Item 1.01 |
Entry into a Material Definitive Agreement. |
As further described in the
Press Release (as defined below), on October 24, 2022, Acreage Holdings, Inc. (the “Company” or “Acreage”)
entered into an arrangement agreement (the “Floating Share Arrangement Agreement”) with Canopy Growth Corporation
(“Canopy”) and Canopy USA, LLC (“Canopy USA”), pursuant to which, subject to the approval of the
holders of the issued and outstanding Class D subordinate voting shares of Acreage (the “Floating Shares” and such
holders, the “Floating Shareholders”) and the terms and conditions of the Floating Share Arrangement Agreement, Canopy
USA will acquire all of the issued and outstanding Floating Shares by way of a court-approved plan of arrangement under the Business
Corporations Act (British Columbia) (the “Floating Share Arrangement”) in exchange for 0.45 of a common share
of Canopy (the “Canopy Shares”) for each Floating Share held. Concurrently with the entering into of the Floating
Share Arrangement Agreement, Canopy irrevocably waived its option to acquire the Floating Shares pursuant to the plan of arrangement
implemented on September 23, 2020 (the “Existing Arrangement”) pursuant to the arrangement agreement between Canopy
and Acreage dated April 18, 2019, as amended (the “Existing Arrangement Agreement”).
Subject
to the provisions of the Floating Share Arrangement Agreement, Canopy agreed to exercise its option pursuant to the Existing Arrangement
Agreement (the “Fixed Option”) to acquire Acreage’s outstanding Class E subordinate voting shares (the “Fixed
Shares”), representing approximately 70% of the total shares of Acreage as at the date hereof, at a fixed exchange ratio of
0.3048 of a Canopy Share for each Fixed Share.
The
acquisition of the Floating Shares by Canopy USA pursuant to the Floating Share Arrangement is expected to occur immediately prior to
the acquisition of the Fixed Shares pursuant to the terms of the Existing Arrangement Agreement. Upon exercise of the Fixed Option and
completion of the Floating Share Arrangement, Canopy USA will own 100% of all outstanding Fixed Shares and Floating Shares. Completion
of the Floating Share Arrangement is subject to the satisfaction or waiver of certain closing conditions, including receipt of applicable
regulatory and court approvals, the approval of at least (i) 66⅔% of the votes cast by Floating Shareholders, and (ii) a majority
of the votes cast by Floating Shareholders excluding the votes cast by “interested parties” and “related parties”
under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI
61-101”) of the Canadian Securities Administrators, at a special meeting of Acreage shareholders (the “Special Meeting”)
expected to take place in January 2023.
In
connection with the Floating Share Arrangement Agreement, on October 24, 2022, certain of Acreage’s directors, officers and consultants
entered into voting support agreements (the “Voting Support Agreements”) with Canopy and Canopy USA, pursuant to which
such persons have agreed, among other things, to vote their Floating Shares in favor of the Floating Share Arrangement, representing approximately
7.3% of the issued and outstanding Floating Shares.
In
addition, on October 24, 2022, Acreage amended its existing US$150 million credit facility (the “Amended
Credit Facility”) with AFC Gamma, Inc. (“AFC Gamma”) and
Viridescent Realty Trust, Inc. (“Viridescent” and together with AFC
Gamma, the “Lenders”). Under the terms of the Amended Credit Facility,
Acreage exercised US$25 million for immediate draw with a further US$25 million available in future periods
under a committed accordion option once certain predetermined milestones are achieved. In conjunction with entering into the Amended
Credit Facility, the Lenders have waived the requirement for Acreage to comply with all financial debt covenants, except a minimum
cash requirement, until December 31, 2023, and new covenants have been agreed upon in respect of all periods beginning on or after
December 31, 2023, reflecting the Company’s growth plan, financial position, and current market conditions. Finally, the
Amended Credit Facility includes approval for Canopy USA to acquire control of Acreage without requiring repayment of all amounts
outstanding under the Amended Credit Facility, provided certain conditions are satisfied. Acreage intends to use the proceeds of the
Amended Credit Facility to fund expansion initiatives and provide additional working capital.
The
Amended Credit Facility will bear interest at a variable rate of U.S. prime rate (“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 Amended Credit Facility, Acreage 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 drawn under the Amended Credit Facility. Acreage will pay an amendment fee of US$1.25 million to
the Lenders.
Concurrent
with entering into the Amended Credit Facility, the Lenders and a wholly-owned subsidiary of Canopy (the “Acreage Debt Optionholder”)
entered into a letter agreement (“Letter Agreement”), pursuant to which the Acreage Debt Optionholder agreed, subject
to certain conditions precedent, to acquire an option to purchase the outstanding principal including all accrued and unpaid interest
thereon owed to the Lenders in exchange for an option premium payment of US$28.5 million (the “Option Premium”), to
be held in escrow. In the event that Acreage repays the Amended Credit Facility on or prior to maturity, the Option Premium will be returned
to the Acreage Debt Optionholder. In the event that Acreage defaults on the Amended Credit Facility and the Acreage Debt Optionholder
does not exercise its option to acquire the Amended Credit Facility, the Option Premium will be released from escrow and delivered to
the Lenders.
Concurrently
with the execution of the Floating Share Arrangement Agreement, Canopy, on behalf of Canopy USA, agreed to issue (i) Canopy Shares with
a value of approximately US$30.5 million to, among others, certain current or former unitholders (the “Holders”) of
High Street Capital Partners, LLC, a subsidiary of Acreage (“HSCP”), pursuant to HSCP’s amended tax receivable
agreement (the “TRA”) and (ii) a payment with a value of approximately
US$19.5 million in Canopy Shares to certain directors, officers or consultants of Acreage pursuant to HSCP’s existing tax receivable
bonus plans (the “Bonus Plans”) under further amendments to each, both in order to reduce a potential liability of
approximately US$121 million. In connection with the foregoing, Canopy will issue Canopy Shares with a value of approximately US$15.3
million to certain Holders as soon as practicable as the first installment under the amended TRA
with a second payment of approximately US$15.3 million in Canopy Shares to occur on the earlier of (a) the second business day following
the date on which the Floating Shareholders approve the Floating Share Arrangement; or (b) April 24, 2023. In addition, a final payment
with a value of approximately US$19.5 million in Canopy Shares (the “TRA Bonuses”) will be issued by Canopy to certain
eligible participants under the amended Bonus Plans immediately prior to the completion of Floating Share Arrangement. The TRA Bonuses
will be paid to recipients to be determined by Kevin Murphy, the administrator of the TRA, and may include one or more of Mr. Murphy,
John Boehner, Brian Mulroney, and Peter Caldini, each of which are directors of Acreage and other directors, officers or consultants of
Acreage as may be determined by Mr. Murphy. Canopy has also agreed to register the resale of such Canopy Shares under the Securities Act
of 1933, as amended.
The
foregoing descriptions of each of the Floating Share Arrangement Agreement, the Voting Support Agreements, the Amended Credit Facility,
the Letter Agreement and the TRA is qualified in its entirety by reference to the full text of the Floating Share Arrangement Agreement,
the Voting Support Agreements, the Amended Credit Facility, the Letter Agreement and the TRA, filed as Exhibits 10.1, 10.2, 10.3, 10.4
and 10.5, respectively, to this Current Report on Form 8-K (“Current Report”).