Item 1.01
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Entry into a Material Definitive Agreement.
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On December 21, 2020, Canopy Growth Corporation (“Canopy Growth”) entered into an arrangement agreement (the “Arrangement Agreement”) with its wholly-owned subsidiary, The Tweed Tree Lot Inc. (“Tweed NB”), Canopy Rivers Inc. (“Canopy Rivers”) and its wholly-owned subsidiary, Canopy Rivers Corporation (“CRC”), pursuant to which Canopy Growth will acquire certain assets from CRC, as set out below, in exchange for cash, common shares in the capital of Canopy Growth (the “Canopy Growth Shares”) and the surrender of all shares in the capital of Canopy Rivers held by Canopy Growth by way of a plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”).
Pursuant to the Arrangement, Canopy Growth will (i) increase its fully-diluted conditional ownership in TerrAscend Corp. (“TerrAscend”) from approximately 13% to approximately 21%; (ii) subject to certain rights of first refusal, acquire all of the common shares (the “Vert Mirabel Common Shares”) and Class A preferred shares (the “Vert Mirabel Preferred Shares”) in the capital of Les Serres Vert Cannabis Inc. (“Vert Mirabel”) held by CRC; and (iii) terminate all of the obligations of Tweed NB owing to CRC pursuant to a royalty agreement dated November 7, 2018 (the “Tweed NB Agreement”). The termination of the Tweed NB Agreement will provide Canopy Growth with annual cash savings of approximately C$2.9 million per year over the balance of the 24-year term of the Tweed NB Agreement.
In exchange therefore, (i) the 36,468,318 MVS (as defined below) and 15,223,938 SVS (as defined below), which represent approximately a 27% ownership interest and 84% of the aggregate voting rights of Canopy Rivers, will be repurchased by Canopy Rivers for cancellation on a cashless basis; (ii) Canopy Growth and Tweed NB, together, will make a cash payment to CRC of C$115 million; and (iii) Canopy Growth will issue CRC an aggregate of up to 3,750,000 Canopy Growth Shares. Canopy Rivers is currently a reportable segment for Canopy Growth. Following completion of the Arrangement, Canopy Growth will not have any equity, debt or other interest in Canopy Rivers and therefore Canopy Rivers will no longer be a reportable segment for Canopy Growth.
The Arrangement is subject to the conditions set out in the Arrangement Agreement, including, among others, approval by: (i) the Ontario Superior Court of Justice (the “Court”) at a hearing upon the procedural and substantive fairness of the terms and conditions of the Arrangement; and (ii) the shareholders of Canopy Rivers as required by applicable corporate and securities laws. The shareholders of Canopy Rivers will be asked to vote on a resolution (the “Resolution”) to, among other things, approve the Arrangement at a shareholder meeting to be called for such purpose (the “Meeting”). Canopy Rivers will convene and hold the Meeting as soon as reasonably practicable following receipt of the interim Court order and, in any event, not later than March 15, 2021.
The implementation of the Arrangement is conditional upon the adoption of the Resolution by: (i) 662⁄3% of the votes cast on the Resolution by the holders of Class A subordinated voting shares in the capital of Canopy Rivers (the “SVS”) present in person or represented by proxy at the Meeting, (ii) 662⁄3% of the votes cast on the Resolution by the holders of Class B multiple voting shares in the capital of Canopy Rivers (the “MVS”) present in person or represented by proxy at the Meeting, and (iii) a simple majority of the votes cast on the Resolution by the holders of SVS present in person or represented by proxy at the Meeting, excluding for purposes of (iii) above, the votes attached to SVS held or controlled by persons described in items (a) through (d) of Section 8.1(2) of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) (collectively, the “Shareholder Approval”).
The Arrangement is also subject to the following conditions precedent: (i) no governmental entity will have enacted, issued, promulgated, enforced or entered any law which is then in effect and has the effect of making the execution, delivery or performance of the Arrangement Agreement illegal or otherwise preventing or prohibiting the consummation of the transactions contemplated by the Arrangement Agreement; (ii) no legal or regulatory action or proceeding shall have been commenced by any person that would reasonably be expected to enjoin, restrict or prohibit the transactions contemplated by the Arrangement Agreement; (iii) the written non-objection of the Toronto Stock Exchange (the “TSX”) to the terms of the Arrangement will be in force and will not have been modified in any material respect; (iv) Canopy Growth and Canopy Rivers will have executed and delivered a mutual release in the form attached as Schedule C to the Arrangement Agreement in connection with the trademark license agreement