that Canopy Growth would require the imposition of significant additional operational covenants with respect to the conduct of Acreage’s business with a view to ensuring the survival and long-term profitability of Acreage, including holding Acreage’s management team to higher operational standards and accountable for achieving profitability against a realistic business plan for Acreage. Mr. Van Faasen advised Mr. Klein that Acreage would consider Canopy Growth’s proposal.
On the evening of May 15, 2020, the Acreage Board met with its financial advisors and with DLA Piper to discuss the Canopy Growth proposal and its strategic initiatives. The Acreage Board deliberated on the various alternatives available to it, including: (i) seeking financing on terms that would not require Canopy Growth consent in order to preserve the Existing Arrangement; (ii) proceeding with the Proposed Financing Transactions and disputing Canopy Growth’s assertions that such financings required Canopy Growth’s consent and that such consent, if required, was being reasonably withheld; and (iii) negotiating a comprehensive solution with Canopy Growth that would permit Acreage to continue as a going concern, work to achieve breakeven cashflow and EBITDA, achieve positive growth metrics, including expanding operations into the emerging US hemp industry and preserve value for Shareholders. The Acreage Board determined, after canvassing various financing alternatives (each of which had a high degree of risk in the face of not receiving Canopy Growth’s consent) and hearing from its advisors, that a public dispute with Canopy Growth would deter prospective lenders, jeopardize the Existing Arrangement and potentially prejudice Shareholders if Canopy Growth was successful in claiming that there was a breach of a material term of the Arrangement Agreement (in which case Canopy Growth would not be required to exercise the Existing Call Option). Accordingly, the Acreage Board after weighing the merits and risks of its alternatives and following discussions with representatives of Foros, elected to continue to engage with Canopy Growth and attempt to negotiate a comprehensive solution. The Acreage Board determined that, initially Mr. Van Faasen would act as the responsible independent director for purposes of these preliminary discussions with Canopy Growth.
From May 16 to May 20, 2020, Mr. Klein and Mr. Lee engaged in various discussions with representatives from Foros, Mr. Van Faasen, Mr. Murphy and Mr. Leibowitz. These discussions were, in large part, focused on providing Canopy Growth with a better understanding of Acreage’s strategic business plan, in particular, given Acreage’s announcement on April 3, 2020 that it was making a number of operational changes to enable Acreage to maintain its business goals of profitability and cash conservation and to execute its strategic plan. Acreage’s strategic business plan required Acreage to focus its operations in what it believedprice to be the “core” jurisdictions, which ultimately became the Identified States.
On May 21, 2020, Mr. Lee contacted Mr. Leibowitz and indicated that,determined based upon the strategic business plan that Acreage presented, Canopy Growth would be willing to proceed with a revised transaction on the following terms (the “Initial Canopy Proposal”): (i) each Existing SVS would be exchanged for 0.8 of a Fixed Share and 0.2 of a Floating Share; (ii) the Existing Exchange Ratio would be reduced from 0.5818 to 0.3150 of a Canopy Growth Share for each whole Fixed Share; (iii) Canopy Growth would have an option (but not an obligation) to acquire the Floating Shares based on a 30-day volume 30 day volume-weighted average trading price of the Floating Shares; (iv)Shares, subject to a minimum price of $6.41, payable, at the option of Canopy, Growth Approved Share Threshold would be revisedin cash, Canopy Shares or a combination thereof. On September 23, 2020, Acreage and Canopy entered into the second amendment to permit a maximum of 25,000,000the Initial Arrangement Agreement and implemented the Existing Arrangement. Pursuant to the Existing Arrangement, on September 23, 2020, the Company’s articles were amended to create the Fixed Shares being available(which included an option for future issuances (at this time, 25,000,000 Existing Shares remained available for issuance under the termsCanopy to acquire all of the Arrangement Agreement outissued and outstanding Fixed Shares in exchange for the payment of 0.3048 of a totalCanopy Share for each Fixed Share held following the automatic conversion of 58,000,000 Existingthe Fixed Multiple Shares into Fixed Shares immediately prior to consummation of the acquisition by Canopy of all of the issued and outstanding Fixed Shares); (v), the Floating Shares (which included an option for Canopy to acquire all of the Floating Shares at a loan wouldprice to be madedetermined based upon the 30 day volume-weighted average trading price of the Floating Shares, subject to a wholly-owned Subsidiaryminimum price of Acreage operating solely in$6.41) and the hemp industry in full compliance with all applicable Laws inFixed Multiple Shares (to be automatically converted into Fixed Shares on a one-for-one basis immediately prior to consummation of the amountacquisition by Canopy of US$50,000,000 to US$75,000,000; (vi) additional governance and operational covenants would be imposed with the aim of holding Acreage’s management to higher objective operational standards and to ensure there is accountability for achieving profitability against a realistic business plan for Acreage; (vii) Acreage would be required to restrict its ongoing business plan and operations to the Identified States; (viii) the exclusivity in the Arrangement Agreement would be amended such that the restrictions precluding Canopy Growth from acquiring multi-state operators that operate in states other than the Identified States would be removed; and (ix) up to an additional 2,700,000 Floating Options would be available to be granted to incentivize executives. In addition, Canopy Growth would consent to short-term financing for Acreage from a third party lender in an aggregate amount of US$20,000,000, available in two tranches of US$10,000,000 each, for a term of four months and secured by all of Acreage’sthe issued and its Subsidiaries’ assets (the “Short-Term Bridge Financing”).
Throughout these discussions, Acreage continued to pursue other strategic and financing alternatives which would not require Canopy Growth’s consent.
On May 22, 2020, Acreage management, Mr. Van Faasen, Mr. Maine and representatives from Foros met to discuss the Initial Canopy Proposal and the Short-Term Bridge Financing and to prepare a potential counterproposal to be delivered to Canopy Growth. The Acreage Board met on the evening of May 22, 2020 and approved a counterproposal to Canopy Growth (the “Initial Acreage Counterproposal”) that included, among other things, the following terms: (i) the Existing Exchange Ratio would be reduced from 0.5818 to 0.4 peroutstanding Fixed Share; (ii) each ExistingShares). Each then outstanding Former SVS would be exchanged for 0.6 of a Fixed Share and 0.4 of a Floating Share; (iii) no amendment would be made to the number of Shares under the Canopy Growth Approved Share Threshold; (iv) a loan would be made to a wholly-owned Subsidiary of Acreage operating solely in the hemp industry in full compliance with all applicable Laws in the amount of up to US$100,000,000; (v) certain thresholds with respect to the restrictions on Acreage’s business activities under the Arrangement Agreement would be reduced to provide additional flexibility to Acreage; (vi) Canopy Growth would consent to short-term bridge financing from a second lender in addition to the Short-Term Bridge Financing; and (vii) the Acreage Board would be permitted to authorize the accelerated vesting of certain Acreage Options and Acreage RSUs held by executives and to restructure the existing exercise price of certain outstanding Acreage Options (see “The Amended Arrangement - Interests of Certain Persons in the Amended Arrangement”).
On May 23, 2020, various discussions took place in respect of the Initial Acreage Counterproposal among Mr. Van Faasen, representatives of Foros, Mr. Murphy, Mr. Doherty and Mr. Leibowitz. On the evening of May 23, 2020, Mr. Leibowitz contacted Mr. Lee and delivered the Initial Acreage Counterproposal. On May 23, 2020, Mr. Lee countered the Initial Acreage Counterproposal with what he indicated was Canopy Growth’s “best and final” offer and the terms upon which he would be willing to present a proposal to Mr. Klein and the Board of Directors of Canopy Growth. Mr. Lee proposed the following terms: (i) each Existing SVS would be exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii)Share, each then outstanding Former PVS was exchanged for 28 Fixed Shares and 12 Floating Shares, and each then outstanding Former MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Pursuant to the Existing Exchange RatioArrangement, Canopy is required to exercise the option to acquire the Fixed Shares upon a Triggering Event and, subject to the satisfaction or waiver of certain closing conditions set out in the Existing Arrangement Agreement, Canopy is required to acquire all of the issued and outstanding Fixed Shares (following the automatic conversion of the Fixed Multiple Shares into Fixed Shares). Pursuant to the Existing Arrangement, Canopy was not obligated to acquire the Floating Shares but rather Canopy held an option to acquire the Floating Shares; however, pursuant to the Floating Share Arrangement Agreement, Canopy irrevocably waived its Floating Call Option.
Please refer to “Transaction Agreements - The Existing Arrangement Agreement” for additional information with respect to the Existing Arrangements.
Background to the Floating Share Arrangement
The Existing Arrangement Agreement includes certain covenants, rights and restrictions in favour of Canopy, which include, among others, the right to nominate a majority of the Acreage Board, consent rights on Acreage director and officer appointments, pre-emptive rights, top-up rights, certain audit and inspection rights and restrictions on certain activities, including, but, not limited to, dividend payments, M&A activity, acquisitions, divestitures, debt incurrence, securities issuances and capital raising, in each case without obtaining Canopy’s consent. Acreage is restricted in its pursuit of strategic and other business opportunities under the Existing Arrangement Agreement without obtaining Canopy’s consent. These restrictions, coupled with timing uncertainty with which U.S. federal cannabis legislative initiatives will proceed, impeded both Acreage’s and Canopy’s opportunities in the world’s largest cannabis market. Additionally, the price of the Acreage Shares had the potential to become a barrier to future Acreage capital-raising initiatives over the term of the Existing Arrangement Agreement particularly in light of the various restrictions contained therein.
In light of the foregoing and other strategic considerations that the Acreage Board considered to be relevant, coupled with Acreage’s improved performance since the Existing Arrangement became effective, the Acreage Board determined to communicate its desire to make changes to the terms of the Existing Arrangement Agreement in order to remove certain restrictions imposed on Acreage by the restrictive covenants contained in the Existing Arrangement Agreement. On March 4, 2022, Acreage director, Bill Van Faasen, communicated that message during a phone call with David Klein, Canopy’s Chief Executive Officer. Mr. Van Faasen emailed Mr. Klein on March 4, 2022 setting out the rationale for such changes. The Acreage Board sought to obtain waivers of certain covenants that it believed would be reduced from 0.5818beneficial for Acreage stakeholders, including Canopy, over the long-term. Acreage reiterated its position that it would be in both parties’ interest to 0.33enable the Acreage team to realize on the strategic U.S. market and growth opportunities rather than continuing to spend a disproportionate amount of the Acreage management team’s attention on, management of, and compliance with, the covenants in favour of Canopy contained in the Existing Arrangement Agreement.
Mr. Peter Caldini, Acreage’s Chief Executive Officer and Mr. Steve Goertz, Acreage’s Chief Financial Officer, met on March 9, 2022, via teleconference, with Mr. Klein, Mr. Chris Edwards, Canopy’s Chief Strategy Officer, and Canopy’s former U.S. General Counsel, to discuss potential mutually beneficial amendments to the terms of the Existing Arrangement Agreement. At this meeting it was agreed that both Acreage and Canopy would independently develop a list, for discussion purposes, of proposed amendments to the Existing Arrangement Agreement.
On March 17, 2022, certain members of Canopy’s legal team presented, to Mr. James Doherty, Acreage’s General Counsel at the time, a proposal (the “Initial SPV Proposal”) wherein the terms of the Existing Arrangement and related agreements would be amended to allow Canopy to assign its right to acquire the Fixed Shares, and if applicable, the Floating Shares to a special purpose vehicle (the “SPV”) established by Canopy. Pursuant to the Initial SPV Proposal, the Fixed Call Option would be exercised, and the Fixed Shares would be exchanged for Canopy Shares at the agreed ratio under the Existing Arrangement Agreement of 0.3048 of a Canopy Growth Share for each Fixed Share; (iii) there would be an agreed-upon floor price forShare. Canopy indicated at this meeting that the expectation was that the Floating Shares; (iv)Share Option would not be exercised but a loanfinal determination would not be made until the Fixed Call Option was exercised or alternatively that the SPV would make an alternative offer to a wholly-owned Subsidiary of Acreage operating solelyFloating Shareholders in the hemp industry in full compliance with all applicable Laws, with US$50,000,000 being available at the Amendment Time and a further US$50,000,000 being available upon the achievement of certain agreed upon financial targets; (v) the Canopy Growth Approved Share Threshold would be revised to permit a maximum of 30,000,000 Shares being available for future issuances; (vi) Canopy Growth would not require Acreage consent for any acquisition of a U.S. multi-state operator, unless there was overlap with more than 20% of revenue in the Identified States; and (vii) any acquisition of a U.S. multi-state operator by Canopy Growth for consideration of US$150,000,000 or less would not require Acreage’s consent.due course.
Mr. Leibowitz askedCaldini, Mr. LeeGoertz and Mr. Doherty considered the details of the Initial SPV Proposal and, following consultation with DLA Piper (Canada) LLP, Acreage’s external legal counsel, requested additional information from Canopy to havebetter understand the Initial SPV Proposal. On March 21, 2022, Mr. Klein met with Mr. Caldini by teleconference, to discuss the Initial SPV Proposal in depth and the approvals required to move forward prior to presentation of the Initial SPV Proposal to the Acreage Board.
After further consideration of the Initial SPV Proposal, on March 29, 2022, Mr. Caldini and Mr. Goertz, met, via teleconference, with Mr. Klein and Canopy’s former U.S. General Counsel to discuss proposed modifications to the Initial SPV Proposal (the “Modified SPV Proposal”), which would involve Canopy Growth deliver a letterexercising the Fixed Call Option and immediately assigning the Fixed Shares to the SPV.
On March 31, 2022, Mr. Caldini, Mr. Goertz and Mr. Doherty met with Mr. Klein and Canopy’s former U.S. General Counsel, via teleconference, to discuss the Modified SPV Proposal and identify potential challenges that would need to be addressed in order to effect the proposed transaction. Representatives of intent setting outCanopy indicated that Canopy would require additional time to review, consider and finalize the various elements of the Modified SPV Proposal and identify and obtain the necessary approvals from CBI, the stock exchanges upon which the Canopy Shares are listed and any other applicable third-parties and regulatory authorities.
On April 1, 2022, Mr. Caldini, Mr. Goertz and Mr. Doherty, of Acreage, Mr. Klein and Canopy’s former U.S. General Counsel, and the parties’ internal legal counsel along with a representative of CBI, via teleconference, to discuss the Modified SPV Proposal.
On April 5, 2022, Canopy’s former U.S. General Counsel provided Acreage with an indicative proposed timeline to reach an agreement with respect to the Modified SPV Proposal, including the timeline to obtain all necessary regulatory approvals. The external legal teams for both Canopy and Acreage held several conference calls to discuss the terms and mechanics of its revised proposal forthe Modified SPV Proposal and identify the necessary actions and documentation that would be required to proceed. Following consultation with Mr. Caldini, Mr. Goertz and Mr. Doherty and legal counsel, a brief update of these developments was provided to the Acreage Board on April 5, 2022, who determined that the Modified SPV Proposal merited further consideration and directed the Acreage executive team to consider. Discussions continuedcontinue engagement with Canopy and to periodically report to the Acreage Board as to the status of the discussions.
Subsequent thereto, Canopy undertook an internal evaluation of the Modified SPV Proposal, including procuring feedback from the applicable third-parties whose consent would be required.
Mr. Doherty ceased to be an officer of Acreage on April 18, 2022.
On June 13, 2022, Mr. Caldini, Mr. Goertz and Mr. Doherty of Acreage met with Mr. Klein, Mr. Edwards, Mr. Andy Lytwynec, Vice President of Canopy and Canopy’s former U.S. General Counsel, to discuss the Modified SPV Proposal. The representatives in attendance executed a confidentiality agreement in order to ensure the protection of all information that was shared during the meeting. Pursuant to the Existing Arrangement, Canopy retained the right to force the holders of High Street Units and USCo2 Shares to exchange their interests in such entities for Canopy Shares and/or Floating Shares, as applicable, on or following the third anniversary of the Acquisition Effective Time. To facilitate Canopy’s desire to acquire 100% of Acreage, at that meeting, Acreage proposed and the Parties discussed a structure for the elimination of the TRA and Bonus Plans that would also see the holders of High Street Units and USCo2 Shares accelerate the exchange of such securities for Acreage Shares on the Acquisition Effective Date. Canopy agreed with Acreage’s suggestion and requested that Acreage provide a proposal.
On July 12, 2022, Canopy’s financial advisors, Greenhill & Co. Canada Ltd., and legal advisors, Cassels Brock & Blackwell LLP, consolidated the Modified SPV Proposal and the various discussions to date with respect to the Modified SPV Proposal into a summary document to serve as a basis for further discussions.
Over the course of the summer months of 2022, Mr. Klein and Canopy’s former U.S. General Counsel advised Mr. Caldini that they were working to secure the various approvals required in order to proceed with the structure of the Modified SPV Proposal.
The parties re-engaged discussions on August 17, 2022 to determine a structure and proposed timeline within the context of Canopy’s plan to create the SPV to hold its structured investments in the United States.
From June 2022 through the end of August, Mr. Goertz engaged in negotiations with the Lenders regarding amendments to the Credit Agreement to, among other things: (i) waive various covenants for Q3 and Q4 2022; (ii) reset the financial covenants for 2023; and (iii) provide for access to additional borrowing facilities. The proposed amendments to the Credit Agreement would require consent from Canopy pursuant to the Existing Arrangement Agreement. In order to provide the Lenders with visibility into the potential transaction structure being discussed with Canopy, Acreage arranged for a meeting between representatives of the Lenders and Canopy to discuss the Modified SPV Proposal.
On August 26, 2022, Acreage delivered a proposal (the “TRA Elimination Proposal”) to Canopy to eliminate the obligations under the TRA and Bonus Plans and concurrently accelerate the exchange of the High Street Units and USCo2 Shares for Fixed Shares and Floating Shares. The TRA Elimination Proposal would require Canopy to negotiate and agree to terms with Mr. Kevin Murphy, Acreage’s Chairman, as he was the largest and controlling participant under the TRA and the administrator of the Bonus Plans. On August 26, 2022 Acreage also proposed that Canopy acquire the Floating Shares and provided a framework, excluding valuations, for such an arrangement. Over the course of the next several weeks, the TRA Elimination Proposal and the acquisition of the Floating Shares was considered by Acreage, the TRA participants and Canopy.
From August 31, 2022 through September 7, 2022, Mr. Doherty, who was then a consultant to the Acreage Board, at the request of the Acreage Board, and Mr. Klein held a number of discussions in an attempt to arrive at a fulsome set of terms that could be presented to the Acreage Board for further consideration.
On September 7, 2022, management of Acreage and Mr. Doherty provided an update to the Acreage Board on the status of the continuing discussions with Canopy. At that time, management of Acreage and Mr. Doherty indicated that they believed that a formal proposal from Canopy would be received within the next few weeks. Given the expectation that certain members of management and the Acreage Board may be entitled to payments under any potential transaction with Canopy (including in connection with the elimination of the TRA and Bonus Plans pursuant to the TRA Elimination Proposal), the Acreage certainBoard discussed the formation of itsa special committee comprised of independent directors to evaluate, consider and, if applicable, recommend, any proposed transaction involving Canopy, Growth on May 24, 2020including, the Modified SPV Proposal. The Acreage Board also discussed the need to appoint independent legal and on the eveningfinancial advisors for a special committee, if formed.
From September 8, 2022 through September 12, 2022, Mr. Goertz had several discussions with Canaccord Genuity to discuss a potential engagement of May 24, 2020,Canaccord Genuity as Acreage’s financial advisor.
On September 11, 2022, Mr. Klein sent an initial letter of intentdelivered a non-binding proposal (the “Initial LOIFloating Share Proposal”) to Mr. Doherty, which provided that, assuming the satisfaction of certain conditions, including, among other things, exercise of the Fixed Call Option by a specified outside date, the SPV would: (i) acquire the Floating Shares on the basis of 0.388 of a Canopy Share for each Floating Share, (ii) all obligations under the TRA (including the Bonus Plans) would be terminated in exchange for an aggregate payment of $50 million to be paid in Canopy Shares in two installments and not subject to completion of the acquisition of the Floating Shares.
By written resolution dated September 12, 2022, the Acreage Board established the Special Committee, the mandate of the Special Committee and appointment of independent directors, Steven Strom, Patricia Lopez and William Van Faasen. Faasen, as the members thereof. Subsequent thereto, the Special Committee retained independent counsel.
Following review and consideration of the Initial Floating Share Proposal by the Special Committee, Acreage and Kevin Murphy (in his capacity as a party to the TRA) and their respective legal counsel, Acreage through Mr. Caldini, Mr. Goertz and Mr. Corey Sheahan, Acreage’s General Counsel, sought clarification of various deal points and, on the instructions of the Special Committee, requested an increase in the proposed exchange ratio to acquire the Floating Shares, mandatory exercise of the Fixed Call Option and a break fee if Canopy failed to complete the Canopy Capital Reorganization or if the holders of the Floating Shares failed to approve the proposed transaction.
On May 25, 2020,September 16, 2022, Canopy’s counsel circulated initial drafts of Floating Share Arrangement Agreement, Floating Share Plan of Arrangement and form of Voting Agreement based upon the Initial Floating Share Proposal, which initial drafts were reviewed and considered by Acreage, received the initialSpecial Committee and their respective counsel.
By September 16, 2022, Acreage had substantially completed commercial negotiations of a term sheet to amend the Credit Agreement with the Lenders. On September 16, 2022, Mr. Goertz provided Canopy with a draft term sheet containing the proposed amendments to the Credit Agreement and communicated Acreage’s need (as directed by the Special Committee) to have these amendments in place as soon as possible.
On September 19, 2022, Ms. Judy Hong, Canopy’s Chief Financial Officer, together with Greenhill & Co. Canada Ltd., commenced negotiations with the Lenders with respect to the Modified SPV Proposal, the “change of control” of Acreage resulting in an acceleration of the Short-Term Bridge Financing (“maturity of the Acreage Debt and an option for Canopy to acquire the Acreage Debt. Negotiation of the Credit Agreement amendment continued over the next several weeks. During this period, Acreage had not yet received consent from Canopy to Acreage’s proposed Credit Agreement amendments.
On September 19, 2022, legal counsel and the financial advisors of Acreage and Canopy exchanged due diligence information requests. Over the next few weeks the parties and their representatives and financial advisors conducted mutual due diligence, including Acreage’s review of draft documentation relating to the proposed Canopy Capital Reorganization and SPV formation, capitalization and proposed transactions. Acreage’s counsel also circulated revised drafts of the principal transaction documents, reflecting the Special Committee’s input.
Concurrently, Mr. Doherty and Mr. Goertz of Acreage, Ms. Hong and Mr. Jeridean Young, Canopy’s Vice President, Head of Tax and Treasury, of Canopy, and together with their external counsel, considered issues arising under the TRA Elimination Proposal. On September 23, 2022, Acreage proposed an alternative to the TRA Elimination Proposal (the “Initial Bridge Financing Term SheetTRA Assignment Proposal”), pursuant to which the TRA participants would assign their rights under the TRA to Canopy and the payments under the TRA the Bonus Plans would be satisfied by the issuance of Canopy Shares.
On September 27, 2022, the Special Committee held a meeting to receive an update from Acreage management, to receive a briefing from Acreage’s external counsel and counsel to the Special Committee, and to discuss a number of aspects of the transaction, including the premium to be paid by Canopy for the Floating Shares and the status of the Credit Agreement amendments. At this meeting, the Special Committee instructed Acreage management to ensure that the Financial Advisors received sufficient information regarding the proposed Canopy Capital Reorganization to enable them to complete their financial analysis with respect to Canopy following the formation of the SPV, the completion of the transactions contemplated by the Modified SPV Proposal and the other acquisitions contemplated by the SPV. Additionally, the Special Committee was focused on ensuring that Canopy’s consent to the Credit Agreement would not be an impediment to reaching an agreement on a proposed transaction.
Over the course of the next few weeks, Mr. Doherty and Mr. Goertz, on the instructions of the Special Committee, continued to negotiate the commercial terms of the transaction as well as (i) fiduciary protections to respond to and accept a superior proposal; (ii) the waiver by Canopy of certain covenants contained in the Existing Arrangement Agreement and the financial performance-related closing conditions; (iii) a covenant to exercise the Fixed Call Option; and (iv) an expense reimbursement in the event that the Canopy Capital Reorganization was not effected prior to an agreed outside date.
On September 28, 2022, a representative of Greenhill & Co. Canada Ltd. informed Acreage, on behalf of Canopy, that based upon its ongoing due diligence review, Canopy proposed to reduce the exchange ratio from 0.388 to 0.35 and that all obligations under the TRA (including the Bonus Plans) would be assigned to Canopy, as contemplated in the TRA Assignment Proposal, in exchange for an aggregate payment of $40 million rather than $50 million (the “Revised Terms”).
At this point, Acreage advised Eight Capital on the status of the proposed transaction and to advance Eight Capital’s engagement as financial advisor to the Special Committee.
On September 29, 2022, the morning of May 25, 2020,Special Committee held a meeting to review the Acreage Board met by conference callRevised Terms with representatives of AcreageAcreage’s management, Foros, DLA Piper and Cozen O’Connor, U.S.external legal counsel to Acreage to discuss the status of negotiations with Canopy Growth. At this meeting, the Acreage Board determined to formand the Special Committee and appointedthe Financial Advisors. The Special Committee reiterated the need for Acreage and its membersadvisors to leadobtain more information on the negotiations withSPV and the Canopy Growth withCapital Reorganization and the support of Mr. Van Faasen, Mr. Murphy and other members ofneed to prioritize the Acreage management team. Following this meeting, there was a further call between Mr. Van Faasen and Mr. Kleinamendments to clarify particular deal terms set out in the Initial LOI.Credit Agreement given Acreage’s financial position. The Special Committee also instructed Canaccord Genuity to contact Canopy’s financial advisor to communicate that the Revised Terms were not acceptable.
On May 25, 2020, DLA Piper provided the Acreage Board with a further written description of the duties of each of the members of the Acreage Board in connection with a potential change of control transaction (including the novel aspects of a proposed amendmentFrom September 29, 2022 through to the Existing Canopy Option) and, on May 26, 2020, the Acreage Board met to receive a presentation from DLA Piper on such duties and obligations as well as some considerations based on the terms of the Initial LOI. On the evening of May 25, 2020, the Special Committee engaged Wildeboer Dellelce LLP, as counsel to the Special Committee. Representatives of Wildeboer Dellelce along with Cozen O’Connor and representatives of Foros attended the May 25, 2020 meeting of the Acreage Board.
On May 26, 2020, with input from Wildeboer Dellelce, DLA Piper provided a revised version of the Initial LOI to the Acreage Board along with a list of initial issues for discussion.
On May 27, 2020, the Acreage Board met by conference call to discuss the Initial LOI and to receive an update on discussions between Mr. Leibowitz and Mr. Maine with Mr. Lee. The Acreage Board also received an update from management on its ongoing negotiation of the Standby Equity Distribution Agreement and a potential convertible debenture offering. Following this meeting, with input from its financial and legal advisors, the Acreage Board agreed upon an initial issues list regarding the deal terms proposed in the Initial LOI.
On May 28, 2020,mid-October 2022, the Special Committee met several times to discussreview the issues arising from the Initial LOIproposed transactions and to attendprovide instructions to certain procedural matters,Acreage management, legal counsel and Canaccord Genuity including appointingthe status of Canopy’s prospective consent to the proposed amendments to the Credit Agreement while Canopy continued to negotiate with the Lenders. The Special Committee was concerned that Canopy might not provide consent to the proposed Credit Agreement amendments until an agreement had been reached on the proposed Floating Share Arrangement. Legal counsel to Acreage exchanged various drafts of the Floating Share Arrangement Agreement and the ancillary agreements with Canopy’s legal counsel.
In an attempt to resolve the remaining non-economic deal points relating to the proposed transaction and advance the transaction documents, Acreage and Canopy instructed their counsel and Special Committee counsel to meet on October 17, 2022.
On October 18, 2022, Acreage received a further revised non-binding proposal from Canopy (the “Updated Canopy Proposal”). The Updated Canopy Proposal included the following key terms: (i) the proposed acquisition by Canopy USA of the Floating Shares at an exchange ratio of 0.388; (ii) amendments to High Street’s and USCo2’s constating documents to facilitate redemption of the High Street Units and the USCo2 Shares immediately preceding closing of the proposed transaction; and (iii) an aggregate of $50 million payable in Canopy Shares to unitholders of High Street that are parties to the TRA as follows: (A) an immediate upfront payment of $16 million payable to the unitholders of High Street that are parties to the TRA; (B) a further $16 million payable to the unitholders of High Street that are parties to the TRA upon the earlier of: (1) the approval of the Floating Share Arrangement by the Floating Shareholders; or (2) six months following execution of the definitive agreements in respect of the proposed transaction; and (C) the remainder payable to participants under the Bonus Plans upon closing of the proposed transaction.
On October 19, 2022, the Special Committee met with members of Acreage’s management, Mr. MaineDoherty, external counsel to Acreage and the Special Committee and the Financial Advisors to review and consider the Updated Canopy Proposal, including the proposed exchange ratio. During this meeting, the Special Committee and its advisors discussed the current state of the relationship with Canopy vis-à-vis the Existing Arrangement Agreement, alternatives to the proposed transaction, including maintaining the status quo, as well as the Chairbenefits of proceeding with the Special Committee.proposed transaction as contemplated by the Updated Canopy Proposal. The Special Committee also resolveddiscussed the risks of not proceeding with the proposed transaction including, in particular, the cash requirements for Acreage’s business and opportunities for growth. The Special Committee instructed Canaccord Genuity to retain Eight Capitalcommunicate to provide a fairness opinion with respectCanopy’s financial advisor that the proposed consideration to a potential transaction with Canopy Growth should the terms of such transaction be settled.Floating Shareholders was considered insufficient.
On May 29, 2020, Mr. MaineOctober 20, 2022, a representative of Greenhill & Co. Canada Ltd. provided Acreage, on behalf of Canopy, with a final non-binding proposal (the “Final Floating Share Proposal”) to acquire all issued and Mr. Leibowitz discussed certain issues raisedoutstanding Floating Shares. The Final Floating Share Proposal included the following terms: (i) the proposed acquisition by Canopy USA of the Floating Shares at an exchange ratio of 0.45; (ii) amendments to High Street’s and USCo2’s constating documents to facilitate redemption of the High Street Units and the USCo2 Shares immediately preceding closing of the proposed transaction; (iii) an aggregate of $32 million payable in Canopy Shares in order to acquire the interests of High Street unitholders in the Initial LOI with Mr. Lee. Mr. Lee indicated thatTRA as follows: (A) an immediate upfront payment of $16 million; and (B) a further $16 million upon the earlier of: (1) the approval of the Floating Share Arrangement by the Floating Shareholders; or (2) six months following execution of the definitive agreements in respect of the proposed transaction; and (iv) an aggregate of $18 million payable in Canopy Growth’s position was that if Acreage determinedShares in order to accept a “superior proposal” and terminatesatisfy Acreage’s obligations under the Arrangement Agreement,Bonus Plans upon closing of the Existing Canopy Option would terminate and Canopy Growth expected a break-fee of US$300,000,000 to compensate Canopy Growth for the Option Premium paid at the time the Existing Arrangement was implemented.proposed transaction.
On May 30, 2020, the Acreage Board met again with its external legal andEight Capital was formally engaged as financial advisors and counseladvisor to the Special Committee pursuant to receive an update from Mr. Maineengagement letter dated September 28, 2022 and accepted by Acreage on October 17, 2022. Canaccord Genuity was formally engaged as Acreage’s financial advisor pursuant to an engagement letter dated October 20, 2022.
On October 21, 2022, the statusSpecial Committee met, via teleconference, with members of negotiations with Canopy Growth,Acreage’s executive, external counsel to Acreage and the Special Committee and the Financial Advisors to review and consider the Final Floating Share Proposal.
From October 21, 2022 through to and including October 24, 2022, the discussions that took place on May 29, 2020 with Mr. Lee.parties negotiated and revised drafts of the Floating Share Arrangement Agreement, the Floating Share Arrangement, the form of Voting Agreement, the Third Amendment and amendments to the Bonus Plans, the High Street Operating Agreement and the USCo2’s Constating Documents. In addition, the parties negotiated and revised drafts of the Amended Credit Agreement.
On June 1, 2020, following receipt of Canopy Growth’s consent, Acreage announced that it closed a private placement of convertible debentures in the principal amount of US$11,000,000 and that it had entered into the Standby Equity Distribution Agreement pursuant to which Acreage may, at its discretion, periodically sell to the Investor, and pursuant to which the Investor may, at its discretion, require Acreage to sell to it, up to US$50,000,000 of Existing SVS.
On June 2, 2020, at the direction ofOctober 24, 2022, the Special Committee and the Acreage Board with input from their financial and legal advisors, DLA Piper circulated a list of a number of significant issues with the transaction proposed in the Initial LOI to Cassels. In addition, on June 2, 2020, Mr. Maine and Mr. Boehner contacted Mr. Klein to discuss some of these significant issues and the lack of progress being made on the Short-Term Bridge Financing.
From the date of receipt of the Initial Bridge Financing Term Sheet, Acreage had continued to negotiate the terms of the Short-Term Bridge Financing. For a number of reasons, including the ever changing and increasingly onerous terms being requested by the lender, Acreage continued to aggressively pursue alternative financing options.
The Acreage Board met with its financial and legal advisors and counsel to the Special Committee on June 2, 2020 to receive an update from Mr. Maine on his discussions with Mr. Klein and to discuss Acreage’s alternative financing options given the urgent and immediate need for capital, including to make a necessary payment in connection with Acreage obtaining its operational license in New Jersey. Mr. Murphy explained to the Acreage Board that he had been presented with a term sheet proposal for a US$15,000,000 loan from an institutional lender (the “Alternative Bridge Loan”), which the Acreage Board determined would, if completed, be a better alternative than the Short-Term Bridge Financing.
From June 2 to June 5, 2020, representatives of Acreage, the Special Committee and Canopy Growth, including their external legal advisors, engaged in various discussions and negotiations regarding the terms of the potential amendments to the Existing Arrangement and all ancillary matters. On June 4, 2020, the Special Committee (with Eight Capital in attendance) met to receive an update on the discussions with respect to the principal issues based on discussions that DLA Piper and Wildeboer Dellelce had with Cassels.
On June 5, 2020, Cassels provided DLA Piper with initial drafts of the Proposal Agreement, Amending Agreement, Amended Plan of Arrangement, A&R License and Debenture (collectively, the “Draft Definitive Documents”).
From June 6 to June 8, 2020, various informal discussions took place between members of the Special Committee and the Acreage Board as well as representatives of Foros, DLA Piper, Cozen O’Connor and Wildeboer Dellelce.
On June 9, 2020, the Acreage Board met to review a memorandum prepared by DLA Piper and Cozen O’Connor, with input and advice from Wildeboer Dellelce and Acreage’s management team, setting out the material business and legal issues identified in the course of their review of the Draft Definitive Documents. These issues included, among others, (i) the inclusion of a right for Canopy Growth to terminate (in its sole discretion) the Existing Canopy Option in the event that the Amendment Resolution was not approved by Shareholders; (ii) the inclusion of a US$300,000,000 payment payable to Canopy Growth in certain circumstances, including a Change of Recommendation; (iii) there being no upfront consent from Canopy Growth for the sale of non-core assets or interests in the states other than the Identified States; (iv) the inclusion of an expense reimbursement fee payable to Canopy Growth in the event that the Amendment Resolution was not approved, even if Canopy Growth elected to terminate the Existing Canopy Option; (v) there being no requirement for Canopy Growth to make the initial advance of US$50,000,000 pursuant to the Debenture as a condition to the effectiveness of the Amended Plan of Arrangement; (vi) the inclusion of restrictions on Acreage’s ability to exceed the Canopy Growth Approved Threshold even after the Acquisition Time; (vii) the imposition of significant operational covenants with respect the conduct of Acreage’s business until such time, following the Acquisition Time, that Canopy Growth ceased to hold at least 25% of the outstanding Shares; and (viii) various adverse tax consequences to Acreage U.S. Shareholders as a result of the proposed deal structure.
Mr. Leibowitz, on behalf of Acreage’s management, presented the Acreage Board with management’s assessment of the implications of not completing the transaction with Canopy Growth, including an assessment of Acreage’s current liquidity constraints and operating cash flow deficiency, future financing requirements and ability to continue as a going concern. Mr. Leibowitz also provided the Acreage Board with an overview of the financing initiatives that had been pursued by management.
Following the June 9, 2020 Acreage Board meeting, various discussions and negotiations ensued between representatives of Acreage, led by Mr. Maine with support principally from Mr. Leibowitz and Mr. Doherty, and the respective legal advisors to Acreage, the Special Committee and Canopy Growth. From June 9 to June 19, 2020, various discussions regarding tax matters and the potential implications of the transaction on Shareholders, High Street Holders and USCo2 Holders were conducted. As described in more detail under the heading “Certain United States Federal Income Tax Considerations - Certain U.S. Federal Income Tax Consequences of the Amended Arrangement - Option Premium”, it was determined that Acreage U.S. Shareholders who received a portion of the Option Premium will be required to report (to the extent not previously included in income) the Option Premium as short term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective.
On June 12, Cassels provided DLA Piper with further revised drafts of the Draft Definitive Documents reflecting the recent discussions between the Parties.
On June 15, 2020, Mr. Maine, Mr. Van Faasen, members of Acreage management and representatives from Acreage’s financial and legal advisors met to discuss alternative transactions and, again revisited the alternative of not entering into the Proposal Agreement (the “Status Quo Strategy”). A further call with Mr. Maine, Mr. Van Faasen, members of Acreage management and representatives from Acreage’s financial and legal advisors to discuss the Status Quo Strategy, including the financial model related thereto, was convened for June 16, 2020. It was ultimately determined by Acreage management that the alternatives available to Acreage were less favorable than continuing to negotiate the potential transaction with Canopy Growth.
On June 17, 2020, Acreage announced the completion of the Alternative Bridge Loan. This financing was completed on more favorable terms than the proposed Short-Term Bridge Financing and provided a better strategic alternative for Acreage.
From June 12 to June 21, 2020, representatives of the Acreage Board (including members of the Special Committee) had numerous calls and videoconferences with members of management and representatives of Foros, DLA Piper, Cozen O’Connor and Wildeboer Dellelce on various occasions. Numerous calls and videoconferences also took place between representatives of Acreage, members of the Special Committee and Canopy Growth and their respective legal advisors. During the course of those discussions, Acreage requested that Canopy Growth provide additional cash consideration to Shareholders, High Street Holders and USCo2 Holders, with no adjustment to the negotiated 0.33 proposed Exchange Ratio. On June 20, 2020, the Acreage Board met to discuss the proposal from Canopy Growth to provide the Aggregate Amendment Option Payment in exchange for a reduction in the Exchange Ratio from 0.33 to 0.3048 and agreed to continue its negotiations on this basis.
Between June 12 and June 21, 2020, various revised versions of the Draft Definitive Documents were exchanged between Acreage’s legal advisors and Canopy Growth’s legal advisors. During this period, representatives of Acreage, led by Mr. Maine, and its legal advisors, and representatives of Canopy Growth and its legal advisors, engaged in negotiations with respect to the terms of the Draft Definitive Documents. Significantly, through its negotiations, the following changes, among others, were made to the terms of the Proposal Agreement, Amendment Agreement, Amended Plan of Arrangement, Debenture and A&R License: (i) an increase in the Shares available for issuance by Acreage pursuant the Canopy Growth Approved Share Threshold; (ii) the ability for the Acreage Board to make a Change in Recommendation and, should it do so, a US$300,000,000 break-fee would not be payable by Acreage (although a US$3,000,000 expense reimbursement payment would be required in certain circumstances); (iii) an upfront consent from Canopy Growth to permit Acreage to divest its assets and interests outside of the Identified States on terms acceptable to Acreage and to sell particular real property on terms that may be negotiated by Acreage; (iv) the inclusion of the Initial Advance of US$50,000,000 as a condition to the Amended Plan of Arrangement becoming effective; (v) the post-Acquisition Time operational covenants with respect to the conduct of Acreage’s business (including the Canopy Growth Approved Share Threshold surviving indefinitely) being limited and applying until such time as Canopy Growth ceased to hold at least 35% of the outstanding Shares; and (vi) the Aggregate Amendment Option Payment being paid to Shareholders, High Street Holders and USCo2 Holders to provide certainty of some payment given that the Canopy Call Option may never be exercised and to provide some immediate liquidity to Shareholders, High Street Holders and USCo2 Holders.
On June 21, 2020, the Special Committee met to receive (i) a presentationan update and transaction overview from DLA Piper on the near final terms negotiated in respect of the Proposal Agreement, Amendment Agreement, Amended Plan of Arrangement and matters ancillary thereto;Acreage management; (ii) a presentation from Eight Capital on the proposed terms of the Amended Arrangement, Floating Share Arrangement, followed by a verbal opinion of Eight Capital that, subject to the effect that, as of the date thereof, and based upon and subject to the assumptions, set outqualifications and limitations contained in the New FairnessEight Capital Fairness Opinion, the considerationnumber of Canopy Shares per Floating Share to be received by Shareholdersthe Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Amended ArrangementFloating Share Arrangement is fair, fromfrom a financial point of view, toto the Shareholders;Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates); and (iii) a presentation from Canaccord Genuity on the Floating Share Arrangement, followed by a verbal opinion from Canaccord Genuity to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, qualifications, explanations and limitations set forth therein, and such other matters as Canaccord Genuity considered relevant, the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy, and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (other than Canopy, Canopy USA and/or their respective affiliates). Following the Canaccord Genuity presentation, Kevin Murphy, John Boehner, Brian Mulroney and Peter Caldini, each of whom declared his interest in the transactions contemplated by the Floating Share Arrangement Agreement and the connected transactions, recused themselves from the meeting. The Special Committee and the Acreage Board then received a presentation from Foros in respect of Acreage’s financing planU.S. external counsel on the Third Amendment and the proposed under the Status Quo Strategy comparedamendments to the proposed financing planBonus Plans and the consideration to be received by the unitholders of High Street pursuant to the amendments to the TRA and the participants under the Bonus Plans. Acreage’s Canadian external counsel then presented to the Amended Arrangement. FollowingSpecial Committee and the deliveryAcreage Board and provided an overview of the Eight Capital verbal opinion,Floating Share Arrangement and summary of the representatives from Eight Capital excused themselves fromnear-final terms of the meeting. FollowingFloating Share Arrangement Agreement, Floating Share Plan of Arrangement and form of Voting Agreement, an overview of the risks to completion of the Foros presentation,Floating Share Arrangement, a summary of potential criticism of the representativesproposed transaction and a summary of management, DLA Piperthe progress made by Acreage and Foros excused themselvesthe Special Committee in the course of negotiating the Floating Share Arrangement. John Boehner, Brian Mulroney and Peter Caldini were then invited to return to the meeting and Mr. Goertz presented to the Special Committee and the Acreage Board (with Kevin Murphy continuing to recuse himself from the meeting andgiven his interest in the membersCredit Agreement Amendment) on the proposed Credit Agreement Amendment (including the favourable covenant waivers). Mr. Goertz noted that Ms. Hong had indicated that Canopy’s consent to the Credit Agreement Amendment would be delivered concurrently with the execution of the Special Committee then engaged in a discussion of the relative merits and disadvantages of the proposed transaction with Canopy Growth. The Special Committee concluded that the anticipated benefits to Acreage and the Shareholders of the proposed amended transaction with Canopy Growth when balanced against the additional covenants and constraints contemplated thereby, exceed the anticipated benefits relative to the covenants and constraints under the terms of the Existing Arrangement. Floating Share Arrangement Agreement.
The Special Committee, after consultation with Acreage management and receiptreceipt of advice and assistance of its and Acreage’s financial and legal advisors and the Special Committee’s legal advisors, and after careful consideration of a number of alternatives and factors including, among others, the Status Quo Strategy, the NewEight Capital Fairness Opinion and the factors set out below under the heading “Reasons for the Amended Arrangement”, unanimously determined that the Amended Arrangement, including the entering into of the Proposal Agreement and the related agreements, are in the best interests of Acreage and its minority shareholders, and recommended to the Acreage Board that it approve and authorize Acreage to enter into the Proposal Agreement and related agreements. The foregoing was subject to, among other things, Acreage management continuing to work towards finalizing the Proposal Agreement on the terms presented to the Special Committee, and Canopy Growth obtaining all waivers and consents required in connection with its entry into the Proposal Agreement.
Following the meeting of the Special Committee on June 21, 2020, the Acreage Board convened and received similar presentations from DLA Piper and Foros as those provided to the Special Committee. Following these presentations, the Acreage Board received the unanimous recommendation of the Special Committee and considered and discussed such matters as the members of the Acreage Board determined to be necessary or appropriate. After consultation with Acreage management and receipt of advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors including, among others, the receipt of the unanimous recommendation of the Special Committee and the New Fairness Opinion andand the factors set out below under the heading “Reasons for the AmendedFloating Share Arrangement”, by written resolution, unanimously resolved that the Acreage Board unanimously (withFloating Share Arrangement, including the exceptionentering into of Mr. Murphy, who declared his interest in the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the Amending Agreement and abstained from voting in respect thereof): (i) determined that the Amended Arrangement and entry into the Proposal Agreement arerelated agreements, were in the best interests of Acreage and are fairthe Floating Shareholders, and recommended to Shareholdersthe Acreage Board that it approve and authorize Acreage to enter into the Floating Share Arrangement Agreement and related agreements.
The Acreage Board unanimously (with Kevin Murphy abstaining from voting thereon), by written resolution dated October 24, 2022, authorized and approved the Credit Agreement Amendment and authorized Acreage and High Street to enter into, execute, deliver and perform its obligations under the ProposalCredit Agreement Amendment.
Following receipt of advice and assistance of its financial and legal advisors, and after consideration of alternatives and factors including, among others, the receipt of the unanimous recommendation of the Special Committee, the Eight Capital Fairness Opinion, the Canaccord Genuity Fairness Opinion and the factors set out below under the heading “Reasons for the Floating Share Arrangement”, by written resolution dated October 24, 2022, the Acreage Board unanimously (with the exception of Kevin Murphy, John Boehner, Brian Mulroney and Peter Caldini, each of whom declared his interest in the transactions contemplated by the Floating Share Arrangement Agreement and related agreements;the connected transactions and abstained therefrom), among other things: (i) resolved that the Floating Share Arrangement is fair to the Floating Shareholders, and that the Floating Share Arrangement and the entering into the Floating Share Arrangement Agreement is in the best interests of Acreage; (ii) approved and authorized Acreage to enter into the ProposalFloating Share Arrangement Agreement and related agreements; (iii) approved the Third Amendment and (iii) determined to recommenddirected that High Street and Acreage Holdings America, Inc. enter into the Third Amendment; (iv) approved, authorized, established and adopted the amended Bonus Plans; and (v) recommended that Floating Shareholders vote FOR the Amendment Resolution. The foregoing was subject to, among other things, Acreage management continuing to work towards finalizingArrangement Resolution.
On October 24, 2022, Canopy, CBG and Greenstar entered into the ProposalConsent Agreement onand the terms presented to the Acreage Board,Canopy Voting Support Agreement. Canopy, 11065220 Canada Inc. and Canopy Growth obtaining all waivers and consents required in connection with its entryUSA also entered into the ProposalProtection Agreement.
FollowingOn the approvalevening of October 24, 2022, Canopy consented to the Credit Agreement Amendment, Acreage entered into the Credit Agreement Amendment and the Lenders and the Acreage Board, representatives ofDebt Optionholder entered into the Letter Agreement. Later that evening, (i) Acreage, Canopy and Canopy Growth continued to negotiate various aspects ofUSA entered into the definitive documentsFloating Share Arrangement Agreement, (ii) Canopy, Canopy USA and legal counsel exchanged drafts thereof. Following these negotiations, the Acreage Board met again on June 22, 2020Locked-Up Shareholders entered into the Voting Agreements; and (iii) Canopy, Canopy USA, High Street, Acreage Holdings America, Inc. and certain individuals party to reaffirm its foregoing approval.the TRA, amended the TRA by entering into the Third Amendment.
InSubsequent thereto, on October 24, 2022, Canopy USA entered into a share purchase agreement with a third-party investor and in accordance with the terms of a consentthe Canopy USA LLC operating agreement, betweenall of Canopy’s interests in Canopy GrowthUSA were automatically converted into non-voting and an affiliate of Constellation Brands, Inc. (“CBI”), Canopy Growth’s significant securityholder, Canopy Growth’s execution of the Proposal Agreement, the A&R License and certain ancillary documents was subject to Canopy Growth’s receipt of consent from CBI. On June 22, 2020, Mr. Doherty was advised that additional time was required to obtain CBI’s consent. On June 24, 2020, Canopy Growth confirmed that it had obtained the consents and approvals it required from CBI to proceed with the Amended Arrangement and the execution of the Proposal Agreement, the A&R License and the documents ancillary thereto. On June 24, 2020, Eight Capital reconfirmed its verbal fairness opinion in writing. Following this confirmation, the Proposal Agreement, the A&R License and certain ancillary documents were executed by the parties and the Amended Arrangement was announced jointly by Canopy Growth and Acreage prior to the opening of markets on June 25, 2020.non-participating shares.
On August October 25, 2022, Canopy announced the formation of Canopy USA and both Canopy and Acreage announced the entering into of the Floating Share Arrangement Agreement, the Third Amendment, the Voting Agreements and the other related agreements.
On January 18, 2023, the Court granted the Interim Order, which was varied on [¨t], 2020,2023 to amend the Record Date, the date of the Meeting, the date of the hearing for the Final Order approving the Floating Share Arrangement and any related timelines, attached as Appendix “F” to this Circular.
On December 2, 2022, the Acreage Board approved the contents and mailing of this Circular to Floating Shareholders and such other securityholders are entitled to receive it, all in accordance with the Interim Order.
On August [¨], 2020, the Court granted the Amendment Interim Order, attached as Appendix “E” to this Circular.
Reasons for the AmendedFloating Share Arrangement
In evaluating the AmendedFloating Share Arrangement and in making their respective recommendations, the Special Committee and the Acreage Board each consulted with Acreage management, received the advice and assistance of their respective legal and financial advisors and gave careful consideration to certain constraining terms and conditions imposed upon Acreage pursuant to the Existing Arrangement Agreement, alternatives available to Acreage, the current and expected future financial position of Acreage and all terms of the ProposalFloating Share Arrangement Agreement, the Amending Agreement, the AmendedFloating Share Plan of Arrangement, the A&R License, the Debenture and the proposed amendments contemplated pursuant to the Original Credit Agreement. The Special Committee and the Acreage Board considered alternatives and a number of factors, including, among others, the following in determining that the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to Floating Shareholders and authorizing Acreage to enter into the Proposal AgreementFloating Share Arrangement Agreement and related agreements:agreements:
| (a) |
| (b) |
| (c) |
| (d) | Participate at the Onset of Canopy |
| (e) |
| (f) | Strategic Alternatives and Business Costs. While the Acreage Board remained positive with respect to Acreage’s short-term and long-term prospects and its strategic business plan, the Acreage Board determined that the Floating Share Arrangement is the best alternative available to Acreage. In particular, the commitment to cause Canopy USA to acquire the Fixed Shares and the Floating Shares: (i) will eliminate Acreage’s ongoing costs and related reporting requirements of a public company; (ii) will eliminate the complications associated with public shareholders holding a class of shares representing a minority of Acreage’s total outstanding shares; and (iii) is expected to provide Acreage with an enhanced platform and support to enable Acreage to execute on its strategic plan should Canopy USA determine to do so. Given the current market dynamics and restrictions arising from the Existing Arrangement, should Acreage not pursue the Floating Share Arrangement, there is significant execution risk inherent in the strategic plan given the associated capital requirements. |
| (g) | Access to Capital. |
2 MJBiz market forecast dated June 2022 of total US cannabis market by 2026.
| Financial Constraints under the Existing Arrangement. The Existing Arrangement Agreement restricts Acreage from taking specified actions during the Interim Period, including incurring debt or issuing additional Acreage Shares beyond permitted levels, without Canopy’s consent, which may adversely affect the ability of Acreage to raise the capital necessary to continue as a going concern and execute its business objectives. If Acreage remains subject to the terms of the Existing Arrangement Agreement until the expiry of the Fixed Call Option in 2030 in accordance with the terms of the Existing Arrangement Agreement, there is a significant risk that Acreage will be unable to obtain, or Canopy will not consent to the obtaining of, additional financing and/or obtain the necessary amendments to Acreage’s existing credit agreements to address its inability to meet the covenants thereunder. These restrictions may prevent Acreage from executing its strategic plan and pursuing certain business opportunities that may arise or may result in Acreage defaulting under its existing commitments. See “Risk Factors – The Existing Arrangement Agreement Contains Restrictive Covenants”, “Risk Factors – During the Interim Period, Acreage is Restricted from Taking Certain Actions pursuant to the Existing Arrangement” and “Risk Factors – Securing Additional Financing”. |
| (j) | Certainty of Acquisition of Fixed Shares. Pursuant to the Floating Share Arrangement Agreement, the Fixed Call Option pursuant to the Existing Arrangement to acquire all of the outstanding Fixed Shares, representing approximately 70% of the total Acreage Shares outstanding as at the date hereof, at a Fixed Exchange Ratio of 0.3048 of a Canopy Share for each Fixed Share, is required to be exercised no later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares, in CBG and Greenstar’s sole discretion. |
| (k) | Key Shareholder |
| Shareholder Approval. |
| Court |
| Dissent |
| Preservation of Right to Make Change in |
| Receipt of |
| Receipt of Canaccord Genuity Fairness Opinion. The Acreage Board received the Canaccord Genuity Fairness Opinion, in which Canaccord Genuity stated that, as of the date of such opinion, and based upon and subject to the assumptions, qualifications, explanations and limitations set forth therein, and such other matters as Canaccord Genuity considered relevant, the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy, and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to the Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates). Canaccord Genuity is independent of Acreage, Canopy and Canopy USA for purposes of the Floating Share Arrangement and is acting as Acreage’s financial advisor in connection with the Floating Share Arrangement. |
| (r) | Other |
The Special Committee and the Acreage Board also considered a number of potential risks, potential negative factors and potentially adverse implications relating to the AmendedFloating Share Arrangement, including the following:
| (a) | Limited |
| (b) | Conditions and Requirement for Completion of the |
| (c) |
| (d) |
| Reduction in Consideration Relative to the Existing Arrangement. Pursuant to the terms of the |
| Fixed Exchange Ratio. Given that the number of Canopy |
| Collateral |
The Acreage Board (with(with the exception of Mr.Kevin Murphy, who declared hisJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared their interest in the transactions contemplatedcontemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respectrespect thereof) unanimously recommended support forapproved the Amendedexecution of the Floating Share Arrangement Agreement. The process of evaluating the AmendedFloating Share Plan of Arrangement was led by the Special Committee, which is comprised of independent members of the Acreage Board who are not members of management. The members of the Special Committee met regularly with its and Acreage’s legal and financial advisors and members of management and communicated directly with representatives of Canopy Growth throughout the process of negotiating the AmendedFloating Share Arrangement.
The reasons of the Special Committee and the Acreage Board for recommending the AmendedFloating Share Arrangement include certain assumptions relating to forward-looking information, and such information and assumptions are subject to certain risks. See “Cautionary Statement Regarding Forward-Looking Information” and “Risk Factors” in this Circular. The Acreage Board and the Special Committee believe that, overall, the anticipated benefits of the AmendedFloating Share Arrangement to Acreage outweigh the potential risks, potential negative factors and potentially adverse implications.
The Special Committee and the Acreage Board evaluated all the factors summarized above based on their knowledge of the business and operations of Acreage, Canopy and Canopy GrowthUSA and taking into account the advice and assistance of financial and legal advisors to the Special Committee and legal and financial advisors to the Acreage Board as well as the NewEight Capital Fairness Opinion and the Canaccord Genuity Fairness Opinion and exercised their business judgment. However, the foregoing summary of the information and factors considered by the Special Committee and the Acreage Board is not intended to be exhaustive. In view of the variety of factors and the amount of information considered in connection with its evaluation of the Proposal Agreement, AmendedFloating Share Arrangement AgreementAgreement and AmendedFloating Share Plan of Arrangement, the Special Committee and the Acreage Board did not find it practicable to, and did not, quantify, rank or otherwise attempt to assign relative weights to the foregoing factors considered in their deliberations. In addition, in considering the factors described above, individual members of the Special Committee and the Acreage Board may have given different weights to various factors and may have applied different analysis to each of the material factors considered by the Special Committee and the Acreage Board.
Approval of the AmendmentArrangement Resolution
At the Meeting, Floating Shareholders will be asked to approve the AmendmentArrangement Resolution, the full text of which is set out in Appendix “A”“B” to this Circular. In order for the AmendedFloating Share Arrangement to become effective, as provided in the Amendment Interim Order and by the BCBCA, the AmendmentArrangement Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the AmendmentArrangement Resolution by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting; and (ii) not less than a simple majority of votes cast by Floating Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Related Parties.61-101. Should Floating Shareholders fail to approve the AmendmentArrangement Resolution by the requisite majorities, the AmendedFloating Share Arrangement will not be completed.
After consulting with Acreage management and receiving advice and assistance of its financial and legal advisors, and after careful consideration of alternatives and a number of alternatives and factors, including, among others, receipt of the unanimous recommendation from the Special Committee, the New Fairness OpinionFairness Opinions and the factors set out belowabove under the heading “Reasons for the AmendedFloating Share Arrangement”, the members of the Acreage Board unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) determined that the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to Floating Shareholders and recommend that ShareholdersFloating Shareholders vote FOR the AmendmentArrangement Resolution.
NewEight Capital Fairness Opinion
Eight Capital was formally engaged by the Special Committee on May 28, 2020 pursuant to the Eight Capital Engagement Agreement to act as financial advisor to the Special CommitteeAgreement dated September 28, 2022 and accepted by Acreage on October 17, 2022, to provide a long-forman opinion as to thethe fairness, from a financial point of view, of the Considerationnumber of Canopy Shares per Floating Share to be received by theFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the AmendedFloating Share Arrangement. On June 21, 2020,October 24, 2022, Eight Capital verbally delivered thedelivered its opinion to the Special Committee, whichwhich opinion was reconfirmed on June 24, 2020 by Eight Capital and was subsequently confirmed in writing toand in which Eight Capital stated that, as of the effect that,date thereof, and based upon and subject to the scope of review, analyses, assumptions, limitations, qualifications and other matters describedlimitations contained therein, the Considerationnumber of Canopy Shares per Floating Share to be received by the ShareholdersFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Amended ArrangementFloating Share Arrangement is fair, from aa financial point of view, toto the ShareholdersFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates).
UnderPursuant to the Eight Capital Engagement Agreement, Acreage has agreed to pay Eight Capital a fixed fee of US$500,000 for the deliverydelivery of the NewEight Capital Fairness Opinion. In addition, Acreage has agreed to reimburse Eight Capital is to be reimbursedCapital for its reasonablereasonable out-of-pocket expenses and is to be indemnified by the Companyindemnify Eight Capital against certain liabilities in connection with its engagement.engagement, as further described in the indemnity that forms part of the Eight Capital Engagement Agreement. The feesfee payable to Eight Capital by the CompanyAcreage in respect of the delivery of the NewEight Capital Fairness Opinion areis not contingentcontingent upon the conclusions reached by Eight Capital in the Eight Capital Fairness Opinion or the consummationconsummation of the Amended Arrangement or the Acquisition. Floating Share Arrangement.
In considering the fairness, from a financial point of view, of the Considerationnumber of Canopy Shares per Floating Share to be received by ShareholdersFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Amended Arrangement,Floating Share Arrangement, Eight Capital reviewed, considered and relied upon or carried out, among other things, the following: (i) the historical trading value and ranges of the Existing SVSFloating Shares and the Canopy Growth Shares over a statistically significantrelevant time period; (ii) to the 12-month priceprice targets of equity research analysts covering the CompanyAcreage and Canopy Growth, discounted at a calculated cost of equity for the Company and Canopy Growth, respectively;Canopy; (iii) the implied public market value of the CompanyAcreage and Canopy Growth based on publicly available business and financial data and derived valuation multiples of certain publicly traded companies in the cannabis sector that were deemed comparable and relevant; (iv) the implied public market value of the Company from an “en bloc” perspective based on publicly available businessbusiness and financial data and derived valuation multiples of certain publicly tradedtraded companies in the cannabiscannabis sector that were deemed comparable and relevant, after adjusting the valuation multiples upwards to account for a “control premium”;relevant; and (v)(iv) the implied public market value of the Companyof Acreage from an “en bloc” perspective based on premiums paid and implied transaction multiples in precedent transactions in the cannabis sector thatfor certain publicly traded companies that were deemed comparable and relevant.relevant (“Precedent Transaction Analysis”). Specifically with respect to the Precedent Transaction Analysis, Eight Capital considered the following three distinct groups of transactions: (A) acquisitions of certain publicly traded companies in the U.S. cannabis sector; (B) to account for Canopy’s option to purchase a 70% ownership interest in Acreage pursuant to the Fixed Option, which in Eight Capital’s view limits any “control premium” that would otherwise be payable to Floating Shareholders, Eight Capital considered a group of related-party transactions whereby a large or controlling shareholders acquired the balance of the outstanding ownership interest of certain publicly traded companies; and (C) Eight Capital also considered a group of transactions resulting in the acquisition of a group of publicly traded companies experiencing some level of financial and operational distress, to account for certain challenges being experienced by Acreage, including its inability to access additional capital to execute its business plan, its inability to maintain certain financial covenants set out in the Credit Agreement, and financial and operational limitations set out in the Existing Arrangement that have been a burden on Acreage’s ability to successfully grow and operate its business. All financial analyses were conducted withwith information available as of market close on June 23, 2020. on October 21, 2022.
Eight Capital noted that theThe selection of comparable companies and precedent transactionsPrecedent Transaction Analysis involved considerable subjectivity, in particular among companies engaged in an emerging industry, operating in a rapidly evolving regulatory environment, and having low or negative EBITDA, earnings or free cash flows and significant stock price volatility. WhileFurther, Eight Capital noted that while none of the comparable companies or precedent transactions are identical to the CompanyAcreage or Canopy Growth (as applicable) or the AmendedFloating Share Arrangement or the Acquisition and certain of them may have characteristicshave characteristics that are materially different from that of the CompanyAcreage or Canopy Growth (as applicable) andand the AmendedFloating Share Arrangement, (in particular, none of the precedent transactions involve the acquirer securing an option to acquire the target and none of the precedent transactions involve a public Canadian company acquiring a public Canadian company with substantial operations in the U.S.), Eight Capital believes that theythey share certain business, financial, and/operational and/or operationalstructural characteristics with those of the CompanyAcreage or Canopy Growth (as applicable) and the AmendedFloating Share Arrangement and the Acquisition and Eight Capital used its professional judgmentjudgment in selecting such comparable companiescompanies and precedent transactions.
Eight Capital considered the three month high and low share price of the Floating Shares, being US$0.83 and US$1.59, respectively, and the 10 and 20-day volume weighted average trading price of the Canopy Shares, being US$2.46 and US$2.82, respectively.
Eight Capital considered the 12-month price targets of equity research analysts1 covering Acreage and Canopy, which are within a range of US$1.50 to US$5.00 (five analysts with target prices) for Acreage, and are within a range of C$2.00 to C$14.00 (18 analysts with target prices) for Canopy.
Eight Capital performed an analysis of comparable company metrics by applying a range of both EV to revenue and EV to EBITDA multiples to Acreage’s 2022 and 2023 fiscal year estimates of US$242.6 million and US$309.6 million in revenue in 2022 and 2023, respectively, and US$42.1 million and US$64.4 million in EBITDA in 2022 and 2023, respectively. Comparable companies that were considered relevant were Planet 13 Holdings, Inc., TerrAscend, 4Front Ventures Corp., Ayr Wellness, Inc., MariMed Inc. and Cansortium, Inc. Eight Capital compared the trading multiples observed for the selected comparable companies with Acreage, taking into account a number of factors including market capitalization, revenue and EBITDA profile and other financial metrics that Eight Capital considered relevant. Based on analyst consensus estimates of the selected comparative companies, Eight Capital observed a range of EV to revenue multiples of 1.4 to 3.6 times revenue for 2022, and 1.1 to 2.5 times revenue for 2023; and a range of EV to EBITDA multiples of 4.4 to 23.6 times EBITDA for 2022 and 3.2 to 13.9 times EBITDA for 2023. In light of the foregoing and based on Eight Capital’s professional judgement and experience, Eight Capital applied selected ranges of multiples to Acreage’s estimated revenue and EBITDA for 2022 and 2023, in order to determine implied equity value ranges for Acreage.
Eight Capital performed an analysis of comparable company metrics by applying a range of EV to revenue to analyst consensus estimates for Canopy’s 2022 and 2023 revenue. Comparable companies that were considered relevant were Tilray Brands, Inc., Aurora Cannabis Inc. and Cronos Group Inc. Eight Capital compared the trading multiples observed for the selected comparable companies with Canopy, taking into account a number of factors including market capitalization, revenue and EBITDA profile and other financial metrics that Eight Capital considered relevant. Based on analyst consensus estimates of the selected comparative companies, Eight Capital observed a range of EV to revenue multiples of 1.5 to 3.4 times revenue for 2022 and 1.1 to 3.3 times revenue for 2023. In light of the foregoing and based on Eight Capital’s professional judgement and experience, Eight Capital applied selected ranges of multiples to Canopy’s estimated revenue for 2022 and 2023 in order to determine implied equity value ranges for Canopy.
Eight Capital reviewed a number of transactions involving participants in the U.S. cannabis sector and calculated the mean and median premium paid by the acquirors in such transactions, based on the closing price of the shares of the acquirer and the acquired company (mean of 35.3% and median of 28.2%), the 10-day VWAP of the shares of the acquirer and the acquired company (mean of 40.2% and median of 28.8%), and the 20-day VWAP of the shares of the acquirer and the acquired company (mean of 43.6% and median of 42.5%). In light of the foregoing and based on Eight Capital’s professional judgement and experience, Eight Capital applied a selected range of premiums to the 10-day VWAP and 20-day VWAP of the Floating Shares.
In addition, Eight Capital reviewed a number of transactions involving the acquisition of a company by an existing significant and/or controlling shareholder of the Company and calculated the mean and median premium paid by the acquirors in such transactions, based on the closing price of the shares of the acquirer and the acquired company (mean of 25.6% and median of 26.2%), the 10-day VWAP of the shares of the acquirer and the acquired company (mean of 28.8% and median of 35.3%), and the 20-day VWAP of the shares of the acquirer and the acquired company (mean of 32.7% and median of 33.2%). In light of the foregoing and based on Eight Capital’s professional judgement and experience, Eight Capital applied a selected range of premiums to the 10-day VWAP and 20-day VWAP of the Floating Shares.
Eight Capital also reviewed a number of transactions involving the acquisition of a company facing operational and/or financial distress and calculated the mean and median premium paid by the acquirors in such transactions, based on the closing price of the shares of the acquirer and the acquired company (mean of negative 39.8% and median of negative 37.5%), the 10-day VWAP of the shares of the acquirer and the acquired company (mean of negative 34.2% and median of negative 32.4%), and the 20-day VWAP of the shares of the acquirer and the acquired company (mean of negative 32.5% and median of negative 32.5%). In light of the foregoing and based on Eight Capital’s professional judgement and experience, Eight Capital applied a selected range of premiums to the 10-day VWAP and 20-day VWAP of the Floating Shares.
Eight Capital based its conclusion in the NewEight Capital Fairness Opinion upon a number of quantitative and qualitative factors including, but not limited to:
1Source: FactSet.
The full text of the NewEight Capital Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the NewEight Capital Fairness Opinion, is attached as Appendix “D” to this Circular. The summary of the NewEight Capital Fairness Opinion described in this Circular is qualified in its entirety by, and should be read in conjunction with, the full text of the NewEight Capital Fairness Opinion.
None of Eight Capital, its Affiliatesaffiliates or associates, is an insider, associate or affiliate of the CompanyAcreage, Canopy or Canopy Growth,USA, or any of their respective Affiliatesaffiliates or associates. Eight Capital has neither provided financial advisory services nor participated in any financings involving the CompanyAcreage, Canopy or Canopy Growth,USA, or any of their respective Affiliatesaffiliates or associates over the past 24 months, other than services provided under the Eight Capital Engagement Agreement and as otherwise disclosed in the NewEight Capital Fairness Opinion. Eight Capital may, however, in the ordinary course of its business, provide financial advisory or investment banking services to one or more of Company,Acreage, Canopy Growthor Canopy USA or any of their respective Affiliatesaffiliates or associates from time to time. Eight Capital advised the Special Committee that it has no conflicts of interest (real or perceived) with regard to the Company,Acreage, Canopy Growthor Canopy USA or any of their respective Affiliatesaffiliates or associates in providing the NewEight Capital Fairness Opinion.
The NewEight Capital Fairness Opinion does not address the relative merits of the AmendedFloating Share Arrangement as compared to any strategic alternatives that may be available to the Company,Acreage, or the AmendedFloating Share Arrangement as compared to the Existing Arrangement, nor does it address the relative merits of any transactions entered into by the CompanyAcreage in connection with the AmendedFloating Share Arrangement. The NewEight Capital Fairness Opinion is limited to the fairness, as of the date thereof, of the Consideration, from a financial pointnumber of view,Canopy Shares per Floating Share to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Shareholders, assuming such consideration was paid on the date thereof,Floating Share Arrangement, and does not express any opinion as to any decision which the Company,Acreage, the Acreage Board or the Special Committee may make regarding the AmendedFloating Share Arrangement.
The NewEight Capital Fairness Opinion is not intended to be and does not constitute a recommendation to the Special Committee, the Acreage Board or to any Floating Shareholder, security holdersecurityholder or creditor. The NewEight Capital Fairness Opinion should not be construed as, advice as to the price at which securities of either the CompanyAcreage or Canopy Growth may trade or be valued at any future date. The NewEight Capital Fairness Opinion was one of a number of factors taken into consideration by the Acreage Board and the Special Committee in considering the AmendedFloating Share Arrangement. The Acreage Board urges Floating Shareholders to read the NewEight Capital Fairness Opinion carefully in its entirety. The NewEight Capital Fairness Opinion is reproduced in its entirety in Appendix “D” of this Circular.
Based upon and subject to the assumptions, qualifications and limitations contained therein, Eight Capital is of the opinion that, as of the date of the NewEight Capital Fairness Opinion, the Considerationnumber of Canopy Shares per Floating Share to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Shareholders pursuant to the Amended ArrangementFloating Share Arrangement is fair, from a financial point of view, to the ShareholdersFloating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates).
Foros
Foros was not engaged to, and did not, render to the Acreage Board or the Special Committee an opinion with respect to the fairness, from a financial point of view, of the Consideration to be received by the Shareholders other than Canopy Growth and/or its affiliates pursuant to the Amended Arrangement. Accordingly, Foros did not receive any fee with respect to the issuance of any fairness opinion to the Acreage Board or the Special Committee.
Recommendation of the Special Committee
The Special Committee, after consultation with Acreage management and receipt of advice and assistance of its and Acreage’s financial and legal advisors and after careful consideration of alternatives and a number of alternatives and factors, including, among others, the NewEight Capital Fairness Opinion and the factors set out below under the heading “Reasons for the AmendedFloating Share Arrangement”, unanimously determined that the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement and related agreements are in the best interests of Acreage and its minority shareholdersthe Floating Shareholders and recommended to the Acreage Board that it approve and authorize Acreage to enter into the Proposal AgreementFloating Share Arrangement Agreement and related agreements.
Canaccord Genuity Fairness Opinion
Canaccord Genuity was formally engaged by Acreage through the Canaccord Genuity Engagement Agreement dated October 20, 2022. The Canaccord Genuity Engagement Agreement provides the terms upon which Canaccord Genuity has agreed to act as a financial advisor to Acreage in connection with the Floating Share Arrangement during the term of the Canaccord Genuity Engagement Agreement.
On October 24, 2022, Canaccord Genuity verbally delivered its opinion to the Acreage Board, which was subsequently confirmed in writing, that, as at the date of such opinion and based upon and subject to the assumptions, qualifications, explanations and limitations set forth therein, and such other matters as Canaccord Genuity considered relevant, the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement is fair, from a financial point of view, to Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates). Canaccord Genuity’s opinion was one of many factors considered by the Acreage Board in its evaluation of the Floating Share Arrangement and should not be viewed as determinative of the views of the Acreage Board in its evaluation with respect to the Floating Share Arrangement or the consideration to be received by Floating Shareholders pursuant to the Floating Share Arrangement. The full text of the Canaccord Genuity Fairness Opinion is attached to this Circular as Appendix “E”. The full text of the Canaccord Genuity Fairness Opinion sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, and the summary provided in this Circular is qualified in its entirety by the full text of such opinion. Floating Shareholders are encouraged to read the Canaccord Genuity Fairness Opinion carefully and in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Canaccord Genuity in connection with its verbal and written opinion. The Canaccord Genuity Fairness Opinion was addressed to the Acreage Board and only addresses the fairness to Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates), from a financial point of view, of the number of Consideration Shares to be received by Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Floating Share Arrangement, and did not and does not address the relative merits of the Floating Share Arrangement as compared to other transactions or business strategies that might be available to Acreage, nor does it address the underlying business decision of Acreage to enter into the Floating Share Arrangement, or any views on any other terms or aspects of the Floating Share Arrangement, or any potential implication of the Floating Share Arrangement or the Transactions. The Canaccord Genuity Fairness Opinion has been provided to members of the Acreage Board (solely in their capacity as directors of Acreage) for their sole use and benefit in connection with, and for the purpose of, their consideration of the Floating Share Arrangement and is not intended to, and should not, be relied upon by any other person or entity (including, without limitation, securityholders, creditors or other constituencies of Acreage) or used for any other purpose.
The Canaccord Genuity Fairness Opinion does not constitute a recommendation as to how the Acreage Board (or any director), management, any Floating Shareholder or any securityholder should vote or otherwise act with respect to any matters relating to the Floating Share Arrangement, or whether to proceed with the Floating Share Arrangement or any related transaction. Furthermore, the Canaccord Genuity Fairness Opinion is not, and should not be construed as, a formal valuation or independent appraisal of Acreage or Canopy or any of their respective securities, assets or liabilities (whether accrued, absolute, contingent, derivative, off-balance sheet or otherwise), or advice as to the price at which any securities of Acreage or Canopy may trade at any future date.
As provided for in the Canaccord Genuity Engagement Agreement, Canaccord Genuity has relied upon and assumed, without attempting to independently verify, the completeness, accuracy and fair presentation of all of the financial and other information, data, documents, advice, opinions or representations, whether in written, electronic, graphic, oral or any other form or medium, including as it relates to Acreage and Canopy, obtained by it from public sources, or provided to it by Acreage, Canopy and their respective associates, affiliates, agents, consultants and advisors, including, among other things: (i) estimated financial information for the Company, as provided by Acreage’s management, for the fiscal years ending December 31, 2022 and December 31, 2023; (ii) selected public market trading statistics and other public / non-public relevant financial information in respect of both Acreage and Canopy, as well as other comparable public entities considered by Canaccord Genuity to be relevant; and (iii) certain other internal financial, operational and corporate information prepared or provided by Acreage’s and Canopy’s respective management teams. With respect to the financial information provided to Canaccord Genuity used in the analysis supporting the Canaccord Genuity Fairness Opinion, Canaccord Genuity assumed that they were reasonably prepared on bases reflecting, at the time, the best available estimates and judgements of management of Acreage and Canopy, as applicable, as to the matters covered thereby and which, in the opinion of Acreage, are (and were at the time of preparation and continue to be) reasonable in the circumstances. By rendering the Canaccord Genuity Fairness Opinion, Canaccord Genuity expresses no view as to the reasonableness of any financial information or the assumptions on which they are based.
In preparing the Canaccord Genuity Fairness Opinion, Canaccord Genuity made several assumptions, including that all of the conditions required to implement the Transactions will be met, that the final versions of the Transaction Agreements will be identical to the most recent versions thereof reviewed by Canaccord Genuity, that all of the representations and warranties contained in the Transaction Agreements are true and correct as of the date of the Canaccord Genuity Fairness Opinion that the Transactions will be completed substantially in accordance with their terms and all applicable laws, that the accompanying proxy statements in connection with the Floating Share Arrangement and Canopy Capital Reorganization, respectively, including this Circular, will disclose all material facts relating thereto and will satisfy all applicable legal requirements, and that Acreage and Canopy will each disclose all material facts relating to the Floating Share Arrangement and Canopy Capital Reorganization, respectively, to their respective shareholders. Additionally, Canaccord Genuity assumed that the Transactions will be consummated in a manner that complies with all applicable securities laws and regulations in Canada and the United States.
In support of the Canaccord Genuity Fairness Opinion, Canaccord Genuity performed such analyses as Canaccord Genuity considered necessary and appropriate at the time and in the circumstances for the purposes of arriving at its opinion. The summary below does not purport to be a complete description of the factors considered or financial analyses performed by Canaccord Genuity, nor does the order of analyses described represent relative importance or weight given to those analyses by Canaccord Genuity. In performing its analyses, Canaccord Genuity made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, which Canaccord Genuity believes to be reasonable and appropriate in the exercise of its professional judgement, many of which are beyond the control of Canaccord Genuity or any party involved in the Transactions. These analyses did not and do not purport to be appraisals, nor did they or do they necessarily reflect the prices at which businesses or securities may actually be sold. Any estimates were, by their nature, not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favourable than as set out herein.
In preparing and arriving at the Canaccord Genuity Fairness Opinion, Canaccord Genuity considered the following principal methodologies and factors:
| 1) | Comparable Companies Trading Analysis. Comparable companies trading analysis is a relative valuation analysis that evaluates the value of a company using the trading and financial metrics of other publicly-traded companies which have been determined to have similar characteristics. Canaccord Genuity performed an analysis on selected publicly-listed cannabis companies which are domiciled and/or carry out operations in the United States and/or Canada, and which Canaccord Genuity believed to be generally comparable to each of Acreage and Canopy, respectively. In performing this analysis, Canaccord Genuity analyzed (i) estimated financial information and projections with respect to Acreage, as provided by Acreage’s management; and (ii) certain publicly available financial information, including, without limitation, financial information for Acreage, Canopy, and selected public companies, each based on research analysts’ estimates. When utilizing this approach, Canaccord Genuity considered multiples of TEV, which was calculated as fully-diluted equity value, plus debt, less cash and cash equivalents, and, if applicable, adjusted for any minority interests. Canaccord Genuity considered multiples of (a) TEV, as compared to revenue; (b) TEV, as compared to Adjusted EBITDA; (c) TEV, as compared to Capex Adjusted EBITDA; and (d) Capex Adjusted TEV, as compared to Adjusted EBITDA. |
For greater clarity, Capex Adjusted EBITDA was calculated as Adjusted EBITDA less capital expenditures in the respective year for which such Capex Adjusted EBITDA was being compared to TEV, and, more specifically, as it relates to the estimated calendar year (i) 2022 (“2022E”), Capex Adjusted EBITDA was calculated as 2022E estimated Adjusted EBITDA less 2022E estimated capital expenditures; (ii) 2023 (“2023E”), Capex Adjusted EBITDA was calculated as 2023E estimated Adjusted EBITDA less 2023E estimated capital expenditures; and (iii) 2024 (“2024E”), Capex Adjusted EBITDA was calculated as 2024E estimated Adjusted EBITDA less 2024E estimated capital expenditures. For greater clarity, Capex Adjusted TEV was calculated as TEV plus cumulative capital expenditures from January 1 to December 31 of the respective year for which such Capex Adjusted TEV was being compared to Adjusted EBITDA, and, more specifically, as it relates to the estimated calendar year (i) 2022E, Capex Adjusted TEV was calculated as estimated TEV plus 2022E estimated capital expenditures; (ii) 2023E, Capex Adjusted TEV was calculated as estimated TEV plus the sum of 2022E and 2023E estimated capital expenditures; and (iii) 2024E, Capex Adjusted TEV was calculated as estimated TEV plus the sum of 2022E, 2023E and 2024E estimated capital expenditures.
With respect to Acreage, Canaccord Genuity observed the following ranges of multiples for the primary set of publicly-traded cannabis companies which were reviewed by Canaccord Genuity and determined to be the most comparable to Acreage (in each case and as applicable, including Acreage itself, excluding select outliers, and to the extent information was available). More specifically, the ranges below encompass the set of U.S. publicly-traded cannabis companies which, as at October 21, 2022, had a TEV between US$200 million and US$1 billion, and includes Ayr Wellness Inc., TerrAscend, Ascend Wellness Holdings Inc., Jushi Holdings Inc., 4Front Ventures Corp., Planet 13 Holdings Inc., MariMed Inc., and Acreage.
| Range of Multiples (For Highlighted Periods Below) | ||||||
| Metric | 2022E | 2023E | 2024E | |||
| TEV(1) / Revenue | 0.8x – 2.0x | 0.7x – 1.8x | 0.5x – 1.6x | |||
| TEV / Adjusted EBITDA | 4.7x – 9.9x | 3.3x – 8.4x | 2.4x – 5.7x | |||
| TEV / (Capex Adjusted EBITDA) | 13.0x – 20.5x | 5.1x – 11.6x | 3.9x – 7.2x | |||
| Capex Adjusted TEV / Adjusted EBITDA | 5.4x – 10.7x | 4.3x – 8.1x | 3.6x – 6.6x | |||
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| (1) | TEV is a non-U.S. GAAP financial measure, which is defined as total enterprise value, calculated as fully-diluted equity value, plus debt, less cash and cash equivalents, and, if applicable, adjusted for any minority interests. |
After reviewing such ranges of multiples, in conjunction with Acreage’s estimated Adjusted EBITDA margins and estimated growth rates in respect of revenue and Adjusted EBITDA, Canaccord Genuity applied a selected range of multiples, in each case as it relates to Acreage, to (i) the financial information with respect to Acreage, as provided by Acreage’s management, for the calendar years ending December 31, 2022 and December 31, 2023; and (ii) research analysts’ estimates, for the calendar years ending December 31, 2022, December 31, 2023, and December 31, 2024, respectively. A typical en-bloc or control premium was not considered by Canaccord Genuity to be relevant in the circumstances, as the Floating Shareholders previously received cash payments from Canopy as consideration for the option to acquire control of Acreage pursuant to the amended and restated plan of arrangement implemented on September 23, 2020 and pursuant to the Existing Arrangement Agreement. Such cash payments are reflective of a typical en-bloc or control premium, and, as such, the trading price of the Floating Shares already embeds such premium. Based upon the above analysis, Canaccord Genuity then determined a range of implied values per Floating Share (“Floating Share Range”).
With respect to Canopy, Canaccord Genuity observed the following ranges of multiples for the primary set of publicly-traded cannabis companies which were reviewed by Canaccord Genuity and determined to be the most comparable to Canopy (in each case and as applicable, including Canopy itself, excluding select outliers, and to the extent information was available). More specifically, the ranges below encompass the set of Canadian publicly-traded cannabis companies which, as at October 21, 2022, had a TEV over US$500 million, and includes Tilray Brands, Inc., Canopy, and SNDL Inc.
| Range of Multiples (For Highlighted Periods Below) | ||||||
| Metric | 2022E | 2023E | 2024E | |||
| TEV(1) / Revenue | 1.0x – 3.2x | 0.7x – 2.8x | 0.7x – 2.2x | |||
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| (1) | TEV is a non-U.S. GAAP financial measure, which is defined as total enterprise value, calculated as fully-diluted equity value, plus debt, less cash and cash equivalents, and, if applicable, adjusted for any minority interests. |
After reviewing such ranges of multiples, Canaccord Genuity applied a selected range of multiples, in each case as it relates to Canopy, to research analysts’ estimates, for the calendar years ending December 31, 2022, December 31, 2023, and December 31, 2024, respectively. Multiples of Adjusted EBITDA were not considered, as the majority of Canadian cannabis companies, including Canopy, do not have positive Adjusted EBITDA. Based upon the above analysis, Canaccord Genuity then determined a range of implied values per Canopy Share (“Canopy Share Range”).
Canaccord Genuity then compared the Floating Share Range to the Canopy Share Range to determine an exchange ratio range (“Exchange Ratio Range”), as shown below, and compared such Exchange Ratio Range to the exchange ratio implied by the number of Consideration Shares to be received by Floating Shareholders for each Floating Share held.
| Implied Exchange Ratio Range | Minimum | Maximum | ||
| Implied Canopy Shares per Floating Share | 0.3077 | 0.7000 |
| 2) | Liquidity Analysis. Canaccord Genuity performed a liquidity analysis on each of Acreage and Canopy, based upon trading activity over a range of time periods. This analysis involved consolidating the value of shares traded across all exchanges for each of Acreage and Canopy. Canaccord Genuity reviewed the average daily value traded for the Floating Shares and the Canopy Shares for the following time periods, each on a trailing basis: (i) 1-month; (ii) 3-months; and (iii) 6-months. On an average daily basis, the Floating Shares traded: (i) $0.04 million; (ii) $0.03 million; and (iii) $0.03 million in value across all exchanges, as compared to: (i) $51 million; (ii) $52 million; and (iii) $50 million for the Canopy Shares. Overall, Canopy traded 1,384 to 2,036 times the value of the Floating Shares. On an average daily basis, both publicly-traded classes of Acreage Shares, being the Floating Shares and Fixed Shares, when combined, traded: (i) $0.09 million; (ii) $0.08 million; and (iii) $0.11 million in value across all exchanges. Overall, Canopy traded 437 to 615 times the value of the Acreage Shares. Canaccord Genuity also performed an analysis which considered the number of trading days that it would take for Floating Shareholders to trade the total value of the Consideration Shares received based on Canopy’s average daily value traded over the following time periods, each on a trailing basis: (i) 1-month; (ii) 3-months; and (iii) 6-months. Illustratively, Canaccord Genuity assumed that Floating Shareholders could trade 10% to 25% of Canopy’s average daily value, which resulted in a minimum of three and maximum of nine total trading days which would be needed for Floating Shareholders to divest 100% of the total value of the Consideration Shares received pursuant to the Floating Share Arrangement. |
| 3) | Precedent Transactions Analysis. Precedent transactions analysis involves the comparison of multiples and/or premia, as implied by the respective consideration in each acquisition transaction, to those paid in such acquisition transactions involving public and private companies which Canaccord Genuity considered to be similar, or relevant, to Acreage, and where information is publicly available. Given that (a) the Floating Shareholders previously received cash payments from Canopy as consideration for the option to acquire control of Acreage on both September 23, 2020 and June 27, 2019, which is reflective of a typical en bloc or control premium; and (b) each of the precedent transactions identified by Canaccord Genuity were: (i) unique in terms of size, geographic footprint (state, province, country), relative equity cycle in the cannabis market and the broader economic cycle, respective market position, regulatory framework and environment (including medical and/or adult-use), business mix and risks, opportunities for growth, profitability and margin profile; and (ii) reflective of the strategic rationale of each of the acquirer and target, respectively, as well as their respective views on potential synergies, Canaccord Genuity did not rely on precedent transactions analysis. |
| 4) | Discounted Cash Flow Analysis. The discounted cash flow approach is used to determine the value of a company by utilizing a net present value calculation of a company’s future cash flows. It requires that certain assumptions be made regarding, among other things, the amount, timing, and relative certainty of projected free cash flows for each year of the cash flow projection period, as well as appropriate discount rates and terminal values. Given (i) the financial information with respect to Acreage, as provided by Acreage’s management, were only for limited periods; (ii) that Canaccord Genuity relied on research analysts’ estimates for Canopy; (iii) the industry in which Acreage and Canopy operate; and (iv) the high degree of regulatory uncertainty, including with respect to state, provincial, and respective federal regulations, Canaccord Genuity determined that there was a limited ability to predict long-term free cash flows of either Acreage or Canopy with any reasonable degree of accuracy and, as a result, did not perform a discounted cash flow analysis on either Acreage or Canopy. |
| 5) | Other Considerations. Canaccord Genuity also considered a number of other factors, including: (a) Acreage’s compliance with its current financial covenants pursuant to the Credit Agreement; (b) the operating cash flow projections for Acreage, as provided by Acreage’s management, for the calendar years ending December 31, 2022 and December 31, 2023; and (c) the amendment to the Credit Facility pursuant to the Credit Agreement Amendment, which: (i) provides Acreage with access to incremental funds for immediate draw, as well as additional flexibility under the Amended Credit Facility covenant package (including the waiver of certain financial covenants until the end of the first fiscal period after December 31, 2023); and (ii) requires consent from Canopy, which was provided concurrently with Acreage entering into the Floating Share Arrangement Agreement. |
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Any attempt to do so could lead to undue emphasis on any particular factor or analysis. Selecting portions of the analyses or of the summary of the Canaccord Genuity Fairness Opinion, without considering the analyses as a whole, could create a misleading view of the processes underlying the Canaccord Genuity Fairness Opinion. In arriving at its fairness determination, Canaccord Genuity considered the results of all of its analyses, as a whole, and did not attribute any particular weight to any factor or analysis considered by it. Rather, Canaccord Genuity made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses, taken as a whole. Given that Canaccord Genuity’s analyses is inherently subject to uncertainty, being based upon numerous factors or events beyond the control of any party involved in the Transactions, including their respective advisors, none of Canaccord Genuity, Acreage, Canopy or any other person assumes any responsibility if future results are materially different from those used by Canaccord Genuity in rendering the Canaccord Genuity Fairness Opinion.
The Canaccord Genuity Fairness Opinion was given as at October 24, 2022, and it should be understood that: (i) subsequent developments may affect the conclusions expressed in the Canaccord Genuity Fairness Opinion, if such opinion were to be rendered as of a later date; and (ii) Canaccord Genuity disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting the Canaccord Genuity Fairness Opinion which may come, or be brought, to the attention of Canaccord Genuity after the date of such opinion. Without limiting the foregoing, in the event that there is any material change in any fact or matter affecting the Canaccord Genuity Fairness Opinion after the date of such opinion, including, without limitation, the terms and conditions of the Floating Share Arrangement, or if Canaccord Genuity learns that the information relied upon in rendering the Canaccord Genuity Fairness Opinion was inaccurate, incomplete or misleading in any material respect, Canaccord Genuity reserves the right to change, modify or withdraw the Canaccord Genuity Fairness Opinion. Canaccord Genuity are not legal, tax or accounting experts, had not been engaged to review any legal, tax or accounting aspects of the Transactions and expresses no opinion concerning any legal, tax or accounting matters concerning the Transactions. Without limiting the generality of the foregoing, Canaccord Genuity has not reviewed and did not opine upon the tax treatment under the Transactions.
The Canaccord Genuity Fairness Opinion represents the views and opinions of Canaccord Genuity, and the form and content of the Canaccord Genuity Fairness Opinion have been approved for release by a committee of Canaccord Genuity’s managing directors, each of whom is experienced in merger, acquisition, divestiture, fairness opinion, and capital markets matters.
Neither Canaccord Genuity nor any of its affiliates (as such term is defined in the Securities Act) is an insider, associate, or affiliate of Acreage or Canopy. Canaccord Genuity and its affiliates had not been engaged to provide any financial advisory services, had not acted as lead or co-lead manager on any offering of securities of Acreage, Canopy or their respective affiliates during the 24 months preceding the date on which Canaccord Genuity was first contacted by Acreage in respect of the Transactions, other than the services provided pursuant to the Canaccord Genuity Engagement Agreement or as otherwise described herein. Canaccord Genuity acted as investment advisor to Acreage in connection with the investment of a portion of the proceeds received by Universal Hemp, LLC, an affiliate of Acreage, on September 28, 2020, as well as investment advisor to Acreage pursuant to its 7.50% loan due April 2026, which closed on September 28, 2020.
In addition, Canaccord Genuity and its affiliates act as a trader and dealer, both as principal and agent, in major financial markets and, as such, may have had and may in the future have long or short positions in the securities of Acreage, Canopy or any of their respective associates or affiliates and, from time to time, may have executed or may execute transactions on behalf of such companies or clients for which it receives or may receive commission(s). As an investment dealer, Canaccord Genuity and its affiliates conduct research on securities and may, in the ordinary course of their business, provide research reports and investment advice to their clients on investment matters, including with respect to Acreage, Canopy and the Transactions. In addition, Canaccord Genuity and its affiliates may, in the ordinary course of their business, provide other financial services to Acreage, Canopy or any of their associates or affiliates, including financial advisory, investment banking and capital market activities such as raising debt or equity capital. In addition, Canaccord Genuity and/or certain employees of Canaccord Genuity may currently own or may have owned securities of Acreage and/or Canopy.
Except as otherwise described in this summary, Acreage and the Acreage Board imposed no other instructions or limitations on Canaccord Genuity with respect to the investigations made or procedures followed by Canaccord Genuity in rendering the Canaccord Genuity Fairness Opinion. Canaccord Genuity did not recommend any specific consideration to Acreage or the Acreage Board, or that any specific amount or type of consideration constituted the only appropriate consideration for the Floating Share Arrangement.
Canaccord Genuity acted as financial advisor to Acreage in connection with the Floating Share Arrangement and, pursuant to the Canaccord Genuity Engagement Agreement, Canaccord Genuity is to be paid certain fees for its services, including (i) a fee of $500,000, which became payable upon the delivery of the Canaccord Genuity Fairness Opinion, no part of which is contingent upon the Canaccord Genuity Fairness Opinion being favourable or upon the successful completion of the Floating Share Arrangement or any alternative transaction; plus (ii) a fee of $4,500,000, which is contingent upon the successful completion of the Floating Share Arrangement and the Acquisition or any alternative transaction, of which $2,500,000 is payable in cash and $2,000,000 is payable in Floating Shares, based on the five-day volume weighted average price of the Floating Shares on the OTC ending on the day immediately prior to the Effective Date, payable upon completion of the Floating Share Arrangement or any alternative transaction, subject to a maximum fee of $5,000,000. In addition, Acreage has agreed to reimburse Canaccord Genuity for its reasonable out-of-pocket expenses and to indemnify Canaccord Genuity in respect of certain liabilities that might arise in connection with its engagement under the Canaccord Genuity Engagement Agreement (all as further set out therein).
As a matter of course, Acreage does not publicly disclose forecasts or projections as to future performance, earnings or other results due to the inherent unpredictability of the underlying assumptions, estimates and projections. In connection with the evaluation of the Floating Share Arrangement, Acreage’s management prepared and provided to the Acreage Board and Special Committee forecasts of certain financial information (the “Management Forecasts”). The Management Forecasts should not be construed, or utilized, as public guidance and the Management Forecasts have not been updated or revised to reflect information or results after the date they were prepared or as of the date of this Circular.
Acreage is including a summary of the Management Forecasts solely to provide Floating Shareholders with access to information that was used in connection with the evaluations of the Floating Share Arrangement and the Consideration Shares and should not be regarded as an indication that the Acreage Board, the Special Committee or management considered, or now considers, this information to be predictive of actual future results. The Management Forecasts were made available to Eight Capital and Canaccord Genuity in connection with the rendering of their respective Fairness Opinions, as more fully described under the heading “The Floating Share Arrangement – Eight Capital Fairness Opinion” and “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion.” The summary of the Management Forecasts may not be appropriate for other purposes and is not being included in this Circular to influence a Floating Shareholder’s decision whether to vote in favor of the Arrangement Resolution or any other proposal. Please read the information set forth in this section below under the heading “Important Information Regarding the Management Forecasts.”
The following table presents a summary of the Management Forecasts.
| Metric | Management Forecasts | |||||
| (US$ Millions, Unless Otherwise Noted) | 2022E | 2023E | 2024E | |||
| Revenue | $243 | $310 | n/a | |||
| Adjusted EBITDA(1) | $42 | $64 | n/a | |||
| Implied Adjusted EBITDA Margin(2) | 17% | 21% | n/a | |||
| Capital Expenditures | $36 | $35 | n/a | |||
| Operating Cash Flow | ($32) | $3 | n/a | |||
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| (1) | Adjusted EBITDA is a non-U.S. GAAP financial measure, which is calculated as earnings before interest, taxes, depreciation and amortization, as applicable, and as adjusted for any company specific one-time and non-recurring items. |
| (2) | Implied Adjusted EBITDA Margin is a non-U.S. GAAP ratio, which is calculated as Adjusted EBITDA divided by Revenue. |
The following tables provide publicly available research analysts’ estimates2 for each of Acreage and Canopy, each for the calendar years ending December 31, 2022, December 31, 2023, and December 31, 2024, respectively, that were reviewed and relied upon by Canaccord Genuity in connection with the Canaccord Genuity Fairness Opinion.
| Metric | Research Analysts’ Estimates for Acreage | |||||
| (US$ Millions, Unless Otherwise Noted) | 2022E | 2023E | 2024E | |||
| Revenue | $254 | $314 | $400 | |||
| Adjusted EBITDA(1) | $44 | $63 | $87 | |||
| Implied Adjusted EBITDA Margin(2) | 17% | 20% | 22% | |||
| Capital Expenditures | $32 | $32 | $40 | |||
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| (1) | Adjusted EBITDA is a non-U.S. GAAP financial measure, which is calculated as earnings before interest, taxes, depreciation and amortization, as applicable, and as adjusted for any company specific one-time and non-recurring items. |
| (2) | Implied Adjusted EBITDA Margin is a non-U.S. GAAP ratio, which is calculated as Adjusted EBITDA divided by Revenue. |
| Metric | Research Analysts’ Estimates for Canopy | |||||
| (US$ Millions, Unless Otherwise Noted) | 2022E | 2023E | 2024E | |||
| Revenue | $364 | $409 | $616 | |||
| Adjusted EBITDA(1) | ($218) | ($128) | ($62) | |||
| Implied Adjusted EBITDA Margin(2) | Negative | Negative | Negative | |||
| Capital Expenditures | $25 | $26 | $38 | |||
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| (1) | Adjusted EBITDA is a non-U.S. GAAP financial measure, which is calculated as earnings before interest, taxes, depreciation and amortization, as applicable, and as adjusted for any company specific one-time and non-recurring items. |
| (2) | Implied Adjusted EBITDA Margin is a non-U.S. GAAP ratio, which is calculated as Adjusted EBITDA divided by Revenue. |
2 Source: S&P Capital IQ.
Important Information Regarding the Management Forecasts
Acreage’s Management prepared the Management Forecasts based on historical financial statements, as well as a series of assumptions and estimates related to future results that it believed to be reasonable at the time, including assumptions and estimates related to revenue growth, gross margin percentages, selling, general and administrative expenses, capital expenditures and related depreciation and amortization, and other relevant factors relating to expected regulatory developments and Acreage’s long-range operating plan, as well as how certain of these assumptions and estimates may change over time.
The Management Forecasts did not give effect to any changes or expenses as a result of the Floating Share Arrangement Agreement, the Floating Share Arrangement or the Existing Arrangement or other transactions contemplated by thereby, or any other effects of such matters. The Management Forecasts were developed by Acreage’s management on a standalone basis without giving effect to the Floating Share Arrangement and the Existing Arrangement. Furthermore, the Management Forecasts do not take into account the effect of any failure of the transactions contemplated by the Floating Share Arrangement and the Existing Arrangement to be completed and should not be viewed as accurate or continuing in that context. Although the Management Forecasts are presented with numerical specificity, they were based on numerous variables and assumptions that are inherently uncertain, although considered reasonable by Acreage’s management as of the date of their preparation. These variables and assumptions are inherently uncertain for any number of reasons, including general economic, industry, regulatory and business conditions and the other risks, including, but not limited to, the factors set forth under “Cautionary Note Regarding Forward-Looking Information” and the various risks set forth under “Risk Factors.” There will be differences between actual and projected results, and actual results may be significantly higher or lower than the Management Forecasts. The Management Forecasts will be affected by Acreage’s ability to achieve strategic goals, objectives and targets over the applicable periods. The Management Forecasts reflect assumptions as to certain business decisions and regulatory developments that are subject to change and cannot, therefore, be considered a guarantee of future operating results, and this information should not be relied on as such. The inclusion of the Management Forecasts in this Circular should not be deemed an admission or representation by Acreage that they are viewed by Acreage as material information of Acreage, and should not be regarded as an indication that Acreage, Eight Capital, Canaccord Genuity, their respective officers, directors, affiliates, advisors, or other representatives or anyone who received this information in connection with the delivery of the Fairness Opinions then considered, or now considers, them a reliable prediction of future events, and this information should not be relied upon as such. The inclusion of the Management Forecasts in this Circular should not be regarded as an indication that the Management Forecasts will be necessarily predictive of actual future events. No representation is made by Acreage or any other person regarding the Management Forecasts or Acreage’s ultimate performance compared to such information. Some or all of the assumptions which have been made regarding, among other things, the timing of certain occurrences or impacts, may change or may have changed since the date the Management Forecasts were prepared. The Management Forecasts also reflect assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and further or future business developments. The Management Forecasts should be evaluated, if at all, in conjunction with the historical financial statements and other information about Acreage contained in Acreage’s public filings with the SEC and Canadian Securities Regulators. For more information, please see “Where You Can Find More Information.” In light of the foregoing factors, and the uncertainties inherent in the Management Forecasts, Floating Shareholders are cautioned not to place undue, if any, reliance on the Management Forecasts.
The Management Forecasts are not being included in this Circular to influence the decision of the Floating Shareholders whether to vote for the Floating Share Arrangement, but rather because such Management Forecasts, or portions of such Management Forecasts, were provided to the Acreage Board, the Special Committee, Eight Capital and Canaccord Genuity. The Management Forecasts were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC or Canadian Securities Regulators regarding projections or U.S. GAAP, or the guidelines established by the American Institute of Certified Public Accountants with respect to the preparation or presentation of prospective financial information, but, in the view of Acreage’s management, were prepared on a reasonable basis, reflected the best available estimates and judgments at the time of preparation, and presented as of the time of preparation, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Acreage. Although Acreage’s management believes there is a reasonable basis for the Management Forecasts, Acreage cautions Floating Shareholders that future results could be materially different from the Management Forecasts.
The Management Forecasts included in this Circular have been prepared by, and are the responsibility of, Acreage’s management. Marcum LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying Management Forecasts and, accordingly, Marcum LLP does not express an opinion or any other form of assurance with respect thereto. The Marcum LLP report incorporated by reference into this Circular relates to Acreage’s previously issued financial statements. It does not extend to the Management Forecasts and should not be read to do so.
Adjusted EBITDA contained in the Management Forecasts is a “non-U.S. GAAP financial measure,” which is a financial performance measure that is not calculated in accordance with U.S. GAAP. The non-U.S. GAAP financial measures used in the Management Forecasts were relied upon by Eight Capital and Canaccord Genuity, as applicable, for purposes of their respective Fairness Opinions and by the Acreage Board and Special Committee in connection with their respective evaluations of the Floating Share Arrangement. The SEC rules which would otherwise require a reconciliation of a non-U.S. GAAP financial measure to a U.S. GAAP financial measure do not apply to non-U.S. GAAP financial measures included in disclosures relating to a proposed business combination such as the Floating Share Arrangement if the disclosure is included in a document such as this Circular. In addition, reconciliations of non-U.S. GAAP financial measures were not relied upon by Eight Capital or Canaccord Genuity for purposes of their respective Fairness Opinions or by the Acreage Board or Special Committee in connection with their respective evaluations of the Floating Share Arrangement. Accordingly, Acreage has not provided a reconciliation of the financial measures included in the Management Forecasts to the relevant U.S. GAAP financial measures. Non-U.S. GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP, and non-U.S. GAAP financial measures as used by Acreage may not be comparable to similarly titled amounts used by other companies. Furthermore, there are limitations inherent in non- U.S. GAAP financial measures because they exclude charges and credits that are required to be included in a U.S. GAAP presentation. Accordingly, this non-U.S. GAAP financial measure should be considered together with, and not as an alternative to, financial measures prepared in accordance with U.S. GAAP.
The summary of such information above is included solely to give Floating Shareholders access to the information that was made available to Eight Capital and Canaccord Genuity, and is not included in this Circular to influence any Floating Shareholder to vote their shares in favor of the Floating Share Arrangement. In addition, the Management Forecasts have not been updated or revised to reflect information or results after the date they were prepared or as of the date of this Circular, and except as required by applicable securities laws, Acreage does not intend to update or otherwise revise the Management Forecasts or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the underlying assumptions are shown to be in error.
In light of the foregoing factors and the uncertainties inherent in financial projections, Floating Shareholders are cautioned not to place undue reliance, if any, on the Management Forecasts.
By including a summary of the Management Forecasts in this Circular, the Company undertakes no obligations to update, or publicly disclose any update to, the Management Forecasts to reflect circumstances or events, including unanticipated events, that may have occurred or that may occur after the preparation of the Management Forecasts, even in the event that any or all of the assumptions underlying the Management Forecasts are shown to be in error or change, except and only to the extent that may be otherwise required by applicable law.
Recommendation of the Acreage Board
The Acreage Board, after consultation with Acreage management and receipt of advice and assistance offrom its financial and legal advisors, and after careful consideration of alternatives and a number of alternatives and factors, including, among others, the receipt of the unanimous recommendation of the Special Committee, the New Fairness OpinionOpinions and the factors set out below under the heading “Reasons for the AmendedFloating Share Arrangement”, unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) determined that the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement are in the best interests of Acreage and are fair to Floating Shareholders and approved and authorized Acreage to enter into the Proposal AgreementFloating Share Arrangement Agreement and related agreements. Accordingly, the Acreage Board unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) recommends that Floating Shareholders vote FOR the AmendmentArrangement Resolution.
All of the Acreage Locked-Up Shareholders are required to vote all of their ExistingFloating Shares in favorfavour of the AmendmentArrangement Resolution, subject to the terms of the AmendedFloating Share Arrangement Agreement and the Voting Agreements. See “Transaction Agreements – Voting Agreements”.
Treatment of High Street Holders and USCo2 Holders
PursuantConcurrently with the execution of the Floating Share Arrangement Agreement, Acreage amended the High Street Operating Agreement to the Amended Arrangement Agreement,(i) allow Canopy USA to have a call right on the High Street Operating Agreement and USCo2 Constating Documents will be amended asUnits effective immediately prior to the earlier of the Amendment Time in order to reflect the termsclosing of the AmendedFloating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each holder of High Street Units to exchange their High Street Units for Canopy Shares as described in further detail in such amendment and make any(ii) make other non-substantive changes that the Companyagreed upon by Acreage and Canopy Growth may mutually agree, acting reasonably, arewhich were advisable or necessarynecessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.Floating Share Arrangement.
In orderThe USCo2 Constating Documents will be amended prior to reflect the Capital Reorganization,closing of the Floating Share Arrangement to: (i) allow Canopy USA to have a call right on the USCo2 floating shares effective immediately prior to the earlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each shareholder to exchange their floating shares for Canopy Shares; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Floating Share Arrangement.
Immediately following the AmendmentEffective Time, all High Street Units and USCo2 Shares willmay be exercisable, convertible or exchangeable on the basis of 0.7 of a Fixed Share and 0.3 of a Floating Share in respect of each Existing SVS that otherwise would have been issuable upon such exercise, conversion or exchange.
Pursuant to the Proposal Agreement, at the Amendment Time, High Street Holders and USCo2 Holders are entitled to receive the Aggregate Amendment Option Payment in respect of each Existing SVS which they are entitled to acquire upon the exchange of their Common Membership Units or USCo2 Shares. High Street Holders and USCo2 Holders will receive the Aggregate Amendment Option Payment on a pro rata basis with the Shareholders (on an as exchanged for Existing SVS basis) assuming exchange of their High Street UnitsFloating Shares and USCo2Fixed Shares, respectively, for Existing SVS in accordance with their terms.
All High Street Units and USCo2 Shares that are notwhich will then be exchanged for Shares, prior to the Acquisition Time and that remain outstanding immediately prior to the Acquisition Time shall be treated in accordance with the provisions of the certificates, award agreements, indentures or other documents governing such securities as at the Amendment Time. If the Canopy Call Option and the Floating Call Option are exercised, following the Acquisition Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Growth Shares on the basis of the Exchange Ratio and the Fixed Exchange Ratio, as applicable. Upon the closing of the Floating Ratio.
OnShare Arrangement, or if the third anniversary ofFloating Share Arrangement does not close but the Acquisition Date,Existing Arrangement closes, all High Street Holders and USCo2 Holders will be required, at Canopy Growth’s option, to exchange all of the outstanding High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Shares and Floating Shares in accordance with the applicable numberprovisions of Consideration Shares based on the Exchange Ratio and, if applicable, the Floating Cash Consideration. On the seventh anniversary, all outstanding High Street Units held by the High Street Holders and USCo2 Holders can, at their option, be redeemed by High Street for their outstanding capital plus the High Street Holder Return.such amendments.
Timing for ImplementationCompletion of the AmendedFloating Share Arrangement
Subject to the satisfaction or waiver of the conditions in the Proposal Agreement,Floating Share Arrangement Agreement, the AmendedFloating Share Arrangement will become effective at 12:0100 a.m. (Vancouver time) on the AmendmentEffective Date, being the date upon which all of the conditions to the implementationcompletion of the AmendedFloating Share Arrangement as set out in the Proposal AgreementFloating Share Arrangement Agreement have been satisfied or waived in accordance with the Proposal AgreementFloating Share Arrangement Agreement and all documents agreed to be delivered thereunder have been delivered to the satisfaction of the recipient, acting reasonably.
Although Acreage’s, Canopy’s and Canopy Growth’sUSA’s objective is to have the AmendmentEffective Date occur as soon as possible after the Meeting, the Amendment Date could be delayed for several reasons, including, but not limited to, an objection before the Court at the hearing of the application for the Amendment Final Order or any delay in obtaining any required Amendment Regulatory Approvals.
The Amendment Date will be the date upon which Acreage and Canopy Growth agree in writing following the satisfaction or waiver of all conditions to the implementation of the Amended Arrangement as set out in the Proposal Agreement (excluding any conditions that, by their terms, cannot be satisfied until the Amendment Date, but subject to the satisfaction or waiver of those conditions). The implementation of the Amended Arrangement is expected to occur in September, 2020; however, it is possible that completion may be delayed beyond this date if the conditions to the implementation of the Amended Arrangement cannot be met on a timely basis.
Acreage or Canopy Growth may determine not to implement the Amended Arrangement without prior notice to, or action on the part of, Shareholders or Canopy Growth Shareholders. See “Transaction Agreements – Amending Agreement”.
Following the Amendment Time, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event and the satisfaction or waiver of the Acquisition Closing Conditions, the Acquisition will become effective at 12:01 a.m. (Vancouver time) on the Acquisition Date, being the date specified for completion of the Acquisition in either: (i) the Canopy Call Option Exercise Notice; or (ii) the Triggering Event Notice.
Although Acreage’s and Canopy Growth’s objective is to have the Acquisition Date occur as soon as possible after the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, the AcquisitionEffective Date could be delayed for several reasons, including, but not limited to, any delay in obtaining any required AcquisitionFloating Share Arrangement Regulatory Approvals or Regulatory Approvals. In addition, any delay in satisfaction of the Acquisition Closing Conditions under the Existing Arrangement Agreement will result in a corresponding delay in completion of the Floating Share Arrangement.
The Triggering EventEffective Date beingwill be the date upon which Acreage, Canopy and Canopy USA agree in writing following the federal Lawssatisfaction or waiver of all conditions to the completion of the Floating Share Arrangement as set out in the United States are amendedFloating Share Arrangement Agreement (excluding any conditions that, by their terms, cannot be satisfied until the Effective Date, but subject to permit the general cultivation, distribution and possessionsatisfaction or waiver of marijuana or to remove the regulation of such activities from the federal Lawsthose conditions). The completion of the United States,Floating Share Arrangement is expected to occur in the second half of 2023; however, it is possible that completion may or may not occur. The occurrencebe delayed beyond this date if the conditions to the completion of the Triggering Event Date is beyond the control or influence of Floating Share Arrangement cannot be met on a timely basis.
Acreage,Canopy and Canopy Growth.USA may determine not to complete the Floating Share Arrangement without prior notice to, or action on the part of, Floating Shareholders, Canopy Shareholders or Canopy USA members. See “Transaction Agreements – Floating Share Arrangement Agreement”.
Notwithstanding anythingPursuant to the contrary contained interms of the AmendedFloating Share Arrangement Agreement, the Acquisition will not be completedFixed Call Option pursuant to the Existing Arrangement to acquire all of the issued and outstanding Fixed Shares (following the Amended Arrangement Agreement will terminate in the event that the occurrence or waiver (at the discretion of Canopy Growth)automatic conversion of the Triggering Event does not occur on or priorFixed Multiple Shares) is required to be exercised no later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares. See the Existing Arrangement and Acreage’s proxy statement and management information circular dated August 17, 2020 in connection with a special meeting held to approve the Existing Arrangement for further details with respect to the Acquisition Closing Outside Date.steps of the Existing Arrangement, a copy of each of which is available under Acreage’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.
Required Shareholder Approvals
For the AmendmentArrangement Resolution, you may vote “FOR” or “AGAINST”. Pursuant to the Amendment Interim Order and the BCBCA, in order to be adopted, the AmendmentArrangement Resolution must be approved, with or without variation, by the affirmative vote of at least 66⅔% of the votes cast by holders of Existing SVS, Existing PVS and Existing MVS,Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, with all Shareholders voting together as a single class.Meeting. Abstentions and broker non-votes will not have any effect on the approval of the AmendmentArrangement Resolution.
Pursuant to MI 61-101, the AmendmentArrangement Resolution must also be approved by not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS,Floating Shares, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single classMeeting, excluding the votes of the Interested Parties pursuant to MI 61-101. Since all of the holders of Existing MVS are Interested Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101. TheThe votes attaching to the Existing SVS and Existing PVSFloating Shares held by the Interested Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of MI 61-101. Pursuant to an application made to the OSC, as principal regulator, the Company obtained an order from the OSC dated August [], 2020, exempting the Company from the requirements in subsection 8.1(1) of MI 61-101 to obtain minority approval for the Arrangement Resolution pursuant to MI 61-101 from the holders of each affected class of Existing Shares, each voting separately as a class. Accordingly, holders of Existing SVS and Existing PVS who are not Interested Parties will vote together as a single class for the purposes of obtaining approval pursuant to MI 61-101. As Mr. Murphy, who is an Interested Party, is the only beneficial holder of Existing MVS, Existing MVS will be excluded entirely from such vote.
In addition, pursuant to OSC Rule 56-501 and NI 41-101, the Amendment Resolution must also be approved by at least a simple majority of the votes cast by holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding all Existing Shares held by Related Parties. Since all of the holders of Existing MVS are Related Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. The votes attaching to the Existing SVS and Existing PVS held by the Related Parties will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101.
Shareholder Approval must be received in order for the CompanyAcreage to seek the Amendment Final Order and implementcomplete the AmendedFloating Share Arrangement on the AmendmentEffective Date. See “Securities“Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101”61-101”.
Should Floating Shareholders fail to approve the AmendmentArrangement Resolution by the requisite majority,majorities, the AmendedFloating Share Arrangement will not be completed. Notwithstanding the foregoing, the AmendmentArrangement Resolution authorizes the Acreage Board, without further notice to or approval of Floating Shareholders, to revoke the Amendment Resolution at any time priorsubject to the Amendment Time.terms of the Floating Share Arrangement Agreement, not to proceed with the Floating Share Arrangement and related transactions.
The Acreage Board (with(with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) has approved the terms of the AmendedFloating Share Arrangement and entry into the Proposal AgreementFloating Share Arrangement Agreement and related agreements and unanimously (with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) recommends that Floating Shareholders vote FOR the AmendmentArrangement Resolution. See “The AmendedFloating Share Arrangement – Recommendation of the Acreage Board” and “The AmendedFloating Share Arrangement – Reasons for the AmendedFloating Share Arrangement”.
Interests of Certain Persons in the AmendedFloating Share Arrangement
In considering the AmendedFloating Share Arrangement and the unanimous recommendation of the Acreage Board (with(with the exception of Mr.Kevin Murphy, whoJohn Boehner, Brian Mulroney and Peter Caldini, each of whom declared histheir interest in the transactions contemplated by the Proposal AgreementFloating Share Arrangement Agreement and the Amending Agreementconnected transactions and abstained from voting in respect thereof) with respect to the AmendedFloating Share Arrangement, Floating Shareholders should be aware that certain directors and certain executive officers of the CompanyAcreage have interests in connection with the AmendedFloating Share Arrangement that may present them with actual or potential conflicts of interest in connection with the Amended Arrangement.Floating Share Arrangement and the connected transactions. The Acreage Board and the Special Committee are aware of these interests and considered them along with other matters described above under “The Amended“The Floating Share Arrangement – Reasons for the Amended Arrangement”Floating Share Arrangement”. These interests and benefits are described below.
Except as otherwise disclosed below or elsewhere in this Circular, all benefits received, or to be received, by directors or executive officers of Acreage as a result of the AmendedFloating Share Arrangement are, and will be, solely in connection with their services as directors or employees of Acreage. Except as disclosed below, no benefit has been, or will be, conferred for the purpose of increasing the value of consideration payable to any such Person for ExistingFloating Shares, nor is it, or will it be, conditional on the Person supporting the AmendedFloating Share Arrangement.
ExistingFloating Shares
As of the Record Date, the directors and executive officers of Acreage beneficially owned, or exercised control or direction, directly or indirectly, over: (i) over [¨t] Existing SVS Floating Shares, representing in the aggregate approximately [¨t]% of all issued and outstanding Existing SVS; (ii) [¨] Existing PVS representing in the aggregate approximately [¨]% of all issued and outstanding Existing PVS; and (iii) [¨] Existing MVS representing in the aggregate 100% of all issued and outstanding Existing MVS. On an aggregate basis, the directors and executive officers of Acreage beneficially owned, or exercised control or direction, directly or indirectly, over [¨]% of the outstanding voting rights in the Company.Floating Shares. All of the ExistingFloating Shares held by such directors and executive officers of Acreage will be treated in the same fashion under the AmendedFloating Share Plan of Arrangement as ExistingFloating Shares held by all other Floating Shareholders (other than Canopy Growth)and Canopy USA). See “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement”.
Pursuant to the Voting Agreements, all of the directors and certain senior officers of Acreage have agreed to, among other things, vote their Floating Shares, as applicable, FOR the Arrangement Resolution. The Floating Shares held by each individual director and executive officer of Acreage are set out in the table below under the heading “Ownership of Acreage Shares, Acreage Options and Acreage Share Units”.
AcreageFloating Options
As of the Record Date, the directors and executive officers of Acreage owned an aggregate of [¨t] Acreage Floating Options granted pursuant to the Existing OmnibusAmended Equity Incentive Plan (representing in the aggregate approximately [¨]% of all outstanding Acreage Options), none of which were vested and exercisable as of the Record Date and [¨] of which were unvested and not exercisable as of the Record Date. The outstanding Acreage Options held by such directors and executive officers have an exercise price of US$[¨].Plan. At the AmendmentEffective Time, the outstanding AcreageFloating Options will be exchanged for FixedReplacement Options and Floating Options as partin accordance with the terms of the Capital Reorganization.Floating Share Arrangement. See “The AmendedFloating Share Arrangement – Principal Steps of the Amended Arrangement”Floating Share Arrangement”.
In connection with the Acquisition, at the Acquisition Time, each Fixed Option will be exchanged for a Replacement Option. If the Floating Call Option is exercised, each Floating Option will be exchanged for a Replacement Option.
Except as provided in the AmendedFloating Share Plan of Arrangement, all terms and conditions of a Replacement OptionReplacement Option, including the term to expiry, conditions to and manner of exercising, will be the same as the Fixed Option or Floating Option for which it is exchangedwas exchanged, and will be governed by the terms of the Canopy Growth Equity Incentive Plan. AllIncentive Plan, and the exchange will not provide any optionee with any additional benefits as compared to those under his or her original Floating Option. Notwithstanding the foregoing, the terms and conditions of any Replacement Options exchanged for Executive Floating Options will be deemed to provide that such Replacement Options will continue to vest according to the terms of the Fixed Options andExecutive Floating Options held byas at the directors and executive officersdate of the Floating Share Arrangement Agreement, regardless of the resignation of the Company Executives from their positions or offices with Acreage, will be treated in the same fashion under the Amended Planprovided that such Company Executives retain a position of Arrangement as the Fixed Options and Floating Options held by every other Acreage Optionholder.
employment with Acreage or an affiliate thereof. See “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement”. See also
The Floating Options held by each individual director and executive officer of Acreage are set out in the table below under the heading “Securities Law Matters – Canadian Securities Laws – Minority Approval RequirementsOwnership of Acreage Shares, Acreage Options and Acreage Share Units”.
Acreage RSUsFloating Share Units
As of the Record Date, the directors and executive officers of Acreage owned an aggregate of [¨t] Acreage RSUs Floating Share Units granted pursuant to the Existing OmnibusAmended Equity Incentive Plan (representing in the aggregate approximately [¨]% of all outstanding Acreage RSUs), of which [¨] were vested as of the Record Date and [¨] of which were unvested as of the Record Date.Plan. At the AmendmentEffective Time, the outstanding Acreage RSUsFloating Share Units will be exchanged for Fixed RSUs and Floating RSUs as partReplacement Share Units in accordance with the terms of the Capital Reorganization.Floating Share Arrangement. See “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement”.
In connection with the Acquisition, at the Acquisition Time, each Fixed RSU will be exchanged for a Replacement RSU. If the Floating Call Option is exercised, each Floating RSU will be exchanged for a Replacement Option.
Except as provided in the AmendedFloating Share Plan of Arrangement, all terms and conditions of a Replacement RSUReplacement Share Unit, including the term to expiry, conditions to and manner of exercising, will be the same as the Fixed RSU or Floating RSUShare Unit for which it iswas exchanged, and the exchange will not provide any holder with any additional benefits as compared to those under his or her original Floating Share Unit. Notwithstanding the foregoing, the terms and conditions of those Replacement Share Units exchanged for Executive Floating Share Units will be governed by thedeemed to provide that such Replacement Share Units will continue to vest according to the terms of the Canopy Growth Equity Incentive Plan. AllExecutive Floating Share Units as at the date of the Fixed RSUsFloating Share Arrangement Agreement, regardless of the resignation of the Company Executives from their positions or offices with Acreage, provided that such Company Executives retain a position of employment with Acreage or an affiliate thereof. See “The Floating Share Arrangement – Principal Steps of the Floating Share Arrangement”.
The Floating Share Units held by each individual director and executive officer of Acreage are set out in the table below under the heading “Ownership of Acreage Shares, Acreage Options and Acreage Share Units”.
Floating RSUs held byWarrants
As of the Record Date, none of the directors and executive officers of Acreage will be treated in the same fashion under the Amended Plan of Arrangement as Fixed RSUs andown any Floating RSUs held by every other Acreage RSU Holder.
See “The Amended Arrangement – Principal Steps of the Amended Arrangement”. See also “Securities Law Matters – Canadian Securities Laws – Minority Approval Requirements”.Warrants.
Acceleration Agreements
On June 24, 2020, the Company entered into agreements with each of the Specified Individuals providing that, if the Amendment Resolution is passed and the Amended and Restated Omnibus Equity Incentive Plan is adopted, and in the event that either: (i) the Company terminates the employment of Mr. Daino, Chief Operating Officer, Mr. Leibowitz, Chief Financial Officer, or Mr. Doherty, General Counsel and Secretary, at any time; or (ii) any of the foregoing or Mr. Boehner, Mr. Mulroney, Mr. Maine or Mr. Van Faasen resigns from any and all positions with the Company on or after the one year anniversary of the Amendment Date (in either case, an “Acceleration Event”), the Company will accelerate the vesting of all of the Acreage RSUs, Fixed RSUs, Floating RSUs and Replacement RSUs, as applicable, granted to such Specified Individual that are outstanding as at the date on which the Acceleration Event occurs.
Ownership of ExistingAcreage Shares, Acreage Options and Acreage RSUsShare Units
The following table sets forth the information with respect to the beneficial ownership of securities of Acreage for (i) each director, (ii) each executive officer, (iii) all current directors and executive officers as a group, and (iv) to the knowledge of the directors and officers of the Company,Acreage, the Persons or companies beneficially owning, directly or indirectly, or exercising control or direction over, more than 5% of the outstanding Existing SVS,Floating Shares, in each case as at the Record Date. Except as noted and to the knowledge of the Company,Acreage, the beneficial owners listed below have sole voting and investment power with respect to ExistingFloating Shares beneficially owned. None of the directors and executive officers of Acreage nor, to the knowledge of Acreage after reasonable enquiry: (a) their respective associates and affiliates; (b) any insider of Acreage (other than the directors and executive officers) and their respective associates and affiliates; (c) any associate or affiliate of Acreage; and (d) any Person acting jointly or in concert with Acreage, beneficially own, or exercise control or direction over, securities of Acreage except as set forth below and which will be affected by the AmendedFloating Share Arrangement as described under “The AmendedFloating Share Arrangement – Principal Steps of the AmendedFloating Share Arrangement”:
Securities of Acreage Beneficially Owned, Directly or Indirectly, over which Control or Direction is Exercised | ||||
| Name and Position(s) / Relationship with Acreage | Number and Class of Acreage Shares Held (%) | Number and Class of Acreage Options Held | Number and Class of Acreage Share Units Held | Number of High Street Units Held) |
| Kevin P. Murphy, Director | 728,706 Floating Shares (2.14%) 1,496,040 Fixed Shares (1.89%) 117,600 Fixed Multiple Shares (100%) | 19,512 Floating Options | 147,275 Floating Share Units 343,642 Fixed Share Units | 15,957,908 |
| John Boehner, Director | 202,254 Floating Shares (0.59%) 364,050 Fixed Shares (0.46%) | 19,512 Floating Options | - | 360,107 |
| Douglas Maine, Director | 218,403 Floating Shares (0.64%) 382,372 Fixed Shares (0.48%) | 19,512 Floating Options | - | - |
| Brian Mulroney, Director | 278,685 Floating Shares (0.82%) 542,390 Fixed Shares (0.69%) | 19,512 Floating Options | - | - |
| William C. Van Faasen, Director | 276,658 Floating Shares (0.81%) 537,320 Fixed Shares (0.68%) | 19,512 Floating Options | - | - |
| Peter Caldini, Director, Chief Executive Officer | 79,160 Floating Shares (0.23%) 120,206 Fixed Shares (0.15%) | 241,464 Floating Options 1,941,410 Fixed Options | 187,805 Floating Share Units 1,072,558 Fixed Share Units | - |
Securities of Acreage Beneficially Owned, Directly or Indirectly, over which Control or Direction is Exercised | ||||
| Name and Position(s) / Relationship with Acreage | Number and Class of | Number and Class of Acreage Options Held | Number and Class of Acreage Share Units Held | Number of High Street Units |
284,261 Fixed Shares (0.36%) | - |
|
| |
|
|
|
| |
|
|
| - | |
294,987 Fixed Shares (0.37%) |
|
| - | |
|
|
| - | |
(0.05%) 22,337 Fixed Shares (0.03%) |
1,204,722 Fixed Options |
|
| |
|
|
| - | |
- |
1,027,035 Fixed Options | 506,167 Fixed Share Units | - | |
|
| 1,152,937 Fixed Options | 576,469 Fixed Share Units | - |
| All directors and executive officers as a group |
(6.15%)
|
4,173,167 Fixed Options |
2,557,571 Fixed Share Units |
|
Notes:
(1) [¨]195,000 of the Existing PVS areFloating Shares and 455,000 Fixed Shares registered in the name of Murphy Capital, LLC, an entity over which Mr. MurphyMurphy exercises direction or control, and [¨] Existing PVS are registered in the name of The Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises direction or control.control.
(2) [¨] of the Existing SVS are registered in the name of Glen Leibowitz IRA Account over which Mr. Leibowitz exercises direction or control.
To the knowledge of Acreage, there are no agreements, commitments or understandings to acquire securities of Acreage, Canopy or of Canopy GrowthUSA by any of the Persons referred to above, except for Existing Shares and/or Canopy Growth Shares that may be acquired upon the completion of the Floating Share Arrangement and closing of the Acquisition, and upon exercise or vesting, as applicable, of Acreage Options, FixedAcreage Share Units, Replacement Options Floating Options, orand Replacement Options,Share Units, as the case may be, or as otherwise disclosed herein. None of the Persons referred to above hold any Floating Warrants or Fixed Warrants as of the date hereof.
Court Approval of the AmendedFloating Share Arrangement and ImplementationCompletion of the AmendedFloating Share Arrangement
The AmendedFloating Share Arrangement requires Court approval under Division 5 of Part 9 of the BCBCA. On August [¨], 2020,January 18, 2023, prior to the mailing of this Circular, the CompanyAcreage obtained the Amendment Interim Order, which was varied on [t], 2023 to amend the Record Date, the date of the Meeting, the date of the hearing for the Final Order approving the Floating Share Arrangement and any related timelines. The Interim Order provides for the calling and holding of the Meeting, the Dissent Rights and other procedural matters. A copy of the Amendment Interim Order is attached as Appendix “E”“F” to this Circular.
Subject to obtaining the Shareholder Approval, the hearing in respect of the Amendment Final Order is currently expected to take place on or about September [¨t], 2020,2023, in Vancouver, British Columbia. Under the terms of the Amendment Interim Order, any Floating Shareholder, AcreageFloating Optionholder, Acreage RSUFloating Share Unit Holder, Acreage Compensation Option HolderFloating Warrantholder or other Person who wishes to appear, or to be represented, and to present evidence or arguments must file and serve a Response to Petition (“Response”) no later than 4:00 p.m. (Vancouver time) on September [¨t], 2020,2023, along with any other documents required, all as set out in the Amendment Interim Order and the Notice of Hearing of Petition for the AmendmentApplication (for Final Order,Order), the text of which are attached as Appendix “E”“F” to this Circular, and satisfy any other requirements of the Court. The Court will consider, among other things, the substantive and procedural fairness and reasonableness of the Amended Plan ofFloating Share Arrangement. The Court may approve the Amendment Plan ofFloating Share Arrangement in any manner the Court may direct, subject to compliance with any terms and conditions, if any, as the Court deems fit. Depending upon the nature of any required amendments, Acreage, Canopy and/or Canopy GrowthUSA may determine not to proceed with the transactions contemplated in the Amended Arrangement Agreement.Floating Share Arrangement. In the event that the hearing is postponed, adjourned or rescheduled then, subject to further order of the Court, only those Persons having previously filed and served a Response will be given notice of the postponement, adjournment or rescheduled date. A copy of the Notice of Hearing of Petition for the Amendment FinalApplication (Final Order Hearing) is attached as Appendix “E”“F” to this Circular.
The Court has been advised that the Court’s approval of the AmendedFloating Share Arrangement (including the fairness thereof), if granted, will form a basis for the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof (the “Section 3(a)(10) Exemption”) with respect to the issuance and distribution of the: (i) Fixed Shares to be issued by Acreage to the holders of Fixed Multiple Shares upon exchange of the Fixed Multiple Shares immediately prior to completion of the Acquisition; (ii) Canopy Growth SharesFloating Share Arrangement Issued Securities to be issued by Canopy Growth to the Floating Shareholders, the Floating Optionholders, the Floating Share Unit Holders and the Floating Warrantholders, as applicable, upon completion of the Acquisition; (iii) Replacement Options to be issued by Canopy Growth to the holders of Fixed Options and Floating Options upon completion of the Acquisition; (iv) Replacement RSUs to be issued by Canopy Growth to the holders of Fixed RSUs and Floating RSUs upon completion of the Acquisition; and (v) Replacement Compensation Options to be issued by Canopy Growth to the holders of Fixed Compensation Options and Floating Compensation Options upon completion of the Acquisition,Share Arrangement pursuant to the AmendedFloating Share Plan of Arrangement (collectively, the “Amended Arrangement Issued Securities”).Arrangement. Consequently, if the Amendment Final Order is granted, the AmendedFloating Share Arrangement Issued Securities issuable pursuant to the AmendedFloating Share Arrangement will not require registration under the U.S. Securities Act. See “Securities Law Matters – U.S. Securities Laws”.
Effects Effects of the AmendedFloating Share Arrangement on Shareholders’ Rights
The rights of Floating Shareholders are currently governed by the BCBCA and by Acreage’s Articles. Floating Shareholders receiving Canopy Growth Shares pursuant to the AcquisitionFloating Share Arrangement will become shareholders of Canopy, Growth, which is governed by the CBCA and the articles of incorporation, as amended, and by-laws of Canopy Growth.Canopy. Although the rights and privileges of shareholders under the CBCA are in many instances comparable to those under the BCBCA, there are several differences. See Appendix “K”“I”– “Comparison of Shareholder Rights under the BCBCA and CBCA” for a comparison of certain of these rights. This summary is not intended to be exhaustive and Floating Shareholders should consult their legal advisors regarding all of the implications of the effects of the AmendedFloating Share Arrangement on such Floating Shareholders’ rights.
Capital Reorganization Letter of Transmittal
At the time of sending this Circular to each Shareholder, Acreage is also sending the Capital Reorganization Letter of Transmittal to each Registered Shareholders. The Capital Reorganization Letter of Transmittal provides an explanation as to how to deposit the Existing Shares and receive the Shares to be issued in exchange therefor pursuant to the Capital Reorganization. A copy of the Capital Reorganization Letter of Transmittal may also be obtained by contacting the Transfer Agent and will also be available on the Company’s website at [¨] as well as on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar. The Capital Reorganization Letter of Transmittal contains procedural information relating to the Capital Reorganization and should be reviewed carefully.
The Capital Reorganization Letter of Transmittal contains complete instructions on how to deposit the certificate(s) representing Existing Shares and how to receive the certificate(s) or direct registration advice representing the Shares to be issued in exchange therefor pursuant to the Capital Reorganization. Shareholders should return a properly completed Capital Reorganization Letter of Transmittal, together with such other documents and instruments as the Transfer Agent may reasonably require as set forth in the Capital Reorganization Letter of Transmittal, to the Transfer Agent. Shareholders with questions regarding the deposit of Existing Shares should contact the Transfer Agent, by telephone at 1-587-885-0960 or toll-free in North America at 1-888-290-1175 or by email at corp.actions@odysseytrust.com. Further information with respect to the Transfer Agent is set forth in the Capital Reorganization Letter of Transmittal. In order for Shareholders to receive the certificate(s) or direct registration advice representing the Shares as soon as possible after the completion of the Capital Reorganization, Registered Shareholders should submit the certificate(s) or direct registration advice representing their Existing Shares and a properly completed Capital Reorganization Letter of Transmittal as soon as possible. Registered Shareholders will not actually receive the certificate(s) representing the Shares until the Capital Reorganization is completed and they have returned their properly completed Capital Reorganization Letter of Transmittal together with such other documents and instruments as the Transfer Agent may reasonably require, and certificate(s) or direct registration advice representing their Existing Shares. As of the Amendment Date, upon completion of the Capital Reorganization, Shareholders will be deemed to have become the holders of record of the Fixed Shares and the Floating Shares as of the Amendment Time and will be added to the register of holders of Fixed Shares and Floating Shares to be maintained by the Transfer Agent. If the Amendment Resolution is adopted and the Amending Agreement is executed, all deposits of Existing Shares made under the Capital Reorganization Letter of Transmittal are irrevocable.
In the event that any certificate or direct registration advice which immediately prior to the Amendment Time represented one or more outstanding Existing Shares which were exchanged for Shares pursuant to the Capital Reorganization shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such certificate to be lost, stolen or destroyed, and satisfying indemnity bonding requirements, the Transfer Agent shall deliver in exchange for such lost, stolen or destroyed certificate, a certificate representing the Shares that such holder is entitled to receive pursuant to the Capital Reorganization. Where a certificate for Existing Shares has been destroyed, lost or stolen, the holder of that certificate should immediately contact the Transfer Agent.
The exchange of Existing Shares for Shares in respect of a Non-Registered Shareholder is expected to be made with such Non-Registered Shareholder’s broker, securities dealer, trust corporation or other Intermediary account through the procedures in place for such purposes between the clearing agency (such as CDS Clearing and Depository Services Inc.) and such Intermediary. Non-Registered Shareholders should contact their Intermediary if they have any questions regarding this process and to arrange for their Intermediary to complete the necessary steps to ensure that they receive Shares in exchange for the Existing Shares as soon as possible following completion of the Capital Reorganization.
Any use of the mail to transmit a certificate for Existing Shares and a related Capital Reorganization Letter of Transmittal, is at the risk of the Shareholder. If these documents are mailed, it is recommended that registered mail, properly insured, be used.
Whether or not Shareholders deposit the certificate(s) representing their Existing Shares upon completion of the Capital Reorganization with the Transfer Agent, Shareholders will cease to be holders of Existing Shares and will only be entitled to receive that number of Fixed Shares and Floating Shares to which they are entitled under the Capital Reorganization or, in the case of holders of Existing Shares who properly exercise Dissent Rights, the right to receive fair value for their Existing Shares in accordance with the dissent procedures. See “Dissent Rights”.
The Transfer Agent or your broker or other financial advisor can assist you in completing your Capital Reorganization Letter of Transmittal. If you are a Non-Registered Shareholder, you should communicate as soon as possible with your Intermediary or other nominee and follow their instructions.
If the Amendment Resolution is not approved and the Capital Reorganization is not completed, any deposited certificate(s) representing Existing Shares (and any other relevant documents) will be returned to the depositing Shareholder, at the Company’s expense upon written notice to the Transfer Agent from the Company by first class insured mail in the name of and to the address specified by the Shareholder in the Capital Reorganization Letter of Transmittal or, if such name and address is not so specified, in such name and to such address as shown on the register maintained by the Transfer Agent.
The Existing Arrangement Agreement
Acreage and Canopy Growth are parties to the Existing Arrangement Agreement. In accordance with the Existing Arrangement Agreement, on June 27, 2019,September 23, 2020, Acreage implemented the Existing Arrangement pursuant to which, among other things, Acreage’s articles were amended. AsAcreage completed a resultcapital reorganization whereby: (i) each existing Former SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) each issued and outstanding Former PVS was exchanged for 28 Fixed Shares and 12 Floating Shares; and (iii) each issued and outstanding Former MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share.
Pursuant to the amendments to Acreage’s articles,Existing Arrangement Agreement, upon the occurrence or waiver (at the discretion of Canopy Growth)Canopy’s discretion) of the TriggeringTriggering Event, andCanopy, subject to the satisfaction or waiver of certain closing conditionsconditions set out in the Existing Arrangement Agreement, Canopy Growth willAgreement: (i) would be obligated to a acquire all of the Existing SVS, followingissued and outstanding Fixed Shares (following the mandatory conversion of all other outstanding Acreage shares to Existing SVS,the Fixed Multiple Shares into Fixed Shares) in accordance with the Fixed Call Option on the basis of 0.58180.3048 of a Canopy Growth ShareShare for each Existing SVS,Fixed Share at the time of the acquisition of the Fixed Shares, subject to adjustment in accordance with the terms of the Existing Arrangement Agreement. PriorAgreement; and (ii) would have the Floating Call Option, exercisable for a period of 30 days following the Triggering Event Date, to acquire all of the acquisitionissued and outstanding Floating Shares in accordance with the Floating Option at a price to be determined based upon the 30-day VWAP of the Floating Shares, subject to a minimum price of $6.41, as may be adjusted in accordance with the terms of the Existing SVS byArrangement Agreement, to be payable, at the option of Canopy, Growthin cash, Canopy Shares or a combination thereof. The Fixed Call Option and the Floating Option expire on September 23, 2030. Pursuant to the terms of the Floating Share Arrangement Agreement, Canopy has irrevocably waived its right to exercise the Floating Call Option pursuant to the Existing Arrangement.
It is a condition to closing of the Floating Share Arrangement each Existing MVS and each Existing PVS will be converted into Existing SVSthat all Acquisition Closing Conditions, being conditions precedent to the completion of the Acquisition set forth in accordance with their respective terms. Thethe Existing Arrangement was implementedAgreement, shall have been satisfied or, if permitted, waived, excluding conditions that by waytheir terms cannot be satisfied until the Acquisition Effective Time. See “The Floating Share Arrangement – Principal Steps of the Floating Share Arrangement” for a court-approved plansummary of arrangement under the BCBCA following approval byAcquisition Closing Conditions set forth in the shareholders of Acreage and Canopy Growth on June 19, 2019.Existing Arrangement Agreement.
The foregoing is qualified in its entirety by reference to the Existing Arrangement Agreement. See the Existing Arrangement Agreement attachedand Acreage’s proxy statement and management information circular dated August 17, 2020 in connection with a special meeting held to approve the Existing Arrangement for further details with respect to the Acreage Annual Reportsteps of the Existing Arrangement, a copy of each of which has been filed by Acreage with the SEC and is available on EDGAR at www.sec.gov/edgar and on Acreage’s SEDAR profile at www.sedar.com.
The ProposalFloating Share Arrangement Agreement
The Proposal Agreement sets out, among other things, the terms and conditions upon which the Amended Arrangement will be implemented, including the terms of the Amended Plan of Arrangement.
The following summarizes the material provisions of the ProposalFloating Share Arrangement Agreement. This summary may not contain all of the information about the ProposalFloating Share Arrangement Agreement that is important to Floating Shareholders. The rights and obligations of the Parties to the Proposal Agreement are governed by the express terms and conditions of the ProposalFloating Share Arrangement Agreement and not by this summary or any other information contained in this Circular. This summary is qualified in its entirety by reference to the ProposalFloating Share Arrangement Agreement, which is incorporated by reference herein and has been filed by Acreage on its SEDAR profile at www.sedar.com and with the SEC and is available on EDGAR at www.sec.gov/edgar and on Acreage’s SEDAR profile at www.sedar.com.edgar.
In reviewing the ProposalFloating Share Arrangement Agreement and this summary, please remember that they have been included to provide Floating Shareholders with information regarding the terms of the ProposalFloating Share Arrangement Agreement and are not intended to provide any other factual information about Acreage, Canopy, GrowthCanopy USA or any of their Subsidiaries or affiliates. The ProposalFloating Share Arrangement Agreement contains representations and warranties and covenants by each of the Parties to the ProposalFloating Share Arrangement Agreement, which are summarized below. These representations and warranties have been made solely for the benefit of the other Parties to the ProposalFloating Share Arrangement Agreement and (i) and:
Moreover, information concerning the subject matter of the representations and warranties in the ProposalFloating Share Arrangement Agreement and described below may have changed since the date of the Proposal AgreementAnnouncement Date and subsequent developments or new information qualifying a representation or warranty may have been included in this Circular. Accordingly, the representations and warranties and other provisions of the ProposalFloating Share Arrangement Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this Circular and in the documents incorporated by reference into this Circular.
Representations and Warranties
The ProposalFloating Share Arrangement Agreement contains certain customary representations and warranties provided by Acreage, Canopy and Canopy Growth.USA. The assertions embodied in those representations and warranties are solely for the purposes of the ProposalFloating Share Arrangement Agreement and are subject to important qualifications and limitations agreed to by Acreage, Canopy Growth and AcreageCanopy USA in connection with negotiating its terms.
The representations and warranties made by Acreage, Canopy and Canopy GrowthUSA relate to, among other things: organization and qualification; authority relative to the ProposalFloating Share Arrangement Agreement; no violation; governmental approvals; and public filings.capitalization.
The ProposalFloating Share Arrangement Agreement also contains a representationcertain representations and warrantywarranties made solely by Canopy Growth that,with respect to, among other things: authority relative to the knowledge of Canopy Growth, as of the date of the ProposalConsent Agreement there wasand Protection Agreement; Consideration Shares; Replacement Securities; assets; financial statements, public disclosure records; no fact or circumstance that would cause the Acquisition Closing Conditionsdisputes; and certain representations and warranties made solely by Acreage with respect to fail to be satisfied.fairness opinions and directors’ approvals; public disclosure records; no disputes.
Covenants
Conduct of Business of Acreage
Pursuant to the Proposal Agreement, Acreage agreed to certain covenants, including covenants regarding the conduct of its business during the Proposal Interim Period that are in addition to the covenants contained in the Arrangement Agreement. In particular, the Proposal Agreement sets forth, among other things:
Covenants Regarding the AmendedFloating Share Arrangement
Acreage, Canopy and Canopy GrowthUSA have each agreed to (and agreed to cause itstheir respective affiliates to) use commercially reasonable efforts to take, or cause to be taken, all actions and to do or cause to be done all things required or advisable under applicable Law to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by the ProposalFloating Share Arrangement Agreement and the AmendedFloating Share Plan of Arrangement, including using commercially reasonable efforts to:
| (a) | satisfy, or cause the satisfaction of, all conditions precedent to be fulfilled by it in the |
| (b) | oppose, lift or rescind any injunction, restraining or other order, decree or ruling seeking to restrain, enjoin or otherwise prohibit or delay or otherwise adversely affect the |
| (c) | not take any action, or refrain from taking any action, or permit any action to be taken or not taken, which would reasonably be expected to prevent, materially delay or otherwise impede the |
Further, Acreage has covenanted and agreed that, other than as specifically disclosed to Canopy and Canopy USA, during the period from the date of the Floating Share Arrangement Agreement until the earlier of the Effective Time and the time that the Floating Share Arrangement Agreement is terminated in accordance with its terms, except with Canopy’s prior written consent, Acreage will not:
| (a) | issue, sell, grant, award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award, pledge, dispose of or otherwise encumber any Floating Shares or other equity or voting interests or any options, stock appreciation rights, warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise) any Floating Shares (including, for greater certainty, Floating Options, Floating Share Units, Floating Warrants or any other equity based awards), other than the issuance of Floating Shares pursuant to the exercise or settlement (as applicable) of Floating Options, Floating Share Units or Floating Warrants that are outstanding as of the date of the Floating Share Arrangement Agreement in accordance with their terms; or |
| (b) | take any action to amend or waive any performance, vesting or settlement criteria of, or accelerate vesting or settlement under, the Floating Securities or the Amended Equity Incentive Plan, as applicable. |
In addition, Acreage has covenanted and agreed to promptly notify Canopy of:
| (a) | any Acreage Material Adverse Effect; |
| (b) | any notice or other communication from any Person alleging that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with the Floating Share Arrangement Agreement or the Floating Share Arrangement; |
| (c) | any notice or other communication from any Person to the effect that such Person is terminating or otherwise materially adversely modifying its relationship with Acreage or any of its Subsidiaries as a result of the Floating Share Arrangement Agreement or the Floating Share Arrangement; or |
| (d) | any notice or other communication from any Governmental Entity in connection with the Floating Share Arrangement Agreement (and Acreage covenanted and agreed to contemporaneously provide a copy of any such written notice or communication to Canopy to the extent permitted by Law). |
Canopy USA and Canopy have covenanted and agreed to promptly notify Acreage in writing of any notice or other communication from any Person alleging that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with the Floating Share Arrangement Agreement or the Floating Share Arrangement.
Canopy has covenanted and agreed that, prior to the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares, Canopy will not amend, modify, supplement, restate or terminate: (i) the Consent Agreement; or (ii) the Protection Agreement, in each case, without the prior written consent of Acreage, such consent not to be unreasonably withheld, conditioned or delayed;
Canopy USA has covenanted and agreed that:
| (a) | prior to the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares, Canopy USA will not amend, modify, supplement, restate or terminate the Protection Agreement without the prior written consent of Acreage, such consent not to be unreasonably withheld, conditioned or delayed; and |
| (b) | prior to the Effective Time, Canopy USA will not undertake any further merger, amalgamation, statutory arrangement, share exchange, consolidation, business combination, recapitalization, sale or other disposition of the assets of Canopy USA or its Subsidiaries in a single transaction or a series of related transaction that could reasonably be expected to impede, prevent or materially delay completion of Floating Share Arrangement without the prior written consent of Acreage, such consent not to be unreasonably withheld, conditioned or delayed. |
Covenants Regarding Pre-Acquisition Reorganizations
Acreage has agreed that, upon written request of Canopy, at Canopy’s sole expense, Acreage will: (i) effect one or more Pre-Acquisition Reorganizations; and (ii) cooperate with Canopy and their respective advisors to determine the nature of the Pre-Acquisition Reorganizations that might be undertaken and the manner in which they would most effectively be undertaken. Neither Acreage or its affiliates will be obligated to participate in any Pre-Acquisition Reorganization unless such Pre-Acquisition Reorganization: (a) can be implemented prior to the Effective Date; (b) is not prejudicial to Acreage, its affiliates, any of Acreage’s shareholders or certain other securityholders as specified in the Floating Share Arrangement Agreement in any material respect; (c) does not unreasonably interfere with the ongoing operations of Acreage or any of its Subsidiaries; (d) does not result in (i) any material breach by Acreage of any existing Contract (as defined in the Floating Share Arrangement Agreement) or commitment of Acreage; or (ii) a breach of any Law; (e) does not require the approval of any or all of the holders of the Fixed Shares, the Floating Shares or the Fixed Multiple Shares; (f) would not reasonably be expected to impede or delay the completion of the Floating Share Arrangement on the Effective Date in any material respect; and (g) would not result in any Taxes (as defined in the Floating Share Arrangement Agreement) being imposed on, or any adverse Tax or other adverse consequences to, any shareholder of Acreage or certain other securityholders as specified in the Floating Share Arrangement Agreement, incrementally greater than the Taxes or other consequences to such party in connection with the Floating Share Arrangement in the absence of any Pre-Acquisition Reorganization, unless Canopy reimburses the shareholders of Acreage or any direct or indirect holders of certain other securities as specified in the Floating Share Arrangement Agreement for all such Taxes or consequences.
Dissent Rights Payments
Canopy has agreed that, to the extent that a Floating Shareholder exercises its Dissent Rights and a payment is required to be made to such Dissenting Shareholder, Canopy will immediately, upon the transfer of such Floating Shares held by a Dissenting Shareholder to Canopy USA, make all such payments in respect of Dissent Rights, on behalf of Canopy USA, to the Dissenting Shareholder when due and payable.
Canopy Covenants Regarding Capital Reorganization
Canopy has agreed to duly take all lawful action to call, give notice of, convene and conduct a special meeting of Canopy Shareholders in accordance with Canopy’s constating documents and applicable Law, including TSX and Nasdaq policies, and use commercially reasonable efforts to schedule the meeting as promptly as practicable and, in any event, on or before the Exercise Outside Date.
Further, Canopy has agreed not to terminate, amend or waive, in whole or in part, the CBG Support Agreement, without the prior written consent of Acreage.
Additionally, not later than five Business Days following the exchange of all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares, the Fixed Call Option is required to be exercised.
Canopy Covenant Relating to the Replacement Options, Replacement Warrants and Replacement Share Units
To the extent permitted by applicable Law, Canopy has agreed to, as promptly as practicable following the Effective Time, cause a registration statement on Form S-8 to be filed with the SEC to register the issuance of Canopy Shares issuable upon exercise of the Replacement Options or the Replacement Warrants and the vesting of the Replacement Share Units. If Canopy is not permitted by applicable Law to file a Form S-8 to register the issuance of Canopy Shares issuable upon exercise or vesting, as applicable, of the Replacement Options, Replacement Warrants and Replacement Share Units, Canopy will promptly file a registration statement on an appropriate form to register the resale of the Canopy Shares issuable upon exercise or vesting, as applicable, of the Replacement Options, Replacement Warrants and Replacement Share Units, or otherwise take all necessary actions to cause the Canopy Shares issuable upon exercise or vesting, as applicable, of the Replacement Options, Replacement Warrants and Replacement Share Units, to be issued free of resale restrictions and without restrictive legends to the extent permitted by applicable Law.
Regulatory Approvals
Acreage, Canopy Growth and AcreageCanopy USA have each agreed that, as soon as reasonably practicable after the date of the Proposal Agreement, it will, or, where appropriate, both Parties will jointly, at the appropriate times, seek to obtain the Amendment Regulatory Approvals in advance of the Amendment Time.agreed:
| (a) | as soon as reasonably practicable after the date of the Floating Share Arrangement Agreement, to make all notifications, filings, applications and submissions with Governmental Entities required or advisable, and will use their respective best efforts to obtain and maintain the Floating Share Arrangement Regulatory Approvals and any other Regulatory Approvals deemed by any of the Parties, acting reasonably, to be necessary to discharge their respective obligations under the Floating Share Arrangement Agreement in connection with the completion of the Floating Share Arrangement; |
| (b) | to cooperate with one another in connection with obtaining the Floating Share Arrangement Regulatory Approvals and any other Regulatory Approvals required or desirable in connection with the Floating Share Arrangement, including by providing or submitting on a timely basis all documentation and information that is required, or in the reasonably held opinion of Canopy USA or Canopy, advisable, in connection with obtaining the Floating Share Arrangement Regulatory Approvals and any such other Regulatory Approvals and to use their commercially reasonable efforts to ensure that such information does not contain a Misrepresentation (as defined in the Floating Share Arrangement Agreement); |
| (c) | to cooperate with and keep one another fully informed as to the status of and the processes and proceedings relating to obtaining the Floating Share Arrangement Regulatory Approvals and any other Regulatory Approvals, and to promptly notify each other of any communication from any Governmental Entity in respect of the Floating Share Arrangement or the Floating Share Arrangement Agreement; |
| (d) | to promptly notify the other Parties if it becomes aware that any (i) application, filing, document or other submission for any Floating Share Arrangement Regulatory Approval or any other Regulatory Approval contains a Misrepresentation; or (ii) any Floating Share Arrangement Regulatory Approval or any other Regulatory Approval contains, reflects or was obtained following the submission of any application, filing, document or other submission containing a Misrepresentation, such that an amendment or supplement may be necessary or advisable. In such case, Acreage, Canopy or Canopy USA, as applicable shall, in consultation with and subject to the prior approval of the other Parties, cooperate in the preparation, filing and dissemination, as applicable, of any such amendment or supplement; |
| (e) | to request that the Floating Share Arrangement Regulatory Approvals be processed by the applicable Governmental Entity on an expedited basis and, to the extent that a public hearing is held, to request the earliest possible hearing date for the consideration of the Floating Share Arrangement Regulatory Approvals; |
| (f) | if any objections are asserted with respect to the transactions contemplated by the Floating Share 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 Floating Share Arrangement Agreement as not in compliance with Law, to use their commercially reasonable efforts consistent with the terms of the Floating Share Arrangement Agreement to resolve such proceeding so as to allow the Effective Date to occur on or prior to the Acquisition Closing Outside Date; and |
| (g) | if a Party becomes aware that a Floating Share Arrangement Regulatory Approval will not be granted and in respect of which the failure to obtain same would result in the failure to satisfy any non-solicitation covenants set out in the Floating Share Arrangement Agreement, to promptly notify the other Parties. |
Acreage andhas also agreed not to make any submissions or filings, participate in any meetings or any material conversations with any Governmental Entity in respect of any filings, investigations or other inquiries related to the Floating Share Arrangement or the Floating Share Arrangement Agreement, unless it affords Canopy Growth have agreeda reasonable opportunity to cooperateconsult with one anotherit in connection with obtaining the Amendment Regulatory Approvals and any other Regulatory Approvalsadvance and, to keep one another fully informed asthe extent not precluded by such Governmental Entity, gives Canopy the reasonable opportunity to the statusreview drafts of any submissions or filings, or attend and the processes and proceedings relating to obtaining Amendment Regulatory Approvals andparticipate in any other Regulatory Approvals.communications or meetings.
Conditions for ImplementationCompletion of the AmendedFloating Share Arrangement
Mutual Conditions Precedent
The effectivenessrespective obligations of the Amending Agreement andParties to complete the implementation of the Amended Plan ofFloating Share Arrangement isare subject to the satisfaction, of the following conditions, each of which may be waived, in whole or in part, by the mutual consent of the Parties:
| (a) | the |
| (b) | each of the |
| (c) |
| (d) | no Law |
| (e) | the |
| (f) |
| (g) | the |
Conditions Precedent in FavorFavour of Canopy Growthand Canopy USA
The effectivenessobligation of Canopy and Canopy USA to complete the Amending Agreement and the implementation of the Amended Plan ofFloating Share Arrangement isare subject to the satisfaction of each of the following conditions, each of which is for the exclusive benefit of Canopy Growth and Canopy USA and which may be waived by Canopy and Canopy USA at any time, in whole or in part, byin their sole discretion and without prejudice to any other rights that Canopy Growth in its sole discretion:and Canopy USA may have:
| (a) | Acreage will have fulfilled or complied |
| (b) | the representations and warranties of Acreage set forth in the Floating Share Arrangement Agreement will have been true and correct as of the Floating Share Arrangement Agreement and will be true and correct as of the Effective Time, except where any failure or failures of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to result in an Acreage Material Adverse Effect (disregarding any materiality or “Acreage Material Adverse Effect” qualification contained in any such representation and warranty for the purpose of determining whether any such failure or failures would not, individually or in the aggregate, reasonably be expected to result in an Acreage Material Adverse Effect), in each case except for representations and warranties made as of a specified date, the accuracy of which will be determined as of such specified date; |
| (c) | Acreage and each of its Subsidiaries will be in compliance with all applicable Laws, in all material respects in each jurisdiction in which it carries on business, provided that Acreage and each of its Subsidiaries will be in compliance with all applicable Laws with respect to marijuana, except where any non-compliance would not have a material and adverse effect on Acreage or any of its Subsidiaries, except that, Acreage and each of its Subsidiaries will not be required to be in compliance with the Controlled Substances Act, as it applies to marijuana (including any implementing regulations and schedules in effect at the relevant time) or any other U.S. federal Law the violation of which is predicated upon a violation of the Controlled Substances Act as it applies to marijuana; |
| (d) | the USCo2 Constating Documents will have been amended in accordance with the amendments set forth in the Floating Share Arrangement Agreement; |
| (e) | subject to the terms of the Floating Share Arrangement Agreement, Acreage will have completed such Pre-Acquisition Reorganizations as may have been requested by Canopy or Canopy USA in accordance with the Floating Share Arrangement Agreement; and |
| Dissent Rights will not have been exercised with respect to more than |
If, at any time prior to the Effective Time, Canopy or Canopy USA becomes aware of the occurrence, or failure to occur, of any event or state of facts which occurrence or failure results in the failure of the ability of Acreage to satisfy any condition set forth above, Canopy or Canopy USA, as applicable, has agreed to promptly notify Acreage of such occurrence, or failure to occur in accordance with the Floating Share Arrangement Agreement, which notification will specify in reasonable detail such event or state of facts.
Conditions Precedent in FavorFavour of Acreage
The effectivenessobligation of Acreage to complete the Amending Agreement and the implementation of the Amended Plan ofFloating Share Arrangement is subject to the satisfaction of each of the following conditions, each of which is for the exclusive benefit of Acreage and which may be waived by Acreage at any time, in whole or in part, by Acreage in its sole discretion:discretion and without prejudice to any other rights that Acreage may have:
| (a) | each of Canopy |
| (b) |
| (c) | Canopy |
If, at any time prior to the Effective Time, Acreage becomes aware of the occurrence, or failure to occur, of any event or state of facts which occurrence or failure results in the failure of the ability of Canopy or Canopy USA to satisfy any condition set forth above, Acreage has agreed to promptly notify Canopy of such occurrence, or failure to occur in accordance with the Floating Share Arrangement Agreement, which notification will specify in reasonable detail such event or state of facts.
Notification Provisions
the Floating Share Arrangement Agreement provides that each Party will promptly notify the other Parties of the occurrence, or failure to occur, of any event or state of facts which occurrence or failure would, or would be reasonably likely to: (i) cause any of the representations or warranties of such Party contained in the Floating Share Arrangement Agreement to be untrue or inaccurate in any material respect at any time from the date of the Floating Share Arrangement Agreement to the Effective Time; or (ii) result in the failure to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such Party under the Floating Share Arrangement Agreement.
Additional Covenants Regarding Non-Solicitation
Acreage has agreed that, except as expressly provided in the Floating Share Arrangement Agreement, Acreage and its Subsidiaries, will not, directly or indirectly, through any Representative, or otherwise, and will not permit any such Person to:
| (a) | solicit, assist, initiate, 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 Acreage or any Subsidiary of Acreage or entering into any form of agreement, arrangement or understanding other than an Acceptable Confidentiality Agreement), any inquiry, proposal or offer that constitutes or could reasonably be expected to constitute or lead to, an Acquisition Proposal; |
| (b) | enter into or otherwise engage or participate in any discussions or negotiations with any Person (other than Canopy USA) regarding any inquiry, proposal, expression or offer that constitutes or could reasonably be expected to constitute or lead to, an Acquisition Proposal or otherwise encourage, facilitate, cooperate with, assist or participate in, any effort or attempt of any other Person to do or seek to do any of the foregoing; or |
| (c) | make or propose publicly to make a Change in Recommendation, |
provided, however, that nothing contained in the Floating Share Arrangement Agreement will prevent Acreage from, and Acreage will be permitted to: (i) engage in discussions or negotiations with, or respond to enquiries from any Person that has made a bona fide unsolicited written Acquisition Proposal after the date of the Floating Share Arrangement Agreement and prior to the Meeting, that did not result from a breach of the non-solicitation provisions of the Floating Share Arrangement Agreement and subject to Acreage’s compliance with the notification provisions provided in the Floating Share Arrangement Agreement, that the Acreage Board has determined constitutes or could reasonably be expected to result in a Superior Proposal; or (ii) provide information and access to properties, facilities, books or records of Acreage pursuant to the requirements set forth in the Floating Share Arrangement Agreement to any Person where such requirements are met. See “Transaction Agreements – The Floating Share Arrangement Agreement – Responding to an Acquisition Proposal”.
Acreage has agreed that it will, and will cause its Subsidiaries and Representatives to, immediately cease and terminate, and cause to be terminated, any solicitation, encouragement, discussion, negotiations, or other activities commenced prior to the date of the Floating Share Arrangement Agreement with any Person (other than Canopy USA) 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, Acreage has agreed to:
| (a) | discontinue access to and disclosure of all information, including the Acreage Data Room and any confidential information, properties, facilities, books and records of Acreage or any Subsidiary; and |
| (b) | within two Business Days of the date of the Floating Share Arrangement Agreement, to the extent it is permitted to do so, request, and exercise all rights it has to require (i) the return or destruction of all copies of any confidential information regarding Acreage or any Subsidiary provided to any such Person other than Canopy USA; and (ii) the destruction of all material including or incorporating or otherwise reflecting such confidential information regarding Acreage or any Subsidiary, to the extent that such information has not previously been |
Acreage has covenanted and agreed that (i) it will take all necessary action to enforce each confidentiality, standstill, use, business purpose or similar agreement or restriction to which Acreage or any Subsidiary is a party; and (ii) neither Acreage, nor any Subsidiary nor any of their respective Representatives will, without the prior written consent of Canopy USA (which consent may be withheld or delayed in Canopy USA’s sole and absolute discretion), release any Person from, or waive, amend, suspend or otherwise modify such Person’s obligations respecting Acreage, or any of its Subsidiaries, under any confidentiality, standstill, use, business purpose or similar agreement or restriction to which Acreage or any Subsidiary is a party, it being acknowledged and agreed that the automatic termination of any standstill provisions of any such agreement or restriction as a result of the entering into and announcement of the Floating Share Arrangement Agreement by Acreage pursuant to the express terms of any such agreement or restriction, will not be a violation of the Floating Share Arrangement Agreement and that Acreage will not be prohibited from considering a Superior Proposal from a party whose obligations so terminated automatically upon the entering into and announcement of the Floating Share Arrangement Agreement.
Notification of Acquisition Proposal
Acreage has agreed that if it or any of its Subsidiaries or any of their respective Representatives, receives or otherwise becomes aware of any inquiry, proposal or offer that constitutes or could reasonably be expected to constitute or lead to an Acquisition Proposal, or any request for copies of, access to, or disclosure of, confidential information relating to Acreage or any of its Subsidiaries, including but not limited to information, access or disclosure relating to the properties, facilities, books or records of Acreage or any Subsidiary, Acreage: (a) will promptly notify Canopy USA, at first orally, and then, and in any event within 24 hours of writing, of such Acquisition Proposal, inquiry, proposal, offer or request, including a description of its material terms and conditions, the identity of all Persons making the Acquisition Proposal, inquiry, proposal, offer or request, and will provide Canopy USA with copies of any and all documents, correspondence or other material received in respect of the Acquisition Proposal, from or on behalf of any such Person and such other details of such Acquisition Proposal, inquiry, proposal, offer or request as Canopy USA may reasonably request; and (b) may contact the Person making such Acquisition Proposal, inquiry, proposal, offer or request and its Representatives solely for the purpose of clarifying the terms and conditions of such Acquisition Proposal, inquiry, proposal, offer or request so as to determine whether such Acquisition Proposal, inquiry, proposal, offer or request is, or would reasonably be expected to lead to, a Superior Proposal.
Acreage has agreed to keep Canopy USA promptly and fully informed on a current basis of the status of developments and negotiations with respect to any Acquisition Proposal, inquiry, proposal, offer or request, including any changes, modifications or other amendments to any such Acquisition Proposal, inquiry, proposal, offer or request and to provide to Canopy USA copies of all 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 Acreage by or on behalf of any Person making such Acquisition Proposal, inquiry, proposal, offer or request.
Responding to an Acquisition Proposal
If, prior to obtaining the Shareholder Approval, Acreage receives an unsolicited written Acquisition Proposal, Acreage may engage in or participate in discussions or negotiations with such Person regarding such Acquisition Proposal and may provide copies of, access to or disclosure of confidential information, properties, facilities, books or records of Acreage or any Subsidiaries of Acreage, if and only if:
| (a) | the Acreage Board first determines in good faith, after consultation with its financial advisors and its outside counsel, that such Acquisition Proposal constitutes or would reasonably be expected to constitute or lead to a Superior Proposal, and, after consultation with its outside counsel, that the failure to engage in such discussions or negotiations would be inconsistent with the fiduciary duties of such directors under applicable Law; |
| (b) | such Person was not restricted from making such Acquisition Proposal pursuant to an existing confidentiality, standstill, non-disclosure, use, business purpose or similar restriction with Acreage or any of its Subsidiaries; |
| (c) | the Acquisition Proposal did not arise, directly or indirectly, as a result of a violation by Acreage of the non-solicitation provisions of the Floating Share Arrangement Agreement; |
| (d) | Acreage enters into an Acceptable Confidentiality Agreement; and |
| (e) | Acreage promptly provides Canopy USA with: (i) prior written notice stating Acreage’s intention to participate in such discussions or negotiations and to provide such copies, access or disclosure; (ii) prior to providing any such copies, access or disclosure, a true, complete and final executed copy of the Acceptable Confidentiality Agreement; and (iii) any non-public information concerning Acreage and any Subsidiaries of Acreage requested by and provided to such other Person which was not previously provided to Canopy |
provided however, that Acreage may only provide the Person making the Acquisition Proposal with access to and disclosure of information for a period of 10 Business Days. On the tenth Business Day after such Person is first afforded access to the books, records and personnel of Acreage, Acreage will discontinue access to and disclosure of all information, including the Acreage Data Room and any confidential information, properties, facilities, books and records of Acreage or any Subsidiary of Acreage.
Right to Match
If Acreage receives an Acquisition Proposal that constitutes a Superior Proposal prior to obtaining the Shareholder Approval, the Acreage Board may make a Change in Recommendation and approve, recommend or enter into a definitive agreement with respect to such Superior Proposal, if and only if:
| (a) | the Person making the Superior Proposal was not restricted from making such Superior Proposal pursuant to an existing confidentiality, standstill, business purpose or similar restriction; |
| (b) | the Acquisition Proposal did not arise, directly or indirectly, as a result of a violation by Acreage of the non-solicitation provisions of the Floating Share Arrangement Agreement; |
| (c) | Acreage has delivered to Canopy USA a Superior Proposal Notice; |
| (d) | Acreage or its Representatives has provided Canopy USA with a copy of the proposed definitive agreement for the |
| (e) | at least five full Business Days (the “Matching Period”) have elapsed from the date on which Canopy USA received each of |
| (f) | during any Matching Period, Canopy USA has been afforded the opportunity to offer to amend the Floating Share Arrangement Agreement and the Floating Share Arrangement in order for such Acquisition Proposal to cease to be |
| (g) | after the |
| (h) | the Acreage Board has determined, in good faith, after consultation with its legal counsel and financial advisors, that such Acquisition Proposal remains a Superior Proposal as compared to the Floating Share Arrangement as proposed to be amended by Canopy USA and that it is necessary for the Acreage Board to enter into a definitive agreement with respect to such Superior Proposal in order to satisfy their fiduciary duties to Acreage; |
| (i) | Acreage concurrently terminates the Floating Share Arrangement Agreement pursuant to the terms thereof; and |
| (j) | Acreage has previously, or concurrently will have, paid to Canopy USA the Termination Fee. |
Acreage has agreed that, during the Matching Period, or such longer period as Acreage may approve in writing for such purpose: (a) the Acreage Board will review any offer made by Canopy USA to amend the terms of the Floating Share Arrangement Agreement and the Floating Share 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) Acreage will, and will cause its Representatives to, negotiate in good faith with Canopy USA to make such amendments to the terms of the Floating Share Arrangement Agreement and the Floating Share Arrangement as would enable Canopy USA to proceed with the transactions contemplated by the Floating Share Arrangement Agreement on such amended terms. Acreage has agreed that, subject to Acreage’s disclosure obligations under applicable Securities Laws, the fact of the making of, and each of the terms of, any such proposed amendments will be kept strictly confidential and will not be disclosed to any Person (including without limitation, the Person having made the Superior Proposal), other than Acreage’s Representatives, without Canopy USA’s prior written consent. If the Acreage Board determines that such Acquisition Proposal would cease to be a Superior Proposal, Acreage will promptly so advise Canopy USA and the Parties will amend the Floating Share Arrangement Agreement to reflect such offer made by Canopy USA, and will 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 Floating Shareholders or other material terms or conditions thereof will constitute a new Acquisition Proposal for the purposes of the Floating Share Arrangement Agreement, and Canopy USA will be afforded a new five Business Day Matching Period from the date on which Canopy USA has received each of (i) the Superior Proposal Notice; and (ii) a copy of the proposed definitive agreement for the new Superior Proposal from Acreage.
If Acreage provides a Superior Proposal Notice to Canopy USA after a date that is less than 10 Business Days before the Meeting, Acreage will either proceed with or will postpone or adjourn the Meeting, as directed by Canopy USA acting reasonably, to a date that is not more than 10 Business Days after the scheduled date of the Meeting, but in any event to a date that is not less than five Business Days prior to the Exercise Outside Date. Nothing contained in the Floating Share Arrangement Agreement will limit in any way the obligation of Acreage to convene and hold the Meeting in accordance with the Floating Share Arrangement Agreement while the Floating Share Arrangement Agreement remains in force.
Nothing contained in the Floating Share Arrangement Agreement will prevent the Acreage Board from complying with Section 2.17 of NI 62-104 and similar provisions under Securities Laws relating to the provision of a directors’ circular in respect of an Acquisition Proposal that is not a Superior Proposal.
Termination of Proposalthe Floating Share Arrangement Agreement
The ProposalFloating Share Arrangement Agreement is effective until the earliestearlier of (a)(i) the AmendmentEffective Time; and (b)(ii) the termination of the ProposalFloating Share Arrangement Agreement in accordance with its terms.
The ProposalFloating Share Arrangement Agreement may be terminated prior to the AmendmentEffective Time by:
| (a) | the mutual written agreement of |
| (b) | either Acreage or Canopy |
| (i) | the |
| (ii) | the Floating Share Arrangement has not been completed prior to the Acquisition Closing Outside Date, provided that a Party may not terminate the Floating Share Arrangement Agreement if the failure of the Effective Time to so occur has been caused by, or is a result of, a breach by such Party of any of its representations or warranties under the Floating Share Arrangement Agreement or the failure of such Party to perform any of its covenants or agreements under the Floating Share Arrangement Agreement; and further provided that: |
| (1) | Canopy may only terminate the Floating Share Arrangement Agreement on the basis that a Canopy USA Acquisition Closing Condition has not been satisfied if Canopy has provided Acreage with an irrevocable written notice that it has determined not to close the Acquisition pursuant to the Existing Arrangement Agreement on the basis that such Canopy USA Acquisition Closing Condition has not been satisfied; |
| (2) | Acreage may only terminate the Floating Share Arrangement Agreement on the basis that an Acreage Acquisition Closing Condition has not been satisfied if Acreage has provided Canopy with an irrevocable written notice that it has determined not to close the Acquisition pursuant to the Existing Arrangement Agreement on the basis that such Acreage Acquisition Closing Condition has not been satisfied; |
| (3) | for greater certainty, Canopy may terminate the Floating Share Arrangement Agreement in the event of a breach by Acreage of any of its representations or warranties under the Floating Share Arrangement Agreement or the failure of Acreage to perform any of its covenants or agreements under the Floating Share Arrangement Agreement (other than with respect to conditions precedent to completion of the transactions contemplated by the Acquisition), which results in the Floating Share Arrangement not being completed prior to the Outside Date without providing Acreage with an irrevocable written notice that it has determined not to close the Acquisition pursuant to the Existing Arrangement Agreement; and |
| (4) | for greater certainty, Acreage may terminate the Floating Share Arrangement Agreement in the event of a breach by Canopy of any of its representations or warranties under the Floating Share Arrangement Agreement or the failure of Canopy to perform any of its covenants or agreements under the Floating Share Arrangement Agreement (other than with respect to conditions precedent to completion of the transactions contemplated by the Acquisition), which results in the Floating Share Arrangement not being completed prior to the Outside Date without providing Canopy with an irrevocable written notice that it has determined not to close the Acquisition pursuant to the Existing Arrangement Agreement; |
| (c) | Acreage if: |
| (i) | the Fixed Call Option Exercise Notice has not been delivered to the Depositary prior to the Exercise Outside Date; |
| (ii) | the Acreage Board approves and authorizes Acreage to enter into a binding written agreement with respect to a Superior Proposal (other than an Acceptable Confidentiality Agreement), subject to compliance with Acreage’s non-solicitation covenants in all material respects and provided, however, that no such termination will be effective unless and until Acreage has paid the Termination Fee to Canopy; |
| (iii) | the Canopy Capital Reorganization is not completed by the Exercise Outside Date; or |
| (iv) | a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Canopy or Canopy USA under the Floating Share Arrangement Agreement occurs that would cause any condition for the exclusive benefit of Acreage not to be satisfied, and such breach or failure is incapable of being cured or is not cured in accordance with the terms of the Floating Share Arrangement Agreement; provided that Acreage is not then in breach of the Floating Share Arrangement Agreement so as to directly or indirectly cause any such condition for the exclusive benefit of Canopy and Canopy USA not to be satisfied; |
| (d) | Canopy if: |
| (i) | there is a Change in Recommendation; or |
| (ii) | a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Acreage under the Floating Share Arrangement Agreement occurs that would cause any condition for the exclusive benefit of Canopy and Canopy USA not to be satisfied, and such breach or failure is incapable of being cured in accordance with the terms of the Floating Share Arrangement Agreement; provided that Canopy is not then in breach of the Floating Share Arrangement Agreement so as to directly or indirectly cause any condition for the exclusive benefit of Acreage not to be satisfied. |
The Floating Share Arrangement Agreement may be terminated between the Effective Time and the Acquisition Effective Time by the mutual written agreement of the Parties.
Termination Fee
The Termination Fee is payable by Acreage to Canopy USA in the event that:
| (a) | Canopy terminates the Floating Share Arrangement Agreement due to a Change in Recommendation; |
| (b) | Acreage terminates the Floating Share Arrangement Agreement where the Acreage Board approves and authorizes Acreage to enter into a binding written agreement with respect to a Superior Proposal; or |
| (c) | the Floating Share Arrangement Agreement is terminated by Acreage or Canopy |
By entering into the Floating Share Arrangement Agreement, Canopy irrevocably waived its rights under the Existing Arrangement Agreement to exercise the Floating Call Option.
Canopy and Canopy USA have covenanted and agreed in favour of Acreage that from the date of the Floating Share Arrangement Agreement until and including the Effective Date, each will procure that: (a) neither CBG, Greenstar nor any of their affiliates (other than Canopy) will be permitted to invest directly in Canopy USA; and (b) any investment by either of them, intended for the benefit of Canopy USA, will be made directly into Canopy.
Expenses of the AmendedFloating Share Arrangement
Except as otherwise provided in the ProposalFloating Share Arrangement Agreement, including in connection with any Canopy Expense Reimbursement, all out-of-pocket third-party transaction expenses incurred in connection with the ProposalFloating Share Arrangement Agreement and the AmendedFloating Share Plan of Arrangement and the transactions contemplated thereunder, will be paid by the partyParty incurring such fees, costs or expenses, whether or not the AmendedFloating Share Arrangement is implemented.
Termination Expense Reimbursementconsummated.
The Termination ExpenseExpenses Reimbursement is payable by Acreage to
Canopy Growth upon termination of the Proposal Agreement by Canopy Growthhas agreed that, in the event that the Canopy Capital Reorganization is not completed prior to the Exercise Outside Date or that CBG or Greenstar do not exchange all of (a) a Changetheir Canopy Shares into Exchangeable Canopy Shares prior to the Exercise Outside Date, Canopy will forthwith, and in Recommendation. or (b)any event within 2 Business Days following the failureExercise Outside Date, pay the Canopy Expense Reimbursement to obtainAcreage.
The payment of the Required Shareholder Approval, following a Change in Recommendation; provided, however, that AcreageCanopy Expense Reimbursement will not be required to pay the Termination Expense Reimbursement if a Changepreclude Acreage from seeking damages and pursuing any and all other remedies that it may have in Recommendation was maderespect of losses incurred or suffered by it as a result of a Purchaser Material Adverse Effect.breach by Canopy or Canopy USA, as applicably, of any representation or warranty, or failure by Canopy or Canopy USA, as applicable, to perform any covenant or satisfy any condition.
Pursuant to the Proposal Agreement,Floating Share Arrangement Agreement, Acreage agreed to deliver the Voting Agreements from each of the Acreage Locked-Up Shareholders. On JuneOctober 24, 2020,2022, each of the Acreage Locked-Up Shareholders entered into a Voting Agreement with Canopy Growth.and Canopy USA.
The following summarizes the material provisions of the Voting Agreements. This summary may not contain all of the information about the Voting Agreements that is important to Floating Shareholders and is qualified in its entirety by reference to the Voting Agreements, which is attached as Schedule C to the Proposal AgreementFloating Share Arrangement Agreement and has been filed by Acreage with the SEC and is available on EDGAR at www.sec.gov/edgar and on Acreage’s SEDAR profile at www.sedar.com.www.sedar.com.
Canopy Growthand Canopy USA entered into the Voting Agreements with the Acreage Locked-Up Shareholders, whereby, among other things, such Acreage Locked-Up Shareholders, in their capacities as security holderssecurityholders and not in their capacities as directors or officers of Acreage have agreed, among other things:
| (a) | at the Meeting, to vote (or cause to be voted) all |
| (b) | at the Meeting, to vote (or cause to be voted) all Acreage Holder Securities against any matter that could reasonably be expected to delay, prevent, impede or frustrate the successful completion of the |
| (c) | to revoke any and all proxies previously granted or voting instruction forms or other voting documents previously delivered that may conflict with or be inconsistent with the covenants and agreements set forth in the Voting Agreements; |
| (d) | not to sell, transfer, assign, grant a participation interest in, option, pledge, hypothecate, grant a security interest in, or otherwise convey or encumber (each, a “Transfer”), or enter into any agreement, |
| not to grant any proxies or power of attorney, deposit any of the Acreage Holder Securities into a voting trust or enter into any voting |
| (f) | not to exercise any rights of appraisal or rights of |
| (g) | no later than five Business Days prior to the date of the Meeting: (i) with respect to any Acreage Holder Securities that are registered in the name of the Acreage Locked-Up Shareholder and entitled to vote at the Meeting, to deliver or cause to be delivered, a duly executed proxy or proxies to vote in favour of the Arrangement Resolution, with a copy to Canopy concurrently with such delivery; and (ii) with respect to any Acreage Holder Securities that are beneficially owned by the Acreage Locked-Up Shareholder but not registered in the name of the Acreage Locked-Up Shareholder, to deliver a duly executed voting instruction form to the intermediary through which the Acreage Locked-Up Shareholder holds its beneficial interest in the Acreage Locked-Up Shareholder’s Acreage Holder Securities, instructing that the Acreage Locked-Up Shareholder’s Acreage Holder Securities be voted at the Meeting in favour of the Arrangement Resolution, with a copy to Canopy concurrently with such delivery. |
In addition, until the termination of the Voting Agreements, subject to the Acreage Locked-Up Shareholder’s fiduciary duties, each of the Acreage Locked-Up Shareholders agreed that it will not, and will ensure that its affiliates do not, directly or indirectly, through any officer, director, employee, representative or agent or otherwise:
| (a) | solicit proxies or become a participant in a solicitation of proxies in opposition to or competition with the transactions contemplated by the Floating Share Arrangement; |
| (b) | assist any Person in taking or planning any action that would reasonably be expected to compete with, restrain or otherwise serve to interfere with or inhibit the transactions contemplated by the Floating Share Arrangement; |
| (c) | act jointly or in concert with others with respect to voting securities of Acreage for the purpose of opposing or competing with the transactions contemplated by the Floating Share Arrangement Agreement; or |
| (d) | knowingly encourage any effort or attempt by any other Person to do or seek to do any of the foregoing. |
The Voting Agreements will terminate and be of no further force or effect upon the earliest to occur of:
| (a) | the mutual |
| (b) | the |
| (c) | the |
| (d) | unless extended by mutual agreement of the Acreage Locked-Up Shareholder, on the one hand, and Canopy USA, on the other |
| (e) | the date that the Acreage Locked-Up Shareholder provides written notice to Canopy USA of the termination of the Voting Agreement |
As of the Record Date, to the knowledge of Acreage, the Acreage Locked-Up Shareholders, collectively, beneficially owned, or exercised control or direction over, an aggregate of:of [t] Floating Shares, representing approximately [t%] of the issued and outstanding Floating Shares on a non-diluted basis.
|
Of the votes attaching to Existingthe Floating Shares held by Acreage Locked-Up Shareholders, (i) approximately [¨]%2.36% of the votes attaching to the Existing SVS, [¨] of the votes attaching to Existing PVS and 100% of the votes attaching to the Existing MVSFloating Shares will be excluded for the purposes of determining whether “minority approval” has been obtained pursuant to MI 61-101, and (ii) approximately [¨]% of the votes attaching to the Existing SVS, [¨] of the votes attaching to Existing PVS and 100% of the votes attaching to the Existing MVS will be excluded for the purposes of determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101.61-101.
As of the Record Date, the Acreage Locked-Up Shareholders beneficially owned, or exercised control or direction over, an aggregate of approximately [¨]% of the votes attached to the Existing Shares on a non-diluted basis. Asknowledge of the Record Date,Acreage, the Acreage Locked-Up Shareholders also beneficially owned, or exercised control or direction over, [¨t]High Street Units, [¨t] Existing Floating Options and [¨t]Existing RSUs. Floating Share Units.
A&R LicenseAmended Credit Facility
ConcurrentConcurrently with the execution of the ProposalFloating Share Arrangement Agreement, Canopy Growth, TS Brandco, Tweed and Acreagethe Company entered into an amended and restated license agreement (the “A&R License”) which amends and restates the Original License.
The following summarizesCredit Agreement Amendment to amend the material provisionsCredit Agreement. Under the terms of the A&R License. This summary may not containAmended Credit Facility, subject to the satisfaction of certain terms and conditions, an additional $25 million is available for immediate draw, and an additional $25 million is available in future periods under a committed accordion option once certain predetermined milestones are achieved and conditions satisfied. In conjunction with entering into the Credit Agreement Amendment, the Lenders waived the requirement for the Company to comply with certain financial covenants, except a minimum cash requirement, through Q1 2024, and new financial covenants have been agreed upon in respect of all periods beginning on and after March 31, 2024, reflecting the Company’s growth plan, financial position, and current market conditions. Finally, the Credit Agreement Amendment permits Canopy, its affiliates or Canopy USA to acquire control of the information aboutCompany without requiring repayment of all amounts outstanding under the A&R License that is important to Shareholders and is qualified in its entirety by reference to the A&R License, which is attached as Schedule D to the Proposal Agreement and has been filed byAmended Credit Facility. Acreage with the SEC and is available on EDGAR at www.sec.gov/edgar and on Acreage’s SEDAR profile at www.sedar.com.
Scope of License
Pursuant to the A&R License, the Licensors and Canopy Growth have agreed to provide Acreage with the non-exclusive right (but not the obligation)intends to use and sublicense within the United States of America, its territories and possessions, and the District of Columbia (the “Territory”):
in connection with the present or future products, services and business of Acreage relating to the cultivation, distribution, promotion and sale of cannabis, cannabis accessories and non-cannabis merchandise.
Pursuant to the A&R License, among other things, Acreage may sublicense useproceeds of the Trademarks, Systems and/or Intellectual Property; provided that, any sublicenseAmended Credit Facility to a third-party will require the prior written consent of Canopy Growth unless the third-party complies with the Licensing Criteria. Acreage has also agreed to ensure that any sublicensee complies with its obligations under the A&R License.fund expansion initiatives and provide additional working capital.
Royalties
Prior to the Acquisition Time, the rightThe Amended Credit Facility will bear interest at Prime plus 5.75% per annum, payable monthly in arrears, with a Prime floor of Acreage to use5.50%, and sublicense the Intellectual Property, Systems, and Trademarks in the Territory is royalty-free. In accordance witha maturity date of January 1, 2026. Under the terms of the A&R License, followingAmended Credit Facility, at any time after January 1, 2023 and before January 1, 2024, the Acquisition Time, Acreage has agreed to pay a royalty to Canopy Growth equal to a percentage of all gross revenue generated by Acreage as a result of the use of the rights granted pursuant to the A&R License.
Compliance with Applicable Laws
Pursuant to the A&R License, Acreage has agreed to use the Intellectual Property, Systems, and Trademarks in compliance with all applicable Laws, with the exception of the Controlled Substances Act, as it applies to cannabis, and any other federal Law of the United States from time to time, the violation of which is predicated upon a violation of the Controlled Substances Act as it applies to cannabis (collectively, the “Federal Cannabis Laws”).
Acreage has also agreed also not establish or operate retail stores selling cannabis or otherwise sell cannabis for recreational or medicinal purposes using the Intellectual Property, Systems, and Trademarks in jurisdictions within the Territory where the sale of cannabis for such purposes violates applicable Laws, with the exception of Federal Cannabis Laws.
Compliance with Licensor’s Standards
Acreage has agreed to comply with the specifications and service and quality standards of Canopy Growth and/or the Licensors, as may be updated from time to time (collectively, the “Standards”) applicable to the Intellectual Property, Systems, and Trademarks and to ensure that any sublicensees comply with their obligations under the A&R License. Pursuant to the A&R License, Canopy Growth has agreed to advise the Licensee in writing of any material changes to the Standards.
Termination of A&R License
The A&R License will expire upon the earlier of: (i) June 24, 2030; or (ii) the termination of the A&R License in accordance with its terms. Acreage alsoCompany has the option to renewextend the termmaturity date to January 1, 2027, for a fee equal to 1.0% of the A&R License for seven additional five-year terms, provided that Acreage is in compliancetotal amount available to be drawn under the Amended Credit Facility. In connection with the material termsCredit Agreement Amendment, the Company paid an amendment fee of the A&R License at the time of renewal.
The A&R License may be terminated prior to its completion by Canopy Growth in certain circumstances, including:
The A&R License may be terminated prior to its completion by Acreage if Canopy has breached any material term of the A&R License and Canopy fails to cure such breach.
Representations and Warranties
The A&R License contains certain customary representations and warranties provided between Acreage and Canopy Growth. The representations and warranties made by Canopy Growth relate to: validity of the license of the listed Trademarks and Systems; ownership of the Intellectual Property; no violation; confidentiality; and no undisclosed proceedings.
The A&R License also contains representations and warranties made by the Licensors and Acreage which relate to: organization and qualification; authority relative$1.25 million to the A&R License; validity of the A&R License; authorizations; and compliance with other agreements.
Covenants
The A&R License contains customary covenants by Acreage with respect to proper usage and protection of the Licensor’s rights in the Trademarks and protection of Canopy Growth’s rights in the Systems and the Intellectual Property.
Pursuant to the A&R License, the Licensors have agreed to maintain the existing registrations of the Trademarks and prosecute all pending applications for registration of the Trademarks in the Territory. The Licensors have also agreed to keep Acreage informed of any significant adverse developments in the prosecution of applications for the Trademarks in the Territory or any opposition or other challenge to the ownership or validity of any Trademarks or any registration or application for registration in the Territory that could impact Acreage’s exercise of its rights under the A&R License.
Upon satisfaction or waiver of the conditions set out in the Proposal Agreement, the Amending Agreement will be effective at the Amendment Time.
The following summarizes the material provisions of the Amending Agreement. This summary may not contain all of the information about the Amending Agreement that is important to Shareholders. The rights and obligations of the Parties to the Amending Agreement are governed by the express terms and conditions of the Amending Agreement and not by this summary or any other information contained in this Circular.Lenders. This summary is qualified in its entirety by reference to the AmendingCredit Agreement Amendment, which is attached as Schedule B to the Proposal Agreement and has been filed by Acreage on its SEDAR profile at www.sedar.com and with the SEC and is available on EDGAR at www.sec.gov/edgar and on Acreage’s SEDAR profile at www.sedar.com.edgar.
Amended Plan of Arrangement
Pursuant to the Amended Plan of Arrangement, at the Amendment Time, Canopy Growth will make a cash payment of US$37,500,024 to the Shareholders of Acreage and the High Street Holders and the USCo2 Holders and Acreage will complete the Capital Reorganization. Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on the basis of 0.3048 of a Canopy Growth Share for each Fixed Share held at the time of the acquisition of the Fixed Shares, subject to adjustment in accordance with the terms of the Amended Plan of Arrangement. In addition, pursuant to the Amended Arrangement, Canopy Growth will have the right (but not the obligation), exercisable for a period of 30 days following the Floating Rate Date, to acquire all of the issued and outstanding Floating Shares. Canopy Growth may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Floating Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to the Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option.
Amendments to the Arrangement Agreement
The Amending Agreement will provide for, certain amendments to the Arrangement Agreement.
Canopy Growth Approved Share Threshold
The definition of Canopy Growth Approved Share Threshold in the Arrangement Agreement will be amended to reduce the number of shares of Acreage available to be issued by Acreage without an adjustment in the Exchange Ratio such that, following the Amendment Time until the Acquisition Time, Acreage may issue a maximum of 32,700,000 Shares (or securities convertible into Shares in proportion to the foregoing), which will include:
Notwithstanding the foregoing, the Amending Agreement will provide that Acreage may not issue any equity securities, without Canopy Growth’s prior consent, other than:
Company Debt
The Amending Agreement will preclude Acreage from entering into any contract in respect of Company Debt (as defined in the Arrangement Agreement) if, among other restrictions:
Notwithstanding the foregoing, Canopy Growth’s consent will not be required for Acreage or any of its Subsidiaries to enter into a maximum of two transactions for Company Debt during any one-year period, in accordance with the following terms:
Covenants Regarding Acreage’s Directors and Officers
The Amending Agreement will prohibit Acreage from nominating or appointing any new director or appointing any new officer who does not meet the Required Director Criteria or Required Officer Criteria, as applicable.
Covenants Regarding Canopy Growth’s Operations in the United States
Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a competitor of Acreage in the United States, Canopy Growth, as a condition to completing such transaction, will require the target entity (the “Target Cannabis Operator”) to enter into a commercially reasonable management service agreement (a “Management Service Agreement”) with Acreage on terms acceptable to Acreage, acting reasonably. In the event that the Target Cannabis Operator and Acreage cannot agree upon a commercially reasonable management service agreement, the Target Cannabis Operator will pay a management fee to Acreage equal to a percentage of net revenue generated by the Target Cannabis Operator.
Covenants Regarding Acreage’s Business Plans
Pursuant to the Amending Agreement, Acreage will agree to submit an Approved Business Plan to Canopy Growth on a quarterly basis that complies with certain specified criteria, including the Initial Business Plan. The Initial Business Plan contains annual revenue and earnings targets for each of Acreage’s fiscal years ending on December 31, 2020 through December 31, 2029. The Amending Agreement and Initial Business Plan will require Acreage to limit its operations to the Identified States.
Pursuant to the Amending Agreement, Acreage will agree to conduct, and cause its Subsidiaries to conduct, their respective operations, incur expenses and purchase assets in accordance with the then applicable Approved Business Plan. To ensure compliance with the Approved Business Plan, the Amending Agreement will provide for certain monthly financial reporting obligations, including delivery of the following to Canopy Growth:
Austerity Measures
Pursuant to the Amending Agreement, Acreage will agree that in the event of an Interim Failure to Perform, certain additional restrictive covenants will become operative as austerity measures (the “Austerity Measures”) for Acreage’s business, including, among other things:
Termination of Certain Canopy Growth Covenants
Pursuant to the Amending Agreement, Acreage will agree that in the event that Acreage has not achieved 80% of the minimum revenue and earnings targets set forth in the Initial Business Plan (a “Material Failure to Perform”), as determined on an annual basis, certain restrictive covenants applicable to Canopy Growth under the Arrangement Agreement will cease to apply. In particular, Canopy Growth would no longer require consent from Acreage prior to the acquisition, or conditional acquisition, of a competitor of Acreage in the United States.
Acquisition Closing Conditions
Pursuant to the Amending Agreement, Acreage will agree that in the event that Acreage has not achieved 60% of the minimum revenue and earnings targets set forth in the Initial Business Plan for the trailing 12-month period ending on the date that is 30 days prior to the proposed Acquisition Date (a “Failure to Perform”), a material adverse impact will be deemed to have occurred for purposes of Section 6.2(2)(h) of the Arrangement Agreement. As a result of such a material adverse impact, Canopy Growth would retain the right but would not be required to complete the Acquisition of the Fixed Shares pursuant to the Canopy Call Option.
Covenants Following the Acquisition Time until the End Date
The Amending Agreement will provide for certain covenants to be agreed to by Acreage regarding its business and operations that will be effective from the Acquisition Time until the End Date, including, among other things:
Business Plan Requirements
As further disclosed in “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans”, pursuant to the Amending Agreement, Acreage will agree to submit an Approved Business Plan to Canopy Growth on a quarterly basis that complies with certain specified criteria, including the Initial Business Plan. The Initial Business Plan contains annual revenue and earnings targets for each of Acreage’s fiscal years ending on December 31, 2020 through December 31, 2029, as outlined below:
| Fiscal Year Ending | Pro-Forma Net Revenue Target (in US$000’s) | Consolidated Adj. EBITDA Target (in US$000’s) |
| 2020 | 166,174 | (22,499) |
| 2021 | 253,296 | 36,720 |
| 2022 | 289,528 | 53,222 |
| 2023 | 375,274 | 102,799 |
| 2024 | 558,599 | 166,744 |
| 2025 | 641,047 | 190,385 |
| 2026 | 740,194 | 218,108 |
| 2027 | 848,498 | 244,402 |
| 2028 | 973,402 | 273,434 |
| 2029 | 1,120,177 | 305,840 |
A number of factors may cause Acreage to fail to meet Pro-Forma Net Revenue Targets or the Consolidated Adj. EBITDA Targets set forth in the Initial Business Plan and outlined above. See “Risk Factors”.
In the event that Acreage has not satisfied: (i) 90% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, measured on a quarterly basis, an Interim Failure to Perform will occur and the Austerity Measures shall become applicable and provide significant restrictions on Acreage’s ability to take certain actions otherwise permitted by the Amended Arrangement Agreement; (ii) 80% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, as determined on an annual basis (commencing in respect of the fiscal year ending December 31, 2021), a Material Failure to Perform will occur and (a) certain restrictive covenants applicable to Canopy Growth under the Amended Arrangement Agreement will cease to apply in order to permit Canopy Growth to acquire, or conditionally acquire, a competitor of the Company in the United States should it wish to do so, and (b) an event of default under the Debenture will likely occur resulting in the Loan becoming immediately due and payable; and (iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan for the trailing 12 month period ending on the date that is 30 days prior to the proposed Acquisition Time, a Failure to Perform shall occur and a material adverse impact will be deemed to have occurred for purposes of Section 6.2(2)(h) of the Arrangement Agreement and Canopy Growth will not be required to complete the Acquisition of the Fixed Shares pursuant to the Canopy Call Option.
As a condition to implementation of the Amended Arrangement, the Lender will enter into the Debenture and provide the first tranche of the Loan contemplated thereunder, being US$50,000,000, to Hempco.
The following summarizes the material provisions of the Debenture. This summary may not contain all of the information about the Debenture that is important to Shareholders. The rights and obligations of the parties to the Debenture are governed by the express terms and conditions of the Debenture and not by this summary or any other information contained in this Circular. This summary is qualified in its entirety by reference to the Debenture, which is attached as Schedule F to the Proposal Agreement and has been filed by Acreage with the SEC and is available on EDGAR at www.sec.gov/edgar and on Acreage’s SEDAR profile at www.sedar.com.
Loan Advances
The Loan will be advanced in two tranches as follows:
Interest
The principal amount of the Loan will bear interest from the date of advance, compounded annually, and be payable on each anniversary of the date of the Debenture in cash in U.S. dollars at a rate of 6.1% per annum.
Maturity
The Loan will mature 10 years from the date of the Initial Advance.
Use of Proceeds
The Loan must be used exclusively for U.S. hemp-related operations and on the express condition that such amount will not be used, directly or indirectly, in connection with or for the operation or benefit of any of Hempco’s affiliates other than subsidiaries of Hempco exclusively engaged in U.S. hemp-related operations and not directly or indirectly, towards the operation or funding of any activities that are not permissible under applicable Law. The Loan proceeds must be segregated in a distinct bank account and detailed records of debits to such distinct bank account will be maintained by Hempco.
Loan Repayments
No payment due and payable to the Lender by Hempco pursuant to the Debenture may be made using funds directly or indirectly derived from any cannabis or cannabis-related operations in the United States, unless and until the Triggering Event Date.
Compliance Certificate
Pursuant to the Debenture, Hempco will be required to deliver, on a monthly basis, a certificate to the Lender certifying, among other things, that:
Representations and Warranties
The Debenture contains certain customary representations and warranties provided by Hempco. The representations and warranties to be made by Hempco relate to: no default; location; status, corporate power and qualification; subsidiaries; authorization, execution and delivery, approval and absence of conflict; validity of the Debenture; taxes and filings; valid issuance of the Debenture; corporate records; no restrictive agreements; compliance with contracts; accounting control; compliance with Laws, licenses and permits; environmental matters; assets; employment and labor matters; ERISA compliance; absence of insolvency proceedings; legal proceedings; insurance; intellectual property; accuracy of disclosure; no withholding of information; regulated entities; brokers’ fees and transaction fees; and foreign assets control regulations, anti-money laundering and anti-corruption practices. Each representation and warranty of Hempco will be deemed to be given on the date of the Second Advance.
Covenants
Positive Covenants
Pursuant to the Debenture, Hempco will agree to certain positive covenants, including covenants relating to: payment and performance of obligations; observation of covenants; notices to the Lender; maintenance of existence and business practices; compliance with compliance programs; compliance with Laws; permits and approvals; taxes; insurance; carrying on business; ownership of assets; good accounting practices; reporting to the Lender; inspections; use of proceeds; retail store operations; Subsidiary guarantees and security; and further assurances.
Negative Covenants
Pursuant to the Debenture, Hempco will agree to certain negative covenants, including covenants relating to: amalgamations; indebtedness; encumbrances; non-arm’s length transactions; compliance with ERISA; compliance with OFAC, USA Patriot Act and anti-corruption laws; change of corporate name or location; no sale of assets; constating documents; nature of business; dissolution; no sale-leasebacks; restricted payments; investments; cannabis related prohibitions; margin regulation; repayment; and Subsidiaries.
Events of Default
The Debenture will include usual and typical events of default for a financing of this nature, including, without limitation, if:
Tax Receivable Agreement and Bonus Plan Amendments
Concurrently with the execution of the Floating Share Arrangement Agreement, Canopy, Canopy USA, High Street, Acreage Holdings America, Inc. and certain individuals party to the TRA, amended the TRA in accordance with the Third Amendment. Pursuant to the Third Amendment, Canopy, on behalf of Canopy USA, agreed to: (i) issue Canopy Shares with a value of approximately $30.5 million to the TRA Members in exchange for each such individual executing an assignment of rights agreement assigning such individual’s rights under the TRA to Canopy USA, such that following assignment, Canopy USA is the sole member and beneficiary under the TRA; and (ii) fund a payment with a value of approximately $19.5 million to be made by the Company in Canopy Shares to certain eligible participants pursuant to the Bonus Plans, as amended on October 24, 2022, both in order to reduce a potential liability of approximately $121 million under the TRA and the Bonus Plans. In connection with the RTO, USCo entered intoforegoing, Canopy issued 5,648,927 Canopy Shares with a value of approximately $15.25 million to the TRA Members, with a second payment of approximately $15.25 million in Canopy Shares to occur on the earlier of: (a) the second Business Day following the date on which the Floating Share Arrangement has been approved; or (b) April 24, 2023. In addition, the TRA Bonuses with an aggregate value of approximately $19.5 million in Canopy Shares will be issued by Canopy to certain key individuals,eligible participants under the Bonus Plans on the closing of the Floating Share Arrangement or, if the Floating Share Arrangement does not close or is terminated but the Existing Arrangement closes, then on the closing of the Acquisition. The TRA Bonuses will be paid to recipients to be determined by Kevin Murphy, the administrator of the Bonus Plans, and may include one or more of Kevin Murphy, John Boehner, Brian Mulroney, and Peter Caldini, each of whom ownsare directors of Acreage and other current and former officers or consultants of Acreage as may be determined by Kevin Murphy. Canopy has also agreed to register the resale of such Canopy Shares under the Securities Act of 1933, as amended.
High Street Operating Agreement Amendments
Concurrently with the execution of the Floating Share Arrangement Agreement, Acreage amended the High Street Units. The TRAOperating Agreement to: (i) allow Canopy USA to have a call right on the High Street Units effective immediately following the earlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each holder of High Street Units to exchange their High Street Units for Canopy Shares as described in further detail in such amendment; and (ii) make other non-substantive changes agreed upon by Acreage and Canopy which were advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Floating Share Arrangement.
Amendments to USCo2 Constating Documents
The USCo2 Constating Documents will be amended prior to reflect the termsclosing of the AmendedFloating Share Arrangement Agreement to: (i) allow Canopy USA to have a call right on the USCo2 floating shares effective immediately following the earlier of the closing of the Floating Share Arrangement or the closing of the Existing Arrangement (rather than the three year anniversary of the closing of the Existing Arrangement) thereby requiring each USCo2 shareholder to exchange their floating shares for Canopy Shares; and make any other(ii) make other non-substantive changes that the Companyagreed upon by Acreage and Canopy Growth may mutually agree, acting reasonably, arewhich were advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
Tax Receivable Bonus Plan 1 Amendments
Pursuant to the TRA, certain key individuals are entitled to payment by USCo equal to 65% of the amount of net tax benefits, if any, realized (or deemed to be realized) by USCo attributable to each such member under the terms of the TRA. An additional 20% of such net tax benefits are available for payment to the TRA Parties under the Tax Receivable Bonus Plan 1. Mr. Murphy, as the administrator of the Tax Receivable Bonus Plan 1, has the right to determine the amount each participant receives under the Tax Receivable Bonus Plan 1. Acreage and Canopy Growth have agreed to amend Tax Receivable Bonus Plan 1 to provide, among other things, that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of the Company) as the administrator of the Tax Receivable Bonus Plan 1, and (ii) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
Tax Receivable Bonus Plan 2 Amendments
Mr. Murphy has waived his right to receive 30.77% of the aggregate tax benefit payments to which he may otherwise be entitled under the TRA in order to create a Tax Receivable Bonus Plan 2. Participants in the Tax Receivable Bonus Plan 2 include Mr. Leibowitz, Mr. Doherty, Mr. Daino, Harris Damashek and Tyson MacDonald. The amount available under the Tax Receivable Bonus Plan 2 will be equal to the payments pursuant to the TRA waived by Mr. Murphy. Mr. Murphy, as the administrator of the Tax Receivable Bonus Plan 2, has the right to determine the amount each participant receives under the Tax Receivable Bonus Plan 2. Acreage and Canopy Growth have agreed to amend the Tax Receivable Bonus Plan 2 to provide, among other things, that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of the Company) as the administrator of the Tax Receivable Bonus Plan 2, and (ii) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
High Street Operating Agreement Amendments
The High Street Operating Agreement will be amended, as may be determined by the Company to be necessary, acting reasonably, to (i) reflect the creation of the Fixed Shares and the Floating Shares, (ii) reflect the amended Exchange Ratio, (iii) otherwise reflect the terms of the Amended Arrangement, and (iv) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.Share Arrangement.
Amendments to USCo2 Constating Documents
The USCo2 Constating Documents will be amended, as may be determined by the Company to be necessary, acting reasonably, to (i) reflect the creation of the Fixed Shares and the Floating Shares, (ii) reflect the amended Exchange Ratio, (iii) otherwise reflect the terms of the Amended Arrangement, and (iv) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.
The following is a brief summary of thecertain Canadian and United States Securities Law considerations applying to the transactions contemplated herein not discussed elsewhere in this Circular.the Transactions.
The following is only a general overview of certain requirements of Canadian Securities Laws relating to the AmendedFloating Share Arrangement that may be applicable to Floating Shareholders, AcreageFloating Optionholders, Acreage RSUFloating Share Unit Holders and Acreage Compensation Option Holders.Floating Warrantholders. Each securityholder is urged to consult its professional advisors to determinedetermine the Canadian conditions and restrictions applicable under Canadian Securities Laws to trades in the Canopy Growth Shares issuablesecurities issued to such securityholder pursuant to the Amended Arrangement.Floating Share Arrangement.
The issuance of the FixedCanopy Shares and the Floating SharesReplacement Securities pursuant to the Capital Reorganization and the issuance of Canopy Growth Shares pursuant to the AcquisitionFloating Share Arrangement will each constitute a distribution of securities that is exempt from the prospectus requirements of applicable Canadian Securities Laws.
The Fixed Shares and the FloatingCanopy Shares issued pursuant to the Capital Reorganization and the Canopy Growth Shares issued pursuant to the AcquisitionFloating Share Arrangement may be resold in each province and territory of Canada provided that: (i) the Company or Canopy Growth, as applicable, is a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade; (ii) the trade is not a “control distribution” as defined in NI 45-102; (iii) no unusual effort is made to prepare the market or create a demand for those securities; (iv) no extraordinary commission or consideration is paid in respect of that trade; and (v) if the selling securityholder is an “insider” or “officer” (as such terms are defined by applicable Canadian Securities Laws) of the Company or Canopy, Growth, as applicable, the insider or officer has no reasonable grounds to believe that the Company or Canopy Growth, as applicable, is in default of applicable Canadian Securities Laws.
To the extent that a Floating Shareholder resides in a non-Canadian jurisdiction, the Fixed Shares, Floating Shares and the Canopy Growth Shares received by thesuch Floating Shareholder pursuant to the AmendedFloating Share Plan of Arrangement may be subject to certain additional trading restrictions under securities laws of such jurisdiction. All Floating Shareholders residing outside Canada are advised to consult their own legal advisors regarding such resale restrictions.
Status Under Canadian Securities Laws
Acreage is a reporting issuer in the Provinces of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia.Scotia and is a registrant under the U.S. Exchange Act. Following the AmendmentEffective Date Acreage will remain a reporting issuer in such jurisdictions. In the event that both the Canopy Call Option and the Floating Call Option are exercised (or the Canopy Call Option is deemed exercised),Acquisition Date, it is expected that Canopy GrowthUSA will apply to have Acreage cease to be a reporting issuer in all jurisdictions in which it is a reporting issuer and thus will terminate Acreage’s reporting obligations in Canada and the United States following completion of the Acquisition.
Canopy Growth is a reporting issuer in each of the provinces and territories of Canada, other than Quebec.Canada. Following the AmendmentEffective Date, and the Acquisition Date,it is expected that Canopy Growth will remain a reporting issuer in such jurisdictions.
Multilateral Instrument 61-101
The AmendedFloating Share Arrangement is subject to the requirements of MI 61-101. MI 61-101 regulates certain transactions to ensure equality of treatment among securityholders, generally requiring enhanced disclosure, approval by a majority of securityholders excludingexcluding any “interested parties”party”, any “related parties”party” of an “interested party” or any “joint actors”actor” of such interested party or related party of an interested party (as such terms are defined in MI 61-101) (collectively, the “Interested Parties”), independent valuations and, in certain instances, approval and oversight of the transaction and/or value determinationstransaction by a specialspecial committee of independent directors. The protections of MI 61-101 apply to a reporting issuer proposingproposing to carry out a: (i) “business combination”, which as defined in MI 61-101 includes, among other things, an arrangement as a “business combination”consequence of which the interest of the holder of an equity security of the issuer (such as the Floating Shares) undertaking the arrangement may be terminated without the holder’s consent, regardless of whether the equity security is replaced with another security; or (ii) “related party transaction”, which includes a transaction between the issuer and a person that is a related party of the issuer at the time the transaction is agreed to, whether or not there are also other parties to the transaction, as a consequence of which, either through the transaction itself or together with “connected transactions” (as defined in MI 61-101), the issuer, directly or indirectly, among other things, materially amends the terms of an outstanding credit facility with the related party. “Connected transactions”, as defined in MI 61-101, are two or more transactions that terminateshave at least one party in common, directly or indirectly, other than transactions related solely to services as an employee, director or consultant, and (i) are negotiated or completed at approximately the interestssame time, or (ii) the completion of securityholders without their consent.at least one of the transactions is conditional on the completion of each of the other transactions. For the purposes of a business combination or a related party transaction, an “interested party” is defined in part in MI 61-101 as a related party of the issuer at the time the transaction is agreed to, if the related party is entitled to receive, directly or indirectly, a collateral benefit as a consequence of the transaction.
A transaction such as the AmendedFloating Share Arrangement constitutes a “business combination” for purposespurposes of MI 61-101 if, at the time the ArrangementFloating Share Arrangement is agreed to, a “related party” of Acreage, such as a director or senior officer (as(as defined in MI 61-101) or a holderholder of 10% or more of any class of ExistingAcreage Shares, is entitled to receive a “collateral benefit” as a consequence of the transaction, a “collateral benefit” (as defined in MI 61-101).transaction.
A “collateral benefit” is broadly defined for purposes of MI 61-101 and means, subject to certain specified exclusions, any benefit that a related party of the issuer is entitled to receive, directly or indirectly, as a consequence of the transaction, including, without limitation, an increase in salary, a lump sum payment, a payment for surrendering securities or other enhancement in benefits related to past or future services as an employee, director or consultant of the issuer or of another Person, regardless of the existence of any offsetting costs to the related party or whether the benefit is provided, or agreed to, by the issuer or another party to the transaction.
The definition of “collateral benefit” in MI 61-101 contains certain exclusions. In that regard, a benefit received by aa related party of Acreage is not considered to be a collateral benefit for purposes of the Floating Share Arrangement if the benefit is received solely in connection with the related party'sparty’s services as an employee, director oror consultant of Acreage or an affiliated entity and: (i) the benefit is not conferred for the purpose, in whole or in part,part, of increasing the value of the consideration paid to the related party for securities relinquished under the AmendedFloating Share Arrangement; (ii) the conferring of the benefit is not, by its terms, conditional on the related party supportingsupporting the Floating Share Arrangement in any manner; (iii) full particulars of the benefit are disclosed in this Circular;Circular; and (iv) either (A) at the time the AmendedFloating Share Arrangement was agreed to, the related party and its associatedassociated entities beneficially own or exercise control or direction over less than 1% of the each class of the outstanding ExistingFloating Shares, or (B) (x) if the transaction is a “business combination”, the related party discloses to an independent committee of AcreageAcreage the amount of consideration that the related party expects it will be beneficially entitled to receive, under thethe terms of the AmendedFloating Share Arrangement, in exchange for equity securities beneficially owned by the related party,party, (y) the independent committee, acting in good faith, determines that the value of the benefit, net of any offsettingoffsetting costs to the related party, is less than 5% of the value referred to in (x), and (z)(y) the independent committee'scommittee’s determination is disclosed in this Circular.Circular.
AsBenefits to Acreage Related Parties from the Floating Share Arrangement and Certain Connected Transactions and Related Party Transactions
Third Amendment to the TRA
Pursuant to the Third Amendment, Canopy and Canopy USA have agreed with the TRA Members that Canopy will issue Canopy Shares with a value of approximately $30.5 million to the TRA Members in exchange for the assignment of each TRA Member’s rights under the TRA to Canopy USA, such that Canopy USA will become the only beneficiary of the Record Date,TRA. The Special Committee has determined that, for the purposes of MI 61-101, the issuance of such Canopy Shares to the TRA Members is a “connected transaction” with respect to the Floating Share Arrangement. Kevin Murphy is a related party of Acreage and, for purposes of MI 61-101, the Special Committee has determined that the value of the benefit to be received by him in respect of the foregoing is approximately $8.77 million (the “TRA Payment”) in connection with the Third Amendment to the TRA, half of which was satisfied by the issuance of 3,254,273 Canopy Shares, with a second payment of approximately $4.385 million in Canopy Shares to occur on the earlier of (a) the second Business Day following the date on which the Floating Share Arrangement has been approved; or (b) April 24, 2023. The number of Canopy Shares to be issued in satisfaction of the TRA Payment shall be equal to the fair market value of such Canopy Shares measured as of the close of trading on the second trading date prior to the relevant date of issuance.
Bonus Plans
In addition, pursuant to the Third Amendment Canopy has also agreed to fund the payment owing by Acreage with respect to the TRA Bonuses by issuing additional Canopy Shares with a value of approximately $19.5 million to such those participants in the Bonus Plan as may be determined by Mr. Murphy, as administrator of the Bonus Plans. The recipients may include one or more of the following related parties of Acreage: Kevin Murphy, John Boehner, Brian Mulroney, Peter Caldini, Steve Goertz, Corey Sheahan or Dennis Curran. The Special Committee has concluded that, for purposes of MI 61-101, payment of the TRA Bonuses may constitute a “related party transaction” for purposes of MI 61-101. For purposes of MI 61-101, the Special Committee has determined that the value of the benefit to be received by each of Mr. Murphy, Mr. Boehner, Mr. Mulroney, Mr. Caldini, Mr. Goertz, Mr. Sheahan and Mr. Curran in respect of the foregoing shall not be more $19.15 million in the aggregate as an amount not less than $350,000 has been allocated to an unrelated party, and the Special Committee understands that Mr. Murphy has the discretion to allocate up to the entire balance of $19.15 million to any one of the foregoing.
Amended Credit Facility
The Special Committee has determined that, for purposes of MI 61-101, the entry by Acreage into the Amended Credit Facility constitutes a “related party transaction”. See “Transaction Agreements – Amended Credit Facility”. Viridescent is one of the Lenders under the Amended Credit Facility. VRT Agent LLC is an agent for Viridescent, and Kevin Murphy is the President and Chairman of the Board of Directors of Viridescent and therefore a “related party” of Acreage. Under the Amended Credit Facility: (i) subject to the satisfaction of certain terms and conditions, an additional $25 million is available for immediate draw by Acreage, with a further $25 million available in future periods under a committed accordion option once certain predetermined milestones are achieved and conditions satisfied; (ii) the Lenders waived the requirement for Acreage to comply with certain financial covenants, except a minimum cash requirement, through Q1 2024; (iii) new financial covenants have been agreed upon in respect of periods beginning on and after March 31, 2024; and (iv) Canopy, its affiliates or Canopy USA are permitted to acquire control of Acreage without requiring repayment of all amounts outstanding under the Amended Credit Facility. As a Lender under the Amended Credit Facility, Viridescent committed $15 million of the aggregate $50 million accordion available thereunder. Furthermore, VRT Agent, as co-agent in connection with the Amended Credit Facility, received approximately $16,335 as an agency fee and approximately $375,000 as an amendment fee.
For the purposes of MI 61-101, the following related parties ownSpecial Committee has determined that the benefit that may be derived, directly or exercise control or direction overindirectly, by VRT Agent and Viridescent, entities in respect of which Mr. Murphy is a director and officer, in connection with the following classes Existing Shares, as determined in accordance with MI 61-101 and Section 1.8 of NI 62-104:
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Note:Amended Credit Facility is approximately $391,335.
(1)Option Agreement – Acreage Debt
On November 15, 2022, the Acreage Debt Optionholder and the Lenders entered into an option agreement (the “Option Agreement”), which superseded the Letter Agreement, pursuant to which, the Acreage Debt Optionholder was granted the right to purchase all monetary obligations owing by Acreage to VRT Agent LLC and the Lenders under the Amended Credit Facility (the “Acreage Debt”) in exchange for the Option Premium payment of $28.5 million, which was deposited into an escrow account. The amounts shown assume in each caseAcreage Debt Optionholder has the right to exercise its option at its discretion, and the Option Premium will be used towards settlement of the Acreage Debt. In the event that Acreage repays the Acreage Debt on or prior to maturity, the Option Premium will be returned to the Acreage Debt Optionholder. In the event that Acreage defaults on the Acreage Debt and the Acreage Debt Optionholder does not exercise its option to acquire the Acreage Debt, the Option Premium will be released to the Lenders.
The Special Committee has determined that the entry into the Option Agreement is a “connected transaction” with respect to the entry into the Amended Credit Agreement, since Kevin Murphy is a “related party” of Acreage, Options held byand Viridescent, an entity of which Kevin Murphy is the individuals disclosedPresident and Chairman of the board of directors, will receive a share of the Option Premium if the option provided for in the table,Option Agreement is exercised. In the conversionevent that the option under the Option Agreement is ever exercised or the Option Premium is otherwise released to the Lenders, Viridescent, an entity of all High Street Units held by themwhich Kevin Murphy is the President and take into account all vested Acreage RSUs or Acreage RSUs vesting within 60 daysChairman of the Announcement Date.board of directors, would receive its pro rata portion of the Option Premium, being $8.55 million.
(2) []Valuation Requirements
Acreage is exempt from the formal valuation requirement in MI 61-101 and can rely on the exemption contained in Section 5.5(b) of MI 61-101 with respect to the entry into of the Existing PVS are registeredFloating Share Arrangement Agreement, payment of the TRA Bonuses and entry into the Amended Credit Facility, as Acreage does not have securities listed on the Toronto Stock Exchange, Aequitas NEO Exchange Inc., the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market, or a stock exchange outside of Canada or the United States, other than the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc.
Minority Approval
As described above, the Floating Share Arrangement will constitute a “business combination” for Acreage for purposes of MI 61-101 if any related party of Acreage will receive a “collateral benefit” and therefore be an Interested Party for purposes of the Floating Share Arrangement.
As described above, Kevin Murphy is a related party of Acreage and, for purposes of MI 61-101, the Special Committee has determined that the value of the benefit in the nameform of the TRA Payment to be received by him in respect of the foregoing is approximately $8.77 million. For purposes of MI 61-101, the Special Committee has also determined that the value of the benefit to be received by each of Mr. Murphy, Capital, LLC, an entity overMr. Boehner, Mr. Mulroney, Mr. Caldini, Mr. Goertz, Mr. Sheahan and Mr. Curran in respect of the Bonus Plans and the TRA Bonuses may be up to $19.15 million as it has assumed that Mr. Murphy may determine to allocate up to the entire balance of the TRA Bonuses to any one of the foregoing. In addition, the Special Committee has determined that the benefit that may be derived, directly or indirectly, by VRT Agent and Viridescent, entities in respect of which Mr. Murphy exercises direction or control,is a director and [] Existing PVS are registeredofficer, is approximately $391,335, in the namecase of Thethe Amended Credit Facility, for the purposes of MI 61-101.In addition, in the event that the option under the Option Agreement is ever exercised or the Option Premium is otherwise released to the Lenders, Viridescent, an entity of which Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises direction or control.
(3) []is the President and Chairman of the Existing SVS are registered inboard of directors, would receive its pro rata portion of the name of Glen Leibowitz IRA Account over which Mr. Leibowitz exercises direction or control.Option Premium, being $8.55 million.
EachAcreage is exempt from the “minority approval” requirement with respect to the TRA Bonuses pursuant to Section 5.7(1)(a) of MI 61-101 because, at the time the transaction was agreed to, neither the fair market value of the TRA Bonuses to be paid to “related parties” of Acreage, nor the fair market value of the consideration for, the transaction, insofar as it involves Interested Parties, exceeds 25% of Acreage’s market capitalization. Acreage is also exempt from the “minority approval” requirement with respect to entry into the Amended Credit Facility pursuant to Section 5.7(1)(f) of MI 61-101, as the Amended Credit Facility was entered into on reasonable commercial terms that are not less advantageous to Acreage than if the Amended Credit Facility was obtained from a person dealing at arm’s length with Acreage and the Amended Credit Facility is not: (A) convertible, directly or indirectly, into equity or voting securities of Acreage or any of its Subsidiaries, or otherwise participating in nature; or (B) repayable as to principal or interest, directly or indirectly, in equity or voting securities of Acreage or a Subsidiary entity of Acreage. The Amended Credit Facility was approved by the Acreage Board with Kevin Murphy recusing himself from all discussions related thereto, declaring his interest and abstaining from voting thereon.
At the time the Floating Share Arrangement was agreed to, each of the directors and executive officers of Acreage and their respective associated and affiliated entities beneficially own,owned, or exerciseexercised control or direction over, less than than 1% of each outstanding class of the issued and outstanding Existingshares of each class of Acreage Shares (assuming, in each case, the exercise of Acreageof Acreage Options held by them, the conversion of all High Street Units held by them and taking into account all vested Acreage RSUsShare Units or Acreage RSUsShare Units vesting within 60 days of the Announcement Date), other than Mr.Kevin Murphy, (director)a member of the Acreage Board, and Peter Caldini, the Chief Executive Officer of Acreage and a member of the Acreage Board, who hold approximately 14.04% and 1.30%, who holds []%respectively, of the outstanding Existing SVSFloating Shares, and approximately 14.18% and 0.87%, respectively, of the outstanding Fixed Shares (assuming, in each case, all relevant securities held by Mr.each of Kevin Murphy and Peter Caldini, respectively, which are convertible, exercisable or exchangeable to acquire beneficial ownership of Floating Shares and/or Fixed Shares within 60 days of the Announcement Date are converted, exercised or exchanged into Existing SVS), []% of the outstanding Existing PVS (assuming conversion of the number of High Street Capital Units held by Mr.Floating Shares and Fixed Shares). In addition, Kevin Murphy to preclude the forced conversion of the outstanding Existing MVS), andholds 100% of the outstanding Existing MVS (assuming that Mr. Murphy does not convert any of such Existing MVS and Mr. Murphy is not otherwise forced to convert such Existing MVS pursuant to the terms thereof and the Coattail Agreement).
On June 24, 2020, the Company entered into agreements with each of the Specified Individuals providing that, if the Amendment Resolution is passed and the Amended and Restated Omnibus Equity Incentive Plan is adopted, and upon the occurrence of an Acceleration Event in respect of a Specified Individual, the Company will accelerate the vesting of all of the Acreage RSUs, Fixed RSUs, Floating RSUs and Replacement RSUs, as applicable, granted to such Specified Individual that are outstanding as at the date on which the Acceleration Event occurs. See “The Amended Arrangement – Interests of Certain Persons in the Amended Arrangement - Acceleration Agreements”.
In addition, as a condition to the implementation of the Amended Arrangement, the Credit Agreement will be amended in accordance with the Credit Agreement Amendment. The Credit Agreement Amendment is anticipated to provide that: (i) with respect to US$21,000,000 of the principal amount advanced pursuant to the Credit Agreement (the “Mr. Murphy Amount”), effective as of the Amendment Time, the Credit Agreement will be amended to (a) remove any entitlement to “Interest Shares” (as defined in the Credit Agreement) in respect of this amount, (b) provide for an interest rate of 12% per annum payable in cash, (c) amend Section 9.3 of the Credit Agreement to amend the obligation of Acreage Finance Delaware, LLC to cause Acreage to sell up to 8,800,000 Existing SVS to repay the amount outstanding such that the obligation shall be reduced to cause the issuance of up to 2,000,000 Fixed Shares, and (d) make any further revisions to the Credit Agreement as may be necessary or reasonable, as agreed upon with counsel to the lender, to implement the foregoing, and (ii) with respect to US$1,000,000 of the principal amount advanced pursuant to the Credit Agreement, the lender shall be entitled to (a) 23,999 Existing SVS, (b) upon maturity of the Credit Agreement, a return of US$1,100,000 and (c) otherwise treated in accordance with the current terms of the Credit Agreement.
Mr. Murphy has an economic interest in the Mr. Murphy Amount through a loan of US$21,000,000 made from Mr. Murphy to the lender under the Credit Agreement, which funds were subsequently loaned to the borrower under the Credit Agreement. While Mr. Murphy’s entitlements arising indirectly pursuant to the Credit Agreement are being reduced as a condition to the implementation of the Amended Arrangement, the funding pursuant to the Debenture and the other terms of the Amending Agreement and the Amended Plan of Arrangement increase the likelihood that the amount outstanding under the Credit Agreement will be repaid. This constitutes a benefit for Mr. Murphy, the former Chief Executive Officer, and current Chair of the Acreage Board.
In addition, as described above, amendments will be made to certain documents in connection with, and as a condition to, the implementation of the Amended Arrangement, which will provide that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of Acreage) as the administrator of the Tax Receivable Bonus Plans; and (ii) enable Mr. Murphy’s existing Acreage restricted share units (including any replacements thereof pursuant to the Amended Plan of Arrangement) to vest in accordance with the terms thereof regardless of Mr. Murphy ceasing to be an employee or officer of Acreage, provided that Mr. Murphy remains a director of Acreage. The value of any of the benefits received by Mr. Murphy has been considered by the Special Committee.
The following table sets out the approximate value of the benefits and other payments to be received by each of the related parties of Acreage in connection with the Amended Arrangement (assuming the Acquisition is completed):
| Name, Title | Amount of Benefits (US$) | |||
| Kevin P. Murphy, Director, Former Chief Executive Officer & President | 2,431,784 | (1)(2) | ||
| Glen Leibowitz, Chief Financial Officer | 2,992,475 | (1) | ||
| Robert Daino, Chief Operating Officer | 3,128,391 | (1) | ||
| James Doherty, General Counsel & Secretary | 2,992,475 | (1) | ||
| William C. Van Faasen, Director, Interim Chief Executive Officer | 242,036 | (1) | ||
| Douglas Maine, Director | 242,036 | (1) | ||
| John Boehner, Director | 97,084 | (1) | ||
| Brian Mulroney, Director | 597,638 | (1) | ||
| TOTAL | 12,723,919 | |||
Notes:
(1) Assumes the occurrence of an Acceleration Event in respect of such individual on June 24, 2020, being the date of the Proposal Agreement, and that all unvested Acreage RSUs and other awards, as applicable, granted to such individual that were outstanding as at the close of business on June 24, 2020 became fully vested on such date. The value of the unvested Acreage RSUs and awards to become vested were valued using the closing price of the Existing SVS on the CSE on June 24, 2020, being US$2.33.
(2) The Company is taking a conservative approach and has attributed the full amount of the loan Mr. Murphy advanced to Poppins to facilitate funding under the Original Credit Agreement, being US$21,000,000, as the amount of the benefit to Mr. Murphy. The Company is taking this approach given the limited downside protection in favor of Poppins in the Original Credit Agreement, Acreage’s current financial position, Mr. Murphy’s subordination of his repayment in favour of the other funding source to Poppins and the unlikelihood of complete recovery for Mr. Murphy absent the Amended Arrangement (which is contingent on the amendments to the Original Credit Agreement being made) and funding pursuant to the Debenture.
Given that each of Mr. Leibowitz, Mr. Daino, Mr. Doherty, Mr. C. Van Faasen, Mr. Maine, Mr. Boehner and Mr. Mulroney beneficially owns or exercises control or direction over less than 1% of each class of Existing Shares, the Special Committee determined that each of the foregoing payments, entitlements or benefits to which such individuals are or may be entitled do not constitute a “collateral benefit” for purposes of MI 61-101 and therefore their Existing Shares will not need to be excluded from the minority approval of the Amendment Resolution pursuant to MI 61-101.
The payments, entitlements or benefits to which Mr. Murphy will or may be entitled to receive pursuant to the Amended Arrangement are classified as “collateral benefits” for purposes of MI 61-101. Since Mr. Murphy is a “related party” of Acreage and is receiving a collateral benefit, the Arrangement constitutes a “business combination” for purposes of MI 61-101. Mr. Murphy is also classified as an “interested party” and therefore, the Existing Shares held by Mr. Murphy or under the control or direction of Mr. Murphy (including those entities which are “related parties” of Mr. Murphy and “joint actors” of Mr. Murphy, being Murphy Capital, LLC and The Kevin Murphy 2018 Annuity Trust (together with Mr. Murphy, the “Interested Parties”)) will not be counted for purposes of the tabulation of the “minority approval” of the Amendment Resolution in accordance with MI 61-101.
Pursuant to an application dated July 8, 2020 made to the OSC, as principal regulator, the Company obtained an order from the OSC dated August [*], 2020, exempting the Company from the requirements in subsection 8.1(1) of MI 61-101 to obtain minority approval for the Amendment Resolution pursuant to MI 61-101 from the holders of each affected class of Existing Shares, each voting separately as a class. Accordingly, holders of Existing SVS and Existing PVS who are not Interested Parties will vote together as a single class for the purposes of obtaining approval pursuant to MI 61-101. As Mr. Murphy, who is an Interested Party, is the only beneficial holder of Existing MVS, Existing MVS will be excluded entirely from such vote. Aside from having a voting right of 40 votes per share, the holders of the Existing PVS are entitled to the same rights as the holders of the Existing SVS, and no holder thereof is entitled to any privilege, priority or preferences in relation to any other holders of Existing Shares. The holders of Existing SVS comprise: (i) those Shareholders who held either Existing SVS or Existing PVS at the effective time of the Existing Arrangement; and (ii) holders of Existing SVS acquired subsequent to the effective time of the Existing Arrangement. Certain holders of Existing SVS may, therefore, not have received the original Option Premium. The Existing PVS Shareholders comprise those holders of Existing PVS who held such shares at the effective time of the Existing Arrangement and, accordingly, received their pro rata share of the Option Premium. To the extent that there are adverse U.S. income tax consequences arising from receipt by U.S. holders of the Option Premium or the Aggregate Amendment Option Payment resulting from the Amended Arrangement, all holders of Existing PVS will be affected whereas only certain holders of Existing SVS will be affected. As such, the classes of Existing Shares may be differentially affected for U.S. tax purposes. The holders of Existing Shares are advised to consult their own tax advisors with respect to the receipt of their portion of Aggregate Amendment Option Payment based on their particular circumstances. See “Certain United States Federal Income Tax Considerations”Multiple Shares.
ForAs a result of the foregoing, for purposes of obtaining “minority approval”the Floating Share Arrangement, the Interested Parties are Mr. Murphy and Mr. Caldini. The following table sets forth the securities of the Amendment Resolution pursuant to MI 61-101,Acreage held by each of Mr. Murphy and Mr. Caldini, which includes an aggregate of [t] Existing SVS (representing 807,866 Floating Shares (approximately [t]%2.37% of the issued and outstanding Existing SVSoutstanding Floating Shares), as of the Record Date), an aggregate of [t] Existing PVS (representing approximately [t]% of the issued and outstanding Existing PVS as of the Record Date) and 168,000 Existing MVS (representing approximately 100% of the issued and outstanding Existing MVS as of the Record Date) are required to be excluded.
Restricted Securities Matters
OSC Rule 56-501
OSC Rule 56-501 regulates the creation and distribution of restricted shares by reporting issuers governed by Canadian Securities Law applicable in Ontario. The definition of restricted shares includes equity shares to which are attached voting rights exercisable in all circumstances, irrespective of the number or percentage of shares owned, that are less, on a per share basis, than the voting rights attaching to any other shares of an outstanding class of shares of the issuer.
The Existing SVS are “restricted securities” and the Fixed Shares and Floating Shares proposed to be created pursuant to the Capital Reorganization constitute “restricted securities”, in each case within the meaning of such term under OSC Rule 56-501.
OSC Rule 56-501 provides, among other things, that the prospectus exemptions under Canadian Securities Law applicable in Ontario are not available in respect of a “stock distribution” (as defined in OSC Rule 56-501), unless either: (i) the stock distribution or (ii) the “reorganization” (as defined in OSC Rule 56-501) that resulted in the creation of the restricted shares, received “minority approval” (as defined in OSC Rule 56-501) in addition to any other required security holder approval. For the purposes of OSC Rule 56-501, minority approval means approval by a majority of the votes cast by holders of voting shares and, if required by applicable corporate law, by a majority of the votes cast by holders of a class of shares, other than, in both cases, the votes attaching at the time to securities held directly or indirectly by: (A) “affiliates” (as defined in the Securities Act) of the issuer; or (B) “control persons” (as defined in OSC Rule 56-501) of the issuer (in either case, a “Related Party” and collectively the “Related Parties”).
NI 41-101 provides, among other things, that an issuer must not file a prospectus under which restricted securities are to be distributed unless: (i) the distribution has received prior majority approval of the securityholders of the issuer in accordance with applicable Law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by the Related Parties; or (ii) at the time of any “restricted security reorganization” (as defined in NI 41-101, and which would include the Capital Reorganization) related to the securities to be distributed: (A) the restricted securityholder reorganization received prior majority approval of the securityholders of the issuer in accordance with applicable Law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by the Related Parties; (B) the issuer was a reporting issuer in at least one jurisdiction; and (C) no purposes or business reasons for the creation of the restricted securities were disclosed in the relevant information circular that are inconsistent with the purpose of the distribution.
In connection with the Capital Reorganization, the Fixed Shares and the Floating Shares are being created and distributed, each of which classes will constitute “restricted shares” within the meaning of OSC Rule 56-501 and “restricted securities” within the meaning of NI 41-101. In order to: (a) create and distribute the Fixed Shares, Floating Shares and Fixed Multiple Shares in connection with the Capital Reorganization; and (b) effect distributions of Fixed Shares and/or Floating Shares in the future either pursuant to a prospectus or on a prospectus-exempt basis, in each case, without obtaining minority approval for any such distribution, the Company is seeking minority approval for the Amendment Resolution.
In relation to the Amendment Resolution, “minority approval” means approval by the affirmative vote of a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, voting together as a single class, excluding votes cast by the Related Parties. For the purposes of obtaining “minority approval” of the Amendment Resolution pursuant to OSC Rule 56-501 and NI 41-101, an aggregate of [] Existing SVS (representing approximately []% of the issued and outstanding Existing SVS as of the Record Date), [] Existing PVS (representing approximately []% of the issued and outstanding Existing PVS as of the Record Date), and 168,000 Existing MVS (representing 100% of the issued and outstanding Existing MVS as of the Record Date) are required to be excluded.
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NI 51-102 and Form 51-102F5
Pursuant to NI 51-102, the Company is required to disclose the extent of any rights provided in the Company’s constating documents or otherwise for the protection of holders of “restricted securities” (as such term is defined in NI 51-102). As of the date of this Circular, which Floating Shares shall be excluded from voting for purposes of determining whether “minority approval” is obtained in respect of the Existing SVS constitute restricted securities. If the Amendment Resolution is adoptedArrangement Resolution at the Meeting and the Amended Arrangement and Capital Reorganization are implemented, the Fixed Shares and Floating Shares will each constitute restricted securities.
On November 14, 2018, the Company, the Trustee and the Existing MVS Shareholders entered into the Coattail Agreement under which the Existing MVS Shareholders and holders of High Street Units are prohibited from selling, directly or indirectly, any Existing MVS or High Street Units pursuant to a takeover bid, if applicable Canadian Securities Laws would have required the same offer to be made to the Existing SVS Shareholders had the sale been a sale of Existing SVS rather than Existing MVS or High Street Units. For a full description of the terms of the Coattail Agreement, see “Voting Securities And Principal Holders Thereof”.
As a condition to the completion of the Amended Arrangement, the Housekeeping Amendments shall have been made on terms satisfactory to each of the Company and Canopy Growth, each acting reasonably, which includes, but is not limited to amendments to the terms of the Coattail Agreement to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of ArrangementMeeting. Such amendments to the Coattail Agreement will be made to provide the proposed holders of Fixed Shares and Floating Shares with the same rights against the proposed holders of Fixed Multiple Shares as the Existing SVS Shareholders under the Coattail Agreement as at the date of this Circular.
Minority Approval Requirements
As a result of the foregoing analyses, the “minority approval” requirements of MI 61-101 and of OSC Rule 56-501 and NI 41-101 will apply in connection with the Amended Arrangement and, in addition to obtaining approval of the Amendment Resolution of at least 66⅔% of the votes cast by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, approval will also be sought by: (i) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Interested Parties pursuant to MI 61-101; and (ii) a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes of the Related Parties.
The table below sets forth the votes of Interested Parties (or related parties of Interested Parties and joint actors) excluded for purposes of determining “minority approval” in accordance with MI 61-101:
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Name, Title | Number and Class of Acreage Shares Held (%) |
Acreage Options Held | Number and Class of Acreage Share Units Held |
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| Number of High Street Units Held | |
| Kevin P. Murphy, Director | 728,706 Floating Shares (2.14%) 1,496,040 Fixed Shares (1.89%) 117,600 Fixed Multiple Shares (100%) | 19,512 Floating Options | 147,275 Floating Share Units 343,642 Fixed Share Units | 15,957,908 | |||
| Peter Caldini, Director, Chief Executive Officer | 79,160 Floating Shares (0.23%) 120,206 Fixed Shares (0.15%) | 241,464 Floating Options 1,941,410 Fixed Options | 187,805 Floating Share Units 1,072,558 Fixed Share Units | - | |||
Note:Notes:
(1) []195,000 of the Existing PVSFloating Shares and 455,000 Fixed Shares are registered in the name of Murphy Capital, LLC, an entity over which Mr. MurphyMurphy exercises direction or control, and [] Existing PVS are registered in the name of The Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises direction or control.
The table below sets forth the votes of Related Parties excluded for purposes of determining “minority approval” in accordance with of OSC Rule 56-501 and NI 41-101:control
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.
Note:
(1) [] of the Existing PVS are registered in the name of Murphy Capital, LLC, an entity over which Mr. Murphy exercises direction or control, and [] Existing PVS are registered in the name of The Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises direction or control.
Formal Valuation Exemption
The Company’s securities are not listed or quoted on a specified market for purposes of MI 61-101. Section 4.4(1)(a) of MI 61-101 provides for an exemption from the formal valuation requirement of MI 61-101 where an issuer’s securities are not listed or quoted on a specified market.
To the knowledge of the directors and officers of the Company, after reasonable enquiry, there have been no prior valuations (as defined in MI 61-101) prepared in respect of the Company within the 24 months preceding the date of this Circular. Disclosure is also required for any bona fide prior offer for the Existing Shares during the 24 months before entry into the Amended Arrangement Agreement. There has not been any such offer during such 24 month period.
The following is only a general overview of certain requirements of U.S. Securities Laws relating to the AmendedFloating Share Arrangement that may be applicable to Shareholders, Acreage Optionholders, Acreage RSU Holders and Acreage Compensation Option Holders.holders of Floating Share Arrangement Issued Securities. Each securityholder is urged to consult its professional advisors to determine the U.S. conditions and restrictions applicable under U.S. Securities Law to trades in the Canopy Growth Shares issuable pursuant to the AmendedFloating Share Arrangement.
Exemption from U.S. Registration
The Canopy Growth Shares, Replacement Options, Replacement RSUsShare Units and Replacement Compensation OptionsWarrants to be issued to Floating Shareholders holders of Fixed Share Replacement Securities and holders of Floating Share Replacement Securities, respectively, under the Amended Plan ofFloating Share Arrangement and pursuant to the Acquisition have not been and are not expected to be registered under the U.S. Securities Act or the Securities Laws of any state of the United States and will be issued in reliance upon the Section 3(a)(10) Exemption and exemptions provided in respect of the Securities Laws of states of the U.S. in which U.S. Holders reside. The Section 3(a)(10) Exemption exempts from registration a security that is issued in exchange for outstanding securities and other property where the terms and conditions of such issuance and exchange are approved, after a hearing upon 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 by a governmental authority expressly authorized by Law to grant such approval. On August [¨t], 2020,2023, prior to the mailing of this Circular, the CompanyAcreage obtained the Amendment Interim Order, which was varied on [t], 2023 to amend the Record Date, the date of the Meeting, the date of the hearing for the Final Order approving the Floating Share Arrangement and any related timelines, and, subject to the approval of the Floating Share Arrangement by the Floating Shareholders, a hearing for the Amendment Final Order approving the Floating Share Arrangement is currently expected to take place on September [¨t], 2020.2023. All Floating Shareholders, AcreageFloating Optionholders, Acreage RSUFloating Share Unit Holders and Acreage Compensation Option HoldersFloating Warrantholders are entitled to appear and be heard at this hearing, provided that they satisfy the applicable conditions set forth in the Amendment Interim Order. The Amendment Final Order of the Court will, if granted, constitute the basis for the Section 3(a)(10) Exemption with respect to the securities to be issued under theFloating Share Arrangement and on completion of the Acquisition.Issued Securities.
The Section 3(a)(10) Exemption will not be available for the Canopy Growth Shares that are issuable upon exercise of the Replacement Options, the Canopy Growth Shares that are issuable upon exercise of the Replacement Compensation OptionsWarrants and the Canopy Growth Shares that are issuable on the vesting of the Replacement RSUs.Share Units. Therefore, the Canopy Growth Shares issuable upon the exercise of the Replacement Options and Replacement Compensation OptionsWarrants and the Canopy Growth Shares issuable on the vesting of the Replacement RSUsShare Units will be “restricted securities” within the meaning of Rule 144 under the U.S. Securities Act, and may be issued only pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable state Securities Laws or following registration under such Laws. To the extent permitted by applicable Law, Canopy Growth has no present intentionagreed to, fileas promptly as practicable following the Effective Time, cause a registration statement relatingon Form S-8 to be filed with the SEC to register the issuance of Canopy Growth Shares issuable upon exercise of the Replacement Options and Replacement Compensation Options orWarrants and the Canopy Growth Shares issuable on the vesting of the Replacement RSUs and no assurance can be made thatShare Units. If Canopy Growth will file or have taken effective stepsis not permitted by applicable Law to file sucha Form S-8 to register the issuance of Canopy Shares issuable upon exercise or vesting, as applicable, of the Replacement Options, Replacement Warrants and Replacement Share Units, Canopy has agreed to promptly file a registration statements instatement on an appropriate form to register the future.resale of the Canopy Shares issuable upon exercise or vesting, as applicable, of the Replacement Options, Replacement Warrants and Replacement Share Units, or otherwise take all necessary actions to cause the Canopy Shares issuable upon exercise or vesting, as applicable, of the Replacement Options, Replacement Warrants and Replacement Share Units, to be issued free of resale restrictions and without restrictive legends to the extent permitted by applicable Law.
The Canopy Growth Shares to be issued on completionafter the Effective Time of the AcquisitionFloating Share Arrangement will be freely transferable under United States federal Securities Laws, except that the U.S. Securities Act imposes restrictions on the resale of Canopy Growth Shares received on completion of the Acquisition by Persons who are, become after consummation of the Acquisition or within 90 days of the AcquisitionEffective Time have been,become, “affiliates” of Canopy Growth.Canopy.
As defined in Rule 144 under the U.S. Securities Act, an “affiliate” of an issuer is a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such issuer and may include certain officers and directors of such issuer as well asand principal shareholders of such issuer. “Control” means the possession, direct or indirect, of the power to direct or cause direction of the management and policies of an issuer, whether through the ownership of voting securities, by contract or otherwise.
An “affiliate” of Canopy Growth is a Person that directly, or indirectly through one or more Intermediaries,intermediaries, controls, or is controlled by, or is under common control with, Canopy Growth and may include certain executive officers and directors of Canopy, Growth, as well asand principal shareholders of Canopy, Growth, directors or executive officers of Acreage who become directors or executive officers of Canopy Growth after the Acquisition,Effective Time, and any Person deemed to be an affiliate of Canopy Growth within 90 days before the closing of the Acquisition.Effective Time.
Any Floating Shareholder who, after consummation of the AcquisitionEffective Time is an “affiliate” (as defined in Rule 144 under the U.S. Securities Act) of Canopy Growth or was, at any time during the 90 days immediately before the resale of any Canopy Growth Shares received on completion ofpursuant to the Acquisition,Floating Share Arrangement, an “affiliate” of Canopy, Growth, may not resell such Canopy Growth Shares, unless such shares are registered under the U.S. Securities Act or an exemption from registration, such as the exemptions contained in Rule 144 and Rule 904 of Regulation S under the U.S. Securities Act, is available. This Circular does not cover resales of any Canopy Growth Shares received by any Person upon completion ofpursuant to the Acquisition, and no Person is authorized to make any use of this Circular in connection with any resale.
This Circular does not cover resales of any Canopy Growth Shares received by any Person upon completion of the Acquisition,Floating Share Arrangement, and no Person is authorized to make any use of this Circular in connection with any resale.
Affiliates – Rule 144
In general, under Rule 144, Persons that are affiliates of Canopy Growth after consummation of the AcquisitionEffective Time or were affiliates of Canopy Growth within the 90 days immediately before the resale of the Canopy Growth Shares received on completion ofissued pursuant to the AcquisitionFloating Share Arrangement will be entitled to sell such shares that they receive on completion ofafter the AcquisitionEffective Time in the United States, provided that the number of such shares sold, together with all other shares of the same class sold for their account during any three-month period, does not exceed the greater of one percent of the then outstanding securities of such class or, if such shares are listed on a U.S. securities exchange and/or reported through the automated quotation system of a U.S. registered securities association, the average weekly trading volume of such shares during the four calendar week period preceding the date of sale, subject to aggregation rules, specified restrictions on manner of sale, reporting requirements, and the availability of current public information about the relevant issuer. Persons that are affiliates of Canopy Growth after the closing of the AcquisitionEffective Time will continue to be subject to the resale restrictions described in this paragraph for so long as they continue to be affiliates of Canopy, Growth, and for 90 days thereafter.
To the extent that a Floating Shareholder resides in a non-U.S. jurisdiction, the Canopy Growth Shares received by the Floating Shareholder may be subject to certain additional trading restrictions under Securities Laws of such jurisdiction. All Floating Shareholders residing outside the U.S. are advised to consult their own legal advisors regarding such resale restrictions.
Affiliates – Regulation S
In general, pursuant to Rule 904 of Regulation S under the U.S. Securities Act, Persons who are affiliates of Canopy Growth solely by virtue of their status as an officer or director of such company may sell Canopy Growth Shares outside the United States in an “offshore transaction” (which would include a sale through the TSX, if applicable) if neither the seller nor any Person acting on its behalf engages in “directed selling efforts” in the United States and no selling commission, fee or other remuneration is paid in connection with such sale other than a usual and customary broker’s commission. For purposes of Regulation S, “directed selling efforts” means, “any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being offered” in the sale transaction. Pursuant to Rule 903 of Regulation S, certain additional restrictions are applicable to a holder of Canopy Growth Shares who is an affiliate of Canopy Growth after the AcquisitionEffective Time other than solely by virtue of his or her status as an officer or director of Canopy Growth.Canopy.
To the extent that a Floating Shareholder resides in a non-U.S. jurisdiction, the Canopy Growth Shares received by the Floating Shareholder may be subject to certain additional trading restrictions under Securities Laws of such jurisdiction. All Floating Shareholders residing outside the U.S. are advised to consult their own legal advisors regarding such resale restrictions
Status Under U.S. Securities Laws
Acreage is a domestic issuer in the United States subject to the reporting requirements of the U.S. Exchange Act. Following the AmendmentEffective Date Acreage will remain a domestic issuer in the United States. In the event that both the Canopy Call Option and the Floating Call Option are exercised (or deemed exercised),Acquisition Date, it is expected that Canopy GrowthUSA will apply to have Acreage cease to be subject to the reporting requirements of the U.S. Exchange Act.
Canopy Growth is a domestic issuer in the United States subject to the reporting requirements of the U.S. Exchange Act. Following the AmendmentEffective Date and the Acquisition Date, it is expected that Canopy Growth will remain a domestic issuer in the United States.
Other than the Shareholder Approval, receipt of the Amendment Regulatory ApprovalsInterim Order and the Acquisition Regulatory Approvals,Final Order, state regulatory approvals required in connection with the closing of the Existing Arrangement and all required approvals from the stock exchanges on which the Canopy Shares are listed for the listing of the Consideration Shares and any Canopy Shares issuable upon the exercise or vesting, as applicable, of Replacement Options, Replacement Share Units and Replacement Warrants, Acreage is not aware of any material approval, consent or other action by any federal, provincial, state or foreign government or any administrative or regulatory agency that would be required to be obtained in order to implementcomplete the Amended Arrangement or the Acquisition, as applicable.Floating Share Arrangement. In the event that any such approvals or consents are determined to be required, such approvals or consents will be sought. Any such additional requirements could delay the Amendment Date or the AcquisitionEffective Date or prevent the completion of the Amended Arrangement or the Acquisition, as applicable.Floating Share Arrangement. While there can be no assurance that any regulatory consents or approvals that are determined to be required will be obtained, Acreage currently anticipates that any such consents and approvals other than the amendment of federal Laws in the United States to permit the general cultivation, distribution and possession of marijuana or the removal of the regulation of such activities from the federal Laws of the Unites States, that are determined to be required will have been obtained or otherwise resolved by the Amendment Date or the Acquisition Date, as applicable.Effective Date. Subject to Shareholder Approval, the receipt of the Amendment Regulatory ApprovalsInterim Order and the Final Order, and all required approvals from the stock exchanges on which the Canopy Shares are listed, and the satisfaction or waiver of all other conditions specified in the Proposal Agreement,Floating Share Arrangement Agreement, the Amendment DateFloating Share Arrangement is expected to occur in September, 2020.
Under the HSR Act, certain transactions, including the Acquisition, may not be completed until a pre-merger Notification and Report Form has been filed within the FTC and the Antitrust Divisionsecond half of the DOJ and the specified waiting period has been terminated or has expired without the commencement of a lawsuit. The initial waiting period under the HSR Act expires 30 calendar-days after the parties’ filings of their respective HSR Act Notification and Report Forms. If the FTC or DOJ issues a Request for Additional Information and Documentary Material (“Second Request”) prior to the expiration of the initial waiting period, the waiting period is extended until 30 days after the parties certify substantial compliance with the Second Request. The FTC and DOJ have discretion to grant early termination of the HSR Act waiting period if requested by the parties.2023.
At an appropriate time prior to completion of the Acquisition, Acreage and Canopy Growth have agreed to prepare and file a Notification and Report Form pursuant to the HSR Act. Acreage and Canopy Growth have agreed to use their respective commercially reasonable efforts to obtain all Regulatory Approvals required to complete the Acquisition.
The Existing SVSFloating Shares are currently listed on the CSE under the symbol “ACRG.U”“ACRG.B.U”, are quoted on the OTCQX under the symbol “ACRGF”“ACRDF” and are traded on the Open Market of the Frankfurt Stock ExchangeFSE under the symbol “0VZ”“0VZ2”. It is a condition to the implementationcompletion of the AmendedFloating Share Arrangement that Acreage will have obtained approval of the CSE in respect of the Amended Arrangement. Floating Share Arrangement, as required.
It is anticipatedexpected that in connection with the implementation of the Amended Arrangement and completion of the Capital Reorganization, the Existing SVSCanopy USA will be delisted and each of the Fixed Shares and Floating Shares will become listed on the CSE in their place. On the Amendment Date, the Existing SVS will be exchanged for Fixed Shares and the Fixed Shares will be listed on the CSE, the OTCQX and the Frankfurt Stock Exchange. Canopy Growth intends toapply to: (i) have the Fixed Shares, and, if the Floating Call Option is exercised, the Floating Shares delisted from the CSE, the OTCQX and the Frankfurt Stock ExchangeFSE as promptly as possible following the Acquisition Date.
It is expected that Canopy Growth will apply toEffective Date; and (ii) have the Fixed Shares delisted from the CSE, the OTCQX and the Frankfurt Stock ExchangeFSE as promptly as possible following the Acquisition Date and, if the Floating Call Option is exercised, it is expected that Canopy Growth will also apply to have the Floating Shares delisted from the CSE.Date.
The Canopy Growth Shares are currently listed and posted for trading on the TSX under the symbol “WEED” and on the NYSENasdaq under the symbol “CGC”. Subject to applicable Laws and any required approvals, Canopy Growth has agreed to use its commercially reasonable efforts to causeobtain all required approvals from the Canopy Growth Shares to be issued pursuant to the Acquisition to be listed on the TSX and the NYSE, or such other recognized stock exchange(s)exchanges on which the Canopy Growth Shares are listed, with effect promptly following the Acquisition Time. It is a condition of completion of the Acquisition that Canopy Growth will have obtained conditional approval of the stock exchange(s) on which the Canopy Growth Shares are listedand for the listing of the Consideration Shares and any Canopy Growth Shares issuable: (i) to Shareholders underissuable upon the Amended Arrangement; (ii) upon exercise or vesting, as applicable, of Replacement Options, Replacement RSUsShare Units and Replacement Compensation Options; and (iii) upon exchange or redemption of High Street Units and USCo2 Shares, subject to customary listing conditions.Warrants. As of the date of this Circular, Canopy Growth has received conditional approval of the TSX for the listing of such Canopy Growth Shares.
The listing of the Canopy Shares on the TSX and the Nasdaq prohibit Canopy from investing in, or acquiring, state regulated, but federally illegal, businesses in the United States cannabis market. Canopy has advised that it expects to consolidate the financial statements of Canopy USA in accordance with U.S. GAAP, including the financial statements of Acreage, Wana and Jetty once those acquisitions have been completed by Canopy USA. On December 7, 2022, Canopy received a letter from Nasdaq Regulation requesting certain information and stating, among other things, their position that companies that consolidate “the assets and revenues generated from activities in violation under federal law cannot continue to list on Nasdaq.” Canopy has advised that it expects to continue dialogue with Nasdaq Regulation regarding their position. Representatives of Nasdaq have expressed to representatives of Canopy that the exchange was comfortable with the formation of Canopy USA, the Reorganization and Canopy holding Canopy USA Non-Voting Shares. Based on the current structure of Canopy’s interest in Canopy USA, consolidation of Canopy USA by Canopy was deemed to most appropriately result in compliance with the requirements of U.S. GAAP despite Canopy’s inability to direct or manage the operations of Canopy USA. In addition, Canopy advised that it believes that consolidating the financial statements of Canopy USA under U.S. GAAP provides investors of Canopy with a more fulsome, accurate and detailed understanding of the financial position and profit and loss for Canopy overall despite Canopy’s inability to direct or manage the operations of Canopy USA. There can be no assurance that Canopy will remain listed on the Nasdaq or any other exchange on which the Canopy Shares are currently listed on, which could have a material adverse effect on the trading price of the Canopy Shares, as well as Canopy’s business, financial condition and results of operations. In the event of a delisting from a stock exchange, there is no assurance that Canopy will be able to satisfy the conditions required to list on an alternative stock exchange. See “Risk Factors – Risks Relating to the Floating Share Arrangement – If Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage without structural amendments to Canopy’s interest in Canopy USA, the listing of Canopy Shares on the Nasdaq Stock Market may be jeopardized”.
Floating Shareholders should carefully consider the following risk factors before deciding to vote or instruct their vote to be cast to approve the AmendmentArrangement Resolution. In addition to the risk factors set out below, Floating Shareholders should also carefully consider the risk factors applicable to the CompanyAcreage set out in the Acreage Annual Report under the heading “Risk Factors”“Risk Factors”, a copy of which is available under the Company’sAcreage’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar, and the risk factors applicable to Canopy Growth referred to in Appendix “G” to this Circular.
The following risk factors are not an exhaustive list of all of the risk factors associated with the Proposal Agreement, the AmendedFloating Share Arrangement Agreement and the Acquisition.Floating Share Arrangement. Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company andAcreage, Canopy Growth,and Canopy USA, may also adversely affect the Existingholders of the Floating Shares, Shares,the Canopy Growth Shares and the businesses of the CompanyAcreage, Canopy and Canopy GrowthUSA following completion of the Acquisition.Floating Share Arrangement. All of the risk factors described in this Circular and incorporated by reference in this Circular should be considered by Floating Shareholders in conjunction with the other information included in this Circular, including the appendices hereto.hereto.
See the Existing Arrangement and Acreage’s proxy statement and management information circular dated August 17, 2020 in connection with a special meeting held to approve the Existing Arrangement for further risk factors with respect to the Existing Arrangement, a copy of each of which is available under Acreage’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.
Risks ifRelating to the AmendedFloating Share Arrangement is Not Approved and the Existing Arrangement Remains in Effect
Negative Cash Flow from OperationsThe Floating Share Arrangement may not be completed
During the three months ended March 31, 2020, the Company sustained net losses from operations and had negative cash flow from operating activities. The Company’s cash and cash equivalents as at March 31, 2020 was approximately US$13,940,000. As at March 31, 2020, the Company’s working capital was approximately US$355,000. As at the date hereof, the Company has negative working capital. See “Sufficiency of Capital”.
During the Interim Period, Acreage is Restricted from Taking Certain Actions under the Existing Arrangement
The Arrangement Agreement restricts Acreage from taking specified actions during the Interim Period, including incurring debt or issuing additional Existing Shares beyond permitted levels, without the consent of Canopy Growth which may adversely affect the ability of Acreage to execute certain business strategies. See “Risk Factors - The Arrangement Agreement Contains Restrictive Covenants” and “Risk Factors –– Securing Additional Financing”. These restrictions may prevent Acreage from pursuing certain business opportunities that may arise prior to the Acquisition Time.
The Arrangement Agreement Contains Restrictive Covenants
If the Amended Arrangement is not completed, Acreage will be subject to the restrictive covenants and consent requirements under the Existing Arrangement. The Arrangement Agreement contains restrictive covenants that may potentially impair the discretion of management with respect to certain business matters. These covenants place restrictions on, among other things, the ability of the Company to make any material change to the nature of its business, make certain payments, incur additional indebtedness, issue Existing Shares, create liens or encumbrances not permitted by the Arrangement Agreement and sell or otherwise dispose of certain assets. A failure to comply with these terms, if not cured or waived, could result in a breach of the Arrangement Agreement and allow Canopy Growth to determine not to complete the Acquisition. See “Risk Factors – Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect – Securing Additional Financing” below.
Securing Additional Financing
The continued development of the Company’s business will require additional financing. In the event that the Amended Arrangement is not implemented, the Debenture will not be entered into, and there can be no assurance that additional capital or other types of financing will be available or that, if available, the terms of such financing will be favorable to the Company. See “Risk Factors – Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect – Ability to Access Public and Private Capital”. In addition, the Arrangement Agreement contains restrictive covenants and consent requirements relating to capital raising activities, incurring indebtedness and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. The Company will require additional financing to fund its operations until positive cash flow is achieved. If the Amended Arrangement is not implemented, these risks may materialize and may materially and adversely affect Acreage’s business, financial results and the price of the Existing Shares and could result in the delay or indefinite postponement of the Company’s current business objectives or the Company ceasing to carry on business, all of which could allow Canopy Growth to determine not to complete the Acquisition. See “Risk Factors – Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect – Negative Cash Flow from Operations” and “Risk Factors – Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect – Sufficiency of Capital”.
Ability to Access Public and Private Capital
If the Amended Arrangement is not approved, the Lender will not enter into the Debenture and will not make the Initial Advance of US$50,000,000 to Hempco. See “Transaction Agreements – Debenture”. Additional equity financing as is accessible to the Company (if any) may be dilutive to Shareholders and could involve the sale of securities with rights and preferences superior to those of the Existing SVS (see “Risk Factors – Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect – Lowered Market Price of the Existing SVS”). In order to obtain debt financing, the Company will be required to obtain the prior consent of Canopy Growth under the Arrangement Agreement. Such debt financing may involve restrictions on the Company’s financing and operating activities. Debt financing may be convertible into other securities of the Company which may result in immediate or resulting dilution. In either case, additional financing may not be available to the Company on terms more favorable than the terms of the Debenture, acceptable terms, or at all. The terms of the Yorkville Bridge Loan and the ALBF Bridge Loan violated the terms of the Arrangement Agreement and required the Company to obtain a waiver of such breach from Canopy Growth. Canopy Growth may, in its discretion, require the Company to conduct its business in strict compliance with the terms of the Arrangement Agreement and decline to provide a waiver to the Company for future debt financing on terms similar or more or less favorable to the Yorkville Bridge Loan and the ALBF Bridge Loan.
Due to the nature of the Company’s operations, the Company is unable to obtain bank financing in the U.S. or financing from other U.S. federally regulated entities. However, if the Company is unable to raise additional funds as needed, the scope of its operations or growth may be reduced and, as a result, the Company may be unable to fulfil its long-term goals. Moreover, the Company will be at risk of breaching its restrictive covenants under the Arrangement Agreement, which could allow Canopy Growth to determine not to complete the Acquisition. In this case, investors may lose all or part of their investment. Any default under such debt instruments could have a material adverse effect on the Company, its business or the results of operations.
Sufficiency of Capital
The Company currently has a significant operating cash flow deficiency that will make it necessary for the Company to raise additional cash in the future as its current cash and working capital resources are depleted. The Company will seek to raise additional capital through the public or private sale of assets, debt or equity securities, the procurement of advances on contracts or licenses, funding from joint-venture or strategic partners, debt financing or short-term loans, or a combination of the foregoing. The Company may also seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities. Approval of the Amended Arrangement and entry into the Amending Agreement is a condition precedent to the Initial Advance under the Debenture. Other than the Debenture, the Company does not currently have any commitments for, or readily available sources of, additional financing.
Under the Existing Arrangement, the Company cannot guarantee that it will be able to secure the additional cash or working capital it may require to continue operations. Failure by the Company to obtain additional cash or working capital on a timely basis and in sufficient amounts to fund its operations or to make other satisfactory arrangements may cause the Company to delay or indefinitely postpone certain of its activities, including potential acquisitions, reduce its staff, reduce or delay capital expenditures, sell material assets, seek additional capital (if available) or seek compromise arrangements with its creditors. There is also a risk that the Company may lose key personnel. The foregoing could materially and adversely impact the business, operations, financial condition and results of operations of the Company or result in breaches of the Arrangement Agreement which would allow Canopy Growth to determine not to complete the Acquisition.
Lowered Market Price of the Existing SVS
The current price of the Existing SVS may reflect a market assumption that the transactions contemplated under the Proposal Agreement will occur, meaning that a failure to complete the transactions contemplated therein and to approve the Amended Arrangement could result in a material decline in the price of the Existing SVS. If the Amended Arrangement is not approved and the Company raises additional financing through the issuance of Existing SVS (including securities convertible or exchangeable into Existing SVS), such issuance may substantially dilute the interests of holders of Existing SVS.
Financial markets may experience significant price and volume fluctuations that affect the market prices of equity securities of companies that are unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Existing SVS may decline even if the Amended Arrangement is approved. There can be no assurance that continuing fluctuations in price and volume will not occur.
Trading Price of the Existing SVS
There is no guarantee that the Existing SVS will trade at a price that reflects the performance of the Company or at a price that reflects the trading price of the Canopy Growth Shares based upon the Existing Exchange Ratio. Given the uncertainties regarding the completion of the Acquisition, it is possible the Existing SVS will trade at a significant discount to the Existing Exchange Ratio.
Adverse U.S. federal income tax consequences if the Acquisition does not qualify as a tax-deferred transaction
If the Acquisition does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code or fails to meet the Section 367 Requirements, Shareholders may be required to pay substantial U.S. federal income taxes. If the Acquisition is treated as a taxable transaction for U.S. federal income tax purposes, each U.S. Holder that exchanges its Fixed Shares for Canopy Growth Shares in the Merger or its Floating Shares for Canopy Growth Shares in the direct exchange, if applicable. should recognize gain or loss in an amount equal to the difference between (i) the fair market value of the Canopy Growth Shares received and (ii) such U.S. Holder’s tax basis in his Fixed Shares, and if applicable, Floating Shares, surrendered therefor. For additional information, see the section entitled “Certain United States Federal Income Tax Considerations”.
Special rules apply to Non-U.S. Holders based on their particular circumstances. There is a risk that such Non-U.S. Holders could be subjected to U.S. federal income tax under certain circumstances as a result of the Acquisition failing to qualify as a “reorganization” within the meaning of Section 368(a) of the Code (and meet the Section 367 Requirements). For additional information, see the section entitled “Certain United States Federal Income Tax Considerations”. The Exchange Ratio may be decreased in certain instances.
There is a fixed maximum number of Canopy Shares to be issued in connection with the Acquisition. In addition, in the event that Acreage issues more than the Canopy Growth Approved Share Threshold or if Acreage is required to make a Payout, the Exchange Ratio will be automatically reduced. Any such reduction of the Exchange Ratio will result in the Acreage Holders receiving fewer Canopy Shares upon completion of the Acquisition.
Risks Relating to the Acquisition
Canopy Growth could fail to complete the Acquisition or the Acquisition may be completed on different terms
There can be no assurance that the AcquisitionFloating Share Arrangement will be completed, or if completed, that it will be completed on the same or similar terms to those set out in the Arrangement Agreement (as may be amended by the Amending Agreement).completed. The completion of the AcquisitionFloating Share Arrangement is subject to the satisfaction or waiver of a number of conditions which include, among others,other things: (i) obtaining necessary approvals, including the AcquisitionFloating Share Arrangement Regulatory Approvals and other Regulatory Approvals; (ii) performance by Acreage, Canopy and Canopy GrowthUSA of their respective obligations and covenants in the Floating Share Arrangement Agreement; and (iii) satisfaction or, if permitted, waiver of the Acquisition Closing Conditions, excluding conditions that by their terms cannot be satisfied until the Acquisition Effective Time, and the conditions precedent set out in the Floating Share Arrangement Agreement, (as may be amended byincluding, among others, completion of the Amending Agreement), and (iii) cannabis production, distribution and sale becoming legal under United States federal Law,Canopy Capital Reorganization on or being removed from regulation under such Law. prior to the Exercise Outside Date.
If these conditions are not fulfilled or waived, or the AcquisitionFloating Share Arrangement is not completed for any other reason, Floating Shareholders will not receive the Consideration Shares and, if applicable, the Floating Cash Consideration.Shares. Certain of these conditions including the occurrence of the Triggering Event Date, are outside of the control of Acreage. There can be no certainty, nor can Acreage provide any assurance, that all conditions precedent to the completion of the Floating Share Arrangement will be satisfied or waived, or, if satisfied or waived, when they will be satisfied or waived and, accordingly, the AcquisitionFloating Share Arrangement may not be completed. In addition, in the event that the Floating Share Arrangement is not completed, Canopy will still retain the right to acquire all of the Fixed Shares pursuant to Fixed Call Option under the Existing Arrangement. If the Fixed Call Option is exercised, it is anticipated Canopy USA will beneficially own approximately 70% of the voting rights attached to all the outstanding Acreage Shares at the Acquisition Time. If the Floating Share Arrangement is not completed and the Acquisition is completed within the anticipated timeframe, thereafter holders of Floating Shares will have little or no influence on the conduct of Acreage’s business and affairs, and there may not be an active trading market for the Floating Shares, among other things.
In addition,Further, if the AcquisitionFloating Share Arrangement is not completed, the ongoing business of Acreage may be adversely affected as a result of the costs (including opportunity costs) incurred in respect of pursuing the Acquisition,the Floating Share Arrangement, and Acreage could experience negative reactions from the financial markets, which could cause a decrease in the market price of the Existing SVS Floating Shares and/or the Fixed Shares, as applicable, particularly if the market price reflects market assumptions that the Acquisition will be completed or completed on certain terms.Shares. Acreage may also experience negative reactions from its customers and employees, and there could be a negative impact on Acreage’s ability to attract future acquisition opportunities. Failure to complete the Acquisition orFloating Share Arrangement or a change in the terms of the AcquisitionFloating Share Arrangement Agreement could each have a material adverse effect onon Acreage’s business, financial condition and results of operations. operations and its ability to comply with the covenants and conditions set forth in the Existing Arrangement Agreement.
See “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement – Risks if the Floating Share Arrangement is Not Completed and Canopy Acquires the Fixed Shares”, “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement – Risks Relating to holding Floating Shares in a company with a minority controlling shareholder” and “Risk Factors – Risks Relating to the Completion of the Floating Share Arrangement – There may not be an active trading market for the Floating Shares”.
Risks Associatedassociated with a Fixedthe Exchange Ratio
HoldersUpon completion of Existing Shares or Fixed Shares, as applicable,the Floating Share Arrangement, Floating Shareholders will receive 0.45 of a fixedCanopy Share for each Floating Share held, rather than a number of Canopy Growth Shares, subject to adjustment, upon closing of the Acquisition, rather than Canopy Growth Shares with a fixed marketdollar value. Because the number of Canopy Growth Shares to be received in respect of each Existing Share exchangedby Floating Shareholders (other than Canopy USA, Canopy and/or their respective affiliates) pursuant to the Existing Arrangement, or eachFloating Share exchanged pursuant to the Amended Arrangement will not be adjusted to reflect any change in the market value of the Canopy Growth Shares prior to the AcquisitionEffective Date, the market value of Canopy Growth Shares received by Floating Shareholders upon closingcompletion of the AcquisitionFloating Share Arrangement may vary significantly from the market value of such Canopy Shares as at the Announcement Date.date of the Floating Share Arrangement Agreement. If the market price of the Canopy Growth Shares increases or decreases, the value of the Canopy Growth Shares that holders of Existing Shares or Fixed Shares, as applicable,Floating Shareholders will receive pursuant to the AcquisitionFloating Share Arrangement will correspondingly increase or decrease. There can be no assurance that the market price of the Canopy Growth Shares at the AcquisitionEffective Date will not be lower than the market price of such shares onCanopy Shares as at the Announcement Date.date of the Floating Share Arrangement Agreement.
In addition, the number of Canopy Growth Shares to be issued per Existing SVS or Fixedto Floating Shareholders pursuant to the Floating Share as applicable, in connection with the Amended Arrangement will not change despite decreases or increases in the market price of the Existing SVS or FixedFloating Shares. Many of the factors that affect the market price of the Canopy Growth Shares the Existing Shares and/or the FixedFloating Shares are beyond the control of Canopy Growth and Acreage, respectively. These factors include, but are not limited to, changes in market perceptions of the cannabis industry, changes in the regulatory environment, adverse political developments and prevailing conditions in the capital markets.
In the event that the market value of the Canopy Growth Shares decreases subsequent to the Announcement Datedate of the Floating Share Arrangement Agreement and prior to the AcquisitionEffective Date, this may have a negative impact on the value that holders of ExistingFloating Shares or Fixed Shares, as applicable, will realize onupon completion of the Acquisition.Floating Share Arrangement.
Market Overhang Riskoverhang risk
OnUpon completion of the Floating Share Arrangement and assuming completion of the Acquisition, a significant number of additional Canopy Growth Shares will be issued and available for trading in the public market. TheSuch increase in the number of Canopy Growth Shares available for trading in the public market may lead to sales of such sharesCanopy Shares, or the perception that such sales may occur (commonly referred to as “market overhang”), either of which may adversely affect the market for, and the market price of, the Canopy Growth Shares.
Nasdaq listing and share consolidation
The Canopy Shares are listed for trading on the TSX and the Nasdaq. In order to maintain the listing of the Canopy Shares on the Nasdaq, Canopy must comply with the Nasdaq’s continued listing requirements and standards, which stipulate that the Canopy Shares must maintain a minimum bid price of at least $1.00 per share (the “Minimum Share Price Listing Standard”). There can be no assurance that there will be sufficient liquidity of the Canopy Shares, nor that Canopy will be able to meet the Minimum Share Price Listing Standard on an ongoing basis. In order for Canopy to regain compliance with the Minimum Share Price Listing Standard in the event that the trading price of the Canopy Shares drops below $1.00, Canopy may be required to consolidate (or reverse split) the issued and outstanding Canopy Shares into a lesser number of issued and outstanding Canopy Shares. This would have a dilutive effect on the Floating Shareholders that receive Consideration Shares pursuant to the Floating Share Arrangement. If Canopy is unable to regain compliance with the Minimum Share Price Listing Standard, the Canopy Shares may be subject to delisting from the Nasdaq.
Canopy cannot finance Canopy USA
In October 2017, the TSX issued a staff notice (the “TSX Staff Notice”), warning that listed issuers with ongoing business activities that are in violation of United States federal law regarding marijuana are not compliant with applicable listing requirements (the “TSX Listing Requirements”). Furthermore, the TSX Staff Notice made clear that the concept of “ongoing business activities” would be interpreted broadly to include: (i) activities related to the cultivation, distribution or possession of cannabis in the United States (a “U.S. Cannabis Business”); (ii) commercial interests of arrangements with a U.S. Cannabis Business that are similar in substance to ownership or investment; (iii) providing services or products that are specifically designed for, or targeted as, a U.S. Cannabis Business; or (iv) commercial interests or arrangements with entities providing such services or products to a U.S. Cannabis Business.
As a result of the foregoing, Canopy cannot finance the business or operations of Canopy USA for so long as Canopy is listed on the TSX or the TSX Listing Requirements remain subject to the TSX Staff Notice. There can be no assurance that Canopy USA will be able to generate sufficient funds required for its operations without external funding, which may dilute Canopy’s as-converted interest in Canopy USA. Further, there can be no assurance that Canopy USA will be able to obtain and maintain financing on acceptable terms, or at all. In the event that Canopy USA is unable to obtain or maintain sufficient financing, the value of the Canopy Shares may decline as the business, growth and prospects of Canopy USA may be materially adversely impacted thereby impacting the consolidated financial statements of Canopy and its own future business, growth and prospects.
The Consideration Shares to be received by Floating Shareholders as a result of the Floating Share Arrangement will have different rights from the Floating Shares
Upon completion of the Floating Share Arrangement, Floating Shareholders will no longer be shareholders of Acreage, a company governed by the BCBCA, but will incurinstead be shareholders of Canopy, a corporation governed by the CBCA. There may be important differences between the current rights of Floating Shareholders and the rights to which such shareholders will be entitled as shareholders of Canopy under the CBCA and Canopy’s constating documents. Shareholder rights under the CBCA are in many instances comparable to those under the BCBCA; however, there are several differences. See Appendix “I” – Comparison of Shareholder Rights under the BCBCA and CBCA for a comparison of certain of these rights. This summary is not intended to be exhaustive and Floating Shareholders should consult their legal advisors regarding all of the implications of the effects of the Floating Share Arrangement on such Floating Shareholders’ rights.
Anticipated benefits of integration with Canopy USA may not materialize
It is anticipated that Canopy USA will exercise the Wana Option and the Jetty Option. If such options are exercised, upon completion of the Floating Share Arrangement, it is anticipated that Canopy USA’s business will involve the integration of companies that previously operated independently. Such integration may present challenges for Canopy USA, including the integration of the operations, systems and personnel, and special risks, including possible unanticipated liabilities, unanticipated costs, diversion of time and attention and the loss of key employees. The difficulties Canopy USA may encounter in the transition and integration process could have an adverse effect on the revenues, level of expenses and operating results of Canopy and Canopy USA. If actual results are less favourable than anticipated, the business, results of operations, financial condition and liquidity of Canopy and Canopy USA could be materially adversely impacted.
The ability to realize the benefits of the Floating Share Arrangement may depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as on Canopy USA’s ability to realize the anticipated growth opportunities and synergies, efficiencies and cost savings from integrating the businesses of Acreage with Wana and Jetty, in the event the Wana Option and the Jetty Option are exercised.
Operational, strategic and staffing decisions have not yet been made. These decisions, coupled with the integration of Acreage, Wana and Jetty, in the event the options to acquire ownership of these entities is exercised, into Canopy USA’s operations, may present challenges, including the integration of systems and personnel, and special risks, including possible unanticipated liabilities, unanticipated costs, and the loss of key employees. The performance of Canopy USA after completion of the Floating Share Arrangement could be adversely affected if Canopy USA cannot attract and retain key employees to assist in its operations. As a result of these factors, it is possible that the expected cost reductions and synergies may not be realized.
It is expected that integration will require the dedication of substantial transaction-related costseffort, time and resources, which may divert the focus of Canopy USA and resources from other strategic opportunities following completion of the Floating Share Arrangement, as well as from operational matters. The amount and timing of the synergies the Parties hope to realize may not occur as planned. In addition, the integration process may result in the disruption of ongoing business that may adversely affect the ability of Canopy USA and Canopy to achieve the anticipated benefits of the Floating Share Arrangement.
Canopy may not be able to renegotiate its debt to Greenstar
Greenstar holds $100 million aggregate principal amount of outstanding unsecured subordinated senior promissory notes issued by Canopy which mature on July 15, 2023. Greenstar, in its early warning report filed under Canopy’s profile on SEDAR dated October 26, 2022, and Canopy have each announced their intention to negotiate an exchange of such notes for Exchangeable Canopy Shares if the Canopy Capital Reorganization is authorized by Canopy’s shareholders at the Canopy Meeting. There can be no assurance that the Canopy Capital Reorganization will be approved at the Canopy Meeting, or if it is, that negotiations for such exchange will be successful. If Canopy is not able to successfully negotiate the exchange of such notes for Exchangeable Canopy Shares, the maturity of such notes on July 15, 2023 will require repayment of the notes in cash, which may result in financial difficulty for Canopy. This may result in a decline in the market value of the Canopy Shares, and a resulting negative impact on the value that Floating Shareholders will realize upon completion of the Floating Share Arrangement.
The anticipated benefits of the strategy involving Canopy USA may not be realized
Achieving the benefits anticipated through Canopy USA depends in part on the ability of Canopy USA to effectively capitalize on its scale, to realize the anticipated capital and operating synergies, to profitably sequence the growth prospects and to maximize the potential of its growth opportunities. The ability to realize these benefits from the proposed acquisitions of Acreage, Wana and Jetty by Canopy USA may depend, in part, on successfully consolidating certain functions and integrating operations, procedures and personnel in a timely and efficient manner, and on Canopy USA’s ability to realize the anticipated growth opportunities and synergies. The integration of Acreage with Wana and Jetty, in the event the Wana Option and Jetty Option are exercised, by Canopy USA will require the dedication of substantial effort, time and resources on the part of Canopy USA which may divert time, focus and resources from other strategic opportunities available to Canopy USA and from operational matters during this process. In addition, the integration process could result in disruption of existing relationships with suppliers, employees, customers and other constituencies of each company. There can be no assurance that Canopy USA will be able to integrate the operations of each of the businesses successfully or achieve any of the synergies or other benefits that are anticipated.
Operational and strategic decisions with respect to the integration of Acreage with Wana and Jetty, in the event the Wana Option and Jetty Option are exercised, have not yet been made and may present challenges. It is possible that the integration process could result in the inability to attract and retain key employees, the disruption of the respective ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability to maintain relationships with clients, suppliers, employees or to achieve the anticipated benefits. The performance of Canopy USA could be adversely affected if Canopy USA cannot attract and retain key employees. Any inability of Canopy USA to successfully integrate the operations could have a material adverse effect on the business, financial condition and results of operations of Canopy and Canopy USA.
Upon the closing of the Floating Share Arrangement, Shareholders will own shares of Canopy whose management team will not have the ability to direct or manage the operations of Canopy USA
Current Shareholders will not receive shares of Canopy USA as part of the Floating Share Arrangement but only shares of Canopy yet upon the closing of the Floating Share Arrangement, Canopy USA will hold all of the Acreage Shares. Canopy does not have the ability to direct or manage the operations of Canopy USA. The interests of Canopy USA may not coincide with the interests of Canopy and its shareholders and, consequentially, management of Canopy USA may not necessarily act in accordance with the best interests of the shareholders of Canopy. To the extent that conflicts of interests may arise, Canopy USA may act in a manner adverse to Canopy and its shareholders.
Canopy may issue additional equity securities
Canopy may issue equity securities to finance its activities, including in order to finance acquisitions. In addition, if Canopy is successful in negotiating the exchange of certain outstanding promissory notes owed to Greenstar for Exchangeable Canopy Shares (see “Canopy may be unable to renegotiate its debt to Greenstar” above), additional Exchangeable Canopy Shares will be issued, which will be convertible into Canopy Shares. Following any issuance of additional equity securities by Canopy, whether prior to or following the completion of the Floating Share Arrangement, the ownership interest of Floating Shareholders in Canopy upon such completion of the Floating Share Arrangement may be diluted, and some or all of Canopy’s financial measures on a per share basis may be reduced. Moreover, if Canopy’s intention to issue additional equity securities becomes publicly known, the price of the Canopy Shares may be materially adversely affected.
The Acquisition will affect the rights of Floating Shareholders
Following the completion of the Floating Share Arrangement, Floating Shareholders will no longer have an interest in Acreage, its assets, revenues or profits. In the event that the actual value of Acreage’s assets or business as at the Effective Date, exceeds the value of Acreage implied by the Exchange Ratio, holders of Floating Shares will not be entitled to additional consideration.
Adverse U.S. federal income tax consequences
For U.S. federal income tax purposes, the Floating Share Arrangement is expected not to qualify as a reorganization under Section 368(a) of the Code and is expected to be a fully taxable transaction. U.S. Holders may be required to pay substantial U.S. federal income taxes in connection with the AcquisitionFloating Share Arrangement. Assuming the Floating Share Arrangement does not qualify as a reorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Shares in exchange for Floating Shares would generally recognize a capital gain or loss equal to the difference between the fair market value of the Canopy Shares received and the U.S. Holder’s adjusted tax basis in the Floating Shares exchanged therefor. For additional information, see the section entitled “Certain United States Federal Income Tax Considerations”. Special rules apply to Non-U.S. Holders based on their particular circumstances. There is a risk that such Non-U.S. Holders could be subjected to U.S. federal income tax under certain circumstances. For additional information, see the section entitled “Certain United States Federal Income Tax Considerations – Non-U.S. Holders”.
Canopy may be acquired prior to the Effective Date
Acreage expectsIn the event of a Canopy Change of Control prior to incur a number of non-recurring transaction-related costs associated with completing the Acquisition whichEffective Date, Floating Shareholders will not be incurred whetherentitled to vote or not the Acquisition is completed. Such costs may offsetexercise any expected cost savings and other synergies from the Acquisition. In addition, during the Interim Period, the Company expects to incur a number of recurring transaction-related costsdissent rights in connection with monitoringa proposed acquisition of Canopy. However, all such Floating Shareholders will be bound by the terms of any such acquisition, if approved. Accordingly, following a successful Canopy Change of Control, it is anticipated that Floating Shareholders would receive cash and/or securities of the entity resulting from such Canopy Change of Control. The projected synergies and anticipated benefits of the Floating Share Arrangement being completed by Canopy USA may not be realized if it is completed by a third-party purchaser or successor entity, as applicable, following a successful Canopy Change of Control. Acreage and such third-party purchaser or successor entity may not successfully integrate. If actual results are less favourable than Acreage, Canopy and Canopy USA currently anticipate, the business, results of operations, financial condition and liquidity of any such third-party purchaser or successor entity, as applicable, could be materially adversely impacted.
Canopy is subject to certain restrictions of the TSX and the Nasdaq, which may constrain is ability to expand its business in the United States
The Canopy Shares are currently listed on the TSX and the Nasdaq. So long as Canopy continues to be listed on the TSX and the Nasdaq, Canopy must comply with their requirements and guidelines when conducting business, particularly when pursuing opportunities in the United States.
In October 2017, the TSX issued the TSX Staff Notice, which notes that listed issuers with ongoing business activities that are in violation of United States federal law regarding marijuana are not compliant with the TSX Listing Requirements. Should the TSX determine that Canopy is in violation of the TSX Listing Requirements, the TSX may initiate a delisting review. Although Canopy believes that it complies with all applicable laws and regulations, including the TSX Listing Requirements, there is a risk that Canopy’s interpretation may differ from that of the TSX. Canopy’s failure to comply with the TSX Listing Requirements could result in a delisting of the Canopy Shares from the TSX, or the denial of Canopy’s application (the “Listing Application”) to list the Consideration Shares issuable to the Floating Shareholders on the TSX. The denial of Canopy’s Listing Application could, among other things: (i) result in the failure to satisfy the condition precedent to completion of the Floating Share Arrangement that all required Floating Share Arrangement Regulatory Approvals be obtained, such that the Floating Share Arrangement Agreement will be terminated, and the Floating Share Arrangement will not be completed; (ii) have a material adverse effect on the trading price of the Canopy Shares; or (iii) have a material adverse effect on Canopy’s business, financial condition and results of operations.
While the Nasdaq has not issued official rules specific to the cannabis or hemp industry, stock exchanges in the United States, including the Nasdaq, have historically refused to list certain cannabis related businesses, including cannabis retailers, that operate primarily in the United States. Failure to comply with any requirements imposed by the Nasdaq could result in the delisting of the Canopy Shares from the Nasdaq, or the denial of any application to have additional securities listed on the Nasdaq, which could have a material adverse effect on the trading price of the Canopy Shares. See “Regulatory Matters – Stock Exchange Matters”.
If Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage without structural amendments to Canopy’s interest in Canopy USA, the listing of the Canopy Shares on the Nasdaq Stock Market may be jeopardized
Canopy’s listings on the TSX and Nasdaq prohibit Canopy from investing in, or acquiring, state regulated, but federally illegal, businesses in the United States cannabis market until a change in United States federal law occurs or Canopy delists the Canopy Shares from the TSX and Nasdaq and lists on an alternative exchange that does not prohibit investments in United States cannabis businesses. While Canopy believes that it currently complies with all applicable laws and regulations, as well as the applicable cannabis related policies of the TSX and Nasdaq, Canopy’s interpretation may differ from those of the stock exchanges now or in the future, and therefore, the TSX or Nasdaq could allege that Canopy violates the exchange’s cannabis-related policies.
Canopy has advised that it expects to consolidate the financial statements of Canopy USA in accordance with U.S. GAAP, including the financial statements of Acreage, Wana and Jetty once those acquisitions have been completed by Canopy USA. On December 7, 2022, Canopy received a letter from Nasdaq Regulation requesting certain information and stating, among other things, their position that companies that consolidate “the assets and revenues generated from activities in violation under federal law cannot continue to list on Nasdaq.” Canopy has advised that it expects to continue dialogue with Nasdaq Regulation regarding their position. Representatives of Nasdaq have expressed to representatives of Canopy that the exchange was comfortable with the formation of Canopy USA, the Reorganization and Canopy holding Canopy USA Non-Voting Shares. Representatives of Nasdaq have also indicated to representatives of Canopy that Nasdaq Rule 5205(c) requires Nasdaq to determine compliance with the Arrangementlisting standards based on a company’s financial statements. Canopy has advised that it disagrees with Nasdaq’s application of Nasdaq Rule 5205(c) since Nasdaq Rule 5205(c) merely refers to a company’s initial listing and continued listing qualifications expressly enumerated in the Nasdaq Rules and does not address the matter of the legality of the revenues reported within a Company’s financial statements. Accordingly, Canopy has advised that it intends to continue its dialogue with Nasdaq Regulation as it believes that the “qualifications” referenced in Nasdaq Rule 5205(c) cannot refer to a standard that does not exist within the Nasdaq Rules nor, intuitively, can accounting treatment form the basis for a conclusion with respect to compliance with laws.
Canopy has advised that it is hopeful that the other exchange will seek to determine Canopy’s compliance with its listing requirements on the basis of applicable laws. In the event that neither Nasdaq nor another exchange is comfortable with financial consolidation of Canopy USA and Nasdaq initiates a delisting process, Canopy has advised that it intends to vigorously appeal such a decision.
There is significant judgment in applying the guidance with respect to consolidation of a variable interest entity under U.S. GAAP, particularly given the highly-structured, nuanced and novel nature of Canopy’s interest in Canopy USA. No precedent has been identified by Canopy with respect to the accounting treatment under U.S. GAAP. Canopy USA was structured to ensure that Canopy does not currently have the ability to direct or manage the operations of Canopy USA. The Protection Agreement (asprovides for stringent negative covenants in favor of Canopy that limit a wide variety of corporate and operational decisions of Canopy USA without the consent of Canopy. Canopy considers that in the aggregate, given the disproportionality of economics to stated power over the operations and strategy of Canopy USA, the limited exposure to the economics of Canopy USA for shareholders other than Canopy, the negative covenants contained in the Protection Agreement and the fact that the third-party investors in Canopy USA had pre-existing business relationships with Canopy, based on the current structure of Canopy’s ownership in Canopy USA, consolidation of Canopy USA by Canopy was deemed to most appropriately result in compliance with the requirements of U.S. GAAP despite Canopy’s inability to direct or manage the operations of Canopy USA. In addition, Canopy advised that it believes that consolidating the financial statements of Canopy USA under U.S. GAAP provides investors of Canopy with a more fulsome, accurate and detailed understanding of the financial position and profit and loss for Canopy overall despite Canopy’s inability to direct or manage the operations of Canopy USA. However, in the event that financial consolidation of Canopy USA is not acceptable to either Nasdaq or another exchange and Canopy is unsuccessful in an appeal with respect to a delisting on Nasdaq, Canopy has advised that it intends to amend the structure of its interest in Canopy USA and the terms of the Protection Agreement and Canopy USA’s Limited Liability Company Agreement such that Canopy would not be required to consolidate the financial results of Canopy USA into Canopy’s financial statements. Accordingly, Canopy has advised that it does not believe there is any circumstance in which the Amendment Proposal will result in a delisting from Nasdaq unless there is a concurrent listing on another exchange. Nonetheless, there can be no assurance that the SEC will agree with Canopy’s proposed accounting treatment of Canopy USA. Accordingly, there can be no assurance that Canopy will remain listed on Nasdaq or any other exchange on which the Canopy Shares are currently listed on, which could have a material adverse effect on the trading price of the Canopy Shares, as well as Canopy’s business, financial condition and results of operations. In the event of a delisting from a stock exchange, there is no assurance that Canopy will be able to satisfy the conditions required to list on an alternative stock exchange.
A delisting could adversely impact the liquidity of the Canopy Shares
The Canopy Shares are currently listed on the TSX and the Nasdaq. During the 12-month period ended December 31, 2022, approximately 78% of the trading volume of the Canopy Shares took place on the Nasdaq. If the Canopy Shares are delisted from the Nasdaq, there may be amended bya reduction in the Amending Agreement)liquidity of the Canopy Shares. The pool of potential purchasers of Canopy Shares could also become more limited as a result. Accordingly, a purchase or sale of Canopy Shares may take longer to complete unless Canopy was able to list the Canopy Shares on an alternative exchange. Any inability to purchase and sell Canopy Shares on a timely basis in sufficient quantities could have a material adverse effect on the market price of the Canopy Shares or the ability of Canopy to complete future equity financings on terms favourable to it.
DuringCanopy’s ability to meet its debt obligations may have an adverse impact on its capital position, business and operations
Canopy’s publicly available interim financial statements as of and for six months ended September 30, 2022 reflect a net loss and negative cash flow from operating activities for the Interim Period,six months ended September 30, 2022. Canopy has approximately C$337.38 million in debt maturing in 2023, including certain notes owed to Greenstar (see “Canopy may be unable to renegotiate its debt to Greenstar”) above. Canopy and Greenstar have each indicated their intention to negotiate an exchange of such debt for Exchangeable Canopy Shares if the Canopy Capital Reorganization is approved at the Canopy Meeting. If such negotiations are not successful, and Canopy is unable or does not have the resources to repay or refinance such debt coming due in 2023, that may have an adverse impact on Canopy’s capital position, business and operations and, consequentially, the liquidity and price of the Canopy Shares.
Risk of a change of control of Canopy USA but not Canopy
There can be no assurance that Canopy will maintain its ownership interest in Canopy USA. If Canopy divests its ownership interest in Canopy USA, whether as a result of a forced divestiture or by voluntary sale, Floating Shareholders will no longer have an interest in Canopy USA or its U.S. cannabis investments previously held by Canopy.
The Reorganization may not be acceptable to certain of Canopy’s financial lenders or other capital providers
Although the sale of cannabis is permissible at the state level in a number of states in United States, cannabis continues to be categorized as a controlled substance under the Controlled Substances Act, and the cultivation, distribution, sale and possession of cannabis remains federally illegal in the United States. As such, the Controlled Substances Act may still be enforced against individuals and companies operating in states in which the sale of cannabis is permissible. This poses a risk that certain of Canopy’s lenders or other capital providers may choose not to engage in business with Canopy if it is believed that Canopy is in contravention of the Controlled Substances Act. If one or more of such providers terminates its relationship with Canopy as a result of the Reorganization, it could have a material adverse effect on Canopy, including its reputation and ability to conduct business, its financial position, operating results, profitability or liquidity or the market price of its listed securities.
The Canopy Capital Reorganization may lead to overhang and less liquidity
If the Canopy Amendment Proposal is approved at the Canopy Meeting and the Canopy Capital Reorganization is completed, Canopy Shareholders will have the option to convert their Canopy Shares into Exchangeable Canopy Shares. There are important differences between the rights attached to the Canopy Shares and the Exchangeable Canopy Shares. While each Exchangeable Canopy Share is convertible into a Canopy Share, the Exchangeable Canopy Shares do not carry voting rights, rights to receive dividends or rights to receive distributions upon dissolution of Canopy. Holders of Exchangeable Canopy Shares will not be able to exercise voting rights at meetings of Canopy Shareholders and will not receive distributions if dividends are declared by the board of directors of Canopy.
The differences between the rights attached to the Canopy Shares and the Exchangeable Canopy Shares are significant and may materially and adversely affect the market value of an investment in Canopy. Canopy currently does not plan to list the Exchangeable Canopy Shares on a securities exchange or in the over-the-counter market, and there is not expected to be a market for trading of the Exchangeable Canopy Shares. Therefore, holders of Exchangeable Canopy Shares will likely have no ability to sell their Exchangeable Canopy Shares and will likely have to exchange such Exchangeable Canopy Shares for Canopy Shares in order to have any liquidity.
The completion of the Canopy Capital Reorganization may result in reduced liquidity of the Canopy Shares, reduced trading volumes, a lower market capitalization and a reduction in the trading price of the Canopy Shares. In addition, even if approved at the Canopy Meeting, the Canopy Capital Reorganization may not be acceptable to certain of the Canopy Shareholders, and such Canopy Shareholders may elect to sell their Canopy Shares, resulting in further market overhang and reduced liquidity, either of which may adversely affect the market for, and the market price of, the Canopy Shares.
The Canopy Shares may not meet index requirements
If each of CBG and Greenstar elect to convert their Canopy Shares into Exchangeable Canopy Shares, assuming the Canopy Amendment Proposal is approved by the requisite Canopy Shareholders and the Canopy Capital Reorganization is completed, there will be a subsequent reduction in the number of Canopy Shares issued and outstanding and listed for trading and, consequentially, a corresponding reduction in the market capitalization of Canopy. Such reduction in Canopy’s market capitalization may jeopardize Canopy’s listing as a constituent on various stock indices. Canopy’s exclusion from stock market indices may limit the ability of some institutions to invest in Canopy Shares, which may result in increased selling pressure and decreased demand for the Canopy Shares, which may increase stock price volatility or otherwise cause the market price of the Canopy Shares to decline.
Prior to the Effective Time, Acreage is restricted from taking certain actions pursuant to the Floating Share Arrangement
The Floating Share Arrangement Agreement, including as it may be amended by the Amending Agreement restricts Acreage from taking specified actions duringuntil the Interim Period, including, without limiting the generalityearlier of the foregoing, incurring debt orEffective Time and the time that the Floating Share Arrangement Agreement is terminated in accordance with its terms, including issuing additional ExistingFloating Shares or Shares, as applicable, beyond permitted levelssubject to certain exceptions, without the consent of Canopy which may adversely affect the ability of Acreage to execute certain business strategies. These restrictions may prevent Acreage from pursuing certain business opportunities that may arise prior to the AcquisitionEffective Time.
DuringThe Fairness Opinions obtained by the Amendment Interim Period,Special Committee and the attentionAcreage Board will not reflect changes, circumstances, developments or events that may have occurred or may occur after the date of such Fairness Opinions, and the Management Forecasts delivered in connection with such Fairness Opinions reflect numerous variables, estimates and forecasts made by Acreage’s management at the time the Management Forecasts were prepared
On October 24, 2022, Eight Capital delivered the Eight Capital Fairness Opinion to the Special Committee and Canaccord Genuity delivered the Canaccord Genuity Fairness Opinion to the Acreage Board. As the Fairness Opinions have not been, nor will they be, updated prior to the completion of the Floating Share Arrangement, they do not reflect changes, circumstances, developments or events that may have occurred or may occur after the date of such Fairness Opinions. A summary of the Fairness Opinions, and the limitations and qualifications contained therein, can be found under the heading “The Floating Share Arrangement – Eight Capital Fairness Opinion” and “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”. Please refer to the full text of the Eight Capital Fairness Opinion and the Canaccord Genuity Fairness Opinion, which are attached to this Circular as Appendix “D” and Appendix “E”, respectively.
The Fairness Opinions delivered by Eight Capital and Canaccord Genuity were necessarily based on economic, market, financial and other conditions as they existed on, and on the information made available to Eight Capital and Canaccord Genuity, respectively, as of, October 24, 2022. The opinions do not speak as of the time the Floating Share Arrangement will be completed or as of any date other than the date of such opinions. Although subsequent developments may affect their respective opinions, neither Eight Capital nor Canaccord Genuity has any obligation to update, revise or reaffirm its opinion. These developments may include changes to the operations and prospects of Acreage, regulatory or legal changes, general market and economic conditions and other factors that may be beyond the control of Acreage.
As further described under the heading “The Floating Share Arrangement – Certain Financial Projections”, Eight Capital and Canaccord Genuity reviewed the Management Forecasts in connection with the rendering of their respective Fairness Opinions. The Management Forecasts, while presented with numerical specificity, necessarily were based on numerous assumptions and estimates that are inherently uncertain. Because the Management Forecasts cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the Management Forecasts were based necessarily involve subjective judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. In addition, the Management Forecasts, and the assumptions, opinions and judgments applied in developing the Management Forecasts, were based on the management of the Company’s best estimates at the time of preparation of the Management Forecasts and were not the subject of independent verification. The Management Forecasts provide no indication that the Management Forecasts will be necessarily predictive of actual future events, or Acreage’s ultimate performance.
The Management Forecasts were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC or Canadian Securities Regulators regarding projections or U.S. GAAP, or the guidelines established by the American Institute of Certified Public Accountants with respect to the preparation or presentation of prospective financial information, but, in the view of Acreage’s management, maywere prepared on a reasonable basis, reflected the best available estimates and judgments at the time of preparation, and presented as of the time of preparation, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Acreage. Although Acreage’s management believes there is a reasonable basis for the Management Forecasts, Acreage cautions Floating Shareholders that future results could be divertedmaterially different from the Management Forecasts. The Management Forecasts have not been updated or revised to reflect information or results after the date they were prepared or as of the date of this Circular, and except as required by applicable securities laws, Acreage does not intend to update or otherwise revise the Management Forecasts or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the underlying assumptions are shown to be in error.
Risks Relating to the Completion of the Floating Share Arrangement
The Fixed Call Option is not expected to be exercised in the short term unless the Fixed Call Option Conditions are satisfied
The Amended ArrangementFixed Call Option must be exercised within five Business Days of the satisfaction of the Fixed Call Option Conditions. If the Fixed Call Option Conditions are not satisfied, the Fixed Call Option is not expected to be exercised in the short term. The satisfaction of the Fixed Call Option Conditions is outside of Acreage’s control.
The Canopy Amendment Proposal must be approved by at least 66⅔% of the votes cast on a special resolution by Canopy Shareholders present in person or represented by proxy at the Canopy Meeting. While Greenstar and CBG have entered into the CBG Support Agreement includes certain covenants regardingwith Canopy pursuant to which they have agreed, among other things, to vote in favour of the achievementCanopy Amendment Proposal, there can be no assurance that the Canopy Amendment Proposal will be approved by the CompanyCanopy Shareholders at the Canopy Meeting. In addition, there can be no assurance that either CBG or Greenstar will elect to convert their Canopy Shares into Exchangeable Canopy Shares if the Canopy Amendment Proposal is approved at the Canopy Meeting. Any decision to undertake such conversion is in the sole discretion of CBG and Greenstar.
If the Fixed Call Option Conditions are not satisfied by the Exercise Outside Date, Acreage may terminate the Floating Share Arrangement Agreement. Canopy will be obliged to pay Acreage $2.0 million as an expense reimbursement in the event the Canopy Capital Reorganization is not completed, or if CBG and Greenstar do not exchange all Canopy Shares held by CBG and Greenstar into Exchangeable Shares, prior to the Exercise Outside Date. Pursuant to the terms of the Pro-Forma Net Revenue TargetsConsent Agreement, if CBG and the Consolidated Adj. EBITDA Targets set out in the Initial Business Plan. Acreage’s management may be required to focus its attention on achieving such targets and complying with the conditions and covenants of the Amended Arrangement Agreement. The considerations and decision making of the Company’s management in achieving the most favorable outcome for Shareholders upon completion of the Acquisition, may be at odds with considerations and decision making relating to operating the business in the Company’s best interests. Such diversions could result in lost opportunities or negative impacts on performance, which could have a material and adverse effect on the business, operating results or prospects of the Company regardless of whether the Acquisition is ultimately completed.
The Consideration Shares to be received by Shareholders as a result of the Acquisition will have different rights from the Existing Shares
Following completion of the Acquisition, Shareholders will no longer be shareholders of Acreage, a company governed by the BCBCA, but will instead be shareholders of Canopy Growth, a corporation governed by the CBCA. There may be important differences between the current rights of Shareholders and the rights to which such shareholders will be entitled as shareholders of Canopy Growth under the CBCA and Canopy Growth’s constating documents. Shareholder rights under the CBCA are in many instances comparable to those under the BCBCA; however, there are several differences. See Appendix “K” – Comparison of Shareholder Rights under the BCBCA and CBCA for a comparison of certain of these rights. This summary is not intended to be exhaustive and Shareholders should consult their legal advisors regarding all of the implications of the effects of the Acquisition on such Shareholders’ rights.
Acreage and Canopy Growth may not integrate successfully
The Acquisition may involve the integration of companies that previously operated independently. As a result, the Acquisition may present challenges to Canopy Growth’s management, including the integration of the operations, systems and personnel, and special risks, including possible unanticipated liabilities, unanticipated costs, diversion of management’s attention and the loss of key employees. The difficulties management encounters in the transition and integration process could have an adverse effect on the revenues, level of expenses and operating results of Canopy Growth following completion of the Acquisition. If actual results are less favorable than Acreage and Canopy Growth currently estimate, the business, results of operations, financial condition and liquidity of Canopy Growth could be materially adversely impacted.
The ability to realize the benefits of the Acquisition may depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as on Canopy Growth’s ability to realize the anticipated growth opportunities and synergies, efficiencies and cost savings from integrating Acreage’s and Canopy Growth’s businesses following completion of the Acquisition.
Operational and strategic decisions and staffing decisionsGreenstar have not yet been made. These decisions andconverted their Canopy Shares into Exchangeable Canopy Shares on or before the integration of Acreage intolater of: (i) 60 days after the Canopy Growth’s global operations may present challenges to management, includingMeeting; or (ii) February 28, 2023, the integration of systems and personnel, and special risks, including possible unanticipated liabilities, unanticipated costs, and the loss of key employees. The performance of Canopy Growth after completion of the Acquisition could be adversely affected if Canopy Growth cannot retain key employees to assist in the ongoing operations. As a result of these factors, it is possible that the cost reductions and synergies expectedFixed Call Option will not be realized.
Integration will requireexercised and the dedication of substantial management effort, time and resources, which may divert Canopy Growth’s management’s focus and resources from other strategic opportunities following completion of the Acquisition and from operational matters. The amount and timing of the synergies the Parties hope to realize may not occur as planned. In addition, the integration process may result in the disruption of ongoing business that may adversely affect the ability of Canopy Growth to achieve the anticipated benefits of the Acquisition.
Canopy Growth may issue additional equity securities
Canopy Growth may issue equity securities to finance its activities, including in order to finance acquisitions. If Canopy Growth issues additional equity securities, whether prior to or following the Acquisition, the ownership interest of existing Shareholders in Canopy Growth may be diluted and some or all of Canopy Growth’s financial measures on a per share basis could be reduced. Moreover, if the intention to issue additional equity securities becomes publicly known, Canopy Growth’s share price may be materially adversely affected.
The Acquisition will affect the rights of the Shareholders
Following the completion of the Acquisition, holders of Existing Shares or Fixed Shares, as applicable, will no longer have an interest in Acreage, its assets, revenues or profits. In the event that the actual value of Acreage’s assets or business as at the Acquisition Date, exceeds the implied value of Acreage, holders of Existing Shares or Fixed Shares, as applicable, will not be entitled to additional consideration.
Adverse U.S. federal income tax consequences if the Acquisition does not qualify as a tax-deferred transaction
If the Acquisition does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code or fails to meet the Section 367 Requirements, holders of Existing Shares or Fixed Shares, as applicable, may be required to pay substantial U.S. federal income taxes. Special rules apply to Non-U.S. Holders based on their particular circumstances. There is a risk that such Non-U.S. Holders could be subjected to U.S. federal income tax under certain circumstances as a result of the Acquisition failing to qualify as a “reorganization” within the meaning of Section 368(a) of the Code (and meet the Section 367 Requirements). For additional information, see the section entitled “Certain United States Federal Income Tax Considerations – Non-U.S. Holders Generally”.
The Exchange Ratio may be decreased in certain instances
There is a fixed maximum number of Canopy Growth Shares that may be issued in connection with the Acquisition. In the event that Acreage issues more than the Canopy Growth ApprovedFloating Share Threshold or if Acreage is required to make a Payout, the Exchange RatioArrangement Agreement will be automatically reduced. In addition, in the event that Acreage issues more Shares than the Canopy Growth Approved Share Threshold, the Floating Ratio will be automatically reduced. Any such reduction of the Exchange Ratio or Floating Ratio will result in the holders of Existing Shares, Fixed Shares or Floating Shares, as applicable, receiving fewer Canopy Growth Shares upon completion of the Acquisition.
Termination of the A&R License
As a condition to the implementation of the Existing Arrangement, Acreage, Canopy Growth and the Licensors entered into the Original License, granting Acreage access to the Trademarks, Systems and/or Intellectual Property. Concurrently with the execution of the Proposal Agreement, Acreage, Canopy Growth and the Licensors entered into the A&R License, which amends and restates the Original License. The A&R License may be terminated early by Canopy Growth in certain circumstances, some of which are outside the control of the Company, including: (i) upon 12 months’ prior written notice; (ii) if Canopy Growth is the subject of any regulatory investigation related to possible violations of applicable Law arising from the A&R License; (iii) if termination is required by applicable Law (subject to certain exceptions); (iv) if the Company has breached any material term of the Arrangement Agreement and fails to cure such breach; or (v) if the Arrangement Agreement (as may be amended by the Amending Agreement) is terminated. In the event of early termination of the A&R License, Acreage will not receive the full anticipated benefits thereunder and may incur additional costs in order to cease its use of the Trademarks, Systems and/or Intellectual Property. See “Transaction Agreements - A&R License.”
Canopy Growth may be acquired during the Interim Period
In the event of a Canopy Growth Change of Control during the Interim Period, Acreage Holders will not be entitled to vote or exercise any dissent rights in connection with such proposed acquisition, however, all such Acreage Holders will be bound by the terms of any such acquisition if approved. Accordingly, in the event of the exercise (or deemed exercise) of the Canopy Call Option following a successful Canopy Growth Change of Control, it is anticipated that Acreage Holders would receive cash and/or securities of the entity resulting from such Canopy Growth Change of Control. The projected synergies and anticipated benefits of the Acquisition being completed by Canopy Growth may not be realized if the Acquisition is completed by a third-party purchaser or successor entity, as applicable, following a successful Canopy Growth Change of Control. Acreage and such third-party purchaser or successor entity may not successfully integrate. If actual results are less favorable than Acreage and Canopy Growth currently estimate, the business, results of operations, financial condition and liquidity of any such third-party purchaser or successor entity, as applicable, could be materially adversely impacted.
Risks Relating to the Implementation of the Amended Arrangement
The CompanyAcreage could fail to receive the necessary shareholder, court or regulatory approvalapprovals required to complete the Floating Share Arrangement
The occurrence of the Amendment TimeFloating Share Arrangement is subject to certain conditions, including, among other things, approval of the Amendment Resolution by ShareholdersShareholder Approval and receipt of the AmendmentFloating Share Arrangement Regulatory Approvals and any other Regulatory Approvals. Acreage, Canopy and Canopy GrowthUSA have not yet obtained certain AmendmentFloating Share Arrangement Regulatory Approvals and other Regulatory Approvals, all of which are required in advance of the AmendmentEffective Time. The regulatory approvalRegulatory Approval processes may take a lengthy period of time to complete, which could delay the Amendment Time.Effective Time or result in a failure to obtain the required Regulatory Approvals past the Outside Date, thus giving both Canopy and Acreage the right to terminate the Floating Share Arrangement Agreement. See “Transaction Agreements – The Floating Share Arrangement Agreement – Conditions for Completion of the Floating Share Arrangement”.
Certain of these conditions are outside of Acreage’s control. There can be no certainty, nor can Acreage provide any assurance, that all conditions precedent will be satisfied or waived, or, if satisfied or waived, when they will be satisfied or waived and, accordingly, the AmendedFloating Share Arrangement may not be completed. If, for any reason, the AmendedFloating Share Arrangement is not completed or its completion is materially delayed and/or the Proposal AgreementFloating Share Arrangement Agreement is terminated, the market price of the Existing SVSFloating Shares may be materially adversely affected. In such events, Acreage may not be able to complete debt or equity financing transactions contingent on the Amended Arrangement, which may adversely impact Acreage’s ability to repay the Yorkville Bridge Loan and the ALBF Bridge Loan. Acreage’s business, financial condition or results of operations could also be subject to various material adverse consequences, including that Acreage would remain liable for costs relating to the AmendedFloating Share Arrangement.
If the AmendedFloating Share Arrangement is not completed and the Fixed Call Option has not then been exercised by the time the Floating Share Arrangement Agreement has been terminated, the Existing Arrangement will remain in effect and the CompanyAcreage will continue to be subject to the covenants and conditions of the Existing Arrangement.Arrangement Agreement. See “Risk Factors -– Risks if the AmendedFloating Share Arrangement is Not ApprovedCompleted and the Existing Arrangement Remains in Effect.”
The Company could failAcreage expects to implement the Amended Arrangement
There can be no assurance that the Amended Arrangement will be implemented. The implementation of the Amended Arrangement is subject to the satisfaction of a number of conditions which include, among others, (i) obtaining necessary approvals, and (ii) performance by the Company and Canopy Growth of their respective obligations and covenants in the Proposal Agreement. If these conditions are not met or the Amended Arrangement is not completed for any other reason, Shareholders will not receive the Aggregate Amendment Option Payment.
In addition, if the Amended Arrangement is not implemented the ongoing business of the Company may be adversely affected as a result of the costs incurred in respect of pursuing the Amended Arrangement, and the Company could experience negative reactions from the financial markets, which could cause a decrease in the market price of the Existing SVS, particularly if the market price reflects market assumptions that the Amended Arrangement will be completed or completed on certain terms. The Company may also experience negative reactions from its customers, suppliers and employees and there could be a negative impact on the Company’s ability to attract future commercial opportunities. Failure to implement the Amended Arrangement or a change in the terms of the Amended Arrangement could each have a material adverse effect on the Company’s business, financial condition and results of operations and its ability to comply with the covenants and conditions set forth in the Arrangement Agreement and the Proposal Agreement.
The Company will incur substantial transaction-related costs in connection with the AmendedFloating Share Arrangement
Acreage and Canopy Growth havehas incurred, and expectexpects to continue to incur, additional material non-recurring expenses in connection with the AmendedFloating Share Arrangement, and completion of the transactions contemplated by the Proposal Agreement, including costs relating to obtaining the Shareholder Approval and Amendment Regulatory Approvals.Approval. Additional unanticipatedunanticipated costs may be incurred by Acreage duringprior to the courseEffective Date or the date of termination of the Interim Period as a resultFloating Share Arrangement Agreement in connection with the Floating Share Arrangement (including in respect of any additional fees that may be payable under its engagement in respect of the Amended Arrangement. IfExisting Arrangement, as described above). Even if the Amended ArrangementFloating Share Arrangement is not completed, Acreage will needbe obliged to pay certain costs relating to the AmendedFloating Share Arrangement, incurred prior to the date the Amended Arrangement was abandoned, such as legal, accounting, financial advisory, proxy solicitation and printing fees and in certain circumstances, will be required to paypay the Termination Expense Reimbursement.Fee in accordance with the terms of the Floating Share Arrangement Agreement. Such costs maymay be significant and could have an adverse effect on Acreage’s future results of operations, cash flows and financialfinancial condition.
Prior to the Amendment Time, the Company is restricted from taking certain actions
The Proposal Agreement restricts the Company from taking specified actions prior to the Amendment Time without the consent of Canopy Growth which may adversely affect the ability of the Company to execute certain business strategies. These restrictions may prevent the Company from pursuing certain business opportunities that may arise prior to the Amendment Time.
The proposed Amended Arrangement may divert the attention of the Company’s management
The proposed Amended Arrangement could cause the attention of the Company’s management to be diverted from the day-to-day operations. For example, since the Proposal Agreement includes certain covenants regarding the achievement by the Company of the Pro-Forma Net Revenue Targets and the Consolidated Adj. EBITDA Targets set out in the Initial Business Plan, Acreage’s management may be required to focus its attention on achieving such targets and complying with the conditions and covenants of the Proposal Agreement. Such diversions could be exacerbated by a delay in the implementation of the Amended Arrangement and could result in lost opportunities or negative impacts on performance, which could have a material and adverse effect on the business, operating results or prospects of the Company regardless of whether the Amended Arrangement is ultimately implemented.
The amount of the Aggregate Amendment Option Payment received may fluctuate
The amount of the Aggregate Amendment Option Payment that each Acreage Holder will be entitled to receive on the Amendment Date will fluctuate based on any further issuances of Existing Shares, High Street Units and USCo2 Shares prior to the Amendment Date.
Securities Class Actionsclass actions and Derivative Lawsuitsderivative lawsuits
Acreage and Canopy Growth may be the target of securities class actions and derivative lawsuits, which could result in substantial costs and may delay or prevent the AmendedFloating Share Arrangement from being completed. Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into an agreement to acquire a public company or to be acquired. Third parties may also attempt to bring claims against Acreage and Canopy Growth seeking to restrainenjoin the AmendedFloating Share Arrangement or seeking monetary compensation or other remedies. Even if thethese lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummationcompletion of the AmendedFloating Share Arrangement, then thatsuch injunction may delay or prevent the AmendedFloating Share Arrangement from being completed.
In addition, political and public attitudes towards the AmendedFloating Share Arrangement could result in negative press coverage and other adverse public statements affecting Acreage, Canopy and Canopy Growth.USA. Adverse press coverage and other adverse statements could lead to investigations by regulators, legislators and Lawlaw enforcement officials or in legal claims, or otherwise negatively impact the ability of Acreage to take advantage of various business and market opportunities. The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on Acreage’s business, financial condition and results of operations.
Interests of Directorsdirectors and Officersofficers
In considering the recommendation of the Acreage Board to vote for of the AmendmentArrangement Resolution, Floating Shareholders should be aware that certain officers and directors have certain interests in connection with the AmendedFloating Share Arrangement that differ from, or are in addition to, those of Floating Shareholders generally and may present them with actual or potential conflicts of interest in connection with The Floating Share Arrangement and the Amended Arrangement.connected transactions. See “The AmendedFloating Share Arrangement – Interests of Certain Persons in the AmendedFloating Share Arrangement”.
Trading Price of the FixedFloating Shares
There is no guarantee that the Fixed Shares will may not trade at a priceprices that reflects the performance of the Company or at a price relative to the trading price of the Canopy Growth Shares based uponreflect the Exchange Ratio. Given the uncertainties regarding the completion of the Acquisition, it is possible the Fixed Shares will trade at a significant discount to the Exchange Ratio.
Floating SharesRatio and will not trade at an intrinsic value
The intrinsic value ofUntil the Floating Shares is indeterminate. ThereEffective Date, there is no guarantee that the Floating Shares will trade at a price that reflects the performance of the Company. Moreover, the Floating Shares will not tradeAcreage or at a price that is necessarily proportionaterelative to the trading price of the Fixed Shares.Canopy Shares based upon the Exchange Ratio. Given the uncertainties regarding the completion of the Floating Share Arrangement, it is possible the Floating Shares will trade at a significant discount to the Exchange Ratio. Moreover, the intrinsic value of the Floating Shares is indeterminate.
Taxable EventsCanopy may not complete the Floating Share Arrangement if the Canopy Amendment Proposal is not adopted or CBG and Greenstar do not exchange their Canopy Shares
Acreage expects that,Canopy may not complete Floating Share Arrangement if the Canopy Amendment Proposal is not approved at the Canopy Meeting or if either of CBG and Greenstar elect (in their sole discretion) not to exchange all of their Canopy Shares for U.S. federal income tax purposes, U.S. Holders who have received a portionExchangeable Canopy Shares. The Canopy Amendment Proposal must be approved by at least 66⅔% of the Option Premiumvotes cast on a special resolution by Canopy shareholders present in person or represented by proxy at the Canopy Meeting. Greenstar and CBG have entered into a voting and support agreement with Canopy pursuant to which they have agreed, among other things, to vote in favour of the Canopy Amendment Proposal. Canopy has disclosed that CBG and Greenstar have advised that it is their current intention to exchange all of the Canopy Shares which they currently hold for Exchangeable Canopy Shares if the Canopy Amendment Proposal is approved at the Canopy Meeting. There is no certainty that the Canopy Amendment Proposal will be requiredapproved at the Canopy Meeting or, if it is, that CBG and Greenstar will exchange all Canopy Shares held by them into Exchangeable Canopy Shares. If the Canopy Amendment Proposal is not adopted, or if CBG and Greenstar do not convert their present holdings of Canopy Shares into Exchangeable Canopy Shares by the Exercise Outside Date, the Fixed Call Option is not expected to report (tobe exercised, in which case Acreage may terminate the extentFloating Share Arrangement Agreement, and Canopy will be obliged to pay Acreage $2.0 million as an expense reimbursement.
Ability to integrate successfully
The Floating Share Arrangement will involve the integration of companies that previously operated independently. The ability to realize the benefits of such transactions will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as the ability to realize the anticipated growth opportunities and synergies, efficiencies and cost savings from integrating Acreage’s businesses. Operational and strategic decisions and staffing decisions have not previously included in income) the portionyet been made. The loss of the Option Premium they receivedservices of Acreage personnel and key employees following the Effective Date, whether as short term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective. Additionally, the U.S. federal income tax treatmenta direct result of the Aggregate Amendment Option Paymentcompletion of the transaction, inability to retain such personnel due to a change of job requirements thereafter, or otherwise the inability to successfully integrate, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on the ability of Canopy and Canopy USA to execute on the business plan and strategy, and Canopy and Canopy USA may be unable to find adequate replacements on a timely basis, or at all.
Risks if the Floating Share Arrangement is unclear. The Aggregate Amendment Option Payment will be paidnot completed and Canopy acquires the Fixed Shares
Pursuant to the Shareholders, High Street Holders and USCo2 Holders in connection withFloating Share Arrangement Agreement, Canopy has irrevocably waived the reductionFloating Call Option to acquire the Floating Shares pursuant to the Existing Arrangement. If the Floating Share Arrangement is not completed, the Fixed Call Option may have already been exercised pursuant to the Floating Share Arrangement Agreement. If the Fixed Call Option has not yet been exercised, Canopy will still retain the right to acquire all of the Exchange Ratio andFixed Shares pursuant to the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and FloatingFixed Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment. Special rules may apply to Non-U.S. Holders based on their particular circumstances.
The tax risks described herein are based on the assumption that U.S. Holders who received a portion of the Option Premium will be required to report such Option Premium (to the extent not previously included in income) as short term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective, and that the Aggregate Amendment Option Payment will be treated as ordinary income upon receipt. The amount of cash received with respect to the Aggregate Amendment Option Payment may not be sufficient to meet the tax obligations of the Shareholders triggered with respect to the Option Premium and the Aggregate Amendment Option Payment described above.
Adverse U.S. federal income tax consequences if the Acquisition does not qualify as a tax-deferred transaction
If the Acquisition does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code or fails to meet the Section 367 Requirements, Shareholders may be required to pay substantial U.S. federal income taxes in connection with the Acquisition. Under the Amended Plan of Arrangement, if the Floating Call Option is not exercised, the Acquisition will not qualify as a reorganization and each U.S. Holder that exchanges its Shares for Canopy Growth Shares in connection with the Merger would generally recognize capital gain or loss in an amount equal to the difference between the fair market value of the Canopy Growth Shares received and such U.S. Holder’s tax basis in his Shares exchanged therefor. The gain or loss would be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction). For additional information, see the section entitled “Certain United States Federal Income Tax Considerations”.
Even if the FloatingFixed Call Option is exercised in either such scenario and Canopy USA acquires the Fixed Shares, it is anticipated that Canopy USA will beneficially own approximately 70% of the voting rights attached to all the outstanding Acreage Shares at the Acquisition mayTime.
Risks relating to holding Floating Shares in a company with a majority controlling shareholder
In the event that the Floating Share Arrangement is not qualify ascompleted but the Acquisition is completed, following the Acquisition Time until the End Date, the Existing Arrangement Agreement provides that Canopy will have certain rights including, without limitation, the right to nominate a reorganization for U.S. federal income tax purposes, whereby each U.S. Holder that exchanges its Shares for Canopy Growth Shares would generally recognize capital gain or loss in an amount equal to the difference between the fair market valuemajority of the Canopy Growth Shares receivedAcreage Board, pre-emptive rights, top-up rights, approval rights and such U.S. Holder’s tax basiscertain audit and inspection rights. In addition, there will be a number of restrictions imposed on Acreage, including, without limitation, restrictions regarding the payment of dividends, Acreage’s merger and acquisition activities, acquisitions, divestitures, amendments to constating documents, the issuance of certain securities and entering into any agreements that limit Acreage’s ability to compete, in each case without the consent of Canopy. Floating Shareholders will have little or no influence on the conduct of Acreage’s business and affairs.
By virtue of becoming the controlling shareholder of Acreage, together with the rights and restrictions in the Shares exchanged therefor. IfExisting Arrangement Agreement, Canopy will have the power to exercise decisive influence over Acreage. There are no guarantees that Canopy’s interests will align with the interests of Acreage or the interests of its Floating Shareholders. As a result, Acreage could be prevented from entering into transactions that could be beneficial to Acreage or its Floating Shareholders, and third parties will likely be discouraged from making a take-over bid for all of the Floating Shares as a result of the existence of a controlling shareholder. Any such transaction would likely involve payment of an amount of consideration per Floating Share less than would have been received by the holders pursuant to the Floating Share Arrangement. If a third-party were to offer to acquire all of the Fixed Shares from Canopy, holders of Floating Shares would have no “coattail rights” which would oblige such a third-party to offer to acquire the Floating Shares on the same terms. In addition, any sale of a substantial number of Floating Shares by a controlling shareholder could cause the market price of the Floating Shares to decline.
There may not be an active trading market for the Floating Shares
In the event that the Fixed Shares are acquired upon exercise of the Fixed Call Option pursuant to the Existing Arrangement and the Floating Share Arrangement is not completed, notwithstanding that it is proposed that the Floating Shares will remain listed for trading on the CSE, such listing may not provide significant liquidity, and the Floating Shares may not trade at prices advantageous to Floating Shareholders. An active or liquid trading market in the Floating Shares may not continue following the Acquisition certain factorsTime. It is possible that affectlow demand for the U.S. federal income tax treatmentFloating Shares may make it difficult, or impossible, for a Floating Shareholder to sell their Floating Shares. Therefore, the sale of Floating Shares may take more time or require Floating Shareholders to accept a sale at a lower price. In addition, the market price of the Acquisition will not be determinable until the Acquisition Date, including whether the Floating Consideration is paid in Floating Share Consideration, Floating Cash Consideration or a combination thereof, and the value of the Canopy Growth Shares received in the Acquisition. Depending on these and other factors, the Acquisition may be treated as a taxable transactionsubject to fluctuation, whether or not due to fluctuations in Acreage’s operating results and financial condition, which gain or loss is generally recognized for U.S. federal income tax purposes, or it may be treated as a reorganization within the meaning of Sections 368(a)(1)(A) and (a)(2)(E) of the Code (and which also meet the Section 367 Requirements). Neither Acreage nor Canopy Growth have sought, nor expect to seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein.could, in turn, result in substantial losses being incurred by Floating Shareholders.
In addition, the Amended Arrangement provides that Canopy Growth is permittedLimited ability to alter the anticipated transaction structure under certain circumstances and/or that the consideration to be paid for the Shares could be modified if, for instance, Canopy Growth were acquired in a Canopy Growth Change of Control transaction during the pendency of the Canopy Call Option. Any such alternative transaction or alternative consideration could cause the Acquisition to fail to qualify as a reorganization under Section 368(a) of the Code.pursue strategic and organic growth opportunities without Canopy’s consent
Even ifThe Existing Arrangement Agreement includes certain covenants in favour of Canopy that will apply following the Acquisition Time until the End Date. Such covenants include, among other things, the right to nominate a majority of the Acreage wereBoard, pre-emptive rights, top-up rights, approval rights and certain audit and inspection rights. In addition, during such time there will be a number of restrictions imposed on Acreage, including, without limitation, restrictions regarding the payment of dividends, Acreage’s merger and acquisition activities, acquisitions, divestitures, amendments to takeAcreage’s constating documents, the positionissuance of certain securities and entering into any agreements that limit Acreage’s ability to compete, in each case without the consent of Canopy.
As a result, following the Acquisition Time, Acreage will be subject to a number of constraints. Acreage is a reorganization for U.S. federal income tax purposes, it is possible thatnot permitted to pursue various strategic and other business opportunities without obtaining Canopy’s consent. In the IRSevent Canopy does not provide its consent, Acreage may assert that the Acquisition fails to qualify as such. If the IRS were to be successful in any such contention, or if for any other reason (including a change in Law) the Acquisition were to fail to qualify asexecute on its business objectives and may not be able to pursue strategic and organic growth opportunities, which may have a “reorganization”material adverse effect on Acreage’s business, financial condition, results of operations and prospects.
Canopy USA may compete or failsdivert opportunities to meet the Section 367 Requirements, a taxable transaction could result for U.S. federal income tax purposes There is no assuranceits other investees that the IRS will agree with any position that Acreage would take or that a court would not sustain any challenge of any such position by the IRSparticipate in the event of litigation. For additional information, see the section entitled “Certain United States Federal Income Tax Considerations.U.S. cannabis industry”
Special rules apply to Non-U.S. Holders based on their particular circumstances.Canopy USA may compete with the business of Acreage. There is a risk that Non-U.S. Holders couldthere will be subjected to U.S. federal income tax under certain circumstances assituations when the interests of Canopy USA conflict with the interests of Acreage or Canopy Shareholders. Any increased competitive pressure against Acreage from Canopy, its Subsidiaries, Canopy USA or any investee companies after the Acquisition Time may have a resultmaterial adverse effect on Acreage’s business, financial condition, results of operations and prospects.
Additional risks and uncertainties, including those currently unknown or considered immaterial by Acreage, Canopy and Canopy USA, may also adversely affect the business of Acreage or Canopy following completion of the Acquisition failing to qualify as a “reorganization” within the meaning of Section 368(a) of the Code (or failing to meet the Section 367 Requirements). For additional information, see the section entitledAcquisition. See “Certain United States Federal Income Tax ConsiderationsCautionary Note Regarding Forward-Looking Information”.”
Adverse U.S. federal income tax consequences ifLowered market price of the Capital Reorganization does not qualify as a tax deferred transactionFloating Shares
Acreage intendsThe current price of the Floating Shares may reflect a market assumption that the Capital Reorganizationtransactions contemplated pursuant to the Floating Share Arrangement Agreement will qualify asoccur. A failure to complete the transactions contemplated pursuant to the Floating Share Arrangement Agreement may result in a “recapitalization” withinmaterial decline in the meaning of Sections 368(a)(1)(E)price of the CodeFloating Shares. Financial markets may experience significant price and volume fluctuations that affect the Shareholders generally will not recognize gainmarket prices of equity securities of companies that are unrelated to the operating performance, underlying asset values or loss as a resultprospects of exchange of Existing Shares for either Fixed Shares (or Fixed Multiple Shares) and Floating Shares. An advance tax ruling fromsuch companies. Accordingly, the IRS has not been sought or obtained regarding the tax consequencesmarket price of the Capital Reorganization.Floating Shares may decline even if Shareholder Approval is obtained. There iscan be no assurance that continuing fluctuations in price and volume will not occur before the IRS will agree with this position that Acreage or that a court would not sustain any challenge of any such position by the IRS in the event of litigation. If the IRS were to be successful in any such contention, or if for any other reason (including a change in Law) the Capital Reorganization were to fail to qualify as a “reorganization,” a taxable transaction could result for U.S. federal income tax purposes.Floating Share Arrangement is completed.
The Consideration to be received by Acreage Shareholders under Amended ArrangementCanaccord Genuity’s success fee may be less than Shareholders would have received under Existing Arrangementincreased
Pursuant to the terms of the AmendedCanaccord Genuity Engagement Agreement, Canaccord Genuity is entitled to receive a fixed fee for delivery of its fairness opinion, regardless of its conclusions, plus a fee consisting of $2,500,000 in cash and $2,000,000 payable in Floating Shares, based on the five-day volume weighted average price of the Floating Shares on the OTC ending on the day immediately prior to the Effective Date, payable upon completion of the Floating Share Arrangement or any alternative transaction, subject to a maximum fee of $5,000,000. Under the Existing Arrangement Agreement, if Canopy Growth exercisesin the Canopy Call Option, or if a Triggering Event occurs, Canopy Growth will, subject to the satisfaction or waiver ofevent that the Acquisition Closing Conditions,is completed, Canaccord Genuity (as financial advisor to Acreage) is entitled to receive a success fee of $7,000,000, payable in cash. As such, should the Floating Share Arrangement Agreement be obliged to acquire only the Fixed Shares. The Acquisition of the Fixed Shares represents, as of the Amendment Time, an acquisition of 70% of the Existing Shares held by each Shareholder. In addition, the Exchange Ratio applicable under the Amended Arrangement is lower than the Existing Exchange Ratio, which means that Shareholders will receive fewer Consideration Shares in exchange for their Fixed Shares under the Amended Arrangement than they would have received underterminated and the Existing Arrangement assumingbe consummated under the terms of the Existing Arrangement Agreement, Acreage will owe Canaccord Genuity the greater fee. Acreage may not be able to pay such cash fee without obtaining financing, and there is no guarantee that Acreage iswill be able to satisfy the Acquisition Closing Conditions and the Acquisition takes place under the Existing Arrangement.
There is no certainty that Canopy Growth will acquire the Floating Shares. Canopy Growth has the option (but not the obligation) to exercise the Floating Call Option and acquire the Floating Shares at a price to be determined basedobtain financing on the then fair market value of the Floating Shares relative to the Canopy Growth Shares (subject to a minimum price of US$6.41, as may be adjusted pursuant to the Amended Plan of Arrangement)acceptable terms. However, the intrinsic value of the Floating Shares is indeterminable. Therefore, if the fair market value of the Floating Shares is higher than Canopy Growth’s assessment of the intrinsic value of the Floating Shares at the time of the exercise (or deemed exercise) of the Canopy Call Option, it is unlikely that Canopy Growth would pay a premium to acquire the Floating Shares. As such, the only certainty is that the Fixed Shares will be acquired if a Triggering Event occurs, provided that the Acquisition Closing Conditions are fulfilled.
Given the uncertainty that Canopy Growth will exercise the Floating Call Option, and that the Exchange Ratio applicable under the Amended Arrangement is lower than the Existing Exchange Ratio, it is reasonable to expect that Shareholders will receive less aggregate consideration under the Amended Arrangement than they would have received under the Existing Arrangement, assuming that Acreage is able to satisfy the Acquisition Closing Conditions and the Acquisition takes place under the Existing Arrangement. See “Risk Factors - Risks if the AmendedFloating Share Arrangement is Not ApprovedCompleted and the Existing Arrangement Remains in Effect.”
In the event that the Floating Share Arrangement is not completed and the Fixed Call Option is not exercised prior to the termination of the Floating Share Arrangement Agreement, Canopy will retain the Fixed Call Option to acquire the Fixed Shares under the Existing Arrangement, which expires on September 23, 2030. The Acquisition will not be completed unless the Acquisition Closing Conditions are satisfied or waived, as applicable. In addition, in the event of a Failure to Perform, Canopy will not be required to complete the Acquisition, and Acreage will remain a public company.
Acreage will require additional capital to repay existing maturing indebtednessNegative cash flow from operations and execute on the Initial Business Plan and such capital may not be available on terms that comply with the Amended Arrangement Agreement or at allgoing concern
Acreage requires additional capital to repay certain existing indebtedness, including During the Yorkville Bridge Loanyears ended December 31, 2021 and 2020, and the ALBF Bridge Loan.nine months ended September 30, 2022, Acreage sustained net losses from operations and had negative cash flow from operating activities. Acreage’s cash and cash equivalents as at September 30, 2022 was approximately $26.5 million. As at September 30, 2022, Acreage’s working capital was approximately $16.7 million. Acreage currently has a significant operating cash flow deficiency that will also require additional capital to execute the Initial Business Plan.
Pursuant to the Amended Arrangement Agreement,make it necessary for Acreage is subject to a number of restrictions during the Amendment Interim Period which will restrict its ability to raise additional capital. The restrictions on Acreage undercash in the Amended Arrangement Agreement include, among other things,future as its current cash and working capital resources are depleted. As a restriction on issuing Shares or securities convertible, exchangeable or exercisable for or into Shares (other than upon the conversion or exchange or exercise of any Securities or High Street Units outstanding as of the Amendment Date, or asresult, there is permitted in accordance with the Canopy Growth Approved Share Threshold), a restriction on the number of Fixed Shares that may be issued pursuant to an at-the-market offering, and restrictions on the Company entering into any contract in respect of Company Debt. The restrictions imposed on Acreage during the Amendment Interim Period will reduce itssubstantial doubt about Acreage’s ability to raise necessary additional capital.
Additionally,continue as a going concern. If the terms of the Debenture provide that the Loan isFloating Share Arrangement and Existing Arrangement are completed, Acreage may realize synergies, efficiencies and cost savings due to be used exclusively in connection with the operation of the Hempco business to cultivate, manufacture, distribute and sell Hemp in the U.S. Accordingly, the proceeds of the Loan will not provide the necessary capital for the Company’s non-Hemp related business.
There can be no assurance that additional capital will be available to Acreage on terms that comply with the Amended Arrangement Agreement, or at all, which could have a material adverse effect on the Company’s business, financial condition and results of operationsits integration into Canopy USA and its ability to complycombined operations with any other entities owned by Canopy USA at the Initial Business Plan.applicable time. See “Risk Factors - Risks RelatingSecuring Additional Financing”.
During the Interim Period, Acreage is restricted from taking certain actions pursuant to the ImplementationExisting Arrangement
The Existing Arrangement Agreement restricts Acreage from taking specified actions during the Interim Period, including incurring debt or issuing additional Acreage Shares beyond permitted levels, without Canopy’s consent, which may adversely affect the ability of Acreage to raise the capital necessary to continue as a going concern and execute its business objectives. See “Risk Factors - The Existing Arrangement Agreement Contains Restrictive Covenants” and “Risk Factors –– Securing Additional Financing”. These restrictions may prevent Acreage from executing its strategic plan and pursuing certain business opportunities that may arise prior to the Effective Date.
The Existing Arrangement Agreement contains restrictive covenants
The Existing Arrangement Agreement contains restrictive covenants that may potentially impair the discretion of Acreage’s management with respect to certain business matters. These covenants place restrictions on, among other things, the ability of the Amended Arrangement - UnderCompany to make any material change to the Amendednature of its business, make certain payments, incur additional indebtedness, issue Acreage Shares, create liens or encumbrances not permitted by the Existing Arrangement Agreement Acreage will be requiredand sell or otherwise dispose of certain assets. The restrictive covenants set out in the Existing Arrangement Agreement may significantly impair management’s ability to comply with the Initial Business Plan.”operate Acreage’s business.
Under the AmendedExisting Arrangement Agreement, Acreage will be required to comply with the Initial Business Plan
Pursuant to the AmendedExisting Arrangement Agreement, Acreage is required to comply with the Initial Business Plan. The Initial Business Plan, which sets forth certain Pro-Forma Net Revenue Targets and Consolidated Adj. EBITDA Targets for each applicable fiscal year of the Initial Business Plan.
If, at the end of a fiscal quarter (commencing with the fiscal quarter dated December 31, 2020), the Company’sAcreage’s Pro-Forma Revenue is less thanthan 90% of the Pro-Forma Net Revenue Target set forth in the Initial Business Plan or if the Consolidated EBITDA is less than 90% of the Consolidated Adj. EBITDA Target set forth in the Initial Business Plan, an Interim Failure to Perform will be deemed to have occurred and the Austerity Measures shall become applicable. The Austerity Measures place significant restrictions on Acreage’s ability to take certain actions in the operation of its business. Among other things, the Austerity Measures prevent Acreage from issuing any Acreage Shares, granting any Fixed Options or FloatingAcreage Options, entering into any Contractcontract in respect of Company Debtdebt obligations (other than in the ordinary course of business), or paying any fees owing to members of the Acreage Board. The Austerity Measures also prevent Acreage and its Subsidiaries from entering into any business combination, merger or acquisition of assets (other than in the ordinary course of business), from making any new capital investments or incurring any new capital expenditures, and from entering into any contract to dispose of any assets (other than in the ordinary course of business). The Austerity Measures will apply until the non-compliance causing the Interim Failure to Perform is cured by the CompanyAcreage and its Subsidiaries, as applicable. However, if an Interim Failure to Perform occurs and the Austerity Measures are implemented, the ability of the CompanyAcreage to conduct its business in the ordinary course will be significantly restricted. Accordingly, the occurrence of an Interim Failure to Perform will increase the possibility that a Material Failure to Perform and/or a Failure to Perform will occur.
A Material Failure to Perform will be deemed to occur if the Company’sAcreage’s Pro-Forma Revenue is less than 80% ofof the Pro-Forma Net Revenue Target or the Consolidated EBITDA is less than 80% of the Consolidated Adj. EBITDA Target, asas determined on an annual basis (commencing in respect of the fiscal year ending December 31, 2021). The occurrence of a Material Failure to Perform is considered a breach of a material term of the AmendedExisting Arrangement Agreement incapable of being cured. Consequently, certain restrictive covenants under the AmendedExisting Arrangement Agreement which relate to exclusivity and non-competition of Canopy Growth in favorfavour of the Company,Acreage, including the restriction preventing Canopy Growth from acquiring a competitor of Acreage in the Company in the UnitedUnited States, will terminate. In addition, the occurrence of a Material Failure to Perform is likely to constitute an event of default under the Debenture, causing the Loan to become immediately due and payable. If the Loan is required to be repaid prior to the maturity date, it would have an immediate and lasting material adverse effect on Acreage and its ability to complete the Acquisition.
In addition, if the Company’sAcreage’s Pro-Forma Revenue is less than 60% of the Pro-Forma Net Revenue Target or the Consolidated EBITDA is less than 60% of the Consolidated Adj. EBITDA Target for the trailing 12 month periodperiod ending on the date that is 30 days prior toto the proposed Acquisition Time, a Failure to Perform shall occur and a materialmaterial adverse impact will be deemed to have occurred forfor purposes of Section 6.2(2)(h) of the AmendedExisting Arrangement Agreement. In the event of a Failure to Perform, Canopy Growth will notnot be required toto complete the Acquisition.
The Initial Business Plan is predicated on certain U.S. states legalizing recreational cannabis use within a proximate timeframeSecuring additional financing
The Initial Business Plan has been prepared based oncontinued development of Acreage’s business may require additional financing. In the assumptionevent that certain regulatory initiatives legalizing recreational cannabis will be approved in Connecticut, Massachusetts, New York, Pennsylvania, Illinois, New Jersey, New Hampshire, Maine and Ohio within a proximate timeframe. If some or all of the anticipated regulatory initiatives do not occur in the foregoing states within the contemplated timeline, or at all, it will have a significant adverse impact on the Company’s ability to meet the Pro-Forma Net Revenue Targets and Consolidated Adj. EBITDA Targets prescribed in the Initial Business Plan, which will likely result in an Interim Failure to Perform that could lead to a Material Failure to Perform and ultimately, a Failure to Perform. See “Risk Factors - Risks Relating to the Implementation of the Amended Arrangement - Under the Amended Arrangement Agreement, Acreage will be required to comply with the Initial Business Plan.”
The use of the Loan is restricted under the terms of the Debenture
Pursuant to the Debenture, the Loan is to be used exclusively in connection with the operation of the Hempco business to cultivate, manufacture, distribute and sell Hemp in the U.S. If the Company uses the Loan for any other purpose, it could constitute an event of default under the Debenture, causing the Loan to become immediately due and payable. If the Loan is required to be repaid prior to the maturity date, it would have an immediate and lasting material adverse effect on Acreage and its ability to complete the Acquisition. If the AmendedFloating Share Arrangement is not completed Acreageand the Fixed Call Option has not been exercised under the Existing Arrangement prior to the termination of the Floating Share Arrangement Agreement, Canopy will retain the Fixed Call Option to acquire the Fixed Shares under the Existing Arrangement. There can be no assurance that additional capital or other types of financing will be subjectavailable or that, if available, the terms of such financing will be favourable to Acreage. In addition, the Existing Arrangement Agreement contains restrictive covenants and consent requirements underrelating to capital raising activities, incurring indebtedness and other financial and operational matters, which may make it more difficult for Acreage to obtain additional capital and to pursue business opportunities, including potential acquisitions.
Acreage may require additional financing to fund its operations until positive cash flow is achieved. If the Existing Arrangement. See “Risk Factors - Risks if the AmendedFloating Share Arrangement is Not Approvednot completed and the Existing Arrangement Remains in Effect.”
Acreage may be restricted from making Non-Core Divestitures within the prescribed time limit
Canopy Growth has provided its consents to the Company with respect to the Non-Core Divestitures. The Debenture will provide that, among other things, if the Non-Core Divestitures are not completed within 18 months from the Amendment Date, whether as a result of regulatory delays or otherwise, such failure shall constitute an event of default thereunder. Upon the occurrence of an event of default under the Debenture, the Loan will become immediately due and payable.
The Company may not have adequate resources to repay the Debenture. There is no assurance that the Company will be able to raise the necessary amount of capital to repay the Debenture or otherwise refinance these obligations. Accordingly, failure to complete the Non-Core Divestitures within the prescribed time would have a material adverse effect on the Company’s business, financial condition, results of operations and prospects and could threaten its ability to satisfy its obligations or continue as a going concern.
In addition, if the Loan is required to be repaid prior to the maturity date, it would have an immediate and lasting material adverse effect on Acreage and its ability to complete the Acquisition. If the Amended ArrangementFixed Call Option is not completed, Acreage will be subject to the restrictive covenants and consent requirements under the Existing Arrangement.
The Company may not receive meaningful financial contribution from the Management Service Agreements as provided for in the Amended Arrangement Agreement or sublicenses under the A&R License
Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a Target Cannabis Operator, being a competitor of the Company in the United States, then as a condition to completing such transaction, the Target Cannabis Operator shall enter into a Management Service Agreement, whereby the Company will receive a management fee from the Target Cannabis Operator, or alternatively, the Target Cannabis Operator will be required to pay a management fee to the Company equal to a percentage of net revenue generated by the Target Cannabis Operator. There is no certainty that Canopy Growth will acquire, or conditionally acquire, any Target Cannabis Operation, and if it does, there is no guarantee that any such Target Cannabis Operation will generate meaningful revenue on which the Company can collect a fee.
Pursuant to the A&R License, among other things, the Company may sublicense the use of the Trademarks, Systems and/or Intellectual Property; provided that, any sublicense to a third-party will require the prior written consent of Canopy Growth unless the third-party complies with the Licensing Criteria. There is no certainty that the Company will identify third-parties that comply with the Licensing Criteria who wish to sublicense the use of the Trademarks, Systems and/or Intellectual Property or that the sublicense to any other third-party identified by the Company will be acceptable to Canopy Growth.
The Company may not receive meaningful amounts, if any, from any Target Cannabis Operations, whether under the Management Service Agreement or otherwise, or from any sublicensees of the Trademarks, Systems and/or Intellectual Property. Accordingly, the Company’s ability to generate revenue from these potential sources and meet its financial targets could be adversely affected.
Risks related to the early termination of the A&R License
Concurrently with the execution of the Proposal Agreement, Acreage, Canopy Growth and the Licensors entered into the A&R License, granting Acreage access to the Trademarks, Systems and/or Intellectual Property. The A&R License may be terminated early by Canopy Growth in certain circumstances, some of which are outside the control of the Company, including: (i) upon 12 months’ prior written notice; (ii) if Canopy Growth is the subject of any regulatory investigation related to possible violations of applicable Law arising from the A&R License; (iii) if termination is required by applicable Law (subject to certain exceptions); (iv) if the Company has breached any material term of the Arrangement Agreement and fails to cure such breach; or (v) if the Arrangement Agreement (as may be amended by the Amending Agreement) is terminated. In the event of early termination of the A&R License, Acreage will not receive the full anticipated benefits thereunder and may incur additional costs in order to cease its use of the Trademarks, Systems and/or Intellectual Property. See “Transaction Agreements - A&R License.”
Acreage may not be able to retain or attract directors and officers
Pursuant to the Amended Arrangement Agreement, from the Amendment Date until the Acquisition Time, Acreage may only nominate elect directors or nominate officers if such individuals meet the Required Director Criteria or Required Officer Criteria, as applicable. The Amended Arrangement Agreement requires that any director nominated to the Board must, among other things, be financially literate, have at least five years of service as a director or officer of a company listed on a recognized stock exchange in Canada or the United States, have at least five years of experience in the cannabis industry and/or consumer packaged goods industry and/or with a Fortune 500 company, have completed a directors’ education program, and have committed to a minimum of 14 hours of ongoing governance education annually. The Amended Arrangement Agreement requires that any individual appointed to serve as an executive officer of Acreage must, among other things, have sufficient qualification, education and experience to effectively carry out the responsibilities of the proposed position and have at least five years of experience in the cannabis industry and/or consumer packaged goods industry and/or with a Fortune 500 company. Accordingly, the Amended Arrangement Agreement sets a high suitability threshold for officer and director candidates of the Company, which may adversely affect the Company’s ability to retain new directors and officers during the Amendment Interim Period.
The Amended Arrangement Agreement also provides that from the Amendment Date until the Acquisition Time, Acreage will only be permitted to issue a limited number of Shares and securities convertible, exchangeable or exercisable into Shares in accordance with the Canopy Growth Approved Share Threshold. Such restrictions may prevent Acreage from issuing share-based incentive compensation to potential director and officer candidates, which may result in the Company being unable to attract new directors and officers with the requisite talent to compete with its unconstrained competitors.
The risk factors relating to the Acquisition if completedexercised under the Existing Arrangement will applyas currently proposed, risks may materialize and may materially and adversely affect Acreage’s business, financial results and the price of the Floating Shares and the Fixed Shares. This could result in the delay or indefinite postponement of Acreage’s current business objectives or Acreage ceasing to carry on business. If Acreage is able to raise additional equity financing through the Acquisition if completed underissuance of Floating Shares and Fixed Shares, such issuances may substantially dilute the Amended Arrangementinterests of Floating Shareholders. If Acreage is able to raise additional debt financing, payment of the associated interest costs is likely to impose a substantial financial burden on Acreage.
If the Acquisition is completed under the Amended Arrangement, a number of the potential risks factors relating to the Acquisition under the Existing Arrangement will still apply. Some of these risks include, but are not limited to: risk that Canopy Growth could fail to complete the Acquisition or the Acquisition may be completed on different terms; risks associated with a fixed exchange ratio; market overhang risk; risk that the Company will incur substantial transaction-related costs in connection with the Acquisition; risk that, during the Amendment Interim Period, the Company is restricted from taking certain actions; risk that the Canopy Growth Shares to be received by Shareholders as a result of the Acquisition will have different rights from the Existing Shares, Fixed Shares and Floating Shares; risks that the Company and Canopy Growth may not integrate successfully; risk that Canopy Growth may issue additional equity securities during the Amendment Interim Period; risk that the Acquisition will affect the rights of Shareholders; risk that the Exchange Ratio may be decreased in certain circumstances; and risk that Canopy Growth may be acquired during the Amendment Interim Period. See “Risk Factors - Risks Relating to the Acquisition under the Existing Arrangement.” However, if the Acquisition is completed under the Amended Arrangement (rather than the Existing Arrangement), Shareholders will receive different consideration in respect of their Shares. See “Risk Factors – Risks Relating toif the Implementation ofFloating Share Arrangement is Not Completed and the Amended Arrangement– Consideration to be received by Acreage ShareholdersFixed Call Option is not Exercised under Amended Arrangement may be less than Shareholders would have received underthe Existing Arrangement – Negative Cash Flow from Operations”. Additionally, Shareholders will be subject to different tax treatment pursuant to the Amended Arrangement. See and “Risk Factors – Risks Relating toif the AmendedFloating Share Arrangement– Tax Treatment.”
Risk Related to the Acquisition by Canopy Growth of is Not Completed and the Fixed Shares only andCall Option is not Exercised under the Floating SharesExisting Arrangement – Sufficiency of Capital”.
Risks related to holding FloatingLowered market price of the Acreage Shares in a company with a majority controlling shareholder
InThe current price of the eventFloating Shares and the Fixed Shares may reflect a market assumption that Canopy Growth acquires allthe Floating Share Arrangement and the Acquisition following the exercise of the Fixed Shares and does not exerciseCall Option under the Existing Arrangement, respectively, will be completed. Should the Floating Call Option, it is anticipated Canopy Growth will beneficially own approximately 70%Share Arrangement or the Acquisition not be completed, there may be a material decline in the price of the voting rights attached to all the outstanding Shares at the Acquisition Time. In addition, following the Acquisition Time until the End Date, the Amended Arrangement Agreement provides that Canopy Growth will have certain rights including, without limitation the right to nominate a majority of the Acreage Board, pre-emptive rights, top-up rights, approval rights in respect of the Approved Business Plan and certain audit and inspection rights. As a result, holders of Floating Shares will have little and/or no influence on the conduct of Acreage’s business and affairs. In addition, during such time there will be a number of restrictions imposed on the Company, including, without limitation, restrictions regarding the payment of dividends, the Company’s M&A activities, acquisitions, divestitures, amendments to constating documents, the issuance of certain securities and entering into any agreements that limit the Company’s ability to compete, in each case without the consent of Canopy Growth.Fixed Shares.
By virtueFinancial markets may experience significant price and volume fluctuations that affect the market prices of becoming the controlling shareholderequity securities of the Company, together with the rights and restrictions in Canopy Growth’s favor in the Amended Arrangement Agreement, Canopy Growth will have the power to exercise decisive influence over the Company. Therecompanies that are no guarantees that Canopy Growth’s interests will align with interests of the Company or the interests of its other Shareholders. As a result, the Company could be prevented from entering into transactions that could be beneficialunrelated to the Companyoperating performance, underlying asset values or its other Shareholders as a resultprospects of the rights granted to Canopy Growth in the Amended Arrangement Agreement. As a result of Canopy Growth’s majority ownership, it is likely that third parties will be discouraged from making a take-over bid for all of the Shares. If a third party were to offer to acquire Canopy Growth’s interest in Acreage, holders of Floating Shares would have no “coattail” rights which would oblige such a third party to offer to acquire the Floating Shares. Canopy Growth will be under no obligation to undertake any transaction under which the Floating Shares would be acquired. If Canopy Growth were to offer to undertake any such transaction, it would likely involve payment of an amount of consideration per Floating Share less than would have been received by the holders of the Floating Shares had Canopy Growth exercised the Floating Call Option. In addition, any sale by Canopy Growth of a substantial number of Shares could causecompanies. Accordingly, the market price of the Floating Shares to decline.
All of the factors set out above are likely to depress the trading price of the Floating Shares.
See “Transaction Agreements – Amending Agreement – Covenants Following the Acquisition Time until the End Date”.
There may not be an active trading market for the Floating Shares
In the event that Canopy Growth acquires all ofand the Fixed Shares and does not exercisemay decline even if the Floating Call Option, notwithstandingShare Arrangement is completed or the Acquisition is completed. There can be no assurance that it is proposed that the Floating Shares will be listed for trading at the CSE, such listing may not provide significant liquidity, and the Floating Shares may not trade at prices advantageous to Shareholders. An active or liquid trading market in the Floating Shares may not develop following the Amendment Time, or if it does develop, it may not continue, particularly following the completion of the Acquisition. It is possible that low demand for the Floating Shares may make it difficult, or impossible, for a Shareholder to sell the Floating Shares. Therefore, the sale of Floating Shares may take more time or require Shareholders to accept a lower price. In addition, the market price of the Floating Shares may be subject to fluctuation, whether or not due tocontinuing fluctuations in the Company’s operating resultsprice and financial condition, which could, in turn, result in substantial losses being incurred by Shareholders.
The Floating Sharesvolume will not trade at an intrinsic value
The intrinsic value of the Floating Shares is indeterminate. There is no guarantee that the Floating Shares will trade at a price that reflects the performance of the Company.
Limited strategic and organic growth opportunities absent the consent of Canopy Growth
The Amending Agreement includes certain covenants that will apply following the Acquisition Time until the End Date. Such covenants include, among others, the right to nominate a majority of the Acreage Board, pre-emptive rights, top-up rights, approval rights in respect of the Approved Business Plan and certain audit and inspection rights. In addition, during such time there will be a number of restrictions imposed on the Company, including, without limitation, restrictions regarding the payment of dividends, the Company’s M&A activities, acquisitions, divestitures, amendments to constating documents, the issuance of certain securities and entering into any agreements that limit the Company’s ability to compete, in each case without the consent of Canopy Growth.
As a result, following the Acquisition Time, the Company will be subject to a number of constraints. The Company will not be permitted to pursue various strategic and other business opportunities, absent obtaining the consent of Canopy Growth. In the event Canopy Growth does not provide its consent, the Company may fail to execute on its business objectives and may not be able to pursue strategic and organic growth opportunities, which may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.
Risk of loss of revenue under the Management Services Agreements
Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a Target Cannabis Operator, being a competitor of Acreage in the United States, then as a condition to completing such transaction, the Target Cannabis Operator must enter into a Management Service Agreement with Acreage, failing which the Target Cannabis Operator will pay a management fee to Acreage equal to a percentage of net revenue generated by the Target Cannabis Operator. Each Management Service Agreement must provide for a termination right in favor of the Target Cannabis Operator following the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event Date by Canopy. Accordingly, each Target Cannabis Operator will have the right to terminate the applicable Management Service Agreement with the Company, which would eliminate sources of revenue for the Company and may have a material adverse effect on Acreage’s revenues and operating results.
Risk that Canopy Growth may compete or divert opportunities to its other investees that participate in the U.S. cannabis industry
The restriction which prevents Canopy Growth from operating within the United States in violation of Federal Cannabis Laws will no longer apply at the Acquisition Time. Accordingly, Canopy Growth may compete with the business of the Company. Canopy Growth is substantially larger and has considerably greater financial resources than the Company, which may result in a lower cost of capital and access to funding sources and unique structures that are not available to the Company. There is a risk that there will be situations when the interests of Canopy Growth conflict with the interests of the Company or its other Shareholders. Accordingly, Canopy Growth may divert opportunities to its other Subsidiaries and investee companies rather than to the Company. Any increased competitive pressure against the Company from Canopy Growth after the Acquisition Time, its Subsidiaries or any investee companies may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.
Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following completion of the Acquisition. See “Cautionary Note Regarding Forward-Looking Information”.occur.
Risks Relating to Treatment of Acreage for U.S. and Canadian Tax Purposes
Treatment of Acreage for U.S. Tax Purposes
A corporation is generally considered for U.S. federal income tax purposes to be a tax resident in thethe jurisdiction of its organization or incorporation. Accordingly, under the generally applicable U.S.U.S. federal income tax rules, the Company,Acreage, which is incorporated under the Laws of Canada, wouldthe Province of British Columbia, would be classified as a non-U.S. corporation (and, therefore, not a U.S. tax resident) for U.S. federalfederal income tax purposes. However, Section 7874 of the Code, provides an exception to this general rule, under which a non-U.S. incorporated entityentity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes.purposes. These rules are complex and there is limited guidance regarding their application.
Under Section 7874, a corporation created or organized outside the United States (i.e., a non-U.S. corporation)corporation) will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes (and,(and, therefore, as a U.S. tax resident subject to U.S. federal income tax on its worldwide income) ifif each of the following three conditions are met: (i) the non-U.S. corporation, directly or indirectly, acquiresacquires substantially all of the properties held directly or indirectly by a U.S. corporation (including(including through the acquisition of all of the outstanding shares of the U.S. corporation);; (ii) the non-U.S.non-U.S. corporation's “expanded“expanded affiliated group” does not have “substantial“substantial business activities” in thethe non-U.S. corporation's country of organization or incorporation and tax residence relative to the expandedexpanded affiliated group's worldwide activities;activities; and (iii) after the acquisition, the former shareholdersshareholders of the acquired U.S. corporation hold at least 80% (by either vote or value) of the sharesshares of the non-U.S. acquiring corporation by reason of holding shares in the U.S. acquired corporationcorporation (taking into account the receipt of the non-U.S. corporation's shares in exchange for the U.S.U.S. corporation's shares) as determined for purposes of Section 7874 (this test is referred to as the ”80%”80% ownership test”).
For purposes of Section 7874, the CompanyAcreage believes that the three conditions described above have been met by reason of the RTO, and the CompanyAcreage has taken the position that it is treated as a U.S. domestic corporation for U.S. federal income taxtax purposes. A number of significant and complicated U.S. federal income tax consequences may result from such classification, and this summary does not attempt to describe all such U.S. federal incomeincome tax consequences. Section 7874 of the Code and the Treasury Regulations promulgated thereunderthereunder do not address all the possible tax consequences that arise from the CompanyAcreage being treatedtreated as a U.S. domestic corporation for U.S. federal income tax purposes. Accordingly, there maymay be additional or unforeseen U.S. federal income tax consequences to the CompanyAcreage that are not discusseddiscussed in this summary.
Generally, the CompanyAcreage will be subject to U.S. federal income tax on its worldwide taxable income (regardless(regardless of whether such income is “U.S.“U.S. source” or “foreign“foreign source”) and will be required to filefile a U.S. federal income tax return annually with the IRS. As the CompanyAcreage is deemed a resident of Canada for Canadian tax purposes by virtue of its incorporation under the Laws of the provinceProvince of British Columbia, it is also taxable in Canada on its worldwide income. It is unclear how the foreign tax credit rules under the Code will operateoperate in certain circumstances, given the treatment of the CompanyAcreage as a U.S. domestic corporationcorporation for U.S. federal income tax purposes and the taxation of the CompanyAcreage in Canada. Accordingly,Accordingly, it is possible that the CompanyAcreage will be subject to double taxation with respect to all or partpart of its taxable income. It is anticipated that such U.S. and Canadian tax treatment will continue indefinitelyindefinitely and that shares in the CompanyAcreage Shares will be treated indefinitely as shares in a U.S. domestic corporationcorporation for U.S. federal income tax purposes, notwithstanding future transfers.
Adverse U.S. federal income tax consequences
For U.S. federal income tax purposes, the Floating Share Arrangement is expected not to qualify as a reorganization under Section 368(a) of the Code and is expected to be a fully taxable transaction. Floating Shareholders may be required to pay substantial U.S. federal income taxes. Assuming the Floating Share Arrangement does not qualify as a reorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Shares in exchange for Floating Shares would generally recognize a capital gain or loss equal to the difference between the fair market value of the Canopy Shares received and the U.S. Holder’s adjusted tax basis in the Floating Shares exchanged therefor. The deductibility of capital losses is subject to limitations. For additional information, see the section entitled “Certain United States Federal Income Tax Considerations”.
The rules��described above for U.S. Holders should generally also apply to a Non-U.S. Holder that directly exchanges its Floating Shares for Canopy Shares, except that any such gain recognized by a Non-U.S. Holder generally will not be subject to U.S. federal income tax unless: (i) the gain is “effectively connected” with such Non U. S. Holder’s conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that such Non-U.S. Holder maintains in the United States if that is required by an applicable income tax treaty as a condition for subjecting such person to U.S. taxation on a net income basis; or (ii) the Non-U.S. Holder is an individual, is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist. For additional information, see the section entitled “Certain United States Federal Income Tax Considerations”.
Adverse Canadian federal income tax consequences
For Canadian federal income tax purposes, Canadian Holders will be considered to have disposed of their Floating Shares pursuant to the Floating Share Arrangement and will generally be considered to have realized a capital gain (or capital loss) equal to the amount by which the fair market value of the Canopy Shares received exceeds (or is exceeded by) the aggregate of the adjusted cost base of the Floating Shares transferred and any reasonable costs of disposition.
For additional information, see the section entitled “Certain Canadian Federal Income Tax Considerations”.
Risks RelatedRelating to Acreage’s Business
Substantially all of Acreage’s revenue is derived from U.S.its United States cannabis operations. While Acreage’sAcreage believes that its cannabis operations are believed to be compliant with applicable state and local U.S. Law,regulations, cannabis is illegal under Federal Cannabis Laws.United States federal cannabis laws. For more information about risks relatedrelating to U.S.Acreage’s United States cannabis operations, see the Acreage Annual Report filed under Acreage’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar and incorporated by reference herein.
Risks Relating to Canopy Growth Following Completion of the AcquisitionCanopy’s Business
Please referIf the Floating Share Arrangement is completed, Canopy will continue to Appendix “H” – face many of the risks that it currently faces with respect to its business and affairs. See “Additional Information Concerning Canopy Growth Following Completion of the Arrangement– Risk Factors for additional risks with respect” in Appendix “G” to the business and affairs of Canopy Growth following completion of the Acquisition.this Circular.
Registered Shareholders may exercise Dissent Rights with respect to the AmendmentArrangement Resolution pursuant to and in the manner set forth under Sections 237 to 247 of the BCBCA, as modified by the Amended Plan ofFloating Share Arrangement, the Amendment Interim Order and the Amendment Final Order, provided that, notwithstanding Section 242 of the BCBCA, the written objection to the AmendmentArrangement Resolution must be sent to the CompanyAcreage by holders who wish to dissent and be received by the CompanyAcreage not later than 5:00 p.m. (Vancouver(Vancouver time) on the date that is two Business Days immediately prior to the Meeting or any date to which the Meeting may be postponed or adjourned.
Registered Shareholders who wish to dissent should take note that the procedures for dissenting from the Amendment Resolution require strict compliance with the applicable dissent procedures.
Dissent Rights to the AmendmentArrangement Resolution for Registered Shareholders
As indicated in the Notice of Meeting, any Registered Shareholder is entitled to be paid the fair value of the ExistingFloating Shares held by such holder in accordance with Section 245 of the BCBCA, as modified by the Amended Plan ofFloating Share Arrangement, the Amendment Interim Order and the Amendment Final Order, if such holder properly exercises Dissent Rights and the AmendedFloating Share Arrangement becomes effective.
Anyone who is a beneficial owner of ExistingFloating Shares registered in the name of an Intermediary and who wishes to dissent should be aware that only Registered Shareholders are entitled to exercise Dissent Rights. A Registered Shareholder who holds ExistingFloating Shares as an Intermediary for one or more beneficial owners, one or more of whom wish to exercise Dissent Rights, must exercise such Dissent Rights on behalf of such holder(s). In such case, the notice should specify the number of ExistingFloating Shares held by the Intermediary for such beneficial owner. A Dissenting Shareholder may dissent only with respect to all, but not less than all, of the ExistingFloating Shares held on behalf of any one beneficial owner and registered in the name of the Dissenting Shareholder.
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 his or her ExistingFloating Shares and is qualified in its entirety by reference to the full text of the Amended Plan ofFloating Share Arrangement, the Amendment Interim Order and Sections 237 to 247 of the BCBCA, which are attached to this Circular as Appendices “C” and “E”“F” and “J”“H”, respectively. A Registered Shareholder who intends to exercise the Dissent Rights should carefully consider and strictly comply with the provisions of Sections 237 to 247 of the BCBCA, as modified by the Amendment Interim Order, the Amendment Final Order and the Amended Plan ofFloating Share Arrangement, and seek independent legal advice. Failure to comply strictly with the provisions of the BCBCA, as modified by the Amendment Interim Order, the Amendment Final Order and the Amended Plan ofFloating Share Arrangement, and to adhere to the procedures established therein, may result in the loss of all rights thereunder.
The Court hearing the application for the Amendment Final Order has the discretion to alter the Dissent Rights described herein.
If, asIt is a condition precedent in favour of the Amendment Date,obligations of Canopy and Canopy USA to complete the Floating Share Arrangement that the aggregate number of ExistingFloating Shares in respect of which Registered Shareholders have duly and validly exercisedexercised Dissent Rights or have instituted proceedings to exercise Dissent Rights, exceedsshall not exceed 5% of the ExistingFloating Shares then outstanding (assuming all securities convertible, exchangeableoutstanding. If such condition precedent is not fulfilled, or exercisable into Acreage Shares, includingwaived by Canopy, Canopy and Canopy USA may terminate the High Street Units, USCo2 Shares, Acreage Compensation Options, Acreage Options and Acreage RSUs have been converted, exchanged or exercised), Canopy Growth is entitled, in its discretion, not to implement the Amended Arrangement.Floating Share Arrangement Agreement. See “Transaction Agreements – Proposal Agreement Floating Share Arrangement Agreement – Conditions for ImplementationCompletion of the AmendedFloating Share Arrangement – Conditions in FavorFavour of Canopy Growth”.
Registered Shareholders who duly exercise Dissent Rights and who:
| (a) | are ultimately entitled to be paid fair value for their Dissenting Shares, which fair value shall be the fair value of such shares as of the close of business on the last Business Day before the day on which the |
| (b) | are ultimately not entitled, for any reason, to be paid fair value for their |
| (c) | but in no case shall Canopy, |
Sections 237 to 247 of the BCBCA
Section 238 of the BCBCA, as modified by the Amended Plan ofFloating Share Arrangement, the Amendment Interim Order and the Amendment Final Order, provides that Registered Shareholders who dissent in respect of the AmendmentArrangement Resolution in compliance with Sections 237 to 247 of the BCBCA may require Acreage to pay such Dissenting Shareholder the fair value of such ExistingFloating Shares.
The exercise of Dissent Rights does not deprive a Registered Shareholder of the right to vote at the Meeting. However, a Floating Shareholder is not entitled to exercise Dissent Rights in respect of the AmendmentArrangement Resolution if such holder votes any of the ExistingFloating Shares beneficially held by such holder FOR the AmendmentArrangement Resolution. The execution or exercise of a proxy against the AmendmentArrangement Resolution does not constitute a written objection for purposes of the right to dissent under Section 238 of the BCBCA.
A Dissenting Shareholder must dissent with respect to all, but not less than all, of the ExistingFloating Shares in which the holder owns a beneficial interest. A Registered Shareholder who wishes to dissent must deliver written notice of dissent (a “Notice of Dissent”) to Acreage on the date that is two Business Days immediately prior to the Meeting, or any date to which the Meeting may be postponed or adjourned, and such Notice of Dissent must strictly comply with the requirements of Section 242 of the BCBCA. Any failure by a Registered Shareholder to fully comply may result in the loss of that holder’s Dissent Rights. Non-Registered Shareholders who wish to exercise Dissent Rights must arrange for the Registered Shareholder holding their ExistingFloating Shares to deliver the Notice of Dissent.
A vote against the AmendmentArrangement Resolution, whether by attending and voting at the Meeting virtually or by proxy, or not voting on the AmendmentArrangement Resolution does not constitute a Notice of Dissent. Promptly after the AmendmentArrangement Resolution is approved by the Shareholders, the CompanyFloating Shareholders, Acreage must send to each Dissenting Shareholder a notice that the AmendmentArrangement Resolution has been adopted, stating that the CompanyAcreage intends to act, or has acted, on the authority of the Amendment Resolution and advise the Dissenting Shareholder of the manner in which dissent is to be completed under Section 244 of the BCBCA.
If the AmendmentArrangement Resolution is adopted by the Floating Shareholders as required at the Meeting, and if Acreage notifies the Dissenting Shareholders of its intention to act upon the AmendmentArrangement Resolution, pursuant to Section 244 of the BCBCA, the Dissenting Shareholder is then required, within 30 days after receipt of such notice, to send to the Company or the Transfer Agent a signed written notice setting out the Dissenting Shareholder’s name, the number and class of ExistingFloating Shares in respect of which the Dissenting Shareholder dissents and that the Dissent Right is being exercised in respect of all of the Dissenting Shareholder’s ExistingFloating Shares. The written notice should contain any share certificate or certificates representing the ExistingFloating Shares in respect of which the Dissenting Shareholder has exercised Dissent Rights (if any) and a demand for payment of the fair value of such ExistingFloating Shares. A Dissenting Shareholder who fails to send to the CompanyAcreage or the Transfer Agent within the required periods of time the required notices or the certificates representing the ExistingFloating Shares in respect of which the Dissenting Shareholder has dissented may forfeit its Dissent Rights. Upon delivery of these documents, the Dissenting Shareholder is deemed to have sold its ExistingFloating Shares and Canopy Growth must comply with Section 245 of the BCBCA.
The Dissenting Shareholder and Canopy Growth may agree on the fair value of the Dissenting Shares immediately before the passing of the AmendmentArrangement Resolution (the “Payout Value”); otherwise, either party may apply to the Court to determine the Payout Value, and the Court may determine the Payout Value, or order that the Payout Value be established by arbitration or by reference to the registrar or a referee of the Court. If the AmendedFloating Share Arrangement becomes effective and the Dissenting Shareholder has complied with Section 244, after a determination of the Payout Value of the Dissenting Shares, Canopy Growth must then promptly pay that amount to the Dissenting Shareholder.
Addresses for Notice
All notices to the CompanyAcreage of dissent with respect to the AmendmentArrangement Resolution pursuant to Section 242 of the BCBCA should be addressed to the attention of the Corporate Secretary of the CompanyAcreage and be sent not later than 5:00 p.m. (Vancouver(Vancouver time) on the date that is two Business Days immediately prior to the Meeting, or any date to which the Meeting may be postponed or adjourned, to:
Acreage Holdings, Inc.
c/o DLA Piper (Canada) LLP
1 First Canadian Place
100 King St. W., Suite 6000
Toronto, ON
M5X 1E2
Attention: Robert Fonn and Russel Drew
142
Strict Compliance with Dissent Provisions Required
The foregoing summary does not purport to provide comprehensive statements of the procedures to be followed by a Dissenting Shareholder under Part 8, Division 2 of the BCBCA, as modified by the Amended Plan ofFloating Share Arrangement and the Amendment Interim Order, and reference should be made to the specific provisions of Sections 237 to 247 of the BCBCA, the Amended Plan ofFloating Share Arrangement and the Amendment Interim Order. The BCBCA requires strict adherence to the procedures regarding the exercise of rights established therein. The failure to adhere to such procedures may result in the loss of all rights of dissent. Accordingly, each Registered Shareholder who wishes to exercise Dissent Rights should carefully consider and comply with the provisions of Sections 237 to 247 of the BCBCA, the Amended Plan ofFloating Share Arrangement and the Amendment InterimInterim Order and consult a legal advisor. A copy of Sections 237 to 247 of the BCBCA is set out in Appendix “J”H” to this Circular and a copy of the Amended Plan ofFloating Share Arrangement and the Amendment Interim Order are set out in Appendices “C” and “E”“F”, respectively, to this Circular.
The CompanyAcreage suggests that any Registered Shareholders wishing to avail himself or herself of the Dissent Rights seek his or her own legal advice as failure to comply strictly with the applicable provisions of the BCBCA and the Amendment Interim Order, Amendment Final Order and Plan ofFloating Share Arrangement may prejudice the availability of such Dissent Rights. Dissenting Shareholders should note that the exercise of Dissent Rights can be a complex, time-consuming and expensive process.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary offairly describes the principal Canadian federal income tax considerations generally applicable under the Tax Act generally applicable to a Floating Shareholder who is the beneficial owner of Existing SVS who, in accordance with the Amended Arrangement, (i) receives a portion of the Aggregate Amendment Option Payment, (ii) exchanges Existing SVS for Fixed Shares and Floating Shares pursuant to the Capital Reorganization and (iii) disposes of or exchanges, or is deemed to have disposed of or exchanged, a Fixed Share and/or a Floating Share as a result of the exercise (or deemed exercise) of the Canopy Call Option and/or the Floating Call Option by Canopy Growth or otherwise and who, for the purposes of the Tax Act and at all relevant times: (a)times, holds Floating Shares, and will hold any Canopy Shares acquired pursuant to the Floating Share Arrangement, as capital property, and who deals at arm’s length with, and is not affiliated with, the CompanyAcreage or Canopy Growth; and (b) holds all Existing SVS and will hold all Fixed Shares and Floating Shares acquired pursuant to the Capital Reorganization and all Canopy Growth Shares acquired pursuant to the exercise (or deemed exercise) of the Canopy Call Option or the Floating Call Option by Canopy Growth and all Mergeco Fixed Shares if Canopy Growth does not exercise the Floating Call Option (collectively, in this part referred to as the “Securities”), as capital property (each, a(a “Holder”). The SecuritiesFloating Shares and Canopy Shares will generally be considered to beconstitute capital property to a Holder for the purposes of the Tax Act provided thatunless the Holder does not useholds or hold those Securitiesuses such shares in the course of carrying on a business of trading or dealing in securities and has not acquired such Securitiesshares in onea transaction or more transactions considered to be an adventure or concern in the nature of trade.
This summary isdoes not applicableapply to a Holder: (a)Holder (i) that is a “financial institution” for the purposes of the “mark-to-market property” rules; (b)mark-to-market rules contained in the Tax Act; (ii) that is a “specified financial institution” (as defined in the Tax Act); (c) that is a partnership; (d)(iii) an interestinterest in which would be a “tax shelter investment” (as defined in the Tax Act); (e)(iv) that has elected to determine its “Canadianmade a functional currency reporting election under the Tax Act; (v) that is exempt from tax results”under Part I of the Tax Act; (vi) that is a “foreign affiliate” (as defined in the Tax Act) of a currency other than Canadian currency pursuant totaxpayer resident in Canada; (vii) that is a partnership; (viii) that receives dividends on the “functional currency reporting” rules; (f)Canopy Shares under or as part of a “dividend rental arrangement” (as defined in the Tax Act); (ix) that has entered into or will enter into in respect of the Securities, a “synthetic disposition arrangement” or a “derivative forward agreement” or “synthetic disposition arrangement” (as those terms are defined in the Tax Act) with respect to the Floating Shares or Canopy Shares; or (g)(x) that is a “substantive CCPC” as defined in the Tax Proposals. Such Holders should consult their own tax advisors with respect to an investment in the Canopy Shares.
This summary is not applicable to Persons holding Floating Options, Floating Share Units and Floating Warrants, and the tax considerations relevant to such holders are not discussed herein.
Additional considerations, not discussed herein, may be applicable to a Holder that is a corporation resident in Canada (or a corporation that does not deal at arm’s length for purposes of the Tax Act, with a corporation resident in Canada) that is, or becomes, as part of a transaction or event or series of transactions or events that includes the Floating Share Arrangement, controlled by a non-resident corporation (person, or pursuant to the Proposed Amendments, a non-resident Person or a group of Persons comprised of any combination of non-resident corporations, non-resident individuals or non-resident trusts that dopersons not dealdealing with each otherother at arm's length),arm’s length, for the purposes of the “foreign affiliate dumping” rules in Section 212.3 of the Tax Act, all within the meaning of the Tax Act. Any suchSuch Holders should consult their own tax advisors to determine the particular Canadian federal income tax consequences to them of the Amended Arrangement.
This summary does not address tax considerations for holders of Acreage Options arising from the Amended Arrangement and does not address tax considerations relevant to Holders who previously acquired Existing SVS on the exercise or settlement of Acreage Options or under any other employment benefit plan. Any such Holders should consult their own tax advisors to determine the particular Canadian federal income tax consequences to them of the Amended Arrangement.advisors.
This summary is based on the facts set out in this Circular, the assumptions set out herein,upon the current provisions of the Tax Act, and the regulations thereto in force as at the date of this Circular, and counsel’s understanding of the current administrative and assessing practices and policies of the CRA published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed AmendmentsTax Proposals”) and assumes that all Proposed Amendments will be enacted incounsel’s understanding of the form proposed; however, no assurancecurrent published administrative practices and assessing policies of the CRA. No assurances can be given that the Proposed AmendmentsTax Proposals will be enacted as proposed, orif at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Tax Proposals, does not otherwise take into account or anticipate any changes in Law or administrative or assessing practice or policy,law, whether by legislative, regulatory, administrativegovernmental or judicial decision or action, noror any changes in the administrative practices or assessing policies of the CRA. This summary does itnot take into account tax legislation or considerations of any province, territory or foreign jurisdiction, whichjurisdiction. Provisions of provincial income tax legislation vary from province to province in Canada and may be differentdiffer from those discussed herein.federal income tax legislation.
This summary is of a general nature only and is not exhaustive of all possible Canadian federal income tax considerations applicable to the Amended Arrangement. The income and other tax consequences of acquiring, holding or disposing of Securities will vary depending on a Holder’s particular status and circumstances, including the country, province or territory in which the Holder resides or carries on business. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. No representations are made with respect to the income tax consequences to any particular Holder. HoldersFloating Shareholder. Accordingly, Floating Shareholders should consult their own tax advisors for advice with respect to the income tax consequences to them of disposing of their Floating Shares pursuant to the AmendedFloating Share Arrangement, and of acquiring, holding and disposing of Canopy Growth Shares, in their particular circumstances, including the application and effect of the income and other tax Laws of any applicable country, province, state or local tax authority.
This summary does not discuss any non-Canadian income or other tax consequences of the Amended Arrangement. Holders resident or subjecthaving regard to taxation in a jurisdiction other than Canada should be aware that the Amended Arrangement may have tax consequences both in Canada and in such other jurisdiction. Such consequences are not described herein. Holders should consult with their own tax advisors with respect to their particular circumstances and the tax considerations applicable to them.
Canadian Currency
For the purposes of the Tax Act, subject to certain exceptions (including where a taxpayer has made an election to compute its “Canadian tax results” in a currency other than Canadian currency), where an amount that is relevant in computing a taxpayer’s “Canadian tax results” is expressed in a currency other than Canadian dollars, the amount must be converted to Canadian dollars using the exchange rate quoted by the Bank of Canada for the day on which the amount arose (or another rate of exchange that is acceptable to the Minister of National Revenue).
Allocation of Aggregate Amendment Option Payment
A Holder who receives a portion of the Aggregate Amendment Option Payment as consideration for the granting of the Canopy Call Option and the Floating Call Option to Canopy Growth will be required to allocate the amount received on a reasonable basis between the Canopy Call Option and the Floating Call Option comprising the Aggregate Amendment Option Payment for the purposes of the Tax Act.circumstances.
Holders Resident in Canada
The following portion of thethis summary is generally applicable to a Holder who, at all relevant times, and for the purposes of the Tax Act, is or is deemed to be resident in Canada and is not exempt from tax under Part Ifor the purposes of the Tax Act and any applicable income tax treaty or convention (a “Canadian Holder”). CertainA Canadian HoldersHolder whose SecuritiesFloating Shares might not otherwise qualify as capital property may in certain circumstances, be entitled to make or may already have made, an irrevocable election in accordance with subsectionSubsection 39(4) of the Tax Act to have their Securities,such shares and every “Canadian security” (as such term is defined in the Tax Act) owned by such Canadian Holder in the taxation year of the election and in all subsequent taxation years deemed to be capital property. AnyA Canadian Holder contemplating making a subsection 39(4)such an election should consult itswith their own tax advisoradvisors for advice aswith respect to whether an election under Subsection 39(4) of the electionTax Act is available or advisable in their particular circumstances.
ReceiptTransfer of Aggregate Amendment Option PaymentFloating Shares for Canopy Shares
Although the matter is not free from doubt, for Canadian federal income tax purposes, the receipt of the Aggregate Amendment Option Payment should be treated as consideration for the granting of the Canopy Call Option andPursuant to the Floating Call Option. AShare Arrangement, a Canadian Holder, who receivesother than a portion ofDissenting Canadian Holder, will transfer the Aggregate Amendment Option Payment as consideration for the granting of the Canopy Call Option and theCanadian Holder’s Floating Call OptionShares to Canopy Growth should be deemed by subsection 49(1) of the Tax Act to have disposed of a property with an adjusted cost base of nil andUSA for Canopy Shares. Such Canadian Holder will realize a capital gain (or a capital loss) equal to the amount by which the fair market value of the Aggregate Amendment Option Payment received. For a descriptionCanopy Shares received exceeds (or is exceeded by) the aggregate of the adjusted cost base of the Floating Shares transferred and any reasonable costs of disposition. The cost of the Canopy Shares acquired will be equal to the fair market value thereof. This cost will be averaged with the adjusted cost base of all other Canopy Shares (if any) held by such Canadian Holder as capital property for the purpose of determining the adjusted cost base of each Canopy Share held by such Canadian Holder. Such capital gain (or capital loss) will be subject to the tax treatment of capital gains and capital losses, seedescribed below under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” below..
If the Canopy Call Option and/Taxation of Capital Gain or the Floating Call Option are exercised (or deemed to be exercised) by Canopy Growth,Capital Loss
Generally, one-half of any capital gain (a “taxable capital gain”) realized by a Canadian Holder would no longerin a taxation year must be deemedincluded in computing the income of that Canadian Holder for that year, and one-half of any capital loss (an “allowable capital loss”) realized by subsection 49(1) of the Tax Acta Canadian Holder in a taxation year must be applied to have disposed of a property in the year in which the Canopy Call Option and/or the Floating Call Option were granted. Instead, the amount of the Aggregate Amendment Option Payment receivedreduce taxable capital gains realized by the Canadian Holder and allocated to the Canopy Call Option and/or the Floating Call Option which has been exercised (or deemed to be exercised) should be included in the Canadian Holder’s proceeds of disposition from the disposition of the Fixed Shares and/or the Floating Shares, as applicable. See “Holders Resident in Canada – Exercise of the Canopy Call Option” and “Holders Resident in Canada – Exercise of the Floating Call Option” below. If the Canopy Call Option and/or the Floating Call Option are exercised (or deemed to be exercised) in a taxation year following the taxation year in which the Canopy Call Option and the Floating Call Option are granted, the Canadian Holder should be entitled to file an amended returnthat year. Allowable capital losses for the year in which the Canopy Call Option and the Floating Call Option, as applicable, were granted. The amended return mustexcess of taxable capital gains realized for that year generally may be filed at the latest on the day on whichapplied by the Canadian Holder is required to file the return for the yearreduce net taxable capital gains realized in which the Canopy Call Option and/or the Floating Call Option are exercised (or deemed to be exercised). In such a case, the CRA is obliged to reassess tax, interest and penalties for the year in order to exclude the consideration received for granting the Canopy Call Option and/or the Floating Call Option, as applicable, from the calculationany of the Canadian Holder’s income. Canadian Holders should consult their own tax advisors concerning the tax treatment of the Aggregate Amendment Option Payment.
Exchange of Existing SVS for Fixed Shares and Floating Shares pursuantthree preceding years or in any subsequent year, to the Capital Reorganization
Pursuant toextent and under the Capital Reorganization, a Canadian Holder will exchange each Existing SVS for 0.7 of a Fixed Share and 0.3 of a Floating Share (the “Share Exchange”). The Share Exchange will be considered to occur “in the course of a reorganization of capital” of the Company such that section 86 ofcircumstances described in the Tax Act will apply in respect of the Share Exchange. The Canadian Holder will be deemed to dispose of the Canadian Holder’s Existing SVS for proceeds equal to the Canadian Holder’s adjusted cost base of those shares and will acquire the Fixed Shares and Floating Shares at an aggregate adjusted cost base equal to that amount. As a result, a Canadian Holder will not realize a capital gain or capital loss under the Tax Act in connection with the Share Exchange.
A Canadian Holder must apportion the adjusted cost base of their Existing SVS between the Fixed Shares and Floating Shares in accordance with their proportionate fair market values immediately after the Share Exchange. The fair market value of the Fixed Shares and the Floating Shares is a question of fact determined based on all relevant factors (including the respective trading values of those shares following the Share Exchange).
Dividends on Fixed Shares and Floating SharesAct.
In the case of a Canadian Holder who is an individual, dividends received or deemed to be received on the Fixed Shares and the Floating Shares will be included in computing the Canadian Holder’s income and will be subject to the gross-up and dividend tax credit rules that apply to taxable dividends received from taxable Canadian corporations. Provided that appropriate designations are made by the Company, any such dividend will be treated as an “eligible dividend” for the purposes of the Tax Act and a Canadian Holder who is an individual will be entitled to an enhanced dividend tax credit in respect of such dividend. There may be limitations on the Company’s ability to designate dividends and deemed dividends as eligible dividends.
Dividends received or deemed to be received on the Fixed Shares and the Floating Shares by a Canadian Holder that is a corporation, will be required to be included in computing the corporation’s income for the taxation year in which such dividends are received, but such dividends will generally be deductible in computing the corporation’s taxable income. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Canadian Holder that is a corporation as proceeds of disposition or a capital gain. Canadian Holders that are corporations should consult their own tax advisors having regard to their own circumstances.
A Canadian Holder that is a “private corporation” or a “subject corporation” (each as defined in the Tax Act) may be liable under Part IV of the Tax Act to pay a refundable tax on dividends received or deemed to be received on the Fixed Shares and the Floating Shares (see “Certain United States Federal Income Tax Considerations”) to the extent that such dividends are deductible in computing the Canadian Holder’s taxable income for the taxation year.
Dividends received by a Canadian Holder who is an individual (including certain trusts) may result in such Canadian Holder being liable for alternative minimum tax under the Tax Act. Canadian Holders who are individuals should consult their own tax advisors in this regard.
As the Company is treated as a U.S. corporation for U.S. federal income tax purposes pursuant to section 7874 of the Code, a Canadian Holder may be subject to United States withholding tax on dividends received on the Fixed Shares or the Floating Shares. Any United States withholding tax paid by or on behalf of a Canadian Holder in respect of dividends received on the Fixed Shares and the Floating Shares by a Canadian Holder may be eligible for foreign tax credit or deduction treatment where applicable under the Tax Act. Generally, a foreign tax credit in respect of a tax paid to a particular foreign country is limited to the Canadian tax otherwise payable in respect of income sourced in that country. Dividends received on the Fixed Shares or the Floating Shares by a Canadian Holder may not be treated as income sourced in the United States for these purposes. Canadian Holders should consult their own tax advisors with respect to the availabilityamount of any foreign tax credits or deductions under the Tax Act in respect of any United States withholding tax applicable to dividends paidcapital loss arising on the Fixed Shares or the Floating Shares.
Dispositions of Fixed Shares and Floating Shares (other than pursuant to the Canopy Call Option or the Floating Call Option)
Upon a disposition, or deemed disposition, of a Fixed Share or a Floating Share (other than a disposition to the Company that is not a sale in the open market in the manner in which shares would normally be purchased by a member of the public in an open market), a capital gain (or capital loss) will generally be realized by a Canadian Holder to the extent that the proceeds of disposition are greater (or less) than the aggregate of the adjusted cost base of such security to the Canadian Holder immediately before the disposition and any reasonable costs of disposition. The adjusted cost base of a Fixed Share and a Floating Share to a Canadian Holder will be determined in accordance with the Tax Act by averaging the cost to the Canadian Holder of a Fixed Share or Floating Share, as applicable, with the adjusted cost base (determined immediately prior to such disposition) of all other Fixed Shares or Floating Shares, respectively, held by the Canadian Holder as capital property. Such capital gain (or capital loss) will be subject to the treatment described below under “Holders Resident in Canada — Taxation of Capital Gains and Capital Losses”.
Exercise of the Canopy Call Option
If Canopy Growth exercises (or is deemed to exercise) the Canopy Call Option, a Canadian Holder who is a holder of Fixed Shares at the Acquisition Time and who has indicated in the Letter of Transmittal that the Canadian Holder is (i) resident in Canada for the purposes of the Tax Act, or (ii) is a “Canadian Partnership” as defined in the Tax Act will be deemed pursuant to the Amended Arrangement to transfer its Fixed Shares to Canopy Growth in exchange for Canopy Growth Shares on the Acquisition Date.
Exchange of Fixed Shares – No Joint Tax Election
A Canadian Holder who receives Fixed Shares for Canopy Growth Shares pursuant to the exercise (or deemed exercise) of the Canopy Call Option by Canopy Growth (other than an Eligible Holder who makes a Joint Tax Election with Canopy Growth as discussed below under “Holders Resident in Canada – Exchange of Fixed Shares – With Joint Tax Election”) will be considered to have disposed of the Fixed Shares, for proceeds of disposition equal to the aggregate of (i) the amount of Aggregate Amendment Option Payment allocated to the Canopy Call Option and (ii) the aggregate fair market value of any Canopy Growth Shares received. As a result, the Canadian Holder will generally realize a capital gain (or capital loss) to the extent that such proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Fixed Shares immediately before the exchange. See “Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” below for a general discussion of the treatment of capital gains and capital losses under the Tax Act.
The cost to a Canadian Holder of any Canopy Growth Shares acquired on such exchange will be equal to the fair market value of the Canopy Growth Shares at the time of the exchange. The Canadian Holder’s adjusted cost base of the Canopy Growth Shares so acquired will be determined by averaging such cost with the adjusted cost base to the Canadian Holder of all Canopy Growth Shares owned by the Canadian Holder as capital property immediately prior to such exchange.
Exchange of Fixed Shares – With Joint Tax Election
A Canadian Holder who is an Eligible Holder and who receives Canopy Growth Shares pursuant to the exercise (or deemed exercise) of the Canopy Call Option by Canopy Growth may obtain a full or partial deferral in respect of the exchange of the Fixed Shares by filing with the CRA (and, where applicable, with a provincial tax authority) a joint election made by the Eligible Holder and Canopy Growth under subsection 85(1) of the Tax Act (or, in the case of a partnership, under subsection 85(2) of the Tax Act, provided all members of the partnership jointly elect) and the corresponding provisions of any applicable provincial tax legislation (collectively, the “Joint Tax Election”). See “Holders Resident in Canada - Procedure for Making Joint Tax Election” below.
The availability and extent of the deferral will depend on the Elected Amount (as defined below) designated and the Canadian Holder’s adjusted cost base of the Fixed Shares at the time of the exchange and is subject to the Joint Tax Election requirements being met under the Tax Act. An Eligible Holder making a Joint Tax Election will be required to designate an amount (the “Elected Amount”) in the election form that will be deemed to be the proceeds of disposition of the Eligible Holder’s Fixed Shares at the time of exchange. In general, the Elected Amount with respect to the Fixed Shares may not be:
The Canadian federal income tax treatment to an Eligible Holder who properly makes a valid Joint Tax Election generally will be as follows:
Exercise of the Floating Call Option
If Canopy Growth exercises the Floating Call Option, a Canadian Holder who is a holder of Floating Shares at the Acquisition Time will be deemed pursuant to the Amended Arrangement to transfer its Floating Shares to Canopy Growth in exchange for the Floating Consideration on the Acquisition Date. The Floating Consideration may, at Canopy Growth’s discretion, be satisfied (i) solely by the Floating Cash Consideration, (ii) solely by the Floating Share Consideration or (iii) by a Combination of Floating Cash Consideration and Floating Share Consideration.
Exchange of Floating Shares - No Joint Tax Election
A Canadian Holder who receives the Floating Consideration in exchange for its Floating Shares pursuant to the exercise of the Floating Call Option by Canopy Growth (other than an Eligible Holder who receives Floating Share Consideration and who makes a Joint Tax Election with Canopy Growth as discussed below under “Holders Resident in Canada – Exchange of Floating Shares – With Joint Tax Election”) will be considered to have disposed of the Floating Shares, for proceeds of disposition equal to the aggregate of (i) the amount of Aggregate Amendment Option Payment allocated to the Floating Call Option, (ii) the amount of any Floating Cash Consideration received, and (iii) the aggregate fair market value of any Canopy Growth Shares received. As a result, the Canadian Holder will generally realize a capital gain (or capital loss) to the extent that such proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Floating Shares immediately before the exchange. See “Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” below for a general discussion of the treatment of capital gains and capital losses under the Tax Act.
The cost to the Canadian Holder of any Canopy Growth Shares acquired on such exchange will be equal to the fair market value of the Canopy Growth Shares at the time of the exchange. The Canadian Holder’s adjusted cost base of the Canopy Growth Shares so acquired will be determined by averaging such cost with the adjusted cost base to the Canadian Holder of all Canopy Growth Shares owned by the Canadian Holder as capital property immediately prior to such exchange.
Exchange of Floating Shares - With Joint Tax Election
A Canadian Holder who is an Eligible Holder and who receives Floating Share Consideration (either alone or in combination with Floating Cash Consideration) pursuant to the exercise of the Floating Call Option by Canopy Growth may obtain a full or partial deferral in respect of the exchange of the Floating Shares by filing with the CRA (and, where applicable, with a provincial tax authority) a Joint Election. See “Holders Resident in Canada - Procedure for Making Joint Tax Election” below.
The availability and extent of the deferral will depend on the Elected Amount designated and the Canadian Holder’s adjusted cost base of the Floating Shares at the time of the exchange and is subject to the Joint Tax Election requirements being met under the Tax Act. An Eligible Holder making a Joint Tax Election will be required to designate the Elected Amount in the election form that will be deemed to be the proceeds of disposition of the Eligible Holder’s Floating Shares at the time of exchange. In general, the Elected Amount with respect to the Floating Shares may not be:
The Canadian federal income tax treatment to an Eligible Holder who properly makes a valid Joint Tax Election generally will be as follows:
Procedure for Making Joint Tax Election
Canopy Growth has agreed to make a Joint Tax Election with an Eligible Holder in respect of Fixed Shares and/or Floating Shares at the amount determined by such Eligible Holder, subject to the limitations set out in subsection 85(1) or subsection 85(2), as applicable, of the Tax Act (or any applicable provincial tax legislation).
A tax instruction letter (the “Tax Instruction Letter”) containing detailed requirements to make a Joint Tax Election, together with the relevant tax election forms (including the provincial tax election forms, if applicable) will be promptly delivered by email to an Eligible Holder that checks the appropriate box on the Letter of Transmittal and Election Form, provides an email address in the appropriate place in the Letter of Transmittal and Election Form and submits the Letter of Transmittal to the Depositary on or before 60 days after the Acquisition Date (the “Election Deadline”).
To make a Joint Tax Election, an Eligible Holder must provide two signed copies of the necessary joint election forms to an appointed representative, as directed by Canopy Growth in the Tax Instruction Letter, by the Election Deadline, duly completed with the details of the Fixed Shares transferred and the applicable Elected Amount for the purposes of such joint elections.
Canopy Growth shall, within 30 days after receiving the completed joint election forms from an Eligible Holder, and subject to such joint election forms being correct and complete and in compliance with requirements imposed under the Tax Act (or any analogous provision of provincial income tax Law), sign and return such forms to such Eligible Holder. Each Eligible Holder is solely responsible for ensuring the Joint Tax Election is completed correctly and filed with the CRA (and any applicable provincial tax authority) by the required deadline. In its sole discretion, Canopy Growth or any successor corporation may choose to sign and return a joint election form received by it after the Election Deadline, but will have no obligation to do so.
Neither the Company, Canopy Growth nor any successor corporation shall be responsible for the proper completion and filing of any joint election form, except for the obligation to sign and return the duly completed joint election forms which are received by the Election Deadline. The Eligible Holder will be solely responsible for the payment of any taxes, interest or penalties arising as a result of the failure of an Eligible Holder to properly or timely complete and file such joint election forms in the form and manner prescribed by the Tax Act (or any applicable provincial legislation).
Any Eligible Holder who does not ensure that information necessary to make a Joint Tax Election has been received by Canopy Growth in accordance with the procedures set out in the Tax Instruction Letter prior to the Election Deadline may not be able to benefit from the tax deferral provisions in subsections 85(1) or 85(2) of the Tax Act (or the corresponding provisions of any applicable provincial tax legislation). Accordingly, all Eligible Holders who wish to make a Joint Tax Election with Canopy Growth should give their immediate attention to this matter following the Acquisition Date.
Dispositions of Floating Shares on the Merger
If Canopy Growth has not exercised the Floating Call Option in respect of the Floating Shares at or prior to the Acquisition Time a Canadian Holder who holds Floating Shares will be deemed to have participated in the Merger and will receive Mergeco Fixed Shares in exchange for its Floating Shares.
A Canadian Holder who receives Mergeco Fixed Shares on the Merger in exchange for their Floating Shares should not realize a capital gain (or capital loss) as a result of the Merger. Such Canadian Holder should be deemed to have disposed of its floating Shares for proceeds of disposition equal to the adjusted cost base of such Floating Shares to the Canadian Holder immediately before the Merger and to have acquired the Mergeco Fixed Shares at an aggregate cost equal to such proceeds of disposition.
Dividends on Canopy Growth Shares (Post-Exercise of the Canopy Call Option and/or the Floating Call Option)
In the case of a Canadian Holder who is an individual, dividends received or deemed to be received on the Canopy Growth Shares will be included in computing the Canadian Holder’s income and will be subject to the gross-up and dividend tax credit rules that apply to taxable dividends received from taxable Canadian corporations. Provided that appropriate designations are made by Canopy Growth, any such dividend will be treated as an “eligible dividend” for the purposes of the Tax Act and a Canadian Holder who is an individual will be entitled to an enhanced dividend tax credit in respect of such dividend. There may be limitations on Canopy Growth’s ability to designate dividends and deemed dividends as eligible dividends.
Dividends received or deemed to be received on the Canopy Growth Shares by a Canadian Holder that is a corporation will be required to be included in computing the corporation’s income for the taxation year in which such dividends are received, but such dividends will generally be deductible in computing the corporation’s taxable income. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Canadian Holder that is a corporation as proceeds of disposition or a capital gain. Canadian Holders that are corporations should consult their own tax advisors having regard to their own circumstances.
A Canadian Holder that is a “private corporation” or a “subject corporation” (each as defined in the Tax Act) may be liable under Part IV of the Tax Act to pay a refundable tax on dividends received or deemed to be received on the Canopy Growth Shares to the extent that such dividends are deductible in computing the Canadian Holder’s taxable income for the taxation year.
Dividends received by a Canadian Holder who is an individual (including certain trusts) may result in such Canadian Holder being liable for alternative minimum tax under the Tax Act. Canadian Holders who are individuals should consult their own tax advisors in this regard.
Disposition of Canopy Growth Shares (Post-Exercise of the Canopy Call Option and/or the Floating Call Option)
A Canadian Holder that disposes or is deemed to dispose of a Canopy Growth Share (other than a disposition to Canopy Growth that is not a sale in the open market in the manner in which shares would normally be purchased by a member of the public in an open market) will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition of the Canopy Growth Share exceeds (or is less than) the aggregate of the adjusted cost base to the Canadian Holder of such Canopy Growth Share, determined immediately before the disposition, and any reasonable costs of disposition. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” below.
Dividends on Mergeco Fixed Shares (Floating Call Option Not Exercised for Floating Shares - Post Merger)
The tax treatment of dividends received by Canadian Holders who hold Mergeco Fixed Shares will be the same as for dividends received on Fixed Shares and Floating Shares (see above “Holders Resident in Canada – Dividends on Fixed Shares and Floating Shares”).
Disposition of Mergeco Fixed Shares (Floating Call Option Not Exercised for Floating Shares - Post Merger)
A Canadian Holder that disposes or is deemed to dispose of a Mergeco Fixed Share (other than a disposition to Mergeco that is not a sale in the open market in the manner in which shares would normally be purchased by a member of the public in an open market) will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition of the Mergeco Fixed Share exceeds (or is less than) the aggregate of the adjusted cost base to the Canadian Holder of such Mergeco Fixed Share, determined immediately before the disposition, and any reasonable costs of disposition. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” below.
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain realized by a Canadian Holder in a taxation year will be included in computing the Canadian Holder’s income in that taxation year (a “taxable capital gain”) and, generally, one-half of any capital loss realized in a taxation year (an “allowable capital loss”) must be deducted from the taxable capital gains realized by the Canadian Holder in the same taxation year, in accordance with the rules contained in the Tax Act. Allowable capital losses in excess of taxable capital gains realized by a Canadian Holder in a particular taxation year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized by the Canadian Holder in such taxation year, subject to and in accordance with the rules contained in the Tax Act.
Capital gains realized by an individual and certain trusts may give rise to a liability for alternative minimum tax under the Tax Act. A Canadian Holder that is, throughout the year, a “Canadian-controlled private corporation”, as defined in the Tax Act, may be subject to an additional refundable tax on its “aggregate investment income” which is defined to include taxable capital gains.
The amount of any capital loss realized by a Canadian Holder that is a corporation on the disposition of a Fixed Share, a Floating Share, a Canopy Growth Share or a Mergeco Fixed Share, as applicable,share may be reduced by the amount of dividends received, or deemed to behave been received, by itsuch Canadian Holder on such share (or on aanother share for whichwhere the share has been substituted)acquired in exchange for such other share), to the extent and under the circumstances prescribed bydescribed in the Tax Act. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust, that owns shares, directly or indirectly, throughwhere a trust or partnership of which a corporation is a beneficiary or a member is a member of a partnership or a trust.beneficiary of a trust that owns any such share.
A Canadian Holder that, throughout the relevant taxation year, is a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay a refundable tax on its “aggregate investment income” (as defined in the Tax Act), including taxable capital gains.
Capital gains realized by a Canadian Holder who is an individual or trust, other than certain trusts, may increase the Canadian Holder’s liability for alternative minimum tax under the Tax Act.
Dividends on Canopy Shares
Dividends received or deemed to be received by a Canadian Holder on Canopy Shares will be required to be included in such Canadian Holder’s income for the purposes of the Tax Act for the taxation year in which the dividends are received or deemed to be received. Such dividends received by a Canadian Holder who is an individual will be subject to the gross-up and dividend tax credit rules normally applicable to dividends received from taxable Canadian corporations. An enhanced gross-up and dividend tax credit will be available to individuals in respect of “eligible dividends” designated by Canopy in accordance with the provisions of the Tax Act. There may be limitations on the ability of Canopy to designate dividends as eligible dividends.
In the case of a Canadian Holder that is a corporation, such dividends or deemed dividends will be included in income and generally will be deductible in computing taxable income. “Private corporations” and “subject corporations” (as defined in the Tax Act) may be liable for additional refundable Part IV tax on any dividend received or deemed to have been received, to the extent such dividends are deductible in computing the Canadian Holder’s taxable income for the year. However, in certain circumstances, the amount of any such taxable dividend received or deemed to have been received by a Canadian Holder that is a corporation may be treated as proceeds of disposition or as a capital gain and not as a dividend under Subsection 55(2) of the Tax Act. Canadian Holders to whom these rules may applythat are corporations should consult their own tax advisors.advisors in this regard.
AsDisposition of Canopy Shares
Generally, on a disposition or deemed disposition of Canopy Shares (other than on a disposition to Canopy that is not a sale in the Companyopen market in the manner in which shares would normally be purchased by any member of the public in an open market), a Canadian Holder will realize a capital gain (or a capital loss) equal to the amount, if any, by which the proceeds of disposition exceed (or are less than) the aggregate of the adjusted cost base to the Canadian Holder of such Canopy Shares immediately before the disposition or deemed disposition and any reasonable costs of disposition. See “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” for further details.
Dissenting Canadian Holders
A Dissenting Canadian Holder will be deemed under the Floating Share Arrangement to have transferred such Dissenting Canadian Holder’s Floating Shares to Canopy USA and will be entitled to be paid the fair value of the Dissenting Canadian Holder’s Floating Shares. Such Dissenting Canadian Holder will be considered to have disposed of its Floating Shares for proceeds of disposition equal to the amount received by it from Canopy USA (other than that portion that is in respect of interest, if any, awarded by the Court), and will realize a capital gain (or capital loss) to the extent that the proceeds of disposition of its Floating Shares exceed (or are less than) the aggregate of the adjusted cost base to the Dissenting Canadian Holder of such Floating Shares and any reasonable costs of disposition. Any such capital gain or capital loss will be subject to the same tax treatment as described above under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Capital Losses”.
Interest, if any, awarded by the Court to a Dissenting Canadian Holder will be included in the Dissenting Canadian Holder’s income for the purposes of the Tax Act. In addition, a Dissenting Canadian Holder that, throughout the relevant taxation year, is a “Canadian-controlled private corporation” as defined in the Tax Act may be liable for an additional refundable tax in respect of such interest.
Under the Floating Share Arrangement, Floating Shareholders who for any reason are not entitled to be paid the fair value of their Floating Shares, shall be treated as a U.S. corporation for U.S.if they had participated in the Floating Share Arrangement on the same basis as Holders who do not exercise Dissent Rights. The principal Canadian federal income tax purposes pursuant to section 7874 of the Code, aconsiderations generally applicable to such Floating Shareholders who are Canadian Holder may be subject to United States tax on a gain realized on the disposition of Fixed Shares,Holders in connection with their Floating Shares or Mergeco Fixed Shares if the Company or Mergeco,will be the same as applicable, is classified as a United States real property holding corporation under the Code. United States tax, if any, levied on any gain realized on a disposition of a Fixed Share or a Floating Share may be eligible for a foreign tax credit under the Tax Act to the extent and under the circumstancesthose described above in the Tax Act. Generally, a foreign tax credit in respect of a tax paid to a particular foreign country is limited to theconnection with Canadian tax otherwise payable in respect of income sourced in that country. Gains realized on the disposition of a Fixed Share, a Floating Share or a Mergeco Fixed Share by a Canadian Holder mayHolders who do not be treated as income sourced in the United States for these purposes.exercise Dissent Rights.
Dissenting Canadian Holders should consult their own tax advisors for specific advice with respect to the availability of a foreign tax credit, having regard toconsequences in their own particular circumstances.circumstances of exercising their Dissent Rights.
Holders Notnot Resident in Canada
The following portion of the summary is generally applicable to a HolderHolders who, at all relevant times, and for the purposes of the Tax Act isand any applicable income tax treaty or convention, are not, and isare not deemed to be, resident in Canada and doeswho do not use or hold, and isare not deemed to use or hold, and will not useFloating Shares or hold, or be deemed to use or hold, Securities,Canopy Shares in connection with carrying on a business in Canada (a “Non-Canadian Holder”). This portion of theSpecial rules, which are not discussed in this summary, is not generally applicablemay apply to a Non-Canadian Holder that is: (a)is an insurer carrying on an insurance business in Canada and elsewhere or (b) an “authorized foreign bank” (as such term is defined in the Tax Act).
ReceiptTransfer of Aggregate Amendment Option PaymentFloating Shares for Canopy Shares
A Non-Canadian Holder who receives a portion of the Aggregate Amendment Option Payment as consideration for the granting of the Canopy Call Option and the Floating Call Option to Canopy Growth should be deemed by subsection 49(1) of the Tax Act to have disposed of a property with an adjusted cost base of nil, but will not be subject to capital gains tax under the Tax Act on any capital gain realized on such deemed disposition.
Exchangethe disposition of Existing SVS for Fixed Shares and Floating Shares pursuant tounless the Capital Reorganization
The tax consequences described above under “Holders Resident in Canada – Exchange of Existing SVS for Fixed Shares and Floating Shares pursuant to the Capital Reorganization” will generally apply to Non-Canadian Holders who exchange Existing SVS for Fixed Shares and Floating Shares pursuant to the Capital Reorganization.
Dispositions of Securities
A Non-Canadian Holder that disposes or is deemed to dispose of a Fixed Share or a Floating Share (including as a result of the Merger) or of a Canopy Growth Share or a Mergeco Fixed Share will not be subject to tax under the Tax Act on any capital gain realized on such disposition unless the Fixed Shares, Floating Shares, Canopy Growth Shares or Mergeco Fixed Shares, as applicable, areconstitute “taxable Canadian property” of the Non-Canadian Holder at the effective time of the disposition and the particular shares are not “treaty-protected property”, each within the meaningfor purposes of the Tax Act.Act and the Non-Canadian Holder is not entitled to an exemption under an applicable income tax treaty or convention between Canada and the country in which the Non-Canadian Holder is resident.
Generally, the SecuritiesFloating Shares will not be considered “taxableconstitute taxable Canadian property” to any particularproperty of a Non-Canadian Holder at thea particular time of disposition provided that such Securitiesshares are listed at that time on a “designated stock exchange”, as defined in the Tax Act (which currently includes the CSE and TSX)CSE), unless: (A)unless at any particular time during the 60-month60 month period that ends at that time: (a)time, (A) the Floating Shares derived more than 50% of their fair market value, directly or indirectly, from one (1) or any combination of: (i)(a) real or immoveable properties situated in Canada, (b) “timber resource property” (as such term is defined in the Non-Canadian Holder; (ii) Persons with whomTax Act), (c) “Canadian resource property” (as such term is defined in the Non-Canadian Holder doesTax Act) or (d) options in respect of, or interests in, or for civil law, rights in, any of the foregoing property, whether or not deal at arm’s length;the property exists, and (iii) partnerships in which the Non-Canadian Holder or a Person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, owned(B) 25% or more of the issued shares of any class or series of the capital stock of the corporation that issues the shares; and (b) more than 50% of the fair market value of the particular shares was derived directly or indirectly fromAcreage were owned by one (1) or any combination of (i) realthe Non-Canadian Holder, (ii) persons with whom the Non-Canadian Holder does not deal at arm’s length, or immovable properties situated(iii) partnerships in Canada;which the Non-Canadian Holder or a person referred to in (ii) “Canadian resource properties” (as definedholds a membership interest directly or indirectly through one or more partnerships. Notwithstanding the foregoing, in certain circumstances set out in the Tax Act); (iii) “timber resource properties” (as defined in the Tax Act); and (iv) options in respect of, or interests in, or for civil Law rights in, any of the foregoing property whether or not the property exists; or (B) the particular Securities, are otherwiseAct, Floating Shares could be deemed to be taxable Canadian property.
Non-Canadian Holders should consult their own tax advisors as to whether their Floating Shares constitute “taxable Canadian property” in their own particular circumstances.
In the event that the Floating Shares constitute or are deemed to constitute taxable Canadian property to any Non-Canadian Holder, such Non-Canadian Holder may be entitled to relief under the provisions of an applicable income tax treaty or convention if the Floating Shares are “treaty protected property” to the Non-Canadian Holder. Shares owned by a Non-Canadian Holder will generally be treaty protected property if the gain from the disposition of such shares would, because of an applicable income tax treaty or convention between Canada and the country in which the Non-Canadian Holder is resident, be exempt from tax under another provisionPart I of the Tax Act.
InIf the event that a Fixed Share, a Floating Share, a Canopy Growth Share or a Mergeco Fixed Share, as applicable, isShares are considered to be taxable Canadian property and not “treaty-protected property” as defined in the Tax Act to the Non-Canadian Holder at the time of disposition, such Non-Canadian Holder will generally be subject to the same income tax considerations as those discussed above with respect to Canadian Holders under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Transfer of Floating Shares for Canopy Shares”. Shares owned by a Non-Canadian Holder will generally be treaty-protected property if the gain from the disposition of such shares would, because of an applicable income tax treaty or convention between Canada and the country in which the Non-Canadian Holder is resident, be exempt from tax under Part I of the Tax Act.
Non-Canadian Holders whose Floating Shares are taxable Canadian property should consult their own tax advisors.
Disposition of Canopy Shares
Any capital gain realized by a Non-Canadian Holder on the disposition or deemed disposition of Canopy Shares acquired pursuant to the Floating Share Arrangement will not be subject to tax under the Tax Act unless such shares constitute “taxable Canadian property” (as described above) and are not “treaty-protected property” (as described above) of the Non-Canadian Holder at the time of the disposition,disposition.
If the Canopy Shares are considered to be taxable Canadian property and not treaty-protected property to the Non-Canadian Holder, such Non-Canadian Holder will generally be subject to the same income tax considerations as those discussed with respect to Canadian Holders under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Transfer of Floating Shares for Canopy Shares”.
Non-Canadian Holders whose Canopy Shares are taxable Canadian property should consult itstheir own tax advisor as to the Canadian tax consequences of the disposition.advisors.
Dividends on Fixed Shares, Floating Shares, Canopy Growth Shares or Mergeco Shares
Dividends paid or credited, or deemed to be paid or credited, on the SecuritiesCanopy Shares to a Non-Canadian Holder generally will be subject to Canadian withholding tax under the Tax Act at a rate of 25% of the gross amount of the dividend,dividends unless the rate is reduced under the provisions ofby an applicable income tax convention between Canada and the Non-Canadian Holder's jurisdiction of residence. The rate of withholding taxtreaty or convention. For example, under the U.S. Treaty, applicableas amended, where dividends are paid to or derived by a Non-Canadian Holder whothat is a resident of the United States for the purposes of the U.S. Treaty and is entitled to all of the benefits under the U.S. Treaty generally will be 15%. Acreage, Canopy Growth or Mergeco, as applicable, will be required to withhold the required amount of withholding tax from the dividend, and to remit it to CRA for the account of the Non-Canadian Holder.
Dissent Rights
A Dissenting Shareholder is entitled, if the Amended Arrangement becomes effective, to have its Existing SVS purchased in exchange for a cash payment from Canopy Growth equal to the fair value of such Holder's Existing SVS (the “Dissent Payment”).
The Holder will realize a capital gain (or capital loss) equal to the amount by which the Dissent Payment exceeds (or is less than) the aggregate of the adjusted cost base of the Existing SVS to such Holder, determined immediately before the cancellation of such shares, and any reasonable costs of disposition, less any portion of the Dissent Payment that is on account of interest.
Holders Resident in Canada
The general tax consequences to a Canadian Holder who validly exercises Dissent Rights of realizing a capital gain or sustaining a capital loss are described above under the heading, “Holders Resident in Canada – Taxation of Capital Gains and Capital Losses”.
Any interest awarded to a Canadian Holder who validly exercises Dissent Rights will be included in such Holder's incomeresident for the purposes of, and that is entitled to the benefits in accordance with the Tax Act.provisions of, such convention, and that is the beneficial owner of such dividends, the applicable rate of Canadian withholding tax generally is reduced to 15% (or 5% in the case of a U.S. resident that is a company beneficially owning at least 10% of the Canopy’s voting shares).
Dissenting Non-Canadian Holders Not Resident in Canada
A Non-Canadian Holder who validly exercises Dissent Rights under the Floating Share Arrangement (a “Dissenting Non-Canadian Holder”) will notbe deemed to have transferred such Dissenting Non-Canadian Holder’s Floating Shares to Canopy USA and will be entitled to be paid the fair value of the Dissenting Non-Canadian Holder’s Floating Shares. The Dissenting Non-Canadian Holder will be considered to have disposed of the Floating Shares for proceeds of disposition equal to the amount paid to such Dissenting Non-Canadian Holder less an amount in respect of interest, if any, awarded by the Court, and will be subject to tax under the Tax Act on any capital gain realized on the cancellation ofif such Holder’s Existing SVS unless the Existing SVS areshares constitute “taxable Canadian property” and are not treaty-protected property to the Dissenting Non-Canadian Holder atas described under the effective timeabove heading “Certain Canadian Federal Income Tax Considerations – Holders not Resident in Canada –Transfer of Floating Shares for Canopy Shares”.
Under the disposition and the Existing SVSFloating Share Arrangement, Floating Shareholders who for any reason are not “treaty-protected property”, each withinentitled to be paid the meaning offair value of their Floating Shares, shall be treated as if they had participated in the Tax Act. Floating Share Arrangement on the same basis as Holders who do not exercise Dissent Rights. The principal Canadian federal income tax considerations generally applicable to such Floating Shareholders who are Non-Canadian Holders in connection with their Floating Shares will be the same as those described above in connection with Non-Canadian Holders who intend todo not exercise Dissent Rights in respect of shares that constitute taxable Canadian property should consult their own tax advisors for advice having regard to their particular circumstances including regarding any resulting Canadian tax reporting requirements.Rights.
AGenerally, where a Dissenting Non-Canadian Holder receives interest in connection with the exercise of Dissent Rights, such amount will not be subject to any Canadian withholding tax on any interest awarded to in respect of the exercise of Dissent Rights.tax.
Additional income tax considerations may be relevant to Holders who fail to perfect or withdraw their claims pursuant to the Dissent Rights. Dissenting Shareholders should consult their own tax advisors with respect to the tax consequences to them of exercising Dissent Rights.
Eligibility for Investment in Canada
The FixedCanopy Shares Floating
Provided the Canopy Shares are listed on a designated stock exchange (which currently includes the TSX) at the Effective Time, the Canopy Growth Shares and Mergeco Fixed Shares, if issuedwould, on the date hereof, wouldof issuance under the Floating Share Arrangement, be qualified investments on such date under the Tax Act and the regulations thereunder for trusts governed by registered retirement savings plans (“RRSPs”), registered retirement income funds (“RRIFs”), registered education savings plans registered disability savings plans, tax-free savings accounts (collectively, “(“Registered PlansRESPs”) and, deferred profit sharing plans (“DPSPsDPSP”), registered disability savings plans (“RDSPs”) (all as defined in the Tax Act), provided that the Fixed Shares, Floating Shares, Canopy Growth Shares and Mergeco Fixed Shares, as applicable, are listed on a “designated stock exchange” as defined in the Tax Act (which includes the TSX and the CSE) or the Company, Canopy Growth or Mergeco, as applicable, is otherwise a “public corporation”, as defined in the Tax Act.tax free savings accounts (“TFSAs”).
Notwithstanding the foregoing, if the Fixed Shares, Floating Shares, Canopy Growth Shares or Mergeco Shares are a “prohibited investment” withinfor a RRSP, a RRIF, a RESP, a RDSP or a TFSA, the meaningholder, subscriber or annuitant of the Tax Act for the Registered Plan, the annuitant, holder or subscriber,such plan, as the case may be, (the “Controlling Individual”), of the Registered Plan, will be subject to a penalty tax undertax as set out in the Tax Act. The FixedCanopy Shares Floating Shares, Canopy Growth Shares and Mergeco Shareswill generally will not be a prohibited investment for a Registered PlanRRSP, a RRIF, a RESP, a RDSP or a TFSA provided the Controlling Individual ofholder, subscriber, or annuitant thereof, as the Registered Plan: (i)case may be, deals atat arm’s length with the Company, Canopy, Growth and Mergeco, as applicable, for purposes of the Tax Act;Act, and (ii) does not have a “significant interest” (as defined in the Tax Act) in Canopy. The Canopy Shares also will not be a prohibited investment if they are “excluded property” as defined in the Tax Act. A holder, subscriber or annuitant of a RRSP, a RRIF, a RESP, a RDSP or a TFSA, as the case may be, who intends to hold Canopy Shares in such a plan is advised to consult its own tax advisors.
Floating Shares
Nothing in the Floating Share Arrangement prior to the disposition of the Floating Shares will, in and of itself, cause the Floating Shares to cease to be a qualified investment under the Tax Act for purposes of the prohibited investment rules) in the Company, Canopy Growth or Mergeco, as applicable. In addition, Fixed Shares, Floating Shares, Canopy Growth Sharestrusts governed by RRSPs, RRIFs, RESPs, DPSPs, RDSPs and Mergeco Shares will not be a prohibited investment if such shares are “excluded property” (as defined in the Tax Act for purposes of the prohibited investment rules) for the Registered Plan.TFSAs.
Persons who intend to hold or may hold Fixed Shares, Floating Shares, Canopy Growth Shares of Mergeco Fixed Shares in a Registered Plan or DPSP should consult their own tax advisors in regard to the application of these rules in their particular circumstances.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income tax consequences to U.S. Holders and to Non-U.S. Holders (each as defined below) with respect to the AmendedFloating Share Arrangement, includingincluding: (i) the tax consequences associated with the Option Premium, (ii) the receipttransfer of a portion of the Aggregate Amendment Option Payment, (iii) the Capital Reorganization, (iv) the exchange of Fixed Shares and/or Floating Shares to Canopy USA in exchange for Canopy Growth Shares pursuant to the Acquisition,Floating Share Arrangement; and (v)(ii) the ownership and disposition of Canopy Growth Shares. This summary is based on the facts set out in thethis Circular, the assumptions set forth herein and upon the Code, its legislative history, final, temporary and proposed treasury regulations (“Treasury Regulations”), rulings of the United States Internal Revenue Service (“IRS”), judicial decisions and the income tax treaty between the U.S. and Canada (“U.S. Treaty”) in existence on the date hereof.
These Laws, including legislative and administrative interpretations thereof, are subject to change, possibly on a retroactive basis. Any such change could adversely affect the U.S. federal income tax consequences described below, especially given that the Acquisition may not occur for up ten years after the Amendment Time.below. No assurance can be given that the IRS will agree with the consequences described in this summary, or that a court will not sustain any challenge by the IRS in the event of litigation. An advance tax ruling from the IRS has not been sought or obtained regarding the tax consequences of the transactions described herein.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of shares of AcreageFloating Shares or (after the Acquisition)Floating Share Arrangement) Canopy Growth Shares that is (a) an individual who is a citizen of the United States or who is resident in the United States for U.S. federal income tax purposes, (b) an entity that is classified for U.S. federal income tax purposes as a corporation and that is organized under the Laws of the United States, any state thereof, or the District of Columbia, or is otherwise treated for U.S. federal income tax purposes as a domestic corporation, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (d) a trust (i) whose administration is subject to the primary supervision of a court within the United States and all substantial decisions of which are subject to the control of one or more United States Persons as described in Section 7701(a)(30) of the Code (“United States Persons”), or (ii) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States Person.
For purposes of this summary, a “Non-U.S. Holder” is a beneficial owner of shares of AcreageFloating Shares or (after the Acquisition)Floating Share Arrangement) Canopy Growth Shares that is not a U.S. Holder and that is not an entity that is classified for U.S. federal income tax purposes as a partnership or as an entity disregarded from its owner. If an entity classified for U.S. federal income tax purposes as a partnership or as an entity disregarded from its owner owns shares of Acreage,Floating Shares, the tax treatment of a partner or other owner of the entity will depend on the status of such partner or other owner and the activities of the entity. The tax treatment of such an entity, and the tax treatment of any partner or other owner of such an entity, are not addressed in this summary. Any entity that is classified for U.S. federal income tax purposes as a partnership or as an entity disregarded from its owner and that owns shares of Acreage,Floating Shares, and any partners or other owners of such an entity, are encouraged to consult their tax advisors to determine the particular U.S. federal income tax consequences to them of the AmendedFloating Share Arrangement.
This summary is for general information purposes only and does not purport to be an exhaustive summary or listing of all potential U.S. federal income tax considerations that may apply as a result of the AmendedFloating Share Arrangement or the ownership or disposition of Canopy Growth Shares. This summary does not discuss all U.S. federal income tax considerations that may be relevant to U.S. Holders and Non-U.S. Holders in light of their particular circumstances or that may be relevant to certain beneficial owners that may be subject to special treatment under U.S. federal income tax Law (including but not limited to, tax-exempt organizations, insurance companies, banks and other financial institutions, dealers in securities, traders in securities that elect to use a mark-to-market method of accounting, real estate investment trusts, regulated investment companies, individual retirement accounts, qualified pension plans, Persons who hold shares of AcreageFloating Shares as part of a straddle, hedging, constructive sale, conversion, or other integrated or risk reduction transactions, Persons who acquired shares of AcreageFloating Shares as a result of the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan, U.S. Holders whose functional currency is not the U.S. dollar, controlled foreign corporations, passive foreign investment companies, and corporations that accumulate earnings to avoid U.S. federal income tax). Furthermore, this summary does not discuss any alternative minimum tax consequences, and does not address any aspects of U.S. state or local taxation or non-U.S. tax Law. This summary only applies to those beneficial owners that hold ExistingFloating Shares, or (after the Acquisition)Floating Share Arrangement) Canopy Growth Shares, as “capital assets” within the meaning of Section 1221 of the Code.
This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular Floating Shareholder. No representations are made with respect to the income tax consequences to any particular Floating Shareholder. Floating Shareholders should consult their own tax advisors for advice with respect to the income tax consequences of the AmendedFloating Share Arrangement, including the Option Premium, their share of the Aggregate Amendment Option Payment, the Capital Reorganization and the Acquisition, as well as the acquisition, holding and disposition of Canopy Growth Shares in their particular circumstances.
This summary does not address the tax consequences of, or apply to, a U.S. citizen who is also a Canadian resident for purposes of the Tax Act who elects to participate in the share exchange under the Amended Plan of Arrangement prior to the Merger.Act. Special tax rules under the Code and the U.S. Treaty may apply to U.S. citizens who are Canadian residents with respect to the AmendedFloating Share Arrangement, the Merger, and the subsequent ownership and disposition of Canopy Growth Shares. Floating Shareholders who are U.S. citizens and Canadian residents should consult their own tax advisors for the tax consequences of their specific circumstances.
The CompanyAcreage has taken the position, pursuant to Section 7874 of the Code, that it is treated as a U.S. domestic corporation for U.S. federal income tax purposes, notwithstanding that the CompanyAcreage is formed and organized under the laws of British Columbia, Canada. See “Risk Factors – Treatment of Acreage for U.S. and Canadian Tax Purposes - Treatment of Acreage for U.S. Tax Purposes”.
This summary does not address tax considerations for holders of Acreage OptionsFloating Options. Floating Share Units or Floating Warrants arising from the Amended Plan ofFloating Share Arrangement and does not address tax considerations relevant to Floating Shareholders who previously acquired shares of Acreage Shares upon the exercise or settlement of AcreageFloating Options or Floating Share Units or under any other employment benefit plan. Any such Floating Shareholders should consult their own tax advisors to determine the particular U.S. federal income tax consequences to them of the AmendedFloating Share Arrangement.
BENEFICIAL OWNERS OF FLOATING SHARES OF ACREAGE ARE ENCOURAGED TO SEEK ADVICE FROM THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE AMENDEDFLOATING SHARE ARRANGEMENT BASED ON THEIR PARTICULAR CIRCUMSTANCES.
Certain U.S. Federal Income Tax Consequences of the AmendedFloating Share Arrangement
Option Premium and Aggregate Amendment Option Payments
Pursuant to the Existing Arrangement, Canopy Growth paid the Option Premium and Aggregate Amendment Option Payments to shareholders of Existing Shares,Acreage, High Street Holders and USCo2 Holders as consideration for the grant of the Existing Canopy Option. It was intended, for U.S. federal income tax purposes, that the payment of the Option Premium would be treated as a part of a continuing, open transaction that generally did not result in immediate recognition of income to the shareholders because the grant of an option for consideration generally does not constitute a realization event for U.S. federal income tax purposes. Accordingly, it was intended thatto Canopy under the Option Premium would not have been includable in income until the earlier of (i) the sale or disposition of such shareholder’s Existing Sharesarrangement agreement between Canopy and Acreage dated April 18, 2019 and as an inducement to a Person other than Canopy Growth, (ii) the disposition of such shareholder’s Existing Shares in the Acquisition underamend the Existing Arrangement, or (iii) the lapse or termination of the Canopy Call Option.
However, given the amendments to the Existing Arrangement pursuant to the Amended Arrangement, which include the reductionrespectively. As discussed in the Exchange Ratio,Management Information Circular in connection with the extensionplan of the term of the Existing Call Option (now referred to as the Canopy Call Option, which excludes Floating Shares), and the creation of the Floating Call Option,arrangement implemented on September 23, 2020, Acreage now expectsexpected that U.S. Holders who received a portion of the Option Premium will beand/or Aggregate Amendment Option Payments were required to report (to the extent not previously included in income) the portion of any Option Premium and Aggregate Amendment Option Payments they received as short term capital gaintaxable income in the taxable year in which the Amended Plan ofExisting Arrangement becomesbecame effective. Non-U.S. Holders generally should only be subject to U.S. federal income tax to the extent described below with respect to gain recognized in connection with the Acquisition.) No ruling has been or is expected to be sought from the IRS as to the U.S. federal income tax consequences with respect to the payment or receipt of the Option Premium or the Amended Plan of Arrangement.
For purposes of this summary of “Certain U.S. Federal Income Tax Consequences ofIn the Amended Arrangement”, the description of the United States federal income tax consequences of the Acquisition that follows is based on the assumption that U.S. Holders whoevent a Floating Shareholder received a portion of the Option Premium will be required to reportand/or the Aggregate Amendment Option Payments and took the position that the such Option Premium (to the extentamounts were not previously included in income) as short term capital gaintaxable in the taxable year in which the Amended Plan ofExisting Arrangement becomesbecame effective, and that the Aggregate Amendment Option Payment will be treated as ordinary income upon receipt.
Aggregate Amendment Option Payment
The U.S. federal income tax treatment of the Aggregate Amendment Option Payment is unclear. The Aggregate Amendment Option Payment will be paid to the Shareholders, High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment
Non-U.S. Holders will generally be limited in their recognition of gain or income upon receipt of their share of the Aggregate Amendment Option Payment and should consult with their own tax advisors to determine the extent that such income or gain is recognized. The remainder of the U.S. federal income tax discussion assumes the Aggregate Amendment Option Payment will be treated as ordinary income paid in a closed and completed transaction.
In the event a Shareholder takes the position that the Aggregate Amendment Option Payment is not currently taxable, such position willmay impact the results and conclusions of the foregoing discussion in this summary regarding the taxability to any such Floating Shareholder ofon the receipt of consideration in connection with the AcquisitionFloating Share Arrangement (and the related computation of any gain or loss to such Floating Shareholder). Accordingly, Floating Shareholders takingthat took such position should consult with their own tax advisors with respect to the taxability of, and computation of gain in connection with, the Acquisition,Floating Share Arrangement, as a result of the receipt of a portion of the Option Premium and/or the Aggregate Amendment Option Payment.Payments.
The Company will undertake the Capital Reorganization whereby each outstanding SVS will be exchanged with Acreage for 0.7 of a Fixed Share and 0.3 of a Floating Share. Additionally, each outstanding PVS will be exchanged with Acreage for 28 Fixed Shares and 12 Floating Shares, and each outstanding MVS will be exchanged with the Acreage for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. For U.S. federal income tax purposes, Acreage and Canopy Growth intend that the Capital Reorganization will be treated as a “recapitalization” within the meaning of Section 368(a)(1)(E) of the Code.
Assuming the Capital Reorganization qualifies as a recapitalization, the Shareholders willNon-U.S. Holders are generally not recognize gain or losslimited in the exchange of Existing Shares for Fixed Shares (or Fixed Multiple Shares) and Floating Shares.
Further, the aggregate tax basis of the Shares received by a Shareholder in the Capital Reorganization will generally be the same as the tax basis of the Existing Shares surrendered in exchange therefor. A Shareholder must allocate its tax basis in its Existing Shares between the Shareholder’s Shares (or Fixed Multiple Shares) and Floating Shares that the Shareholder receives in proportion to their relative fair market values determined on the date of the Capital Reorganization. The holding period of the Fixed Shares (or Fixed Multiple Shares) and Floating Shares received will include such Shareholder’s holding period in the Existing Shares with respect to which the Fixed Shares (or Fixed Multiple Shares) and Floating Shares were exchanged.
In general, the U.S. federal income tax treatment of a Shareholder’s ownership of the Shares after the Capital Reorganization should not change from the treatment of the ownership of Existing Shares held prior to the Capital Reorganization, including but not limited to the recognition of income or gain or loss on a disposition of the Sharesas described below and income upon the payment of a dividend with respect to the Shares. Non-U.S. Holders may be subject to withholding on dividends paid to them, because Acreage is treated as inverted under Section 7874 of the Code and therefore, treated as a U.S. corporation for U.S. federal income tax purposes. Shareholders (both U.S. Holders and Non-U.S. Holders) should consult with their own tax advisors forto determine the specific treatmentextent that such income or gain is recognized.
For purposes of ownershipthis summary of dividend payments with respect to and disposition“Certain U.S. Federal Income Tax Consequences of the Shares.Floating Share Arrangement”, the description of the United States federal income tax consequences of the Floating Share Arrangement that follows is based on the assumption that U.S. Holders who received a portion of the Option Premium and/or Aggregate Amendment Option Payments reported such amounts (to the extent not previously included in income) as income in the taxable year in which the Existing Arrangement became effective.
Tax Treatment of the Acquisition/Exchange Floating Shares For Canopy Shares
Upon the completion of the Floating Share Arrangement and the Acquisition of the Fixed Shares pursuant to exercise of the Fixed Call Option, Not Exercised
IfCanopy USA will own 100% of the Canopy Call Option is exercised (or deemed exercised) but theoutstanding Fixed Shares and Floating Call Option is not exercised, the AcquisitionShares. These transactions will generally be consummated in threea number of steps pursuant to the Amended PlanFloating Share Arrangement and Existing Arrangement. First, each Floating Share held by a Floating Shareholder (other than Floating Shareholders that validly exercise Dissent Rights) will be transferred to Canopy USA for Canopy Shares (or, in the event a Canopy Change of Arrangement. First,Control has occurred prior to the Effective Date, the Alternate Consideration). Second, each Fixed Multiple Share outstanding immediately prior to the Acquisition Time (as defined in the Existing Arrangement Agreement) will be exchanged with the Acreage for a Fixed Share. Second, AcreageThird, Company Non-U.S. Shareholders (other(as defined in the Existing Arrangement Agreement), other than those AcreageCompany Non-U.S. HoldersShareholders that validly exercise Dissent Rights)Rights, will directly exchange their Fixed Shares for Canopy Growth Shares (or, in the event a Canopy Growth Change of Control has occurred prior to the Acquisition Time,Date, the Alternate Consideration). Third,Fourth, Canopy Growth Subco will merge with and into Acreage with the same effect as if they had amalgamated under Section 269 of the BCBCA, with Acreage surviving and Canopy Growth owning all of the Fixed Shares.BCBCA. As a result of the Merger, Acreageforegoing, Company U.S. Shareholders (other(as defined in the Existing Arrangement Agreement), other than those AcreageCompany U.S. Shareholders that validly exercise Dissent Rights)Rights, will exchange their Fixed Shares for Canopy Growth Shares (or, in the event a Canopy Growth Change of Control has occurred prior to the Acquisition Time,Date, the Alternate Consideration). The separate legal existence of the Canopy Growth Subco will cease but the legal existence of Acreage will continue. Immediately after these transactions, Canopy will transfer, or cause to be transferred, all of its Acreage Shares to Canopy USA. Canopy will hold non-voting exchangeable shares of Canopy USA that are exchangeable at the option of Canopy into Canopy Shares. The Canopy USA exchangeable shares are non-voting and not entitled to dividends or proceeds on the liquidation and dissolution of Canopy USA. The series of transactions described in this paragraph are collectively referred to as the “Acquisition.”
If the Floating Call Option is not exercised, the Acquisition will not qualify as a reorganization forFor U.S. federal income tax purposes, the Floating Share Arrangement is expected not to qualify as a reorganization under Section 368(a) of the Code and is expected to be a fully taxable transaction. The U.S. federal income tax treatment of the Floating Share Arrangement is based on the series of steps described in the preceding paragraph which will generally be treated as a single integrated transaction for purposes of determining qualification of the Acquisition as a reorganization. In order to qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) because a requirement of this type of reorganization is thatthe Code, Canopy Growthwould be required acquire an amount of Fixed Shares and Floating Shares in connection with the Acquisition which represents “control” (as defined in Section 368(c) of the Code) of Acreage in exchange solely for Canopy Growth Shares. IfAfter the Floating Shares are not acquired bycompletion of the Acquisition, Canopy Growth,USA rather than Canopy Growth will not acquirebe in “control” of Acreage for this purpose. Therefore,causing the “control” requirement not to be satisfied. In addition, it is expected that the portion of the Option Premium and some or all of Aggregate Amendment Option Payments which were paid in cash to shareholders of Acreage under the terms of (and defined in) the Existing Arrangement Agreement will be treated as other consideration in determining whether Canopy acquired control of Acreage in exchange solely for Canopy Shares. Based on the value of Canopy Shares as of the date of the Floating Share Arrangement Agreement, such cash consideration is expected to cause the Acquisition, including the Floating Share Arrangement, to fail to satisfy the control requirement. Accordingly, the Floating Share Arrangement is expected not to qualify as a fully taxable transaction in whichreorganization for U.S. federal income tax purposes.
U.S. Holders
Assuming the Floating Share Arrangement does not qualify as a reorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Growth Shares in exchange for FixedFloating Shares in the Mergerwould generally will recognize a capital gain or loss equal to the difference between the fair market value of the Canopy Growth Shares received and the U.S. Holder’s adjusted tax basis in the FixedFloating Shares exchanged therefor. The gain or loss would generally be determined separately for each block of FixedFloating Shares (i.e.(i.e., FixedFloating Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of FixedFloating Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations.
Even if the Acquisition is treated as a taxable transaction for U.S. federal income tax purposes, anyAny Non-U.S. Holder who recognizes gain as a result of the AcquisitionFloating Share Arrangement generally should not be subject to U.S. federal income tax in respect of such gain unlessunless: (i) the gain is “effectively connected” with the Non-U.S. Holder’s conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States if that is required by an applicable income tax treaty as a condition for subjecting the Non-U.S. Holder to U.S. taxation on a net income basis,basis; or (ii) the Non-U.S. Holder is an individual, present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist.
In the case of a Non-U.S. Holder that is described in clause (i) above, any recognized gain should be subject to U.S. federal income tax at regular graduated rates, and if the Non-U.S. Holder is classified as a corporation for U.S. federal income tax purposes, it may also be subject to a U.S. branch profits tax at a rate of 30% (or at a lower rate under an applicable income tax treaty) on effectively connected earnings and profits, subject to certain adjustments. Such effectively connected income should not be subject to U.S. federal income tax withholding, however, if the Non-U.S. Holder furnishes a properly completed IRS Form W-8ECI (or a suitable successor form) to the Person that otherwise would be required to withhold U.S. tax.
A Non-U.S. Holder that is described in clause (ii) above should be subject to a flat 30% tax on the recognized gain, which may be offset by U.S.-source capital losses (even if the Non-U.S. Holder is not considered a resident of the United States). .
Tax Treatment of the Acquisition/Floating Call Option Exercised
If both the Canopy Call Option is exercised (or deemed exercised) and the Floating Call Option is exercised in connection with the Acquisition, the Acquisition will generally be consummated in four steps pursuant to the Amended Plan of Arrangement. First, each Fixed Multiple Share outstanding immediately prior to the Acquisition Time will be exchanged with Acreage for a Fixed Share. Second, Acreage Non-U.S. Shareholders (other than those Acreage Non-U.S. Shareholders that validly exercise Dissent Rights) will directly exchange their Fixed Shares for Canopy Growth Shares (or, in the event a Canopy Growth Change of Control has occurred prior to the Acquisition Date, the Alternate Consideration). Third, each Floating Share held by a Shareholder will be directly exchanged for the Floating Consideration (or, in the event a Canopy Growth Change of Control has occurred prior to the Acquisition Date, the Floating Per Share Consideration). Fourth, Canopy Growth Subco will merge with and into Acreage with the same effect as if they had amalgamated under Section 269 of the BCBCA, with Acreage surviving the Merger as a wholly-owned Subsidiary of Canopy Growth. As a result of the Merger, Acreage U.S. Shareholders (other than those Acreage U.S. Shareholders that validly exercise Dissent Rights) will exchange their Fixed Shares for Canopy Growth Shares (or, in the event a Canopy Growth Change of Control has occurred prior to the Acquisition Date, the Alternate Consideration). The separate legal existence of Canopy Growth Subco will cease but the legal existence of Acreage will continue.
The U.S. federal income tax treatment of the Acquisition if the Floating Shares are acquired by Canopy Growth will be based on a number of factors that will not be determinable until the Acquisition Date, such as whether the Floating Consideration is paid in Floating Share Consideration, Floating Cash Consideration or a combination thereof, and the value of the Canopy Growth Shares received in the Acquisition. Neither Acreage nor Canopy Growth have sought, nor expect to seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein.
In order for a reorganization to take place, the second, third, and fourth steps described in this Section “Tax Treatment of the Acquisition/Floating Call Option Exercised” must be treated as a single integrated transaction for U.S. federal income tax purposes. Additionally, the Section 367 Requirements must be satisfied. There is no assurance that the IRS or a court will agree that these requirements are satisfied. If a reorganization occurs, the expected type of “reorganization” would be one described within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. As noted above a requirement for this type of reorganization is that Canopy Growth acquire an amount of Shares in the Acquisition which represents “control” (as defined in Section 368(c) the Code) of Acreage in exchange solely for Canopy Growth Shares. If certain requirements are satisfied, a portion of the Canopy Growth Shares to be paid as consideration in the Acquisition may be valued on the last business day before the Amendment Time, rather than the Acquisition Date. However, there can be no assurance that the applicable Law will remain the same during the pendency of the Amended Plan of Arrangement. Moreover, the amount of cash paid to dissenters, combined with the Option Premium, Aggregate Amendment Option Payment and Floating Cash Consideration, if any, could cause the failure of Canopy Growth to acquire “control” of Acreage in exchange solely for Canopy Growth Shares, resulting in the Acquisition failing to qualify as a reorganization under Section 368(a) of the Code and being treated as a taxable transaction for U.S. federal income tax purposes. No ruling has been orIt is expected to be sought from the IRS as to the U.S. federal income tax consequences of the Amended Plan of Arrangement. Additionally, there are no judicial decisions, IRS rulings or other authorities that address the U.S. federal income tax treatment of transactions identical to the Amended Plan of Arrangement. The Amended Plan of Arrangement will be effected pursuant to applicable provisions of Canadian corporate Law that are not identical to analogous provisions of the corporate Laws of any State of the United States. There is no assurance that a court would not sustain any challenge by the IRS. Moreover, the applicable Laws, facts and circumstances and terms set out in the Amended Plan of Arrangement may change before the Acquisition is completed which could adversely affect the consequences described herein, especially given that the Acquisition may not occur for up to ten years after the Amendment Time.
Even if the Acquisition qualifies as a reorganization, there is a risk that the Acquisition could fail to meet the Section 367 Requirements. Accordingly, the Acquisition could then be a fully taxable transaction, notwithstanding that it was a reorganization under the Code.
In addition, the Existing Arrangement and Amended Arrangement provide that Canopy Growth is permitted to alter the anticipated transaction structure under certain circumstances and/or that the consideration to be paid for the Shares could be modified if, for instance, Canopy Growth were acquired in a Canopy Growth Change of Control transaction during the pendency of the Canopy Call Option. Any such alternative transaction or alternative consideration could cause the Acquisition to fail to qualify as a reorganization under Section 368(a) of the Code.
If the Floating Shares are acquired by Canopy Growth and the Acquisition does not qualify as a reorganization under Section 368(a) of the Code, a U.S. Holder that receives Canopy Growth Shares in exchange for Shares generally would recognize a capital gain or loss equal to the difference between the fair market value of the Canopy Growth Shares received and the U.S. Holder’s adjusted tax basis in the Shares exchanged therefor. The gain or loss would generally be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations.
If the Acquisition qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, and meets the Section 367 Requirements, the expected general U.S. federal income tax consequences of the Acquisition to U.S. Holders that own shares of Acreage are as follows:
Where different blocks of Shares were acquired at different times or at different prices, the adjusted tax bases and holding periods of Canopy Growth Shares received in connection with the Merger may be determined with reference to each block of Shares.
As noted above, even if the Acquisition is treated as a taxable transaction for U.S. federal income tax purposes, any gain recognized by a Non-U.S. Holder upon the exchange of Shares for Canopy Growth Shares received by such Non-U.S. Holder will only be subject to U.S. federal income tax to the extent described above with respect to Non-U.S. Holders generally for gain recognized in connection with the Acquisition where the Floating Call Option is not exercised.
If you are a Non-U.S. Holder who participates in the Amended Plan of Arrangement and the Acquisition qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, and meets the Section 367 Requirements, generally there will be no gain or loss recognized for U.S. federal income tax purposes to you in respect of the Canopy Growth Shares received in the Acquisition.
Acreage has represented that it is not, and has not been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(i)(A)(ii) of the Code. Acreage intends to provide, in connection with the Acquisition,Floating Share Arrangement, a certificate stating that Acreage is not a U.S. real property holding corporation. If for any reason Acreage does not or cannot provide such a certificate and Acreage were treated as a U.S. real property holding corporation, then, notwithstanding the foregoing paragraphs, if a Non-U.S. Holder has held more than 5% of any classthe total fair market value of the outstanding Floating Shares at any time during the five-year period ending on the date of the closing of the Acquisition,Floating Share Arrangement, it is possible that the Non-U.S. Holder could be treated as realizing taxable gain or loss on the exchange of Floating Shares for Canopy Growth Shares, in an amount equal to the difference between the value of the Canopy Growth Shares and the Non-U.S. Holder’s aggregate tax basis in its Floating Shares surrendered.
No fractional shares are to be issued to a Shareholder by Canopy Growth under the terms of the Amended Plan of Arrangement. Instead, where the aggregate number of Canopy Growth Shares to be issued to a Shareholder would otherwise result in a fraction of a Canopy Growth Share being issuable, then the aggregate number of Canopy Growth Shares to be issued to such Shareholder shall be rounded down to the closest whole number and no compensation shall be payable to such Shareholder in lieu of any such fractional Canopy Growth Share.
Payments Related to Dissent Rights
For U.S. federal income tax purposes, U.S. Holders that receive a payment for their ExistingFloating Shares pursuant to the exercise of Dissent Rights will generally recognize a capital gain or loss in an amount equal to the difference between the amount realized by the U.S. Holder (other than any portion of the payment that represents interest)interest, which amounts will generally be taxable at ordinary income) and the U.S. Holder’s adjusted tax basis in its ExistingFloating Shares. The gain or loss is determined separately for each block of ExistingFloating Shares (i.e., ExistingFloating Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of ExistingFloating Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations.
For U.S. federal income tax purposes, Non-U.S. Holders that receive a payment for their ExistingFloating Shares pursuant to the exercise of Dissent Rights will generally recognize a capital gain or loss in an amount equal to the difference between the amount realized by the Non-U.S. Holder (other than any portion of the payment that represents interest) and the Non-U.S. Holder’s adjusted tax basis in its ExistingFloating Shares. Gain or loss is determined separately for each block of ExistingFloating Shares (i.e., ExistingFloating Shares acquired at the same cost in a single transaction). Any gain that is recognized on a disposition of ExistingFloating Shares pursuant to the exercise of Dissent Rights by a Non-U.S. Holder will only be subject to U.S. federal income tax to the extent described above with respect to Non-U.S. Holders generally for gain recognized in connection with the Acquisition.Floating Share Arrangement.
Interest Payment Related to Dissent Rights
A U.S. Holder or Non-U.S. Holder of ExistingFloating Shares that receives payment pursuant to the exercise of Dissent Rights may also receive an amount of interest income. See “Dissenting Shareholders’ Rights.” Any such interest income that is received by a U.S. Holder will be subject to U.S. federal income tax at ordinary income rates. Any such interest income that is received by a Non-U.S. Holder should not be subject to U.S. federal income tax unless the interest income is effectively connected with the conduct of a trade or business (and, if a United States income tax treaty applies, is attributable to a permanent establishment maintained) within the United States by the Non-U.S. Holder, in which event the interest income will be subject to U.S. federal income tax at regular graduated rates. If the Non-U.S. Holder is classified as a corporation for U.S. federal income tax purposes, such income may also be subject to a U.S. branch profits tax at a rate of 30% (or at a lower rate under an applicable income tax treaty) on effectively connected earnings and profits, subject to certain adjustments. Such effectively connected income will not be subject to U.S. federal income tax withholding; however, if the Non-U.S. Holder furnishes a properly completed IRS Form W-8ECI (or a suitable successor form) to the Person that otherwise would be required to withhold U.S. tax. Interest income that is not effectively connected with the conduct of a United States trade or business will be subject to U.S. federal income tax withholding unless the Non-U.S. Holder furnishes a properly completed IRS Form W-8BEN or W-8BEN-E, as applicable (or a suitable successor form), or otherwise properly establishes an exemption.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply with respect to payments to a U.S. Holder pursuant to the exercise of Dissent Rights. In addition, other payments of cash made to a U.S. Holder and exchanges of shares by a U.S. Holder for which capital gain or loss or other income may be recognized in connection with the Amended Plan ofFloating Share Arrangement may be subject to information reporting and, in the case of payments of cash,reporting. In addition, “backup withholding” may apply unless the U.S. Holder: (i) provides a correct taxpayer identification number and any other required information to the exchange agent, or (ii) is a corporation or comes within certain exempt categories and otherwise complies with applicable requirements of the backup withholding rules. Backup withholding does not constitute an additional tax, but merely an advance payment of tax. Any amounts withheld from a U.S. Holder under the backup withholding provisions may be credited against the U.S. federal income tax liability, if any, of the U.S. Holder, and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
A Non-U.S. Holder who provides an appropriate certification (such as an IRS Form W-8BEN or W-8BEN-E)W-8BEN-E (or a suitable successor form)) to the applicable withholding agent attesting to its status as a non-U.S. Person and otherwise qualifies for exemption is not subject to the backup withholding and information reporting requirements.
U.S. Federal Income Tax Consequences Relating to Ownership and Disposition of Canopy Growth Shares by U.S. Holders
Passive Foreign Investment Company
Canopy Growth is not expectedcurrently has no reason to believe that, as of the Effective Date, it will be passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, a passive foreign investment company (“PFIC”), and it is expected that Canopy Growth will operate in such a mannermanner so as not to become a PFIC, but this conclusion is a factual determination that is made annually and, thus, may be subject to change. If Canopy Growth is or becomes a PFIC, you could be subject to additional U.S. federal income taxes on gains recognized with respect to Canopy Growth Shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. The remainder of this discussion assumes that Canopy Growth will not be treated as a PFIC for U.S. federal income tax purposes.
Any distribution paid to a U.S. Holder on a Canopy Growth Share will be treated for U.S. federal income tax purposes as a dividend generally subject to long term capital gain rates to the extent of the current or accumulated earnings and profits of Canopy Growth that are attributable to that share of common stock. To the extent that the amount of any distribution paid to a U.S. Holder on a Canopy Growth Share exceeds the current and accumulated earnings and profits of Canopy Growth attributable to that share of common stock, the distribution will be treated first, as a non-taxable return of capital (and will be applied against and reduce the U.S. Holder’s adjusted tax basis, but not below zero, in that share of stock) and second, as a capital gain. Any reduction in the adjusted tax basis of a share of common stock will increase any gain, or reduce any loss, recognized by the U.S. Holder upon the subsequent sale, redemption, or other taxable disposition of such share of common stock. For purposes of the remainder of this discussion, it is assumed that any distribution paid on the Canopy Growth Shares owned by a U.S. Holder will constitute a dividend for U.S. federal income tax purposes.
In the case of a U.S. Holder that is a corporation, a dividend received by such a U.S. Holder on a Canopy Growth Share may be eligible for a dividend-received deduction with respect to U.S. source portion of such dividends. The Code provides a dividends-received deduction for a dividend received from a specified 10-percent owned foreign corporation by a U.S. corporation with respect to the foreign-source portion of such dividend. However, these dividend-received deductions are generally disallowed in their entirety if the share of common stock with respect to which the dividend is paid is owned by the U.S. Holder for less than 46 days during the 91-day period beginning on the date which is 45 days before the date on which the share of common stock becomes ex-dividend with respect to such dividend.
A U.S. Holder that is a corporation should consider the effect of Section 246A of the Code, which reduces the dividend- receiveddividend-received deduction allowed with respect to “debt-financed portfolio stock”. Furthermore, a U.S. Holder that is a corporation may be required to reduce its basis in Canopy Growth Shares as a result of the receipt of certain “extraordinary dividends”. In the case of a U.S. Holder that is an individual, a dividend received by such a U.S. Holder on a Canopy Growth Share generally will constitute “qualified dividend income” and will be subject to a reduced maximum U.S. federal income tax rate under current Law. This rate reduction will not apply to dividends received to the extent that the U.S. Holder elects to treat the dividends as “investment income” for purposes of calculating the U.S. Holder’s limitation on the deduction of “investment interest” expense. Furthermore, this rate reduction will also not apply to dividends that are paid to a U.S. Holder with respect to a Canopy Growth Share that is owned by the U.S. Holder for less than 61 days during the 121-day period beginning on the date which is 60 days before the date on which the share of common stock becomes ex-dividend with respect to such dividend.
In general, for purposes of meeting the holding period requirements for both the dividend-received deduction and the “qualified dividend income” definition, the U.S. Holder may not count towards its holding period any period in which the U.S. Holder (i) has the option to sell, is under a contractual obligation to sell, or has made (and not closed) a short sale of Canopy Growth Shares, or substantially identical stock or securities, (ii) is a grantor of an option to buy Canopy Growth Shares, as the case may be, or substantially identical stock or securities, or (iii) otherwise has diminished its risk of loss by holding one or more other positions with respect to substantially similar or related property. Treasury Regulations provide that a taxpayer has diminished its risk of loss on stock by holding a position in substantially similar or related property if the taxpayer is the beneficiary of a guarantee, surety agreement, or similar arrangement that provides for payments that will substantially offset decreases in the fair market value of the stock. In addition, the Code disallows the dividend-received deduction as well asand the benefit of the reduced maximum tax rate on “qualified dividend income” if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met.
Subject to certain limitations, any Canadian tax withheld in accordance with the U.S. Treaty and paid over to Canada will be creditable or deductible against your United StatesU.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to you under Canadian Law or under the U.S. Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your U.S. federal income tax liability. The dividend rules are complex, and each U.S. Holder is urged to consult its own tax advisor regarding the application of such rules.
In the case of a sale, redemption, or other taxable disposition of a Canopy Growth Share, a U.S. Holder should generally recognize a capital gain or loss equal to the difference, if any, between the amount received and the U.S. Holder’s adjusted tax basis in such Canopy Growth Share. A capital gain recognized by an individual upon a disposition of a Canopy Growth Share that is held for more than one year is generally eligible for reduced rates of U.S. federal income taxation. The deductibility of a capital loss recognized upon a disposition of a Canopy Growth Share is subject to limitations.
A 3.8% tax may be imposed on the “net investment income” of certain U.S. Holders that are individuals and on the undistributed “net investment income” of certain U.S. Holders that are estates and trusts. Among other items, “net investment income” generally includes dividends and certain net gains from the disposition of property (such as Canopy Growth Shares), less certain deductions.
Backup Withholding and Information Reporting
In general, information reporting requirements may apply with respect to payments of dividends on Canopy Growth Shares to a U.S. Holder, and with respect to payments to a U.S. Holder of any proceeds from a disposition of Canopy Growth Shares. If you are a non-corporate U.S. Holder, information reporting requirements, on IRS Form 1099, may apply to: (i) dividend payments or other taxable distributions made to you within the United States,States; and (ii) the payment of proceeds to you from the sale of Canopy Growth Shares effected at a U.S. office of a broker.
In addition, a U.S. Holder may be subject to a backup withholding tax on payments with respect to a Canopy Growth Share if the U.S. Holder fails to supply its correct taxpayer identification number in the manner required by applicable Law, fails to certify that it is not subject to the backup withholding tax, or otherwise fails to comply with applicable backup withholding tax rules.
Any amounts withheld from a U.S. Holder under the backup withholding provisions may be credited against the U.S. federal income tax liability, if any, of the U.S. Holder, and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
U.S. Federal Income Tax Consequences Relating to Ownership and Disposition of Canopy Growth Shares by Non- U.S. Holders
If you are a Non-U.S. Holder, dividends paid to you in respect of Canopy Growth Shares will not be subject to U.S. federal income tax unless the dividends are “effectively connected” with your conduct of a trade or business within the United States, and the dividends are attributable to a permanent establishment that you maintain in the United Statesor if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis.basis, the dividends are attributable to a permanent establishment that you maintain in the United States. In such cases you generally will be taxed in the same manner as a U.S. holder. If you are a corporate Non-U.S. Holder, “effectively connected” dividends may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.
If you are a Non-U.S. Holder, you will not be subject to U.S. federal income tax on gain recognized on the sale or other disposition of your Canopy Growth Shares unlessunless: (i) the gain is “effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis,basis; or (ii) you are an individual, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist. If you are a corporate Non-U.S. Holder, “effectively connected” gains that you recognize may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate
Backup Withholding and Information Reporting
If you are a Non-U.S. Holder, you are generally exempt from backup withholding and information reporting requirements with respect to dividend payments made to you outside the United States by a non-U.S. payor. Any payments of dividends on Canopy Growth Shares to a Non-U.S. Holder generally will not be subject to backup withholding and additional information reporting.
The payment to a Non-U.S. Holder of the proceeds of a disposition of Canopy Growth Shares by or through the U.S. office of a broker generally will not be subject to information reporting or backup withholding if the Non-U.S. Holder either certifies, under penalties of perjury, on a properly completed IRS Form W-8BEN, IRS Form W-8BEN-E, or IRS Form W- 8ECI (or a suitable successor form) that it is not a United States Person and certain other conditions are met, or the Non-U.S. Holder otherwise establishes an exemption. Information reporting and backup withholding generally will not apply to the payment of the proceeds of a disposition of a Canopy Growth Share by or through the foreign office of a foreign broker (as defined in applicable Treasury Regulations). Information reporting requirements (but not backup withholding) will apply, however, to a payment of the proceeds of the disposition of a Canopy Growth Share by or through a foreign office of a U.S. broker or of a foreign broker with certain relationships to the United States, unless the broker has documentary evidence in its records that the holder is not a United States Person and certain other conditions are met, or the holder otherwise establishes an exemption.
Any amounts withheld from a Non-U.S. Holder under the backup (or other) withholding provisions may be credited against the U.S. federal income tax liability, if any, of the Non-U.S. Holder, and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
Foreign Account Tax Compliance
TheSections 1471 through 1474 of the Code, referred to as the Foreign Account Tax Compliance Act (“FATCA”), generally imposes a 30% withholding tax on dividend payments made by a United States Person to a foreign financial institution or non-financial foreign entity (including, in some cases, when a foreign financial institution or non-financial foreign entity is acting as an intermediary), and on the gross proceeds received by a foreign financial institution or non-financial foreign entity as a result of a sale or other disposition of shares of stock issued by a United States Person, unlessunless: (i) in the case of a foreign financial institution, such institution enters into (or is deemed to have entered into) an agreement with the U.S. Treasury Department to withhold on certain payments, and to collect and provide to the U.S. Treasury Department substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well asand certain account holders that are foreign entities with U.S. owners),; (ii) in the case of a non-financial foreign entity, such entity provides the withholding agent with a certification identifying the direct and indirect substantial U.S. owners of the entity,entity; or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. The IRS has issued proposed regulations which have indefinitely suspended the application of FATCA on gross proceeds from the disposition of shares of stock, and accordingly, there should be no withholding on account of FACTA with respect to the receipt of consideration with respect to the disposition of Floating Shares or Canopy Growth Shares while such proposed regulations are in effect.
This discussion does not address tax consequences that may vary with, or are contingent on, individual circumstances. Moreover, it only addresses U.S. federal income tax and does not address any non-income tax or any foreign, state or local tax consequences. Floating Shareholders should consult their own tax advisors concerning the U.S. federal income tax consequences of the AmendedFloating Share Arrangement including the Option Premium, their share of the Aggregate Amendment Option Payment, the Capital Reorganization, the Acquisition, and the ownership of Canopy Growth Shares in light of their particular situation, as well asand any consequences arising under the Laws of any other taxing jurisdiction.
INFORMATION CONCERNING ACREAGE
Overview
Headquartered in New York City, Acreage is a vertically integrated, multi-state operator of cannabis licenses and assets in the U.S. Acreage’s operations include (i) cultivating cannabis plants, (ii) manufacturing branded consumer products, (iii) distributing cannabis flower and manufactured products, and (iv) retailing cannabis products to consumers. Acreage appeals to medical and adult recreational use (“adult-use”) customers through brand strategies intended to build trust and loyalty.
Further information relating to Acreage is contained in the Acreage Annual Report and other documents of Acreage, which are incorporated by reference into this Circular, and are available under the Company’sAcreage’s profile on SEDAR at www.sedar.com. See “Documents Incorporated by ReferenceWhere You Can Find More Information”.
164
Consolidated Capitalization
From March 31, 2020,September 30, 2022, the date of the Company’sAcreage’s most recently filed consolidated financial statements, to the date ofof this Circular, there have been no material changes to the Company’sAcreage’s share capitalization on a consolidated basis. Changes to the Company’sAcreage’s loan capitalization on a consolidated basis include the completiondrawdown of a private placement offering June 1, 2020,an additional $ 25 million made available under the Amended Credit Facility, and an increase in which the Company issued US$11,000,000 in principal amount under a secured convertible debenture, with gross proceeds to the Companynumber of US$10,000,000 before transaction feesFixed Shares by 127,273 and the entryFloating Shares by 66,667 as a result of the Company into a short-term definitive funding agreement on June 16, 2020 with an institutional investor for a totalvesting and/or settlement of US$15,000,000 in gross proceeds. The short term definitive funding agreement has a maturity datepreviously issued securities of four months and bears interest at a per annum rate of 60%. It is secured by, among other items, the Company’s cannabis operations in Illinois, New Jersey and Florida, as well as the Company’s U.S. intellectual property. On June 1, 2020, the Company also entered into a standby equity distribution agreement (the “Standby Equity Distribution Agreement”) with an institutional investor (the “Investor”), under which the Company may, at its discretion, periodically sell to Investor, and pursuant to which the Investor may, at its discretion, require the Company to sell to it, up to US$50,000,000 of the Existing SVS, no par value. As of the Record Date, the company had not drawn down against the Standby Equity Distribution Agreement. It is a condition of the Investor’s obligation to purchase Existing SVS under the Standby Equity Distribution Agreement that the Company borrow an amount equal to the amount of the purchase price for the Existing SVS requested to be sold under a credit agreement with the Investor, and all conditions precedent to such borrowing under such credit agreement are satisfied prior to completion of the sale of Existing SVS under the Standby Equity Distribution Agreement.Acreage.
Prior Sales
In the 12-month period prior to the date of this Circular, Acreage issued the following securities:
| Date of Issuance/Grant of Security | Price Per Security/Exercise Price per Security (US$) | Number of Securities Issued/Granted | Type of Securities Issued/ Granted | ||||||
| 8/22/2019 | N/A | 16,632 | Existing SVS(1) | ||||||
| 9/3/2019 | N/A | 33,613 | Existing SVS(1) | ||||||
| 9/11/2019 | N/A | 20,000 | Existing SVS(2) | ||||||
| 9/18/2019 | N/A | 128,409 | Existing SVS(1) | ||||||
| 9/19/2019 | N/A | 20,000 | Existing SVS(2) | ||||||
| 9/30/2019 | N/A | 35,685 | Existing SVS(1) | ||||||
| 10/1/2019 | 7.23 | 763,664 | Acreage Options | ||||||
| 10/1/2019 | 7.23 | 542,520 | Acreage RSUs | ||||||
| 10/7/2019 | N/A | 112,182 | Existing SVS(3) | ||||||
| 10/7/2019 | 7.05 | 22,184 | Existing SVS | ||||||
| 10/8/2019 | N/A | 1,267 | Existing SVS(1) | ||||||
| 10/11/2019 | N/A | 8,825 | Existing SVS(1) | ||||||
| 10/14/2019 | N/A | 142,500 | Existing SVS(2) | ||||||
| 10/21/2019 | N/A | 5,300 | Existing SVS(1) | ||||||
| 10/23/2019 | N/A | 20,167 | Existing SVS(1) | ||||||
| 10/28/2019 | N/A | 2,353 | Existing SVS(1) | ||||||
| 10/29/2019 | N/A | 10,208 | Existing SVS(1) | ||||||
| 11/4/2019 | 5.54 | 25,721 | Acreage RSUs | ||||||
| 11/4/2019 | N/A | 9,901 | Existing SVS(1) | ||||||
| 11/8/2019 | N/A | 10,389 | Existing SVS(1) | ||||||
| 11/11/2019 | N/A | 40,322 | Existing SVS(2) | ||||||
| 11/13/2019 | N/A | 2,559 | Existing SVS(1) | ||||||
| 11/19/2019 | N/A | 358,838 | Existing SVS(1) | ||||||
| 11/20/2019 | N/A | 6,461 | Existing SVS(2) | ||||||
| 11/21/2019 | N/A | 8,121 | Existing SVS(1) | ||||||
| 12/5/2019 | N/A | 1,223 | Existing SVS(1) | ||||||
| 12/16/2019 | N/A | 93,749 | Existing SVS(1) | ||||||
| 12/18/2019 | N/A | 101,297 | Existing SVS(1) | ||||||
| 12/24/2019 | N/A | 23,908 | Existing SVS(1) | ||||||
| 1/2/2020 | N/A | 3,731 | Existing SVS(1) | ||||||
| 1/3/2020 | 5.75 | 190,931 | Acreage Options | ||||||
| 1/3/2020 | 5.75 | 530,846 | Acreage RSUs | ||||||
| 1/6/2020 | N/A | 522 | Existing SVS(1) | ||||||
| 1/8/2020 | N/A | 8,064 | Existing SVS(2) | ||||||
| 1/13/2020 | N/A | 9,077 | Existing SVS(1) | ||||||
| 1/13/2020 | N/A | 30,000 | Existing SVS(2) | ||||||
| Date of Issuance/Grant of Security | Price Per Security/Exercise Price per Security ($) | Number of Securities Issued/Granted | Type of Securities Issued/ Granted | |||
| 2/17/2022 | N/A | 16,987 | Existing Class D SVS (1) | |||
| 2/17/2022 | N/A | 5,300 | Existing Class E SVS (1) | |||
| 3/3/2022 | N/A | 27,778 | Acreage Class E Fixed RSUs | |||
| 3/3/2022 | N/A | 94,538 | Acreage Class D Floating RSUs | |||
| 3/22/2022 | N/A | 80,500 | Existing Class D SVS (1) | |||
| 3/22/2022 | N/A | 161,000 | Existing Class E SVS (1) | |||
| 5/3/2022 | N/A | 252,966 | Existing Class D SVS (1) | |||
| 5/3/2022 | N/A | 590,250 | Existing Class E SVS (1) | |||
| 5/4/2022 | N/A | 102,885 | Existing Class D SVS (1) | |||
| 5/4/2022 | N/A | 224,320 | Existing Class E SVS (1) | |||
| 5/20/2022 | N/A | 195,368 | Existing Class D SVS (1) | |||
| 5/20/2022 | N/A | 411,543 | Existing Class E SVS (1) | |||
| 7/1/2022 | N/A | 2,568,871 | Acreage Class E Fixed RSUs | |||
| 7/6/2022 | N/A | 33,543 | Existing Class D SVS (2) | |||
| 7/6/2022 | N/A | 78,267 | Existing Class E SVS (2) | |||
| 7/11/2022 | N/A | 94,538 | Existing Class D SVS (1) | |||
| 7/11/2022 | N/A | 27,778 | Existing Class E SVS (1) | |||
| 7/12/2022 | $0.59 | 5,849,046 | Acreage Class E Fixed Options | |||
| 7/12/2022 | N/A | 5,120,592 | Acreage Class E Fixed RSUs | |||
| 7/13/2022 | N/A | 2,196,068 | Existing Class E SVS (1) | |||
| 9/19/2022 | N/A | 4,838 | Existing Class D SVS (2) | |||
| 9/19/2022 | N/A | 11,290 | Existing Class E SVS (2) | |||
| 9/20/2022 | N/A | 9,950 | Existing Class D SVS (1) | |||
| 9/20/2022 | N/A | 17,610 | Existing Class E SVS (1) | |||
| 9/23/2022 | N/A | 60,811 | Existing Class D SVS (1) | |||
| 9/23/2022 | N/A | 173,554 | Existing Class E SVS (1) | |||
| 9/27/2022 | N/A | 74,999 | Existing Class D SVS (2) | |||
| 9/27/2022 | N/A | 174,999 | Existing Class E SVS (2) | |||
| 10/5/2022 | N/A | 3,782 | Existing Class D SVS (1) | |||
| 10/5/2022 | N/A | 8,826 | Existing Class E SVS (1) | |||
| 10/6/2022 | N/A | 66,667 | Existing Class D SVS (1) | |||
| 10/6/2022 | N/A | 127,273 | Existing Class E SVS (1) | |||
| 10/7/2022 | N/A | 83,860 | Existing Class E SVS (1) | |||
| 1/14/2020 | N/A | 468 | Existing SVS(1) | ||||||
| 1/16/2020 | N/A | 20,000 | Existing SVS(2) | ||||||
| 1/17/2020 | N/A | 1,818 | Existing SVS(1) | ||||||
| 1/20/2020 | N/A | 6,454 | Existing SVS(1) | ||||||
| 1/22/2020 | N/A | 9,403 | Existing SVS(1) | ||||||
| 1/27/2020 | N/A | 625 | Existing SVS(1) | ||||||
| 1/28/2020 | N/A | 5,953 | Existing SVS(1) | ||||||
| 1/31/2020 | N/A | 731 | Existing SVS(1) | ||||||
| 2/6/2020 | N/A | 2,742 | Existing SVS(1) | ||||||
| 2/10/2020 | 4.93 | 6,085,192 | Special Warrants(4) | ||||||
| 2/14/2020 | N/A | 1,459 | Existing SVS(1) | ||||||
| 2/17/2020 | N/A | 2,612 | Existing SVS(1) | ||||||
| 2/19/2020 | N/A | 10,907 | Existing SVS(1) | ||||||
| 2/20/2020 | N/A | 2,742 | Existing SVS(1) | ||||||
| 2/20/2020 | 5.18 | 1,504,618 | Acreage RSUs | ||||||
| 2/28/2020 | N/A | 209 | Existing SVS(1) | ||||||
| 3/2/2020 | N/A | 6,085,192 | Existing SVS(5) | ||||||
| 3/2/2020 | $5.80 | 6,085,192 | Warrants | ||||||
| 3/3/2020 | N/A | 615 | Existing SVS(1) | ||||||
| 3/3/2020 | N/A | 208,401 | Existing SVS(1) | ||||||
| 3/6/2020 | N/A | 828 | Existing SVS(1) | ||||||
| 3/6/2020 | N/A | 10,826 | Existing SVS(1) | ||||||
| 3/10/2020 | N/A | 879 | Existing SVS(1) | ||||||
| 3/11/2020 | N/A | 55,171 | Existing SVS(2) | ||||||
| 3/13/2020 | N/A | 93,198 | Existing SVS(1) | ||||||
| 3/16/2020 | N/A | 76 | Existing SVS(1) | ||||||
| 3/18/2020 | N/A | 200,709 | Existing SVS(1) | ||||||
| 3/19/2020 | N/A | 5,322 | Existing SVS(1) | ||||||
| 3/24/2020 | N/A | 2,129 | Existing SVS(1) | ||||||
| 3/26/2020 | N/A | 2,924 | Existing SVS(1) | ||||||
| 3/27/2020 | N/A | 806 | Existing SVS(1) | ||||||
| 4/1/2020 | 2.79 | 1,219,087 | Acreage RSUs | ||||||
| 4/3/2020 | N/A | 91,020 | Existing SVS(1) | ||||||
| 4/6/2020 | N/A | 2,821 | Existing SVS(1) | ||||||
| 4/7/2020 | N/A | 317,672 | Existing SVS(1) | ||||||
| 4/8/2020 | N/A | 316,587 | Existing SVS(1) | ||||||
| 4/14/2020 | N/A | 5,013 | Existing SVS(1) | ||||||
| 4/15/2020 | N/A | 420 | Existing SVS(1) | ||||||
| 4/17/2020 | N/A | 627 | Existing SVS(1) | ||||||
| 4/22/2020 | N/A | 44,993 | Existing SVS(1) | ||||||
| 4/23/2020 | N/A | 42,309 | Existing SVS(1) | ||||||
| 5/1/2020 | N/A | 732 | Existing SVS(1) | ||||||
| 5/6/2020 | N/A | 3,227 | Existing SVS(1) | ||||||
| 5/14/2020 | N/A | 1,463 | Existing SVS(1) | ||||||
| 5/15/2020 | N/A | 1,844 | Existing SVS(1) | ||||||
| 5/18/2020 | N/A | 17,399 | Existing SVS(1) | ||||||
| 5/19/2020 | N/A | 12,100 | Existing SVS(2) | ||||||
| 5/22/2020 | N/A | 5,966 | Existing SVS(1) | ||||||
| 5/28/2020 | N/A | 209 | Existing SVS(1) | ||||||
| 5/29/2020 | N/A | 614 | Existing SVS(1) | ||||||
| 6/5/2020 | N/A | 829 | Existing SVS(1) | ||||||
| 6/8/2020 | N/A | 197 | Existing SVS(1) | ||||||
| 6/9/2020 | N/A | 879 | Existing SVS(1) | ||||||
| 6/12/2020 | N/A | 662 | Existing SVS(1) | ||||||
| 6/16/2020 | N/A | 3,154 | Existing SVS(1) | ||||||
| 6/19/2020 | N/A | 5,478 | Existing SVS(1) | ||||||
| 6/22/2020 | N/A | 259,277 | Existing SVS(2) | ||||||
| 7/2/2020 | N/A | 83,888 | Existing SVS(1) | ||||||
| 7/9/2020 | N/A | 94,449 | Existing SVS(1) | ||||||
| 7/10/2020 | N/A | 3,607 | Existing SVS(1) | ||||||
| 7/13/2020 | N/A | 4,290 | Existing SVS(1) | ||||||
| 7/14/2020 | N/A | 1,076 | Existing SVS(1) | ||||||
Notes:
(1) Issued upon the vesting of Acreage RSUs.
(2) Issued upon the conversion of USCo2 Shares.
(3) Issued upon the conversion of Profit Interests.
(4) On February 10, 2020, the Company issued an aggregate of 6,085,192 special warrants (the “Special Warrants”) at a price of US$4.93 per Special Warrant. Each Special Warrant consisted of a unit comprised of one Existing SVS and one Existing SVS purchase warrant with an exercise price of US$5.80 exercisable for a period of five years.
(5) Issued upon the automatic exercise of the Special Warrants.
In the 12-month period prior to the date of this Circular, High Street issued the followingdid not issue any High Street Units or any other securities convertible or exchangeable into Existing Shares:
Date of Issuance/Grant of | Price Per Security/Exercise Price per Security (US$)(1) | Number of Securities Issued/Granted | Type of Securities |
12/27/2019
| 6.14
| 876,083
| High Street Units(2) |
3/13/2020
| 2.15
| 1,780,369
| High Street Units (2) |
(1) Reflects the price on the date of conversion.
(2) Issued upon the conversion of Profit Interests.Acreage Shares.
Prior Purchases of Securities
Acreage has not purchased any of its securities during the 12 months prior to the date of this Circular.
Price Ranges and Trading Volumes
The Existing SVSFloating Shares are listed on the CSE under the symbol “ACRG.U”“ACRG.B.U”, quoted on the OTCQX under the symbol “ACRGF”“ACRDF” and traded on the Frankfurt Stock ExchangeFSE under the symbol “0VZ”“0VZ2”.
The following table sets out trading information for the Existing SVSFloating Shares on the CSE during the 12-month period prior to the date of this Circular.
| Period | Price Range (US$)1 | Volume (#) | |
| High | Low | ||
| June 2019 | $20.35 | $16.41 | 2,411,299 |
| July 2019 | $16.50 | $11.70 | 2,690,676 |
| August 2019 | $12.51 | $7.25 | 2,602,970 |
| September 2019 | $9.24 | $7.02 | 3,464,846 |
| October 2019 | $7.86 | $5.41 | 3,794,287 |
| November 2019 | $6.90 | $3.88 | 4,753,420 |
| December 2019 | $7.08 | $5.02 | 2,412,140 |
| January 2020 | $7.08 | $5.18 | 3,272,927 |
| February 2020 | $6.16 | $3.68 | 2,890,540 |
| March 2020 | $4.09 | $1.49 | 4,523,240 |
| April 2020 | $3.01 | $1.56 | 4,009,070 |
| May 2020 | $4.07 | $1.96 | 3,795,430 |
| June 2020 | $3.85 | $2.15 | 2,758,910 |
| July 2020 | $3.24 | $2.02 | 1,595,690 |
| August 1-5 2020 | $3.21 | $305 | 131,150 |
| Price Range (C$)(1) | ||||||||||||
| Period | High | Low | Volume (#) | |||||||||
| February 2022 | $ | 1.62 | $ | 1.20 | 91,426 | |||||||
| March 2022 | $ | 1.97 | $ | 1.17 | 89,720 | |||||||
| April 2022 | $ | 1.49 | $ | 1.06 | 69,912 | |||||||
| May 2022 | $ | 1.56 | $ | 1.05 | 148,632 | |||||||
| June 2022 | $ | 1.22 | $ | 0.95 | 45,501 | |||||||
| July 2022 | $ | 1.10 | $ | 0.75 | 20,317 | |||||||
| August 2022 | $ | 1.09 | $ | 0.86 | 24,486 | |||||||
| September 2022 | $ | 1.00 | $ | 0.90 | 44,248 | |||||||
| October 2022 | $ | 1.62 | $ | 0.90 | 57,120 | |||||||
| November 2022 | $ | 1.71 | $ | 1.13 | 51,783 | |||||||
| December 2022 | $ | 1.70 | $ | 0.64 | 180,869 | |||||||
| January 2023 | $ | [t] | $ | [t] | [t] | |||||||
| February 2023(2) | $ | [t] | $ | [t] | [t] | |||||||
Note:
(1) Source: TMX MoneyCSE Monthly Market Summaries located at: https://www.thecse.com/trading/market-activity/activity-summaries/monthly-market-summaries.
(2) From February 1, 2023 to [t].
The closing price of the Existing SVSFloating Shares on the CSE on JuneOctober 24, 2020,2022, the last trading day prior to the AnnouncementAnnouncement Date, was US$2.32.C$1.40. The table above provides trading details regarding trades in the Existing SVSFloating Shareholders made through the facilities of the CSE and is not indicative of any trades of the Existing SVSFloating Shares made throughthrough any platform or exchange other than the CSE.CSE.
It is expected that the Existing SVS will be delisted and the Fixed Shares and Floating Shares will be listed on the CSE following the Amendment Date. If, following the exercise (or deemed exercise) of the CanopyFixed Call Option, the Acquisition is completed pursuant to the Existing Arrangement, all of the Fixed SharesShares will be owned by Canopy GrowthUSA and will be delisted from the CSE as soonpromptly as possible following the Acquisition Date.Date. If the Floating Call OptionShare Arrangement is exercised,completed, all of the Floating Shares will be owned by Canopy GrowthUSA and will bebe delisted from the CSE as soonpromptly as possible following the AcquisitionEffective Date.
167
Ownership of Securities
Please see “The Floating Share Arrangement – Interests of Certain Persons in the Floating Share Arrangement – Ownership of Acreage Shares, Acreage Options and Acreage Share Units” for a table below outlines,outlining, as at the Record Date, the number of ExistingAcreage Shares, Acreage Options, Acreage RSUsShare Units and High Street Units owned or controlled, directly or indirectly, by each of the directors and officers of Acreage, and each associate or affiliate of an insider of Acreage, each associate or affiliate of Acreage, each insider of Acreage (other than the directors or officers), and each Person acting jointly or in concert with Acreage:
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Note:
(1) The amounts shown assume in each case the exercise of Acreage Options held by the individuals disclosed in the table, the conversion of all High Street Units held by them and take into account all vested Acreage RSUs or Acreage RSUs vesting within 60 days of the Announcement Date.
(2) [¨] of the Existing PVS are registered in the name of Murphy Capital, LLC, an entity over which Mr. Murphy exercises direction or control, and [] Existing PVS are registered in the name of The Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises direction or control.
(3) [¨] of the Existing SVS are registered in the name of Glen Leibowitz IRA Account over which Mr. Leibowitz exercises direction or control.Acreage.
Intentions With Respect to the AmendedFloating Share Arrangement
Each director, certain senior officers, and senior officercertain consultants, of Acreage executed a Voting Agreement and has agreed, subject to the terms and conditions of their respective Voting Agreements, to vote all of the ExistingFloating Shares held by him or her in favorfavour of the AmendmentArrangement Resolution. See “Transaction Agreements – The Voting Agreements”.
Commitments to Acquire Securities of Acreage
To the knowledge of the directors and officers of Acreage and except as publicly disclosed or otherwise described in this Circular, there are no agreements, commitments or understandings between Acreage and any of its directors, officers or insiders, to acquire securities of Acreage.
Material Changes
To the knowledge of the directors and officers of Acreage and except as publicly disclosed or otherwise described in this Circular, there are no plans or proposals for material changes in the affairs of the Company.Acreage.
Dividend Policy
No dividends on the ExistingFloating Shares have been paid to date. Acreage does not anticipate paying dividends on the ExistingFloating Shares in the foreseeable future. Payment of any future dividends will be at the discretion of the Acreage BoardBoard after taking into account many factors, including Acreage’s financial condition and anticipated cash needs. Further,Further, payment of any future dividends prior to the Acquisition Time without Canopy Growth’sCanopy’s prior written consent is restrictedrestricted by the terms of the Proposal Agreement and the AmendedExisting Arrangement Agreement.
In accordance with the Proposal Agreement, it is proposed that the Articles of Acreage will be altered to provide that the holders of Fixed Shares shall be entitled to receive such dividends payable in cash or property of the Company as may be declared thereon by the directors from time to time; however, no dividend may be payable in cash or property on the Fixed Shares unless the directors simultaneously declare a dividend payable in cash or property on: (i) the Fixed Multiple Shares, in an amount per Fixed Multiple Share equal to the amount of the dividend declared per Fixed Share; and (ii) the Floating Shares, in an amount per Floating Share equal to the amount of the dividend declared per Fixed ShareAgreement.
Expenses
The estimated fees, costs and expenses of Acreage in connection with the Proposal AgreementFloating Share Arrangement Agreement and AmendedFloating Share Arrangement (assuming completion of the Acquisition)completion) are, approximately, US$6,600,000$2,750,000 which includes, without limitation, fees, costs and expenses with respect to the NewEight Capital Fairness Opinion, the Canaccord Genuity Fairness Opinion and payments and expenses in connection with legal services, proxy solicitation services and printing and mailing matters. If the Fixed Call Option is not exercised prior to the Exercise Outside Date or the Canopy Capital Reorganization is not completed prior to the Exercise Outside Date, Acreage may terminate the Floating Share Arrangement Agreement. Canopy will be obliged to pay Acreage $2.0 million as an expense reimbursement in the event that the Canopy Capital Reorganization is not completed prior to the Exercise Outside Date, or if CBG or Greenstar do not exchange all Canopy Shares held by CBG and Greenstar into Exchangeable Canopy Shares prior to the Exercise Outside Date.
PROCEDURES FOR PAYMENTDELIVERY OF AGGREGATE AMENDMENT OPTION PAYMENT AND CANOPY GROWTH CONSIDERATION
Delivery of Aggregate Amendment Option PaymentConsideration Shares
If the Amendment Resolution is adopted,Acreage shall send a Letter of Transmittal to each Floating Shareholder within 15 Business Days following receipt of the Amendment Final Order and prior to completing the Required Filings with the Registrar, Canopy Growth shall deliver or cause to be delivered to the Amendment Option Payment Paying Agent in escrow pending the Amendment Time, sufficient cash to pay the Aggregate Amendment Option Payment payable to the Shareholders, High Street Holders and USCo2 Holders pursuant to the Amended Plan of Arrangement in accordance with the terms of the Paying Agent Agreement.
If the Amendment Resolution is adopted and the Amended Arrangement is implemented, then, as soon as practicable following the Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basis to the Acreage Holders of record as of the Amendment Date. Unless otherwise directed, cheques representing the pro rata portion of the Aggregate Amendment Option Payment payable to an Acreage Holder pursuant to the Amended Plan of Arrangement will be issued in the name of the registered holder of such securities. Unless an Acreage Holder instructs the Amendment Option Payment Paying Agent to hold a cheque for pick-up, such cheques will be forwarded by mail to the address of the Acreage Holder as shown on the applicable register.
If the amount of the Aggregate Amendment Option Payment which an Acreage Holder is entitled to receive under the Proposal Agreement would otherwise include a fraction of $0.01, then such aggregate cash amount will be rounded to the nearest whole cent.
The Company and the Amendment Option Payment Paying Agent will be entitled to deduct and withhold from any consideration otherwise payable to an Acreage Holder, such amounts as the Company, or the Amendment Option Payment Paying Agent is required to deduct and withhold with respect to such payment under any provision of applicable Laws.
The Amendment Option Payment Paying Agent will receive reasonable and customary compensation for its services in connection with the Arrangement, will be reimbursed for certain out of pocket expenses and will be indemnified by the Company against certain liabilities under applicable Securities Laws and expenses in connection therewith.
For greater certainty, and in accordance with the Proposal Agreement, the Amendment Option Payment Paying Agent will provide the High Street Holders and USCo2 Holders with instructions and other relevant documents required for such holders to receive the pro rata portion of the Aggregate Amendment Option Payment.
Delivery of Canopy Growth Consideration Shares and/or Floating Cash Consideration
Following the receipt by Acreage of the Canopya Fixed Call Option Exercise Notice or delivery by Acreage of a Triggering Event Notice, as the case may be, and, if applicable, the Floating Call Option Exercise Notice, specifying a Business Day (to be not less than 61 days and not more than 90 days following the date the Canopy Call Option Exercise Notice or Triggering Event Notice is delivered to the Depositary) on which the closing of the Acquisition is to occur, subject to the satisfaction or waiver of the Acquisition Closing Conditions, the Depositary will deliver a Letter of Transmittal to Persons who are Shareholders at such time.
be. The Letter of Transmittal will contain procedural information relating to the AcquisitionFloating Share Arrangement including, among other things, the exchange of certificates representing the Floating Shares for the Consideration Shares and, if(or, to the extent applicable, the Floating Cash Consideration.any Alternate Consideration). In no event shall any former holder of Floating Shares that does not hold Floating Shares on the Acquisition Effective Date be entitled to the Consideration Shares and, if applicable, the Floating Cash Consideration.Shares.
Following receipt by the Depositary of the Canopya Fixed Call Option Exercise Notice or theor a Triggering Event Notice, as the case may be, and if applicable, the Floating Call Option Exercise Notice, and prior to the AcquisitionEffective Date, Canopy Growth shallCanopy shall deliver, or cause to be delivered, to the Depositary a sufficient numbernumber of Canopy Growth Shares and, if(or, to the extent applicable, sufficient cashany Alternate Consideration) to satisfy Canopy Growth’sUSA’s obligation to cause Canopy to issue Consideration Shares (or, to the extent applicable, any Alternate Consideration) to Floating Shareholders in accordance with the Floating Share Plan of Arrangement.
Upon surrender to the Depositary for cancellation of a certificate which immediately prior to the Effective Time represented outstanding Floating Shares, together with a duly completed and executed Letter of Transmittal and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate shall be entitled to receive in exchange therefor, and the Depositary shall deliver to such Floating Shareholder(s), a certificate representing the Consideration Shares (or, to the extent applicable, securities comprising any Alternate Consideration) which such holder is entitled to receive pursuant to the Floating Share Plan of Arrangement, which Consideration Shares (or, to the extent applicable, securities comprising any Alternate Consideration) will be registered in such name or names and if applicable,either delivered to the address or addresses as such Floating Cash Consideration to Shareholders.Shareholder directed in their Letter of Transmittal or made available for pick up at the office of the Depositary in accordance with the instructions of the Floating Shareholder in the Letter of Transmittal, and any certificate representing Floating Shares so surrendered shall forthwith thereafter be cancelled.
Further details in respect of the procedure to receive Consideration Shares and, if(or, to the extent applicable, the Floating Cash Consideration,any Alternate Consideration), will be provided in the Letter of Transmittal to be issued upon exercise (or deemed exercise) of the Canopy Call Option and, if applicable, the exercise of the Floating Call Option.Transmittal.
Adjustment of Consideration
Exchange Ratio Adjustment Event
If, duringprior to the Amendment Interim Period,Effective Time, the issued and outstanding Canopy Growth Shares shall have been changed into a different number of shares by reason of any reclassification, split, consolidation, stock dividend or distribution upon the issued and outstanding Canopy Growth Shares, or Canopy Growth shall make any rights offering to the holders of the issued and outstanding Canopy Growth Shareholders,Shares, or similar event (each, an “Exchange Ratio Adjustment Event”), then the Exchange Ratio and Floating Ratio, as applicable shall be adjusted in such a manner and to such an extent so as to ensure that, under the AmendedFloating Share Arrangement, Floating Shareholders receive the same economic proportionate ownership interest in Canopy Growth following such Exchange Ratio Adjustment Event as they would otherwise have received under the AmendedFloating Share Arrangement had such Exchange Ratio Adjustment Event not occurred, and the number of Canopy Growth Shares and, if applicable, the amount of cash to be issued to Floating Shareholders pursuant to the AmendedFloating Share Arrangement shall be adjusted accordingly.
Canopy Growth Change of Control Adjustment
If a Canopy Growth Change of Control occurs prior to the Acquisition Time, Canopy GrowthEffective Date, Acreage shall, effective fromas of the effective time of such Canopy Growth Change of Control, cause the Canopy Call Option, Floating Call Option, High Street Operating Agreement and USCo2 Constating Documents to be amended so that, instead of receiving Canopy Growth Shares (or any Alternate Consideration that a Floating Shareholder is otherwise entitled to receive pursuant to the Floating Share Plan of Arrangement as a result of a prior Canopy Change of Control) in exchange for Shares upon the exercise (or deemed exercise) of the Canopy Call Option and, if applicable, the exercise of the Floating Call Option,Shares in accordance with the AmendedFloating Share Plan of Arrangement, each Floating Shareholder shall instead be entitled to receive on the AcquisitionEffective Date, and shall accept, the number of shares or other securities or property (including cash) that such Floating Shareholder would have been entitled to receive on such Canopy Change of Control (the “Alternate Consideration or Alternate Floating Consideration, as applicable,”), if, at the effective time of such Canopy Growth Change of Control, the Floating Shareholder had been the registered holder of that number of Canopy Growth Shares which is equal to the number of Canopy Growth Shares which it would otherwise have been entitled to receive in exchange for its Floating Shares pursuant to the AmendedFloating Share Arrangement if the AcquisitionEffective Date and the steps referred to in Section 3.13.2 of the AmendedFloating Share Plan of Arrangement had been completed effective immediately prior to the effective time of the Canopy Growth Change of Control. Notwithstanding the foregoing, if, in connection with a Canopy Growth Change of Control, a holder of a Canopy Growth Share may elect a form of consideration (including, without limitation, shares, other securities, cash or other property) from multiple options made available, then all Floating Shareholders shall be deemed to have elected to receive an equal percentage of each of the different types of consideration offered in connection with such Canopy Growth Change of Control.
Exchange Ratio Reduction
There is a fixed maximum number of Canopy Growth Shares to be issued in connection with the Acquisition. However, in the event that Acreage breaches certain covenants set out in the Amended Arrangement Agreement with respect to the number of Fixed Shares it may issue during the Amendment Interim Period, or if Acreage is required to make a Payout, the Exchange Ratio will be automatically reduced. Any such reduction of the Exchange Ratio will result in the Shareholders receiving fewer Canopy Growth Shares upon completion of the Acquisition of the Fixed Shares. In addition, in the event that Acreage breaches certain covenants set out in the Amended Arrangement Agreement with respect to the number of Floating Shares it may issue during the Amendment Interim Period, the Floating Ratio will be automatically reduced. Any such reduction of the Floating Ratio will result in the Shareholders receiving fewer Canopy Growth Shares and, if applicable, less cash, upon completion of the Acquisition of the Floating Shares.
Cancellation of Rights
From and after the AcquisitionEffective Time, certificates formerly representing Floating Shares, other than Dissenting Shares, which are held by a Floating Shareholder will represent only the right to receive the Consideration Shares and, if applicable, the Floating Cash Consideration (or, to the extent applicable, anyany Alternate Consideration or Alternate Floating Consideration)Consideration) payable therefor under the AmendedFloating Share Plan of Arrangement (after giving effect to any applicable tax withholdings). Any certificate formerly representing Floating Shares not duly surrendered on or before the sixththird anniversary of the AcquisitionEffective Date, will, on the sixththird anniversary of the AcquisitionEffective Date, cease to represent a claim by or interest of any former Floating Shareholder of any kind or nature against or in Acreage, Canopy or Canopy Growth. USA. On the sixth anniversary of the Acquisition Date,such date, all Consideration Shares and, if applicable, the Floating Cash Consideration (or, to the extent applicable, anysecurities representing any Alternate Consideration or Alternate Floating Consideration) to which such ShareholderFloating Shareholder was entitled willshall be deemed to have been surrendered to Canopy Growth. None of Acreage or Canopy Growth, nor any of their respective successors, willand shall be liable to any Person in respect of any Consideration Shares and, if applicable, the Floating Cash Consideration (or, to the extent applicable, any Alternate Consideration or Alternate Floating Consideration, including any consideration previously heldpaid over by the Depositary as agent for any such former Shareholder) which is forfeited to Canopy Growth or delivered to any public official pursuant to any applicable abandoned property, escheat or similar Law.as directed by Canopy.
Treatment ofNo Fractional Consideration
No fractional Canopy Growth Shares will be issued to any Person in connection with the AmendedFloating Share Plan of Arrangement. Where the aggregate number of Canopy Growth Shares to be issued to a Floating Shareholder pursuant to the Amended Plan ofFloating Share Arrangement would otherwise result in a fraction of a Canopy GrowthCanopy Share being issuable, then the aggregate number of Canopy Growth Shares to be issued to such Floating Shareholder willshall be rounded down to the closest whole number and no compensation willcompensation shall be payable to such Floating Shareholder in lieu of any such fractionalfractional Canopy Growth Share.Share.
Withholding Rights
Acreage, Canopy, Growth, the Amendment Option Payment Paying Agent orCanopy USA and the Depositary, as applicable, will be entitled to deduct and withhold from any amountsconsideration payable or otherwise deliverable to anyany Person under the AmendedFloating Share Plan of Arrangement, and the Acquisition, such amountsamounts as Acreage, Canopy, Growth, the Amendment Option Payment Paying AgentCanopy USA or the Depositary as applicable,(as applicable) determines, acting reasonably, are required to be deducted and withheldwithheld with respect to such payment under the Tax Act, the Code or anyany provision of any other Law. To the extent that amounts payable are so withheld, such withheldwithheld amounts willshall be treated for all purposes hereof as having been paid to thethe Person in respect of which such withholding was made, provided that such amountsamounts are actually remitted to the appropriate Governmental Entity.Entity.
Acreage, Canopy, Growth orCanopy USA and the Depositary as applicable, is authorized tomay sell or otherwise dispose of such portion of Canopy Shares (or, to the extent applicable, any Canopy Growth SharesAlternate Consideration) payable to any Floating Shareholder pursuant to the AmendedFloating Share Plan of Arrangement as is necessary to provideprovide sufficient funds to Acreage, Canopy, GrowthCanopy USA or the Depositary,Depositary, as the case may be, to enable it to implement such deduction or withholding,withholding, and Acreage, Canopy, GrowthCanopy USA or the Depositary, as applicable,Depositary will notifynotify the holder thereof and remit to the holder any unapplied balance of the net proceedsproceeds of such sale.
Treatment of Dividends
No dividends or other distributions declared or made after the AcquisitionEffective Date withwith respect to Canopy Growth Shares (or, to the extent applicable, securities representing anyrepresenting any Alternate Consideration or Alternate Floating Consideration) withwith a record date on or after the AcquisitionEffective Date will be payable or paid to the holder of any unsurrendered certificate(s) for Sharescertificate or certificates which, immediately prior to the AcquisitionEffective Date, representedrepresented outstanding Floating Shares, until the surrender of such certificatescertificates to the Depositary. Subject to applicable Law and the Amendedterms of the Floating Share Plan of Arrangement, at the time of such surrender, there shall, in addition to thethe delivery of the Canopy Growth Shares (or,(or, to the extent applicable, securities representingcomprising any Alternate Consideration or Alternate Floating Consideration) to which such ShareholderFloating Shareholder is thereby entitled, be delivered to such Shareholder,holder, without interest, the amountamount of the dividend or other distribution with a record date after the Acquisition DateEffective Time theretofore paid with respect to such Canopy Growth Shares (or, to the extentextent applicable, securities representingsecurities comprising any Alternate Consideration or Alternate Floating Consideration).
Management is not aware of any matters to come before the Meeting other than those set forth in the Notice of Meeting. If any other matter properly comes before the Meeting, it is the intention of the Persons named in the form of proxy to vote the ExistingFloating Shares represented thereby in accordance with their best judgment on such matter.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Other than as set forth herein, management of the CompanyAcreage is not aware of any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, of any Person who has been a director or executive officer of the CompanyAcreage at any time since the beginning of the Company’sAcreage’s last financial year or of any associate or affiliate of any such Persons, in any matter to be acted upon at the Meeting.
See “The AmendedFloating Share Arrangement – Interests of Certain Persons in the AmendedFloating Share Arrangement” and “Securities Law Matters – Canadian Securities Laws”.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
None of Acreage’s directors, executive officers or employees, or former directors, executive officers or employees, nor any associate of such individuals, is as at the date hereof, or has been, during the financial year ended December 31, 2019,2021, indebted to Acreage or any of the Subsidiaries of Acreage in connection with a purchase of securities or otherwise. In addition, no indebtedness of these individuals to another entity has been the subject of a guarantee, support agreement, letter of credit or similar arrangement or understanding of Acreage or any of the Subsidiaries of Acreage.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Other than as set forth herein, no informed person of Acreage, or any associate or affiliate of any informed person of Acreage has any material interest, direct or indirect, in any transaction within Acreage’s three most recently completed financial years or in any proposed transaction which has materially affected or would materially affect Acreage. An “informed person” means (i) a director or executive officer of a reporting issuer;Acreage; (ii) a director or executive officer of a Person or company that is itself an informed person or Subsidiary of a reporting issuer;Acreage; any Person or company who beneficially owns, directly or indirectly, voting shares of a reporting issuerAcreage Shares or who exercises control or direction over shares of the reporting issuerAcreage Shares or a combination of both carrying more than 10% of the voting rights attached to all outstanding voting securities of the reporting issuer;Acreage; and (iii) a reporting issuerAcreage itself, to the extent that Acreage has purchased, redeemed or otherwise acquired any of its securities, for so long as it holds any of its securities.
See “The AmendedFloating Share Arrangement – Interests of Certain Persons in the AmendedFloating Share Arrangement” and “Securities Law Matters – Canadian Securities Laws”.
Securities legislation in the provinces and territories of Canada provides securityholders of Acreage with, in addition to any other rights they may have at Law, one or more rights of rescission, price revision or to damages, if there is a misrepresentation in a circular or notice that is required to be delivered to those securityholders. However, such rights must be exercised within prescribed time limits. Securityholders should refer to the applicable provisions of the securities legislation of their province or territory for particulars of those rights or consult a lawyer.
SHAREHOLDER PROPOSALS FOR THE 20212023 ANNUAL MEETING
Under the Company’s articles (the “Acreage’s Articles,”), for director nominations to be presented at the Acreage 20212023 annual general meeting of Shareholdersshareholders (the “20212023 Annual Meeting”), the Corporate Secretary of the CompanyAcreage must receive notice in accordance with the Articles at the Company’sAcreage’s principal executive offices not later than the close of business on the 40th day before the 20212023 Annual Meeting. The notice must include all of the information required by the Articles. Shareholder proposals intended for inclusion in the Company’sAcreage’s proxy materials under Rule 14a-8 under the U.S. Exchange Act, for the 20212023 Annual Meeting must be received at the Company’sAcreage’s headquarters no later than Feb 10, 2021.December 27, 2022. Proposals and notices of proposals should be delivered to ourAcreage’s principal executive office at: Office of the Corporate Secretary, 366 Madison Ave, 11thAvenue, 14th Floor, New York, NYNew York 10017.
As permitted under the U.S. Exchange Act, in those instances where we are mailing a printed copy of this Circular, only one copy of this Circular is being delivered to shareholders that reside at the same address and share the same last name, unless such shareholders have notified Acreage of their desire to receive multiple copies of this Circular. This practice, known as “householding,” is designed to reduce duplicate mailings and save significant printing and postage costs as well as natural resources.
Acreage will promptly deliver, upon written request, a separate copy of this Circular to any shareholder residing at an address to which only one copy was mailed. Requests for additional copies and for separate copies in the future should be sent by mail to:
Acreage Holdings, Inc.
366 Madison Avenue, 14th Floor
New York, New York, 10017
Attention: Corporate Secretary
Shareholders residing at the same address and currently receiving multiple copies of this Circular may send a written request by mail to the address above to request that only a single copy of a proxy statement be mailed in the future.
If your shares are held in “street name,” you may contact your bank, broker, or other nominee to request information about householding.
WHERE YOU CAN FIND MORE INFORMATION
The CompanyAcreage files annual, quarterly and current reports, proxy statements and other information with the Canadian Securities Regulators under applicable Canadian Securities Laws and the SEC under the U.S. Exchange Act. You may read and copy any reports, statements or other information that the Company files at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Company’sAcreage’s public filings are also available in electronic format under the Company’sAcreage’s profile on SEDAR at www.sedar.com and at the website maintained by the SEC at http://www.sec.gov. You can also review the Company’sAcreage’s filings on its website at http://investors.acreageholdings.com or obtain copies of such filings by writing to the Corporate Secretary of the CompanyAcreage at 366 Madison Avenue, 11th14th Floor, New York, New York, 10017, Attn: Corporate Secretary. The website address of SEDAR, the SEC and Acreage are included as inactive textual references only. Information included on the Company’sAcreage’s website is not, and will not be deemed to be, a part of this proxy statement or incorporated into this or any other filing on SEDAR or with the SEC.
The Canadian Securities Regulators and the SEC allow the Company to “incorporate by reference” information into this Circular, which means that the Company can disclose important information to you by referring you to another document filed separately with the Canadian Securities Regulators and the SEC. The information incorporated by reference is deemed to be part of this Circular, except for any information superseded by information contained directly in this Circular or incorporated by reference subsequent to the date of this Circular. This Circular incorporates by reference the documents described below that the Company has previously filed with the Canadian Securities Regulators and the SEC, as well asand the annexes to this Circular. These documents contain important information about the Company and its financial condition.
The following documents listed below that the Company has previously filed with the Canadian Securities Regulators and the SEC are incorporated by reference:
| · | the Acreage Annual | |
| · | Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, | |
| · | the Acreage Interim MD&A; | |
| · | the Acreage Annual MD&A; | |
| · | Current Report on Form 8-K filed with the SEC on |
| · | the material change report of the Company dated February 18, 2020 in respect of the |
| · | the | |
| material change report of the Company dated November 3, 2022 in respect of the Floating Share Plan of Arrangement available in electronic format under the Company’s profile on SEDAR at www.sedar.com. |
All documents that the Company files pursuant to Sections 13(a), 13(c), 14 or 15(d) under the U.S. Exchange Act from the date of this Circular to the date of the Meeting is held, including any adjournment or postponement thereof, will also be deemed to be incorporated by reference in this Circular. Notwithstanding anything herein to the contrary, any information furnished under Item 2.02 or Item 7.01 of the Company’s Current Reports on Form 8-K and any other information which is furnished, but not filed with the SEC, is not incorporated by reference herein.
Any documents of the type described in Section 11.1 of Form 44-101F1 of NI 44-101 filed by Acreage with a securities commission or any similar authority in Canada or the U.S. after the date of this Circular and prior to the AmendmentEffective Date are deemed to be incorporated by reference in this Circular. In addition, to the extent that any document or information incorporated by reference in this Circular is included in a report that is filed with or furnished to the SEC on Form 40-F, 20-F or 6-K (or any respective successor form), such document or information shall also be deemed to be incorporated by reference in this Circular (in the case of a report on Form 6-K, if and to the extent expressly provided therein). Acreage’s periodic reports on Form 6-K and its annual reports on Form 40-F are available on the SEC’s website at www.sec.gov.
In accordance with Staff Notice 51-352 (Revised) -– Issuers with U.S. Marijuana-Related Activities issued by the Canadian Securities Administrators on February 8, 2018, a discussion of the federal and state-level regulatory regimes in those jurisdictions in which Acreage was then involved through its Subsidiaries can be found in Acreage’s listing statement dated November 14, 2018, supplemented by the Acreage Annual Report, which is available under Acreage’s profile on SEDAR at www.sedar.com.www.sedar.com.
Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this Circular, to the extent that a statement contained in this Circular or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not constitute a part of this Circular, except as so modified or superseded.
You may obtain any of the documents incorporated by reference in this Circular from the SEC’s public reference room or the SEC website described above. Documents incorporated by reference in this Circular are also available from the Company without charge, excluding all exhibits unless specifically incorporated by reference in such documents. Shareholders may obtain documents incorporated by reference in this Circular by requesting them in writing or by telephone from the Company at the following address:
Acreage Holdings, Inc.
366 Madison Avenue, 1114thFloor
New York, New York, 10017
Attention: Corporate Secretary
Telephone: 646-600-9181
If you would like to request copies of documents incorporated by reference in this Circular, please do so by September 2, 2020March 1, 2023 in order to receive them before the Meeting. If you request any documents incorporated by reference, the Company will strive to mail them to you by first-class mail, or another equally prompt means, within one business dayBusiness Day of receipt of your request.
You should rely only on the information contained in this Circular, including the appendices attached hereto or the information incorporated by reference herein, to vote your ExistingFloating Shares at the Meeting. The Company has not authorized anyone to provide you with information that differs from that contained in this Circular. This Circular is dated August [¨t], 2020.2023. You should not assume that the information contained in this Circular is accurate as of any date other than such date, and the mailing of this Circular to Floating Shareholders shall not create any implication to the contrary.
Eight Capital is named as having prepared or certified a report, statement or opinion in this Circular, specifically the NewEight Capital Fairness Opinion, respectively.Opinion. See “The AmendedFloating Share Arrangement – NewEight Capital Fairness Opinion”. Except for the fees to be paid to Eight Capital, to the knowledge of Acreage, neither Eight Capital nor its directors, officers, employees and partners, as applicable, or their respective associates or affiliates, beneficially owns, directly or indirectly, 1% or more of the securities of Acreage or any of its associates or affiliates, has received or will receive any direct or indirect interests in the property of Acreage or any of its associates or affiliates, or is expected to be elected, appointed or employed as a director, officer or employee of Acreage or any associate or affiliate thereof.
Canaccord Genuity is also named as having prepared or certified a report, statement or opinion in this Circular, specifically the Canaccord Genuity Fairness Opinion. See “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”. Except for the fees to be paid to Canaccord Genuity, to the knowledge of Acreage, neither Canaccord Genuity nor its directors, officers, employees and partners, as applicable, or their respective associates or affiliates, beneficially owns, directly or indirectly, 1% or more of the securities of Acreage or any of its associates or affiliates, has received or will receive any direct or indirect interests in the property of Acreage or any of its associates or affiliates, or is expected to be elected, appointed or employed as a director, officer or employee of Acreage or any associate or affiliate thereof.
Marcum LLP have been the auditors of Acreage since October 3, 2019 and are the independent registered public accounting firm of Acreage. The consolidated financial statements of Acreage for the year ended December 31, 20192021 incorporated by reference in this Circular have been audited by Marcum LLP, as stated in their report which is also incorporated by reference herein.
The Acreage Annual Report under “Item 14. Principal Accounting Fees and Services.” erroneously overstatedfollowing table sets forth, by category, the fees paid to Marcum LLP during the period commencing October 3, 2019 and ending December 31, 2019. The Acreage Annual Report provided that the fees billed to the Companyfor all services rendered by Acreage’s current auditor, Marcum LLP, for financial diligence in connection with the Company’s transactions during the applicable period was $1,122,500, whereas the correct figure for such fees is $155,745. Accordingly, the first table contained under “Item 14. Principal Accounting Feesfiscal years ended December 31, 2020 and Services.”December 31, 2021, all of the Acreage Annual Report should be deleted and replaced with the following:which were approved by Acreage’s audit committee:
| October 3 - December 31, 2019 (US$) | January 1-December 31 2020 ($) | January 1-December 31 2021 ($) | ||||||||||
| Audit Fees | $ | 900,000 | $ | 636,367 | $ | 603,332 | ||||||
| Audit Related Fees | $ | 45,000 | $ | 46,764 | $ | 66,127 | ||||||
| Tax Fees | — | - | - | |||||||||
| All Other Fees | $ | 155,745 | (1) | - | - | |||||||
Notes:
(1) Fees billed for services by Marcum LLP for financial diligence for transactions.
Certain legal matters in connection with the AmendedFloating Share Arrangement have been reviewed and passed upon, on behalf of Acreage, by DLA Piper (Canada) LLP with respect to Canadian Law, and by Cozen O’Connor P.C., with respect to U.S. Law. None of DLA Piper (Canada) LLP, Cozen O’Connor P.C., their respective directors, officers, employees and partners, as applicable, or their respective associates or affiliates, beneficially owns, directly or indirectly, 1% or more of the securities of Acreage or any of its associates or affiliates, has received or will receive any direct or indirect interests in the property of Acreage or any of its associates or affiliates, or is expected to be elected, appointed or employed as a director, officer or employee of Acreage or any associate or affiliate thereof.
QUESTIONS AND FURTHER ASSISTANCE
If you have any questions about the information contained in this Circular or require assistance in completing your Proxy, please contact Steve West, Vice President, Investor Relations,Morrow Sodali, the strategic shareholder advisor and proxy solicitation agent for Acreage, by phonetelephone at (314) 210 9253,1.888.444.0623 toll-free in North America (+1.289.695.3075 collect) or by emaile-mail at s.west@acreageholdings.com.assistance@morrowsodali.com.
The contents and sending of this Circular, including the Notice of Meeting, have been approved and authorized by the Acreage Board.
DATEDat New York, New York this [¨t] day of August, 2020.February, 2023.
BY ORDER OF THE BOARD OF DIRECTORS
“[¨]”
[Name]
[Title]
“Peter Caldini” | |
| Peter Caldini | |
| Chief Executive Officer | |
| Acreage Holdings, Inc. |
To: The Board of Directors and the Special Committee of Acreage Holdings, Inc.
We refer to the fairness opinion dated JuneOctober 24, 20202022 (the “New Fairness Opinion”) which we prepared for thethe Special Committee of the Board of Directors of Acreage Holdings, Inc. (“Acreage”) in connection withwith the proposal agreement betweenproposed acquisition of the Class D subordinate voting shares of Acreage and(the “Floating Shares”) by Canopy Growth CorporationUSA, LLC (“Canopy GrowthUSA”) dated June 24, 2020, pursuant to which Acreage and Canopy Growth propose to enter into an amending agreement to amend the existing arrangement agreement between Acreage and Canopy Growth dated April 18, 2019, as amended on May 15, 2019 (the “Arrangement Agreement”), and amend and restate the existingplan of arrangement under the Business Corporations Act (British Columbia), which was completed pursuant to (the “Floating Share Arrangement”) contemplated by the Arrangement Agreement. arrangement agreement between Acreage, Canopy Growth Corporation and Canopy USA dated October 24, 2022.
We consent to the filing of the New Fairness Opinion with theapplicable securities regulatory authorities,authorities; the inclusion of a summary of the Fairness Opinion in the proxy statement and management information circular with respect to the special meeting of holders of Floating Shares to be held to approve the Floating Share Arrangement (the “Information Circular”); the inclusion of summaries of the New Fairness Opinion as well as copiesan Appendix to the Information Circular; to being named in the Information Circular; and the inclusion of all other references to the New Fairness Opinion in thisthe Information Circular.
“Eight Capital”
EIGHT CAPITAL
Toronto, Ontario [t], 2023
To: The Board of Directors of Acreage Holdings, Inc.
We refer to the fairness opinion dated October 24, 2022 (the “Fairness Opinion”) relating to the plan of arrangement under the Business Corporations Act (British Columbia) (the “Floating Share Arrangement”) contemplated by the arrangement agreement among Acreage Holdings, Inc., Canopy Growth Corporation and Canopy USA, LLC.
We consent to the filing of the Fairness Opinion with applicable securities regulatory authorities; the inclusion of a summary of the Fairness Opinion in the proxy statement and management information circular with respect to the special meeting of holders of Class D subordinate voting shares of Acreage to be held to approve the Floating Share Arrangement (the “Information Circular”); the inclusion of the Fairness Opinion as an Appendix to the Information Circular; to being named in the Information Circular; and allthe inclusion of all other references to the NewFairness Opinion in the Information Circular.
The Fairness Opinion was given as at October 24, 2022 and remains subject to the assumptions, qualifications, explanations and limitations set forth therein. In providing our consent, we do not intend that any person other than the board of directors of Acreage shall be entitled to rely upon the Fairness Opinion.
“Canaccord Genuity Corp.”
CANACCORD GENUITY CORP.
Toronto, Ontario [t], 2023
In the Circular and accompanying Notice of Meeting, unless there is something in this Circular.the subject matter inconsistent therewith, the following terms shall have the respective meanings set out below, words importing the singular number shall include the plural and vice versa and words importing any gender shall include all genders.
| “2022E” | |
APPENDIX “A” -AMENDMENT RESOLUTION
BE IT RESOLVED THAT:
“Acquisition Date” | ||
| “Acquisition Effective Time” | means 12.01 a.m. (Vancouver time) on the Acquisition Date, or such other time on the Acquisition Date as Acreage and Canopy agree. | |
| “Acquisition Proposal” | means, other than the transactions contemplated by the Floating Share Arrangement Agreement and other than any transaction involving Acreage and/or one or more of its wholly-owned Subsidiaries, any: (a) offer, proposal or inquiry (written or oral) from any Person or group of Persons other than Canopy USA (or any affiliate of Canopy USA) after the date of the Floating Share Arrangement Agreement relating to: (i) any sale or disposition, direct or indirect, in a single transaction or a series of related transactions, of 20% or more of the issued and outstanding Floating Shares (or rights or interests in such voting or equity securities); (ii) any direct or indirect take-over bid, exchange offer, treasury issuance or other transaction that, if consummated, would result in such Person or group of Persons beneficially owning 20% or more of Floating Shares (including securities convertible or exercisable or exchangeable for Floating Shares); (iii) any plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution, winding up or exclusive license involving Acreage or any of its Subsidiaries (except that this clause (iii) shall in no way preclude or restrict Acreage from incorporating a Subsidiary which may be party to a merger under which such newly incorporated Subsidiary will acquire a corporation or a limited liability company in exchange for the issue by Acreage of Floating Shares) if such acquisitions are otherwise permitted hereunder; or (iv) any other similar transaction or series of transactions involving Acreage or any of its Subsidiaries; (b) inquiry, expression or other indication of interest or offer to, or public announcement of or of an intention to do any of the foregoing; (c) modification or proposed modification of any such proposal, inquiry, expression or indication of interest, in each case excluding the Floating Share Arrangement and the other transactions contemplated by the Floating Share Arrangement Agreement; or (d) any transaction or agreement which would reasonably be expected to materially impede or delay the completion of the Floating Share Arrangement. | |
| “Acquisition Regulatory Approvals” | has the meaning ascribed to the term “Acquisition Regulatory Approvals” in the Existing Arrangement Agreement. | |
| “Acquisition Time” | means 12:01 a.m. (Vancouver time) on the Acquisition Date, or such other time on the Acquisition Date as Acreage and Canopy agree to in writing before the Acquisition Date. | |
“Acreage Acquisition Closing Conditions” | has the meaning ascribed to the term “Company Acquisition Closing Conditions” in the Existing Arrangement Agreement. | |
| “Acreage Annual Report” | means Acreage’s annual report on Form 10-K for the year ended December 31, 2021 dated March 11, 2022. | |
“Acreage Annual MD&A” | means the management’s discussion and analysis of financial condition and results of operation of Acreage for the financial years ended December 31, 2021 and 2020. |
| “Acreage Board” | means the board of directors of Acreage as constituted from time to time. |
| “Acreage Data Room” | means the electronic data site of Acreage provided to Canopy on October 23, 2022. |
| “Acreage Debt” | has the meaning ascribed thereto under the heading “Securities Laws Matters – Related Party Transaction and Connected Transaction – Option Agreement – Acreage Debt” |
| “Acreage Debt Optionholder” | means a wholly-owned Subsidiary of Canopy. |
“Acreage Holder Securities” | has the meaning ascribed thereto under the heading “Transaction Agreements – Voting Agreements”. |
“Acreage Interim MD&A” | means the management’s discussion and analysis of financial condition and results of operation of Acreage for the three and nine months ended September 30, 2022 and 2021. |
| “Acreage Locked-Up Shareholders” | means all of the directors, certain senior officers and a consultant of Acreage. |
| “Acreage Material Adverse Effect” | has the meaning ascribed to the term “Company Material Adverse Effect” in the Floating Share Arrangement Agreement. |
| “Acreage Options” | means any options to acquire any Acreage Shares. |
| “Acreage Share Units” | means the restricted share units, performance shares and performance units that may be settled by Acreage in either cash or Acreage Shares issued pursuant to the Amended Equity Incentive Plan, which are outstanding. |
| “Acreage Shares” | means, collectively, the Fixed Shares, the Floating Shares and the Fixed Multiple Shares, or any one of them, as the context may require. |
| “Adjusted EBITDA” | means earnings before interest, taxes, depreciation and amortization, as adjusted. |
| “affiliate” | has the meaning specified in National Instrument 45-106 – Prospectus Exemptions. |
| “Aggregate Amendment Option Payment” | means an amount, equal to $37,500,024, which was paid at the time the Existing Arrangement was implemented to the holders of Acreage Shares, High Street Holders and USCo2 Holders. |
| “allowable capital loss” | has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Taxation of Capital Gain or Capital Loss”. |
| “Alternate Consideration” | means the number of shares or other securities or property (including cash) that a Floating Shareholder would have been entitled to receive on a Canopy Change of Control, if, at the effective time of such Canopy Change of Control, such Floating Shareholder had been the registered holder of that number of Canopy Shares which the Floating Shareholder would otherwise have been entitled to receive in exchange for its Floating Shares pursuant to the Floating Share Arrangement if the Effective Date and the Floating Share Plan of Arrangement had been completed effective immediately prior to the effective time of the Canopy Change of Control. |
| “Amended Credit Facility” | means the credit facility under the Credit Agreement, as such facility was amended by the Credit Agreement Amendment. |
| “Amended Equity Incentive Plan” | means Acreage’s amended and restated omnibus equity plan approved by shareholders of Acreage on September 16, 2020. |
| “Amendments” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA – Credit Facility”. |
| “Announcement Date” | means October 25, 2022, being the date that Acreage announced the entering into of the Floating Share Arrangement Agreement. |
| “Approved Business Plan” | means any Business Plan that is approved by the Acreage Board and that contains the Mandatory Requirements and complies with the Initial Business Plan. |
| “Arrangement Resolution” | means the special resolution approving the Floating Share Arrangement to be |
| “associate” | has the meaning ascribed thereto in the Securities Act. |
| “Austerity Measures” | means certain additional restrictive covenants as further set out in the Existing Arrangement Agreement that will become operative as austerity measures for Acreage’s business in the event of an Interim Failure to Perform. |
| “BCBCA” | means the Business Corporations Act (British Columbia). |
| “BioSteel” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – General”. |
| “BioSteel Manufacturing” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Purchase of Manufacturing Facility”. |
| “Board Recommendation” | means the unanimous determination of the Acreage Board (with the directors abstaining or recusing themselves as required), after receiving legal and financial advice that: (i) the Floating Share Arrangement is fair to the |
| “broker non-votes” | has the meaning ascribed thereto under the heading “How to |
| “Bonus Plans” | Acreage’s existing tax receivable bonus plans. |
| “Broadridge” | means Broadridge Financial Solutions, Inc. |
| “Business Day” | means any day of the |
| “Business Plan” | means for each fiscal quarter: (i) a description of proposed operations of Acreage and its Subsidiaries; (ii) an estimate of revenue to be received by Acreage and its Subsidiaries; (iii) the capital and operating budget setting out the expenditures of Acreage and its Subsidiaries for operating and capital improvements; and (iv) such other matters as Acreage may reasonably consider to be necessary to illustrate the results intended to be achieved by Acreage during such quarter. |
| “Canaccord Genuity” | |
| “Canaccord Genuity Engagement Agreement” | means the engagement agreement dated October 20, 2022 between Canaccord Genuity and |
| “Canaccord Genuity Fairness Opinion” | means the opinion of |
| “Canadian Holder” | has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada”. |
| “Canadian Securities Laws” | means the Securities Act, together with all other applicable federal and provincial Securities Laws and the rules and regulations and published policies of the securities authorities thereunder, as now in effect and as they may be promulgated or amended from time to time, and includes the rules and policies of the CSE. |
| “Canadian Securities Regulators” | means the OSC and the other securities regulatory authorities in the provinces of Canada in which Acreage is a reporting issuer. |
| “Canopy” | means Canopy Growth Corporation, a corporation organized under the federal laws of Canada. |
| “Canopy Acquisition Closing Conditions” | has the meaning ascribed to the term “Purchaser Acquisition Closing Conditions” in the Existing Arrangement Agreement. |
| “Canopy Amendment Proposal” | means a proposed an amendment to the Canopy Articles, in order to: (i) create and authorize the issuance of an unlimited number of Exchangeable Canopy Shares; and (ii) restate the rights of the Canopy Shares to provide for a conversion feature whereby each Canopy Share may at any time, at the option of the holder, be converted into one Exchangeable Canopy Share. |
| “Canopy Annual Report” | has the meaning ascribed thereto in Appendix |
| “Canopy Articles” | means Canopy’s articles of incorporation, as amended. |
| “Canopy Board” | means the board of directors of Canopy as constituted from time to time. |
| “Canopy Capital Reorganization” | means the |
| “Canopy Change of Control” | ||
| “Canopy Credit Agreement” | has the | |
| “Canopy Elevate Entities” | means, collectively, Canopy Elevate I LLC, Canopy Elevate II LLC and |
| “Canopy Equity Incentive Plan” | |
| “Canopy Expense Reimbursement” | means $2 million. |
| “Canopy Material Adverse Effect” | has the meaning ascribed thereto in the Floating Share Arrangement Agreement. |
| “Canopy Meeting” | means the special meeting of Canopy Shareholders to consider, and if deemed advisable, pass a special resolution to approve and adopt the Canopy Amendment Proposal. |
| “Canopy Oak” | means Canopy Oak, LLC, a Subsidiary of Canopy. |
| “Canopy Shares” | means common shares in the capital of Canopy. |
| “Canopy Share Consideration” | means that number of Canopy Shares issuable per Floating Share in accordance with the |
| “Canopy Share Maximum” | means 70,713,995 Canopy Shares. |
| “Canopy Share Range” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”. |
| “Canopy Shareholders” | means a registered or beneficial holder of one or more Canopy Shares, as the context requires. |
| “Canopy Subco” | means 1208640 BC Ltd., a wholly-owned direct subsidiary of Canopy, incorporated under the BCBCA. |
| “Canopy USA” | means Canopy USA, LLC, a limited liability company existing under the Laws of State of Delaware. |
| “Canopy USA Common Shares” | means common shares as such term is defined in the |
| “Canopy USA Non-Voting Shares” | |
| “Canopy USA Repurchase Right” | has the meaning ascribed thereto under the heading “The |
| “Capex Adjusted EBITDA” | means Adjusted EBITDA as further adjusted for capital expenditures. |
| “Capex Adjusted TEV” | means TEV as further adjusted for capital expenditures. |
| “CBCA” | means the Canada Business Corporations Act. |
| “CBG” | means CBG Holdings LLC, a limited liability company existing under the Laws of the State of Delaware |
| “CBG Support Agreement” | means the voting support agreement dated October 24, 2022 in favour of Canopy, pursuant to which each of CBG and |
| “CBI” | means Constellation Brands, Inc., a company existing under the Laws of the State of Delaware. |
| “CBI Group” | means, collectively, CBG and Greenstar. |
| “Change in Recommendation” | means where the Acreage Board or any committee thereof (a) fails to unanimously (with directors abstaining or recusing themselves as required by Law) recommend or withdraws, amends, modifies or qualifies, or publicly proposes or states an intention to withdraw, amend, modify or qualify, the Board Recommendation, (b) accepts, approves, endorses or recommends, or publicly proposes to accept, approve, endorse or recommend or takes no position or a neutral position, in each case with respect to a publicly announced, or otherwise publicly disclosed, Acquisition Proposal for more than five Business Days, (c) accepts, approves, endorses, recommends or executes or enters into (other than an Acceptable Confidentiality Agreement permitted by and in accordance with the Floating Share Arrangement Agreement), or publicly proposes to accept, approve, endorse, recommend or execute or enter into any agreement, letter of intent, understanding or arrangement relating to an Acquisition Proposal or any proposal or offer that could reasonably be expected to lead to an Acquisition Proposal, or (d) Acreage or the Acreage Board publicly proposed or announces its intention to do any of the foregoing. |
| “Circular” | means the accompanying Notice of Meeting and this proxy statement and management information circular, including all schedules, appendices and exhibits hereto, as amended, supplemented or otherwise modified from time to time. |
| “Code” | means the U.S. Internal Revenue Code of 1986, as amended. |
| “Common Membership Units” | means the common membership units of High Street outstanding from time to time, other than common membership units held by Acreage Holdings America, Inc. and USCo2. |
| “Company” or “Acreage” | means Acreage Holdings, Inc., a company organized under the BCBCA and treated as a “domestic corporation” for U.S. federal income tax purposes. |
| “Company | means each officer of Acreage as at the |
| “Confidentiality Agreement” | means the confidentiality agreement dated as of March 19, 2019 |
| “Consent Agreement” | means the Consent Agreement among CBG, Greenstar and Canopy dated October 24, 2022. |
| “Consideration Shares” | means the Canopy Shares to be received by Floating Shareholders (other than the Canopy, Canopy USA and their respective affiliates) pursuant to the Floating Share Plan of |
| “Consolidated Adj. EBITDA Target” | means for each of the fiscal years ending December 31, 2020 through December 31, 2029, the Consolidated Adj. EBITDA Target set forth for the applicable fiscal year in the Initial Business Plan, subject to adjustment in accordance with the terms of the Proposal |
| “Consolidated EBITDA” | |
| “Constellation Exchange” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA – Special Shareholder Meeting”. |
| “Controlled Substances Act” | means the Controlled Substances Act, 21 USC 801 et seq. (including any implementing regulations and schedules in effect at the relevant time). |
| “Court” | means the Supreme Court of British |
| “CPG” | has the |
| “CRA” | means the Canada Revenue Agency. |
| “Credit Agreement” | means the credit agreement dated December 16, 2021 among High Street, Acreage, the Lenders, an administrative agent, a co-agent and other parties that are related parties thereto. |
| “Credit Agreement Amendment” | means the first amendment to the credit agreement and incremental increase activation notice dated October 24, 2022. |
| “CSA” | means the Controlled Substances Act of 1970. |
| “CSE” | means the |
| “Debt-to-Equity Ratio” | has the meaning ascribed to the term “Debt-to-Equity Ratio” in the Existing Arrangement Agreement. |
| “Depositary” | means Computershare Investor Services Inc., or any other depositary or trust company, bank or financial institution as Canopy USA and |
| “Dissent Rights” | ||
| “Dissenting Non-Canadian Holder” | has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders not Resident in Canada”. | |
| “Dissenting Canadian Holder” | means a Canadian Holder who properly exercises Dissent Rights. | |
| “Dissenting Shareholder” | means a registered holder of Floating Shares who has properly exercised its Dissent Rights in respect of the | |
| “Dissenting Shares” | means the Floating Shares held by Dissenting Shareholders in respect of which such Dissenting Shareholders have given Notice of Dissent. | |
| “DPSPs” | has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Eligibility for Investment in Canada – Canopy Shares”. | |
| “EBITDA” | means earnings before interest, taxes, depreciation and amortization. | |
| “Effective Date” | means the date designated by Canopy, Canopy USA and Acreage by notice in writing as the effective date of the Floating Share Arrangement, after the satisfaction or waiver (subject to applicable Laws) of all of the conditions to completion of the Floating Share Arrangement as set forth in the Floating Share Arrangement Agreement |
| “Effective Time” | means 12:00 a.m. (Vancouver time) on the Effective Date, or such other | |
| “Eight Capital” | means Eight Capital, financial advisor to the Special Committee. | |
“Eight Capital Engagement Agreement” | means the engagement agreement dated October 17, 2022 between Eight Capital and | |
| “Eight Capital Fairness Opinion” | means the opinion of Eight Capital dated October 24, 2022 to the Special Committee in which Eight Capital stated that, as of the date thereof, and based upon and subject to |
APPENDIX “B” -AMENDING AGREEMENT
THIS AMENDMENT is made as of [l], 2020
BETWEEN:
CANOPY GROWTH CORPORATION, a corporation existing under the laws of Canada (the “Purchaser”)
- and -
ACREAGE HOLDINGS, INC., a company existing under the laws of the Province of British Columbia (the “Company”)
WHEREAS the Purchaser and the Company are parties to an arrangement agreement dated April 18, 2019, as amended on May 15, 2019 (the “Arrangement Agreement”);
AND WHEREAS the Purchaser and the Company wish to amend certain terms of the Arrangement Agreement and the Plan of Arrangement (as defined in the Arrangement Agreement) as provided in this Amendment;
AND WHEREAS the Company Shareholders (as defined in the Arrangement Agreement) approved the Amendment (as defined below) and the Amended Plan of Arrangement (as defined below) at the Meeting (as defined below);
AND WHEREAS the Company has obtained the Amendment Regulatory Approvals (as defined below).
THEREFORE, in consideration of the mutual covenants contained herein (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows:
Article 1Interpretation
| “End Date” | |
| “EV” | means Enterprise Value. |
| “Exchange Ratio” | means 0.4500 of a Canopy Share to be issued for each Floating Share exchanged pursuant to the Floating Share Arrangement. |
| “Exchange Ratio Adjustment Event” | has the meaning ascribed thereto under the heading “Procedures for Delivery of Canopy Consideration – Adjustment of Consideration – Exchange Ratio Adjustment Event”. |
| “Exchange Ratio Range” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”. |
| “Exchange Transaction” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Canopy Documents Incorporated by Reference”. |
| “Exchangeable Canopy Shares” | means a new class of non-voting and non-participating exchangeable shares in the capital of Canopy to be created pursuant to the Canopy Capital Reorganization. |
| “Executive Floating Options” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Principal Steps of the Floating Share Arrangement – Exchange of Floating Options”. |
| “Executive Floating Share Units” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Principal Steps of the Floating Share Arrangement – Exchange of Floating Share Units”. |
| “executive officer” | has the meaning ascribed thereto in National Instrument 51-102 – Continuous Disclosure Obligations. |
| “Exercise Outside Date” | means March 31, 2023, or such later date as may be agreed to in writing by the Parties. |
| “Existing Arrangement” | means an arrangement under Section 288 of the BCBCA on the terms and subject to the conditions set out in the Existing Arrangement Agreement, which became effective on September 23, 2020 |
| “Existing Arrangement Agreement” | means the arrangement agreement dated as of April 18, 2019, as amended on May 15, 2019, September 23, 2020 and November 17, 2020, between Canopy and Acreage, including the schedules and exhibits thereto, as the same may be further amended, supplemented or restated. |
| “Existing Plan of Arrangement” | means the plan of arrangement set out in the Existing Arrangement Agreement implemented on September 23, 2020 under Section 288 of the BCBCA involving Acreage and Canopy. |
Capitalized terms used but not defined in this Amendment have the meanings given to them in the Arrangement Agreement. As used in this Amendment, the following terms have the following meanings:
“Adverse Regulatory Event” means that, during any fiscal year following the fiscal year ended December 31, 2023, the anticipated legalization of recreational Cannabis in a particular state of the United States (the “Relevant State”), as set forth in the Initial Approved Business Plan, has not occurred as of the commencement of the fiscal year noted therein. Should an Adverse Regulatory Event occur, it shall be deemed to have occurred on January 1 of the applicable year.
| “Failure to Perform” | has the meaning ascribed to the term “Failure to Perform” in the Existing Arrangement Agreement. |
| “Fairness Opinions” | means, collectively, the Canaccord Genuity Fairness Opinion and the Eight Capital Fairness Opinion. |
“FATCA” “Adverse Year means a fiscal year during which an Adverse Regulatory Event has occurred.“Amended Arrangement” means an arrangement under Section 288 of the BCBCA on the terms and subject to the conditions set out in the Amended Plan of Arrangement.“Amended Equity Incentive Plan” means the Company’s omnibus equity plan last approved by the Company Shareholders on June 19, 2019, as amended at the Meeting.“Amended Plan of Arrangement” means the amended and restated plan of arrangement, substantially in the form attached as Schedule A hereto, subject to any amendments or variations to such plan made in accordance with Article 6 of the Amended Plan of Arrangement or made at the direction of the Court in the Amendment Final Order with the prior written consent of the Company and the Purchaser, each acting reasonably.“Amendment” means this second amendment to the Arrangement Agreement.“Amendment Date” has the meaning specified in Section 1.1 of the Amended Plan of Arrangement.“Amendment Final Order” means the final order of the Court approving the Amended Arrangement under Section 291 of the BCBCA, in a form acceptable to the Company and the Purchaser, each acting reasonably, after a hearing upon the procedural and substantive fairness of the terms and conditions of the Amended Arrangement, as such order may be amended by the Court (with the consent of both the Company and the Purchaser, each acting reasonably) at any time prior to the Amendment Time or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both the Company and the Purchaser, each acting reasonably) on appeal.“Amendment Interim Order” means the interim order of the Court dated [l], 2020, after being informed of the intention of the Parties to rely upon the exemption from registration under U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act with respect to the Issued Securities issued pursuant to the Amended Arrangement, providing for, among other things, the calling and holding of the Meeting.“Amendment Regulatory Approvals” means:has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations – U.S. Federal Income Tax Consequences Relating to Ownership and Disposition of Canopy Shares by Non-U.S. Holders – Foreign Account Tax Compliance”. “Failure to Perform” has the meaning ascribed thereto in the Existing Arrangement Agreement. “Final Floating Share Proposal” has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Background to the Floating Share Arrangement”. “Final Order” means the final order of the Court approving the Floating Share Arrangement under Section 291 of the BCBCA, in a form acceptable to Acreage, Canopy and Canopy USA, each acting reasonably, after a hearing upon the procedural and substantive fairness of the terms and conditions of the Floating Share Arrangement, as such order may be amended by the Court (with the consent of Acreage, Canopy and Canopy USA, each acting reasonably) at any time prior to the Effective Time or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to Acreage, Canopy and Canopy USA, each acting reasonably) on appeal. “First Deferred Payment” has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA”. “First Deferred Payment Period” has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA”. “First Option” means the option held by Canopy USA to acquire a majority of the issued and outstanding shares of Jetty upon the occurrence of the Triggering Event. “First Paydown” has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Consolidated Capitalization”. “Fixed Call Option” means the option of Canopy embedded in the special rights and restrictions of the Fixed Shares to acquire the issued and outstanding Fixed Shares on the basis of 0.3048 of a Canopy Share per Fixed Share (following the automatic conversion of the Fixed Multiple Shares) and subject to adjustment on the terms and conditions set forth in the Existing Plan of Arrangement. “Fixed Call Option Conditions” means (a) the approval of the Canopy Amendment Proposal by Canopy Shareholders at the Canopy Meeting, and (b) the election by each of Greenstar and CBG to exchange their respective Canopy Shares into Exchangeable Canopy Shares. “Fixed Call Option Exercise Notice” means a notice in writing, substantially in the form attached as Exhibit “C” to the Existing Plan of Arrangement, delivered by Canopy to Acreage (with a copy to the Depositary) stating that the Fixed Call Option has been exercised.
| “Fixed Call Option Expiry Date” | |
| “Fixed Exchange Ratio” | means 0.3048 of a Canopy Share to be issued for each Fixed Share exchanged pursuant to the Existing Arrangement, subject to adjustment in accordance with the Existing Arrangement and the Existing Arrangement Agreement. |
“Fixed Multiple Shares” | means the Class F multiple voting shares of Acreage, each entitling the holder thereof to 4,300 votes per share at shareholder meetings of Acreage. |
| “Fixed Options” | means the options to purchase Fixed Shares issued pursuant to the Amended Equity Incentive Plan, which are outstanding. |
“Fixed Share Units” | means a restricted share unit, performance share or performance unit that may be settled by Acreage in either cash or Fixed Shares issued pursuant to the Amended Equity Incentive Plan which is outstanding as of the Effective Time. |
“Fixed Shares” | means the Class E subordinate voting shares of Acreage, each entitling the holder thereof to one vote per share at shareholder meetings of Acreage. |
| “Fixed Warrants” | means the warrants and the compensation options to purchase Fixed Shares issued by Acreage. |
“Floating Call Option” | means the option of Canopy embedded in the special rights and restrictions of the Floating Shares to acquire each Floating Share, on the terms and conditions set forth in the Existing Plan of Arrangement. |
| “Floating Optionholder” | means a holders of Floating Options. |
“Floating Options” | means the options to purchase Floating Shares issued pursuant to the Amended Equity Incentive Plan prior to the Effective Time, which are outstanding as of the Effective Time. |
| “Floating Securities” | means, collectively, Floating Shares, Floating Options, Floating Share Units and Floating Warrants. |
| “Floating Share Arrangement” | means the arrangement under Section 288 of the BCBCA on the terms and subject to the conditions set out in the Floating Share Plan of Arrangement. |
| “Floating Share Arrangement Agreement” | means the arrangement agreement dated as of October 24, 2022, among Acreage, Canopy and Canopy USA, including the schedules and exhibits thereto, as the same may be further amended, supplemented or restated. |
| “Floating Share Arrangement Issued Securities” | means all securities to be issued pursuant to the Floating Share Arrangement, including, for the avoidance of doubt, all Canopy Shares issued pursuant to the Floating Share Plan of Arrangement, Replacement Options, Replacement Share Units and Replacement Warrants. |
“Floating Share Arrangement Regulatory Approvals” | means: (i) the grant of the |
| “Floating Share Plan of Arrangement” | means the plan of arrangement, substantially in | |
| “Floating Share Range” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Canaccord Genuity Fairness Opinion”. | |
| “Floating Share Replacement Securities” | means, collectively, Floating Options, Floating Share Units and Floating Warrants. | |
| “Floating Share Unit” | means a restricted share unit, performance share or performance unit that may be settled by Acreage in either cash or Floating Shares issued pursuant to the Amended Equity Incentive Plan which is outstanding as of the | |
| “Floating Share Unit Holders” | means the | |
| “Floating Shareholder” | means a registered or beneficial holder of one or more Floating Shares, as the context requires. | |
| “Floating Shares” | means the Class D subordinate voting shares of Acreage, each entitling the holder thereof to one vote per share at shareholder meetings of Acreage. | |
| “Floating Warrantholders” | means the holders of Floating Warrants. | |
| “Floating Warrants” | means the warrants and compensation options of Acreage to acquire Floating Shares which are outstanding as of the | |
| “Flow” | has the | |
| “FOUR20” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – General”. | |
| “Former MVS” | means the Class C multiple voting shares formerly in the capital of Acreage. | |
| “Former PVS” | means the Class B proportionate voting shares formerly in the capital of Acreage. | |
| “Former SVS” | means the Class A subordinate voting shares formerly in the capital of Acreage. | |
| “FSE” | means the Frankfurt Stock Exchange. | |
| “Governmental Entity” | means any (i) international, multinational, national, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, commissioner, board, bureau, ministry, agency or instrumentality, domestic or foreign, (ii) subdivision or authority of any of the | |
| “Greenstar” | means Greenstar Canada Investment Limited Partnership, a limited partnership existing under the Laws of the Province of British Columbia. | |
| “High Street” | means High Street Capital Partners, LLC. | |
| “High Street Holders” | means the holders of Common Membership Units or vested Profit Interests. |
“Amendment Time” has the meaning specified in Section 1.1 of the Amended Plan of Arrangement.
| “High Street Operating Agreement” | means the Fourth Amended and Restated Operating Agreement of High Street, d/b/a Acreage Holdings LLC, a Delaware limited liability company, dated November 14, 2018, as amended on May 10, 2019, June 27, 2019, September 23, 2020 and October 24, 2022, by and among High Street and the members signatory thereto. |
| “High Street Units” | means, collectively, the Common Membership Units and the Profit Interests. |
“Approved Business Plan” means any Business Plan that is approved by the Company Board and that contains the Mandatory Requirements and complies with the Initial Approved Business Plan.
“Austerity Measures” has the meaning specified in Section 2.5(6) of this Amendment.
“Board Nominees” has the meaning specified in Section 2.4(2) of this Amendment.
“Business Plan” means for each fiscal quarter: (i) a description of proposed operations of the Company and its Subsidiaries; (ii) an estimate of revenue to be received by the Company and its Subsidiaries; (iii) the capital and operating budget setting out the expenditures of the Company and its Subsidiaries for operating and capital improvements; and (iv) such other matters as the Company may reasonably consider to be necessary to illustrate the results intended to be achieved by the Company during such quarter.
“Consolidated EBITDA” means EBITDA, excluding, in respect of the fiscal period, the following: (i) income or loss from investments; (ii) security-based compensation; (iii) non-cash impairment losses; (iv) costs associated with the Arrangement Agreement; and (v) other non-recurring expenses as mutually determined by the Purchaser and the Company, acting reasonably, provided that in the event of a disagreement as to the Consolidated EBITDA on the Acquisition Date, such amount of non-recurring expenses shall be determined by a nationally recognized chartered accounting firm who is independent of the Purchaser and the Company.
“Consolidated Adj. EBITDA Target” means for each of the fiscal years ending December 31, 2020 through to December 31, 2029, the Consolidated Adj. EBITDA Target set forth for the applicable fiscal year in the Initial Approved Business Plan (which is the sum of the state targets on page 12 of the Initial Approved Business Plan); provided that if an Adverse Regulatory Event has occurred in a Relevant State, (i) the Company and the Purchaser shall mutually agree, each acting reasonably, on a revised annual growth rate to be applied in respect of such Adverse Year for the Relevant State; and (ii) the Consolidated Adj. EBITDA Target for such Adverse Year will be adjusted downward accordingly to reflect the agreed change for the Relevant State. Following the completion of such Adverse Year, (i) the target for the Relevant State for the year subsequent to the Adverse Year (the “Subsequent Year”) shall be an amount equal to the product of (x) the target amount for the Adverse Year for the Relevant State set forth on page 11 of the Initial Approved Business Plan; multiplied by (y) the stated annual growth rate in the Relevant State for the Subsequent Year set forth on page 11 of the Initial Approved Business Plan, (ii) the fiscal year targets for the Relevant State for the balance of the fiscal years following the Subsequent Year will be recalculated according to the stated growth rate in the Initial Approved Business Plan for the applicable year; and (iii) the Consolidated Adj. EBITDA Targets for the Subsequent Year and all fiscal years thereafter will be adjusted downward accordingly in the Initial Approved Business Plan. In the event that the Company and the Purchaser cannot mutually agree on the revised annual growth rate to be applied in respect of such Adverse Year for the Relevant State, (i) the target amount for the Adverse Year for the Relevant State will be deemed to be an amount equal to the product of (x) the actual EBITDA amount for the prior fiscal year (the “Prior Year”) for the Relevant State; multiplied by (y) a fraction of which (A) the numerator shall be equal to the actual EBITDA amount in the Relevant State for the Prior Year; and (B) the denominator shall be equal to the actual EBITDA amount in the Relevant State for the fiscal year immediately before the Prior Year; and (ii) the Consolidated Adj. EBITDA Target for such Adverse Year will be adjusted downward accordingly.
| “Holder” | has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”. |
| “Identified States” | means Connecticut, Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania, Illinois and Ohio. |
The following is an illustrative example in the event that an Adverse Regulatory Event is deemed to occur in Connecticut as of January 1, 2024 and [COMMERCIALLY SENSITIVE INFORMATION REDACTED].
“Convertible Security” means a security of the Company that is convertible or exercisable into or exchangeable for Shares, but excludes (a) a Security issued pursuant to the Amended Equity Incentive Plan; (b) a Right; or (c) a Pre-Emptive Right Security.
“Cost of Capital” means the effective annual interest associated with any Contract for Company Debt, including for the purposes of calculating such annual interest, any interest payments, whether in cash or Securities, origination fees, standby fees, original issue discounts, bonus issuances of Securities, any and all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under the Contract, any fee, fine, penalty, commission and other similar charge or expense directly or indirectly incurred under the Contract or any other form of payment, whether in cash or Securities; provided that the value attributed to any New Subordinate Share will be equal to the Fair Market Value of a Purchaser Share at such time multiplied by 0.3048.
“Credit Agreement Amendment” means the credit agreement dated March 6, 2020, and amended as of the date hereof, between Acreage Finance Delaware, LLC, as borrower, and Acreage IP Holdings, LLC, Prime Wellness of Connecticut, LLC, D&B Wellness, LLC and Thames Valley Apothecary, LLC, as guarantors, and IP Investment Company, LLC, as lender, administrative agent and collateral agent.
“Debenture” means the debenture between a Subsidiary of the Company and a Subsidiary of the Purchaser dated as of the date hereof, whereby the Subsidiary of the Purchaser shall advance funds as a loan to a Subsidiary of the Company.
“EBITDA” means, in respect of any fiscal period, the consolidated net income (loss) of the Company in such fiscal period plus without duplication and to the extent deducted in determining consolidated net income (loss) for such period, the sum of (i) interest expense for such period, (ii) income tax expense for such period, and (iii) all amounts attributable to depreciation and amortization expense for such period, all elements as determined in accordance with U.S. GAAP.
“End Date” means, following the Acquisition Date, the earlier of the date that the Purchaser (i) has acquired all of the issued and outstanding Floating Shares; and (ii) no longer holds at least 35% of the Shares.
“Initial Arrangement Agreement” | means the arrangement agreement dated as of April 18, 2019, as amended on May 15, 2019, between Acreage and Canopy, including the schedules and exhibits thereto. |
| “Initial Business Plan” | means Acreage’s business plan for the fiscal years ending December 31, 2020 through December 31, 2029, a copy of which is attached as a schedule to the Proposal Agreement. |
“Exercise Notice” has the meaning specified in Section 2.7(4) of this Amendment.
“Failure to Perform” means that either:
| “Initial Floating Share Proposal” | |
“Initial Plan of Arrangement” | means the |
| “Initial SPV Proposal” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Background to the |
| “Insolvency Event” | has the meaning ascribed to the |
“Fair Market Value” means, in respect of the Purchaser Shares, the volume weighted average trading price of the Purchaser Shares on the New York Stock Exchange (or other recognized stock exchange on which the Purchaser Shares are primarily traded as determined by volume) for the five trading day period immediately prior to the applicable determination date.
“Floating Compensation Options” means the compensation options and the warrants to purchase Floating Shares issued by the Company at or following the Amendment Time.
“Floating Options” means the options to purchase Floating Shares to be issued pursuant to and in accordance with the terms of the Amended Equity Incentive Plan.
“Floating RSUs” means the restricted share units that may be settled by the Company in either cash or Floating Shares issued pursuant to the Amended Equity Incentive Plan at or following the Amendment Time.
“Floating Shares” means shares of the Company to be created pursuant to Section 3.2(d)(iii) of the Amended Plan of Arrangement and designated as Class D subordinate voting shares, each entitling the holder thereof to one vote per share at shareholder meetings of the Company.
“Force Majeure Event” means an irresistible event or circumstance beyond the reasonable control of the Company, which notwithstanding the exercise of commercially reasonable diligence, the Company is unable to prevent or provide against (but does not include a failure by the Company to fund or pay) that prevents or delays it from conducting the activities and performing the obligations contemplated by the Approved Business Plan, provided that the Company makes a good faith effort to resolve or avoid such delay; such events shall include, but not be limited to any fire or other natural disaster, civil unrest, acts of God, acts of terrorism, an outbreak of a pandemic disease or any materially adverse change in applicable Law;
| “Interested Parties” | has the meaning ascribed thereto under the heading “Securities Laws Matters – Canadian Securities Laws – Multilateral Instrument 61-101”. |
“Fully-Diluted Basis” has the meaning specified in Section 1.1 of the Amended Plan of Arrangement.
“Fully-Diluted Floating Basis” has the meaning specified in Section 1.1 of the Amended Plan of Arrangement.
“Identified States” means [COMMERCIALLY SENSITIVE INFORMATION REDACTED].
“Initial Approved Business Plan” means the Business Plan for the fiscal years ending December 31, 2020 through to December 31, 2029 attached hereto as Schedule B, provided that if the Company Board approves expanding the operations of the Company or any of its Subsidiaries to [COMMERCIALLY SENSITIVE INFORMATION REDACTED], the Company shall provide a Business Plan for the fiscal years ending through to December 31, 2029 for [COMMERCIALLY SENSITIVE INFORMATION REDACTED] which shall increase the Consolidated Adj. EBITDA Targets and Pro-Forma Net Revenue Targets for each fiscal year through to December 31, 2029 .
“Interest Coverage Ratio” is calculated as EBITDA for the reporting period divided by the interest expense during the same reporting period.
“Interim Failure to Perform” means that:
| “Interim Failure to Perform” | means that: (a) | an Approved Business Plan does not comply with the Mandatory Requirements; or |
| (b) |
| (i) | the Pro-Forma Revenue at the Quarterly Determination Date is less than 90% of the Pro-Forma Net Revenue Target for the relevant fiscal year, as determined on a year-to-date basis; or |
| (ii) | the Consolidated EBITDA at the Quarterly Determination Date is less than 90% of the Consolidated Adj. EBITDA Target for the relevant fiscal year, as determined on a year-to-date basis. |
| “Interim Order” | means the interim order of the Court dated January 18, 2023, as varied on [t], 2023 issued following the application therefor contemplated by the Floating Share Arrangement Agreement, after informing the Court of the intention of the Parties to rely upon the exemption from registration under U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of the Floating Share Arrangement Issued Securities to be issued pursuant to the Floating Share Arrangement in a form acceptable to Acreage, Canopy and Canopy USA, each acting reasonably, providing for, among other things, the calling and holding of the Meeting, as such order may be further varied by the Court with the consent of Acreage, Canopy and Canopy USA, each acting reasonably. |
| “Interim Period” | means the period from April 18, 2019 until the earlier of (i) the date the Acquisition is completed pursuant to the Existing Arrangement; and (ii) the date that the Existing Arrangement Agreement is terminated in accordance with its terms. |
| “Intermediary” | means an intermediary such as a bank, trust company, securities dealer, broker, trustee or administrator of a self-administered registered retirement savings plan, registered retirement income fund, registered education savings plan or similar plan or other nominee. |
“IRS” | has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”. |
| “Jetty” | means Lemurian, Inc. |
| “Jetty Agreements” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – General”. |
| “Jetty Deferred Payments” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA”. |
| “Jetty Option” | means the option held by Canopy USA to acquire 100% of the shares of Jetty. |
| “knowledge of Acreage” | means the actual knowledge, after due and reasonable inquiry, of Acreage’s Chief Executive Officer, Chief Financial Officer and General Counsel. |
| “Law” or “Laws” | means, with respect to any Person, any and all applicable law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, official guidance, ruling or other similar requirement, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to such Person or its business, undertaking, property or securities, and to the extent that they have the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended. |
| “Lenders” | means AFC Gamma, Inc., Viridescent Realty Trust, Inc., AFC Institutional Fund LLC, and the other the lenders under the Amended Credit Facility. |
| “Letter Agreement” | means a letter agreement dated October 24, 2022 between the Acreage Debt Optionholder and the Lenders. |
| “Letter of Transmittal” | means the letter of transmittal to be sent by Acreage to Floating Shareholders following the receipt by Acreage of a Fixed Call Option Exercise Notice or Triggering Event Notice, as the case may be. |
| “Listing Application” | has the meaning ascribed thereto under the heading “Risk Factors – Risks Relating to the Floating Share Arrangement”. |
| “Managed Entities” | means Persons (other than Subsidiaries) where Acreage or its Subsidiaries fully operate all aspects of the business of such Persons through management service or other contracts. |
“Management Forecasts” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement - Certain Financial Projections”. |
| “Mandatory Requirements” | means a Business Plan that (i) limits operations to the Identified States and the State of Florida if the Acreage Board approves expanding the operations of Acreage or any of its Subsidiaries to the State of Florida; (ii) is fully funded from a liquidity perspective with the necessary levels of working capital in order to achieve the Business Plan; (iii) ensures Acreage will generate positive Consolidated EBITDA by the fiscal quarter commencing January 1, 2021 and every fiscal quarter thereafter in accordance with the Consolidated Adj. EBITDA Target; (iv) ensures Acreage will generate positive Operating Cash Flow from operations by the fiscal quarter commencing January 1, 2021 and every fiscal quarter thereafter; (v) ensures Acreage generate Pro-Forma Revenue in accordance with the Pro-Forma Net Revenue Target; (vi) limits capital expenditures to the Identified States with a prohibition on new capital expenditures and capital leases outside of the Identified States; (vii) limits corporate overhead expenditures as a percentage of consolidated revenue of Acreage and its Subsidiaries calculated in accordance with U.S. GAAP to 25.0%, 20.0% and 15.0% for the fiscal years ending December 31, 2021, December 31, 2022 and December 31, 2023, respectively; (viii) maintains a minimum net working capital amount of $10,000,000 and a minimum non-restricted cash and cash equivalent balance of $5,000,000; and (ix) limits Company Debt (as defined in the Existing Arrangement Agreement) such that the Interest Coverage Ratio (as defined in the Existing Arrangement Agreement) during the applicable fiscal quarter is at least 4.0. |
| “Matching Period” | has the meaning ascribed thereto under the heading “Transaction Agreements – The Floating Share Arrangement Agreement – Right to Match”. |
| “Material Failure to Perform” | has the meaning ascribed thereto in the Existing Arrangement Agreement. |
| “Material Representations” | has the meaning ascribed to the term “Material Representations” in the Existing Arrangement Agreement. |
| “Meeting” | means the special meeting of Floating Shareholders, including any adjournment or postponement thereof in accordance with the terms of the Floating Share Arrangement Agreement, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution. |
| “Meeting Materials” | has the meaning ascribed thereto under the heading “How to Vote – Non-Registered Shareholders”. |
| “MI 61-101” | means Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. |
| “Minimum Share Price Listing Standard” | has the meaning ascribed thereto under the heading “Risk Factors – Risks Relating to the Floating Share Arrangement – Nasdaq Listing and Share Consolidation”. |
| “misrepresentation” | means an untrue statement of a material fact or an omission to state a material fact required or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made. |
| “Modified SPV Proposal” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Background to the Floating Share Arrangement”. |
| “Morrow Sodali” | means Morrow Sodali, Acreage’s strategic shareholder advisor and proxy solicitation agent. |
| “Nasdaq” | means the Nasdaq Global Select Market. |
| “NI 62-104” | means National Instrument 62-104 – Take-over Bids and Issuer Bids. |
“Issuance Event” means the issuance by the Company of Shares and/or Convertible Securities, whether by way of public offering and/or private placement, but excluding any issuance of Shares and/or Convertible Securities by the Company:
| “NOBO” | |
| “Non-Canadian Holder” | has the |
| “Non-Registered Shareholder” | |
| “Non-U.S. Holder” | has the |
| “Noteholders” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Canopy Documents Incorporated by Reference”. |
| “Notes” | has the meaning ascribed thereto in Appendix “G” under the heading “Information Concerning Canopy – Recent Developments – Reorganization – Creation of Canopy USA – Relationship with CBI”. |
| “Notice of Dissent” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Dissent Rights”. |
| “Notice of Meeting” | |
| “OEGRC” | has the |
| “officer” | |
| “Operating Cash Flow” | means cash flows from operating activities as calculated in |
| “Option Agreement” | has the meaning ascribed thereto under the heading “Securities Laws Matters – Related Party Transaction and Connected Transaction – Option Agreement – Acreage Debt |
| “Option Premium” | means an option premium payment of $28.5 million. |
| “OTCQX” | means the |
| “Parties” | |
| “Paydown” | has the meaning ascribed thereto in |
| “Payout Value” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Dissent Rights”. |
| “Per Share Consideration” | means following a Canopy Change of Control, the Alternate Consideration that Floating Shareholders are entitled to receive in accordance with |
| “Person” | |
“PFIC” | has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations – U.S. Federal Income Tax Consequences Relating to Ownership and Disposition of Canopy Shares by U,S, Holders – Passive Foreign Investment Company”. |
| “Pre-Acquisition Reorganization” | means any |
| “Precedent Transaction Analysis” | has the meaning ascribed thereto under the heading “The Floating Share Arrangement – Eight Capital Fairness Opinion”. |
| “Prime” | means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by Agent) or any similar release by the Federal Reserve Board (as determined by the administrative agent and co-agent under the Amended Credit Facility). |
| “Pro-Forma Net Revenue Target” | means for each of the |
“Issuance Event Notice” has the meaning specified in Section 2.7(2) of this Amendment.
“Issued Securities” has the meaning specified in Section 1.1 of the Amended Plan of Arrangement.
“Managed Entities” means Persons (other than Subsidiaries) where the Company or its Subsidiaries fully operate all aspects of the business of such Persons through management service or other Contracts.
“Mandatory Requirements” means a Business Plan that (i) limits operations to the Identified States and [COMMERCIALLY SENSITIVE INFORMATION REDACTED] if the Company Board approves expanding the operations of the Company or any of its Subsidiaries to [COMMERCIALLY SENSITIVE INFORMATION REDACTED]; (ii) is fully funded from a liquidity perspective with the necessary levels of working capital in order to achieve the Business Plan; (iii) ensures the Company will generate positive Consolidated EBITDA by the fiscal quarter commencing January 1, 2021 and every fiscal quarter thereafter in accordance with the Consolidated Adj. EBITDA Target; (iv) ensures the Company will generate positive Operating Cash Flow from operations by the fiscal quarter commencing January 1, 2021 and every fiscal quarter thereafter; (v) ensures the Company will generate Pro-Forma Revenue in accordance with the Pro-Forma Net Revenue Target; (vi) limits capital expenditures to the Identified States with a prohibition on new capital expenditures and capital leases outside of the Identified States; (vii) limits corporate overhead expenditures as a percentage of consolidated revenue of the Company and its Subsidiaries calculated in accordance with U.S. GAAP to 25.0%, 20.0% and 15.0% for the fiscal years ending December 31, 2021, December 31, 2022 and December 31, 2023, respectively; (viii) maintains a minimum net working capital amount of US$10 million and a minimum non-restricted cash and cash equivalent balance of US$5 million; and (ix) limits Company Debt such that the Interest Coverage Ratio during the applicable fiscal quarter is at least 4.0.
“Market Price” means the closing price of the New Subordinate Shares or Floating Shares, as applicable, on the CSE (or other recognized stock exchange on which such shares are primarily traded, as determined by volume) on the last trading day prior to the dissemination of a news release disclosing a private placement or public offering of Securities.
“Material Failure to Perform” means that, as determined at the end of the relevant fiscal year (commencing with the fiscal year ended December 31, 2021), either:
| “Pro-Forma Revenue” | means the sum of (i) gross revenue for Acreage and its Subsidiaries from results of operations as calculated in accordance with U.S. GAAP (and for greater certainty, net of discounts, buy-downs, promotions, bona fide returns and refunds and exclusive of the amount of any tax or fee imposed by any federal, provincial, state, local or municipal Governmental Entity directly on sales, including any excise taxes and/or taxes collected from customers if such | |
| “Profit Interests” | means the Class C-1 units in the capital of High Street outstanding from time to time. | |
| “Proposal Agreement” | means the proposal agreement dated June 24, 2020 between Acreage and Canopy. |
“Meeting” means the special meeting of Company Shareholders to be called to consider approval of this Amendment and the Amended Plan of Arrangement.
“Net Revenue” means gross sales or revenue net of discounts, buy-downs, promotions, bona fide returns and refunds and exclusive of the amount of any tax or fee imposed by any federal, provincial, state, local or municipal Governmental Entity directly on sales, including any excise taxes and/or taxes collected from customers if such tax is added to the selling price actually remitted to such Governmental Entity.
“New Compensation Options” means the compensation options and the warrants to purchase New Subordinate Shares issued by the Company at or following the Amendment Time.
“New Multiple Shares” means shares of the Company to be created pursuant to Section 3.2(d)(ii) of the Amended Plan of Arrangement and designated as multiple voting shares, each entitling the holder thereof to 4,300 votes per share at shareholder meetings of the Company.
“New Options” means the options to purchase New Subordinate Shares issued pursuant to the Amended Equity Incentive Plan at or following the Amendment Time.
“New RSUs” means the restricted share units that may be settled by the Company in either cash or New Subordinate Shares issued pursuant to the Amended Equity Incentive Plan at or following the Amendment Time.
“New Subordinate Shares” means shares of the Company to be created pursuant to Section 3.2(d)(i) of the Amended Plan of Arrangement and designated as subordinate voting shares, each entitling the holder thereof to one vote per share at shareholder meetings of the Company.
“NI 52-110” means National Instrument 52-110 – Audit Committees.
| “Protection Agreement” | means the protection agreement entered into among Canopy, 11065220 Canada Inc. and Canopy USA dated October 24, 2022. |
“Nomination Letter” has the meaning specified in Section 2.4(3) of this Amendment.
“Notice Period” has the meaning specified in Section 2.7(4) of this Amendment.
“Operating Cash Flow” means cash flows from operating activities as calculated in accordance with U.S. GAAP.
“Original Percentage” means the percentage equivalent to the quotient obtained when (a) the aggregate number of issued and outstanding Shares beneficially owned by the Purchaser is divided by (b) the aggregate number of issued and outstanding Shares, in each case, immediately prior to an Issuance Event, and, for the avoidance of doubt, such calculation shall be made on a non-diluted basis.
“Pre-Emptive Right” has the meaning specified in Section 2.7(1) of this Amendment.
“Pre-Emptive Right Securities” has the meaning specified in Section 2.7(1) of this Amendment.
“Prior Year” has the meaning specified in the definition of Consolidated Adj. EBITDA Target.
“Pro-Forma EBITDA” means the sum of (i) EBITDA; and (ii) in respect of any fiscal period, the consolidated net income of the Managed Entities in such fiscal period plus without duplication and to the extent deducted in determining consolidated net income for such period, the sum of (i) interest expense for such period, (ii) income tax expense for such period, and (iii) all amounts attributable to depreciation and amortization expense for such period, all elements determined in accordance with U.S. GAAP.
“Pro-Forma Net Revenue Target” means for each of the fiscal years ending December 31, 2020 through to December 31, 2029, the Pro-Forma Net Revenue Target set forth for the applicable fiscal year in the Initial Approved Business Plan (which is the sum of the state targets on page 10 of the Initial Approved Business Plan); provided that if an Adverse Regulatory Event has occurred in a Relevant State, (i) the Company and the Purchaser shall mutually agree, each acting reasonably, on a revised annual growth rate to be applied in respect of such Adverse Year for the Relevant State; and (ii) the Pro-Forma Net Revenue Target for such Adverse Year will be adjusted downward accordingly to reflect the agreed change for the Relevant State. Following the completion of such Adverse Year, (i) the target for the Relevant State for the Subsequent Year shall be an amount equal to the product of (x) the target amount for the Adverse Year for the Relevant State set forth on page 10 of the Initial Approved Business Plan; multiplied by (y) the stated annual growth rate in the Relevant State for the Subsequent Year set forth on page 10 of the Initial Approved Business Plan, (ii) the fiscal year targets for the Relevant State for the balance of the fiscal years following the Subsequent Year will be recalculated according to the stated growth rate in the Initial Approved Business Plan for the applicable year; and (iii) the Pro-Forma Net Revenue Targets for the Subsequent Year and all fiscal years thereafter will be adjusted downward accordingly in the Initial Approved Business Plan. In the event that the Company and the Purchaser cannot mutually agree on the revised annual growth rate to be applied in respect of such Adverse Year for the Relevant State, (i) the target amount for the Adverse Year for the Relevant State will be deemed to be an amount equal to the product of (x) the actual Pro-Forma Revenue amount for the Prior Year for the Relevant State; multiplied by (y) a fraction of which (A) the numerator shall be equal to the actual Pro-Forma Revenue amount in the Relevant State for the Prior Year; and (B) the denominator shall be equal to the actual Pro-Forma Revenue amount in the Relevant State for the fiscal year immediately before the Prior Year; and (ii) the Pro-Forma Net Revenue Target for such Adverse Year will be adjusted downward accordingly.
| “proxyholder” | means a Person that is duly appointed by a Floating Shareholder to be that Floating Shareholder’s representative at the Meeting. | |
The following is an illustrative example in the event that an Adverse Regulatory Event is deemed to occur in New York as of January 1, 2024 [COMMERCIALLY SENSITIVE INFORMATION REDACTED].
“Proposal Agreement” means the proposal agreement between the Purchaser and the Company dated as of June 24, 2020.
“Quarterly Determination DateAcquisition Effective Time”
“Acreage Acquisition Closing Conditions”
“Required Director CriteriaAcreage Annual MD&A”
means the management’s discussion and analysis of financial condition and results of operation of Acreage for the financial years ended December 31, 2021 and 2020.
| “Acreage Board” | means the board of directors of Acreage as constituted from time to time. | |||
| “Acreage Data Room” | means the electronic data site of Acreage provided to Canopy on October 23, 2022. | |||
| “Acreage Debt” | has the meaning ascribed thereto under the heading “Securities Laws Matters – Related Party Transaction and Connected Transaction – Option Agreement – Acreage Debt” | |||
| “Acreage Debt Optionholder” | means a wholly-owned Subsidiary of Canopy. | |||
“Acreage Holder Securities” | has the meaning ascribed thereto under the heading “Transaction Agreements – Voting Agreements”. | |||
“Acreage Interim MD&A” | means | |||
| “Acreage Locked-Up Shareholders” | means all of the | |||
| “Acreage Material Adverse Effect” | has the | |||
| “ | means Acreage Shares. | |||
| “
| means the are outstanding. | |||
| “Acreage Shares” | means, collectively, the Fixed Multiple Shares, or any one of them, as the context may require. | |||
| “ | means amortization, as adjusted. | |||
| “ | has the meaning specified in National Instrument 45-106 – Prospectus Exemptions. | |||
| “Aggregate Amendment Option Payment” | means an amount, equal to $37,500,024, which was paid at the Acreage Shares, High Street Holders and USCo2 Holders. | |||
| “ | has the meaning | |||
| “Alternate Consideration” | means the number of shares or other securities or property (including cash) that a Floating Shareholder would have been entitled to receive on a Canopy Change of Control, if, at the effective time of such Canopy Change of Control, such Floating Shareholder had been the registered holder of that number of Canopy Shares which the Floating Shareholder would otherwise have been entitled to receive in Arrangement had been completed effective immediately prior to the effective time of the Canopy Change of Control. | |||
| “ | means the credit facility under the Credit Agreement, as such facility was amended by the Credit Agreement Amendment. | |||
| “Amended Equity Incentive Plan” | means Acreage’s amended and restated omnibus equity plan approved by shareholders of Acreage on September 16, 2020. |
| “Amendments” | has the meaning | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Announcement Date” | means October 25, 2022, being the date that Acreage announced the entering into of the Floating Share Arrangement Agreement. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Approved Business Plan” | means any Business Plan that is approved by the Acreage Board and that contains the Mandatory Requirements and complies with the Initial Business Plan. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Arrangement Resolution” | means the special resolution approving the Floating Share Arrangement to be considered at the Meeting, substantially in the form attached as Appendix “B” to this Circular, with such amendments or variations as the Court may direct in the Interim Order with the consent of Acreage, Canopy and Canopy USA, each acting reasonably. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “ | has the meaning | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “ | means certain additional restrictive covenants as further set out in the Existing Arrangement Agreement that will become operative as austerity measures for Acreage’s business in the event of an Interim Failure to Perform. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “BCBCA” | means the Business Corporations Act (British Columbia). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “BioSteel” | has the meaning Appendix “G” under the heading “Information Concerning Canopy – General”. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “ | has the meaning Manufacturing Facility”. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “ | means the unanimous determination of the Acreage Board (with the directors abstaining or recusing themselves as required), after receiving legal and financial advice that: (i) the Floating Share Arrangement is fair to the Floating Shareholders; (ii) the Floating Share Arrangement and the Floating Share Arrangement Agreement is in the best interests of Acreage; and (iii) Floating Shareholders vote in favour of the Arrangement Resolution. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “broker non-votes” | has the meaning | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Bonus Plans” | Acreage’s existing tax receivable bonus plans. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Broadridge” | means Broadridge Financial Solutions, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Business Day” | means any day of the year, other than a Saturday, Sunday or any day on which major banks are generally closed for business in | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| “Business Plan” | means for each fiscal quarter: (i) a description of
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
