Registration Statement for Securities to Be Issued in Business Combination Transactions (s-4/a)

Date : 11/08/2019 @ 10:12PM
Source : Edgar (US Regulatory)
Stock : Tilray Inc (TLRY)
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Registration Statement for Securities to Be Issued in Business Combination Transactions (s-4/a)

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As filed with the Securities and Exchange Commission on November 8, 2019

Registration No. 333-234160

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Tilray, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   82-4310622
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Tilray, Inc.

1100 Maughan Road

Nanaimo, BC V9X IJ2

(844) 845-7291

(Address including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Brendan Kennedy

President and Chief Executive Officer

Tilray, Inc.

1100 Maughan Road

Nanaimo, BC V9X IJ2

(844) 845-7291

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Dara Redler

General Counsel

Tilray, Inc.

1100 Maughan Road

Nanaimo, BC V9X IJ2

(844) 845-7291

 

Luke P. Iovine, III

Paul Hastings LLP

200 Park Avenue

New York, NY 10166

(212) 318-6000

 

Patrick Moen

Privateer Holdings, Inc.

2701 Eastlake Avenue E., 3rd Floor

Seattle, WA 98102

(206) 432-9325

 

John Robertson

Alan D. Hambelton

Cooley LLP

1700 Seventh Avenue, Suite 1900

Seattle, WA 98101

(206) 452-8700

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

    

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13(e)-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. Tilray may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated November 8, 2019

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Tilray, Inc. and Privateer Holdings, Inc.:

Tilray, Inc., which we refer to as Tilray, and Privateer Holdings, Inc., which we refer to as Privateer, have entered into an Agreement and Plan of Merger and Reorganization, which we refer to as the merger agreement, pursuant to which Privateer will merge with and into a wholly owned subsidiary of Tilray, which we refer to as the merger. Privateer and Tilray believe that the merger will have the effect of an orderly release of the 75 million shares of Tilray common stock held by Privateer through their cancellation and a subsequent issuance to Privateer’s equity holders.

Immediately prior to the effective time of the merger, which we refer to as the effective time, each share of preferred stock, $0.0001 par value, of Privateer, will be converted into one share of Privateer Class 2 common stock in accordance with the applicable provisions of Privateer’s amended and restated certificate of incorporation. At the effective time, each share of Privateer capital stock outstanding immediately prior to the effective time (excluding certain shares to be canceled pursuant to the merger agreement and shares held by stockholders who have exercised and perfected appraisal rights) will be automatically converted into the right to receive the applicable portion of the Stock Merger Consideration (as defined below) and, if applicable, a portion of the Cash Merger Consideration (as defined below), in each case calculated in accordance with and as set forth in an allocation certificate as described in more detail in the merger agreement. The “Stock Merger Consideration” means 58,333,333 shares of Tilray Class 2 common stock and 16,666,667 shares of Tilray Class 1 common stock, in each case, as may be adjusted pursuant to the merger agreement; provided, however, that the number of shares of Tilray Class 2 common stock in the Stock Merger Consideration shall be reduced by the following: (i) the number of shares of Tilray Class 2 common stock issuable pursuant to certain Privateer options that will be assumed by Tilray (and which options will be converted into options to purchase shares of Tilray Class 2 common stock) (the “Option Merger Consideration”); (ii) a number of shares of Tilray Class 2 common stock equal to the amount by which certain Privateer transaction expenses exceed $1 million, divided by the volume-weighted average closing trading price of a share of Tilray Class 2 common stock on the Nasdaq Global Select Market, which we refer to as Nasdaq, for the five consecutive trading days ending five trading days immediately prior to the closing date of the merger (the “Tilray Closing Price”); (iii) a number of shares of Tilray Class 2 common stock equal to the amount of Cash Merger Consideration (excluding the Aggregate Cash Option Consideration, as defined below) divided by the public offering price of a share of Tilray Class 2 common stock in an Offering (as described below) (less any underwriting discounts and commissions) (the “Stock Cash Consideration Shares”); and (iv) a number of shares of Tilray Class 2 common stock equal to the option exchange ratio described in the merger agreement multiplied by the aggregate total of all in-the-money options held by certain service providers of Privateer that are cancelled in exchange for a certain percentage of the Cash Merger Consideration (such cash amount, the “Aggregate Cash Option Consideration” and such shares, the “Option Cash Consideration Shares”).

Tilray’s board of directors, which we refer to as the Tilray Board, may, in its sole discretion, designate all or any portion of the net proceeds from an underwritten, at-the market offering, or other registered public offering of Tilray common stock or other offering of Tilray securities consummated prior to the closing of the merger (an “Offering”) as cash consideration for the merger (the “Cash Merger Consideration”), to be paid in cash pro rata (i) in lieu of a portion of the Stock Merger Consideration to the Privateer stockholders who would otherwise be entitled to receive Tilray Class 2 common stock in the merger, and (ii) in lieu of a portion of the Option Merger Consideration to certain service providers of Privateer in exchange for the cancellation of certain Privateer options determined to be in-the-money, in each case, in accordance with the allocation certificate as described in more detail in the merger agreement. The sum of the Stock Cash Consideration Shares and the Option Cash Consideration Shares (together, the “Cash Consideration Shares”) shall not exceed 20% of the Total Merger Consideration. Tilray is under no obligation to conduct an Offering or to pay any Cash Merger Consideration.

At the effective time, Tilray’s stockholders will continue to own and hold their existing shares of Tilray’s common stock, and all outstanding and unexercised options to purchase shares of Tilray’s common stock will


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remain in effect pursuant to their terms; provided, however, that unvested options to purchase Tilray stock held by certain Privateer service providers shall accelerate effective as of the effective time. Assuming no Cash Merger Consideration is paid in connection with the merger, immediately after the merger, (i) Privateer’s stockholders as of immediately prior to the effective time are expected to own approximately 75.4% of the outstanding capital stock of Tilray and 90.4% of the voting power of Tilray and (ii) the three founders of Privateer, namely Brendan Kennedy (Tilray’s Chief Executive Officer and President, as well as a member of the Tilray Board), Michael Blue and Christian Groh, are expected to collectively own 25.7% of the outstanding capital stock of Tilray and 71.0% of the voting power of Tilray. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, a member of the Privateer Board and the largest stockholder of Privateer. Michael Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer.

Shares of Tilray’s Class 2 common stock are currently listed on the Nasdaq under the symbol “TLRY.” On November 7, 2019, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Tilray’s Class 2 common stock on Nasdaq was $22.24 per share.

Tilray is holding a special meeting of its stockholders in order to obtain the stockholder approvals necessary to complete the merger and related matters. At the Tilray special meeting, which will be held at 10:00 a.m., local time, on December 6, 2019 at the offices of Cooley LLP, 1700 Seventh Avenue, Suite 1900, Seattle, Washington 98101-1355, unless postponed or adjourned to a later date, Tilray will ask its stockholders to, among other things:

 

  1.

approve the merger agreement, and the transactions contemplated thereby, including the merger, the issuance of shares of Tilray’s Class 1 and Class 2 common stock to Privateer’s stockholders and optionholders pursuant to the terms of the merger agreement and the change of control resulting from the merger;

 

  2.

approve the amended and restated certificate of incorporation of Tilray, in the form attached as Annex B of the accompanying proxy statement/prospectus/information statement; and

 

  3.

consider and, if necessary, vote upon an adjournment of the Tilray special meeting to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.

As of September 30, 2019, Privateer beneficially owns or controls an approximate 75% equity interest in Tilray through ownership or control of 16,666,667 shares of Tilray’s Class 1 common stock and 58,333,333 shares of Tilray’s Class 2 common stock, representing approximately 90% of the voting power of Tilray’s capital stock. As a result, Tilray is currently a “controlled company” within the meaning of Nasdaq rules. Privateer has indicated that it intends to vote in favor of each of the proposals presented by Tilray for approval by holders of its common stock. Therefore, approval of Tilray Proposals 1 and 2, and if necessary 3, is expected and, if all other conditions to the merger are satisfied, the merger will be consummated.

On September 9, 2019, after careful consideration, the special committee of the Tilray Board, comprised of three independent and disinterested directors of Tilray, which we refer to as the special committee, unanimously (i) determined that the consummation of the merger and the other transactions contemplated by the merger agreement, on the terms and conditions substantially as set forth in the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) approved the merger agreement, and (iv) recommended that the Tilray Board recommend the approval and adoption of the merger agreement by Tilray’s stockholders.

On September 9, 2019, and based upon the recommendation of the special committee, the Tilray Board unanimously (i) determined that the entry by Tilray into the merger agreement, the merger and the other transactions contemplated by the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of


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control of Tilray pursuant to Nasdaq rules, (iii) approved and authorized each of the transaction documents, including the merger agreement, and (iv) recommended that the stockholders of Tilray approve the merger agreement and the other transactions contemplated thereby, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of control of Tilray pursuant to Nasdaq rules. The Tilray Board accordingly recommends that Tilray’s stockholders vote “FOR” Proposal Nos. 1, 2, and 3.

After careful consideration, Privateer’s board of directors, which we refer to as the Privateer Board, has unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including without limitation the merger and the other transactions contemplated thereby, are fair to, advisable to and in the best interests of Privateer and its stockholders, (ii) authorized, approved and declared advisable the merger agreement and the transactions contemplated thereby, and (iii) recommended that Privateer’s stockholders vote to adopt the merger agreement and approve the transactions contemplated thereby, including without limitation the merger and the other transactions contemplated thereby. The Privateer Board unanimously recommends that Privateer’s stockholders sign and return the action by written consent of Privateer’s stockholders, which we refer to as the Privateer written consent, indicating their (i) adoption and approval of the merger agreement and the transactions contemplated thereby, (ii) adoption and approval of the Privateer’s amended and restated certificate of incorporation in the form attached as Exhibit D to the merger agreement, (iii) acknowledgement that the approval given is irrevocable and that such stockholder is aware of its rights to demand appraisal for its shares pursuant to Section 262 of the General Corporation Law of the State of Delaware, which we refer to as the DGCL, and that such stockholder has received and read a copy of Section 262 of the DGCL, (iv) acknowledgement that by its approval of the merger it is not entitled to appraisal rights with respect to its shares in connection with the merger and thereby waives any rights to receive payment of the fair value of its capital stock under the DGCL, and (v) approval of the conversion of Privateer preferred stock into Privateer Class 2 common stock.

As described in the accompanying proxy statement/prospectus/information statement, certain of Privateer’s stockholders who in the aggregate own approximately 35.8% of the outstanding capital stock and 45.7% of the voting power of Privateer as of the date of the merger agreement, are parties to support agreements with Tilray and Privateer, whereby such stockholders have agreed to vote their shares in favor of (i) the approval and adoption of the merger agreement, (ii) the approval of the merger and the other transactions contemplated by the merger agreement, (iii) the approval and adoption of the amended and restated certificate of incorporation of Privateer, (iv) the conversion of Privateer preferred stock into Privateer Class 2 common stock immediately prior to the effective time, and (v) other related matters.

More information about Tilray, Privateer and the proposed transaction is contained in this proxy statement/prospectus/information statement. Tilray and Privateer urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 24.

Tilray and Privateer are excited about the opportunities the merger brings to both Tilray’s and Privateer’s stockholders, and thank you for your consideration and continued support.

 

Brendan Kennedy

  

Michael Blue

Chief Executive Officer

  

Managing Partner

Tilray, Inc.

  

Privateer Holdings, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus/information statement is dated                 , 2019, and is first being mailed to Tilray’s and Privateer’s stockholders on or about                 , 2019.


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TILRAY, INC.

1100 Maughan Road

Nanaimo, BC, Canada V9X IJ2

(844) 845-7291

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 6, 2019

Dear Stockholders of Tilray:

On behalf of the board of directors of Tilray, Inc., a Delaware corporation, which we refer to as Tilray, we are pleased to deliver this proxy statement/prospectus/information statement for the 2019 special meeting of stockholders of Tilray, which will be held on December 6, 2019 at 10:00 a.m., local time, at the offices of Cooley LLP, 1700 Seventh Avenue, Suite 1900, Seattle, Washington 98101-1355, which we refer to as the Tilray special meeting, for the following purposes:

 

  1.

to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger and Reorganization, dated as of September 9, 2019, which we refer to as the merger agreement, by and among Tilray, Privateer Holdings, Inc., which we refer to as Privateer, and Down River Merger Sub, LLC, a wholly owned subsidiary of Tilray, which we refer to as merger sub, pursuant to which Privateer will merge with and into merger sub, which we refer to as the merger, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement, and the transactions contemplated thereby, including the merger, the issuance of shares of Tilray’s Class 1 common stock and Class 2 common stock to Privateer’s stockholders and optionholders pursuant to the terms of the merger agreement and the change of control under Nasdaq rules resulting from the merger;

 

  2.

to approve the amended and restated certificate of incorporation of Tilray in the form attached as Annex B to this proxy statement/prospectus/information statement; and

 

  3.

to consider and, if necessary, vote upon an adjournment of the Tilray special meeting to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.

Tilray will transact no other business at the Tilray special meeting except such business as may be properly brought before the Tilray special meeting or any adjournment or postponement thereof. Please refer to the attached proxy statement/prospectus/information statement for further information with respect to the business to be transacted at the Tilray special meeting.

The Tilray Board has fixed October 31, 2019, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Tilray special meeting and any adjournment or postponement thereof. Only holders of record of shares of Tilray’s capital stock at the close of business on the record date are entitled to notice of, and to vote at, the Tilray special meeting. At the close of business on the record date, Tilray had 16,666,667 shares of Class 1 common stock and 83,828,321 shares of Class 2 common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of holders of (i) the majority of the aggregate voting power of the votes cast at the Tilray special meeting and (ii) the majority of the voting power of the outstanding shares of Tilray’s Class 1 common stock and Class 2 common stock, each voting separately as a class, are required for approval of Proposal No. 1. The affirmative vote of holders of (i) the majority of the aggregate voting power of the outstanding shares of Tilray’s Class 1 and Class 2 common stock, voting together as a single class, as of the record date for the Tilray special meeting and (ii) the majority of the voting power of Tilray’s Class 1 common stock outstanding as of the record date is required for approval of Proposal No. 2. The affirmative vote of the majority of the voting power of the Tilray shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the Tilray special meeting is required for approval of Proposal No. 3. Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2.

Even if you plan to attend the Tilray special meeting in person, Tilray requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Tilray special meeting if you are unable to attend.


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THE TILRAY BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, TILRAY AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE TILRAY BOARD OF DIRECTORS RECOMMENDS THAT TILRAY’S STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of the Tilray Board of Directors,

Mark Castaneda

Chief Financial Officer

Nanaimo, BC

                , 2019


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement refers to important business and financial information about Tilray that is not included in or delivered with this document. You may obtain this information without charge upon your written or oral request by contacting the General Counsel of Tilray, Inc., 1100 Maughan Road, Nanaimo, BC, Canada V9X IJ2 or by calling (844) 845-7291.

To ensure timely delivery of these documents, any request should be made no later than November 22, 2019 to receive them before the Tilray special meeting.

For additional details about where you can find information about Tilray, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

 

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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     10  

SELECTED CONSOLIDATED FINANCIAL DATA

     22  

RISK FACTORS

     24  

FORWARD-LOOKING STATEMENTS

     58  

THE SPECIAL MEETING OF TILRAY’S STOCKHOLDERS

     60  

THE MERGER

     64  

MERGER AGREEMENT

     93  

AGREEMENTS RELATED TO THE MERGER

     110  

MATTERS BEING SUBMITTED TO A VOTE OF TILRAY’S STOCKHOLDERS

     112  

TILRAY BUSINESS

     114  

PRIVATEER BUSINESS

     128  

TILRAY MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     129  

TILRAY’S QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     146  

MANAGEMENT PRIOR TO AND FOLLOWING THE MERGER

     147  

INFORMATION REGARDING THE TILRAY BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

     150  

TILRAY EXECUTIVE COMPENSATION

     156  

RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED ORGANIZATION

     161  

DESCRIPTION OF TILRAY’S CAPITAL STOCK

     165  

COMPARISON OF RIGHTS OF HOLDERS OF TILRAY STOCK AND PRIVATEER STOCK

     171  

PRICE RANGE OF SECURITIES

     186  

PRINCIPAL STOCKHOLDERS OF TILRAY

     187  

PRINCIPAL STOCKHOLDERS OF COMBINED ORGANIZATION

     189  

LEGAL MATTERS

     192  

EXPERTS

     192  

WHERE YOU CAN FIND MORE INFORMATION

     192  

TRADEMARK NOTICE

     193  

OTHER MATTERS

     194  

TILRAY, INC. FINANCIAL STATEMENTS

     F-A-1  

FHF HOLDINGS LTD. FINANCIAL STATEMENTS

     F-C-1  

TILRAY, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     F-D-1  

 

Annex A

  

Merger Agreement

  

Annex B

  

Amended and Restated Certificate of Incorporation of Tilray, Inc.

  

Annex C

  

Opinion of Tilray, Inc. Financial Advisor

  

Annex D

  

Appraisal Rights (Section 262 of the Delaware General Corporation Law)

  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

Q: What is the merger?

A: Tilray, merger sub and Privateer entered into the merger agreement on September 9, 2019. The merger agreement contains the terms and conditions of the proposed merger involving Tilray and Privateer. Under the merger agreement, Privateer will merge with and into merger sub, with merger sub surviving as a wholly owned subsidiary of Tilray.

At the effective time of the merger, which we refer to as the effective time, each share of Privateer’s common stock outstanding immediately prior to the effective time (excluding certain shares to be canceled pursuant to the merger agreement, and shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the section titled “The Merger—Appraisal Rights” below) will be converted into the right to receive the applicable portion of the Stock Merger Consideration and, if applicable, a portion of the Cash Merger Consideration, in each case calculated in accordance with and as set forth in an allocation certificate as described in more detail in the section titled “The Merger—Merger Consideration”. The Stock Merger Consideration is comprised of 16,666,667 shares of Tilray Class 1 common stock and 58,333,333 shares of Tilray Class 2 common stock (in each case, as may be adjusted as set forth in the merger agreement), less the number of shares of Tilray Class 2 common stock issuable upon the exercise of certain Privateer options that will be assumed by Tilray, less a number of shares of Tilray Class 2 common stock equal to the amount by which Certain Privateer transaction expenses exceed $1 million (divided by the Tilray Closing Price), and less a number of shares of Tilray Class 2 common stock as determined in light of the amount of Cash Merger Consideration, as described in more detail in “The Merger—Merger Consideration”. Prior to the effective time, all outstanding shares of Privateer’s preferred stock will convert into shares of Privateer’s Class 2 common stock in accordance with the applicable provisions of Privateer’s amended and restated certificate of incorporation.

At the effective time, Tilray’s stockholders will continue to own and hold their existing shares of Tilray’s common stock, and all outstanding and unexercised options to purchase shares of Tilray’s common stock will remain in effect pursuant to their terms; provided, however, that unvested options to purchase Tilray stock held by certain Privateer service providers shall accelerate effective as of the effective time.

Q: What will happen to Tilray if, for any reason, the merger does not close?

A: The merger agreement requires that Privateer will not, prior to the effective time, transfer any of the capital stock of Tilray, including any shares of Tilray Class 1 common stock or Class 2 common stock, without the prior written consent of Tilray.

Tilray and Privateer have entered into a separate lock-up agreement, which we refer to as the Privateer lock-up agreement, that provides that if the merger agreement is terminated by either Tilray or Privateer because Privateer has not obtained the requisite written consent from Privateer’s stockholders within 15 business days of the registration statement of which this proxy statement/prospectus/information statement is a part becoming effective, then Privateer shall not transfer its Tilray common stock for 135 days from the termination date. The merger agreement requires that, within three months after the expiration date of the Privateer lock-up agreement, Privateer reimburse Tilray for its reasonable out-of-pocket fees, costs or expenses incurred in connection with the transactions contemplated by the merger agreement, up to a maximum amount of $3,000,000.

However, if the merger agreement is terminated pursuant to other provisions of the merger agreement, including for a failure of the merger to occur by March 9, 2020, then, following the termination, sales in the public market

 

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of a substantial number of the shares of Tilray’s common stock currently held by Privateer could occur at any time. These sales or distributions by Privateer, or the market perception that the holders of a large number of shares of Tilray’s Class 2 common stock, or shares of Tilray’s Class 1 common stock which are convertible into Class 2 common stock on a one-for-one basis, intend to sell Tilray’s Class 2 common stock, could significantly reduce the market price of Tilray’s Class 2 common stock. If the merger does not close, Tilray cannot predict the effect, if any, that future public sales of these securities or the availability of these securities for sale will have on the market price of Tilray’s Class 2 common stock.

For a discussion of the lock-up agreements, please see the section titled “Agreements Related to the Merger—Lock-Up Agreements.”

Q: Why are the two companies proposing to merge?

A: The Privateer Board and Privateer’s management regularly review Privateer’s operating and strategic plans in an effort to enhance stockholder value. These reviews involve, among other things, discussions regarding alternatives creating liquidity for its stockholders. The Privateer Board determined that it was in the best interests of Privateer’s stockholders to cause each of its four operating subsidiaries (Leafly Holdings, Inc., Docklight Brands, Inc., Left Coast Ventures Inc. and Tilray) to become fully independent companies. Therefore, in February 2019, Privateer distributed its ownership in each of Leafly, Docklight and Left Coast Ventures to its stockholders. Thereafter, Privateer began discussing the proposed merger with the special committee of the Tilray Board in earnest.

Privateer and Tilray believe that the merger will have the effect of an orderly release of the 75 million shares of Tilray common stock held by Privateer through their cancellation and a subsequent issuance to Privateer’s equity holders. The merger agreement requires that in order to be entitled to receive his, her, or its allocable portion of the Stock Merger Consideration and, if applicable, Cash Merger Consideration, each Privateer stockholder must deliver a lock-up agreement, which we refer to as the stockholder lock-up agreement, that prohibits (except in limited circumstances) the transfer of any shares of Tilray’s common stock or any security convertible into or exercisable or exchangeable for Tilray’s common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain options. The merger agreement also provides that each holder of Privateer options assumed by Tilray shall deliver an option assumption agreement (which is expected to include provisions substantially similar to the stockholder lock-up agreement). In addition, it is a condition to Tilray’s obligations to close the merger that certain specified stockholders of Privateer, including Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach, shall each have delivered a stockholder lock-up agreement to Tilray prior to the closing of the merger.

The transfer restrictions under the stockholder lock-up agreement commence at the effective time. On the first anniversary of the merger, prohibitions on transfer with respect to 50% of the applicable securities will lapse (and all Cash Consideration Shares and other permitted sales of Stock Merger Consideration will be credited towards and deemed included in such 50% lapse). On the date that is two full trading days after the public dissemination of Tilray’s annual or quarterly financial results for each of the four quarters following the first anniversary of the merger, the transfer restrictions with respect to an additional 12.5% of the applicable securities shall lapse, such that the restrictions with respect to 100% of the applicable securities shall lapse as of the second anniversary of the closing date of the merger. The lapse of the restrictions shall apply equally to each class and type of applicable securities held by the applicable party to the stockholder lock-up agreement. The restrictions on transfer are subject to certain exceptions and carve outs, as described in more detail in the form of stockholder lock-up agreement.

For a discussion of Tilray’s and Privateer’s reasons for the merger, please see the section titled “The Merger—Tilray Reasons for the Merger” and “The Merger—Privateer Reasons for the Merger” in this proxy statement/prospectus/information statement. For a discussion of the stockholder lock-up agreement, the option assumption agreement, and other agreements related to the merger, see “Agreements Related to the Merger—Lock-up Agreements” in this proxy statement/prospectus/information statement.

 

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Q: Why am I receiving this proxy statement/prospectus/information statement?

A: You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of Tilray as of the record date, or a stockholder of Privateer eligible to execute the Privateer written consent. If you are a stockholder of Tilray, you are entitled to vote at Tilray’s stockholder meeting (referred to herein as the “Tilray special meeting”) to approve Proposal Nos. 1, 2 and 3. If you are a stockholder of Privateer, you are being requested to sign and return the Privateer written consent to adopt the merger agreement and approve the transactions contemplated thereby, including the merger.

This document serves as:

 

   

a proxy statement of Tilray used to solicit proxies for the Tilray special meeting; and

 

   

a prospectus of Tilray used to offer shares of Tilray’s Class 1 and Class 2 common stock in exchange for shares of Privateer’s capital stock held by Privateer in the merger; and

 

   

an information statement of Privateer used to solicit the written consent of its stockholders for the adoption of the merger agreement and the approval of the merger and related transactions.

In addition, promptly after the effective time, Tilray intends to file with the Securities and Exchange Commission, which we refer to as the SEC, a registration statement on Form S-8 relating to the shares of Tilray Class 2 common stock issuable upon exercise of options to purchase shares of Privateer’s common stock assumed by Tilray pursuant to the merger agreement.

Q: What is required to consummate the merger?

A: To consummate the merger, Tilray’s stockholders must approve Proposal Nos. 1 and 2.

Proposal No. 1, the approval of the merger and the issuance of Tilray’s Class 1 common stock and Class 2 common stock pursuant to the merger agreement by Tilray’s stockholders and the change of control under Nasdaq rules resulting from the merger, requires the affirmative vote of holders of (i) the majority of the aggregate voting power of the votes cast at the Tilray special meeting and (ii) the majority of the voting power of the outstanding shares of Tilray’s Class 1 common stock and Class 2 common stock, each voting separately as a class. Proposal No. 2, the approval of the amended and restated certificate of incorporation of Tilray in the form attached as Annex B to this proxy statement/prospectus/information statement, requires the affirmative vote of holders of (i) the majority of the aggregate voting power of the outstanding shares of Tilray’s Class 1 and Class 2 common stock, voting together as a single class, as of the record date for the Tilray special meeting and (ii) the majority of the voting power of Tilray’s Class 1 common stock outstanding as of the record date. The foregoing votes of the Tilray stockholders are referred to as the required Tilray stockholder vote. Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2.

To consummate the merger, the Privateer stockholders must (i) adopt and approve the merger agreement and the transactions contemplated thereby and (ii) approve the amended and restated certificate of incorporation of Privateer. Pursuant to the merger agreement, the following stockholder approvals, which we refer to as the required Privateer stockholder vote, are required for the foregoing:

 

   

a majority of the aggregate voting power of outstanding shares of Privateer common stock and Privateer preferred stock, voting as a single class;

 

   

a majority of the aggregate voting power of the outstanding shares of Privateer preferred stock, voting as a single class;

 

   

a majority of the outstanding shares of Privateer Series A preferred stock, voting as a single class;

 

   

a majority of the outstanding shares of Privateer Series B preferred stock, voting as a single class; and

 

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a majority of the aggregate voting power of outstanding shares of Privateer common stock and Privateer preferred stock, voting as a single class (in each case, excluding shares of Privateer common stock and Privateer preferred stock held or beneficially owned by each of Brendan Kennedy, Michael Blue, Christian Groh, and Michael Auerbach).

Certain of Privateer’s stockholders, who in the aggregate own approximately 35.8% of the outstanding capital stock and 45.7% of the voting power of Privateer as of date of the merger agreement, are parties to support agreements with Tilray and Privateer, whereby such stockholders have agreed to vote their shares in favor of (i) the approval and adoption of the merger agreement, (ii) the approval of the merger and the other transactions contemplated by the merger agreement, (iii) the approval and adoption of the amended and restated certificate of incorporation of Privateer, (iv) the conversion of Privateer preferred stock into Privateer Class 2 common stock immediately prior to the effective time, and (v) other related matters.

In addition to the requirement of obtaining the stockholder approvals described above and appropriate regulatory approvals, each of the other closing conditions set forth in the merger agreement must be satisfied or waived. For a more complete description of the closing conditions under the merger agreement, we urge you to read the section titled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement.

As of September 30, 2019, Privateer beneficially owns or controls an approximate 75% equity interest in Tilray through ownership or control of 16,666,667 shares of Tilray’s Class 1 common stock and 58,333,333 shares of Tilray’s Class 2 common stock, representing approximately 90% of the voting power of Tilray’s capital stock. Privateer has indicated that it intends to vote in favor of each of the proposals presented by Tilray for approval by holders of its common stock. Therefore, approval of Tilray Proposals 1 and 2, and if necessary 3, is expected and, if all other conditions to the merger are satisfied, the merger will be consummated.

Q: What will Privateer’s stockholders and option holders receive in the merger?

A: Immediately prior to the effective time, each share of preferred stock, $0.0001 par value, of Privateer, which we refer to as Privateer preferred stock, will be converted into one share of Privateer Class 2 common stock in accordance with the applicable provisions of Privateer’s amended and restated certificate of incorporation. At the effective time, each share of Privateer capital stock outstanding immediately prior to the effective time (excluding certain shares to be canceled pursuant to the merger agreement and shares held by stockholders who have exercised and perfected appraisal rights) will be automatically converted into the right to receive the applicable portion of the Stock Merger Consideration and, if applicable, a portion of the Cash Merger Consideration, in each case calculated in accordance with and as set forth in an allocation certificate as described in more detail in the merger agreement. In addition, in connection with the merger, Tilray will assume certain Privateer options, which will be converted into options to purchase shares of Tilray Class 2 common stock (which we refer to as the Option Merger Consideration).

The Tilray Board may, in its sole discretion, designate all or any portion of the net proceeds from an Offering as Cash Merger Consideration to be paid in cash pro rata (i) in lieu of a portion of the Stock Merger Consideration and (ii) in lieu of a portion of the Option Merger Consideration to certain service providers of Privateer in exchange for the cancellation of certain Privateer options determined to be in-the-money, in each case, in accordance with the allocation certificate as described in more detail in the merger agreement. The sum of the Stock Cash Consideration Shares and the Option Cash Consideration Shares (together, the “Cash Consideration Shares”) shall not exceed 20% of the Total Merger Consideration. Tilray is under no obligation to conduct an Offering or to pay any Cash Merger Consideration.

Assuming no Cash Merger Consideration is paid in connection with the merger, immediately after the merger, (i) Privateer’s stockholders as of immediately prior to the effective time are expected to own approximately 75.4% of the outstanding capital stock of Tilray and 90.4% of the voting power of Tilray and (ii) the three

 

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founders of Privateer, namely Brendan Kennedy (Tilray’s Chief Executive Officer and President, as well as a member of the Tilray Board), Michael Blue, and Christian Groh, are expected to collectively own 25.7% of the outstanding capital stock of Tilray and 71.0% of the voting power of Tilray. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, a member of the Privateer Board and the largest stockholder of Privateer. Michael Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer.

For a more complete description of what Privateer’s stockholders and option holders will receive in the merger, please see the section titled “The Merger Agreement—Merger Consideration” in this proxy statement/prospectus/information statement.

Q: What will Tilray’s stockholders and option holders receive in the merger?

A: At the effective time, Tilray’s stockholders other than Privateer will continue to own and hold their existing shares of Tilray’s common stock, and all outstanding and unexercised options to purchase shares of Tilray’s common stock will remain in effect pursuant to their terms; provided, however, that unvested options to purchase Tilray stock held by certain Privateer service providers shall accelerate effective as of the effective time.

Q: Who will be the directors of Tilray following the merger?

A: In connection with the merger, there will be no change to the directors of Tilray. Following the closing of the merger, the Tilray Board will continue to be constituted as follows:

 

Name

   Age      Current Principal Affiliation

Brendan Kennedy

     47      President, Chief Executive Officer and Director

Michael Auerbach

     43      Director

Rebekah Dopp

     42      Director

Maryscott Greenwood

     53      Director

Christine St.Clare

     69      Director

Q: Who will be the executive officers of Tilray immediately following the merger?

A: In connection with the merger, there will be no change to the executive officers of Tilray. Following the closing of the merger, Tilray’s executive officers will continue to be as follows:

 

Name

   Age      Current Principal Affiliation

Brendan Kennedy

     47      President, Chief Executive Officer and Director

Edward Wood Pastorius, Jr.

     51      Chief Revenue Officer

Mark Castaneda

     55      Chief Financial Officer and Treasurer

Andrew Pucher

     36      Chief Corporate Development Officer

Q: As a stockholder of Tilray, how does the Tilray Board recommend that I vote?

A: After careful consideration, on September 9, 2019, the special committee of the Tilray Board, comprised of three independent and disinterested directors of Tilray, which we refer to as the special committee, unanimously (i) determined that the consummation of the merger and the other transactions contemplated by the merger agreement, on the terms and conditions substantially as set forth in the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) approved the merger agreement and (iv) recommended that the Tilray Board recommend the approval and adoption of the merger agreement by Tilray’s stockholders. On September 9, 2019, and based upon the recommendation of the special committee, the Tilray Board unanimously (i) determined that the entry by Tilray into the merger agreement, the merger and the

 

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other transactions contemplated by the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of control of Tilray pursuant to Nasdaq rules, (iii) approved and authorized each of the transaction documents, including the merger agreement, and (iv) recommended that the stockholders of Tilray approve the merger agreement and the other transactions contemplated thereby, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of control of Tilray pursuant to Nasdaq rules. The Tilray Board accordingly recommends that the Tilray stockholders vote:

 

   

“FOR” Proposal No. 1 to approve the merger agreement and the transactions contemplated thereby, including the merger, the issuance of shares of Tilray’s Class 1 and Class 2 common stock to Privateer’s stockholders and optionholders in the merger and the change of control under Nasdaq rules resulting from the merger;

 

   

“FOR” Proposal No. 2 to approve the amended and restated certificate of incorporation of Tilray; and

 

   

“FOR” Proposal No. 3 to, if necessary, adjourn the Tilray special meeting if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.

Q: As a stockholder of Privateer, how does the Privateer Board recommend that I vote?

A: After careful consideration, the Privateer Board recommends that Privateer’s stockholders execute the written consent indicating their vote:

 

   

in favor of the adoption of the merger agreement and the approval of the merger and the transactions contemplated by the merger agreement;

 

   

in favor of the adoption and approval of the amended and restated certificate of incorporation of Privateer; and

 

   

in favor of converting all outstanding shares of Privateer preferred stock into Privateer Class 2 common stock immediately prior to the effective time.

Q: What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable?

A: You should carefully review the section of this proxy statement/prospectus/information statement titled “Risk Factors,” which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Tilray and Privateer, as an independent company, is subject.

Q: When do you expect the merger to be consummated?

A: We anticipate that the merger will occur during the fourth quarter of 2019, soon after the Tilray special meeting to be held on December 6, 2019 but we cannot predict the exact timing. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement.

Q: What are the material U.S. federal income tax consequences of the merger to U.S. Holders of Privateer shares?

A: It is a condition to Tilray’s obligation to consummate the merger that Tilray receive an opinion from Paul Hastings LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within

 

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the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the “Code”). It is a condition to Privateer’s obligation to consummate the merger that Privateer receive an opinion from Cooley LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. Subject to the tax opinion representations and assumptions, in the opinions of Cooley LLP and Paul Hastings LLP, the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. Accordingly, a U.S. Holder (as defined below) of Privateer’s common stock will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Privateer common stock for shares of Tilray common stock in the merger, except with respect to cash received by a U.S. Holder of Privateer common stock in lieu of a fractional share of Tilray common stock. A different gain recognition rule may apply if a portion of the merger consideration is paid in cash rather than entirely (other than for fractional shares) in Tilray common stock. If any of the tax opinion representations and assumptions is incorrect, incomplete or inaccurate or is violated, the accuracy of the opinions described above may be affected and the U.S. federal income tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

Please review the information in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more complete description of the material U.S. federal income tax consequences of the merger to U.S. Holders of Privateer common stock. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws.

Q: What do I need to do now?

A: Tilray and Privateer urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

If you are a stockholder of Tilray as of the record date, you may provide your proxy instructions in one of four different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may provide your proxy instructions via phone by following the instructions on your proxy card or voting instruction form. Third, you may provide your proxy instructions via the internet by following the instructions on your proxy card or voting instruction form. Finally, you may vote in person at the Tilray special meeting, as described below. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Tilray special meeting.

If you are a stockholder of Privateer, you may execute and return your written consent to Privateer in accordance with the instructions provided by Privateer.

Q: What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

A: If you are a stockholder of Tilray as of the record date, the failure to return your proxy card or otherwise provide proxy instructions (a) will reduce (i) the aggregate number of votes required to approve Proposal No. 1 for the required vote of holders of the majority of the aggregate voting power of the votes cast at the Tilray special meeting (which is not the only vote required in respect of that Proposal), and (ii) the aggregate number of votes required to approve Proposal No. 3, (b) will have the same effect as voting against Proposal No. 2 and (c) your shares will not be counted for purposes of determining whether a quorum is present at the Tilray special meeting.

Q: May I vote in person at the Tilray special meeting of stockholders of Tilray?

A: If your shares of Tilray’s common stock are registered directly in your name with Tilray’s transfer agent as of the record date, you are considered to be the stockholder of record with respect to those shares, and the proxy

 

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materials and proxy card are being sent directly to you by Tilray. If you are a stockholder of record of Tilray as of the record date, you may attend the Tilray special meeting and vote your shares in person. Even if you plan to attend the Tilray special meeting in person, Tilray requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Tilray special meeting if you become unable to attend. If your shares of Tilray’s common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the Tilray special meeting. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Tilray special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the Tilray special meeting.

Q: When and where is the Tilray special meeting of Tilray’s stockholders?

A: The Tilray special meeting will be held at 10:00 a.m., local time, on December 6, 2019 at the offices of Cooley LLP, 1700 Seventh Avenue, Suite 1900, Seattle, Washington 98101-1355, unless postponed or adjourned to a later date. Subject to space availability, all of Tilray’s stockholders as of the record date, or their duly appointed proxies, may attend the Tilray special meeting.

Q: If my Tilray shares are held in “street name” by my broker, will my broker vote my shares for me?

A: Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Tilray’s common stock without instructions from you. Brokers are not expected to have discretionary authority to vote for any of the proposals. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

Q: May I change my vote after I have submitted a proxy or provided proxy instructions?

A: Yes. A Tilray stockholder can revoke its proxy at any time before the final vote at the Tilray special meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:

 

   

You may submit another properly completed proxy card with a later date.

 

   

You may grant a subsequent proxy through the internet.

 

   

You may send a timely written notice that you are revoking your proxy to Tilray’s Corporate Secretary at 1100 Maughan Road, Nanaimo, BC, Canada, V9X IJ2.

 

   

You may attend the Tilray special meeting and vote in person. Simply attending the meeting will not, by itself, revoke your proxy.

Your most current proxy card or internet proxy is the one that is counted.

If your shares are held by your broker, bank or other agent, you should follow the instructions provided by your broker, bank or other agent.

Q: Who is paying for this proxy solicitation?

A: Tilray and Privateer are each responsible for their respective costs of printing and Tilray is responsible for the cost of filing of this proxy statement/prospectus/information statement and the proxy card. Tilray may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners of Tilray’s common stock.

 

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Q: Who can help answer my questions?

A: If you are a stockholder of Tilray and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Tilray, Inc.

1100 Maughan Road

Nanaimo, BC V9X IJ2

Tel: (844) 845-7291

Attn: Dara Redler, General Counsel

If you are a stockholder of Privateer, and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Privateer Holdings, Inc.

2701 Eastlake Avenue E., 3rd Floor

Seattle, WA 98102

Tel: (206) 432-9325

Attn: Patrick Moen, General Counsel

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Tilray special meeting and Privateer’s stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the merger agreement attached as Annex A, the opinion of Imperial Capital LLC attached as Annex C and the other annexes to which you are referred herein. For more information, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

The Companies

Tilray, Inc.

1100 Maughan Road

Nanaimo, BC, Canada V9X IJ2

(844) 845-7291

Attn: Brendan Kennedy

Tilray is a global pioneer in the research, cultivation, production and distribution of cannabis and cannabinoids currently serving tens of thousands of patients and consumers in twelve countries spanning five continents.

Privateer Holdings, Inc.

2701 Eastlake Avenue E., 3rd Floor

Seattle, WA 98102

Tel: (206) 432-9325

Attn: Patrick Moen

Privateer is the world’s first private equity firm to invest exclusively in legal cannabis. The Privateer team previously raised approximately $215 million.

Down River Merger Sub, LLC

Merger sub is a wholly owned subsidiary of Tilray, and was formed solely for the purposes of carrying out the merger.

The Merger (see page 64)

If the merger is completed, Privateer will merge with and into merger sub, with merger sub surviving as a wholly owned subsidiary of Tilray.

Immediately prior to the effective time, each share of Privateer preferred stock, will be converted into one share of Privateer common stock in accordance with the applicable provisions of Privateer’s amended and restated certificate of incorporation. At the effective time, each share of Privateer capital stock outstanding immediately prior to the effective time (excluding certain shares to be canceled pursuant to the merger agreement and shares held by stockholders who have exercised and perfected appraisal rights) will be automatically converted into the right to receive the applicable portion of the Tilray Stock Merger Consideration and, if applicable, a portion of the Cash Merger Consideration as set forth in an allocation described in more detail in the merger agreement and in this proxy statement/prospectus/information statement. The Stock Merger Consideration is comprised of 16,666,667 shares of Tilray Class 1 common stock and 58,333,333 shares of Tilray Class 2 common stock (in



 

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each case, as may be adjusted as set forth in the merger agreement), less the number of shares of Tilray Class 2 common stock issuable upon the exercise of certain Privateer options that will be assumed by Tilray, less a number of shares of Tilray Class 2 common stock equal to the amount by which certain Privateer transaction expenses exceed $1 million (divided by the Tilray Closing Price), and less a number of shares of Tilray Class 2 common stock as determined in light of the amount of Cash Merger Consideration. Tilray will assume outstanding options to purchase shares of Privateer capital stock, and in connection with the merger they will be converted into options to purchase shares of Tilray’s Class 2 common stock. At the effective time, Tilray’s stockholders will continue to own and hold their existing shares of Tilray’s common stock, and all outstanding and unexercised options to purchase shares of Tilray’s common stock will remain in effect pursuant to their terms; provided, however, that unvested options to purchase Tilray stock held by certain Privateer service providers shall accelerate effective as of the effective time.

Assuming no Cash Merger Consideration is paid in connection with the merger, immediately after the merger, (i) Privateer’s stockholders as of immediately prior to the effective time are expected to own approximately 75.4% of the outstanding capital stock of Tilray and 90.4% of the voting power of Tilray and (ii) the three founders of Privateer, namely Brendan Kennedy (Tilray’s Chief Executive Officer and President, as well as a member of the Tilray Board), Michael Blue and Christian Groh, are expected to collectively own 25.7% of the outstanding capital stock of Tilray and 71.0% of the voting power of Tilray. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, a member of the Privateer Board and the largest stockholder of Privateer. Michael Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer.

For a more complete description of the merger and the allocation of merger consideration please see the section titled “The Merger Agreement” in this proxy statement/prospectus/information statement.

The closing of the merger will occur no later than the second business day after the last of the conditions to the merger has been satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of each such conditions), or at such other time as Tilray and Privateer agree. Tilray and Privateer anticipate that the consummation of the merger will occur in the fourth quarter of 2019. However, because the merger is subject to a number of conditions, neither Tilray nor Privateer can predict exactly when the closing will occur or if it will occur at all.

Reasons for the Merger (see pages 72 and 74)

The Privateer Board and Privateer’s management regularly review Privateer’s operating and strategic plans in an effort to enhance stockholder value. These reviews involve, among other things, discussions regarding alternatives creating liquidity for its stockholders. The Privateer Board determined that it was in the best interests of Privateer’s stockholders to cause each of its four operating subsidiaries (Leafly, Docklight, Left Coast Ventures and Tilray) to become fully independent companies. In February 2019, Privateer distributed its ownership in each of Leafly, Docklight and Left Coast Ventures to its stockholders. Thereafter, Privateer began discussing the proposed merger with the special committee of the Tilray Board in earnest.

Privateer and Tilray believe that the merger will have the effect of an orderly release of the 75 million shares of Tilray common stock held by Privateer through their cancellation and a subsequent issuance to Privateer’s equity holders. The shares of Tilray common stock held by Privateer currently represent 75% of Tilray’s total shares outstanding. The merger agreement requires that in order to be entitled to receive his, her, or its allocable portion of the Stock Merger Consideration each Privateer stockholder must deliver a lock-up agreement, and that each holder of Privateer options assumed by Tilray shall deliver an option assumption agreement, that in each case prohibits (except in limited circumstances) the transfer any shares of Tilray’s common stock or any security convertible into or exercisable or exchangeable for Tilray’s common stock, including, as applicable, shares



 

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received in the merger and issuable upon exercise of certain options. In addition, it is a condition to Tilray’s obligations to close the merger that certain specified stockholders of Privateer, including Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach shall have delivered a stockholder lock-up agreement to Tilray prior to the closing of the merger.

Each of Tilray’s and Privateer’s respective board of directors also considered other reasons for the merger, as described herein. For example, the Tilray Board considered, among other things:

 

   

the impact of the merger and the other transactions contemplated by the merger agreement on:

 

   

the current overhang of Privateer’s concentrated holdings of Tilray common stock;

 

   

the composition of the Tilray stockholder base;

 

   

the public float of Tilray common stock;

 

   

Tilray’s capital requirements;

 

   

the impact of any Privateer liabilities that might be assumed by Tilray as part of the merger;

 

   

the assumption by Tilray of Privateer stock options held by certain employees identified as Tilray service providers; and

 

   

the potential effect of the merger on the voting control of Tilray over time to the extent that shares of Tilray Class 1 common stock, having ten votes per share, are sold and automatically converted into shares of Tilray Class 2 common stock, having one vote per share.

The special committee of the Tilray Board also considered the terms of the merger agreement and the transactions contemplated thereby, including:

 

   

the prohibitions on transfer of Tilray common stock by Privateer prior to the termination of the merger agreement, and the entry by Privateer into the Privateer lock-up agreement that provides that if the merger agreement is terminated by either Tilray or Privateer on certain conditions, then Privateer shall not transfer its Tilray common stock for 135 days from the termination date;

 

   

the execution and delivery of lock-up agreements and support agreements by certain stockholders of Privateer; and

 

   

a condition precedent that no more than 1.5% of Privateer’s stockholders shall continue to have a right to seek appraisal, dissenters’, or similar rights under applicable with respect to their Privateer capital stock by virtue of the merger.

In addition, the Privateer Board approved the merger based on a number of factors, including the:

 

   

potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

   

Privateer Board’s belief that no alternatives to the merger were reasonably likely to create greater value for Privateer’s stockholders, after reviewing the various strategic options to enhance stockholder value that were considered by the Privateer Board; and

 

   

expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes.

Opinion of the Tilray Financial Advisor (see page 75)

The special committee of the Tilray Board engaged Imperial Capital, LLC, which we refer to as Imperial, to provide financial advisory services and to consider and evaluate potential strategic transactions with Privateer.



 

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Tilray ultimately requested that Imperial deliver a fairness opinion with respect to the merger. On September 8, 2019, Imperial delivered its oral opinion, subsequently confirmed in writing, to the special committee to the effect that, as of the date of its opinion and based upon and subject to the qualifications, limitations and assumptions set forth therein, that the transaction is fair, from a financial point of view, to Tilray and the stockholders thereof (other than the controlling stockholders of Tilray).

The full text of Imperial’s written opinion, which sets forth the procedures followed, assumptions made, matters considered, and limitations and qualifications of the reviews, analyses and inquiries undertaken in connection with the opinion, is attached as Annex C. You are urged to, and should, read the written opinion of Imperial carefully and in its entirety. Imperial’s opinion was intended for the use and benefit of the special committee (in its capacity as such) in connection with its evaluation of the transactions contemplated by the merger agreement. Imperial’s opinion does not constitute a recommendation as to how stockholders of Tilray should vote or act in connection with the transactions contemplated by the merger agreement or any aspect thereof. Imperial’s opinion does not address the merits of the underlying decision by Tilray to engage in the transactions contemplated by the merger agreement or the relative merits of any strategic or financial alternatives that may be available to Tilray. Imperial was not requested to, and did not, solicit third party indications of interest in acquiring all or any part of Tilray, nor did Imperial negotiate with any of the parties to the transactions contemplated by the merger agreement.

For a more complete description, see the section of this proxy statement captioned “The Merger—Opinion of the Tilray Financial Advisor.”

Material U.S. Federal Income Tax Consequences of the Merger (see page 84)

It is a condition to Tilray’s obligation to consummate the merger that Tilray receive an opinion from Paul Hastings LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. It is a condition to Privateer’s obligation to consummate the merger that Privateer receive an opinion from Cooley LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. Subject to the tax opinion representations and assumptions, in the opinion of Cooley LLP and Paul Hastings LLP, the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. Accordingly, a U.S. Holder of Privateer common stock will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Privateer common stock for shares of Tilray common stock in the merger, except with respect to cash received by a U.S. Holder of Privateer common stock in lieu of a fractional share of Tilray common stock. A different gain recognition rule may apply if a portion of the merger consideration is paid in cash rather than entirely (other than for fractional shares) in Tilray common stock. If any of the tax opinion representations and assumptions is incorrect, incomplete or inaccurate or is violated, the accuracy of the opinions described above may be affected and the U.S. federal income tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

Please review the information in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more complete description of the material U.S. federal income tax consequences of the merger to U.S. Holders of Privateer common stock. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws.



 

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Overview of the Merger Agreement

Merger Consideration (see page 82)

Immediately prior to the effective time, each share of preferred stock, $0.0001 par value, of Privateer, will be converted into one share of Privateer Class 2 common stock in accordance with the applicable provisions of Privateer’s amended and restated certificate of incorporation. At the effective time, each share of Privateer capital stock outstanding immediately prior to the effective time (excluding certain shares to be canceled pursuant to the merger agreement and shares held by stockholders who have exercised and perfected appraisal rights) will be automatically converted into the right to receive the applicable portion of the Stock Merger Consideration and, if applicable, a portion of the Cash Merger Consideration, in each case calculated in accordance with and as set forth in an allocation certificate as described in more detail in the merger agreement.

The “Stock Merger Consideration” means 58,333,333 shares of Tilray Class 2 common stock and 16,666,667 shares of Tilray Class 1 common stock, in each case, as may be adjusted pursuant to the merger agreement; provided, however, that the number of shares of Tilray Class 2 common stock in the Stock Merger Consideration shall be reduced by the following:

 

   

the Option Merger Consideration (the number of shares of Tilray Class 2 common stock issuable pursuant to certain Privateer options that will be assumed by Tilray (and which options will be converted into options to purchase shares of Tilray Class 2 common stock));

 

   

a number of shares of Tilray Class 2 common stock equal to the amount by which certain Privateer transaction expenses exceed $1 million, divided by the Tilray Closing Price;

 

   

the Stock Cash Consideration Shares (a number of shares of Tilray Class 2 common stock equal to the amount of Cash Merger Consideration (excluding the Aggregate Cash Option Consideration, as defined below) divided by the public offering price of a share of Tilray Class 2 common stock in an Offering (less any underwriting discounts and commissions)); and

 

   

the Option Cash Consideration Shares (a number of shares of Tilray Class 2 common stock equal to the option exchange ratio described in the merger agreement multiplied by the aggregate total of all in-the-money options held by certain service providers of Privateer that are cancelled in exchange for a certain percentage of the Cash Merger Consideration (such cash amount, the “Aggregate Cash Option Consideration”)).

The Tilray Board may, in its sole discretion, designate all or any portion of the net proceeds from an Offering as Cash Merger Consideration, to be paid in cash pro rata (i) in lieu of a portion of the Stock Merger Consideration to the Privateer stockholders who would otherwise be entitled to receive Tilray Class 2 common stock in the merger, and (ii) in lieu of a portion of the Option Merger Consideration to certain service providers of Privateer in exchange for the cancellation of certain Privateer options determined to be in-the-money, in each case, in accordance with the allocation certificate as described in more detail in the merger agreement. The Cash Consideration Shares shall not exceed 20% of the Total Merger Consideration. Tilray is under no obligation to conduct an Offering or to pay any Cash Merger Consideration.

At the effective time, Tilray’s stockholders will continue to own and hold their existing shares of Tilray’s common stock, and all outstanding and unexercised options to purchase shares of Tilray’s common stock will remain in effect pursuant to their terms; provided, however, that unvested options to purchase Tilray stock held by certain Privateer service providers shall accelerate effective as of the effective time. Assuming no Cash Merger Consideration is paid in connection with the merger, immediately after the merger, (i) Privateer’s stockholders as of immediately prior to the effective time are expected to own approximately 75.4% of the outstanding capital stock of Tilray and 90.4% of the voting power of Tilray and (ii) the three founders of Privateer, namely Brendan Kennedy (Tilray’s Chief Executive Officer and President, as well as a member of the



 

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Tilray Board), Michael Blue and Christian Groh, are expected to collectively own 25.7% of the outstanding capital stock of Tilray and 71.0% of the voting power of Tilray. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, a member of the Privateer Board and the largest stockholder of Privateer. Michael Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer.

No fractional shares of Tilray’s common stock will be issuable to Privateer’s stockholders pursuant to the merger agreement. Instead, each stockholder of Privateer who would otherwise be entitled to receive a fraction of a share of Tilray’s common stock, after aggregating all fractional shares of Tilray’s common stock issuable to such stockholder, will, in lieu of such fraction of a share and upon surrender by the stockholder of a letter of transmittal pursuant to the merger agreement and any accompanying documents as required therein, be paid in cash (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the Tilray Closing Price.

Treatment of Privateer’s Stock Awards (see page 96)

At the effective time:

 

   

each Privateer Class 1 option to purchase shares of Privateer’s capital stock outstanding and unexercised immediately prior to the effective time under the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, whether or not vested, will be converted into an option to purchase shares of Tilray’s Class 2 common stock or cancelled and converted into a right to receive a portion of the Cash Merger Consideration as calculated in accordance with the Cash-Out Options Allocation (as defined below) and as set forth on the allocation certificate. From and after the effective time, each Privateer Class 1 option assumed by Tilray may be exercised, subject to the holder thereof entering into an option assumption agreement, pursuant to which, the holder will agree, among other things, to the lock-up requirements, to the conversion of the holder’s options as described in this proxy statement, and to release all claims related to the holder’s options other than to the converted Privateer options as described herein, for such number of shares of Tilray Class 2 common stock as is determined by multiplying the number of shares of Privateer’s Class 1 common stock subject to the option by the option exchange ratio and rounding that result down to the nearest whole number of shares of Tilray’s Class 2 common stock. The per share exercise price of the converted option will be determined by dividing the existing exercise price of the Privateer’s Class 1 option by the option exchange ratio and rounding that result up to the nearest whole cent. Any restrictions on the exercise of any Privateer Class 1 option assumed by Tilray will continue following the conversion and the term, exercisability, vesting schedules and other provisions of assumed Privateer Class 1 options will generally remain unchanged; notwithstanding the foregoing, the conversion of each Privateer Class 1 option into an option to purchase shares of Tilray Class 2 common stock will be made in a manner such that it will be intended that the conversion of a Privateer Class 1 option will not constitute a “modification” of such Privateer Class 1 option; and

 

   

each Privateer Class 3 option to purchase shares of Privateer’s capital stock outstanding and unexercised immediately prior to the effective time under the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, whether or not vested, will be converted into an option to purchase shares of Tilray’s Class 2 common stock or cancelled and converted into a right to receive a portion of the Cash Merger Consideration, if applicable, as calculated in accordance with the Cash-Out Options Allocation and as set forth on the allocation certificate. From and after the effective time, each Privateer Class 3 option assumed by Tilray may be exercised, subject to the holder thereof entering into an option assumption agreement, pursuant to which, the holder will agree, among other things, to the lock-up requirements, to the conversion of the holder’s options as described in this proxy statement, and to release all claims related to the holder’s options other than to the converted Privateer options as



 

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described herein, for such number of shares of Tilray Class 2 common stock as is determined by multiplying the number of shares of Privateer’s Class 3 common stock subject to the option by the option exchange ratio and rounding that result down to the nearest whole number of shares of Tilray’s Class 2 common stock. The per share exercise price of the converted option will be determined by dividing the existing exercise price of the Privateer Class 3 option by the option exchange ratio and rounding that result up to the nearest whole cent. Any restrictions on the exercise of any Privateer Class 3 option assumed by Tilray will continue following the conversion and the term, exercisability, vesting schedules and other provisions of assumed Privateer Class 3 options will generally remain unchanged; notwithstanding the foregoing, the conversion of each Privateer Class 3 option into an option to purchase shares of Tilray Class 2 common stock will be made in a manner such that it will be intended that the conversion of a Privateer Class 3 option will not constitute a “modification” of such Privateer Class 3 option.

The “option exchange ratio” is equal to the Total Merger Consideration, less the escrow amount, divided by the Privateer Exchange Shares. “Cash-Out Options Allocation” means the allocation of the Individual Option Cash Consideration (as defined in the merger agreement), with respect to each grant of in-the-money options (with the grants of in-the-money options with the lowest exercise price being allocated the Individual Option Cash Consideration and cashed out and cancelled first, in ascending order by exercise price until all of the Individual Option Cash Consideration is exhausted), the aggregate number of in-the-money options, per grant, equal to the lesser of (i) the total number of options in that grant to which a portion of Individual Option Cash Consideration has not yet been allocated and (ii) the quotient of (A) the Individual Option Cash Consideration payable to that optionholder and not yet allocated, divided by (B) the Option FMV (as defined in the merger agreement) less the applicable exercise price for such grant.

Prior to the closing of the merger, Privateer has the option to effect the cancellation and termination of each Privateer option to purchase Privateer capital stock with a per share exercise price that is equal to or greater than $27.00. In consideration for such cancellation and termination, the holder of such option will be entitled to receive one-half of a share of Privateer Class 1 common stock or Privateer Class 3 common stock, as applicable, (rounded down to the nearest whole share) for each share of Privateer common stock subject to such terminated option. The cancellation of each such option and the receipt of such consideration will be conditioned on the holder having first executed an option cancellation agreement.

In addition, pursuant to the merger agreement, at the effective time, any restricted share of Privateer common stock that will be converted into the right to receive shares of Tilray common stock will remain subject to the same restrictions, which will continue in full force and effect and the vesting schedule and other provisions of such Privateer restricted shares shall otherwise remain unchanged.

Conditions to the Completion of the Merger (see page 97)

To consummate the merger, Tilray’s stockholders must approve Proposal Nos. 1 and 2. Additionally, Privateer’s stockholders must (i) adopt and approve the merger agreement and the transactions contemplated thereby, (ii) adopt and approve the amended and restated certificate of incorporation of Privateer, (iii) acknowledge that the approval given is irrevocable and that the approving Privateer stockholders are aware of their rights to demand appraisal for their shares pursuant to Section 262 of the DGCL, and that the approving Privateer stockholders have received and read a copy of Section 262 of the DGCL, which is included as Annex D in this proxy statement/prospectus/information statement, (iv) acknowledge that by their approval of the merger the approving Privateer stockholders are not entitled to appraisal rights with respect to their shares in connection with the merger and thereby waive any rights to receive payment of the fair value of their capital stock under the DGCL and (v) approve the conversion of the shares of each series of Privateer’s preferred Stock into shares of Privateer class 2 common stock immediately prior to the effective time.



 

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In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the merger agreement, as described under the section titled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement must be satisfied or waived.

Acquisition Proposals (see page 101)

The merger agreement provides that prior to the Tilray stockholders’ adoption and approval of Proposal Nos. 1 and 2, in response to an acquisition proposal, if the Tilray Board determines in good faith after consultation with its outside legal counsel that, based on the information then available and after consultation with its financial advisor, the acquisition proposal either constitutes a superior offer or could reasonably be expected to result in a superior offer, and that the failure to take such action could be inconsistent with the fiduciary duties of the Tilray Board to the stockholders of Tilray under applicable law, the Tilray Board may:

 

   

provide nonpublic information in response therefore (including nonpublic information regarding Tilray or any of its subsidiaries) to the person who made an acquisition proposal; and

 

   

participate in any discussions or negotiations with any person who makes an acquisition proposal regarding that acquisition proposal.

For a more complete description, see the section of this proxy statement captioned “The Merger—Acquisition Proposals.”

Change in Board Recommendation

At any time prior to the proper approval of Proposal Nos. 1 and 2 at the Tilray special meeting, the Tilray Board may withdraw or modify (or propose to withdraw or modify) its recommendation that Tilray’s stockholders vote “FOR” Proposal Nos. 1 and 2 in connection with a superior offer or certain intervening events.

Termination of the Merger Agreement (see page 103)

Either Tilray or Privateer can terminate the merger agreement under certain circumstances, which would prevent the merger from being consummated.

Lock-up Agreements (see page 110)

The merger agreement requires that in order to be entitled to receive his, her, or its allocable portion of the Stock Merger Consideration each Privateer stockholder must deliver a stockholder lock-up agreement, and that each holder of Privateer options assumed by Tilray shall deliver an option assumption agreement, that in each case prohibits (except in limited circumstances) the transfer any shares of Tilray’s common stock or any security convertible into or exercisable or exchangeable for Tilray’s common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain options. In addition, it is a condition to Tilray’s obligations to close the merger that certain specified stockholders of Privateer, including Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach, shall have delivered a stockholder lock-up agreement to Tilray prior to the closing of the merger.

The transfer restrictions under the stockholder lock-up agreement and the option assumption agreement apply to shares of Tilray issued as Stock Merger Consideration, less the number of any shares of Tilray issued as Stock Merger Consideration and sold by the signatory to such stockholder lock-up agreement or option assumption agreement in any permitted sale as of the first anniversary of the closing date of the merger. We refer to the securities subject to the transfer restrictions as applicable securities.



 

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The restrictions on transfer commence at the effective time. On the first anniversary of the closing date of the merger, the transfer restrictions with respect to 50% of the applicable securities shall lapse (and all Cash Consideration Shares and other permitted sales of Stock Merger Consideration will be credited towards and deemed included in such 50% lapse). On the date that is two full trading days after the public dissemination of Tilray’s annual or quarterly financial results for each of the four quarters following the first anniversary of the closing date of the merger, the transfer restrictions with respect to 12.5% of the applicable securities shall lapse. The lapse of the restrictions shall apply equally to each class and type of applicable securities held by the applicable holder.

Tilray will only conduct a permitted sale to the extent that each applicable person who was a holder of Privateer capital stock as of immediately prior to the effective time shall have an opportunity to sell a portion of his, her or its merger consideration securities on a proportionate, pro rata basis relative to all other applicable former holders of Privateer capital stock as of immediately prior to the effective time.

Tilray may agree to conduct an Offering prior to the closing of the merger, or within a period after the closing date of the merger that is mutually agreeable to Tilray and Michael Blue, as stockholder representative under the merger agreement.

In addition, Tilray and Privateer have entered into a separate lock-up agreement, which we refer to as the Privateer lock-up agreement, that provides that if the merger agreement is terminated by either Tilray or Privateer because Privateer has not obtained the requisite written consent from Privateer’s stockholders within 15 business days of the registration statement of which this proxy statement/prospectus/information statement is a part becoming effective, then Privateer shall not transfer its Tilray common stock for 135 days from the termination date. The merger agreement requires that, within three months of the expiration date of the Privateer lock-up agreement, Privateer reimburse Tilray for its reasonable out-of-pocket fees, costs or expenses incurred in connection with the transactions contemplated by the merger agreement, up to a maximum amount of $3,000,000.

However, if the merger agreement is terminated pursuant to any other provision of the merger agreement, including for a failure of the merger to occur by March 9, 2020, then, following the termination, sales in the public market of a substantial number of the shares of Tilray’s common stock currently held by Privateer could occur at any time. These sales or distributions by Privateer, or the market perception that the holders of a large number of shares of Tilray’s Class 2 common stock, or shares of Tilray’s Class 1 common stock which are convertible into Class 2 common stock on a one-for-one basis, intend to sell Tilray’s Class 2 common stock, could significantly reduce the market price of Tilray’s Class 2 common stock. If the merger does not close, Tilray cannot predict the effect, if any, that future public sales of these securities or the availability of these securities for sale will have on the market price of Tilray’s Class 2 common stock.

Support Agreements

In connection with the execution of the merger agreement, certain stockholders of Privateer entered into support agreements with Tilray and Privateer covering approximately 35.8% of the outstanding capital stock and 45.7% of the voting power of Privateer as of date of the merger agreement. The support agreements provide, among other things, that the Privateer stockholders party thereto will execute and deliver a written consent with respect to all of the shares of Privateer capital stock held by them in favor of (i) adopting and approving the merger agreement and the transactions contemplated thereby, (ii) adopting and approving the amended and restated certificate of incorporation of Privateer, (iii) acknowledging that each such stockholder’s approval is irrevocable and each such stockholder is aware of his rights to demand appraisal for his shares pursuant to Section 262 of the DGCL and that each such Stockholder has received and read a copy of Section 262 of the DGCL, (iv) acknowledging that by each such stockholder’s approval of the merger each such stockholder thereby waives any rights to receive payment of the fair value of his Privateer capital stock under the DGCL, and (v) the



 

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conversion of Privateer preferred stock into Privateer Class 2 common stock immediately prior to the effective time.

The support agreements prohibit transfers of Privateer capital stock, except for certain permitted transfers, including the permitted transfer of up to 10% of shares of Privateer capital stock held by the stockholder that is party thereto (excluding shares that will be converted into the right to receive Tilray Class 1 common stock) to any person who has not signed a support agreement, as long as such transfer is not part of a joint, concerted, coordinated, collective or group effort with any other person to market and sell, transfer or otherwise dispose of shares that are subject to a support agreement, and as long as the transferee executes and delivers a joinder to the support agreement.

Management Following the Merger (see page 147)

In connection with the merger, there will be no change to the executive officers of Tilray. Following the closing of the merger, Tilray’s executive officers will continue to be as follows:

 

Name

   Age      Current Principal Affiliation

Brendan Kennedy

     47      President, Chief Executive Officer and Director

Edward Wood Pastorius, Jr.

     51      Chief Revenue Officer

Mark Castaneda

     55      Chief Financial Officer and Treasurer

Andrew Pucher

     36      Chief Corporate Development Officer

Interests of Certain Directors, Officers and Affiliates of Tilray and Privateer (see pages 77 and 79)

In considering the recommendation of the Tilray Board with respect to the issuance of common stock of Tilray pursuant to the merger agreement and the other matters to be acted upon by Tilray’s stockholders at the Tilray special meeting, Tilray’s stockholders should be aware that certain members of the Tilray Board and executive officers of Tilray have interests in the merger that may be different from, or in addition to, interests they have as Tilray’s stockholders.

Risk Factors (see page 24)

Both Tilray and Privateer are subject to various risks associated with their businesses and respective assets. In addition, the merger poses a number of risks to each company and its respective stockholders, including the possibility that the merger may not be completed and the following risks:

 

   

the merger is subject to approval of the merger agreement by Tilray’s stockholders and Privateer’s stockholders and failure to obtain these approvals would prevent the closing of the merger;

 

   

the merger may be completed even though certain events occur prior to the closing that materially and adversely affect Tilray or Privateer;

 

   

some Tilray and Privateer officers and directors have interests in the merger that are different from the respective stockholders of Tilray and Privateer and that may influence them to support or approve the merger without regard to the interests of the respective stockholders of Tilray and Privateer;

 

   

the market price of Tilray’s Class 2 common stock following the merger may decline as a result of the merger;

 

   

during the pendency of the merger, Privateer may not be able to enter into a business combination with another party under certain circumstances because of restrictions in the merger agreement, which could adversely affect its business;



 

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certain provisions of the merger agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the merger agreement;

 

   

if the conditions to the merger are not met, the merger will not occur;

 

   

the merger will involve substantial costs; and

 

   

litigation relating to the merger could require Tilray or Privateer to incur significant costs and suffer management distraction, and could delay or enjoin the merger.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” in this proxy statement/prospectus/information statement. Tilray and Privateer both encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 84)

In the United States, Tilray must comply with applicable federal and state securities laws and the rules and regulations of the Nasdaq Global Select Market, which we refer to as Nasdaq in connection with the issuance of shares of Tilray’s common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.

In connection with the acquisition of voting securities of Tilray pursuant to the merger, a certain Privateer stockholder, namely Brendan Kennedy, is required to use his commercially reasonable efforts to obtain all of the authorizations, approvals and consents as promptly as possible after the execution of the merger agreement, including, under foreign competition laws, with respect to the transactions contemplated by the merger agreement. As of the date hereof, the applicable authorizations, approvals and consents have yet to be granted.

Nasdaq Stock Market Listing (see page 89)

Prior to consummation of the merger, Tilray intends to file a listing application with Nasdaq pursuant to Nasdaq Stock Market LLC “business combination” rules. If such application is accepted, Tilray anticipates that Tilray’s common stock will continue to be listed on Nasdaq following the closing of the merger under the trading symbol “TLRY.”

Anticipated Accounting Treatment (see page 89)

The Merger will be accounted for as an equity reorganization of Tilray under which the shareholders of Privateer become direct shareholders of Tilray. Pursuant to the merger agreement, Privateer shareholders will exchange their shares in Privateer for shares in Tilray. At the time of the Merger, it is expected that Privateer’s only material assets are the 75,000,000 shares of Tilray Common Stock and that Privateer has no material liabilities which would be required to be disclosed in its financial statements.

Appraisal Rights (see page 89)

Holders of Tilray’s common stock are not entitled to appraisal rights in connection with the merger. Privateer’s stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the DGCL attached hereto as Annex D, and the section titled “The Merger—Appraisal Rights” in this proxy statement/prospectus/information statement.



 

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Impact of the Merger on Tilray’s Amended and Restated 2018 Equity Incentive Plan

The options assumed in connection with the Merger as described herein and the grant of any additional options with respect to the share reserve under the Privateer Holdings, Inc. 2011 Equity Incentive Plan and the issuance of Tilray Class 2 common stock in connection with the exercise of either of those options will not reduce the number of shares available for issuance under Tilray’s Amended and Restated 2018 Equity Incentive Plan.

Comparison of Stockholder Rights (see page 171)

Both Tilray and Privateer are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Privateer’s stockholders will become stockholders of Tilray, and their rights will be governed by the DGCL, Tilray’s amended and restated bylaws and Tilray’s amended and restated certificate of incorporation, set forth in Annex B to this proxy statement/prospectus/information statement. The rights of Tilray’s stockholders contained in Tilray’s amended and restated certificate of incorporation and Tilray’s amended and restated bylaws differ from the rights of Privateer’s stockholders under Privateer’s amended and restated certificate of incorporation and Privateer’s bylaws, as more fully described under the section titled “Comparison of Rights of Holders of Tilray Stock and Privateer Stock” in this proxy statement/prospectus/information statement.



 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables summarize Tilray’s consolidated historical financial data. The consolidated financial statements include the accounts of entities wholly owned by Tilray, Inc. The consolidated statements of net loss data for the years ended December 31, 2018, 2017 and 2016 and the consolidated balance sheet data as of December 31, 2018 and 2017 are derived from Tilray’s consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. The consolidated balance sheet data as of December 31, 2016 are derived from Tilray’s consolidated financial statements not included in this proxy statement/prospectus/information statement. The interim condensed consolidated balance sheet data as of June 30, 2019 and interim condensed consolidated statements of net loss data for the six months ended June 30, 2019 and 2018 are derived from Tilray’s unaudited interim condensed consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. Tilray’s historical results are not necessarily indicative of the results that may be expected in any future period and the results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year or any future period. You should read this data together with Tilray’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement and the section titled “Tilray Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Year ended December 31,     Six months ended June 30,  
     2018     2017     2016     2019     2018  
     (dollars in thousands, except per share data)  

Revenue

   $ 43,130     $ 20,538     $ 12,644     $ 68,942     $ 17,552  

Cost of sales

     28,855       9,161       9,974       51,284       9,479  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     14,275       11,377       2,670       17,658       8,073  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

     29,033 (1)      7,499 (1)      4,299 (1)      29,262       9,487  

Sales and marketing expenses

     15,366       7,164       3,599       22,187       5,568  

Depreciation and amortization expense

     1,598 (1)      902 (1)      591 (1)      4,248       503  

Stock-based compensation expense

     20,988       139       94       12,891       5,632  

Research and development expenses

     4,264       3,171       1,136       2,576       1,614  

Acquisition and integration expenses

     676 (1)      —         —         6,888       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (57,650     (7,498     (7,049     (60,394     (14,731
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign exchange (gain) loss, net

     7,234       (1,363     (186     (1,432     2,504  

Interest expense, net

     9,110       1,686       1,019       17,331       913  

Finance income from ABG Profit Participation Arrangement

     —         —         —         (347     —    

Other income, net

     (1,820     (12     1       (4,380     (197
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (72,174     (7,809     (7,883     (71,566     (17,951
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income tax recovery

     (4,485     —         —         (6,419     —    

Current income tax expense

     34       —         —         207       63  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (67,723   $ (7,809   $ (7,883   $ (65,354   $ (18,014
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share—basic and diluted

   $ (0.82   $ (0.10   $ (0.11   $ (0.68   $ (0.24

Weighted average shares used in computation of net loss per

share—basic and diluted

     83,009,656       75,000,000       75,000,000       96,037,142       75,000,000  


 

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(1)

General and administrative expenses, depreciation and amortization expense, and acquisition and integration expenses for the years ended December 31, 2018, 2017 and 2016 were reclassified to conform to the presentation for the six months ended June 30, 2019 and 2018. Specifically, depreciation and amortization expense and acquisition and integration expenses, which were formerly presented as part of general and administrative expenses, are now presented separately.

 

     As of December 31,      As of June 30,  
     2018      2017     2016      2019  
     (dollars in thousands)  

Consolidated Balance Sheet Data:

     

Cash and cash equivalents

   $ 487,255      $ 2,323     $ 7,531      $ 184,551  

Short-term investments

     30,335        —         —          36,323  

Inventory

     16,211        7,421       4,103        75,317  

Total assets

     656,667        53,948       33,093        1,024,131  

Convertible Notes, net of issuance cost

     420,367        —         —          425,400  

Total liabilities

     459,014        58,800       30,565        663,964  

Total stockholders’ equity (deficit)

     197,653        (4,852     2,528        360,167  

Selected Historical Consolidated Financial Data of Privateer & Pro Forma Combined Financial Information

This proxy statement/prospectus/information statement does not include historical financial data of Privateer or pro forma combined financial information. In February 2019, Privateer distributed 100% of its ownership interest in its three other operating subsidiaries to its stockholders. As a result, (i) Privateer’s only material assets are the 75,000,000 shares of Tilray common stock described herein and (ii) Privateer has no liabilities which would be required to be disclosed in its financial statements. As of December 31, 2018, Privateer’s financial statements would include the consolidated results of these various operating entities; however, due to the distribution in February 2019, Tilray is not acquiring these operating subsidiaries in the merger. Privateer’s historical financial statements for these operating companies no longer have any bearing on the current status of Privateer or the going-forward operation of Tilray. As a result, neither historical financial data of Privateer nor pro forma combined financial information is being provided because such financial data is not meaningful to investors. We do not expect the merger will have an impact on the recognized assets, liabilities or equity in the financial statements of Tilray or on Tilray’s income statement.



 

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RISK FACTORS

The combined organization will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with Tilray’s business because these risks may also affect the combined organization — these risks can be found under the heading “Risk Factors — Risks Related to Tilray” in this proxy statement/prospectus/information statement and in Tilray’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, and other documents Tilray has filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement. Please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Risks Related to the Merger

The merger is subject to approval of the merger agreement by Tilray’s stockholders and Privateer’s stockholders. Failure to obtain these approvals would prevent the closing of the merger.

Before the merger can be completed, the stockholders of each of Tilray and Privateer must approve the merger agreement. Failure to obtain the required stockholder approvals may result in a material delay in, or the abandonment of, the merger. Any delay in completing the merger may materially adversely affect the timing and benefits that are expected to be achieved from the merger.

The merger may be completed even though certain events occur prior to the closing that materially and adversely affect Tilray or Privateer.

The merger agreement does not provide Privateer with the ability to refuse to complete the merger if there is a material adverse change with respect to the assets or business of Tilray.

The merger agreement provides that Tilray may refuse to complete the merger if there is any effect, change, event, circumstance, or development that is or would reasonably be expected to be materially adverse to the business, assets, or liabilities of Privateer and its subsidiaries, taken as a whole (including any effect, change, event, circumstance or development that is or would reasonably be expected to be materially adverse to the business, assets, or liabilities of Privateer or its subsidiaries taken as a whole but excluding the ownership of capital stock of Tilray).

If changes occur that are adverse to Tilray or Privateer, and Tilray and Privateer still complete the merger, the market price of the combined organization’s common stock may suffer. This in turn may reduce the benefits of the merger to the stockholders of Tilray, Privateer or both.

Some Tilray and Privateer officers and directors have interests in the merger that are different from the respective stockholders of Tilray and Privateer and that may influence them to support or approve the merger without regard to the interests of the respective stockholders of Tilray and Privateer.

Certain officers and directors of Tilray and Privateer participate in arrangements that provide them with interests in the merger that are different from the interests of the respective stockholders of Tilray and Privateer, including, among others, the continued service as an officer and/or director of the combined organization, continued indemnification, the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended, and the opportunity to sell a portion of his or her Stock Merger Consideration on a pro rata basis relative to all other applicable former Privateer stockholders in an Offering after the closing of the merger. For example, Mr. Kennedy, an executive officer and member of Tilray’s board, is also the Executive Chairman, member of the

 

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Privateer Board and largest stockholder of Privateer, although Mr. Kennedy does not have voting or investment power with respect to the shares of Tilray common stock held by Privateer. In addition, Mr. Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer, although Mr. Auerbach does not have voting or investment power with respect to the shares of Tilray common stock held by Privateer. Each of Mr. Kennedy and Mr. Auerbach will receive shares of Tilray common stock in the merger.

In addition, for example, certain of Privateer’s directors and executive officers have options, subject to vesting, to purchase shares of Privateer’s common stock which, at the closing of the merger, shall be converted into and become options to purchase shares of Tilray’s common stock, and all of Privateer’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the merger agreement. These interests, among others, may influence such executive officers and directors of Tilray and Privateer to support or approve the merger. For more information concerning the interests of Tilray’s and Privateer’s executive officers and directors, see the sections titled “The Merger—Interests of Tilray Directors and Executive Officers in the Merger” and “The Merger—Interests of Privateer Directors and Executive Officers in the Merger.”

Certain provisions of the merger agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the merger agreement.

Prior to obtaining Tilray stockholder approval for the transactions contemplated by the merger agreement, Tilray may terminate the merger agreement in order to accept an unsolicited bona fide written acquisition proposal that is on terms and conditions that the Tilray Board, as applicable, determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by Privateer to amend the terms of the merger agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to Tilray’s stockholders than the terms of the transactions contemplated by the merger agreement, which we refer to as a superior offer. In connection with a superior offer, the Tilray Board may also modify or withdraw its recommendation that the Tilray stockholders vote to approve the transactions contemplated by the merger agreement.

Prior to obtaining Tilray stockholder approval for the transactions contemplated by the merger agreement, in connection with certain material developments or events, the Tilray Board may modify or withdraw its recommendation that the Tilray stockholders vote to approve the transactions contemplated by the merger agreement if the Tilray Board determines in good faith, taking into account any written offer by Privateer to amend the terms of the merger agreement, after having consulted with its outside legal counsel, that, in light of the intervening event, a failure to modify or withdraw its recommendation could reasonably be expected to be inconsistent with the fiduciary duties of the Tilray Board to Tilray’s stockholders under applicable law.

The merger agreement does not permit Privateer to terminate the merger agreement in order to accept an offer from a third party to acquire Privateer or in connection with an intervening event. However, Privateer may terminate the merger agreement if at any time prior to the approval of the Tilray stockholders is obtained, the recommendation of the Tilray Board is withdrawn or modified (or proposed to be withdrawn or modified) in a manner adverse to Privateer.

If the conditions to the merger are not met, the merger will not occur.

Even if the merger is approved by the stockholders of Tilray and Privateer, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the merger agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement. Tilray cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger will not occur or will be delayed, and Tilray and Privateer each may lose some or all of the intended benefits of the merger.

 

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The merger will involve substantial costs.

Tilray and Privateer have incurred and expect to continue to incur substantial costs and expenses relating directly to the merger, including fees and expenses payable to financial advisors, other professional fees and expenses, insurance premium costs, fees and costs relating to regulatory filings and notices, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. If the merger is not completed, Tilray and Privateer will have incurred substantial expenses for which no ultimate benefit will have been received by either company.

Litigation relating to the merger could require Tilray or Privateer to incur significant costs and suffer management distraction, and could delay or enjoin the merger.

Tilray and Privateer could be subject to demands or litigation related to the merger, whether or not the merger is consummated. Such actions may create uncertainty relating to the merger, or delay or enjoin the merger, and responding to such actions could divert management’s attention away from Tilray’s and/or Privateer’s business operations, as applicable.

Risks Related to Tilray

Risks Related to Tilray’s Medical Cannabis Business and the Medical Cannabis Industry

Tilray is dependent upon regulatory approvals and licenses for its Tilray’s ability to grow, process, package, store, sell and export medical cannabis and other products derived therefrom, and these regulatory approvals are subject to ongoing compliance requirements, reporting obligations and fixed terms requiring renewal.

Tilray’s ability to grow, process, package, store and sell dried cannabis, cannabis oil, and other classes of cannabis, including both oil and capsules, for medical purposes in Canada is dependent on Tilray’s current Health Canada licenses under the Cannabis Regulations, which we refer to as the CR, covering Tilray’s production facility and patient call center at its Tilray North America Campus in Nanaimo, British Columbia, or Tilray Nanaimo. These licenses allow Tilray to produce cannabis in bulk and finished forms at Tilray Nanaimo and to sell and distribute such cannabis in Canada. They also allow Tilray to import and export medical cannabis in bulk and finished form to and from specified jurisdictions around the world, subject to obtaining, for each specific shipment, an export approval from Health Canada and an import approval (or no objection notice) from the applicable regulatory authority in the country to or from which the export or import is being made. The CR licenses for Tilray Nanaimo are valid for fixed periods and will need to be renewed at the end of such periods.

Tilray also hold licenses under the CR covering its facilities in Enniskillen, London, and Leamington, Ontario which Tilray intends to use to service the adult-use market and support the medical market as needed. These licenses allow Tilray to produce, sell, and distribute cannabis and/or cannabis products in Canada. These licenses are valid for fixed periods and will need to be renewed at the end of such periods.

Tilray’s ability to operate in its facility at its Tilray European Union Campus located in Cantanhede, Portugal, or Tilray Portugal, is dependent on Tilray’s current authorization for the cultivation, import and export of cannabis and Tilray’s Good Manufacturing Practices, or GMP, certification by the Portuguese National Authority of Medicines and Health Products, or INFARMED, for manufacture of cannabis as an active pharmaceutical ingredient, and in the future will be dependent on Tilray’s pending authorization (assuming such authorization is approved) for the manufacture of finished cannabis products and GMP certification for manufacture of cannabis as a finished medicinal product. Tilray’s current authorization for cultivation, import and export of cannabis is valid for a single growing season at a time and notification to INFARMED is needed to renew the license for subsequent growing seasons. All licenses are subject to ongoing compliance and reporting requirements and renewal.

Tilray intends to apply for a sale license for cannabis products under the CR for Tilray’s facility in Leamington, Ontario. Any future medical cannabis production facilities that Tilray operates in Canada will also be subject to

 

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separate licensing requirements under the CR. Although Tilray believes that it will meet the requirements of the CR for future renewals of Tilray’s existing licenses, and grants of permits under such licenses, and to obtain corresponding licenses for future facilities in Canada, there can be no assurance that existing licenses will be renewed or new licenses obtained on the same or similar terms as Tilray’s existing licenses, nor can there be any assurance that Health Canada will continue to issue import or export permits on the same terms or on the same timeline, or that other countries will allow, or continue to allow, imports or exports.

Further, Tilray is subject to ongoing inspections by Health Canada to monitor Tilray’s compliance with its licensing requirements. Tilray’s existing licenses and any new licenses that Tilray may obtain in the future in Canada or other jurisdictions may be revoked or restricted at any time in the event that Tilray is found not to be in compliance. Should Tilray fail to comply with the applicable regulatory requirements or with conditions set out under its licenses, should Tilray’s licenses not be renewed when required, or be renewed on different terms, or should its licenses be revoked, Tilray may not be able to continue producing or distributing medical cannabis in Canada or other jurisdictions or to export medical cannabis outside of Canada or Portugal.

In addition, Tilray may be subject to enforcement proceedings resulting from a failure to comply with applicable regulatory requirements in Canada or other jurisdictions, which could result in damage awards, a suspension of Tilray’s existing approvals, a withdrawal of Tilray’s existing approvals, the denial of the renewal of Tilray’s existing approvals or any future approvals, recalls of products, product seizures, the imposition of future operating restrictions on Tilray’s business or operations or the imposition of civil, regulatory or criminal fines or penalties against Tilray, its officers and directors and other parties. These enforcement actions could delay or entirely prevent Tilray from continuing the production, testing, marketing, sale or distribution of its medical products and divert management’s attention and resources away from Tilray’s business operations.

The laws, regulations and guidelines generally applicable to the medical cannabis industry in Canada and other countries may change in ways that impact Tilray’s ability to continue its business as currently conducted or proposed to be conducted.

The successful execution of Tilray’s medical cannabis business objectives is contingent upon compliance with all applicable laws and regulatory requirements in Canada and other jurisdictions, including the requirements of the CR in Canada, and obtaining all other required regulatory approvals for the sale, import and export of Tilray’s medical cannabis products. The commercial medical cannabis industry is a relatively new industry in Canada and the CR is a regime that has only been in effect in its current form since October 2018. The effect of Health Canada’s administration, application and enforcement of the regime established by the CR on Tilray and its business in Canada, or the administration, application and enforcement of the laws of other countries by the appropriate regulators in those countries, may significantly delay or impact Tilray’s ability to participate in the Canadian medical cannabis market or medical cannabis markets outside Canada, to develop medical cannabis products and produce and sell these medical cannabis products.

Further, Health Canada or the regulatory authorities in other countries in which Tilray operates or to which Tilray exports its medical cannabis products may change their administration, interpretation or application of the applicable regulations or their compliance or enforcement procedures at any time. Any such changes could require Tilray to revise its ongoing compliance procedures, requiring Tilray to incur increased compliance costs and expend additional resources. There is no assurance that Tilray will be able to comply or continue to comply with applicable regulations.

Any failure on Tilray’s part to comply with applicable regulations could prevent Tilray from being able to carry on its business.

Health Canada inspectors routinely assess Tilray Nanaimo, High Park Farms, High Park Processing Facility, and High Park Gardens for compliance with applicable regulatory requirements. See the section titled “Tilray Business” in this proxy statement/prospectus/information statement for additional information regarding these

 

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operations. Tilray’s Portugal facilities have been inspected for compliance by applicable regulators following completion of the construction, and will be subject to certain ongoing inspections and audits once licensing is complete. Furthermore, the import of Tilray’s products into other jurisdictions, such as Germany and Australia, is subject to the regulatory requirements of the respective jurisdiction. Any failure by Tilray to comply with the applicable regulatory requirements could require extensive changes to its operations; result in regulatory or agency proceedings or investigations, increased compliance costs, damage awards, civil or criminal fines or penalties or restrictions on Tilray’s operations; and harm Tilray’s reputation or give rise to material liabilities or a revocation of Tilray’s licenses and other permits. There can be no assurance that any pending or future regulatory or agency proceedings, investigations or audits will not result in substantial costs, a diversion of management’s attention and resources or other adverse consequences to Tilray and its business.

Tilray’s ability to produce and sell its medical products in, and export its medical products to, other jurisdictions outside of Canada is dependent on compliance with additional regulatory and other requirements.

Tilray is required to obtain and maintain certain permits, licenses or other approvals from regulatory agencies in countries and markets outside of Canada in which Tilray operates, or to which Tilray exports, to produce or export to, and sell its medical products in, these countries, including, in the case of certain countries, the ability to demonstrate compliance with GMP standards. Tilray’s current certification of compliance with GMP standards for production at Tilray Nanaimo and any other GMP certification that Tilray may receive in the future subject Tilray, or will in the future subject Tilray, to extensive ongoing compliance reviews to ensure that Tilray continues to maintain compliance with GMP standards. There can be no assurance that Tilray will be able to continue to comply with these standards.

The continuation or expansion of Tilray’s international operations depends on Tilray’s ability to renew or secure necessary permits, licenses and other approvals. An agency’s denial of or delay in issuing or renewing a permit, license or other approval, or revocation or substantial modification of an existing permit, license or approval, could prevent Tilray from continuing its operations in, marketing efforts in, or exports to countries other than Canada. For example, Tilray Nanaimo’s current certification of GMP compliance must be renewed via re-inspection prior to October 2020, and Tilray’s failure to maintain such certification, or to comply with applicable industry quality assurance standards or receive similar regulatory certifications at any of Tilray’s other facilities, may prevent Tilray from continuing the expansion of its international operations. In addition, the export and import of medical cannabis is subject to United Nations treaties establishing country-by-country national estimates and Tilray’s export and import permits are subject to these estimates which could limit the amount of medical cannabis Tilray can export to any particular country.

The long-term effect of the legalization of adult-use cannabis in Canada on the medical cannabis industry is unknown, and may have a significant negative effect upon Tilray’s medical cannabis business if its existing or future medical use customers decide to purchase products available in the adult-use market instead of purchasing medical use products from Tilray.

In June 2018, the government of Canada passed Bill C-45, or the Cannabis Act, the Canadian federal legislation allowing individuals over the age of 18 to legally purchase, process and cultivate limited amounts of cannabis for adult use in Canada. The Cannabis Act and accompanying regulations, the CR, became effective on October 17, 2018. On October 17, 2019, the CR was further amended to permit the sale of new classes of cannabis through both adult-use and medical channels, which classes will become available starting December 17, 2019. Individuals who previously relied upon the medical cannabis market to supply their medical cannabis and cannabis-based products may cease this reliance, and instead turn to the adult-use cannabis market to supply their cannabis and cannabis-based products. Factors that may influence this decision include the availability of product in each market, the price of medical cannabis products in relation to similar adult-use cannabis products, and the ease with which each market can be accessed in the individual provinces and territories of Canada. The impact of adult-use cannabis on the medical market is not yet ascertainable by Tilray given the newness of the adult-use market in Canada and the rapid rate of regulatory change, and given industry-wide supply shortages in both the medical and adult-use markets.

 

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A decrease in the overall size of the medical cannabis market as a result of the legal adult-use market in Canada may reduce Tilray’s medical sales and revenue prospects in Canada. Moreover, the CR regulation of cannabis for medical purposes is expected to be reviewed in light of the adult-use market. The effect on Tilray’s business, and the medical cannabis market in general, of such a review is uncertain.

There has been limited study on the effects of medical cannabis and future clinical research studies may lead to conclusions that dispute or conflict with Tilray’s understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis.

Research regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids (such as CBD and THC) remains in relatively early stages. There have been few clinical trials on the benefits of cannabis or isolated cannabinoids conducted by Tilray or by others.

Future research and clinical trials may draw opposing conclusions to statements contained in the articles, reports and studies Tilray has relied on, or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to medical cannabis, which could adversely affect social acceptance of cannabis and the demand for Tilray’s products.

Tilray Nanaimo, Manitoba Harvest, High Park Farms, Tilray’s High Park Processing Facility and Tilray Portugal are integral to Tilray’s business and adverse changes or developments affecting any of these facilities may have an adverse impact on Tilray.

Currently, Tilray’s activities and resources are primarily focused on the operation of Tilray Nanaimo, Manitoba Harvest, High Park Farms, High Park Gardens, Tilray Portugal and Tilray’s current licenses under the CR are specific to Tilray Nanaimo, High Park Farms, High Park Gardens, Tilray Portugal and Tilray’s High Park Processing Facility. Adverse changes or developments affecting these facilities, including, but not limited to, disease or infestation of Tilray’s crops, a fire, an explosion, a power failure, a natural disaster or a material failure of Tilray’s security infrastructure, could reduce or require Tilray to entirely suspend Tilray’s production of cannabis. A significant failure of Tilray’s site security measures and other facility requirements, including any failure to comply with regulatory requirements under the CR, could have an impact on Tilray’s ability to continue operating under its Health Canada licenses and Tilray’s prospects of renewing its Health Canada licenses, and could also result in a suspension or revocation of these Health Canada licenses. As Tilray produces much of its medical cannabis products in Tilray Nanaimo, any event impacting Tilray’s ability to continue production at Tilray Nanaimo, or requiring Tilray to delay production, would prevent Tilray from continuing to operate its business until operations at Tilray Nanaimo could be resumed, or until Tilray was able to commence production at another facility.

Tilray expects to expand Tilray Nanaimo, High Park Farms, and Tilray’s High Park Processing Facility, and the Tilray Portugal facilities. Tilray is also contemplating expanding its High Park Gardens facility. Tilray expects that expanded and additional facilities will significantly increase its cultivation, growing, processing and distribution capacity; however, development impediments such as construction delays or cost over-runs in respect to the development of these facilities, howsoever caused, could delay or prevent Tilray’s ability to produce cannabis at these facilities. It is also possible that the final costs of the major equipment contemplated by Tilray’s capital expenditure program relating to the development of Tilray’s High Park Farms, Tilray’s High Park Processing Facility and Tilray Portugal may be significantly greater than anticipated, in which circumstance Tilray may be required to curtail, or extend the timeframes for completing, such capital expenditure plans which would reduce its production capacity. If we are unsuccessful in scaling operations at our facilities, we may become increasingly reliant on third party cannabis suppliers, likely at a higher price than our own cost to produce, which would have a negative impact on gross profit.

 

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The medical cannabis industry and market are relatively new, and this industry and market may not continue to exist or develop as anticipated or Tilray may ultimately be unable to succeed in this industry and market.

Tilray is operating its current business in a relatively new medical cannabis industry and market, and its success depends on Tilray’s ability to attract and retain patients. In addition to being subject to general business risks applicable to a business involving an agricultural product and a regulated consumer product, Tilray needs to continue to build brand awareness of its Tilray brand in the medical cannabis industry and make significant investments in its business strategy and production capacity. These investments include introducing new products into the markets in which Tilray operates, adopting quality assurance protocols and procedures, building Tilray’s international presence and undertaking regulatory compliance efforts. These activities may not promote Tilray’s medical products as effectively as intended, or at all, and Tilray expects that its competitors will undertake similar investments to compete with Tilray for market share. Competitive conditions, consumer preferences, regulatory conditions, patient requirements, healthcare practitioner prescribing practices, and spending patterns in this industry and market are relatively unknown and may have unique characteristics that differ from other existing industries and markets and that cause Tilray’s efforts to further its business to be unsuccessful or to have undesired consequences. As a result, Tilray may not be successful in its efforts to attract and retain patients or to develop new medical cannabis products and produce and distribute these medical cannabis products to the markets in which Tilray operates or to which Tilray exports in time to be effectively commercialized, or these activities may require significantly more resources than Tilray currently anticipates in order to be successful.

Tilray competes for market share with other companies, including other producers licensed by Health Canada, some of which have longer operating histories and more financial resources and manufacturing and marketing experience than Tilray has.

Tilray faces, and it expects to continue to face, intense competition from other licensees under the CR, which we refer to as licensed producers, and other potential competitors, some of which have longer operating histories and more financial resources and manufacturing and marketing experience than Tilray has. In addition, it is possible that the medical cannabis industry will undergo consolidation, creating larger companies with financial resources, manufacturing and marketing capabilities and product offerings that are greater than Tilray’s. As a result of this competition, Tilray may be unable to maintain its operations or develop them as currently proposed, on terms Tilray considers acceptable, or at all.

There are currently hundreds of applications for licensed producer status being processed by Health Canada. The number of licenses granted and the number of licensed producers ultimately authorized by Health Canada could have an adverse impact on Tilray’s ability to compete for market share in Canada’s medical cannabis industry. Tilray expects to face additional competition from new market entrants that are granted licenses under the CR or existing license holders that are not yet active in the industry. If a significant number of new licenses are granted by Health Canada, Tilray may experience increased competition for market share and may experience downward price pressure on Tilray’s medical cannabis products as new entrants increase production.

In addition, the CR permits patients in Canada to produce a limited amount of cannabis for their own medical purposes or to designate a person to produce a limited amount of cannabis on their behalf for such purposes. Widespread reliance upon this allowance could reduce the current or future consumer demand for Tilray’s medical cannabis products.

If the number of users of cannabis for medical purposes in Canada increases, the demand for products will increase. This could result in the competition in the medical cannabis industry becoming more intense as current and future competitors begin to offer an increasing number of diversified medical cannabis products. Conversely, if there is a contraction in the medical market for cannabis in Canada, resulting from the legalization of adult-use cannabis or otherwise, competition for market share may increase. To remain competitive, Tilray intends to continue to invest in research and development and sales and patient support; however, Tilray may not have sufficient resources to maintain research and development and sales and patient support efforts on a competitive basis.

 

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In addition to the foregoing, the legal landscape for medical cannabis use is changing internationally. Tilray has operations outside of Canada, which may be affected as other countries develop, adopt and change their medical cannabis laws. Increased international competition, including competition from suppliers in other countries who may be able to produce at lower cost, and limitations placed on Tilray by Canadian or other regulations, might lower the demand for Tilray’s medical cannabis products on a global scale.

The illicit supply of cannabis and cannabis-based products may reduce Tilray’s sales and impede its ability to succeed in the medical and adult-use cannabis markets.

In addition to competition from licensed producers and those able to produce cannabis legally without a license, Tilray also faces competition from unlicensed and unregulated market participants, including illegal dispensaries and black market suppliers selling cannabis and cannabis-based products in Canada.

Despite the legalization of medical and adult-use cannabis in Canada, black market operations remain abundant and are a substantial competitor to Tilray’s business. In addition, illegal dispensaries and black market participants may be able to (i) offer products with higher concentrations of active ingredients that are either expressly prohibited or impracticable to produce under current Canadian regulations, and (ii) use delivery methods, including edibles, concentrates and extract vaporizers, that Tilray is currently prohibited from offering to individuals in Canada, (iii) brand products more explicitly, and (iv) describe/discuss intended effects of products. As these illicit market participants do not comply with the regulations governing the medical and adult-use cannabis industry in Canada, their operations may also have significantly lower costs.

As a result of the competition presented by the black market for cannabis, any unwillingness by consumers currently utilizing these unlicensed distribution channels to begin purchasing from licensed producers for any reason or any inability or unwillingness of law enforcement authorities to enforce laws prohibiting the unlicensed cultivation and sale of cannabis and cannabis-based products could (i) result in the perpetuation of the black market for cannabis, (ii) adversely affect Tilray’s market share, and (iii) adversely impact the public perception of cannabis use and licensed cannabis producers and dealers, all of which would have a materially adverse effect on Tilray’s business, operations and financial condition.

Risks Related to Tilray’s Adult-Use Cannabis Business and the Adult-Use Cannabis Industry in Canada

The adult-use cannabis industry, and the regulations governing this industry, may develop in a way that is significantly different from Tilray’s current expectations, resulting in Tilray’s decreased ability, or inability, to compete in this market and industry.

The Cannabis Act allows for regulated and restricted access to cannabis for recreational adult use in Canada. Tilray operates a part of its business in the adult-use cannabis industry and market.

There is no assurance that the adult-use cannabis industry, and the regulations governing this industry, will continue to develop as anticipated. There are and will be significant restrictions on the marketing, branding, product formats, product composition, packaging, and distribution channels allowed under the Cannabis Act, which may reduce the value of certain of Tilray’s products and brands or negatively impact Tilray’s ability to compete with other companies in the adult-use cannabis market in Canada. For instance, adult-use legislation includes a requirement for health warnings on product packaging, the limited ability to use logos and branding (only one brand name and one brand element per package), restrictions on packaging itself, and restrictions on types and avenues of marketing; further, amended regulations governing the production and sale of new classes of cannabis (including vapes and edibles) which came into force on October 17, 2019, impose considerable restrictions on product composition, labeling, and packaging in addition to being subject to similar marketing restrictions as existing form factors. Additional marketing and product composition restrictions have been imposed by some provinces and territories and are subject to changing interpretation without notice. Tilray is reasonably certain that Tilray will continue to be able to adapt Tilray’s licensed brands and products to satisfy

 

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these restrictions and to package and successfully distinguish these brands in the marketplace while remaining compliant with applicable laws (including all provincial legislation); however further provincial or other legislation containing additional restrictions, such as a complete ban on marketing, may impact Tilray’s ability to do so. Such additional restrictions may impair Tilray’s ability to develop its adult-use brands, and a complete ban on marketing or additional product restrictions imposed under future regulations, may make it uneconomic or unfeasible for Tilray to introduce its entire portfolio of brands and products into the Canadian market, which means that Tilray will be unable to reap the full benefit of the exclusive rights Tilray has secured to such brands and products or launch new products. Further, each province and territory of Canada has the ability to separately regulate the distribution of cannabis within such province or territory, and the rules (including associated regulations) adopted by these provinces or territories vary significantly. Furthermore, some provinces and territories impose significant restrictions on Tilray’s ability to merchandise products; for example, some provinces impose restrictions on investment in retailers or distributors and their employees as well as on Tilray’s ability to negotiate for preferential retail space or in-store marketing. Such variance may make participation in the adult-use cannabis market uneconomic or of limited economic benefit for Tilray in those provinces or territories and could result in significant additional compliance or other costs and limitations on Tilray’s ability to compete successfully in each such market.

Any failure on Tilray’s part to comply with supplier standards established by provincial or territorial distributors could prevent Tilray from accessing certain markets in Canada.

Government-run provincial and territorial distributors in Canada require suppliers to meet certain service and business standards, and routinely assess for compliance with such standards. Any failure by Tilray to comply with such standards could result in Tilray being downgraded or disqualified as a supplier, and would severely impede or eliminate Tilray’s ability to access certain markets within Canada.

The adult-use cannabis market in Canada is continuing to develop and may experience supply fluctuations resulting in revenue and price decreases.

As a result of the legalization of adult cannabis use in Canada, the demand for cannabis may dramatically increase. Licensed producers, and others licensed to produce cannabis under the Cannabis Act, may not be able to produce enough cannabis to meet adult-use demand. This may result in lower than expected sales and revenues and may result in increased competition for sales and sources of supply. This competition may adversely affect Tilray’s adult-use business and there is no guarantee that Tilray will be able to supply or acquire the supply, on commercially reasonable terms or at all, to meet the demand for medical and adult-use cannabis.

In response to this surge in demand for cannabis, Tilray and other cannabis producers in Canada may produce more cannabis than is needed to satisfy the collective demand of the Canadian medical and adult-use markets, and Tilray may be unable to export that oversupply into other markets where cannabis use is fully legal under all federal and state or provincial laws. Additionally, the Canadian market may experience increased supply fluctuations as new form factors and products become available. As a result, the available supply of cannabis could exceed demand, resulting in a significant decline in the market price for cannabis. If this were to occur, there is no assurance that Tilray would be able to generate sufficient revenue from the sale of adult-use cannabis to result in profitability.

The adult-use cannabis industry and market in Canada is subject to many of the same risks as the medical cannabis industry and market, including risks related to Tilray’s need for regulatory approvals, the early status and uncertain growth of this industry and the competition Tilray expects to face in this industry.

The adult-use cannabis industry and market in Canada is subject to certain risks that are unique to this industry, as well as the risks that are currently applicable to the medical cannabis industry, which are described under the heading above titled “Risk Factors-Risks Related to Tilray’s Medical Cannabis Business and the Medical Cannabis Industry.”

If any of these shared risks occur, Tilray’s business, financial condition, results of operations and prospects could be adversely affected in a number of ways, including by Tilray’s not being able to successfully compete in the

 

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adult-use cannabis industry and by Tilray’s being subject to fines, damage awards and other penalties as a result of regulatory infractions or other claims brought against Tilray.

Tilray may be unsuccessful in competing in the legal adult-use cannabis market in Canada.

Tilray’s Canadian adult-use business faces enhanced competition from other licensed producers and those individuals and corporations who are licensed under the Cannabis Act to participate in the adult-use cannabis industry. As previously noted, there are hundreds of applications being processed for licenses under the CR.

Moreover, the Cannabis Act allows individuals to cultivate, propagate, harvest and distribute up to four cannabis plants per household, provided that each plant meets certain requirements. If Tilray is unable to effectively compete with other suppliers to the adult-use cannabis market, or a significant number of individuals take advantage of the ability to cultivate and use their own cannabis, Tilray’s success in the adult-use business may be limited and may not fulfill the expectations of management.

Tilray will also face competition from existing licensed producers and other producers licensed under the Cannabis Act. Certain of these competitors have significantly greater financial, production, marketing, research and development, and technical and human resources than Tilray does. As a result, Tilray’s competitors may be more successful than it in gaining market penetration and market share. Tilray’s commercial opportunity in the adult-use market could be reduced or eliminated if Tilray’s competitors produce and commercialize products for the adult-use market that, among other things, are safer, more effective, more convenient or less expensive than the products that Tilray may produce, have greater sales, marketing and distribution support than Tilray’s products, enjoy enhanced timing of market introduction and perceived effectiveness advantages over Tilray’s products and receive more favorable publicity than Tilray’s products. If Tilray’s adult-use products do not achieve an adequate level of acceptance by the adult-use market, Tilray may not generate sufficient revenue from these products, and its adult-use business may not become profitable.

General Business Risks and Risks Related to Tilray’s Financial Condition and Operations

Tilray has a limited operating history and a history of net losses, and Tilray may not achieve or maintain profitability in the future.

Tilray began operating in 2014 and has yet to generate a profit. Tilray generated net losses of $35.1 million and $65.4 million for the three and six months ended June 30, 2019, respectively, compared to $12.8 million and $18.0 million, respectively in 2018. Tilray’s accumulated deficit was $173.5 million and $108.2 million as of June 30, 2019 and December 31, 2018, respectively. Tilray intends to continue to expend significant funds to increase its growing capacity, complete strategic mergers and acquisitions, invest in research and development, expand its marketing and sales operations to increase Tilray’s base of registered patients and meet the increased compliance requirements associated with its transition to and operation as a public company. As Tilray continues to grow, Tilray expects the aggregate amount of these expenses will also continue to grow.

Tilray’s efforts to grow its business may be more costly than Tilray expects and Tilray may not be able to increase its revenue enough to offset higher operating expenses. Tilray may incur significant losses in the future for a number of reasons, including as a result of unforeseen expenses, difficulties, complications and delays, the other risks described in this proxy statement/prospectus/information statement and other unknown events. The amount of future net losses will depend, in part, on the growth of Tilray’s future expenses and Tilray’s ability to generate revenue. If Tilray continues to incur losses in the future, the net losses and negative cash flows incurred to date, together with any such future losses, will have an adverse effect on Tilray’s stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with producing cannabis products, as outlined herein, Tilray is unable to accurately predict when, or if, Tilray will be able to achieve profitability. Even if Tilray achieves profitability in the future, Tilray may not be able to sustain profitability in subsequent

 

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periods. If Tilray is unable to achieve and sustain profitability, the market price of Tilray’s Class 2 common stock may significantly decrease and Tilray’s ability to raise capital, expand Tilray’s business or continue its operations may be impaired.

Tilray is exposed to risks relating to the laws of various countries as a result of Tilray’s international operations.

Tilray currently conducts operations in multiple countries and plan to expand these operations. As a result of Tilray’s operations, Tilray is exposed to various levels of political, economic, legal and other risks and uncertainties associated with operating in or exporting to these jurisdictions. These risks and uncertainties include, but are not limited to, changes in the laws, regulations and policies governing the production, sale and use of cannabis and cannabis-based products, political instability, instability at the United Nations level, currency controls, fluctuations in currency exchange rates and rates of inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation and changing political conditions and governmental regulations relating to foreign investment and the cannabis business more generally.

Changes, if any, in the laws, regulations and policies relating to the advertising, production, sale and use of cannabis and cannabis-based products or in the general economic policies in these jurisdictions, or shifts in political attitude related thereto, may adversely affect the operations or profitability of Tilray’s international operations in these countries. As Tilray explores novel business models, such as global co-branded products, cannabinoid clinics and cannabis retail, international regulations will become increasingly challenging to manage. Specifically, Tilray’s operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on advertising, production, price controls, export controls, controls on currency remittance, increased income taxes, restrictions on foreign investment, land and water use restrictions and government policies rewarding contracts to local competitors or requiring domestic producers or vendors to purchase supplies from a particular jurisdiction. Failure to comply strictly with applicable laws, regulations and local practices could result in additional taxes, costs, civil or criminal fines or penalties or other expenses being levied on Tilray’s international operations, as well as other potential adverse consequences such as the loss of necessary permits or governmental approvals.

Furthermore, although Tilray has begun production at Tilray Portugal with a view toward facilitating exports of Tilray’s cannabis products to countries in the European Union, which we refer to as the EU, from Portugal rather than from Canada, there is no assurance that these EU countries will authorize the import of Tilray’s cannabis products from Portugal, or that Portugal will authorize or continue to authorize such exports, or that such exports will provide Tilray with advantages over Tilray’s current EU export strategy. Each country in the EU (or elsewhere) may impose restrictions or limitations on imports that require the use of, or confer significant advantages upon, producers within that particular country. As a result, Tilray may be required to establish production facilities similar to Tilray Portugal in one or more countries in the EU where Tilray wishes to distribute its cannabis products in order to take advantage of the favorable legislation offered to producers in these countries.

Tilray plans to expand its business and operations into jurisdictions outside of the current jurisdictions where Tilray conducts business, and there are risks associated with doing so.

Tilray plans in the future to expand its operations and business into jurisdictions outside of the jurisdictions where Tilray currently carries on business. There can be no assurance that any market for Tilray’s products will develop in any such jurisdiction. Tilray may face new or unexpected risks or significantly increase its exposure to one or more existing risk factors, including economic instability, new competition, changes in laws and regulations, including the possibility that Tilray could be in violation of these laws and regulations as a result of such changes, and the effects of competition. These factors may limit Tilray’s capability to successfully expand its operations in, or export Tilray’s products to, those other jurisdictions.

 

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Tilray’s business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject Tilray to claims or otherwise harm its business.

Tilray is subject to a variety of laws in the United States, Canada and elsewhere. In the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult use in a number of states, cannabis meeting the statutory definition of “marihuana” continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act, or the CSA, and subject to the Controlled Substances Import and Export Act, or the CSIEA. Hemp and marijuana both originate from the Cannabis sativa plant and cannabidiol (“CBD”) is a constituent of both. “Marihuana” or “marijuana” is defined in the CSA as a Schedule I controlled substance, whereas “Hemp” is essentially any parts of the Cannabis sativa plant that has not been determined to be marijuana. Pursuant to the Agriculture Improvement Act of 2018, or the Farm Bill, “hemp,” or cannabis and cannabis derivatives containing no more than 0.3% of tetrahydrocannabinol (“THC”), is now excluded from the statutory definition of “marijuana” and, as such, is no longer a Schedule I controlled substance under the CSA. Tilray’s activity in the United States is limited to (a) certain corporate and administrative services, including accounting, legal and creative services, (b) supply of study drug for clinical trials under DEA and FDA authorization, and (c) participation in the market for hemp and hemp-derived products containing CBD in compliance with the Farm Bill; except as described above, Tilray does not produce or distribute cannabis products in the United States. Therefore, Tilray believes that it is not currently subject to the CSA or CSIEA.

Tilray has commercialized in the United States a variety of products containing hemp, which might include certain cannabinoids including CBD, but would exclude THC at amounts more than 0.3%. While the Farm Bill exempted hemp and hemp derived products from the CSA, any such product commercialization will be subject to various laws, including the Farm Bill, the Federal Food, Drug and Cosmetic Act, or the FD&CA, the Dietary Supplement Health and Education Act, or DSHEA, applicable state and/or local laws, and FDA regulations. The FDA has stated in guidance and other public statements that it is prohibited to sell a food, beverage or dietary supplement to which THC or CBD has been added. While the FDA does not have a formal policy of enforcement discretion with respect to any products with added CBD, the agency has stated that its primary focus for enforcement centers on products that put the health and safety of consumers at risk, such as those claiming to prevent, diagnose, mitigate, treat, or cure diseases in the absence of requisite approvals. While the agency’s enforcement to date has therefore been limited to products containing CBD and that make drug-like claims, there is the risk that the FDA could expand its enforcement activities and require us to alter Tilray’s marketing for Tilray’s hemp-derived CBD products or cease distributing them altogether. Nevertheless, the regulation of hemp and CBD in the United States has been a constantly evolving and changing landscape, with changes in federal and state legislation and regulation occurring on a frequent basis. Violations of applicable FDA and other laws could result in warning letters, significant fines, penalties, administrative sanctions, injunctions, convictions or settlements arising from civil proceedings.

Tilray is further subject to a variety of laws and regulations in the United States, Canada and elsewhere that prohibit money laundering, including the Proceeds of Crime and Terrorist Financing Act (Canada) and the Money Laundering Control Act (United States), as amended, and the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by governmental authorities in the United States, Canada or any other jurisdiction in which Tilray has business operations or to which Tilray exports. Although Tilray believes that none of Tilray’s activities implicate any applicable money laundering statutes, in the event that any of Tilray’s business activities, any dividends or distributions therefrom, or any profits or revenue accruing thereby are found to be in violation of money laundering statutes, such transactions may be viewed as proceeds of crime under one or more of the statutes described above or any other applicable legislation, and any persons, including such U.S.-based investors, found to be aiding and abetting Tilray in such violations could be subject to liability. Any violations of these laws, or allegations of such violations, could disrupt Tilray’s operations, involve significant management distraction and involve significant costs and expenses, including legal fees. Tilray could also suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures.

 

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Tilray is required to comply concurrently with federal, state or provincial, and local laws in each jurisdiction where Tilray operates or to which Tilray exports its products.

Various federal, state or provincial and local laws govern Tilray’s business in the jurisdictions in which Tilray operates or proposes to operate, or to which Tilray exports or propose to export its products, including laws and regulations relating to health and safety, conduct of operations and the production, management, transportation, storage and disposal of Tilray’s products and of certain material used in its operations. Compliance with these laws and regulations requires concurrent compliance with complex federal, provincial or state and local laws. These laws change frequently and may be difficult to interpret and apply. Compliance with these laws and regulations requires the investment of significant financial and managerial resources, and a determination that Tilray is not in compliance with these laws and regulations could harm Tilray’s brand image and business. Moreover, it is impossible for Tilray to predict the cost or effect of such laws, regulations or guidelines upon its future operations. Changes to these laws or regulations could negatively affect Tilray’s competitive position within its industry and the markets in which Tilray operates, and there is no assurance that various levels of government in the jurisdictions in which Tilray operates will not pass legislation or regulation that adversely impacts its business.

U.S. regulations relating to hemp-derived CBD products are unclear and rapidly evolving.

Tilray’s intent to participate in the market for hemp-derived CBD products in the United States and elsewhere may require Tilray to employ novel approaches to existing regulatory pathways. Although the passage of the Farm Bill in December 2018 legalized the cultivation of hemp in the United States to produce products containing CBD and other non-THC cannabinoids, it remains unclear how the FDA will regulate this industry, and whether and when the FDA will propose or implement new or additional regulations. On May 31, 2019, the FDA held a public hearing to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds, including CBD. The FDA has also formed an internal working group to evaluate the potential pathways to market for CBD products. It remains unclear how CBD products will be regulated by the agency going forward.

In addition, such products may be subject to regulation at the state or local levels. While the Farm Bill created a pathway under which hemp and its derivatives are exempted from the definition of marijuana and, therefore, no longer at risk for deemed a Schedule I controlled substance under the CSA and would be protected from interference in interstate commerce notwithstanding the ongoing implementation of those provisions, state and local authorities have issued their own restrictions on the cultivation or sale of hemp or hemp-derived CBD. This includes laws that ban the cultivation or possession of hemp or any other plant of the cannabis genus and derivatives thereof, such as CBD. State regulators may take enforcement action against food and dietary supplement products that contain CBD, or enact new laws or regulations that prohibit or limit the sale of such products. Unforeseen regulatory obstacles or compliance costs may hinder Tilray’s ability to successfully compete in the market for such products.

Tilray may seek to enter into strategic alliances, or expand the scope of currently existing relationships, with third parties that Tilray believes will have a beneficial impact on Tilray, and there are risks that such strategic alliances or expansions of Tilray’s currently existing relationships may not enhance its business in the desired manner.

Tilray currently has, and may expand or reduce the scope of, and may in the future enter into, strategic alliances with third parties that Tilray believes will complement or augment its existing business. Examples of such strategic alliances include Tilray’s agreement with Sandoz AG, joint venture with AB InBev and partnership with ABG. Tilray’s ability to complete further strategic alliances is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance Tilray’s business and may involve risks that could adversely affect Tilray, including the investment of significant amounts of management time that may be

 

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diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. Tilray may become dependent on its strategic partners and actions by such partners could harm Tilray’s business. Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that Tilray’s existing strategic alliances will continue to achieve, the expected benefits to Tilray’s business or that Tilray will be able to consummate future strategic alliances on satisfactory terms, or at all.

Tilray may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on Tilray’s operations.

Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of Tilray’s ongoing business, (ii) the distraction of management away from the ongoing oversight of Tilray’s existing business activities, (iii) incurring additional indebtedness, (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated, (v) an increase in the scope and complexity of Tilray’s operations, and (vi) the loss or reduction of control over certain of Tilray’s assets. Material acquisitions have been and may continue to be material to Tilray’s business strategy. There is no guarantee that acquisitions, such as Four20, High Park Gardens and Manitoba Harvest, will be accretive.

The existence of one or more material liabilities of an acquired company that are unknown to Tilray at the time of acquisition could result in Tilray’s incurring those liabilities. A strategic transaction may result in a significant change in the nature of Tilray’s business, operations and strategy, and Tilray may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into Tilray’s operations.

Tilray is subject to risks inherent in an agricultural business, including the risk of crop failure.

Tilray grows cannabis, which is an agricultural process. As such, Tilray’s business is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, insects, plant diseases and similar agricultural risks. Although Tilray currently grows its products indoors under climate controlled conditions, Tilray is developing outdoor operations and there can be no assurance that natural elements, such as insects and plant diseases, will not entirely interrupt Tilray’s production activities or have an adverse effect on its business.

Tilray depends on certain significant customers for a substantial portion of its revenue. If Tilray fails to retain or expand its customer relationships or if a significant customer were to terminate its relationship with Tilray or reduce its purchases, Tilray’s revenue could decline significantly.

Three customers accounted 15%, 11%, and 10% of Tilray’s revenue, respectively, for the three months ended June 30, 2019. Two customers accounted for 13% and 11% of Tilray’s revenue, respectively, for the six months ended June 30, 2019. One customer accounted for 36% and 31% of Tilray’s revenue for the three and six months ended June 30, 2018. Tilray believes that its operating results for the foreseeable future will continue to depend on sales from a small number of customers. These customers have no purchase commitments and may cancel, change or delay purchases with little or no notice or penalty. As a result of this customer concentration, Tilray’s revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of these customers or any other significant customers. In the future, these customers may decide to purchase less product from Tilray than it has in the past, may alter purchasing patterns at any time with limited notice, or may decide not to continue to purchase Tilray’s products at all, any of which could cause Tilray’s revenue to decline materially and materially harm Tilray’s financial condition and results of operations. If Tilray is unable to diversify its customer base, Tilray will continue to be susceptible to risks associated with customer concentration.

 

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Tilray may be unable to attract or retain key personnel with sufficient experience in the cannabis industry, and Tilray may be unable to attract, develop and retain additional employees required for Tilray’s development and future success.

Tilray’s success is largely dependent on the performance of Tilray’s management team and certain employees and Tilray’s continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and Tilray may incur significant costs to attract and retain them. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent Tilray from executing on Tilray’s business plan and strategy, and Tilray may be unable to find adequate replacements on a timely basis, or at all. Tilray does not currently maintain key-person insurance on the lives of any of Tilray’s key personnel.

Further, each director and officer, as well as certain additional key personnel, of a company that holds a license is subject to the requirement to obtain and maintain a security clearance from Health Canada under the CR. Moreover, under the CR, an individual with security clearance must be physically present on site when other individuals are conducting activities with cannabis. Under the CR and the Cannabis Act, a security clearance is valid for a limited time and must be renewed before the expiry of a current security clearance. There is no assurance that any of Tilray’s existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by an individual in a key operational position to maintain or renew his or her security clearance could result in a reduction or complete suspension of Tilray’s operations. In addition, if an individual in a key operational position leaves Tilray, and Tilray is unable to find a suitable replacement who is able to obtain a security clearance required by the CR in a timely manner, or at all, Tilray may not be able to conduct its operations at planned production volume levels or at all. In addition, the CR requires Tilray to designate a qualified individual in charge who is responsible for supervising activities relating to the production of study drug for clinical trials, which individual must meet certain educational and security clearance requirements. If Tilray’s current designated qualified person in charge fails to maintain his security clearance, or if Tilray’s current designated qualified person in charge leaves Tilray and Tilray is unable to find a suitable replacement who meets these requirements, Tilray may no longer be able to continue its clinical trial activities.

Significant interruptions in Tilray’s access to certain key inputs such as raw materials, electricity, water and other utilities may impair Tilray’s cannabis growing operations.

Tilray’s business is dependent on a number of key inputs and their related costs, including raw materials, supplies and equipment related to Tilray’s operations, as well as electricity, water and other utilities. Any significant interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or volatile energy costs could curtail or preclude Tilray’s ability to continue production. In addition, Tilray’s operations would be significantly affected by a prolonged power outage.

Tilray’s ability to compete and grow cannabis is dependent on Tilray having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that Tilray will be successful in maintaining Tilray’s required supply of labor, equipment, parts and components.

Tilray may not be able to transport Tilray’s cannabis products to consumers in a safe and efficient manner.

Due to Tilray’s direct-to-consumer shipping model for medical cannabis in Canada, Tilray depends on fast and efficient third-party transportation services to distribute Tilray’s medical cannabis products. Tilray also use such services to transfer bulk shipments to provinces and territories for further distribution to consumers. Any prolonged disruption of third-party transportation services, such as the ongoing Canada Post labor disruptions, could have a material adverse effect on Tilray’s sales volumes or satisfaction with Tilray’s services. Rising costs associated with third-party transportation services used by Tilray to ship its products may also adversely impact Tilray’s profitability, and more generally Tilray’s business, financial condition and results of operations.

 

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The security of Tilray’s products during transportation to and from Tilray’s facilities is of the utmost concern. A breach of security during transport or delivery could result in the loss of high-value product and forfeiture of import and export approvals, since such approvals are shipment specific. Any failure to take steps necessary to ensure the safekeeping of Tilray’s cannabis could also have an impact on Tilray’s ability to continue supplying provinces and territories, to continue operating under Tilray’s existing licenses, to renew or receive amendments to Tilray’s existing licenses or to receive required new licenses.

Tilray’s cannabis products may be subject to recalls for a variety of reasons, which could require Tilray to expend significant management and capital resources.

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, adulteration, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. Although Tilray has detailed procedures in place for testing finished cannabis products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits, whether frivolous or otherwise. If any of the cannabis products produced by Tilray are recalled due to an alleged product defect or for any other reason, Tilray could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. As a result of any such recall, Tilray may lose a significant amount of sales and may not be able to replace those sales at an acceptable gross profit or at all. In addition, a product recall may require significant management attention or damage Tilray’s reputation and goodwill or that of Tilray’s products or brands.

In March 2015, Tilray voluntarily recalled certain lots of Tilray’s milled House Blend as a result of the microbial level of this product falling outside of acceptable limits during secondary testing. In August 2016, Tilray withdrew cannabis oil capsules supplied to Croatia for pharmacy distribution because certain capsules suffered damage during transport. In April 2019, Tilray commenced a recall of one lot of prerolls supplied to the Canadian adult-use market due to labeling error. In each of these cases, Tilray was able to complete the recall or withdrawal successfully; however, there is no assurance that such incidents will not result in regulatory action or civil lawsuits, whether frivolous or otherwise, or an adverse effect on Tilray’s reputation or goodwill, or that of Tilray’s products or brands.

Additionally, product recalls may lead to increased scrutiny of Tilray’s operations by Health Canada or other regulatory agencies, requiring further management attention, increased compliance costs and potential legal fees, fines, penalties and other expenses. Any product recall affecting the cannabis industry more broadly, whether or not involving Tilray, could also lead consumers to lose confidence in the safety and security of the products sold by licensed producers generally, including products sold by Tilray.

Tilray may be subject to product liability claims or regulatory action if Tilray’s products are alleged to have caused significant loss or injury. This risk is exacerbated by the fact that cannabis use may increase the risk of serious adverse side effects.

As a manufacturer and distributor of products which are ingested by humans, Tilray faces the risk of exposure to product liability claims, regulatory action and litigation if Tilray’s products are alleged to have caused loss or injury. Tilray may be subject to these types of claims due to allegations that Tilray’s products caused or contributed to injury or illness, failed to include adequate instructions for use or failed to include adequate warnings concerning possible side effects or interactions with other substances. This risk is exacerbated by the fact that cannabis use may increase the risk of developing schizophrenia and other psychoses, symptoms for individuals with bipolar disorder, and other side effects. Previously unknown adverse reactions resulting from human consumption of cannabis products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of cannabis products, like the manufacture and sale of any ingested product, involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Tilray has in the past recalled, and may again in the future have to recall, certain of Tilray’s

 

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cannabis products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against Tilray could result in increased costs and could adversely affect Tilray’s reputation and goodwill with its patients and consumers generally. There can be no assurance that Tilray will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in Tilray becoming subject to significant liabilities that are uninsured and also could adversely affect Tilray’s commercial arrangements with third parties.

Tilray relies on third-party distributors to distribute its products, and those distributors may not perform their obligations.

Tilray relies on third-party distributors, including pharmaceutical distributors, courier services and government agencies, and may in the future rely on other third parties, to distribute Tilray’s products. If these distributors do not successfully carry out their contractual duties, if there is a delay or interruption in the distribution of Tilray’s products, such as the Canada Post labor disruptions previously experienced, or if these third parties damage Tilray’s products, it could negatively impact Tilray’s revenue from product sales. Any damage to Tilray’s products, such as product spoilage, could expose Tilray to potential product liability, damage Tilray’s reputation and the reputation of its brands or otherwise harm Tilray’s business.

Tilray, or the cannabis industry more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception.

Tilray believes that the cannabis industry is highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the cannabis distributed to consumers. The perception of the cannabis industry and cannabis products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) both in Canada and in other countries relating to the consumption of cannabis products, including unexpected safety or efficacy concerns arising with respect to cannabis products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular cannabis product or will be consistent with earlier publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for Tilray’s cannabis products. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis, or Tilray’s products specifically, or associating the consumption of cannabis with illness or other negative effects or events, could adversely affect Tilray. This adverse publicity could arise even if the adverse effects associated with cannabis products resulted from consumers’ failure to use such products legally, appropriately or as directed.

Certain events or developments in the cannabis industry more generally may impact Tilray’s reputation.

Damage to Tilray’s reputation can result from the actual or perceived occurrence of any number of events, including any negative publicity, whether true or not. As a producer and distributor of cannabis, which is a controlled substance in Canada that has previously been commonly associated with various other narcotics, violence and criminal activities, there is a risk that Tilray’s business might attract negative publicity. There is also a risk that the actions of other licensed producers or of other companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact Tilray’s reputation. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share negative opinions and views in regards to Tilray’s activities and the cannabis industry in general, whether true or not.

 

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Tilray does not ultimately have direct control over how Tilray or the cannabis industry is perceived by others. Reputational issues may result in decreased investor confidence, increased challenges in developing and maintaining community relations and present an impediment to Tilray’s overall ability to advance Tilray’s business strategy and realize on Tilray’s growth prospects.

Licensed Producers are constrained by law in their ability to market their products in Canada.

The development of Tilray’s business and operating results may be hindered by applicable restrictions on sales and marketing activities imposed by Health Canada. The regulatory environment in Canada limits Tilray’s ability to compete for market share in a manner similar to other industries. All products Tilray distributes into the Canadian adult-use market must comply with requirements under Canadian legislation, including with respect to product formats, product packaging, product composition and marketing activities around such products. As such, Tilray’s portfolio of brands and products has been specifically adapted, and Tilray’s marketing activities carefully structured, to enable Tilray to develop its brands in an effective and compliant manner. If Tilray is unable to effectively market Tilray’s cannabis products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for Tilray’s cannabis products, then Tilray’s sales and operating results could be adversely affected.

If Tilray is not able to comply with all safety, health and environmental regulations applicable to Tilray’s operations and industry, Tilray may be held liable for any breaches of those regulations.

Safety, health and environmental laws and regulations affect nearly all aspects of Tilray’s operations, including product development, working conditions, waste disposal, emission controls, the maintenance of air and water quality standards and land reclamation, and, with respect to environmental laws and regulations, impose limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Continuing to meet GMP standards, which Tilray follows voluntarily, requires satisfying additional standards for the conduct of Tilray’s operations and subjects Tilray to ongoing compliance inspections in respect of these standards. Compliance with safety, health and environmental laws and regulations can require significant expenditures, and failure to comply with such safety, health and environmental laws and regulations may result in the imposition of fines and penalties, the temporary or permanent suspension of operations, the imposition of clean-up costs resulting from contaminated properties, the imposition of damages and the loss of or refusal of governmental authorities to issue permits or licenses to Tilray or to certify Tilray’s compliance with GMP standards. Exposure to these liabilities may arise in connection with Tilray’s existing operations, Tilray’s historical operations and operations that Tilray may undertake in the future. Tilray could also be held liable for worker exposure to hazardous substances and for accidents causing injury or death. There can be no assurance that Tilray will at all times be in compliance with all safety, health and environmental laws and regulations notwithstanding Tilray’s attempts to comply with such laws and regulations.

Changes in applicable safety, health and environmental standards may impose stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Tilray is not able to determine the specific impact that future changes in safety, health and environmental laws and regulations may have on Tilray’s industry, operations and/or activities and Tilray’s resulting financial position; however, Tilray anticipates that capital expenditures and operating expenses will increase in the future as a result of the implementation of new and increasingly stringent safety, health and environmental laws and regulations. Further changes in safety, health and environmental laws and regulations, new information on existing safety, health and environmental conditions or other events, including legal proceedings based upon such conditions or an inability to obtain necessary permits in relation thereto, may require increased compliance expenditures by Tilray.

 

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Tilray may not be able to obtain adequate insurance coverage in respect of the risks Tilray’s business faces, the premiums for such insurance may not continue to be commercially justifiable, or there may be coverage limitations and other exclusions which may result in such insurance not being sufficient to cover potential liabilities that Tilray faces.

Tilray currently has insurance coverage, including product liability insurance, protecting many, but not all, of Tilray’s assets and operations. Tilray’s insurance coverage is subject to coverage limits and exclusions and may not be available for the risks and hazards to which Tilray is exposed. In addition, no assurance can be given that such insurance will be adequate to cover Tilray’s liabilities, including potential product liability claims, or will be generally available in the future or, if available, that premiums will be commercially justifiable. If Tilray were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, Tilray may be exposed to material uninsured liabilities that could impede Tilray’s liquidity, profitability or solvency.

Tilray may become subject to liability arising from any fraudulent or illegal activity by Tilray’s employees, contractors, consultants and others.

Tilray is exposed to the risk that Tilray’s employees, independent contractors, consultants, service providers and licensors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional undertakings of unauthorized activities, or reckless or negligent undertakings of authorized activities, in each case on Tilray’s behalf or in Tilray’s service that violate (i) government regulations, specifically Health Canada regulations, (ii) manufacturing standards, (iii) Canadian federal and provincial healthcare laws and regulations, (iv) laws that require the true, complete and accurate reporting of financial information or data, (v) U.S. federal laws banning the possession, sale or importation of cannabis into the United States and prohibiting the financing of activities outside the United States that are unlawful under Canadian or other foreign laws, or (vi) the terms of Tilray’s agreements with insurers. In particular, Tilray could be exposed to class action and other litigation, increased Health Canada inspections and related sanctions, the loss of current GMP compliance certifications or the inability to obtain future GMP compliance certifications, lost sales and revenue or reputational damage as a result of prohibited activities that are undertaken in the growing or production process of Tilray’s products without its knowledge or permission and contrary to Tilray’s internal policies, procedures and operating requirements.

Tilray cannot always identify and prevent misconduct by Tilray’s employees and other third parties, including service providers and licensors, and the precautions taken by Tilray to detect and prevent this activity may not be effective in controlling unknown, unanticipated or unmanaged risks or losses or in protecting Tilray from governmental investigations or other actions or lawsuits stemming from such misconduct. If any such actions are instituted against Tilray, and Tilray is not successful in defending itself or asserting its rights, those actions could have a significant impact on Tilray’s business, including the imposition of civil, criminal or administrative penalties, damages, monetary fines and contractual damages, reputational harm, diminished profits and future earnings or curtailment of Tilray’s operations.

Tilray may experience breaches of security at Tilray’s facilities or loss as a result of the theft of its products.

Because of the nature of Tilray’s products and the limited legal channels for distribution, as well as the concentration of inventory in Tilray’s facilities, Tilray is subject to the risk of theft of its products and other security breaches. A security breach at Tilray Nanaimo, High Park Farms, High Park Gardens, Tilray Portugal or Tilray’s High Park Processing Facility, or, once completed, one of Tilray’s planned facilities could result in a significant loss of available products, expose Tilray to additional liability under applicable regulations and to potentially costly litigation or increase expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on Tilray’s business, financial condition and results of operations.

 

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Tilray may be subject to risks related to Tilray’s information technology systems, including the risk that Tilray may be the subject of a cyber-attack and the risk that Tilray may be in non-compliance with applicable privacy laws.

Tilray has entered into agreements with third parties for hardware, software, telecommunications and other information technology, or IT, services in connection with Tilray’s operations. Tilray’s operations depend, in part, on how well Tilray and its vendors protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism, theft, malware, ransomware and phishing attacks. Any of these and other events could result in IT system failures, delays or increases in capital expenses. Tilray’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment and IT systems and software, as well as preemptive expenses to mitigate the risks of failures. The failure of IT systems or a component of IT systems could, depending on the nature of any such failure, adversely impact Tilray’s reputation and results of operations.

There are a number of laws protecting the confidentiality of certain patient health information and other personal information, including patient records, and restricting the use and disclosure of that protected information. In particular, the privacy rules under the Personal Information Protection and Electronics Documents Act (Canada), or the PIPEDA, the EUs’ General Data Protection Regulation, which we refer to as GDPR, and similar laws in other jurisdictions, protect medical records and other personal health information by limiting their use and disclosure to the minimum level reasonably necessary to accomplish the intended purpose. Tilray collects and store personal information about Tilray’s consumers and are responsible for protecting that information from privacy breaches. A privacy breach may occur through a procedural or process failure, an IT malfunction or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly patient lists and preferences, is an ongoing risk whether perpetrated through employee collusion or negligence or through deliberate cyber-attack. Moreover, if Tilray is found to be in violation of the privacy or security rules under PIPEDA or other laws protecting the confidentiality of patient health information, including as a result of data theft and privacy breaches, Tilray could be subject to sanctions and civil or criminal penalties, which could increase Tilray’s liabilities and harm Tilray’s reputation.

As cyber threats continue to evolve, Tilray may be required to expand significant additional resources to continue to modify or enhance Tilray’s protective measures or to investigate and remediate any information security vulnerabilities. While Tilray has implemented security resources to protect Tilray’s data security and information technology systems, such measures may not prevent such events. Significant disruption to Tilray’s information technology system or breaches of data security could have a material adverse effect on Tilray’s business financial condition and results of operations.

Tilray may be unable to sustain Tilray’s revenue growth and development.

Tilray’s revenue has grown in recent years. Tilray’s ability to sustain this growth will depend on a number of factors, many of which are beyond Tilray’s control, including, but not limited to, the availability of sufficient capital on suitable terms, changes in laws and regulations respecting the production of cannabis products, competition from other licensed producers, the size of the black market and the adult-use market, and Tilray’s ability to produce sufficient volumes of Tilray’s cannabis-based products to meet demand. Regulatory changes in the United States and Canada may continue to attract market entrants, therefore diluting Tilray’s potential opportunity and early-mover advantage. In addition, Tilray is subject to a variety of business risks generally associated with developing companies. Future development and expansion could place significant strain on Tilray’s management personnel and likely will require Tilray to recruit additional management personnel, and there is no assurance that Tilray will be able to do so.

 

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Tilray may be unable to expand Tilray’s operations quickly enough to meet demand or manage Tilray’s operations beyond their current scale.

There can be no assurance that Tilray will be able to manage its expanding operations, including any acquisitions, effectively, that Tilray will be able to sustain or accelerate its growth or that such growth, if achieved, will result in profitable operations, that Tilray will be able to attract and retain sufficient management personnel necessary for continued growth or that Tilray will be able to successfully make strategic investments or acquisitions.

Demand for cannabis-based products is dependent on a number of social, political and economic factors that are beyond Tilray’s control. There is no assurance that an increase in existing demand will occur, that Tilray will benefit from any such demand increase or that Tilray’s business will remain profitable even in the event of such an increase in demand. If Tilray is unable to achieve or sustain profitability, the value of Tilray’s Class 2 common stock and the notes may significantly decrease.

Tilray may not be able to secure adequate or reliable sources of funding required to operate Tilray’s business or increase Tilray’s production to meet consumer demand for its products.

The continued development of Tilray’s business will require additional financing, and there is no assurance that Tilray will obtain the financing necessary to be able to achieve Tilray’s business objectives. Tilray’s ability to obtain additional financing will depend on investor demand, Tilray’s performance and reputation, market conditions and other factors. Tilray’s inability to raise such capital could result in the delay or indefinite postponement of Tilray’s current business objectives or in Tilray’s inability to continue to carry on Tilray’s business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to Tilray.

In addition, from time to time, Tilray may enter into transactions to acquire assets or the capital stock or other equity interests of other entities. Tilray’s continued growth may be financed, wholly or partially, with debt, which may increase Tilray’s debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for Tilray to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings may also contain provisions that, if breached, may entitle lenders or their agents to accelerate the repayment of loans or realize upon security over Tilray’s assets, and there is no assurance that Tilray would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to any such debt financing.

Servicing Tilray’s debt will require a significant amount of cash, and Tilray may not have sufficient cash flow from Tilray’s business to pay Tilray’s substantial debt.

Tilray’s ability to make scheduled payments of the principal of, to pay interest on or to refinance Tilray’s current and future indebtedness, including the notes, depends on Tilray’s future performance, which is subject to economic, financial, competitive and other factors beyond Tilray’s control. Tilray’s business may not generate cash flow from operations in the future sufficient to service Tilray’s debt and make necessary capital expenditures. If Tilray is unable to generate such cash flow, Tilray may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Tilray’s ability to refinance Tilray’s current and future indebtedness will depend on the capital markets and Tilray’s financial condition at such time. Tilray may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on Tilray’s debt obligations.

 

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Tilray incurs increased costs as a result of operating as a public company and Tilray’s management is required to devote substantial time to new compliance initiatives.

Prior to Tilray’s IPO, Tilray operated as a private company. As a public company, Tilray has incurred and will incur significant legal, accounting and other expenses that Tilray did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including requirements to file annual, quarterly and event-driven reports with respect to Tilray’s business and financial condition and operations and establish and maintain effective disclosure and financial controls and corporate governance practices. Tilray expects these costs, difficulties and demands to increase after Tilray is no longer an “emerging growth company” starting with the fiscal year beginning January 1, 2020. Tilray’s management and other personnel have limited experience operating a public company, which may result in operational inefficiencies or errors, or a failure to improve or maintain effective ICFR and DCP necessary to ensure timely and accurate reporting of operational and financial results. Tilray’s existing management team will need to devote a substantial amount of time to these compliance initiatives, and Tilray may need to hire additional personnel to assist Tilray with complying with these requirements. Moreover, these rules and regulations have increased and will continue to increase Tilray’s legal and financial compliance costs and will make some activities more time consuming and costly.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, Tilray will be required to furnish a report by Tilray’s management on Tilray’s ICFR, which, after Tilray is no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by Tilray’s independent registered public accounting firm. Tilray will cease to be an “emerging growth company” at the end of 2019, as Tilray will be deemed to be a “large accelerated filer” as defined in the Exchange Act. To achieve compliance with Section 404 within the prescribed period, Tilray will document and evaluate Tilray’s ICFR, which is both costly and challenging. In this regard, Tilray will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of Tilray’s ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite Tilray’s efforts, there is a risk that Tilray will not be able to conclude within the prescribed timeframe that Tilray’s ICFR is effective as required by Section 404. This could result one or more material weaknesses in Tilray’s ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of Tilray’s consolidated financial statements, which we refer to as the financial statements.

Management may not be able to successfully implement adequate internal controls over financial reporting.

Proper systems of ICFR and disclosure are critical to the operation of a public company. However, Tilray does not expect that Tilray’s DCP or ICFR will prevent all errors and all fraud. For example, Tilray previously reported a material weakness in Tilray’s internal control over financial reporting as described in Tilray’s annual report on Form 10-K for the year ended December 31, 2018. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified related to inventory costing and the financial close process. Specifically, Tilray’s processes are manual in nature such that a timely, sufficiently precise and detailed review to mitigate the risk of material misstatement is not currently feasible due to the complexity of the spreadsheet-based models used in inventory cost calculations and the financial close. Tilray has developed a plan to remediate the material weakness and begun implementing the remediation plan, including increasing the depth and experience within Tilray’s accounting and finance organization, as well as designing and implementing improved processes and internal controls with the intent of increasing the use of system-based processes to limit manual calculations and adjustments in the costing and financial closing processes. However, Tilray’s efforts to remediate this material weakness may not be effective or prevent future material weaknesses or significant deficiencies in Tilray’s internal control over financial reporting. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be

 

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met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. If Tilray cannot provide reliable financial reports or prevent fraud, Tilray’s reputation and operating results could be materially and adversely affected, which could cause investors to lose confidence in Tilray and Tilray’s reported financial information, which in turn could result in a reduction in the value of Tilray’s Class 2 common stock.

Tilray currently is an emerging growth company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make Tilray’s securities less attractive to investors.

Tilray is currently an “emerging growth company” as defined in the JOBS Act. For so long as Tilray remains an emerging growth company it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

not being required to comply with the auditor attestation requirements of Section 404;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis);

 

   

reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

 

   

reduced disclosure about executive compensation arrangements;

 

   

exemptions from the requirements to obtain a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute arrangements not previously approved; and

 

   

an extended transition period for complying with new or revised accounting standards, which Tilray has elected to take advantage of.

Tilray has taken advantage of some, but not all, of the available exemptions described above. Tilray will cease to be an “emerging growth company” at the end of 2019, as Tilray will be deemed to be a “large accelerated filer” as defined in the Exchange Act. During such time that Tilray remains an “emerging growth company,” Tilray cannot predict whether investors will find Tilray’s securities less attractive if Tilray relies on these exemptions. If some investors find Tilray’s securities less attractive as a result, there may be a less active trading market for Tilray’s securities and the price of Tilray’s securities may be more volatile.

Conflicts of interest may arise between Tilray and Tilray’s directors and officers as a result of other business activities undertaken by such individuals, including continuing involvement by these individuals in Privateer prior to the merger.

Tilray may be subject to various potential conflicts of interest because some of Tilray’s directors and executive officers may be engaged in a range of business activities. In addition, Tilray’s directors and executive officers are permitted under their applicable agreements with Tilray to devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to Tilray and subject to any contractual restrictions restricting such activities. These business interests could require the investment of significant time and attention by Tilray’s executive officers and directors. In some cases, Tilray’s executive officers and directors, including Tilray’s Chief Executive Officer and President, Brendan Kennedy, and board member, Michael Auerbach, may have fiduciary obligations associated with business interests that interfere with their ability to devote time to Tilray’s business and affairs, such as business obligations related to the employment or involvement of these persons with Privateer prior to the merger, which could adversely affect Tilray’s operations.

 

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On June 10, 2019, Tilray announced the signing of a letter of intent to affect a downstream merger of Privateer with and into a wholly-owned subsidiary of Tilray. As a result of the potential conflict associated with the merger, Tilray formed a special committee comprised of independent directors to evaluate the merger and represent the interests of Tilray. Despite these efforts, there is no guarantee that all potential conflicts of interest are adequately resolved or new potential conflicts of interest will not arise.

Third parties with whom Tilray does business may perceive themselves as being exposed to reputational risk as a result of their relationship with Tilray.

The parties with whom Tilray does business, or would like to do business, may perceive that they are exposed to reputational risk as a result of Tilray’s business activities relating to cannabis, which could hinder Tilray’s ability to establish or maintain business relationships. These perceptions relating to the cannabis industry may interfere with Tilray’s relationship with service providers in Canada and other countries, particularly in the financial services industry.

Tax and accounting requirements may change in ways that are unforeseen to Tilray and Tilray may face difficulty or be unable to implement or comply with any such changes.

Tilray is subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices, could have a significant adverse effect on Tilray’s financial results, the manner in which Tilray conduct its business or the marketability of any of Tilray’s products. Tilray currently has international operations and plans to expand such operations in the future. These operations, and any expansion thereto, will require Tilray to comply with the tax laws and regulations of multiple jurisdictions, which may vary substantially. Complying with the tax laws of these jurisdictions can be time consuming and expensive and could potentially subject Tilray to penalties and fees in the future if Tilray were to fail to comply.

Because a significant portion of Tilray’s sales are generated in Canada, fluctuations in foreign currency exchange rates could harm Tilray’s results of operations.

The reporting currency for Tilray’s financial statements is the U.S. dollar. Tilray derives a significant portion of Tilray’s revenue and incurs a significant portion of Tilray’s operating costs in Canada, and changes in exchange rates between the Canadian dollar and the U.S. dollar may have a significant, and potentially adverse, effect on Tilray’s results of operations. Tilray’s primary risk of loss regarding foreign currency exchange rate risk is caused by fluctuations in the exchange rates between the U.S. dollar and the Canadian dollar, although as Tilray expands internationally Tilray will be subject to additional foreign currency exchange risks. Because Tilray recognizes revenue in Canada in Canadian dollars, if the Canadian dollar weakens against the U.S. dollar it would have a negative impact on Tilray’s Canadian operating results upon the translation of those results into U.S. dollars for the purposes of consolidation. In addition, a weakening of the Canadian dollar against the U.S. dollar would make it more difficult for Tilray to meet its obligations under the notes and Tilray’s credit facilities with Privateer prior to the merger. Tilray has not historically engaged in hedging transactions and does not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As Tilray continues to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on Tilray’s results of operations.

Tilray may have exposure to greater than anticipated tax liabilities, which could seriously harm Tilray’s business.

Tilray’s income tax obligations are based on Tilray’s corporate operating structure and third-party and intercompany arrangements, including the manner in which Tilray develops, values and uses Tilray’s intellectual property and the valuations of Tilray’s intercompany transactions. The tax laws applicable to Tilray’s international business activities, including the laws of the United States, Canada and other jurisdictions, are

 

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subject to change and uncertain interpretation. The taxing authorities of the jurisdictions in which Tilray operates may challenge Tilray’s methodologies for valuing developed technology, intercompany arrangements or transfer pricing, which could increase Tilray’s worldwide effective tax rate and the amount of taxes that Tilray pays and seriously harm its business. Taxing authorities may also determine that the manner in which Tilray operates its business is not consistent with how Tilray reports its income, which could increase Tilray’s effective tax rate and the amount of taxes that Tilray pays and could seriously harm its business. In addition, Tilray’s future income taxes could fluctuate because of earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of Tilray’s deferred tax assets and liabilities or by changes in tax laws, regulations or accounting principles. Tilray is subject to regular review and audit by U.S. federal and state and foreign tax authorities. Any adverse outcome from a review or audit could seriously harm Tilray’s business. In addition, determining Tilray’s worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although Tilray believes that the amounts recorded in Tilray’s financial statements are reasonable, the ultimate tax outcome relating to such amounts may differ for such period or periods and may seriously harm Tilray’s business.

The long-term effect of U.S. tax reform could adversely affect our business and financial condition.

On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act was enacted, which contains significant changes to U.S. tax law, including, but not limited to, a reduction in the corporate tax rate, limitation of the tax deduction for interest expense (with certain exceptions), limitation of the deduction for net operating losses arising after 2017 to 80% of current year taxable income and elimination of carryback of such net operating losses, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, modifying or repealing many business deductions and credits, deemed repatriation of certain intangible related income and a transition to a new quasi-territorial system of taxation. Notwithstanding the reduction in the corporate income tax rate, Tilray’s business and financial condition could be adversely affected in future periods by the overall impact of the Tax Act. In addition, the Tax Act could be amended or subject to technical correction, possibly with retroactive effect, which could change the financial impacts that were recorded at June 30, 2019, or are expected to be recorded in future periods. Additionally, further guidance may be forthcoming from the Financial Accounting Standards Board and SEC, as well as regulations, interpretations and rulings from federal and state tax agencies, which could result in additional impacts, possibly with retroactive effect. Any such changes or potential additional impacts could adversely affect Tilray’s business and financial condition. Tilray will continue to examine and assess the impact this tax reform legislation may have on its business.

As a result of an investment in Tilray’s securities, you could be prevented from entering the United States or become subject to a lifetime ban on entry into the United States.

U.S. Customs and Border Protection, or CBP, has confirmed that border agents may seek to permanently ban any foreign visitor who admits to working or investing in the cannabis industry, or admits to having used cannabis, even though adult-use cannabis is now legal in Canada. CBP confirmed that investing even in publicly-traded cannabis companies is considered facilitation of illicit drug trade under CBP policy. This policy is limited to citizens of foreign countries and not citizens of the United States. Therefore, as a result of an investment in Tilray’s securities, if you are not a citizen of the United States, you could be prevented from entering the United States or could become subject to a lifetime ban on entry into the United States.

 

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Risks Related to Tilray’s Intellectual Property

Tilray may be subject to risks related to the protection and enforcement of Tilray’s intellectual property rights, or intellectual property Tilray licenses from others, and may become subject to allegations that Tilray or its licensors are in violation of intellectual property rights of third parties.

The ownership, licensing and protection of trademarks, patents and intellectual property rights are significant aspects of Tilray’s future success. Unauthorized parties may attempt to replicate or otherwise obtain and use Tilray’s products and technology. Policing the unauthorized use of Tilray’s current or future trademarks, patents or other intellectual property rights now or in the future could be difficult, expensive, time consuming and unpredictable, as may be enforcing these rights against the unauthorized use by others. Identifying the unauthorized use of intellectual property rights is difficult as Tilray may be unable to effectively monitor and evaluate the products being distributed by Tilray’s competitors, including parties such as unlicensed dispensaries and black-market participants, and the processes used to produce such products. In addition, in any infringement proceeding, some or all of Tilray’s trademarks, patents or other intellectual property rights or other proprietary know-how, and that which Tilray licenses from others, or arrangements or agreements seeking to protect the same for Tilray’s benefit, may be found invalid, unenforceable, anti-competitive or not infringed or may be interpreted narrowly and such proceeding could put existing intellectual property applications at risk of not being issued.

In addition, other parties may claim that Tilray’s products, or those that Tilray licenses from others, infringe on their proprietary or patent protected rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources and legal fees, result in injunctions or temporary restraining orders or require the payment of damages. As well, Tilray may need to obtain licenses from third parties who allege that Tilray has infringed on their lawful rights. Such licenses may not be available on terms acceptable to Tilray, or at all. In addition, Tilray may not be able to obtain or utilize on terms that are favorable to Tilray, or at all, licenses or other rights with respect to intellectual property that Tilray does not own.

Tilray also relies on certain trade secrets, technical know-how and proprietary information that are not protected by patents to maintain Tilray’s competitive position. Tilray’s trade secrets, technical know-how and proprietary information, which are not protected by patents, may become known to or be independently developed by competitors, which could adversely affect Tilray.

Tilray licenses some intellectual property rights, and the failure of the owner of such intellectual property to properly maintain or enforce the intellectual property underlying such licenses could have a material adverse effect on Tilray’s business, financial condition and performance.

Tilray is party to a number of licenses, including with entities formerly affiliated with Privateer, that give Tilray rights to use third-party intellectual property that is necessary or useful to Tilray’s business. Tilray’s success will depend, in part, on the ability of the licensor to maintain and enforce its licensed intellectual property, in particular, those intellectual property rights to which Tilray has secured exclusive rights. Without protection for the intellectual property Tilray has licensed, other companies might be able to offer substantially similar products for sale or utilize substantially similar processes, which could have a material adverse effect on Tilray.

Any of Tilray’s licensors may allege that Tilray has breached its license agreement, whether with or without merit, and accordingly seek to terminate Tilray’s license. If successful, this could result in Tilray’s loss of the right to use the licensed intellectual property, which could adversely affect Tilray’s ability to commercialize its products or services, as well as have a material adverse effect on Tilray.

 

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Tilray may not realize the full benefit of the clinical trials or studies that Tilray participates in because the terms of some of Tilray’s agreements to participate do not give Tilray full rights to the resulting intellectual property, the ability to acquire full rights to that intellectual property on commercially reasonable terms or the ability to prevent other parties from using that intellectual property.

Although Tilray has participated in several clinical trials, Tilray is not the sponsor of many of these trials and, as such, do not have full control over the design, conduct and terms of the trials. In some cases, for instance, Tilray is only the provider of a cannabis study drug for a trial that is designed and initiated by an independent investigator within an academic institution. In such cases, Tilray is often not able to acquire rights to all the intellectual property generated by the trials. Although the terms of all clinical trial agreements entered into by Tilray provide Tilray with, at a minimum, ownership of intellectual property relating directly to the study drug being trialed (e.g. intellectual property relating to use of the study drug), and ownership of intellectual property that does not relate directly to the study drug is often retained by the institution. As such, Tilray is vulnerable to any dispute among the investigator, the institution and Tilray with respect to classification and therefore ownership of any particular piece of intellectual property generated during the trial. Such a dispute may affect Tilray’s ability to make full use of intellectual property generated by a clinical trial.

Where intellectual property generated by a trial is owned by the institution, Tilray is often granted a right of first negotiation to obtain an exclusive license to such intellectual property. If Tilray exercises such a right, there is a risk that the parties will fail to come to an agreement on the license, in which case such intellectual property may be licensed to other parties or commercialized by the institution.

Tilray may not realize the full benefit of Tilray’s licenses if the licensed material has less market appeal than expected, or if restrictions on packaging and marketing hinder Tilray’s ability to realize value from Tilray’s licenses, and Tilray’s licenses may not be profitable to Tilray.

An integral part of Tilray’s Canadian adult-use cannabis business strategy involves obtaining territorially exclusive licenses to produce products using various brands and images. As a licensee of brand-based properties, Tilray has no assurance that a particular brand or property will translate into a successful adult-use cannabis product. Additionally, a successful brand may not continue to be successful or maintain a high level of sales. As well, the popularity of licensed properties may not result in popular products or the success of the properties with the public. Promotion, packaging and labelling of adult-use cannabis is strictly regulated. These restrictions may further hinder Tilray’s ability to benefit from its licenses. Acquiring or renewing licenses may require the payment of minimum guaranteed royalties that Tilray considers to be too high to be profitable, which may result in losing licenses Tilray currently holds when they become renewable under their terms or missing business opportunities for new licenses. If Tilray is unable to acquire or maintain successful licenses on advantageous terms, or to derive sufficient revenue from sales of licensed products, Tilray’s adult-use business may not be successful.

Risks Relating to Tilray’s Relationship with Privateer

Tilray is exposed to risks arising from Privateer’s stockholdings, its provision of services to Tilray and its participation in Tilray’s management and conflicts of interest associated therewith.

As of September 30, 2019, Privateer beneficially owns or controls an approximate 75% equity interest in Tilray through ownership or control of 16,666,667 shares of Tilray’s Class 1 common stock and 58,333,333 shares of Tilray’s Class 2 common stock, representing approximately 90% of the voting power of Tilray’s capital stock. In addition, because Tilray’s Class 1 common stock, which is held entirely by Privateer, has 10 votes per share, Privateer will continue to own a majority of the voting power of all outstanding shares of Tilray’s capital stock and control all matters submitted to Tilray’s stockholders for approval as long as it holds at least approximately 10.01% of all outstanding shares of Tilray’s capital stock.

As a result of provisions in Tilray’s current amended and restated certificate of incorporation and the terms of agreements Tilray has entered, Tilray’s relationship with Privateer, as Tilray’s majority stockholder, does not

 

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impose any duty on Privateer or its affiliates to act in Tilray’s best interests and, other than as set out in the agreements entered into between Tilray and Privateer or its affiliates, Privateer is not prohibited from engaging in other business activities that may compete with Tilray. In certain instances, the interests of Privateer may differ from Tilray’s interests and the interests of Tilray’s other stockholders, including with respect to future acquisitions or strategic decisions. It is possible that conflicts of interest may arise between Privateer and Tilray and that such conflicts may not be resolved in a manner that is in Tilray’s best interests or the best interests of Tilray’s other stockholders. Additionally, Privateer and its affiliates will have access to Tilray’s material confidential information.

Generally, a transfer by Privateer of the Class 1 common stock it holds would cause a conversion of such shares into Class 2 common stock. However, a transfer by Privateer to the three founders of Privateer, or certain entities controlled by them, such as estate planning entities, would not result in a conversion and these individuals would continue to hold Class 1 common stock with superior voting rights of 10 votes per share. These three founders are Brendan Kennedy (Tilray’s Chief Executive Officer and President as well as one of Tilray’s directors), Michael Blue and Christian Groh, and such founders collectively hold 45% of the shares of Privateer.

For so long as Privateer, either directly or indirectly, owns a significant interest in and holds voting power over Tilray’s capital stock, Privateer will have the ability to exercise substantial influence with respect to Tilray’s affairs and significantly affect the outcome of stockholder votes and may have the ability to cause or prevent certain fundamental transactions. Additionally, Privateer’ significant voting power may discourage transactions involving a change of control of Tilray, including transactions in which an investor might otherwise receive a premium for Tilray’s Class 2 common stock over the then-current market price.

The closing of the merger would result in Privateer no longer holding voting power over Tilray’s capital stock; however, there is no guarantee the merger will close on a timely basis, if at all.

Future sales or distributions of Tilray’s securities could cause the market price for Tilray’s Class 2 common stock to fall.

Sales of a substantial number of shares of Tilray’s common stock in the public market could occur at any time. These sales or distributions by Privateer or other stockholders, or the market perception that the holders of a large number of shares of Tilray’s Class 2 common stock, or shares of Tilray’s Class 1 common stock which are convertible into Class 2 common stock on a one-for-one basis, intend to sell Tilray’s Class 2 common stock, could significantly reduce the market price of Tilray’s Class 2 common stock. Tilray cannot predict the effect, if any, that future public sales of these securities or the availability of these securities for sale will have on the market price of Tilray’s Class 2 common stock. If the market price of Tilray’s Class 2 common stock were to drop as a result of such factors, this might impede Tilray’s ability to raise additional capital and might cause Tilray’s remaining stockholders to lose all or part of their investment. However, it is a condition to Tilray’s obligations to close the merger that certain specified stockholders of Privateer, including Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach, shall have delivered a stockholder lock-up agreement to Tilray prior to the closing of the merger. The transfer restrictions under the stockholder lock-up agreement commence at the effective time. The restrictions on transfer are subject to certain exceptions and carve outs, as described in more detail in the form of stockholder lock-up agreement. In addition, Tilray and Privateer have entered the Privateer lock-up agreement, which provides that if the merger agreement is terminated by either Tilray or Privateer because Privateer has not obtained the requisite written consent from Privateer’s stockholders within 15 business days of this registration statement becoming effective and the written consent is also not obtained before the termination date, then Privateer shall not transfer its Tilray common stock for 135 days from the termination date.

 

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Risks Related to Ownership of Tilray’s Securities

Holders of Class 2 common stock have limited voting rights as compared to holders of Class 1 common stock. Tilray cannot predict the impact that Tilray’s capital structure and concentrated control by Privateer may have on the market price of Tilray’s Class 2 common stock.

Privateer beneficially owns or controls 16,666,667 shares of Tilray’s Class 1 common stock and 58,333,333 shares of Tilray’s Class 2 common stock, representing 91% of the voting power of Tilray’s capital stock. Class 1 common stock, held entirely by Privateer, has 10 votes per share, resulting in Privateer having control of a majority of the voting power of all outstanding shares of Tilray’s capital stock and control of all matters that may be submitted to Tilray’s stockholders for approval as long as it holds at least approximately 10.01% of all outstanding shares of Tilray’s capital stock. Following the merger, if consummated, Brendan Kennedy (Tilray’s Chief Executive Officer and President and member of the Tilray Board), Michael Blue and Christian Groh will continue to collectively hold the majority of the voting power of Tilray’s capital stock. This concentrated control reduces other stockholders’ ability to influence corporate matters and, as a result, Tilray may take actions that Tilray’s stockholders other than Privateer, or Messrs. Kennedy, Blue and Groh after the merger, if consummated, do not view as beneficial. Further, the concentration of the ownership of Tilray’s Class 1 common stock may prevent or delay the consummation of change of control transactions that stockholders other than Privateer or Messrs. Kennedy, Blue and Groh after the merger, if consummated, may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. Future issuances of Class 1 common stock to Privateer may also be dilutive to the holders of Class 2 common stock. As a result, the market price of Tilray’s Class 2 common stock could be adversely affected.

Additionally, while other companies listed on U.S. stock exchanges have publicly traded classes of stock with limited voting rights, Tilray cannot predict whether this structure, combined with concentrated control by Privateer, or Messrs. Kennedy, Blue and Groh after the merger, if consummated, will result in a lower trading price or greater fluctuations in the trading price of Tilray’s Class 2 common stock as compared to the market price were Tilray to have a single class of common stock, or will result in adverse publicity or other adverse consequences.

The price of Tilray’s Class 2 common stock in public markets has experienced and may experience significant fluctuations.

The market price for Tilray’s Class 2 common stock, and the market price of stock of other companies operating in the cannabis industry, has been extremely volatile. For example, during the three months ended June 30, 2019, the trading price of Tilray’s common stock has fluctuated between a low of $34.25 and a high of $65.21 per share. The market price of Tilray’s Class 2 common stock may continue to be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond Tilray’s control, including the following: (i) actual or anticipated fluctuations in Tilray’s quarterly results of operations, (ii) recommendations by securities research analysts, (iii) changes in the economic performance or market valuations of other issuers that investors deem comparable to Tilray, (iv) the addition or departure of Tilray’s executive officers or other key personnel, (v) the release or expiration of lock-up or other transfer restrictions on Tilray’s common stock, (vi) sales or perceived sales, or the expectation of future sales, of Tilray’s common stock, (vii) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving Tilray or Tilray’s competitors, (viii) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in Tilray’s industry or target markets, and (ix) the impact of the merger, or failure to consummate the merger.

Financial markets have recently experienced significant price and volume fluctuations which have affected the market prices of the equity securities of public entities. In many cases, these fluctuations, and the effect that they have on market prices, have been unrelated to the operating performance, underlying asset values or prospects of such entities. Accordingly, the market price of Tilray’s Class 2 common stock may decline even if Tilray’s operating results or prospects have not changed. Additionally, these factors, as well as other related factors, may

 

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cause decreases in asset values that are deemed not to be temporary, which may result in impairment losses to Tilray. Furthermore, certain investors may base their investment decisions on considerations of Tilray’s environmental, governance and social practices or Tilray’s industry as a whole, and Tilray’s performance in these areas against such investors’ respective investment guidelines and criteria. The failure to satisfy such criteria may result in limited or no investment in Tilray’s Class 2 common stock by those investors, which could materially and adversely affect the trading price of Tilray’s Class 2 common stock.

There can be no assurance that continuing fluctuations in the price and volume of equity securities in public markets will not occur. If such increased levels of volatility and market turmoil continue for a protracted period of time, there could be a material adverse effect on the trading price of Tilray’s Class 2 common stock.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about Tilray’s business, Tilray’s stock price and trading volume could decline.

The trading market for Tilray’s Class 2 common stock depends, in part, on the research and reports that securities or industry analysts publish about Tilray or its business. Tilray does not have any control over these analysts. If one or more of the securities or industry analysts who cover Tilray downgrade its stock or publish inaccurate or unfavorable research about Tilray’s business, its stock price would likely decline. In addition, if Tilray’s operating results fail to meet the forecast of analysts, Tilray’s stock price would likely decline. If one or more of these analysts cease coverage of Tilray’s company or fail to publish reports on Tilray regularly, demand for Tilray’s stock could decrease, which might cause Tilray’s stock price and trading volume to decline.

Tilray may not have the ability to raise the funds necessary to settle conversions of its outstanding convertible notes in cash or to repurchase such convertible notes upon a fundamental change, and Tilray’s future debt may contain limitations on Tilray’s ability to pay cash upon conversion or repurchase of the convertible notes.

Holders of the convertible notes have the right to require Tilray to repurchase their convertible notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the convertible notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the convertible notes, unless Tilray elects to deliver solely shares of Tilray’s Class 2 common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), Tilray will be required to make cash payments in respect of the convertible notes being converted. However, Tilray may not have enough available cash or be able to obtain financing at the time Tilray is required to make repurchases of notes surrendered therefor or convertible notes being converted. In addition, Tilray’s ability to repurchase the convertible notes or to pay cash upon conversions of the convertible notes may be limited by law, by regulatory authority or by agreements governing Tilray’s future indebtedness. Tilray’s failure to repurchase convertible notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the convertible notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing Tilray’s existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, Tilray may not have sufficient funds to repay the indebtedness and repurchase the convertible notes or make cash payments upon conversions thereof.

The conditional conversion feature of its outstanding convertible notes, if triggered, may adversely affect Tilray’s financial condition and operating results.

In the event the conditional conversion feature of the convertible notes is triggered, holders of convertible notes will be entitled to convert the convertible notes at any time during specified periods at their option. If one or more holders elect to convert their convertible notes, unless Tilray elects to satisfy its conversion obligation by delivering solely shares of Tilray’s Class 2 common stock (other than paying cash in lieu of delivering any fractional share), Tilray would be required to settle a portion or all of Tilray’s conversion obligation through the payment of cash, which could adversely affect Tilray’s liquidity. In addition, even if holders of convertible notes

 

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do not elect to convert their convertible notes, Tilray could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible notes as a current rather than long-term liability, which would result in a material reduction of Tilray’s net working capital.

Holders of Tilray’s Class 2 common stock may be subject to dilution resulting from future offerings of common stock by Tilray.

Tilray may raise additional funds in the future by issuing common stock or equity-linked securities. Holders of Tilray’s securities have no preemptive rights in connection with such further issuances. The Tilray Board has the discretion to determine if an issuance of Tilray’s capital stock is warranted, the price at which such issuance is to be effected and the other terms of any future issuance of capital stock. In addition, additional common stock will be issued by Tilray in connection with the exercise of options or grant of other equity awards granted by Tilray. Such additional equity issuances could, depending on the price at which such securities are issued, substantially dilute the interests of the holders of Tilray’s existing securities.

Conversion of its convertible notes may dilute the ownership interest of Tilray’s stockholders or may otherwise depress the price of Tilray’s Class 2 common stock.

The conversion of some or all of the convertible notes may dilute the ownership interests of Tilray’s stockholders. Upon conversion of the convertible notes, Tilray has the option to pay or deliver, as the case may be, cash, shares of Tilray’s Class 2 common stock, or a combination of cash and shares of Tilray’s Class 2 common stock. If Tilray elects to settle its conversion obligation in shares of Tilray’s Class 2 common stock or a combination of cash and shares of Tilray’s Class 2 common stock, any sales in the public market of Tilray’s Class 2 common stock issuable upon such conversion could adversely affect prevailing market prices of Tilray’s Class 2 common stock. In addition, the existence of the convertible notes may encourage short selling by market participants because the conversion of the convertible notes could be used to satisfy short positions, or anticipated conversion of the convertible notes into shares of Tilray’s Class 2 common stock could depress the price of Tilray’s Class 2 common stock.

It is not anticipated that any dividends will be paid to holders of Tilray’s Class 2 common stock for the foreseeable future.

No dividends on Tilray’s Class 2 common stock have been paid to date. Tilray anticipates that, for the foreseeable future, Tilray will retain future earnings and other cash resources for the operation and development of Tilray’s business. The payment of any future dividends will be at the discretion of the Tilray Board after taking into account many factors, including Tilray’s earnings, operating results, financial condition and current and anticipated cash needs.

Provisions in Tilray’s corporate charter documents could make an acquisition of Tilray more difficult and may prevent attempts by Tilray’s stockholders to replace or remove Tilray’s current management.

Provisions in Tilray’s corporate charter and Tilray’s bylaws may discourage, delay or prevent a merger, acquisition or other change in control of Tilray that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of Tilray’s Class 2 common stock, thereby depressing the market price of Tilray’s Class 2 common stock. In addition, these provisions may frustrate or prevent any attempts by Tilray’s stockholders to replace or remove Tilray’s current management by making it more difficult for stockholders to replace members of the Tilray Board. Because the Tilray Board is responsible for appointing the members of Tilray’s management team, these provisions could in turn affect any attempt by Tilray’s stockholders to replace current members of Tilray’s management team. Among others, these provisions include the following:

 

   

the Tilray Board is divided into three classes with staggered three-year terms which may delay or prevent a change of Tilray’s management or a change in control;

 

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the Tilray Board has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Tilray Board;

 

   

Tilray’s stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of Tilray’s capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the Tilray Board, the chairman of the Tilray Board or Tilray’s chief executive officer;

 

   

Tilray’s certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Tilray Board; and

 

   

the Tilray Board may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for the Tilray Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire Tilray.

Provisions under Delaware law could make an acquisition of Tilray more difficult, limit attempts by Tilray’s stockholders to replace or remove Tilray’s current management and limit the market price of Tilray’s Class 2 common stock.

In addition to Tilray’s corporate charter and Tilray’s bylaws, because Tilray is incorporated in Delaware, Tilray is subject to the provisions of Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of Tilray’s capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.

Certain jurisdictions may take positions adverse to investments in, or investors themselves, in cannabis companies.

Certain jurisdictions may prohibit or restrict its citizens or residents from investing in or transacting with companies involved in the cannabis industry, even if such companies only conduct business in jurisdictions where cannabis is legal. For example, if an investor in the United Kingdom profits from an investment in a cannabis producer or supplier, such investment may technically violate the United Kingdom Proceeds of Crime Act 2002. Similar prohibitions or restrictions may apply in other jurisdictions where cannabis has not been legalized. In addition, such prohibitions and restrictions may limit your ability to receive dividends if such dividends were to be declared in the future. However, no dividends on Tilray’s Class 2 common stock have been paid to date and Tilray does not anticipate that, for the foreseeable future, Tilray will pay dividends on its Class 2 common stock.

Certain provisions in the indenture governing Tilray’s convertible notes may delay or prevent an otherwise beneficial takeover attempt of Tilray.

Certain provisions in the indenture governing the convertible notes may make it more difficult or expensive for a third party to acquire Tilray. For example, the indenture governing the convertible notes requires Tilray to repurchase the convertible notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the relevant conversion rate for a holder that converts its convertible notes in connection with a make-whole fundamental change. A takeover of Tilray may trigger the requirement that Tilray repurchase the convertible notes and/or increase the conversion rate, which could make it more costly for a

 

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potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of Tilray that would otherwise be beneficial to investors.

Tilray’s amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between Tilray and Tilray’s stockholders, which could limit Tilray’s stockholders’ ability to obtain a favorable judicial forum for disputes with Tilray or Tilray’s directors, officers or employees.

Tilray’s amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

 

   

any derivative action or proceeding brought on Tilray’s behalf;

 

   

any action asserting a breach of fiduciary duty;

 

   

any action asserting a claim against Tilray arising under the DGCL, Tilray’s amended and restated certificate of incorporation or Tilray’s amended and restated bylaws; and

 

   

any action asserting a claim against Tilray that is governed by the internal-affairs doctrine.

Tilray’s amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Tilray’s restated certificate of incorporation also provides that any person or entity purchasing or otherwise acquiring any interest in shares of Tilray’s capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It is possible that a court of law could rule that the choice of forum provision contained in Tilray’s restated certificate of incorporation is inapplicable or unenforceable if it is challenged in a proceeding or otherwise.

These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Tilray or Tilray’s directors, officers or other employees, which may discourage lawsuits against Tilray and Tilray’s directors, officers and other employees. If a court were to find the exclusive-forum provision in Tilray’s amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, Tilray may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm Tilray’s business.

Risks Related to Privateer

The Tilray common stock to be issued pursuant to the merger will be restricted from immediate resale, so the Privateer stockholders may not receive liquidity immediately following the merger, which may impact Privateer stockholders’ ability to satisfy their tax obligations related to the prior spin-off of Privateer’s prior operating companies.

The spin-off of Privateer’s prior operating companies (Leafly, Docklight and Left Coast Ventures) was treated as a taxable distribution of property with respect to the stock of Privateer. At the time of the spin off, Privateer estimated that all, or substantially all, of the distribution value would be treated as a taxable dividend to Privateer stockholders. The shares of Tilray common stock issued in connection with the merger will be restricted as a result of lock-up agreements. While the receipt of the Tilray common stock should be tax-free to Privateer

 

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stockholders, Privateer stockholders would owe taxes on any sale of the Tilray common stock. In addition, Privateer stockholders will have taxable gain on the distribution of the Leafly, Docklight and Left Coast Ventures shares. As a result, the Privateer stockholders may not have liquidity immediately following the closing of the merger, and therefore may not have any available proceeds to cover any tax obligations associated with the taxable distribution of Leafly, Docklight and Left Coast Ventures.

Because the lack of a public market for Privateer’s capital stock makes it difficult to value Privateer’s capital stock, the stockholders of Privateer may receive shares of Tilray’s common stock in the merger that have a value that is less than, or greater than, the fair market value of Privateer’s capital stock, or are less favorable than another superior proposal.

The outstanding capital stock of Privateer is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Privateer. Because the percentage of Tilray’s common stock to be issued to Privateer’s stockholders in connection with the merger was determined based on negotiations between the parties, it is possible that the value of Tilray’s common stock to be received by Privateer’s stockholders will be less than the fair market value of Privateer, or Tilray may pay more than the aggregate fair market value for Privateer.

In addition, by pursuing the merger, Privateer will be foregoing liquidity alternatives, which could be on terms as attractive or more attractive as the terms of the merger.

The lock-up restrictions will prevent stockholders of Privateer from selling Tilray stock received in the merger for an extended period.

Privateer stockholders will be subject to a two-year lock up with respect to the Tilray common stock Privateer stockholders receive in connection with the merger. This means that Privateer stockholders will bear the economic risk of any decrease in the value of Tilray common stock during any period such common stock cannot be sold. By the time Privateer stockholders are able to sell the Tilray common stock, it may have a different value than the value at the closing of the merger. Tilray common stock has experienced significant volatility. See the risk factor titled “The price of Tilray’s Class 2 common stock in public markets has experienced and may experience significant fluctuations.”

 

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FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement contain forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”)) concerning Tilray, Privateer, the merger and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of the management of Tilray, as well as assumptions made by, and information currently available to, management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “expect,” “plan,” “believe,” “intend,” “look forward,” “estimate,” “project,” “anticipate,” “could,” and other similar expressions among others. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this joint proxy statement/prospectus. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation:

 

   

the risk that the conditions to the closing of the merger are not satisfied, including the failure to timely obtain stockholder approval for the transaction from each of Tilray’s and Privateer’s stockholders;

 

   

the risk that the merger may be completed even though certain events occur prior to the closing that materially and adversely affect Tilray or Privateer;

 

   

uncertainties as to the timing of the consummation of the merger and the ability of each of Tilray and Privateer to consummate the merger;

 

   

the market price of Tilray’s Class 2 common stock following the merger may decline as a result of the merger;

 

   

risks related to the failure or delay in obtaining required approvals from any governmental or quasi-governmental entity necessary to consummate the merger;

 

   

during the pendency of the merger, Privateer may not be able to enter into a business combination with another party under certain circumstances because of restrictions in the merger agreement, which could adversely affect its business;

 

   

unexpected costs, charges or expenses resulting from the merger;

 

   

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger;

 

   

litigation relating to the merger could require Tilray or Privateer to incur significant costs and suffer management distraction, and could delay or enjoin the merger;

 

   

risks associated with the possible failure to realize certain anticipated benefits of the merger, including with respect to future financial and operating results;

 

   

the development or continued existence of markets for Tilray’s products;

 

   

Tilray’s ability to expand addressable markets;

 

   

industry trends in the markets in which Tilray and Privateer compete, including the demand for non-combustible products;

 

   

the maintenance of Tilray’s existing licenses and timing or likelihood of regulatory filings and approvals;

 

   

the commercialization and pricing of Tilray’s products;

 

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the implementation and growth of Tilray’s business model and strategic plans for Tilray’s business and products;

 

   

the scaling of Tilray’s facilities in Cantanhede, Portugal; London, Ontario and Enniskillen, Ontario, Tilray’s ability to obtain or maintain required licenses and permits for these facilities and the effect of these facilities on the production of Tilray’s products;

 

   

the scope of protection Tilray is able to establish and maintain for intellectual property rights covering Tilray’s products;

 

   

the outcomes of clinical trials and the ability of such trials to increase acceptance of cannabis in the medical community;

 

   

Tilray’s ability to enter into strategic arrangements with distributors, retailers and other partners and the potential benefits of such arrangements;

 

   

the availability of wholesale distribution and other opportunities to expand Tilray’s distribution channels and the potential benefits of such opportunities;

 

   

Tilray’s successful integration of acquired businesses;

 

   

Tilray’s estimates regarding expenses, capital requirements and needs for additional financing;

 

   

Tilray’s financial performance; and

 

   

developments relating to Tilray’s and Privateer’s competitors and their respective industries.

Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties. Except as required by applicable law, Tilray undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

For a discussion of the factors that may cause Tilray, Privateer or the combined organization’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Tilray and Privateer to complete the merger and the effect of the merger on the business of Tilray, Privateer and the combined organization, see the section titled “Risk Factors” beginning on page 24.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Tilray including the risk factors included in Tilray’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the SEC. See the section titled “Where You Can Find More Information” beginning on page 192.

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of Tilray, Privateer or the combined organization could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Tilray and Privateer do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF TILRAY’S STOCKHOLDERS

Date, Time and Place

The Tilray special meeting will be held on December 6, 2019, at the offices of Cooley LLP, 1700 Seventh Avenue, Suite 1900, Seattle, Washington 98101-1355 commencing at 10:00 a.m. local time. Tilray is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the Tilray Board for use at the Tilray special meeting and any adjournments or postponements of the Tilray special meeting. This proxy statement/prospectus/information statement is first being furnished to Tilray’s stockholders on or about             , 2019.

Purpose of the Tilray Special Meeting

The purpose of the Tilray special meeting is:

 

  1.

To approve the merger agreement, and the transactions contemplated thereby, including the merger, the issuance of Tilray’s common stock to Privateer’s stockholders and optionholders in accordance with the merger agreement and the change of control resulting from the merger.

 

  2.

To approve the amended and restated certificate of incorporation of Tilray, in the form attached as Annex B to this proxy statement/prospectus/information statement.

 

  3.

To consider and, if necessary, vote upon an adjournment of the Tilray special meeting to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.

 

  4.

To transact such other business as may properly come before the Tilray special meeting or any adjournment or postponement thereof.

Recommendations of the Special Committee and the Tilray Board

 

   

The special committee has submitted its report and determination to the Tilray Board and has unanimously (i) determined that the consummation of the merger and the other transactions contemplated by the merger agreement, on the terms and conditions substantially as set forth in the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) approved the merger agreement and (iv) recommended that the Tilray Board recommend the approval and adoption of the merger agreement by Tilray’s stockholders.

 

   

The Tilray Board has (i) determined that entry by Tilray into the merger agreement, the merger and the other transactions contemplated by the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of control of Tilray pursuant to Nasdaq rules, and (iii) approved and authorized each of the transaction documents, including the merger agreement. The Tilray Board recommends that Tilray’s stockholders vote “FOR” Proposal No. 1 to approve the merger agreement and the transactions contemplated thereby.

 

   

The Tilray Board has (i) determined that the amendment and restatement of Tilray’s amended and restated certificate of incorporation, in the form attached hereto as Annex B amendment is fair to, advisable and in the best interests of, Tilray and its stockholders and (ii) authorized and approved the amendment and restatement of Tilray’s current amended and restated certificate of incorporation. The Tilray Board recommends that Tilray’s stockholders vote “FOR” Proposal No. 2 to approve and adopt the amendment and restatement of Tilray’s current amended and restated certificate of incorporation.

 

   

The Tilray Board has resolved that the Tilray Board shall, if necessary, recommend the adjournment of the Tilray special meeting to solicit additional proxies if there are not sufficient votes in favor of

 

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Proposal Nos. 1 or 2. The Tilray Board recommends that, if necessary, Tilray’s stockholders vote “FOR” Proposal No. 3 to adjourn the Tilray special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.

Record Date and Voting Power

Only holders of record of Tilray’s common stock at the close of business on the record date, October 31, 2019, are entitled to notice of, and to vote at, the Tilray special meeting. There were approximately 79 holders of record of Tilray’s common stock at the close of business on the record date. At the close of business on the record date, 16,666,667 shares of Tilray’s Class 1 common stock and 83,828,321 shares of Tilray’s Class 2 common stock were issued and outstanding. On each matter to be voted upon, you have 10 votes for each share of Class 1 common stock and one vote for each share of Class 2 common stock you own as of the record date. See the section titled “Principal Stockholders of Tilray” in this proxy statement/prospectus/information statement for information regarding persons known to Tilray’s management to be the beneficial owners of more than 5% of the outstanding shares of Tilray’s common stock.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the Tilray Board for use at the Tilray special meeting.

If you are a stockholder of record of Tilray as of the record date referred to above, you may vote in person at the Tilray special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Tilray special meeting, Tilray urges you to vote by proxy to ensure your vote is counted. You may still attend the Tilray special meeting and vote in person if you have already voted by proxy. As a stockholder of record you may vote in any of the following ways:

 

   

to vote in person, attend the Tilray special meeting and Tilray will provide you a ballot when you arrive;

 

   

to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to Tilray before the Tilray special meeting, Tilray will vote your shares as you direct on the proxy card; or

 

   

to vote by telephone or on the internet, dial the number on the proxy card or voting instruction form or visit the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide Tilray’s number and control number from the enclosed proxy card. Your vote must be received by 11:59 p.m., Eastern time on December 5, 2019 to be counted.

If your shares of Tilray’s common stock are held by your broker as your nominee, that is, in “street name,” the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your shares of Tilray’s common stock. If you do not give instructions to your broker, your broker can vote your shares of Tilray’s common stock with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under certain rules applicable to brokers on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, your shares of Tilray’s common stock will be treated as broker non-votes. It is anticipated that all proposals will be non-discretionary items.

All properly executed proxies that are not revoked will be voted at the Tilray special meeting and at any adjournments or postponements of the Tilray special meeting in accordance with the instructions contained in the proxy. If a holder of Tilray’s common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” Proposal No. 1 to approve the merger agreement and the

 

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transactions contemplated thereby, including the merger, the issuance of shares of Tilray’s common stock to Privateer’s stockholders and optionholders pursuant to the merger agreement and the change of control resulting from the merger; “FOR” Proposal No. 2 to approve the amended and restated certificate of incorporation for Tilray; and “FOR” Proposal No. 3 to approve, if necessary, the adjournment of the Tilray special meeting to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2 in accordance with the recommendation of the Tilray Board.

Tilray’s stockholders of record may change their vote at any time before their proxy is voted at the Tilray special meeting in one of three ways. First, a stockholder of record of Tilray can send a written notice to the Secretary of Tilray stating that the stockholder would like to revoke its proxy. Second, a stockholder of record of Tilray can submit new proxy instructions either on a new proxy card or by telephone or via the internet. Third, a stockholder of record of Tilray can attend the Tilray special meeting and vote in person. Attendance alone will not revoke a proxy. If a stockholder of Tilray of record or a stockholder who owns shares of Tilray’s common stock in “street name” has instructed a broker to vote its shares of Tilray’s common stock, the stockholder must follow directions received from its broker to change those instructions.

Required Vote

The presence, in person or represented by proxy, at the Tilray special meeting of the holders of a majority of the voting power of the outstanding shares of stock entitled to vote at the Tilray special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of holders of (i) the majority of the aggregate voting power of the votes cast at the Tilray special meeting, and (ii) the majority of the voting power of the outstanding shares of Tilray’s Class 1 common stock and Class 2 common stock, each voting separately as a class, are required for approval of Proposal No. 1. The affirmative vote of holders of (i) the majority of the aggregate voting power of the outstanding shares of Tilray’s Class 1 and Class 2, voting together as a single class, common stock as of the record date for the Tilray special meeting, and (ii) the majority of the voting power of Tilray’s Class 1 common stock outstanding as of the record date is required for approval of Proposal No. 2. The affirmative vote of the majority of the voting power of the Tilray shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the Tilray special meeting is required for approval of Proposal No. 3.

Privateer has indicated that it intends to vote in favor of each of the proposals presented by Tilray for approval by holders of its common stock. Therefore, approval of Tilray Proposals 1 and 2, and if necessary 3, is expected and, if all other conditions to the merger are satisfied, the merger will be consummated.

Votes will be counted by the inspector of election appointed for the Tilray special meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes, and in the case of the election of directors, “WITHHOLD” votes. Abstentions will be counted towards the vote total and will have the same effect as “AGAINST” votes for Proposal Nos. 1, 2 and 3. Broker non-votes will have the same effect as “AGAINST” votes for Proposal No. 2. For Proposal Nos. 1 and 3, broker non-votes will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the Tilray special meeting.

Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Tilray may solicit proxies from Tilray’s stockholders by personal interview, telephone, telegram or otherwise. Tilray and Privateer are each responsible for their respective costs of printing and Tilray is responsible for the cost of filing of this proxy statement/prospectus/information statement and the proxy card. Tilray may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners of Tilray’s common stock. Tilray has not retained a proxy solicitor with respect to the Tilray special meeting.

 

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Other Matters

As of the date of this proxy statement/prospectus/information statement, the Tilray Board does not know of any business to be presented at the Tilray special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Tilray special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section titled “The Merger Agreement” in this proxy statement/prospectus/information statement describe the material aspects of the merger, including the merger agreement. While Tilray and Privateer believe that this description covers the material terms of the merger and the merger agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the merger and the merger agreement, including the merger agreement attached as Annex A, the opinion of Imperial attached as Annex C, and the other documents to which you are referred herein. See the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Background of the Merger

Tilray is a global pioneer in the research, cultivation, production and distribution of cannabis and cannabinoids currently serving tens of thousands of patients and consumers in twelve countries spanning five continents. Tilray was originally incubated and financed by Privateer as one of its wholly owned operating subsidiaries before closing a Series A round of capital in February 2018 and then becoming the first cannabis producer to complete an Initial Public Offering (IPO) on a major U.S. stock exchange in July 2018. Following the IPO, Privateer owned an aggregate of 75 million shares of Tilray Class 1 and Class 2 Common stock, representing approximately 93% of the outstanding voting power and approximately 82% of the outstanding common stock.

The Privateer Board and management regularly review its operating and strategic plans in an effort to enhance stockholder value. These reviews involve, among other things, discussions regarding alternatives creating liquidity for its stockholders. The Privateer Board determined that it was in the best interests of its stockholders to cause each of its four operating subsidiaries (Leafly, Docklight, Left Coast Ventures and Tilray) to become fully independent companies. The Privateer Board evaluated a number of alternative transaction structures to implement this plan, balancing the tax efficiency of the alternatives against the long term benefits to each operating company. The Privateer Board obtained legal, tax and accounting advice relating to these alternative structures.

Following the IPO, the Tilray Board discussed from time to time the eventual liquidity needs of the Privateer stockholders and the potential impact any distribution or sale such shares may have on Tilray and its stockholders.

During this time, Privateer was evaluating alternative structures for distributing its ownership interest in Tilray (and its other operating subsidiaries) to the Privateer stockholders.

On January 9, 2019, Privateer sent an initial draft of the non-binding letter of intent (the “letter of intent”) to Tilray, which proposed an acquisition of Privateer by Tilray through a stock exchange.

Between January 9 and January 13, 2019, representatives of Privateer and Tilray had multiple discussions regarding the letter of intent.

On January 14, 2019, Privateer sent a revised draft of the letter of intent to Tilray.

On January 19, 2019, the Tilray Board held a meeting to discuss the letter of intent and determined that a committee of the independent directors of Tilray would consider and review the proposed transaction including whether to retain financial and legal advisors.

On January 22, 2019 and January 25, 2019, the independent directors of Tilray held introductory calls with Paul Hastings LLP (“Paul Hastings”) with respect to the proposed transaction, including with respect to transaction structuring and tax review, the function and role of a special committee and potential advisors, and the transaction process and timing generally.

 

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On January 24, 2019, Paul Hastings and Cooley LLP, outside legal counsel to Privateer (“Cooley”) had an introductory call to discuss the transaction process and timeline, and that Cooley advised that it would later provide a current letter of intent for consideration.

On January 30, 2019, the independent directors of Tilray held a meeting and retained Paul Hastings as outside legal counsel.

On February 15, 2019, the Tilray Board formally established a special committee of the Tilray Board consisting of Maryscott Greenwood (chair), Christine St.Clare and Rebekah Dopp, the independent members of the Tilray Board. The Tilray Board delegated to the special committee the responsibility to review and evaluate the transaction, determine the fairness of the transaction, approve or reject the transaction, and retain financial and legal advisors. The Tilray Board further resolved that the prior favorable approval of the special committee shall be a prerequisite for Tilray to approve or enter into a definitive agreement for the transaction, any alternative transaction or to recommend the transaction or any alternative transaction for approval by Tilray’s stockholders.

In February 2019, Privateer completed a distribution of its ownership interests in each of Leafly, Docklight and Left Coast Ventures to its stockholders.

On March 1, 2019, representatives from Tilray and Privateer discussed the potential structure for a downstream merger.

On March 6, 2019, the special committee interviewed prospective financial and tax advisors and determined to retain Imperial as its financial advisor and Crowe LLP as its tax advisor.

On March 11, 2019, Paul Hastings sent Cooley and Privateer a due diligence request list.

On March 12, 2019, representatives of Privateer and Tilray further discussed the proposed merger, including treatment of options to purchase Privateer’s capital stock, as well as intercompany agreements.

On March 13, 2019, representatives from Privateer presented a presentation to the Tilray Board regarding the proposed merger.

On March 28, 2019, the special committee held a meeting with Paul Hastings to discuss the status of the letter of intent and the fee arrangements with the special committee’s financial and tax advisors.

On May 10, 2019, representatives from Tilray, Privateer, Paul Hastings, and Cooley discussed the proposed structure of the merger and due diligence matters.

On May 13, 2019, Michael Blue, Managing Partner of Privateer, and Mark Castaneda, Chief Financial Officer of Tilray, discussed financial statements in connection with the proposed merger.

On May 14, 2019, representatives from Tilray, Imperial, Privateer, and Paul Hastings held an initial due diligence call.

On May 16, 2019, Paul Hastings, Imperial and Investment Bank A discussed the latter’s previous presentation to the Tilray Board regarding monetization discussions.

On May 17, 2019, Paul Hastings, Imperial and Investment Bank B discussed the latter’s previous presentation to the Tilray Board regarding monetization discussions.

On May 21, 2019, Brendan Kennedy, Chief Executive Officer and President of Tilray and Executive Chairman of the Privateer Board, Ms. Greenwood, Paul Hastings and Cooley discussed the status of negotiations regarding the merger.

 

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On May 22, 2019, Privateer sent Tilray a revised letter of intent, which provided for an amendment to Privateer’s amended and restated certificate of incorporation to implement allocation of merger consideration among the Privateer stockholders, addressed lock-up restrictions for the securities received by Privateer’s stockholders in the transaction, and provided for registration of such securities on a Form S-4.

On May 28, 2019, the special committee held a meeting with its advisers and discussed the letter of intent.

On May 30, 2019, representatives from Privateer, Tilray, Cooley, and Paul Hastings discussed the letter of intent and the status of the due diligence process.

On May 31, 2019, representatives from Privateer, Tilray, Cooley, and Paul Hastings discussed potential diligence issues. Also on May 31, 2019, Cooley sent Paul Hastings an initial draft of the amended and restated certificate of incorporation of Privateer. Also on May 31, 2019, Paul Hastings, Imperial and Investment Bank C discussed the latter’s previous presentation to the Tilray Board regarding monetization discussions.

Between June 1, 2019 and June 7, 2019, the special committee held five meetings with its advisers to discuss the transaction process and the letter of intent negotiations, including issues related to the proposed public announcement of the letter of intent and certain due diligence matters.

On June 2, 2019, Mr. Kennedy, Ms. Greenwood, and representatives from Cooley and Paul Hastings discussed the terms set forth in the letter of intent and the transaction process. Later on June 2, 2019, Mr. Kennedy and Ms. Greenwood had a subsequent conversation regarding the terms set forth in the letter of intent and the transaction process.

On June 3, 2019, representatives from Privateer, Tilray, Cooley, and Paul Hastings discussed diligence matters.

On June 5, 2019, Cooley received a revised letter of intent from Paul Hastings. Later on June 5, 2019, representatives from Privateer, Tilray, Cooley, and Paul Hastings discussed the revised letter of intent, plans for announcing the letter of intent and other issues relating to the proposed merger.

On June 6, 2019, Paul Hastings and Cooley exchange revised drafts of the letter of intent. Also on June 6, 2019, Ms. Greenwood and representatives from Privateer, Tilray, Paul Hastings and Cooley discussed the letter of intent.

On June 7, 2019, representatives from Privateer, the special committee, Cooley, and Paul Hastings discussed the revised letter of intent.

On June 8, 2019, representatives from Privateer and the special committee discussed the revised letter of intent. Later on June 8, 2019, Paul Hastings sent a revised draft of the letter of intent to Cooley and Privateer and thereafter the parties executed the letter of intent following the approval of each of the special committee and the Privateer Board.

On June 9, 2019, representatives from Privateer, the special committee, Cooley, and Paul Hastings discussed the anticipated transaction timeline.

On June 10, 2019, Privateer and Tilray issued a joint press release announcing the execution of the letter of intent.

On June 12, 2019, Cooley and Paul Hastings discussed the drafting process for the merger agreement.

On June 17, 2019, Cooley sent Paul Hastings an initial draft of the merger agreement, which among other things, contemplated the execution of lock-up agreements by stockholders of Privateer, as contemplated by the letter of intent.

 

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On June 19, 2019, representatives from Privateer, the special committee, Tilray, Cooley, and Paul Hastings discussed the transaction and draft merger agreement.

On June 21, 2019, Paul Hastings and Cooley discussed issues in the draft merger agreement. Later in the day on June 21, 2019, Cooley sent Paul Hastings an initial draft of the proposed form of stockholder lock-up agreement to be signed by the stockholders of Privateer.

On June 22, 2019, the special committee held a meeting with its advisers and discussed the draft merger agreement.

On June 25, 2019, representatives from Privateer, the special committee, Tilray, Cooley and Paul Hastings discussed transaction status and timeline, and the process and timing with respect to the registration of shares to be issued in the merger or otherwise. Cooley sent Paul Hastings an initial draft of the amended and restated certificate of incorporation of Tilray.

On June 26, 2019, Paul Hastings sent Cooley a revised draft of the merger agreement and a revised draft of the amended and restated certificate of incorporation of Tilray. Also on June 26, 2019, Privateer provided a draft press release announcing the execution of the merger agreement to Tilray, the special committee, Paul Hastings and Cooley.

On June 27, 2019, Cooley sent Paul Hastings an initial draft of Privateer’s disclosure letter.

On June 28, 2019, Cooley sent Paul Hastings an initial draft of the registration statement on Form S-4. Also on June 28, 2019, Paul Hastings and Cooley discussed the merger agreement.

On June 29, 2019, Paul Hastings sent Cooley a revised draft of the form of stockholder lock-up agreement and a revised draft of Privateer’s disclosure letter.

On June 30, 2019, Cooley sent Paul Hastings a revised draft of the merger agreement.

On July 1, 2019, Cooley and Paul Hastings had a discussion regarding the merger agreement. Also on July 1, 2019, Cooley sent Paul Hastings the initial draft formation documents of merger sub, a revised draft of the merger agreement and an initial draft of the support agreement.

On July 2, 2019, representatives from Privateer, the special committee, Paul Hastings and Cooley discussed outstanding issues in the merger agreement.

On July 3, 2019, Paul Hastings sent a revised draft of the merger agreement to Cooley. Also on July 3, 2019, Cooley sent Paul Hastings a revised draft of Privateer’s disclosure letter and an initial draft of the Privateer Board’s resolutions regarding the proposed merger.

On July 5, 2019, Paul Hastings sent Cooley a revised draft of the support agreement and a revised draft of the amended and restated certificate of incorporation of Privateer.

On July 6, 2019, Cooley and Paul Hastings discussed the merger agreement, including with respect to the formulation of the escrow arrangements for the benefit of Tilray. Also on July 6, 2019, Paul Hastings sent Cooley a revised draft of Privateer’s disclosure letter and a revised draft of the Privateer Board’s resolutions regarding the proposed merger.

On July 8, 2019, Cooley sent Paul Hastings a revised draft of Privateer’s disclosure letter. Also on July 8, 2019, Paul Hastings sent Cooley a revised draft of the merger agreement.

 

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On July 9, 2019, representatives from Privateer, the special committee, Tilray, Cooley, and Paul Hastings discussed outstanding issues in the merger agreement. Also on July 9, 2019, the special committee held a meeting with its advisors and discussed the status of negotiations regarding the merger.

Between July 10, 2019 and July 13, 2019, representatives from Privateer, the special committee, Cooley, and Paul Hastings corresponded regarding the terms of the merger agreement. Also on July 10, Paul Hastings, Imperial and Tilray management discussed the treatment in the merger of outstanding Privateer options and the related due diligence review.

On July 10, 2019, Cooley sent Paul Hastings a revised draft of the stockholder lock-up agreement. Also on July 10, 2019, representatives from Privateer, the special committee, Tilray, Paul Hastings and Cooley discussed outstanding issues in the merger agreement.

On July 11, 2019, the special committee held a meeting with its advisers and discussed the terms of the merger agreement, including with respect to the merger terms relating to the scope of the escrow, lock-up and indemnification arrangements.

On July 12, 2019, Mr. Kennedy sent correspondence to Ms. Greenwood regarding the status of the negotiations and contemplated their termination.

On July 14, 2019 and July 15, 2019, representatives from Privateer, Tilray, Paul Hastings and Cooley had multiple conversations regarding the outstanding issues in the merger agreement. Also on July 14, 2019, the special committee held a meeting with its advisers and discussed the status of negotiations regarding the merger.

On July 15, 2019, the special committee held a meeting with Paul Hastings for an update on the status of negotiations regarding the merger, including with respect to the scope of the lock-up, escrow and indemnification arrangements and the treatment in the merger of outstanding Privateer stock options.

On July 16, 2019, Privateer sent the special committee, Tilray, Paul Hastings and Cooley a draft press release announcing the execution of the merger agreement.

On July 17, 2019, Cooley sent Paul Hastings a revised draft of the merger agreement, which, based on an agreement between representatives from Privateer and the special committee, reflected that Privateer may be required to pay a reverse termination fee under certain circumstances and may be required to enter into a lock-up agreement in the event the merger is terminated. Also on July 17, 2019, Cooley sent Paul Hastings an initial draft of Privateer’s stockholder consent regarding the proposed merger.

On July 19, 2019, Paul Hastings sent Cooley a revised draft of Privateer’s disclosure letter. Also on July 19, 2019, Paul Hastings and Cooley discussed the merger agreement.

On July 20, 2019, Paul Hastings sent a revised draft of the merger agreement to Cooley.

On July 21, 2019, Paul Hastings sent a revised draft of the stockholder lock-up agreement to Cooley.

On July 22, 2019, Paul Hastings sent Cooley an initial draft of the Docklight letter agreement and the founders guarantee agreement.

On July 23, 2019, representatives from Privateer, the special committee, Tilray, Cooley and Paul Hastings discussed outstanding issues in the merger agreement, including the scope of the escrow and indemnification arrangements, and potential anti-trust filings that would be needed in connection with the proposed merger. Also on July 23, 2019, Paul Hastings sent Cooley a revised draft of Privateer’s stockholder consent regarding the proposed merger and Cooley sent Paul Hastings a revised draft of the support agreement, the merger agreement,

 

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the Docklight letter agreement and the founders guarantee agreement. Cooley also sent Paul Hastings the filed certificate of formation of merger sub, along with an executed operating agreement and executed subscription agreement.

On July 24, 2019, Paul Hastings sent Cooley a revised draft of the merger agreement, the Docklight letter agreement and the founders guarantee agreement. Also on July 24, 2019, Cooley sent Paul Hastings a revised draft of the stockholder lock-up agreement, Privateer’s stockholder consent regarding the proposed merger, Privateer’s disclosure letter and the Docklight letter agreement.

On July 25, 2019, Paul Hastings and Cooley exchanged revised drafts of Privateer’s disclosure letter.

On July 26, 2019, Paul Hastings sent an initial draft of the Privateer lock-up agreement to Cooley. Also on July 26, 2019, Cooley sent Paul Hastings a revised draft of the merger agreement, Privateer’s disclosure letter and the Privateer lock-up agreement. Also on July 26, 2019, the Privateer Board held a meeting to discuss the proposed merger agreement, support agreement, stockholder lock-up agreement and Privateer lock-up agreement.

On July 27, 2019, the special committee held a meeting with its advisers and discussed merger agreement and other transaction documents. During such meeting, the special committee and its advisors discussed the resolution of certain merger agreement issues (including with respect to the scope of the escrow and indemnification arrangements), Imperial provided a presentation to the special committee regarding its evaluation of the fairness of the merger (and confirmed the fairness of the merger), Paul Hastings provided a review to the special committee regarding the duties of the special committee with respect to its review and consideration of the merger, the special committee discussed the benefits of the transaction to Tilray (including the terms of the lock-up (and the impact of the lock-up arrangements on the market and Tilray’s ability to raise capital) and the scope of the escrow and indemnification arrangements) and then approved the transaction terms.

On July 29, 2019, Mr. Blue and Ms. Greenwood discussed outstanding issues in the merger agreement and stockholder lock-up agreement. Also on July 29, 2019, representatives from Tilray, Privateer, Cooley, and Paul Hastings discussed outstanding issues in the merger agreement.

On August 1, 2019, Cooley sent Paul Hastings a revised draft of Privateer’s disclosure letter. Also on August 1, 2019, representatives from Tilray, Privateer, Cooley, and Paul Hastings discussed outstanding issues in the merger agreement.

On August 4, 2019, Mr. Blue and Mr. Castaneda corresponded regarding the outstanding issues in the merger agreement and stockholder lock-up agreement. Also on August 4, Mr. Castaneda corresponded with Paul Hastings and representatives of the special committee to communicate Privateer’s position with respect to certain open issues in the merger, including Privateer’s request to require Tilray to use as merger consideration in lieu of shares a portion of any cash proceeds from a public offering consummated between the signing of the merger and the closing, as well as Privateer’s request to release certain shares from the lock-arrangement prior to the one year anniversary of the merger.

Between August 5, 2019 and August 9, 2019, representatives from Privateer, Tilray, and the special committee had multiple discussions and correspondence regarding the outstanding issues in the merger agreement and stockholder lock-up agreement.

On August 6, 2019, Cooley and Paul Hastings discussed the merger agreement.

On August 8, Paul Hastings and the special committee discussed the open issues regarding the merger agreement, including the special committee’s determination that any determination to utilize cash as merger consideration must be in Tilray’s sole discretion and not a requirement.

 

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On August 9, 2019, Paul Hastings sent Cooley revised drafts of the stockholder lock-up agreement and the support agreement.

On August 10, 2019, Paul Hastings sent Cooley a revised draft of the merger agreement, which, in response to Privateer’s request, provided for Tilray to have the option to apply cash from an offering to the merger consideration in lieu of Tilray Class 2 common stock that would otherwise be payable to holders of Privateer capital stock.

On August 12, 2019, Paul Hastings and Cooley discussed the merger agreement. Also on August 12, 2019, Cooley sent Paul Hastings drafts of the Privateer Board’s resolutions, and Privateer’s stockholder consent, regarding the proposed merger, and the initial draft of the Form 8-K to be filed in connection with the execution of the merger agreement.

On August 13, 2019, Cooley sent Paul Hastings revised drafts of the stockholder lock-up agreement and Privateer’s disclosure letter.

On August 14, 2019, Paul Hastings sent Cooley a revised draft of the Form 8-K. Also on August 14, 2019, Mr. Castaneda and the special committee’s advisers discussed the merger agreement and the stockholder lock-up agreement.

On August 16, 2019, Mr. Blue and Ms. Greenwood corresponded regarding outstanding issues in the merger agreement and stockholder lock-up agreement. Also on August 16, 2019, Mr. Blue and Mr. Castaneda corresponded regarding outstanding issues in the merger agreement and stockholder lock-up agreement. Also August 16, 2019, the special committee held a meeting with its advisers to discuss outstanding issues with the merger agreement.

On August 17, 2019, Cooley and Paul Hastings discussed the merger agreement and stockholder lock-up agreement.

On August 18, 2019, Cooley and Paul Hastings corresponded and had discussions regarding the merger agreement and stockholder lock-up agreement.

On August 19, 2019, representatives from Privateer, the special committee, Paul Hastings and Cooley discussed outstanding issues in the merger agreement and the stockholder lock-up agreement. Also on August 19, 2019, the special committee held a meeting with its advisers and discussed the merger agreement and the stockholder lock-up agreement.

On August 23, 2019, Cooley sent revised drafts of the merger agreement and stockholder lock-up agreement to Paul Hastings. Also on August 23, 2019, the special committee held a meeting with its advisers and discussed the merger agreement and the stockholder lock-up agreement.

On August 25, 2019, Paul Hastings sent Cooley revised drafts of the merger agreement and stockholder lock-up agreement.

On August 26, 2019, Cooley and Paul Hastings discussed the merger agreement.

On August 27, 2019, representatives from Cooley, Paul Hastings and Imperial discussed the treatment of Privateer options in the proposed merger. Also on August 27, 2019, Cooley sent Paul Hastings a revised draft of the amended and restated certificate of incorporation of Privateer. Also on August 27, 2019, the special committee held a meeting with Paul Hastings to receive an update on the status of outstanding issues with respect to the merger.

On August 28, 2019, Paul Hastings and Cooley discussed the merger agreement.

 

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On August 29, 2019, the special committee held a meeting with its advisers and discussed the merger agreement.

On August 30, 2019, Cooley and Paul Hastings further corresponded regarding the merger agreement.

On September 3, 2019, Cooley sent Paul Hastings a revised draft of the merger agreement and the stockholder lock-up agreement. Also on September 3, 2019, Cooley and Paul Hastings discussed the merger agreement.

On September 4, 2019, Cooley sent Paul Hastings a revised draft of the Privateer Board’s resolutions, and Privateer’s stockholder consent, regarding the proposed merger, along with revised drafts of the merger agreement, the Form 8-K and Privateer’s disclosure letter. Also on September 4, 2019, Privateer sent a draft press release announcing the execution of the merger agreement to Tilray, the special committee, Paul Hastings and Cooley.

Between September 4, 2019 and September 8, 2019, Cooley and Paul Hastings had multiple discussions and exchanged multiple drafts of the merger agreement. During the same period, Cooley and Paul Hastings finalized the other transaction documents.

On September 5, 2019, representatives from Privateer, Tilray, the special committee, Paul Hastings and Cooley discussed diligence issues.

On September 7, 2019, Paul Hastings sent Privateer a draft press release announcing the execution of the merger agreement.

On September 8, 2019, the Privateer Board approved entering into the merger agreement with Tilray by unanimous written consent. Also on September 8, 2019, the special committee held a meeting, with representatives from each of Imperial and Paul Hastings attending. Paul Hastings and Imperial updated the special committee on the status of the transaction and the planned timing of the announcement of the transaction and other related communications. Imperial then rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion, dated as of September 9, 2019, to the effect that as of the date of such opinion and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Imperial as set forth in the written opinion, the merger and other transactions contemplated by the merger agreement are fair, from a financial point of view, to the holders of Tilray common stock (other than the controlling shareholders of Tilray), as more fully described in the section titled “The Merger—Opinion of the Tilray Financial Advisor.” Paul Hastings reviewed in detail the material terms of the substantially final draft of the merger agreement, which had been provided to the special committee prior to the meeting. Paul Hastings also reviewed the material terms of the substantially final drafts of the stockholder lock-up agreement, the Privateer support agreement, the amended and restated certificate of incorporation of Privateer and the amended and restated certificate of incorporation of Tilray, which had each been provided to the special committee prior to the meeting. After discussions, the special committee unanimously (i) determined that the consummation of the merger and the other transactions contemplated by the merger agreement, on the terms and conditions substantially as set forth in the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) approved the merger agreement and (iv) recommended that the Tilray Board recommend the approval and adoption of the merger agreement by Tilray’s stockholders.

Early on September 9, 2019, the special committee delivered its written report and determination to the Tilray Board and the Tilray Board approved entering in to the merger agreement with Privateer by unanimous written consent. The parties then finalized, executed and delivered the merger agreement. Later that morning, Privateer and Tilray issued a joint press release announcing the execution of the merger agreement.

 

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Tilray Reasons for the Merger and the Tilray Share Issuance

On September 9, 2019, the special committee unanimously (i) determined that the consummation of the merger and the other transactions contemplated by the merger agreement, on the terms and conditions substantially as set forth in the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) approved the merger agreement and (iv) recommended that the Tilray Board recommend the approval and adoption of the merger agreement by Tilray’s stockholders.

On September 9, 2019, and based upon the recommendation of the special committee, the Tilray Board unanimously (i) determined that the entry by Tilray into the merger agreement, the merger and the other transactions contemplated by the merger agreement, are advisable and are fair to, and in the best interests of, Tilray and its stockholders, (ii) approved and declared advisable the merger and the other transactions contemplated by the merger agreement, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of control of Tilray pursuant to Nasdaq rules, (iii) approved and authorized each of the transaction documents, including the merger agreement, and (iv) recommended that the stockholders of Tilray approve the merger agreement and the other transactions contemplated thereby, including the merger, the issuance of the Stock Merger Consideration, the amendment and restatement of Tilray’s amended and restated certificate of incorporation, and the change of control of Tilray pursuant to Nasdaq rules.

In the course of its evaluation of the merger agreement and merger of Privateer with and into merger sub, the special committee held numerous meetings, consulted with Tilray senior management, the special committee’s outside legal counsel and the special committee’s financial advisor, and reviewed and assessed a significant amount of information, and considered a number of factors, including the following:

 

   

the impact of the merger and the other transactions contemplated by the merger agreement on:

 

   

the current overhang of Privateer’s concentrated holdings of Tilray common stock;

 

   

the composition of the Tilray stockholder base;

 

   

the public float of Tilray common stock;

 

   

Tilray’s capital requirements;

 

   

the impact of any Privateer liabilities that might be assumed by Tilray as part of the merger;

 

   

the assumption by Tilray of Privateer stock options held by certain employees identified as Tilray service providers; and

 

   

the potential effect of the merger on the voting control of Tilray over time to the extent that shares of Tilray Class 1 common stock, having ten votes per share, are sold and automatically converted into shares of Tilray Class 2 common stock, having one vote per share.

The special committee also reviewed the terms of the merger agreement and the transactions contemplated thereby, including:

 

   

that Tilray will be indemnified for certain pre-closing and certain other liabilities of Privateer from an escrow account holding shares of Tilray’s Class 2 common stock with a value of $125,000,000, calculated using the Tilray Closing Price, and which shares we refer to as the escrow shares;

 

   

the approval and adoption by Tilray’s stockholders of the merger agreement, including the issuance of shares of Tilray common stock to the Privateer stockholders in connection with the transactions contemplated by the merger agreement and the change of control of Tilray resulting from the merger pursuant to Nasdaq rules;

 

   

the amendment and restatement of the current amended and restated certificate of incorporation of Tilray;

 

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the prohibitions on transfer of Tilray common stock by Privateer prior to the termination of the merger agreement, and the entry by Privateer into a lock-up agreement that provides that if the merger agreement is terminated by either Tilray or Privateer because Privateer has not obtained the requisite written consent from Privateer’s stockholders within 15 business days of the registration statement of which this proxy statement/prospectus/information statement is a part becoming effective, then Privateer shall not transfer its Tilray common stock for 135 days from the termination date. The merger agreement requires that, within three months of the expiration date of the Privateer lock-up agreement, Privateer reimburse Tilray for its reasonable out-of-pocket fees, costs or expenses incurred in connection with the transactions contemplated by the merger agreement, up to a maximum amount of $3,000,000;

 

   

the execution and delivery of lock-up agreements and support agreements by certain stockholders of Privateer;

 

   

a condition precedent that no more than 1.5% of Privateer’s stockholders shall continue to have a right to seek appraisal, dissenters’, or similar rights under applicable with respect to their Privateer capital stock by virtue of the merger;

 

   

the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes;

 

   

the belief that the other terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were reasonable in light of the entire transaction; and

 

   

the execution and delivery of certain other agreements and documents prior to the consummation of the merger.

The special committee also considered a variety of risks and other countervailing factors related to the merger, including:

 

   

the potential expenses and transaction costs related to the merger, including in connection with any litigation that may result from the announcement or pendency of the merger;

 

   

the fact that there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied;

 

   

the risk that the merger might not be consummated in a timely manner or at all;

 

   

the potential for diversion of management and employee attention during the period prior to completion of the proposed merger;

 

   

the terms and conditions of the merger agreement, including:

 

   

the risk that the aggregate value of the escrow shares may be less than the pre-closing and other liabilities of Privateer;

 

   

the risk that Privateer’s stockholders may vote against the approval and adoption of the merger agreement;

 

   

the right of Privateer to terminate the merger agreement in certain circumstances, as more fully described in the section titled “Merger Agreement—Termination”; and

 

   

various other risks associated with the merger and the business of Tilray in the sections titled “Risk Factors” and “Forward-Looking Statements.”

In addition, the special committee considered the interests that certain of its directors and executive officers may have with respect to the merger that are different from or in addition to their interests as stockholders of Tilray, generally and specifically with respect to the fact that each of Mr. Kennedy, a director and executive officer of Tilray, and Mr. Auerbach, a director of Tilray, are securityholders and board members of Tilray and Privateer, as

 

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more fully described under “The Merger—Interests of Tilray Directors and Executive Officers in the Merger.” The special committee concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger.

The foregoing information and factors considered by the special committee are not intended to be exhaustive but are believed to include all of the material factors considered by the special committee. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the special committee did not find it useful, and did not attempt, to quantify, rank or assign relative weights to these factors. In considering the factors described above, individual members of the special committee may have given weight to different factors. The special committee conducted an overall analysis of the factors discussed above, including thorough discussions with, and questioning of, Tilray senior management and the legal and financial advisors of the special committee, and considered the factors overall to be favorable to, and to support, its determination.

Privateer Reasons for the Merger

In the course of reaching its decision to approve the merger, the Privateer Board consulted with Privateer’s senior management, financial and tax advisors and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company, including Privateer’s belief that stockholders will have some liquidity before December 31, 2019, provided, however, there can be no certainty on the timing or amount of any liquidity;

 

   

the Privateer Board’s belief that no alternatives to the merger were reasonably likely to create greater value for Privateer’s stockholders, after reviewing the various financing and other strategic options to enhance stockholder value that were considered by the Privateer Board;

 

   

the availability of appraisal rights under the DGCL to holders of Privateer’s capital stock who comply with the required procedures under the DGCL, which allow such holders to seek appraisal of the fair value of their shares of Privateer capital stock as determined by the Delaware Court of Chancery;

 

   

the expectation that the merger with Tilray would be a more time- and cost-effective means to access liquidity for its stockholders than other options considered by the Privateer Board;

 

   

the terms and conditions of the merger agreement, including, without limitation, the following:

 

   

the determination that the expected relative percentage ownership of Tilray’s stockholders and Privateer’s stockholders in the combined organization was appropriate based, in the judgment of the Privateer Board, on the board of directors’ assessment of the approximate valuations of Tilray and Privateer;

 

   

the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes;

 

   

the limited number and nature of the conditions of the obligation of Tilray to consummate the merger; and

 

   

the belief that the other terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were reasonable in light of the entire transaction;

 

   

the shares of Tilray’s common stock issued to Privateer’s stockholders will be registered on a Form S-4 registration statement and will become freely tradable for Privateer’s stockholders who are not affiliates of Privateer, subject to the terms of the lock-up agreement;

 

   

the merger may enable certain stockholders of Tilray and Privateer to increase the value of their current shareholding; and

 

   

the likelihood that the merger will be consummated on a timely basis.

 

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The Privateer Board also considered a number of uncertainties and risks in its deliberations concerning the merger and the other transactions contemplated by the merger agreement, including the following:

 

   

the possibility that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger on the reputation of Privateer and the ability of Privateer to obtain financing in the future in the event the merger is not completed;

 

   

the expenses to be incurred in connection with the merger and related administrative challenges associated with combining the companies;

 

   

the fact that the representations and warranties of Tilray in the merger agreement do not survive the closing of the merger and the potential risk of liabilities that may arise post-closing; and

 

   

various other risks associated with the combined organization and the merger, including the risks described in the section titled “Risk Factors” in this proxy statement/prospectus/information statement.

Opinion of the Tilray Financial Advisor

The special committee requested that Imperial evaluate the fairness of the contemplated transactions, from a financial point of view, to Tilray and its stockholders (other than the controlling stockholders of Tilray). On September 8, 2019, Imperial delivered its oral opinion, subsequently confirmed in writing, to the special committee to the effect that, as of the date of its opinion and based upon and subject to the qualifications, limitations and assumptions set forth therein, that the transaction is fair, from a financial point of view, to Tilray and the stockholders thereof (other than the controlling stockholders of Tilray).

The summary of the written opinion of Imperial in this proxy statement is qualified in its entirety by reference to the full text of the written opinion of Imperial, dated September 9, 2019, attached to this proxy statement as Annex C. You are urged to, and should, read the written opinion of Imperial carefully and in its entirety.

The Imperial opinion addresses only the fairness of the contemplated Transaction, from a financial point of view, to Tilray and its stockholders (other than the controlling stockholders of Tilray), and does not opine on or constitute an opinion with respect to Tilray’s underlying business decision to effect the contemplated transactions, any legal, tax or accounting issues concerning the contemplated transaction, or any terms or other aspects of the contemplated transaction (other than as to the fairness of the Transaction, from a financial point of view, to Tilray and the stockholders thereof (other than the controlling stockholders of Tilray)).

In arriving at its opinion, Imperial made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Imperial:

 

   

analyzed certain historical business and financial information relating to Tilray and Privateer that it deemed to be relevant to its analysis;

 

   

reviewed certain internal financial forecasts and budgets for Tilray prepared and provided by Tilray’s management;

 

   

held discussions with certain members of Tilray’s and Privateer’s management to discuss the operations and future prospects of Tilray;

 

   

reviewed public information with respect to certain other public companies with business lines and financial profiles which it deemed to be relevant;

 

   

reviewed the financial and other relevant terms, to the extent publicly available, of certain acquisition transactions which it deemed to be relevant;

 

   

reviewed certain publicly available research reports;

 

   

reviewed the draft transaction documents; and

 

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conducted such other financial studies, analyses and investigations and took into account such other matters as it deemed necessary, including its assessment of general economic and monetary conditions.

In connection with its review, Imperial relied upon the accuracy and completeness of the foregoing financial and other information and did not assume responsibility for independent verification of such information, and neither conducted nor was furnished with any current independent valuation or appraisal of any assets of Tilray or any appraisal or estimate of any liabilities of Tilray. With respect to the financial forecasts for Tilray, Imperial assumed, with the special committee’s consent, that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of Tilray’s management as to the future financial performance of Tilray. Imperial did not make any independent valuation or appraisal of the assets or liabilities of Tilray, and was not furnished with such valuations or appraisals. Imperial was not requested to, and did not, solicit third party indications of interest in acquiring all or any part of Tilray, nor did Imperial negotiate with any of the parties to the transactions contemplated by the merger agreement.

Imperial assumed, with the special committee’s consent, that (i) the final executed forms of the transaction documents will not differ in any material respect from the drafts that it examined, (ii) the parties to the draft transaction documents will comply with all the material terms of those documents, and (iii) the contemplated transactions will be consummated in accordance with the terms of the draft transaction documents without any adverse waiver or amendment of any material term or condition thereof. Imperial also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any material adverse effect on Tilray or the merger.

Miscellaneous

Imperial’s opinion was one of many factors taken into consideration by the special committee in deciding to enter into the contemplated transactions. Consequently, the analyses conducted by Imperial should not be viewed as determinative of the special committee’s opinion with respect to whether the special committee would have been willing to agree to different terms in the merger.

Pursuant to an engagement letter dated as of March 27, 2019, the special committee engaged Imperial to render certain financial advisory services as requested by the special committee in relation to a proposed merger or alternative transaction, which we refer to in this section as the transaction, between Tilray and Privateer, including the evaluation of Tilray’s (both before and after the proposed transaction) and Privateer’s operations, assets and liabilities; the potential impact of the transaction on the market for Tilray’s securities; and alternatives for the structuring and execution of the transaction, and, if requested, issuing a fairness opinion to the special committee pursuant to which Imperial shall opine as to the fairness, from a financial point of view, of the transaction. Imperial was selected by Tilray based on Imperial’s qualifications, expertise and reputation. Imperial, as part of its investment banking business, is continuously engaged in the analysis of businesses and securities in connection with mergers and acquisitions and private placements for corporate and other purposes.

Pursuant to the terms of the engagement letter, Tilray paid Imperial a deposit for expenses upon the execution of the engagement letter, an hourly fee for services rendered and an opinion fee for the delivery of the opinion. Tilray paid the opinion fee to Imperial prior to Imperial’s issuance of the opinion. In addition, Tilray has agreed to indemnify Imperial for certain liabilities and expenses arising out of or in conjunction with its rendering of services under its engagement, including liabilities arising under the federal securities laws.

The terms of the merger were determined through arm’s length negotiations between Tilray and Privateer and were approved by the special committee, which recommended that the Tilray Board approve the merger upon the negotiated terms. Although Imperial provided advice to the special committee during the course of these negotiations, the decision to enter into the merger was solely that of the special committee and the Tilray Board acting upon the recommendation of the special committee. Imperial did not recommend any specific consideration to Tilray, the special committee or the Tilray Board, or that any specific amount or type of

 

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consideration constituted the only appropriate consideration for the merger. As described above, the opinion of Imperial and its presentation to the special committee were among a number of factors taken into consideration by the special committee in making its determination to approve, and recommend that the Tilray Board approve, the contemplated transactions and the transaction documents.

Imperial had not been engaged by Tilray prior to this engagement, nor has Imperial previously been engaged by Privateer.

Interests of Tilray Directors and Executive Officers in the Merger

In considering the recommendation of the Tilray Board with respect to issuing shares of Tilray’s common stock as contemplated by the merger agreement and the other matters to be acted upon by Tilray’s stockholders at the Tilray special meeting, Tilray’s stockholders should be aware that certain members of the Tilray Board and certain of Tilray’s executive officers have interests in the merger that may be different from, or in addition to, the interests of other Tilray stockholders. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below.

Each of the special committee, Tilray Board and the Privateer Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the merger agreement and the merger, and to recommend, as applicable, that Tilray’s stockholders approve the proposals to be presented to Tilray’s stockholders for consideration at the Tilray special meeting as contemplated by this proxy statement/prospectus/information statement, and that Privateer’s stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

Ownership Interests

The affirmative vote of holders of (i) the majority of the aggregate voting power of the votes cast at the Tilray special meeting and (ii) the majority of the voting power of the outstanding shares of Tilray’s Class 1 common stock and Class 2 common stock, each voting separately as a class, are required for approval of Proposal No. 1. The affirmative vote of holders of (i) the majority of the aggregate voting power of the outstanding shares of Tilray’s Class 1 and Class 2 common stock, voting together as a single class, as of the record date for the Tilray special meeting and (ii) the majority of the voting power of Tilray’s Class 1 common stock outstanding as of the record date are required for approval of Proposal No. 2. The affirmative vote of the majority of the voting power of the Tilray shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the Tilray special meeting is required for approval of Proposal No. 3. Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2. Abstentions will have the same effect as votes “AGAINST” Proposal Nos. 1, 2 and 3.

 

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The table below sets forth information regarding the beneficial ownership of Tilray’s common stock as of August 31, 2019 by Tilray’s directors and named executive officers.

 

     Class 1     Class 2     % of
Total
Voting
Power+
 

Name of Beneficial Owner

   Number      Percent     Number      Percent  

Greater than 5% stockholders:

            

Privateer Holdings, Inc.(1)

     16,666,667        100.0     58,333,333        71.2     90.5

Directors and Named Executive Officers:

            

Brendan Kennedy(2)

     —          —         2,888,947        3.4       1.1  

Edward Wood Pastorius, Jr.(3)

     —          —         219,194        *       *  

Mark Castaneda(4)

     —          —         929,505        1.1       *  

Andrew Pucher

     —          —                       

Michael Auerbach(5)

     —          —         93,277        *       *  

Rebekah Dopp(6)

     —          —         15,749        *       *  

Maryscott Greenwood(7)

     —          —         19,020        *       *  

Christine St.Clare(8)

     —          —         15,687        *       *  

All current executive officers and directors as a group (8 individuals)(9)

     —          —         4,181,379        4.9       1.7  

 

*

Represents less than one percent

+

Represents the voting power with respect to all shares of Tilray’s Class 1 common stock and Class 2 common stock, voting as a single class. Each share of Class 1 common stock will be entitled to 10 votes per share and each share of Class 2 common stock will be entitled to one vote per share. The holders of Class 1 common stock and Class 2 common stock will vote together on all matters (including the election of directors) submitted to a vote of stockholders, except under limited circumstances.

(1)

The address for Privateer is 2701 Eastlake Avenue E., 3rd Floor, Seattle, WA 98102.

(2)

Represents (a) 224,889 shares of Class 2 common stock held by Mr. Kennedy, (b) 2,148,433 shares underlying options to purchase shares of Class 2 common stock that are exercisable within 60 days of August 31, 2019 and (c) 515,625 shares of Class 2 common stock issuable pursuant to restricted stock units (“RSUs”) that vest within 60 days of August 31, 2019. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, member of the Privateer Board and largest stockholder of Privateer, although Mr. Kennedy does not have voting or investment power with respect to the shares held by Privateer.

(3)

Represents (a) 19,194 shares of Class 2 common stock held by Mr. Pastorius, (b) 131,250 shares underlying options to purchase shares of Class 2 common stock that are exercisable within 60 days of August 31, 2019 and (c) 68,750 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019.

(4)

Represents (a) 129,505 shares of Class 2 common stock held by Mr. Castaneda, (b) 600,000 shares underlying options to purchase shares of Class 2 common stock that are exercisable within 60 days of August 31, 2019 and (c) 200,000 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019.

(5)

Represents (a) 10,937 shares of Class 2 common stock held by Mr. Auerbach, (b) 50,465 shares held by M3 Ein Sof LLC, (c) 18,750 shares underlying options to purchase shares of Class 2 common stock that are exercisable within 60 days of August 31, 2019 and (d) 13,125 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019. Mr. Auerbach is a member of M3 Ein Sof LLC and has voting and dispositive power over the shares. The address for M3 Ein Sof LLC is 135 Grand Street, 2nd Floor, New York, New York 10013. Mr. Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer, although Mr. Auerbach does not have voting or investment power with respect to the shares held by Privateer.

(6)

Represents (a) 4,812 shares of Class 2 common stock held by Ms. Dopp and (b) 10,937 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019.

 

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(7)

Represents (a) 8,083 shares of Class 2 common stock held by Ms. Greenwood and (b) 10,937 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019.

(8)

Represents (a) 4,750 shares of Class 2 common stock held by Ms. St.Clare and (b) 10,937 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019.

(9)

Represents (a) 452,635 shares of Class 2 common stock, (b) 2,898,433 shares underlying options to purchase shares of Class 2 common stock that are exercisable within 60 days of August 31, 2019 and (c) 830,311 shares of Class 2 common stock issuable pursuant to RSUs that vest within 60 days of August 31, 2019.

Director Positions Following the Merger

Mr. Kennedy and Mr. Auerbach are currently directors of Tilray and will continue as directors of Tilray after the effective time. For a description of Tilray’s director compensation, see “Director Compensation” elsewhere in this proxy statement/prospectus/information statement.

Interests of Privateer Directors and Executive Officers in the Merger

In considering the recommendation of the Privateer Board with respect to adopting and approving the merger agreement, Privateer’s stockholders should be aware that certain members of the Privateer Board and certain executive officers of Privateer may have interests in the merger that may be different from, or in addition to, the interests of other Privateer stockholders. Each of the special committee, the Tilray Board and the Privateer Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the merger agreement and the merger, and to recommend, as applicable, that Tilray’s stockholders approve the proposals to be presented to Tilray’s stockholders for consideration at the Tilray special meeting as contemplated by this proxy statement/prospectus/information statement, and that Privateer’s stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

Ownership Interests

Certain of Privateer’s directors and executive officers or entities affiliated with them currently hold shares of Privateer’s capital stock, which such shares of capital stock will be converted into shares of Tilray’s common stock at the effective time. The table below sets forth the ownership of Privateer’s capital stock as of August 31, 2019 by Privateer’s directors and executive officers and their anticipated ownership of Privateer common stock immediately prior to the closing of the merger.

 

Directors and Named Executive Officers

   Number of Shares of
Capital Stock as of
August 31, 2019
 

Executive Officers

  

Brendan Kennedy(1)

     12,897,078  

Michael Blue(2)

     7,343,098  

Christian Groh(3)

     6,070,523  

Non-Employee Directors

  

Michael Auerbach(4)

     2,876,141  

 

(1)

Represents (a) 12,004,221 shares held by Mr. Kennedy and (b) 892,857 shares held by The Kennedy Family 2016 Irrevocable Trust UTD December 1, 2016. Mr. Kennedy disclaims beneficial ownership of the shares held by The Kennedy Family 2016 Irrevocable Trust UTD December 1, 2016, except to the extent of his pecuniary interest in such shares, if any. Mr. Kennedy, executive chairman of the Privateer Board, is also an executive officer and member of the Tilray Board.

(2)

Represents (a) 4,343,098 shares held by Mr. Blue and (b) 3,000,000 shares held by Mr. Blue’s spouse.

(3)

Represents (a) 4,650,494 shares held by Christian Groh, (b) 16,421 shares held by Mr. Groh’s spouse, (c) 701,804 shares held by CAG 2018 GRAT and (d) 701,804 shares held by LEG 2018 GRAT.

(4)

Represents (a) 355,375 shares held by Mr. Auerbach, (b) 708,750 shares held by Murphy Ofutt Common LLC and (c) 1,812,016 shares held by Murphy Offutt, LLC. Mr. Auerbach is the general partner of these entities and has voting and dispositive power over the shares. Excludes 460,000 shares of Privateer Class 1

 

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common stock and 200,000 shares of Privateer Class 3 common stock issuable upon the exercise of options held by Mr. Auerbach. Mr. Auerbach, a member of the Privateer Board, is also a member of the Tilray Board.

Treatment of Privateer Equity Awards

Under the merger agreement and subject to the terms thereof, at the effective time, each outstanding and unexercised option to purchase shares of Privateer’s capital stock as of immediately prior to the effective time, whether or not vested, shall be (i) converted into and become an option, as applicable, to purchase shares of Tilray’s common stock, in accordance with the terms and conditions of such Privateer option, immediately prior to the effective time or (ii) cancelled and converted into a right to receive a portion of the Cash Merger Consideration, if any, pursuant to the terms of the merger agreement. Certain of Privateer’s directors and executive officers currently hold options, to purchase shares of Privateer’s common stock. The table below sets forth certain information with respect to such options.

 

Option holder Name

   Grant Date      Expiration
Date
     Exercise
Price
($)
     Number of
Shares of
Common
Stock
Underlying
Option as
of
August 31,
2019
     Number of
Vested
Shares of
Common
Stock
Underlying
Option as
of
August 31,
2019
 

Brendan Kennedy

     —          —          —          —          —    

Michael Blue

     —          —          —          —          —    

Christian Groh

     —          —          —          —          —    

Michael Auerbach

     6/18/2014        6/17/2024        0.21        120,000        120,000  
     11/11/2014        11/10/2024        1.34        120,000        120,000  
     9/18/2015        9/17/2025        2.70        120,000        120,000  
     3/20/2017        3/19/2027        2.92        100,000        100,000  
     4/13/2018        4/12/2028        5.17        100,000        100,000  
     11/28/2018        11/27/2028        27.54        100,000        100,000  

Indemnification and Insurance

Under the merger agreement, from the effective time through the sixth anniversary of the date on which the effective time occurs, each of Tilray and the surviving company shall indemnify and hold harmless each person who is now, or has been at any time prior to the date of the merger agreement, or who becomes prior to the effective time, a director or officer of Tilray or Privateer and their respective subsidiaries (excluding, in the case of Privateer, Tilray), respectively (collectively, the “D&O Indemnified Parties”), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements (collectively, “Costs”), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the D&O Indemnified Party is or was a director or officer of Tilray or of Privateer, whether asserted or claimed prior to, at or after the effective time, in each case, to the fullest extent permitted under applicable law. Each D&O Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Tilray and the surviving company, jointly and severally, upon receipt by Tilray or the surviving company from the D&O Indemnified Party of a request therefor; provided that any person to whom expenses are advanced provides an undertaking to Tilray, to the extent then required by the DGCL, to repay such advances if it is ultimately determined that the person is not entitled to indemnification.

Under the merger agreement, the provisions of the certificate of incorporation and bylaws of Tilray with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of

 

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Tilray that are presently set forth in the certificate of incorporation and bylaws of Tilray shall not be amended, modified or repealed for a period of six years from the effective time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the effective time, were officers or directors of Tilray. The certificate of formation, limited liability company agreement and other similar documents, which we refer to as the surviving company organizational documents, shall contain, and Tilray shall cause the surviving company organizational documents to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former managers and officers as those presently set forth in the certificate of incorporation and bylaws of Tilray.

Under the merger agreement, from and after the effective time, (i) the surviving company shall fulfill and honor in all respects the obligations of Privateer to its D&O Indemnified Parties as of immediately prior to the consummation of the merger pursuant to any indemnification provisions under Privateer’s certificate of incorporation, bylaws or other similar documents, and pursuant to any indemnification agreements between Privateer and its D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the effective time and (ii) Tilray shall fulfill and honor in all respects the obligations of Tilray to its D&O Indemnified Parties as of immediately prior to the consummation of the merger pursuant to any indemnification provisions under Tilray’s certificate of incorporation, bylaws or other similar documents, and pursuant to any indemnification agreements between Tilray and its D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the effective time.

Under the merger agreement, from and after the effective time, Tilray shall maintain directors’ and officers’ liability insurance policies, with an effective date as of the date that the merger is consummated, on commercially available terms and conditions and with coverage limits no less favorable to Tilray than in effect as of the date of the merger agreement (provided, that Tilray may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous). In addition, Privateer shall purchase, prior to the effective time, a six year prepaid “tail policy” for the non-cancellable extension of the directors’ and officers’ liability coverage of Privateer’s existing directors’ and officers’ insurance policies for a claims reporting or discovery period of at least six years from and after the effective time with respect to any claim related to any period of time at or prior to the effective time.

Under the merger agreement, from and after the effective time, Tilray shall pay expenses, including reasonable attorneys’ fees, that are incurred by the persons referred to in the foregoing paragraphs in connection with their successful enforcement of the rights provided to those persons in the foregoing paragraphs.

Limitations of Liability and Indemnification

In addition to the indemnification obligations required by the amended and restated certificate of incorporation of Tilray and amended and restated bylaws of Tilray, Tilray has entered into indemnification agreements with each of its directors and executive officers. These agreements provide for the indemnification of Tilray’s directors and executive officers for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of Tilray. Tilray believes that these amended and restated certificate of incorporation provisions, amended and restated bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

Privateer Stock Options

As of June 30, 2019, an aggregate of 1,940,536 shares of Privateer Class 1 common stock and 1,563,163 shares of Privateer Class 3 common stock were issuable upon the exercise of outstanding stock options under the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, at a weighted-average exercise price of $6.93 per share. At the effective time, each Privateer option that is outstanding and unexercised immediately prior to the effective time under the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, whether or not vested, will be converted into and become an option to purchase shares of Tilray’s Class 2 common stock or

 

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cancelled and converted into a right to receive a portion of the Cash Merger Consideration as calculated in accordance with the Cash-Out Options Allocation and as set forth on the allocation certificate. At the effective time, Tilray will assume the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, and the share reserve under such plan and each such Privateer option in accordance with the terms of the merger agreement.

Form of the Merger

The merger agreement provides that at the effective time, Privateer will be merged with and into merger sub and the separate existence of Privateer will cease. Upon the consummation of the merger, merger sub will continue as the surviving company in the merger and will be a wholly owned subsidiary of Tilray.

Merger Consideration

At the effective time:

 

   

each share of Privateer common stock outstanding immediately prior to the effective time (excluding shares of Privateer capital stock held as treasury stock and shares held by stockholders who have exercised and perfected appraisal rights) will automatically be converted solely into the right to receive a number of shares of Tilray’s common stock equal to a portion of the Stock Merger Consideration and, if applicable, a portion of the Cash Merger Consideration, in each case, calculated in accordance with the Privateer Allocation under the merger agreement and as set forth on the allocation certificate (immediately prior to the effective time, each share of Privateer preferred stock will be converted into one share of Privateer Class 2 common stock); and

 

   

each option to purchase shares of Privateer’s common stock outstanding and unexercised immediately prior to the effective time under the Privateer equity incentive plan will be assumed by Tilray in accordance with the Privateer equity incentive plan and will become an option to purchase shares of Tilray’s Class 2 common stock with the number of shares of Tilray’s Class 2 common stock underlying such options and the exercise prices for such options adjusted to reflect the option exchange ratio; provided, however, that certain in-the-money options held by certain service providers of Privateer may instead be cancelled and converted into a right to receive a portion of the Cash Merger Consideration, if applicable.

Assuming no Cash Merger Consideration is paid in connection with the merger, immediately after the merger, (i) Privateer’s stockholders as of immediately prior to the effective time are expected to own approximately 75.4% of the outstanding capital stock of Tilray and 90.4% of the voting power of Tilray and (ii) the three founders of Privateer, namely Brendan Kennedy (Tilray’s Chief Executive Officer and President, as well as a member of the Tilray Board), Michael Blue and Christian Groh, are expected to collectively own 25.7% of the outstanding capital stock of Tilray and 71.0% of the voting power of Tilray. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, a member of the Privateer Board and the largest stockholder of Privateer. Michael Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer.

At the effective time, Tilray’s stockholders will continue to own and hold their existing shares of Tilray’s common stock, and all outstanding and unexercised options to purchase shares of Tilray’s common stock will remain in effect pursuant to their terms; provided, however, that unvested options to purchase Tilray stock held by Privateer service providers that hold Privateer options who are not Tilray service providers shall accelerate effective as of the effective time.

The merger agreement does not include a price-based termination right, and there will be no adjustment to the total number of shares of Tilray’s common stock that Privateer’s stockholders will be entitled to receive for changes in the market price of Tilray’s common stock. Accordingly, the market value of the shares of Tilray’s common stock issued pursuant to the merger will depend on the market value of the shares of Tilray’s common

 

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stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

No fractional shares of Tilray’s common stock will be issuable to Privateer’s stockholders pursuant to the merger. Instead, each stockholder of Privateer who would otherwise be entitled to receive a fraction of a share of Tilray’s common stock, after aggregating all fractional shares of Tilray’s common stock issuable to such stockholder, will , in lieu of such fraction of a share and upon surrender by the stockholder of a letter of transmittal pursuant to the merger agreement and any accompanying documents as required therein, be paid in cash (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the volume weighted-average closing trading price of a share of Tilray’s Class 2 common stock on Nasdaq for the five consecutive trading days immediately prior to the date upon which the merger becomes effective.

The merger agreement provides that, at the closing, Tilray will deposit with an exchange agent, which will be Philadelphia Stock Transfer, Inc., evidence of book-entry shares representing the shares of Tilray’s common stock issuable to Privateer’s stockholders, the Cash Merger Consideration, if any, in U.S. dollars by wire transfer of immediately available funds to the bank account designated in writing by the exchange agent no later than one (1) business day prior to the closing date and any cash sufficient to make payments in lieu of fractional shares.

The merger agreement provides that, promptly after the effective time, the exchange agent will mail to each record holder of shares of Privateer’s capital stock that were converted into the right to receive a portion of the Stock Merger Consideration and Cash Merger Consideration, if applicable, a letter of transmittal, with all other documentation required to be delivered pursuant to the letter of transmittal, including instructions for surrendering to the exchange agent stock certificates representing shares of Privateer’s capital stock held by such record holder in exchange for book-entry shares of Tilray’s common stock, and a stockholder lock-up agreement. Upon delivery of a duly executed letter of transmittal and a duly executed stockholder lock-up agreement, the holder of Privateer’s capital stock will be entitled to the following:

 

   

book-entry shares representing the number of whole shares of Tilray’s common stock that such holder has the right to receive pursuant to the provisions of the merger agreement, less such holder’s pro rata portion of the escrow amount, which will be held in escrow in accordance with the merger agreement and the escrow agreement, which we refer to as the escrow agreement, to be negotiated and executed pursuant to the terms of the merger agreement;

 

   

the applicable portion of the Cash Merger Consideration, if any, as set forth in the allocation certificate; and

 

   

cash in lieu of any fractional share of Tilray’s common stock.

After the effective time, until it is surrendered, each certificate that previously evidenced shares of Privateer’s capital stock and any share of Privateer common stock previously held in direct registration form will be deemed to represent only the right to receive book-entry shares of Tilray’s common stock representing such holder’s portion of the Stock Merger Consideration, the applicable portion of the Cash Merger Consideration, if any, and cash in lieu of any fractional share of Tilray’s common stock. A holder of Privateer’s capital stock will not be entitled to receive any portion of the Stock Merger Consideration or the Cash Merger Consideration, if any, to which the holder is entitled until the holder delivers a duly executed letter of transmittal, stockholder lock-up agreement and the other documents as may be reasonably required by the exchange agent or Tilray. If payment is to be made to a person other than the holder of Privateer’s capital stock in whose name the shares are registered on the stock transfer books of Privateer, the person will be required to properly deliver a duly executed letter of transmittal, stockholder lock-up agreement and other documents as may be reasonably required by the exchange agent or Tilray, and pay all applicable transfer and other taxes required by reason of the payment to a person other than the registered holder of the shares of Privateer’s capital stock surrendered or establish to the satisfaction of the exchange agent that the taxes either have been paid or are not applicable.

The Stock Merger Consideration and, if applicable, the Cash Merger Consideration will be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend, including any dividend or other

 

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distribution of securities convertible into Tilray common stock, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to the number of shares of Privateer capital stock, Tilray Class 1 common stock, or Class 2 common stock outstanding after the date of the merger agreement and prior to the effective time.

Effective Time of the Merger

The merger agreement requires the parties to consummate the merger as promptly as practicable (and in any event within two business days) after all of the conditions to the consummation of the merger contained in the merger agreement are satisfied or waived. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed by Tilray and Privateer and specified in the certificate of merger, and which time is referred to herein as the effective time. Neither Tilray nor Privateer can predict the exact timing of the consummation of the merger.

Regulatory Approvals

In the United States, Tilray must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Tilray’s common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.

In connection with the acquisition of voting securities of Tilray pursuant to the merger, a certain Privateer stockholder, namely Brendan Kennedy, is required to use his commercially reasonable efforts to obtain all of the authorizations, approvals and consents as promptly as possible after the execution of the merger agreement, including under foreign competition laws, with respect to the transactions contemplated by the merger agreement. As of the date hereof, the applicable authorizations, approvals and consents have yet to be granted.

Tax Treatment of the Merger

Tilray and Privateer intend the merger to qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. Tilray and Privateer have agreed to use their reasonable best efforts to cause the merger to qualify as a reorganization under Section 368(a)(1)(A) of the Code, and to not take any actions that are reasonably expected to cause the merger to fail to so qualify. For a description of certain of the considerations regarding U.S. federal tax consequences of the merger, see the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” below.

Material U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of the material U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) who exchange their Privateer common stock for Tilray common stock in the merger, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a U.S. Holder. Neither Tilray nor Privateer has sought or intends to seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a position regarding the tax consequences of the merger contrary to that discussed below. This discussion assumes that the merger will be consummated in accordance with the merger agreement and as described in this proxy statement/prospectus/information statement.

 

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This discussion is limited to U.S. Holders that hold Privateer common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a U.S. Holder’s particular circumstances, including the impact of the alternative minimum tax or the Medicare contribution tax on net investment income. In addition, it does not address tax consequences relevant to Privateer stockholders subject to special rules, including, without limitation:

 

   

U.S. expatriates and former citizens or long-term residents of the United States;

 

   

persons whose functional currency is not the U.S. dollar;

 

   

persons holding Privateer common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

   

banks, insurance companies, mutual funds and other financial institutions;

 

   

real estate investment trusts or regulated investment companies;

 

   

brokers, dealers or traders in securities;

 

   

“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

   

S corporations, partnerships or other entities or arrangements treated as partnerships or disregarded entities for U.S. federal income tax purposes (and investors therein);

 

   

persons for whom Privateer common stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code or “Section 1244 stock” for purposes of Section 1244 of the Code;

 

   

tax-exempt organizations or governmental organizations;

 

   

persons subject to special tax accounting rules as a result of any item of gross income with respect to Privateer common stock being taken into account in an “applicable financial statement” (as defined in the Code);

 

   

persons deemed to sell Privateer common stock under the constructive sale provisions of the Code;

 

   

persons who acquired their Privateer common stock pursuant to the exercise of warrants or conversion rights under convertible instruments;

 

   

persons who acquired their Privateer common stock in a transaction subject to the gain rollover provisions of Section 1045 of the Code;

 

   

persons who hold or received Privateer common stock pursuant to the exercise of any employee stock option or otherwise as compensation; and

 

   

persons who hold their Privateer common stock through tax-qualified retirement plans.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Privateer common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Privateer common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE MERGER ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

 

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For purposes of this discussion, a U.S. Holder is a beneficial owner of Privateer common stock that, for U.S. federal income tax purposes, is or is treated as:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

   

a trust that (i) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) over all of its substantial decisions or (ii) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Privateer Common Stock

It is a condition to Tilray’s obligation to consummate the merger that Tilray receive an opinion from Paul Hastings LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. It is a condition to Privateer’s obligation to consummate the merger that Privateer receive an opinion from Cooley LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. Subject to the representations, assumptions and exclusions in such tax opinions, in the opinions of Cooley LLP and Paul Hastings LLP, the merger will qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code. In rendering their opinions, counsels assume that the statements and facts concerning the merger set forth in this proxy statement/prospectus/information statement and in the merger agreement are true and accurate in all respects, and that the merger will be completed in accordance with this proxy statement/prospectus/information statement and the merger agreement. Counsels’ opinions also assume the truth and accuracy of certain representations and covenants as to factual matters made by Privateer, Tilray and merger sub in tax representation letters provided to counsel. In addition, counsels base their tax opinions on the law in effect on the date of the opinions and assume that there will be no change in applicable law between such date and the time of the merger. If any of these assumptions is incorrect, incomplete or inaccurate, or is violated, the validity of the opinions described above may be affected and the tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

An opinion of counsel represents counsel’s best legal judgment but is not binding on the IRS or any court, and there can be no certainty that the IRS will not challenge the conclusions reflected in the opinions or that a court would not sustain such a challenge. Neither Tilray nor Privateer intends to obtain a ruling from the IRS with respect to the tax consequences of the merger. If the IRS were to successfully challenge the “reorganization” status of the merger, the tax consequences would differ materially from those described in this proxy statement/prospectus/information statement.

Accordingly, on the basis of the opinions described above the tax consequences to U.S. Holders of Privateer common stock will be as follows:

 

   

a U.S. Holder of shares of Privateer common stock generally will not recognize any gain or loss upon the exchange of shares of Privateer common stock for shares of Tilray common stock in the merger, except with respect to cash received in lieu of fractional shares of Tilray common stock (as discussed below);

 

   

a U.S. Holder of shares of Privateer common stock will have an aggregate tax basis in the shares of Tilray common stock received in the merger (including fractional shares deemed received and redeemed as described below) equal to the aggregate tax basis of the shares of Privateer common stock surrendered in exchange therefor;

 

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a U.S. Holder of shares of Privateer common stock will have a holding period for the shares of Tilray common stock received in the merger (including fractional shares deemed received and redeemed as described below) that includes its holding period for its shares of Privateer common stock surrendered in exchange therefor;

 

   

if a U.S. Holder of shares of Privateer common stock acquired different blocks of shares of Privateer common stock at different times or at different prices, the shares of Tilray common stock received in the merger (including fractional shares deemed received and redeemed as described below) will be allocated pro rata to each block of shares of Privateer common stock, and the basis and holding period of such shares of Tilray common stock will be determined on a block-for-block approach depending on the basis and holding period of each block of shares of Privateer common stock exchanged for such shares of Tilray common stock. If cash in addition to cash for fractional shares is paid as consideration in the merger for Privateer common stock as described in the next bullet point, then U.S. Holders should consult their individual tax advisors regarding the manner in which their gain should be determined and the character of such gain; and

 

   

it is possible that a portion of the merger consideration will be paid in cash rather than entirely (other than for fractional shares) in Tilray common stock. In such event, a U.S. Holder of shares of Privateer common stock generally will recognize gain (but not loss) in an amount equal to the lesser of: (a) the amount of cash treated as received in exchange for Privateer common stock in the merger (excluding any cash received in lieu of fractional shares of Tilray common stock), and (b) the excess, if any, of (i) the sum of the amount of cash treated as received in exchange for Privateer common stock in the merger (excluding any cash received in lieu of fractional shares of Tilray common stock) plus the fair market value of Tilray common stock (including the fair market value of any fractional share) received in the merger, over (ii) the basis in the Privateer common stock exchanged in the merger. In such event, such U.S. Holder will have an aggregate tax basis in the shares of Tilray common stock received in the merger (including fractional shares deemed received and redeemed as described below) equal to the aggregate tax basis of the shares of Privateer common stock surrendered in exchange therefor, decreased by the amount of cash that is treated as received in exchange for Privateer common stock (excluding any cash received in lieu of a fractional share of Tilray common stock) and increased by the amount of gain, if any, recognized in the exchange (excluding any cash received in lieu of a fractional share of Tilray common stock).

Cash in Lieu of Fractional Shares

A U.S. Holder that receives cash in lieu of a fractional share of Tilray common stock generally will be treated as having received such fractional share and then as having received such cash in redemption of the fractional share. Gain or loss generally will be recognized based on the difference between the amount of cash received in lieu of the fractional share of Tilray common stock and the portion of the U.S. Holder’s aggregate adjusted tax basis in the shares of Privateer common stock surrendered which is allocable to the fractional share of Tilray common stock deemed received. Such gain or loss generally will be long-term capital gain or loss if the U.S. Holder’s holding period for its shares of Privateer common stock exceeds one year at the effective time. Under current law, long-term capital gain of non-corporate U.S. Holders (including individuals) generally is taxed at reduced U.S. federal income tax rates. The deductibility of capital losses is subject to limitations.

Tax Consequences if the Merger Fails to Qualify as a Reorganization

If the merger does not qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code, a U.S. Holder of Privateer common stock generally would recognize gain or loss for U.S. federal income tax purposes on each share of Privateer common stock surrendered in the merger in an amount equal to the difference between the fair market value, at the time of the merger, of the Tilray common stock received in the merger (including any cash received in lieu of a fractional share) and such U.S. Holder’s tax basis in the Privateer common stock surrendered in the merger. Gain or loss must be calculated separately for each block of

 

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Privateer common stock exchanged by such U.S. Holder if such blocks were acquired at different times or for different prices. Any gain or loss recognized generally would be capital gain or loss, and generally would be long-term capital gain or loss if the U.S. Holder’s holding period in a particular block of Privateer common stock exceeds one year at the effective time. Under current law, long-term capital gain of non-corporate U.S. Holders (including individuals) generally is taxed at reduced U.S. federal income tax rates. The deductibility of capital losses is subject to limitations. A U.S. Holder’s tax basis in shares of Tilray common stock received in the merger would be equal to the fair market value thereof as of the effective time, and such U.S. Holder’s holding period in such shares would begin on the day following the merger.

Compliance and Recordkeeping

If the merger qualifies as a “reorganization” under Section 368(a)(1)(A) of the Code, current Treasury Regulations require each U.S. Holder who receives shares of Tilray common stock in the merger to retain permanent records pertaining to the merger, and make such records available to any authorized IRS officers and employees. Such records should specifically include information regarding the amount, basis, and fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of such reorganization. Additionally, certain U.S. Holders who are “significant holders” of Privateer common stock (generally, a U.S. Holder that owns at least 1% of the outstanding Privateer common stock or has a basis in Privateer non-stock securities of at least $1,000,000 immediately before the merger) to comply with certain reporting requirements. Significant holders generally will be required to file a statement with their U.S. federal income tax returns for the taxable year in which the merger occurs setting forth certain information with respect to the transaction. Such statement must include the U.S. Holder’s tax basis in such holder’s Privateer common stock surrendered in the merger, the fair market value of such stock, the date of the merger and the name and employer identification number of each of Privateer and Tilray. U.S. Holders should consult their tax advisors to determine whether they are significant holders required to provide the foregoing statement.

Information Reporting and Backup Withholding

A U.S. Holder may be subject to information reporting and backup withholding when such holder receives cash (including cash in lieu of fractional shares of Tilray common stock) in the merger. Certain U.S. Holders are exempt from backup withholding, including corporations and certain tax-exempt organizations.

A U.S. Holder will be subject to backup withholding if such holder is not otherwise exempt and:

 

   

the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social security number;

 

   

the holder furnishes an incorrect taxpayer identification number; or

 

   

the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends.

To avoid backup withholding, a U.S. Holder that does not otherwise establish an exemption should timely complete and return an IRS Form W-9. Certain holders (such as certain corporations) are exempt from backup withholding. U.S. Holders exempt from backup withholding may be required to timely comply with certification requirements and identification procedures in order to establish an exemption from information reporting and backup withholding or otherwise avoid backup withholding. If a U.S. Holder does not provide a correct taxpayer identification number on IRS Form W-9 or other proper certification, the holder may be subject to penalties imposed by the IRS and to backup withholding (currently imposed at a rate of 24%).

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their

 

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qualification for an exemption from backup withholding and the procedures for obtaining such an exemption. In the event of backup withholding see your tax advisor to determine if you are entitled to any tax credit, tax refund or other tax benefit as a result of such backup withholding.

U.S. HOLDERS OF PRIVATEER COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES, AND ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

Nasdaq Stock Market Listing

Tilray’s common stock currently is listed on Nasdaq, under the symbol “TLRY.” Tilray has agreed to use commercially reasonable efforts to:

 

   

maintain its existing listing on Nasdaq;

 

   

to the extent required by the rules and regulations of Nasdaq, to prepare and submit to Nasdaq a notification form for the listing of the shares of Tilray Class 2 common stock to be issued in connection with the merger, and to cause those shares to be approved for listing (subject to official notice of issuance); and

 

   

to the extent required by Nasdaq Marketplace Rule 5110, to file an initial listing application for the Tilray Class 2 common stock on Nasdaq and to cause the Nasdaq listing application to be conditionally approved prior to the effective time.

In addition, under the merger agreement, each party’s obligation to complete the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the merger, of various conditions, including that the shares of Tilray’s Class 2 common stock to be issued in the merger shall have been approved for listing (subject to official notice of issuance) on Nasdaq as of the closing of the merger.

Anticipated Accounting Treatment

The Merger will be accounted for as an equity reorganization of Tilray under which the shareholders of Privateer become direct shareholders of Tilray. Pursuant to the merger agreement, Privateer shareholders will exchange their shares in Privateer for shares in Tilray. At the time of the Merger, it is expected that Privateer’s only material assets are the 75,000,000 shares of Tilray Common Stock and that Privateer has no material liabilities which would be required to be disclosed in its financial statements.

Appraisal Rights

Delaware Law

If the merger is completed, Privateer’s stockholders who do not deliver a written consent approving the merger are entitled to appraisal rights under Section 262 of the DGCL, which we refer to as Section 262, provided that they comply with the conditions established by Section 262. Holders of Tilray common stock are not entitled to dissenter’s rights under Delaware law or other appraisal rights in connection with the merger.

The discussion below is not a complete summary regarding the appraisal rights of Privateer’s stockholders under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached to this proxy statement/prospectus/information statement as Annex D. Stockholders intending to exercise appraisal rights should carefully review Annex D of this proxy statement/prospectus/information statement. Failure to follow precisely any of the statutory procedures set forth in Annex D of this proxy statement/prospectus/information statement may result in a termination or waiver of these rights. This summary does not constitute legal or other advice, nor does it constitute a recommendation that Privateer’s stockholders exercise their appraisal rights under Delaware law.

 

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Under Section 262, where a merger is approved by stockholders by written consent in lieu of a meeting of stockholders pursuant to Section 228 of the DGCL, either the constituent corporation, before the effective date of the merger, or the surviving company, within 10 days after the effective date of the merger, must notify each stockholder of the constituent corporation entitled to appraisal rights, if any, of the approval of the merger, the effective date of the merger and that appraisal rights are available.

If the merger is completed, within 10 days after the effective date of the merger Privateer will notify its stockholders that the merger has been approved, the effective date of the merger and that appraisal rights are available to any stockholder who has not approved the merger, if any. Holders of shares of Privateer capital stock who desire to exercise their appraisal rights must deliver a written demand for appraisal to Privateer within 20 days after the date of mailing of that notice, and the stockholder must not have delivered a written consent approving the merger. A demand for appraisal must reasonably inform Privateer of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of the shares of Privateer capital stock held by such stockholder. Failure to deliver a written consent approving the merger will not in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262. All demands for appraisal should be addressed to Privateer Holdings, Inc., 2701 Eastlake Avenue E., 3rd Floor, Seattle, WA 98102, Attention: General Counsel, and should be executed by, or on behalf of, the record holder of shares of Privateer capital stock. ALL DEMANDS MUST BE RECEIVED BY PRIVATEER WITHIN TWENTY (20) DAYS AFTER THE DATE PRIVATEER MAILS A NOTICE TO ITS STOCKHOLDERS NOTIFYING THEM THAT THE MERGER HAS BEEN APPROVED, THE EFFECTIVE DATE OF THE MERGER AND THAT APPRAISAL RIGHTS ARE AVAILABLE TO ANY STOCKHOLDER WHO HAS NOT APPROVED THE MERGER, IF ANY.

If a holder of shares of Privateer’s capital stock fails to deliver a written demand for appraisal within the time period specified above, such holder will be entitled to receive the merger consideration for such holder’s shares of Privateer capital stock as provided for in the merger agreement, but will have no appraisal rights with respect to his, her or its shares of Privateer’s capital stock.

To be effective, a demand for appraisal by a holder of shares of Privateer’s capital stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Privateer. The beneficial owner must, in these cases, have the registered owner, such as a broker, bank or other custodian, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a custodian for others, may exercise the record owner’s right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. In addition, the stockholder must continuously hold the shares of record from the date of making the demand through the effective time.

If a holder of shares of Privateer’s capital stock holds shares of Privateer’s capital stock in a brokerage account or in other custodian form and such holder wishes to exercise appraisal rights, such holder should consult with such holder’s bank, broker or other custodian to determine the appropriate procedures for the making of a demand for appraisal by the custodian.

At any time within 60 days after the effective time, any stockholder who has demanded an appraisal, but has neither commenced an appraisal proceeding or joined an appraisal proceeding as a named party, has the right to

 

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withdraw such stockholder’s demand and accept the terms of the merger by delivering a written withdrawal to Privateer. If, following a demand for appraisal, a holder of shares of Privateer’s capital stock who has demanded an appraisal has withdrawn such holder’s demand for appraisal in accordance with Section 262, such holder will have the right to receive the merger consideration for such holder’s shares of Privateer capital stock.

Within 120 days after the effective time, any stockholder who has delivered a demand for appraisal in accordance with Section 262 will, upon written request to the surviving company, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. This written statement will be mailed to the requesting stockholder within 10 days after the stockholder’s written request is received by the surviving company or within ten days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time, either the surviving company or any stockholder who has delivered a demand for appraisal in accordance with Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of the petition must be made upon the surviving company. The surviving company has no obligation to file a petition in the Delaware Court of Chancery in the event there are dissenting stockholders, and merger sub, which is expected to be the surviving company, has no present intent to file a petition in the Delaware Court of Chancery. Accordingly, the failure of a stockholder to file a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving company, the surviving company will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded payment of their shares and with whom agreements as to the value of their shares have not been reached by the surviving company. After notice to dissenting stockholders who demanded appraisal of their shares, if any, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder. If immediately before the merger the shares of the class or series of stock as to which appraisal rights are available were listed on a national securities exchange, the Delaware Court of Chancery will dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the merger for such total number of shares exceeds $1.0 million or (3) the merger was approved pursuant to Sections 253 or 267 of the DGCL.

After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the “fair value” of the shares owned by those stockholders, taking into account all relevant factors. This value will be exclusive of any element of value arising from the accomplishment or expectation of the merger, but may include a fair rate of interest, if any, upon the amount determined to be the fair value. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective time through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving company may pay to each shareowner entitled to appraisal an amount in cash, in which case interest shall accrue thereafter only upon the sum of (1) the difference, if any, between the amount paid and the fair value of the shares as determined by the Delaware Court of Chancery, and (2) interest theretofore accrued, unless paid at that time. When the value is determined, the Delaware Court of Chancery will direct the payment of the value, with interest thereon accrued during the pendency of the proceeding, if the

 

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Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by the holders of the certificates representing those shares.

In determining fair value, and, if applicable, a fair rate of interest, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.”

Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that this exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Holders of shares of Privateer’s capital stock should be aware that the fair value of such holder’s shares as determined under Section 262 could be more than, the same as, or less than the value that such holder is entitled to receive under the terms of the merger agreement.

Costs of the appraisal proceeding may be imposed upon the surviving company and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses. Any stockholder who had demanded appraisal rights will not, after the effective time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if no petition for appraisal is filed within 120 days after the effective time, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the merger consideration for shares of his or her Privateer capital stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time may only be made with the written approval of the surviving company. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the court.

Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights. In view of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

 

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MERGER AGREEMENT

The following is a summary of the material terms of the merger agreement. A copy of the merger agreement is attached as Annex A to this proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The merger agreement has been attached to this proxy statement/prospectus/information statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Tilray, Privateer or merger sub. The following description does not purport to be complete and is qualified in its entirety by reference to the merger agreement. You should refer to the full text of the merger agreement for details of the merger and the terms and conditions of the merger agreement.

The merger agreement contains representations and warranties that Tilray and merger sub, on the one hand, and Privateer, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the merger agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in a confidential disclosure letter provided by Privateer to Tilray in connection with signing the merger agreement. While Tilray and Privateer do not believe that this disclosure letter contains information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure letter does contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached merger agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Tilray or Privateer, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between Tilray, merger sub and Privateer and are modified by the disclosure letter.

General

Under the merger agreement, at the effective time, Privateer shall merge with and into merger sub. Upon consummation of the merger, Privateer will cease to exist and merger sub will survive as a wholly owned subsidiary of Tilray.

Merger Consideration

Immediately prior to the effective time, each share of Privateer Class 1 common stock, Privateer Class 2 common stock and Privateer Class 3 common stock outstanding immediately prior to the effective time (excluding shares to Privateer’s capital stock held as treasury stock or held by Tilray or any of its subsidiaries and excluding shares held by stockholders who have exercised and perfected appraisal rights for shares of Privateer capital stock in accordance with the DGCL (“Dissenting Shares”)) will be automatically converted into the right to receive a portion, as applicable, of the Stock Merger Consideration and, if applicable, the relevant portion of the Cash Merger Consideration, if any, in each case, calculated in accordance with the Privateer Allocation as set forth on the allocation certificate to be prepared by Privateer and delivered to Tilray at least five business days prior to the closing of the merger.

“Privateer Allocation” means the following allocation:

 

   

with respect to a Brendan Kennedy, Christian Groh or Michael Blue (the “Founders”), a number of shares of Tilray Class 1 common stock equal to the product of (i) the Tilray Class 1 Common Stock Consideration Shares, multiplied by (ii) the quotient of (A) the number of shares of Privateer capital stock held by such Founder, divided by (B) the number of shares of Privateer capital stock held by all Founders;

 

   

with respect to each Privateer stockholder, a number of shares of Tilray Class 2 common stock equal to (i) the product of (A) such holder’s Pro Rata Consideration Ratio, multiplied by (B) the Total Merger

 

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Consideration, (ii) less the number of shares of Tilray Class 2 common stock equal to the quotient of (A) the Pro Rata Cash Portion with respect to such holder, divided by (B) the Offering Price (rounded up to the nearest whole share), and (iii) less in the case of a Founder, the number of shares of Tilray Class 2 common stock equal to the number of shares of Tilray Class 1 common stock allocated to such Founder pursuant to the immediately preceding bullet point above; and

 

   

with respect to each Privateer stockholder, the portion of Cash Merger Consideration equal to such holder’s Pro Rata Cash Portion;

in each case, all in accordance with the amended and restated certificate of incorporation of Privateer.

“Offering Price” means the weighted-average price associated with each identifiable portion of funds designated for Cash Merger Consideration as follows: (i) in the case of an underwritten public offering, the public offering price of a share of Tilray Class 2 common stock in such offering, less any underwriting discounts, commissions or other compensation, (ii) in the case of an at-the-market offering, the weighted-average price per share of Tilray Class 2 common stock sold in such offerings, less any discounts, commissions or other compensation and (iii) in the case in which Tilray uses cash from any other offering of Tilray securities to be allocated as Cash Merger Consideration, the net sale price of a share of Tilray Class 2 common stock (after taking into account discounts, commissions or other compensation).

“Privateer Exchange Shares” means the total number of shares of Privateer common stock outstanding immediately prior to the effective time (expressed on an as-converted to Privateer common stock basis and assuming the effectiveness of the conversion of Privateer preferred stock into Privateer Class 2 common stock immediately prior to the effective time), (i) including (A) the total number of shares assuming the exercise of all options held by certain Privateer service providers immediately prior to the effective time and (B) the issuance of shares of Privateer common stock in respect of all other outstanding options, restricted stock awards, warrants or rights to receive such shares, whether conditional or unconditional and including any outstanding options, warrants or rights triggered by or associated with the consummation of the merger and (ii) excluding any shares issuable upon exercise of options for Tilray common stock by certain Tilray service providers.

“Pro Rata Cash Portion” means, with respect to any Privateer stockholder, the amount of cash equal to the product of (i) the Cash Merger Consideration, less the Aggregate Cash Option Consideration, multiplied by (ii) such holder’s Pro Rata Consideration Ratio; provided that the Pro Rata Cash Portion with respect to any Privateer stockholder shall not exceed the amount of cash equal to the product of (A) the Offering Price, multiplied by (B) the number of shares equal to the product of (1) such holder’s Pro Rata Consideration Ratio, multiplied by (2) the Total Merger Consideration, (3) less in the case of a Founder, the number of shares of Tilray Class 1 common stock allocated to such Founder pursuant to the first bullet in the definition of the Privateer Allocation.

“Pro Rata Consideration Ratio” means, with respect to any Privateer stockholder, the fraction equal to the quotient of (a) the number of shares of Privateer capital stock held by such holder, divided by (b) the Privateer Exchange Shares.

“Tilray Class 1 Common Stock Consideration Shares” means 16,666,667 shares of Tilray Class 1 common stock; provided, however, that the Tilray Class 1 Common Stock Consideration Shares will be reduced on a one-to-one basis by the amount by which the shares of Tilray Class 1 common stock held by Privateer immediately prior to the effective time is less than 16,666,667 shares.

“Tilray Class 2 Common Stock Consideration Shares” means 58,333,333 shares of Tilray Class 2 common stock; provided, however, that the Tilray Class 2 Common Stock Consideration Shares will be reduced on a one-to-one basis by the amount by which the shares of Tilray Class 2 common stock held by Privateer immediately prior to the effective time is less than 58,333,333 shares (such that in no event shall such number exceed the lesser of

 

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(i) the number of shares of Tilray Class 2 common stock held by Privateer immediately prior to the Effective Time or (ii) 58,333,333 shares), in each such case, less (A) the Cash Consideration Shares, and less (B) the Privateer Transaction Expense Shares.

“Total Merger Consideration” means the sum of (i) the Tilray Class 1 Common Stock Consideration Shares, plus (ii) the Tilray Class 2 Common Stock Consideration Shares, plus (iii) the Cash Consideration Shares. “Privateer Transaction Expense Shares” means a number of Tilray Class 2 common stock equal to the Privateer transaction expenses greater than $1,000,000 divided by the Tilray Closing Price.

No fractional shares of Tilray’s common stock will be issued in connection with the merger. Instead, any holder of Privateer’s common stock who would otherwise be entitled to receive a fraction of a share of Tilray’s common stock, after aggregating all fractional shares of Tilray’s common stock issuable to the stockholder, will, in lieu of such fraction of a share and upon surrender by the stockholder of a letter of transmittal pursuant to the merger agreement and any accompanying documents as required therein, be paid in cash (rounded to the nearest whole cent), without interest, determined by multiplying that fraction by the Tilray Closing Price, in each case as set forth in the allocation certificate.

The Tilray Board may, in its sole discretion, designate all or any portion of the net proceeds from an Offering as Cash Merger Consideration to be paid in cash pro rata (i) in lieu of a portion of the Stock Merger Consideration to the Privateer stockholders who would otherwise be entitled to receive Tilray Class 2 common stock in the merger, and (ii) in lieu of a portion of the Option Merger Consideration to certain service providers of Privateer who hold certain Privateer options determined to be in-the-money, in each case, in accordance with the allocation certificate as described in more detail in the merger agreement. The Cash Consideration Shares shall not exceed 20% of the Total Merger Consideration. Tilray is under no obligation to conduct an Offering or to pay any Cash Merger Consideration.

The merger agreement provides that, at closing of the merger, Tilray will deposit with an exchange agent, which will be Philadelphia Stock Transfer, Inc., evidence of book-entry shares representing Tilray’s common stock issuable to Privateer’s stockholders, the Cash Merger Consideration, if any, in U.S. dollars by wire transfer of immediately available funds to the bank account designated in writing by the exchange agent no later than one (1) business day prior to the closing date of the merger, and any cash sufficient to make payments in lieu of fractional shares.

The merger agreement provides that, promptly after the effective time, the exchange agent will mail to each record holder of shares of Privateer’s capital stock that were converted into the right to receive a portion of the Stock Merger Consideration and Cash Merger Consideration, if applicable, a letter of transmittal, with all other documentation required to be delivered pursuant to the letter of transmittal, including instructions for surrendering to the exchange agent stock certificates representing shares of Privateer’s capital stock held by such record holder in exchange for book-entry shares of Tilray’s common stock, and a stockholder lock-up agreement. Upon delivery of a duly executed letter of transmittal and a duly executed stockholder lock-up agreement, the record holder of shares of Privateer’s capital stock will be entitled to the following:

 

   

book-entry shares representing the number of whole shares of Tilray’s common stock that such holder has the right to receive pursuant to the provisions of the merger agreement, less such holder’s pro rata portion of the escrow amount, which will be held in escrow in accordance with the merger agreement and the escrow agreement;

 

   

the applicable portion of the Cash Merger Consideration, if any, as set forth in the allocation certificate; and

 

   

cash in lieu of any fractional share of Tilray’s common stock.

After the effective time, until it is surrendered, each certificate that previously evidenced shares of Privateer’s capital stock and any share of Privateer common stock previously held in direct registration form will be deemed

 

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to represent only the right to receive book-entry shares of Tilray’s common stock representing such holder’s portion of the Stock Merger Consideration, the applicable portion of the Cash Merger Consideration, if any, and cash in lieu of any fractional share of Tilray’s common stock. A holder of Privateer’s capital stock will not be entitled to receive any portion of the Stock Merger Consideration or the Cash Merger Consideration, if any, to which the holder is entitled until the holder delivers a duly executed letter of transmittal, stockholder lock-up agreement and the other documents as may be reasonably required by the exchange agent or Tilray. If payment is to be made to a person other than the holder of Privateer’s capital stock in whose name the shares are registered on the stock transfer books of Privateer, the person will be required to properly deliver a duly executed letter of transmittal, stockholder lock-up agreement and other documents as may be reasonably required by the exchange agent or Tilray, and pay all applicable transfer and other taxes required by reason of the payment to a person other than the registered holder of the shares of Privateer’s capital stock surrendered or establish to the satisfaction of the exchange agent that the taxes either have been paid or are not applicable.

The Stock Merger Consideration and, if applicable, the Cash Merger Consideration will be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend, including any dividend or other distribution of securities convertible into Tilray common stock, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to the number of shares of Privateer capital stock, Tilray Class 1 common stock, or Class 2 common stock outstanding after the date of the merger agreement and prior to the effective time.

Treatment of Privateer’s Awards Options

At the effective time, Tilray will assume the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended.

At the effective time:

 

   

each Privateer Class 1 option to purchase shares of Privateer’s capital stock outstanding and unexercised immediately prior to the effective time under the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, whether or not vested, will be converted into an option to purchase shares of Tilray’s Class 2 common stock or cancelled and converted into a right to receive a portion of the Cash Merger Consideration, if applicable, as calculated in accordance with the Cash-Out Options Allocation and as set forth on the allocation certificate. From and after the effective time, each Privateer Class 1 option assumed by Tilray may be exercised, subject to the holder thereof entering into an option assumption agreement, pursuant to which the holder will agree, among other things, to the lock-up requirements, to the conversion of the holder’s options as described in this proxy statement, and to release all claims related to the holder’s options other than to the converted Privateer options as described herein, for such number of shares of Tilray Class 2 common stock as is determined by multiplying the number of shares of Privateer’s Class 1 common stock subject to the option by the option exchange ratio and rounding that result down to the nearest whole number of shares of Tilray’s Class 2 common stock. The per share exercise price of the converted option will be determined by dividing the existing exercise price of the Privateer’s Class 1 option by the option exchange ratio and rounding that result up to the nearest whole cent. Any restrictions on the exercise of any Privateer Class 1 option assumed by Tilray will continue following the conversion and the term, exercisability, vesting schedules and other provisions of assumed Privateer Class 1 options will generally remain unchanged; notwithstanding the foregoing, the conversion of each Privateer Class 1 option into an option to purchase shares of Tilray Class 2 common stock will be made in a manner such that it will be intended that the conversion of a Privateer Class 1 option will not constitute a “modification” of such Privateer Class 1 option; and

 

   

each Privateer Class 3 option to purchase shares of Privateer’s capital stock outstanding and unexercised immediately prior to the effective time under the Privateer Holdings, Inc. 2011 Equity Incentive Plan, as amended, whether or not vested, will be converted into an option to purchase shares of Tilray’s Class 2 common stock or cancelled and converted into a right to receive a portion of the

 

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Cash Merger Consideration, if applicable, as calculated in accordance with the Cash-Out Options Allocation and as set forth on the allocation certificate. From and after the effective time, each Privateer Class 3 option assumed by Tilray may be exercised, subject to the holder thereof entering into an option assumption agreement, pursuant to which the holder will agree, among other things, to the lock-up requirements, to the conversion of the holder’s options as described in this proxy statement, and to release all claims related to the holder’s options other than to the converted Privateer options as described herein, for such number of shares of Tilray Class 2 common stock as is determined by multiplying the number of shares of Privateer’s Class 3 common stock subject to the option by the option exchange ratio and rounding that result down to the nearest whole number of shares of Tilray’s Class 2 common stock. The per share exercise price of the converted option will be determined by dividing the existing exercise price of the Privateer Class 3 option by the option exchange ratio and rounding that result up to the nearest whole cent. Any restrictions on the exercise of any Privateer Class 3 option assumed by Tilray will continue following the conversion and the term, exercisability, vesting schedules and other provisions of assumed Privateer Class 3 options will generally remain unchanged; notwithstanding the foregoing, the conversion of each Privateer Class 3 option into an option to purchase shares of Tilray Class 2 common stock will be made in a manner such that it will be intended that the conversion of a Privateer Class 3 option will not constitute a “modification” of such Privateer Class 3 option.

The “option exchange ratio” is equal to the Total Merger Consideration, less the escrow amount, divided by the Privateer Exchange Shares.

Prior to the closing of the merger, Privateer has the option to effect the cancellation and termination of each Privateer option to purchase Privateer capital stock with a per share exercise price that is equal to or greater than $27.00. In consideration for such cancellation and termination, the holder of such option will be entitled to receive one-half of a share of Privateer Class 1 common stock or Privateer Class 3 common stock, as applicable, (rounded down to the nearest whole share) for each share of Privateer common stock subject to such terminated option. The cancellation of each such option and the receipt of such consideration will be conditioned on the holder having first executed an option cancellation agreement.

In addition, pursuant to the merger agreement, at the effective time, any restricted share of Privateer common stock that will be converted into the right to receive shares of Tilray common stock will remain subject to the same restrictions, which will continue in full force and effect and the vesting schedule and other provisions of such Privateer restricted shares shall otherwise remain unchanged.

Amendment to the Amended and Restated Certificate of Incorporation of Tilray

Tilray shall solicit Tilray stockholder consent for purposes of adopting and approving the amended and restated certificate of incorporation of Tilray. Tilray shall have filed the amended and restated certificate of incorporation of Tilray prior to the consummation of the merger.

Amendment to the Amended and Restated Certificate of Incorporation of Privateer

Privateer shall solicit Privateer stockholder consent for purposes of adopting and approving the amended and restated certificate of incorporation of Privateer. Privateer shall have filed the amended and restated certificate of incorporation of Privateer prior to the consummation of the merger.

Conditions to the Completion of the Merger

Each party’s obligation to complete the merger is subject to the satisfaction or waiver by each of the parties to the merger agreement, at or prior to the merger, of various conditions, which include the following:

 

   

the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, must have been declared effective by the SEC in accordance with the Securities Act and must

 

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not be subject to any stop order or proceeding, or any proceeding threatened by the SEC, seeking a stop order with respect to the registration statement that has not been withdrawn;

 

   

there must not have been issued, and remain in effect, any temporary restraining order, preliminary or permanent injunction, judgment, or other order or decree by any tribunal, court or other governmental body of competent jurisdiction or law which has the effect of preventing, making illegal, or prohibiting the consummation of the merger, and there must not be pending any legal proceeding by any governmental body of competent jurisdiction seeking to prohibit the consummation of the merger;

 

   

the affirmative vote of the:

 

   

holders of a majority of the aggregate voting power of the votes cast at the Tilray stockholders’ meeting;

 

   

holders of a majority of the outstanding shares of Tilray Class 1 common stock and Tilray Class 2 common stock, each voting separately as a class;

 

   

holders of a majority of the aggregate voting power of outstanding shares of Tilray Class 1 and Class 2 common stock, voting together as a single class; and

 

   

holders of a majority of the voting power of the Tilray Class 1 common stock;

 

   

the affirmative vote (or written consent) of the:

 

   

holders of a majority of the aggregate voting power of outstanding shares of Privateer common stock and Privateer preferred stock, voting as a single class;

 

   

holders of a majority of the aggregate voting power of the outstanding shares of Privateer preferred stock, voting as a single class;

 

   

holders of a majority of the outstanding shares of Privateer Series A preferred stock, voting as a single class;

 

   

holders of a majority of the outstanding shares of Privateer Series B preferred stock, voting as a single class; and

 

   

holders of a majority of the aggregate voting power of outstanding shares of Privateer Class 1 common stock, Class 2 common stock, Class 3 common stock and Privateer preferred stock, voting as a single class (in each case, excluding shares of Privateer common stock and Privateer preferred stock held or beneficially owned by each of Brendan Kennedy, Michael Blue, Christian Groh, and Michael Auerbach).

 

   

the shares of Tilray’s Class 2 common stock to be issued in the merger pursuant to the merger agreement must have been approved for listing, subject to official notice of issuance, on Nasdaq as of the closing;

 

   

the applicable approvals, clearances, or waiting periods, and any extensions thereof, under the HSR Act or any foreign competition laws that are applicable to the merger or the acquisition of voting securities by each of Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach must have been obtained, expired or been earlier terminated;

 

   

Privateer must have filed the amended and restated certificate of incorporation of Privateer and Tilray must have filed the amended and restated certificate of incorporation of Tilray; and

 

   

Privateer shall have caused certain contracts to be terminated or extinguished, with no liability or obligation to Privateer, within 20 business days after the date of the merger agreement.

 

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In addition, each party’s obligation to complete the merger is subject to the satisfaction or waiver by that party of the following additional conditions:

 

   

the other party to the merger agreement must have performed or complied with in all material respects all of the party’s agreements and covenants required to be performed or complied with by it under the merger agreement at or prior to the effective time;

 

   

the other party must have delivered certain certificates and other documents required under the merger agreement for the closing of the merger;

 

   

the party must have received the opinion of its legal counsel, dated as of the closing date of the merger, to the effect that the merger will be treated, for U.S. federal income tax purposes, as a reorganization within the meaning of Section 368(a)(1)(A) of the Code; and

 

   

each of Tilray and Privateer shall have received the escrow agreement duly executed by Citibank, N.A., or another third party escrow agent to be mutually agreed by Privateer and Tilray, which we refer to as the escrow agent, stockholder representative and the other party.

In addition, the obligation of Tilray and merger sub to complete the merger is further subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Privateer regarding certain matters related to due organization and subsidiaries, authority, required stockholder votes, capitalization, ownership of shares, and financial advisors of Privateer in the merger agreement must be true and correct in all material respects on the date of the merger agreement and on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of that particular date;

 

   

certain representations and warranties of Privateer related to capitalization and equity awards or options must be true and correct in all respects as of the date of the merger agreement and on the closing date of the merger (other than, as of the closing date, inaccuracies that are de minimis in the aggregate on the closing date) with the same force and effect as if made on the date on which the merger is to be completed;

 

   

the remaining representations and warranties of Privateer in the merger agreement must be true and correct on the date of the merger agreement and on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of that particular date, except in each case, or in the aggregate, where the failure to be so true and correct would not reasonably be expected to have a Privateer material adverse effect (without giving effect to any references therein to any Privateer material adverse effect or other materiality qualifications);

 

   

since the date of the merger agreement, there must not have occurred a Privateer material adverse effect, which means any effect, change, event, circumstance or development that is or would be reasonably expected to be materially adverse to the business, assets, or liabilities of Privateer and its subsidiaries, taken as a whole, or any effect, change, event, circumstance or development that is or would reasonably be expected to be materially adverse to the business, assets, or liabilities of Privateer and its subsidiaries, taken as a whole, but excluding the ownership of capital stock of Tilray;

 

   

Privateer must have effected the conversion of Privateer’s preferred stock into shares of Privateer’s Class 2 common stock;

 

   

certain agreements with holders of Privateer’s capital stock shall have been terminated;

 

   

Tilray shall have received each of the following, which must be in full force and effect:

 

   

the allocation certificate;

 

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the lock-up agreement and support agreement delivered by each of Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach;

 

   

letters of resignation and waivers of certain claims from each member of the board of directors (or equivalent governing body) and each officer of Privateer and each of its subsidiaries (excluding Tilray and its subsidiaries);

 

   

evidence that Privateer has purchased the required D&O tail insurance policy;

 

   

a certain letter agreement executed by Docklight Brands, Inc.; and

 

   

a guarantee agreement, executed by each of the Founders.

 

   

the Privateer stockholder written consent evidencing the required Privateer stockholder vote shall be in full force and effect; and

 

   

Privateer stockholders holding no more than 1.5% of the outstanding Privateer capital stock shall continue to have a right to seek appraisal, dissenters’, or similar rights under applicable law with respect to their Privateer capital stock by virtue of the merger.

In addition, the obligation of Privateer to complete the merger is further subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Tilray regarding certain matters related to due organization and subsidiaries, authority, and financial advisors in the merger agreement must be true and correct in all material respects on the date of the merger agreement and on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of that particular date; and

 

   

the remaining representations and warranties of Tilray in the merger agreement must be true and correct on the date of the merger agreement and on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of that particular date, except in each case, or in the aggregate, where the failure to be so true and correct would not reasonably be expected to have a Tilray material adverse effect (without giving effect to any references therein to any Tilray material adverse effect or other materiality qualifications).

Representations and Warranties

The merger agreement contains customary representations and warranties of Tilray and Privateer for a transaction of this type relating to, among other things:

 

   

corporate organization and power, and similar corporate matters;

 

   

subsidiaries;

 

   

organizational documents;

 

   

authority to enter into the merger agreement and the related agreements;

 

   

votes required for completion of the merger and approval of the proposals that will come before the Tilray special meeting and that will be the subject of Privateer’s stockholder written consent;

 

   

except as otherwise specifically disclosed pursuant to the merger agreement, the fact that the consummation of the transactions contemplated by the merger agreement would not contravene or require the consent of any third party; and

 

   

financial advisors.

 

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The merger agreement contains further customary representations and warranties of Tilray for a transaction of this type relating to, among other things:

 

   

valid issuance of shares of Tilray common stock; and

 

   

the receipt by the special committee of Imperial’s fairness opinion.

The merger agreement contains further customary representations and warranties of Privateer for a transaction of this type relating to, among other things:

 

   

capitalization and ownership of shares;

 

   

financial statements;

 

   

absence of material changes or events;

 

   

absence of undisclosed liabilities;

 

   

title to assets;

 

   

real property and leaseholds;

 

   

intellectual property;

 

   

the validity of material contracts to which Privateer is a party and the absence of certain violations, defaults or breaches of such contracts;

 

   

regulatory compliance, permits and restrictions;

 

   

legal proceedings and orders;

 

   

tax matters;

 

   

employee and labor matters and benefit plans;

 

   

environmental matters;

 

   

insurance;

 

   

whether any brokerage or finder’s fee or other fee or commission has been paid or promised in connection with the merger;

 

   

transactions with affiliates; and

 

   

compliance with anti-bribery laws.

The representations and warranties are, in many respects, qualified by materiality and knowledge, and will not survive the merger, but their accuracy forms the basis of one of the conditions to the obligations of Tilray and Privateer to complete the merger.

Acquisition Proposals

Privateer agreed that, notwithstanding anything contained in the merger agreement to the contrary, prior to the Tilray stockholders’ adoption and approval of Proposal Nos. 1 and 2, in response to a bona fide “acquisition proposal” Tilray may, if, and only if, prior to taking any of the actions set forth below, the Tilray Board determines in good faith after consultation with its outside legal counsel that, (a) based on the information then available and after consultation with its financial advisor, the acquisition proposal either constitutes a “superior offer” or could reasonably be expected to result in a superior offer and (b) that the failure to take such action could be inconsistent with the fiduciary duties of the Tilray Board to the stockholders of Tilray under applicable law:

 

   

provide information in response to a request therefor (including nonpublic information regarding Tilray or any of its subsidiaries) to the person who made an acquisition proposal; and

 

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participate in any discussions or negotiations with any person who makes an acquisition proposal regarding that acquisition proposal.

In connection with the foregoing, Tilray agreed that if Tilray or any of its representatives receives an acquisition proposal or acquisition inquiry at any time during the period commencing on the date of the merger agreement and continuing until the earlier of the termination of the merger agreement or the effective time, then: (a) Tilray shall promptly (and in no event later than 24 hours after Tilray becomes aware of such acquisition proposal or acquisition inquiry) advise Privateer orally and in writing of such acquisition proposal or acquisition inquiry (including the identity of the person making or submitting a particular acquisition proposal or acquisition inquiry, and the material terms thereof); and (b) Tilray shall keep Privateer reasonably informed with respect to the status and material terms of any such acquisition proposal or acquisition inquiry and any material modification or proposed material modification thereto.

An “acquisition inquiry” means an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by one party to the merger agreement to another party to the merger agreement) that would reasonably be expected to lead to an acquisition proposal.

An “acquisition proposal” means any offer or proposal, in respect of a party to the merger agreement, whether written or oral (other than an offer or proposal made or submitted by or on behalf of another party to the merger agreement or any of its affiliates) contemplating or otherwise relating to any “acquisition transaction.”

An “acquisition transaction” means any transaction or series of related transactions involving:

 

   

any merger, consolidation, amalgamation, share exchange, business combination, issuance or acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or similar transaction: (i) in which Tilray, Privateer or merger sub is a constituent entity, (ii) in which any individual, entity, governmental entity, or “group,” as defined under applicable securities laws, directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of Tilray, Privateer or merger sub or any of their respective subsidiaries or (iii) in which Tilray, Privateer, merger sub or any of their respective subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries; or

 

   

any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated book value or the fair market value of the assets of Tilray, Privateer or merger sub and their respective subsidiaries, as applicable, taken as a whole.

A “superior offer” means an unsolicited, bona fide written acquisition proposal (with all references to 20% in the definition of acquisition transaction being treated as references to greater than 50% for these purposes) that is on terms and conditions that the Tilray Board, as applicable, determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by Privateer to amend the terms of the merger agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to Tilray’s stockholders than the terms of the transactions contemplated by the merger agreement.

 

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Change in Board Recommendation

At any time prior to the proper approval of Proposal Nos. 1 and 2 at the Tilray special meeting, the Tilray Board may withdraw or modify (or propose to withdraw or modify) its recommendation that Tilray’s stockholders vote ”FOR” Proposal Nos. 1 and 2, which we refer to as a Tilray Board adverse recommendation change, if:

Scenario 1

 

   

after the date of the merger agreement, a bona fide acquisition proposal is made to Tilray and it is not withdrawn;

 

   

the Tilray Board determines in its good faith judgment, after consulting with its financial advisor and outside legal counsel, that the acquisition proposal constitutes a superior offer;

 

   

the Tilray Board does not effect, or cause Tilray to effect, a Tilray Board adverse recommendation change or cause Tilray to terminate the merger agreement prior to Tilray’s stockholders voting on Proposal Nos. 1, 2 and, if applicable, 3 at any time within four business days (together with any subsequent shorter period as contemplated below) after Privateer receives (i) written notice from Tilray that the Tilray Board has determined that the acquisition proposal is a superior offer and (ii) a summary of the material terms and conditions of the acquisition proposal (it being understood that any change in the purchase price or form of consideration in the offer must be deemed a material modification) and a new notice period, of two business days, will begin;

 

   

during the applicable notice period, if requested by Privateer, Tilray engages in good faith negotiations, and directs its financial advisors and outside legal advisors to, engage in good faith negotiations, with Privateer to amend the merger agreement in such a manner that the competing acquisition proposal does not constitute a superior offer;

 

   

at the end of the applicable notice period, the acquisition proposal has not been withdrawn and constitutes a superior offer, taking into account any changes to the terms of the merger agreement proposed by Privateer as a result of the negotiations required above or otherwise; and

 

   

the Tilray Board determines in good faith, after having consulted with its financial advisor and outside legal counsel, that, in light of the superior offer, a failure to make a Tilray Board adverse recommendation change could reasonably be expected to be inconsistent with the fiduciary duties of the Tilray Board to the stockholders of Tilray under applicable law and the acquisition proposal constitutes a superior offer, taking into account any modification to the offer and any changes to the terms of the merger agreement proposed by Privateer as a result of the negotiations required above or otherwise; or

Scenario 2

 

   

other than in connection with or as a result of the making of an acquisition proposal or acquisition inquiry with respect to Tilray, a material development, event, effect, state of facts or change in circumstances that was not known or reasonably foreseeable, or if known or reasonably foreseeable, the probability or magnitude of consequences of which were not known or reasonably foreseeable, occurs, arises or becomes known to the Tilray Board after the date of the merger agreement and prior to the approval of Proposal Nos. 1 and 2 at the Tilray special meeting, the material development, event, effect, state of facts or change in circumstances being referred to as an “intervening event”;

 

   

the Tilray Board determines in its good faith judgment, after consulting with its financial advisor and outside legal counsel that an intervening event has occurred;

 

   

the Tilray Board does not effect, or cause Tilray to effect, a Tilray Board adverse recommendation change at any time within four business days after Privateer receives written notice from Tilray that the Tilray Board has determined than an intervening event requires the Tilray Board to effect, or cause

 

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Tilray to effect, a Tilray Board adverse recommendation change, provided that a new notice will be required with respect to any change in circumstances and a new notice period of two business days will begin;

 

   

during the applicable period mentioned above, if required by Privateer, Tilray engages in good faith negotiations, and directs its financial advisors and outside legal advisors to, engage in good faith negotiations, with Privateer to amend the merger agreement in such a manner that obviates the need for the Tilray Board to effect, or cause Tilray to effect, a Tilray Board adverse recommendation change as a result of the intervening event; and

 

   

the Tilray Board determines in good faith, after having consulted with its outside legal counsel, that, in light of the intervening event, a failure to make a Tilray Board adverse recommendation change could reasonably be expected to be inconsistent with the fiduciary duties of the Tilray Board to Tilray’s stockholders under applicable law.

Meetings of Stockholders

Tilray is obligated under the merger agreement to, promptly after the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, has been declared effective under the Securities Act, take all action necessary under applicable law to call, give notice of and hold the Tilray special meeting for the purpose of seeking approval of the merger agreement, including the issuance of shares of Tilray’s common stock to Privateer’s stockholders in connection with the merger and the other transactions contemplated by the merger agreement and the change of control of Tilray resulting from the merger pursuant to the Nasdaq rules, as well as the amendment to the current amended and restated certificate of incorporation of Tilray.

Covenants; Conduct of Business Pending the Merger

Privateer has agreed that, except as permitted by the merger agreement, as expressly required under the merger agreement, or as required by applicable law, during the period commencing on the date of the merger agreement and continuing until the earlier to occur of the closing of the merger and the termination of the merger agreement, which period we refer to as the pre-closing period, Privateer will, and will cause its subsidiaries (excluding Tilray and its subsidiaries) to, conduct its business and operations in the ordinary course consistent with past practices and in compliance in all material respects with all applicable laws and the requirements of all contracts to which Privateer or any of its subsidiaries (excluding Tilray and its subsidiaries) is a party or for which any of the assets of Privateer or its subsidiaries (excluding Tilray and its subsidiaries) is subject.

Privateer has also agreed that, subject to certain limited exceptions, it will not, and will cause its subsidiaries (excluding Tilray and its subsidiaries) to not, during the pre-closing period:

 

   

declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of its capital stock or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities (except for shares of Privateer common stock from terminated employees, directors or consultants of Privateer);

 

   

except pursuant to the valid exercise of Privateer’s outstanding options on the date of the merger agreement, in accordance with their terms as existing on the date of the merger agreement, sell, issue, grant, pledge or otherwise dispose of, encumber, or authorize any of the foregoing with respect to any capital stock or other security of Privateer or any of its subsidiaries (excluding Tilray and its subsidiaries); modify, waive or amend terms, or the rights of any holder of any outstanding capital stock or other security of Privateer or any of its subsidiaries (excluding Tilray and its subsidiaries), including to reduce or alter the consideration to be paid to Privateer upon the exercise of any equity interest; grant any new option for Class 1 common stock or Class 3 common stock of Privateer; or accelerate, amend or change the period of exercisability or vesting of any outstanding Privateer option or similar right or authorize any cash payment in exchange for any outstanding Privateer option or similar right, except as specifically authorized by the merger agreement;

 

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except as required to give effect to anything in contemplation of the closing of the merger, amend or otherwise change any of the organizational documents of Privateer or its subsidiaries (excluding Tilray and its subsidiaries), or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification, repurchase or redemption of shares, stock split, reverse stock split or similar transaction except as related to the transactions contemplated by the merger agreement;

 

   

form any subsidiary or acquire any equity interest or other interest in any other entity or enter into a joint venture with any other entity;

 

   

lend money to any person; incur or guarantee any indebtedness; assume, endorse, guarantee, or otherwise become responsible for (contingently or otherwise), the obligations of any person; make any loans, advances or capital contributions; make any capital expenditures or commitments; or enter into or amend any contract with respect to any of the foregoing;

 

   

other than as required by applicable law or the terms of any Privateer employee benefit plan as in effect on the date of the merger agreement, subject to certain exceptions: adopt, terminate, establish or enter into any employee benefit plan; cause or permit any employee benefit plan to be amended in any material respect; pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, benefits or other compensation or remuneration payable to, any of its directors, officers, or employees; increase or accelerate the compensation payable or to become payable (including bonus grants and retention payments) or increase or accelerate the vesting of any benefits provided, or pay or award any payment or benefit, to any of its directors, officers, employees or consultants; increase the severance or change of control benefits offered to any current or new directors, officers, or employees; or terminate or give notice of termination to any officer or any employee whose annual base salary is or is expected to be more than $50,000 per year, other than any termination for cause;

 

   

recognize any labor union, labor organization or similar entity, except as otherwise required by law and after advance notice to Tilray;

 

   

acquire any material asset or property (including any real property, whether via acquisition or lease) or sell, lease or otherwise irrevocably dispose of any of its material assets or properties (including any real property and any right or interest in any leases by which Privateer possesses real property), or grant any encumbrance with respect to such assets or properties;

 

   

sell, assign, transfer, or otherwise dispose of, purchase or otherwise acquire or obtain, or grant or receive any license, sublicense or other rights under any intellectual property rights;

 

   

make, change or revoke any material tax election, fail to pay any income or other material tax as such tax becomes due and payable, file any amendment making any material change to any tax return, settle or compromise any income or other material tax liability, enter into any tax allocation, sharing, indemnification or other similar agreement or arrangement (other than customary commercial contracts entered into in the ordinary course of business, the principal subject matter of which is not taxes), request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material taxes (other than pursuant to an extension of time to file any tax return granted in the ordinary course of business of not more than six months), or adopt or change any material accounting method in respect of taxes;

 

   

enter into, amend, breach or consent to the termination of any material contract, amend, modify, waive or consent to the termination of any of Privateer’s or its subsidiaries’ (excluding Tilray and its subsidiaries) rights under any material contract, or waive, release or consent to the termination of any claims or rights of material value to Privateer or any of its subsidiaries (excluding Tilray and its subsidiaries) under any material contract;

 

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other than incurrence or payment of any Privateer transaction expenses, make any expenditures, incur any liabilities or discharge or satisfy any liabilities, in each case, in amounts that exceed $50,000 in the aggregate;

 

   

other than as required by law or GAAP, take any action to change accounting policies or procedures;

 

   

initiate, settle, or take any action not required in connection with any legal proceeding;

 

   

terminate, cancel, amend, modify, allow to lapse or fail to renew any insurance coverage policy maintained by Privateer or any of its subsidiaries that is not promptly replaced by a comparable amount of insurance coverage;

 

   

file a petition in bankruptcy, make an assignment for the benefit of creditors or file a petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws; or

 

   

agree, resolve or commit to do any of the foregoing.

Privateer has also agreed that, without Tilray’s written consent, to be granted or withheld at Tilray’s sole discretion, Privateer will not, prior to the effective time, offer to transfer or transfer any of the capital stock of Tilray, including any shares of Tilray Class 1 common stock or Tilray Class 2 common stock:

Other Agreements

The parties have agreed to use commercially reasonable efforts to cause to be taken all actions necessary to consummate the merger and the other transactions contemplated by the merger agreement. In connection therewith, each party has agreed to:

 

   

as promptly as practicable make all filings and other submissions, if any, and give all notices, if any, required to be made and given in connection with the merger and the other transactions contemplated by the merger agreement;

 

   

use reasonable best efforts to obtain each consent, if any, reasonably required to be obtained, pursuant to applicable law or contract, or otherwise, in connection with the merger and the other transactions contemplated by the merger agreement or for a contract to remain in full force and effect;

 

   

use commercially reasonable efforts to lift any injunction prohibiting, or any other legal bar to, the merger or the other transactions contemplated by the merger agreement; and

 

   

use commercially reasonable efforts to satisfy the conditions precedent to the consummation of the transactions contemplated by the merger agreement.

Pursuant to the merger agreement, Tilray and Privateer have further agreed that:

 

   

Tilray will use its commercially reasonable efforts to (i) maintain the listing of its common stock on Nasdaq until the effective time; (ii) to the extent required by the rules and regulations of Nasdaq, to prepare and submit to Nasdaq a notification form for the listing of the shares of Tilray Class 2 common stock to be issued in connection with the merger and to cause such shares to be approved for listing (subject to official notice of issuance); and (iii) to the extent required by Nasdaq Marketplace Rule 5110, to file an initial listing application for Tilray’s Class 2 common stock on Nasdaq and to cause such listing application to be conditionally approved prior to the effective time;

 

   

Tilray will maintain directors’ and officers’ liability insurance policies, with an effective date as of the date of the closing of the merger, on commercially available terms and conditions with coverage limits no less favorable to Tilray than in effect as of the date of the merger agreement; and

 

   

Privateer will purchase, prior to the effective time, a six year prepaid “tail policy” for the non-cancellable extension of the directors’ and officers’ liability coverage of Privateer’s existing directors’ and officers’ insurance policies for a claims reporting or discovery period of at least six years from and after the effective time with respect to any claim related to any period of time at or prior to the effective time.

 

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Termination

The merger agreement may be terminated prior to the effective time, whether before or after the required stockholder approvals to complete the merger have been obtained, as set forth below:

 

   

by mutual written consent of Tilray and Privateer;

 

   

by either Tilray or Privateer if the merger shall not have been consummated by March 9, 2020, subject to possible extension as described herein, which date we refer to as the end date; provided, however, that the right to terminate the merger agreement will not be available to any party whose action or failure to act has been a principal cause of the failure of the merger to occur on or before the end date and such action or failure to act constitutes a breach of the merger agreement; and provided, further, that in the event a request for additional information has been made by any governmental body, or in the event the SEC has not declared the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, effective under the Exchange Act by at least 60 calendar days prior to the end date, then either Privateer or Tilray will be entitled to extend the end date for an additional 60 calendar days by written notice to the other party;

 

   

by either Tilray or Privateer if a tribunal, court or other governmental body of competent jurisdiction has issued a final and nonappealable judgment, order, decree or ruling, or has taken any other action that has the effect of permanently restraining, enjoining or otherwise preventing or prohibiting the merger or any of the other transactions contemplated by the merger agreement;

 

   

by either Tilray or Privateer if the Privateer stockholder written consent evidencing the required Privateer stockholder vote shall not have been obtained within 15 business days of the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, becoming effective in accordance with the provisions of the Securities Act; provided that once the Privateer stockholder written consent evidencing the required Privateer stockholder vote has been obtained, neither Tilray nor Privateer may so terminate the merger agreement pursuant to this provision;

 

   

by either Tilray or Privateer if the Tilray special meeting, including any adjournments and postponements thereof, has been held and completed and Tilray’s stockholders have taken a final vote and the required Tilray stockholder vote has not been obtained; provided, that Tilray may not terminate the merger agreement pursuant to this provision if the failure to obtain the approval of Tilray’s stockholders was caused by the action or failure to act of Tilray or merger sub and such action or failure to act constitutes a material breach by Tilray or merger sub of the merger agreement;

 

   

by Tilray or Privateer if the other party has breached any of its representations, warranties, covenants or agreements contained in the merger agreement or if any representation or warranty of the other party has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of time of such breach or inaccuracy, but only if party seeking to terminate is not itself in material breach of any representation, warranty, covenant or agreement contained in the merger agreement, and if such breach or inaccuracy is curable, then only after the expiration of a 15-day period commencing upon delivery of written notice of such breach or inaccuracy and the party’s intention to terminate;

 

   

by Tilray, at any time prior to the proper approval of Proposal Nos. 1 and 2 at the Tilray special meeting, in order to enter into a definitive agreement to consummate a superior offer; provided that Tilray has complied in all material respects with obligations relating to a superior offer as set forth in the merger agreement; and

 

   

by Privateer, at any time prior to the proper approval of Proposal Nos. 1 and 2 at the Tilray special meeting, if the Tilray Board has made a Tilray Board adverse recommendation change.

If the merger agreement is terminated by either Tilray or Privateer because either the required Privateer stockholder vote or the required Tilray stockholder vote was not obtained, then the lock-up agreement executed

 

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and delivered by Privateer and Tilray concurrently with the merger agreement, which we refer to as the Privateer lock-up agreement, will be automatically effective in accordance with its terms. Within three months of the expiration date of the Privateer lock-up agreement, Privateer will reimburse Tilray for its reasonable out-of-pocket fees, costs or expenses incurred in connection with the transactions contemplated by the merger agreement, and for which Tilray has provided invoices to Privateer evidencing those fees, costs and expenses. In no event will this reimbursement payment exceed $3,000,000.

Designation of Stockholder Representative

Michael Blue was appointed as the stockholder representative to perform all such acts as the stockholder representative is authorized to take under the merger agreement, the lock-up agreement, the escrow agreement, the Privateer disclosure letter, the allocation certificate, and each other agreement, certificate, document and instrument contemplated by the merger agreement, which we refer to collectively as the transaction documents, and has the power and authority to:

 

   

execute and deliver all documents that the stockholder representative is authorized to execute and deliver under the transaction documents;

 

   

receive payments under or pursuant to the merger agreement and disbursement thereof to Privateer’s stockholders and others, as contemplated by the merger agreement;

 

   

receive and, if applicable, forward notices and communications pursuant to the merger agreement

 

   

give or agree to, on behalf of all or any of Privateer’s stockholders, any and all consents, waivers, amendments or modifications deemed by the stockholder representative, in its sole and absolute discretion, to be necessary or appropriate under the merger agreement and the execution or delivery of any documents that may be necessary or appropriate in connection therewith;

 

   

following the closing of the merger, amend, modify or supplement the merger agreement or any of the instruments to be delivered to Tilray pursuant to the merger agreement;

 

   

engage attorneys, accountants, agents or consultants on behalf of Privateer’s stockholders in connection with the merger agreement or any other transaction document and paying any fees related thereto;

 

   

make all other elections or decisions that the stockholder representative is authorized to make under any transaction document;

 

   

authorized release of the escrow shares; and

 

   

perform each such act and thing whatsoever that the stockholder representative may be or is required to do, or which the stockholder representative in its sole good faith discretion determines is desirable to do, pursuant to or to carry out the intent of the merger agreement and other transaction documents, and to amend, modify or supplement any of the foregoing.

The stockholder representative will establish an account, which we refer to as the reserve account, for purposes of holding $50,000, being the reserve amount. The stockholder representative may use the reserve amount to pay any fees, costs, expenses or other obligations incurred by the stockholder representative acting in its capacity as such. The stockholder representative will be granted the right to direct any funds that would otherwise be actually payable to Privateer’s stockholders from the reserve account to itself no earlier than the date such payments are actually made. Upon the request of any Privateer stockholder, the stockholder representative will provide the Privateer stockholder with an accounting of all expenses and liabilities paid by the stockholder representative in its capacity as such. The reserve amount will be retained in whole or in part by the stockholder representative for such time as the stockholder representative shall determine in its sole discretion.

Escrow Agreement

Each of Privateer, the stockholder representative, Tilray and merger sub must negotiate in good faith and, prior to or concurrently with the closing of the merger, enter into a mutually agreed escrow agreement, which we refer to

 

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as the escrow agreement, with each other and the escrow agent for the establishment of the escrow account and provision of the escrow services in accordance with the terms and subject to the conditions of the merger agreement and providing, among other items, that Privateer’s stockholders will hold voting rights to the shares of Tilray Class 2 common stock held in escrow during the period between the effective time and the 18-month anniversary of the closing date, unless the such shares have been released from escrow or unless certain shares remain in escrow pending resolution of outstanding indemnification claims. The shares held in the escrow account at any given time are referred to as the “escrow shares.” The escrow shares will be allocated in accordance with the escrow allocation among Privateer’s stockholders (a) with respect to each Privateer stockholder, a number of shares of Tilray Class 2 common stock, which we refer to as the “stockholder escrow shares,” equal to the product of (i) the Privateer stockholder’s pro rata portion of Stock Merger Consideration, multiplied by (ii) the first one-half of the escrow amount and (b) with respect to a Founder, a number of shares of Tilray’s Class 2 common stock, which we refer to as the “Founder escrow shares,” equal to the product of (i) the applicable Founder pro rata portion as calculated under the merger agreement based on the Stock Merger Consideration issued only to Founders, multiplied by (ii) the remaining one-half of the escrow amount, The “escrow amount” is the number of shares of Tilray Class 2 common stock equal to $125,000 divided by the Tilray Closing Price.

Indemnification

Tilray’s sole recourse for indemnification claims against the Privateer stockholders under the merger agreement (subject to certain exceptions, including with respect to any fraud claims) is the cancellation of escrow shares. At the closing of the merger, the escrow shares will initially be equal to the escrow amount. Indemnification claims will be satisfied first from the stockholder escrow shares and then, if the remaining stockholder escrow shares are insufficient to cover the indemnifiable claims, from the Founder escrow shares. The escrow shares will be held in escrow for a period of 18 months after the closing of the merger, subject to certain exceptions, and the Privateer stockholders will be entitled to exercise voting rights with respect to the Escrow Shares during the escrow period.

Amendment

The merger agreement may be amended by Privateer, Tilray and merger sub with the approval of their respective boards of directors or other governing bodies at any time, whether before or after obtaining the required votes of the stockholders of Privateer or Tilray, provided that after the approval of the merger agreement by a party’s stockholders, no amendment will be made without the further approval of the stockholders if the further approval of the stockholders is required by law.

 

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AGREEMENTS RELATED TO THE MERGER

Lock-up Agreements and Option Assumption Agreements

The merger agreement requires that in order to be entitled to receive his, her, or its allocable portion of the Stock Merger Consideration each Privateer stockholder must deliver a stockholder lock-up agreement, and that each holder of Privateer options assumed by Tilray shall deliver an option assumption agreement, that in each case prohibits (except in limited circumstances) the transfer of any shares of Tilray’s common stock or any security convertible into or exercisable or exchangeable for Tilray’s common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain options. In addition, it is a condition to Tilray’s obligations to close the merger that certain specified stockholders of Privateer, including Brendan Kennedy, Michael Blue, Christian Groh and Michael Auerbach, shall have delivered a stockholder lock-up agreement to Tilray prior to the closing of the merger.

When referring to the transfer restrictions under the stockholder lock-up agreement or the option assumption agreement, “transfer” means any direct or indirect (a) sale, transfer, assignment, pledge, hypothecation, mortgage, license, gift, creation of a security interest in or lien on, encumbrance or other disposition to any person, including those by way of hedging or derivative transactions or (b) swap, hedge, short position, call, warrant to purchase or other arrangement that is designed to or which could reasonably be expected to lead to or result in, directly or indirectly, a transfer of the economic consequence of ownership, whether any such transaction described in the foregoing (a) or (b) above is to be settled by delivery of any equity interests in Tilray or any of its subsidiaries or any other securities, in cash or otherwise.

The transfer restrictions under the stockholder lock-up agreement and the option assumption agreement apply to shares of Tilray issued as Stock Merger Consideration, less the number of any shares of Tilray issued as Stock Merger Consideration and sold by the signatory to such stockholder lock-up agreement or option assumption agreement in any permitted sale as of the first anniversary of the closing date of the merger. We refer to the securities subject to the transfer restrictions as applicable securities.

The restrictions on transfer commence at the effective time. On the first anniversary of the closing date of the merger, the transfer restrictions with respect to 50% of the applicable securities shall lapse (and all Cash Consideration Shares and other permitted sales of Stock Merger Consideration will be credited towards and deemed included in such 50% lapse). On the date that is two full trading days after the public dissemination of Tilray’s annual or quarterly financial results for each of the four quarters following the first anniversary of the closing date of the merger, the transfer restrictions with respect to 12.5% of the applicable securities shall lapse. The lapse of the restrictions shall apply equally to each class and type of applicable securities held by the applicable holder.

A permitted sale means the sale of Tilray common stock (or securities convertible into or exercisable or exchangeable for Tilray stock) received pursuant to the merger, which we refer to as merger consideration securities, in:

 

   

an underwritten or other registered public offering of Tilray common stock pursuant to which the holder is given an opportunity (by Tilray on terms and conditions established by Tilray in its sole discretion) to sell a portion of his, her or its merger consideration securities on a proportionate, pro rata basis relative to all other applicable persons who were holders of Privateer capital stock as of immediately prior to the effective time; or

 

   

any other registered public offering, block trade or strategic sale approved or arranged by Tilray, in each case at the discretion of the Tilray Board (subject to Tilray’s policies regarding approval of affiliate transactions).

Tilray will only conduct a permitted sale to the extent that each applicable person who was a holder of Privateer capital stock as of immediately prior to the effective time shall have an opportunity to sell a portion of his, her or

 

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its merger consideration securities on a proportionate, pro rata basis relative to all other applicable former holders of Privateer capital stock as of immediately prior to the effective time.

Tilray may agree to conduct a marketed offering prior to the closing of the merger, or within a period after the closing date of the merger that is mutually agreeable to Tilray and Michael Blue, as stockholder representative under the merger agreement.

The merger agreement requires that Privateer will not, prior to the effective time, transfer any of the capital stock of Tilray, including any shares of Tilray Class 1 common stock or Class 2 common stock, without the prior written consent of Tilray.

Tilray and Privateer have entered into a separate lock-up agreement, which we refer to as the Privateer lock-up agreement, that provides that if the merger agreement is terminated by either Tilray or Privateer because Privateer has not obtained the requisite written consent from Privateer’s stockholders within 15 business days of the registration statement of which this proxy statement/prospectus/information statement is a part becoming effective, then Privateer shall not transfer its Tilray common stock for 135 days from the termination date. The merger agreement requires that, within three months of the expiration date of the Privateer lock-up agreement, Privateer reimburse Tilray for its reasonable out-of-pocket fees, costs or expenses incurred in connection with the transactions contemplated by the merger agreement, up to a maximum amount of $3,000,000.

However, if, for any other reason, the merger agreement is terminated, whether for a failure of the merger to occur by March 9, 2020 or otherwise, then following the termination, sales in the public market of a substantial number of the shares of Tilray’s common stock currently held by Privateer could occur at any time. These sales or distributions by Privateer, or the market perception that the holders of a large number of shares of Tilray’s Class 2 common stock, or shares of Tilray’s Class 1 common stock which are convertible into Class 2 common stock on a one-for-one basis, intend to sell Tilray’s Class 2 common stock, could significantly reduce the market price of Tilray’s Class 2 common stock. If the merger does not close, Tilray cannot predict the effect, if any, that future public sales of these securities or the availability of these securities for sale will have on the market price of Tilray’s Class 2 common stock.

Support Agreements

In connection with the execution of the merger agreement, certain stockholders of Privateer entered into support agreements with Tilray and Privateer covering approximately 35.8% of the outstanding capital stock and 45.7% of the voting power of Privateer as of date of the merger agreement. The support agreements provide, among other things, that the Privateer stockholders party thereto will execute and deliver a written consent with respect to all of the shares of Privateer capital stock held by them in favor of (i) adopting and approving the merger agreement and the transactions contemplated thereby, (ii) adopting and approving the amended and restated certificate of incorporation of Privateer, (iii) acknowledging that each such stockholder’s approval is irrevocable and each such stockholder is aware of his rights to demand appraisal for his shares pursuant to Section 262 of the DGCL and that each such Stockholder has received and read a copy of Section 262 of the DGCL, (iv) acknowledging that by each such stockholder’s approval of the merger each such stockholder thereby waives any rights to receive payment of the fair value of his Privateer capital stock under the DGCL, and (v) the conversion of Privateer preferred stock into Privateer Class 2 common stock immediately prior to the effective time.

The support agreements prohibit transfers of Privateer capital stock, except for certain permitted transfers, including the permitted transfer of up to 10% of shares of Privateer capital stock held by the party thereto (excluding shares that will be converted into the right to receive Tilray Class 1 common stock) to any person who has not signed a support agreement, as long as such transfer is not part of a joint, concerted, coordinated, collective or group effort with any other person to market and sell, transfer or otherwise dispose of shares that are subject to a support agreement, and as long as the transferee executes and delivers a joinder to the support agreement.

 

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MATTERS BEING SUBMITTED TO A VOTE OF TILRAY’S STOCKHOLDERS

Proposal No. 1: Approval of the Merger Agreement, the Merger, the Issuance of Common Stock in the Merger and the Change of Control Resulting from the Merger

At the Tilray special meeting, Tilray’s stockholders will be asked to approve the merger agreement and the transactions contemplated thereby, including the merger, the issuance of Tilray’s common stock to Privateer’s stockholders pursuant to the merger agreement and the change of control under Nasdaq rules resulting from the merger. Assuming no Cash Merger Consideration is paid in connection with the merger, immediately after the merger, (i) Privateer’s stockholders as of immediately prior to the effective time are expected to own approximately 75.4% of the outstanding capital stock of Tilray and 90.4% of the voting power of Tilray and (ii) the three founders of Privateer, namely Brendan Kennedy (Tilray’s Chief Executive Officer and President, as well as a member of the Tilray Board), Michael Blue and Christian Groh, are expected to collectively own 25.7% of the outstanding capital stock of Tilray and 71.0% of the voting power of Tilray. Mr. Kennedy, an executive officer and member of the Tilray Board, is also the Executive Chairman, a member of the Privateer Board and the largest stockholder of Privateer. Michael Auerbach, a member of the Tilray Board, is also a member of the Privateer Board and a stockholder of Privateer.

The terms of, reasons for and other aspects of the merger agreement, the merger, the issuance of Tilray’s common stock pursuant to the merger agreement and the change of control resulting from the merger are described in detail in the other sections in this proxy statement/prospectus/information statement.

Required Vote

Proposal No. 1, the approval of the merger and the issuance of Tilray’s Class 1 common stock and Class 2 common stock pursuant to the merger agreement and the change of control under Nasdaq rules resulting from the merger, requires the affirmative vote of holders of (i) the majority of the aggregate voting power of the votes cast at the Tilray special meeting and (ii) the majority of the voting power of the outstanding shares of Tilray’s Class 1 common stock and Class 2 common stock, each voting separately as a class. Abstentions will be counted towards the vote total and will have the same effect as a vote “AGAINST” this Proposal. For this Proposal, broker non-votes will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the Tilray special meeting.

THE TILRAY BOARD RECOMMENDS THAT TILRAY’S STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 1 TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, THE ISSUANCE OF TILRAY’S COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND THE CHANGE OF CONTROL RESULTING FROM THE MERGER.

EACH OF PROPOSAL NOS. 1 AND 2 ARE CONDITIONED UPON EACH OTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.

Proposal No. 2: Approval of Amendment and Restatement of Tilray’s Certificate of Incorporation

At the Tilray special meeting, Tilray’s stockholders will be asked to approve the amended and restated certificate of incorporation of Tilray to provide that shares of Class 1 common stock of Tilray issued in the merger will cease to be Class 1 common stock if such shares are transferred under certain circumstances. Tilray’s current certificate of incorporation provides that each share of Tilray Class 1 common stock will automatically convert into one share of Tilray Class 2 common stock upon any transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain transfers described in Tilray’s certificate of incorporation, including, without limitation, certain transfers to other founders. The proposed amended and restated certificate of incorporation will provide that any transfer of Tilray Class 1 common stock issued in the merger by a founder to another founder will no longer be a permitted transfer, and any such shares of Class 1

 

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common stock transferred will be automatically converted into shares of Tilray’s Class 2 common stock. In addition, the proposed amended and restated certificate of incorporation provides that the definition of the term “Transfer” therein no longer contains the exception that entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with stockholders who are holders of Tilray Class 1 common stock that (i) is disclosed either in a Schedule 13D filed with the SEC or in writing to the Secretary of Tilray, (ii) either has a term not exceeding one year or is terminable by the holder of the shares subject thereto at any time and (iii) does not involve any payment of cash, securities, property or other consideration to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner, shall not be considered a “Transfer” within the meaning of Article IV(D) of the amended and restated certificate of incorporation. No other changes will be made to the certificate of incorporation as a result of the amendment and restatement.

Required Vote

Proposal No. 2 requires the affirmative vote of holders of (i) the majority of the aggregate voting power of the outstanding shares of Tilray’s common stock as of the record date for the Tilray special meeting and (ii) the majority of the voting power of Tilray’s Class 1 common stock outstanding as of the record date. Abstentions will be counted towards the vote total and will have the same effect as “AGAINST” this Proposal. Broker non-votes will have the same effect as a vote “AGAINST” this Proposal.

THE TILRAY BOARD RECOMMENDS THAT TILRAY’S STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 2 TO APPROVE THE AMENDMENT AND RESTATEMENT OF TILRAY’S CERTIFICATE OF INCORPORATION.

PROPOSAL NOS. 1 AND 2 ARE CONDITIONED UPON EACH OTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.

Proposal No. 3: Approval of Possible Adjournment of the Tilray Special Meeting

If Tilray fails to receive a sufficient number of votes to approve Proposal Nos. 1 or 2, Tilray may propose to adjourn the Tilray special meeting, for a period of not more than 30 days, for the purpose of soliciting additional proxies to approve Proposal Nos. 1 or 2. Tilray currently does not intend to propose adjournment at the Tilray special meeting if there are sufficient votes to approve Proposal Nos. 1 or 2.

Required Vote

The affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock entitled to vote at the Tilray special meeting is required to approve the adjournment of the Tilray special meeting for the purpose of soliciting additional proxies to approve Proposal Nos. 1 or 2. Abstentions will be counted towards the vote total and will have the same effect as a vote “AGAINST” this Proposal. For this Proposal, broker non-votes will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the Tilray special meeting.

THE TILRAY BOARD RECOMMENDS THAT TILRAY’S STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 3 TO ADJOURN THE TILRAY SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL NOS. 1 OR 2.

 

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TILRAY BUSINESS

Tilray’s Vision

Tilray aspires to lead, legitimize and define the future of its industry by building the world’s most trusted cannabis company.

Tilray is pioneering the future of medical cannabis research, cultivation, processing and distribution globally, and is one of the leading suppliers of adult-use cannabis in Canada.

Tilray’s Business

Tilray produces medical cannabis in Canada and Europe, and it has supplied high-quality cannabis products to tens of thousands of patients in thirteen countries spanning five continents through its subsidiaries in Australia, Canada, Germany, Latin America and Portugal, and through agreements with established pharmaceutical distributors. In Canada, Tilray is also authorized to distribute certain products on a wholesale basis and to sell certain products direct to patients through its e-commerce platform or over the phone.

Tilray operates only in countries where cannabis or hemp-derived cannabinoids are legal, by which Tilray means the activities in those countries are permitted under all applicable federal and state or provincial and territory laws.

Tilray has been an early leader in the development of the global medical cannabis market. Tilray was one of the first companies to be licensed by Health Canada to cultivate and sell medical cannabis in Canada, and one of the first companies to become a licensed provider of medical cannabis in Canada. Tilray’s licensing allows it to produce and sell cannabis in Canada, to develop new and innovative cannabis products and to export medical cannabis products to other countries in accordance with applicable laws. The cannabis industry is expanding rapidly in Canada, with more than 150 other companies that are currently licensed, though only a few were licensed earlier than Tilray, and there are hundreds more applications for licenses that are being processed by Health Canada. Tilray’s products have been made available in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, Ireland, New Zealand, United Kingdom, United States and South Africa. While there are other licensed producers operating in multiple countries, including some licensed in Canada, and other non-cannabis companies expanding into the cannabis market internationally, Tilray was the first company to legally export medical cannabis from North America to Africa, Australia, Europe and South America, and was among the first companies to be licensed to cultivate and process medical cannabis in two countries, Canada and Portugal. Tilray has successfully recruited an international advisory board consisting of world-renowned policy leaders and business leaders, to advise on its global expansion and add to its growing network of experts in their specific field of expertise.

Tilray is led by a team of visionary entrepreneurs, experienced operators and cannabis industry experts as well as PhD scientists, horticulturists and extraction specialists who apply the latest scientific knowledge and technology to deliver quality-controlled, rigorously tested cannabis products on a large scale. Tilray has made significant investments to establish Tilray as a scientifically rigorous cannabis brand, committed to quality and excellence. Recognizing the opportunity associated with growing and producing cannabis on a large scale, Tilray has invested capital to develop innovative cultivation practices, proprietary product formulations and automated production processes. Tilray has also invested in clinical trials and recruited a Medical Advisory Board comprised of highly accomplished researchers and physicians. Tilray was the first cannabis company with a North American production facility to be Good Manufacturing Practices, or GMP, certified in accordance with European Medicines Agency, or EMA, standards. An internationally recognized standard, GMP certification is the primary quality standard that pharmaceutical manufacturers must meet in their production processes.

Tilray is committed to establishing a diverse team as it continues to grow. Tilray is proud to have one of the first women-led boards in the cannabis industry. Diversity is a priority for Tilray and it intends to seek out talented people from a variety of backgrounds to join its leadership team.

 

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Tilray believes its growth to date is a result of its global strategy, its multinational supply chain and distribution network and its methodical commitment to research, innovation, quality and operational excellence. Tilray believes that recognized and trusted brands distributed through multinational supply chains will be best positioned to become global market leaders. Tilray’s strategy is to build these brands by consistently producing high-quality, differentiated products on a large scale.

Tilray’s Opportunity

Tilray is approaching its industry from a long-term, global perspective and sees opportunities to:

Build global brands that lead, legitimize and define the future of cannabis. Historically, cannabis has been an unbranded product. As the legal cannabis industry emerges in more countries around the world, Tilray sees an opportunity to create a broad-based portfolio of differentiated brands brought to market in a professional manner, that appeal to a diverse set of patients and consumers. Tilray believes that it has the ability to develop dominant global brands and that as it develops these brands, Tilray will expand the addressable market for its products. Tilray believes its business has the potential to disrupt the pharmaceutical, alcohol, tobacco and functional food and beverages industries because the emergence of the legal cannabis industry may result in a shift of discretionary income and/or a change in consumer preferences in favor of cannabis products versus other products. Recognizing the potential of this disruption, several companies in these sectors have already formed partnerships or made investments to gain exposure to the legal cannabis industry, including Sandoz AG, AB InBev, Apotex Inc., Altria Group, Inc., Constellation Brands, Inc. and Imperial Brands PLC. In addition, several alcohol companies have noted in regulatory filings that legal cannabis could have an adverse impact on their business, including Boston Beer Company, Molson Coors Brewing Company, and Craft Brew Alliance, Inc. Tilray further believes that many patients rely on medical cannabis as a substitute to opioids and other narcotics, which has been validated by Tilray’s biannual patient study and peer-reviewed academic research that has demonstrated that the legalization of cannabis has coincided with a decline in the use of prescription drugs. Lastly, Tilray believes that functional food and beverages, that is, products containing or enhanced with vitamins, caffeine, electrolytes, probiotics and other additives and ingredients, will see increased competition from products containing cannabinoids, such as CBD. For example, Tilray believes that many consumers will choose cannabinoid-enhanced beverages in favor of sports drinks or energy drinks.

Invest in markets where cannabis products are federally legal or are expected to be federally legal. Tilray’s goal is to increase its total addressable market size as countries continue to legalize cannabis for medical access and adult-use access globally. To date, 41 countries have formally legalized medical cannabis programs for either research or patient access and two countries, including Canada, have implemented adult-use access for cannabis. The Agriculture Improvement Act of 2018, or the Farm Bill, was passed into law in the United States during December 2018, which permits the cultivation of hemp and the production of hemp-derived CBD and other cannabinoids. Combined with the growing global acceptance of hemp and hemp-derived CBD products, Tilray believes there is a significant market opportunity in hemp and hemp-derived CBD products globally. Tilray expects to monitor, identify and selectively invest in compelling opportunities that will strengthen Tilray’s leadership position as demonstrated by Tilray’s acquisition of Manitoba Harvest in February 2019.

Develop innovative products and form factors that change the way the world consumes cannabis. Tilray believes the future of the cannabis industry lies primarily in non-combustible products that will offer patients and consumers alternatives to smoking. Tilray sees an opportunity to partner with established pharmaceutical, food, beverage and consumer product companies to develop new non-combustible form factors that will appeal to consumers who are not interested in smoking cannabis, including Tilray’s beverage research partnership with AB InBev. By developing new, non-combustible products, Tilray believes it will expand its addressable market.

Expand the availability of pure, precise and predictable medical cannabis products for patients in need around the world. Since 2014, Tilray has seen significant increases in demand from patients and governments for pharmaceutical-grade cannabis products. Tilray is well-positioned to expand availability of these products to

 

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more patients in more countries as medical cannabis is increasingly recognized as a viable treatment option for patients suffering from a variety of diseases and conditions. Importantly, most European countries have required that all medical products sold be sourced from GMP-certified facilities. As such, GMP-certified producers such as Tilray are well-positioned to establish market share in the European medical cannabis market. Outside of Tilray, Tilray believes there are very few GMP-certified licensed producers.

Foster mainstream acceptance of the therapeutic potential of medical cannabis and cannabinoid-based medicines. Tilray sees an opportunity to significantly expand the global market for medical cannabis products by conducting clinical research into the safety and efficacy of medical cannabis for a diverse range of conditions. By generating clinical data and real world evidence demonstrating the safety and efficacy of medical cannabis and cannabinoid-based medicines for various conditions, Tilray sees an opportunity to significantly expand and dominate the global medical cannabis market.

Tilray’s Strengths

Tilray is a global pioneer with a multinational supply chain and distribution network. Tilray was the first cannabis producer to export medical cannabis from North America and legally import cannabis into the EU. Tilray has licenses to cultivate cannabis in Canada and Portugal. Tilray’s products have been made available in thirteen countries spanning five continents, which Tilray believes is more than any other licensed producer. To achieve Tilray’s goal of becoming a global cannabis leader, Tilray has signed agreements or binding letters of intent with established global industry leaders including:

 

   

In January 2018, Tilray entered into a supply agreement with Shoppers Drug Mart Inc., which Tilray refers to as Shoppers Drug Mart, Canada’s largest pharmacy chain with more than 1,200 pharmacies.

 

   

In December 2018, Tilray entered into a global framework agreement with Sandoz AG, a global leader in generic pharmaceuticals and biosimilars and part of the Novartis group, to increase availability of high quality medical cannabis products across the world. This was an evolution of the existing collaboration agreement with Sandoz Canada and under the framework agreement, Sandoz AG and Tilray may work together to develop and commercialize non-smokable and non-combustible medical cannabis products.

 

   

In December 2018, Tilray entered into a research partnership with AB InBev, the world’s leading brewer to research non-alcoholic beverages containing THC and CBD in Canada. AB InBev’s participation is through Labatt Breweries of Canada and Tilray’s participation is through High Park, which is a Canadian adult-use subsidiary. These two companies intend to invest up to $50 million each, for a total of up to $100 million in aggregate, in the joint venture.

 

   

In January 2019, Tilray entered into a global revenue sharing agreement with Authentic Brands Group, which Tilray refers to as ABG, to market and distribute a portfolio of consumer cannabis products within ABG’s brand portfolio in jurisdictions where regulations permit. ABG is the owner of more than 50 iconic brands with a global retail footprint of over 100,000 points-of-sale.

 

   

In February 2019, Tilray acquired FHF Holdings Ltd., which Tilray refers to as Manitoba Harvest, and which is the world’s largest hemp food company with a retail network of approximately 16,000 stores across North America, including Costco, Amazon, and Wal-Mart.

Tilray has entered into agreements to supply adult-use cannabis to ten provinces and two territories. Tilray has been expanding its product offerings and formats since the date of adult-use legalization in Canada, and Tilray intends to continue to increase its distribution of best-in-class brands and products to the Canadian adult-use market.

Tilray has a scientifically rigorous medical cannabis brand approved by governments to supply patients and researchers on five continents. Governments in thirteen countries have issued permits allowing Tilray’s

 

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medical cannabis products to be imported from Canada for distribution to patients. Tilray believes governments have approved the importation of its products in part because of its reputation for being a scientifically rigorous medical cannabis company known for delivering safe, high-quality products. Tilray is committed to advancing scientific knowledge about the therapeutic potential of cannabis, as demonstrated by Tilray’s success receiving federal authorizations to supply cannabinoid products to clinical trials in Australia, the United States and Canada, and by recruiting a Medical Advisory Board comprised of highly accomplished researchers and physicians specializing in autism, epilepsy, cancer, dermatology and neuropathic pain.

Tilray has secured the exclusive rights to produce and distribute a broad-based portfolio of certain adult-use brands and products to Canadian consumers for the adult-use market. The brand licensing agreement between a wholly owned subsidiary of Tilray’s and Docklight LLC, a former subsidiary of Privateer, provides Tilray with intellectual property that Tilray believes will provide a competitive advantage for the adult-use market in Canada. The brand licensing agreement includes the rights to recognized brand names and proprietary product formulations for a wide range of products.

Tilray has a track record for continuing to innovate within its industry. Tilray believes its commitment to research and innovation at this early stage of its industry’s development differentiates Tilray and gives it a competitive advantage. Tilray has invested significant capital to develop innovative cultivation practices and facilities and proprietary product formulations.

Tilray has developed a rigorous, proprietary production process to ensure consistency and quality as Tilray increases the scale of its operations globally. Tilray prides itself on consistently delivering high-quality products with precise chemical compositions. Tilray was the first cannabis company with a North American production facility to be GMP-certified in accordance with EMA standards. Tilray believes GMP certification provides regulators and health care providers in countries new to medical cannabis with confidence that Tilray’s products are a safe, high-quality choice.

Tilray has a highly experienced management team. Tilray believes its management team is one of the most knowledgeable and experienced in the cannabis industry. Tilray recognizes that its industry is in the early stages of its development and that Tilray is taking a long-term, global view towards its development. Tilray’s management team has significant experience evaluating potential transactions, partnerships and other growth opportunities, and Tilray prides itself on making investment decisions that Tilray believes will allow Tilray to grow its business over the long term. Tilray has continued to identify and acquire talent from leading global companies to join Tilray’s team. Tilray is confident that Tilray’s team has the diversity and depth of experience to propel Tilray into a global leadership position.

Tilray’s Growth Strategy

Tilray aspires to build the world’s most trusted global cannabis company through the following key strategies:

Expanding Tilray’s production capacity in North America and Europe to meet current and expected long-term demand growth. To capitalize on the market opportunity in U.S., Canada and globally, Tilray is investing aggressively to expand Tilray’s production capacity and to automate certain cultivation, processing and packaging processes to gain efficiencies as Tilray increases the scale of Tilray’s operations.

Partnering with established distributors and retailers. As the industry evolves, Tilray believes that the distribution of medical cannabis will increasingly mirror the distribution of other pharmaceutical products. Likewise, Tilray believes the distribution of adult-use cannabis and wellness products will increasingly mirror the distribution of other consumer packaged goods. To efficiently and rapidly increase its scale, Tilray is partnering with established distributors and retailers globally.

Developing a differentiated portfolio of brands and products to appeal to diverse sets of patients and consumers. Tilray has established itself as a global pioneer shaping the future of the medical cannabis industry

 

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by developing a portfolio of high-quality medical cannabis and cannabinoid-based products ranging from dried flower to capsules to oils to well-defined clinical preparations. Tilray will continue to invest in a differentiated portfolio of brands and products to appeal to a wide variety of patients and consumers. Tilray will prioritize the development of non-combustible products that offer an alternative to smoking, which Tilray believes will account for the majority of products on the market over the long term.

Expanding the addressable medical market by investing in clinical and observational research and winning the trust of regulators, researchers and physicians in countries new to medical cannabis. Tilray is expanding its addressable medical market by working collaboratively with regulators to implement safe access programs for patients. Tilray provides clinical and observational data to physicians and academics on the safety and efficacy of medical cannabis to foster mainstream acceptance and enhance Tilray’s reputation.

Maintaining a rigorous and relentless focus on operational excellence and product quality. Tilray has strategically invested ahead of its growth in its operations, including cultivation, manufacturing and multichannel distribution. In doing so, Tilray has developed a quality management system that enables Tilray to meet the requirements of regulatory agencies in the markets where Tilray exports products, while consistently delivering high-quality products. As Tilray continues to grow, Tilray has the opportunity to leverage these investments while maintaining the highest level of safety and quality.

Continued innovation within Tilray’s industry. Tilray has over thirty filed patents in the fields of cannabis processing technology, formulation, composition delivery systems, and treatment methods. Tilray also has exclusive rights to at least 20 issued or pending patents, several of which allow for a process aimed at significantly shortening the drying and curing periods. Tilray’s business partnerships have expanded to include partnerships with global, pharmaceutical companies, consumer product goods companies, distributors, and renowned research and development companies. Tilray believes its growing partnerships with established companies will differentiate Tilray and position Tilray to become a dominant leader in product and process innovation and brand development. Tilray also continues to establish partnerships with leading research institutions and Tilray’s clinical trials continue to generate safety and efficacy data that can inform treatment decisions, lead to the development of new products, position Tilray to register medicines for market authorization, and enable Tilray to obtain insurance reimbursement where feasible.

Tilray’s Brands and Products

Tilray’s brand and product strategy centers on developing a broad-based portfolio of differentiated cannabis brands and products designed to appeal to diverse sets of patients and consumers. These brands and products have been tailored to comply with all requirements introduced under Canadian adult-use legalization, such as the inclusion of health warnings on labels and restrictions on marketing, and will continue to be adapted as Canada permits a broader range of form factors in the coming months and revises its labeling and packaging requirements accordingly. Since 2010, members of Tilray’s management team have been conducting research in more than a dozen countries by consulting third-party industry databases with market and consumer insights data available in various cannabis markets around the world, by commissioning proprietary third-party research and by licensing intellectual property from established cannabis brands.

Tilray’s Medical Brand: Tilray

The Tilray brand is designed to target the global medical market by offering a wide range of high-quality medical cannabis and cannabinoid-based products. Tilray offers its products to patients, physicians, pharmacies, governments, hospitals and researchers for commercial purposes, compassionate access and clinical research.

Tilray believes patients choose Tilray because it is a scientifically rigorous brand known for producing pure, precise and predictable medical-grade products. Tilray has successfully grown over 60 cultivars of cannabis and

 

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developed a wide variety of extract products and formulations. Tilray’s global portfolio of medical cannabis products includes the following form factor platforms:

 

   

whole flower;

 

   

ground flower;

 

   

full-spectrum oil drops and capsules;

 

   

purified oil drops and capsules; and

 

   

clinical compounds.

Each form factor platform is divided into different product categories that correspond with the particular chemical composition of each product based on the concentration of two active ingredients: THC and CBD. For instance, Tilray’s whole flower and full-spectrum oil drops and capsules are available in categories THC-Dominant, CBD-Dominant and THC and CBD Balanced.

Tilray’s product line focuses on active ingredients and standardized, well-defined preparation methods. Tilray uses formulations and delivery formats that are intended to allow for consistent and measured dosing, and Tilray tests all its products for potency and purity. Each of Tilray’s commercial products are developed with comprehensive analysis and thorough documentation. Tilray follows detailed and rigorous documentation standards not only for Tilray’s own internal purposes but also because this type of documentation is required by researchers, regulators, importers and distributors.

Tilray takes a scientific approach to its medical-use product development, which Tilray believes gives it credibility and respect in the medical community. Tilray produces products that are characterized by well-defined and reproducible cannabinoid and terpene, content, formulated for stable pharmacokinetic profiles, which are customizable in a variety of formulations and available in capsule or liquid forms. Tilray continues to conduct extensive research and development activities and develop and promote new products for medical use. Tilray is also currently working with established pharmaceutical companies, such as Sandoz Canada, a division of Novartis, to develop non-combustible, co-branded products for sale in pharmacies when regulations permit.

Tilray’s Adult-Use Brands

Tilray’s wholly owned subsidiary, High Park Company, which Tilray refers to as High Park, secured the exclusive rights from a former subsidiary of Privateer to produce and distribute a broad-based portfolio of certain adult-use brands and products in Canada. The brand licensing agreement includes the rights to recognized brands and proprietary product formulations for a wide range of products. In addition to licensing certain adult-use brands from a wholly owned subsidiary of Privateer, Tilray also developed and launched new brands for the adult-use market in Canada which are wholly owned by it, such as CANACA, Yukon Rove, The Batch/La Batch and Dubon.

Tilray currently produces and distributes many of these brands and products to Canadian consumers through High Park and intends to introduce additional brands and products when regulations change to permit new form factors, such as concentrates, tinctures, and edibles. Tilray’s portfolio of brands and products have been specifically adapted, and Tilray’s marketing activities carefully structured, to enable Tilray to develop its brands in an effective and compliant manner.

Retail Strategy and Brands

Tilray has the foundation in place to be a leader in the adult-use cannabis market with High Park designed to cultivate, produce, sell and distribute adult-use cannabis brands and products. High Park has secured the exclusive rights to produce and distribute a broad-based portfolio of adult-use brands and products in Canada

 

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through a licensing agreement, which includes the rights to recognized brands and proprietary formulations for a wide range of products. In October 2018, when the Canadian government federally legalized adult-use cannabis, High Park launched a number of cannabis products under various brands in the country’s largest markets, including Ontario, Quebec and British Columbia. Tilray’s understanding of the adult-use consumer is informed by extensive research, including post-adult use legalization focus groups across the country including Toronto, Vancouver and Quebec City.

Tilray has established its portfolio and pricing strategies to compete for what Tilray believes to be the largest adult-use consumer segments of the addressable market.