The Merger Agreement requires the Privateer stockholders to indemnify Tilray for certain matters, including
claims relating to Privateers breach of representations and covenants in the Merger Agreement, allocation of the merger consideration, costs incurred with respect to dissenting shares, certain claims by Privateer securityholders or
subsidiaries, equityholder matters, fraud, and pre-closing liabilities of Privateer or any of its subsidiaries, including pre-closing taxes.
Tilrays 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. The Escrow Shares will be a number of shares of Tilray Class 2 common stock equal to $125 million divided by the Tilray Closing Price. The first 50% of the
Escrow Shares will be contributed by all Privateer stockholders on a pro rata basis based on each Privateer stockholders portion of the Stock Merger Consideration (the Stockholder Escrow Shares), and the second 50% of the Escrow
Shares will be contributed by the Founders on a pro rata basis based on each Founders portion of the shares of Tilray Class 2 common stock allocated to all Founders in the merger (the Founder Escrow Shares). Indemnification
claims will be satisfied first from the Stockholder Escrow Shares and then 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.
In connection with the
merger, Tilray has agreed to pay up to $1 million of transaction expenses incurred by Privateer. To the extent Privateers transaction expenses exceed $1 million, the Stock Merger Consideration will be reduced by a corresponding
amount of shares of Tilray Class 2 common stock, as described above.
The Merger Agreement contains customary representations, warranties and
covenants made by Tilray and Privateer, including covenants relating to obtaining the requisite approvals of the stockholders of Tilray and Privateer, indemnification of directors and officers, and Privateers conduct of business between the
date of signing of the Merger Agreement and the closing of the merger.
Tilray was formed as a subsidiary of Privateer. Privateer currently owns a
majority of the voting power of all outstanding shares of Tilrays capital stock. As a result, Tilray is a controlled company within the meaning of the listing rules of the Nasdaq Global Select Market. However, Tilray will cease to
be a controlled company following the closing of the merger.
In connection with the merger, Tilray expects to prepare and file with the U.S.
Securities and Exchange Commission (SEC) a registration statement on Form S-4, which will contain a prospectus and a proxy statement seeking the approval of Tilrays stockholders with respect
to certain items, including the issuance of Tilray Class 1 and Class 2 common stock pursuant to the Merger Agreement and the Tilray Restated Certificate (as defined below).
In connection with the merger, Privateer expects to seek the approval of certain Privateer stockholders of the merger, the Merger Agreement, the conversion of
Privateer preferred stock into Privateer common stock immediately prior to the closing of the merger, and the Privateer Restated Certificate (as defined below).
The obligations of Tilray and Privateer to consummate the merger are subject to satisfaction or waiver of certain conditions including, among other things,
(a) the effectiveness of the registration statement, (b) no law or order preventing the transactions, (c) approval by Tilrays stockholders and Privateers stockholders, (d) the approval for listing on the Nasdaq Global
Select Market of the shares of Tilray Class 2 common stock to be issued as part of the merger, (e) antitrust approval of the merger and the acquisition of voting securities by certain individuals set forth on a schedule to the Merger
Agreement, (f) the accuracy of representations and warranties and compliance with covenants of the respective parties under the Merger Agreement, and (g) the filing of the Tilray Restated Certificate and the Privateer Restated Certificate.
The obligation of Tilray to consummate the merger is subject to satisfaction or waiver of certain additional conditions including, among other things,
(a) no material adverse effect on the business, assets, or liabilities of Privateer, (b) the conversion of Privateers preferred stock into common stock, and (c) no more than 1.5% of the Privateer stockholders having a right to
seek appraisal, dissenters, or similar rights.
The Merger Agreement includes certain termination rights for both Tilray and Privateer, including,
among others, if the merger is not consummated on or before March 9, 2020, which initial deadline may be extended for 60 days by Tilray or Privateer if a governmental body has requested additional information or if the SEC has not declared the
registration statement effective by at least 60 calendar days prior to the initial deadline. In addition, if Privateer stockholder approval is not obtained within 15 days of the registration statement becoming effective, and before Privateer
stockholder approval is actually obtained, both Tilray and Privateer may terminate the Merger Agreement, in which event Privateer will be required to reimburse Tilray for up to $3 million in transaction expenses and the provisions of the
Privateer Lock-up Agreement (described below) will apply.
Prior to obtaining Tilray stockholder approval, under
certain circumstances, Tilray may terminate the Merger Agreement in order to enter into an agreement to consummate an acquisition proposal that constitutes a superior offer, and the Tilray Board of Directors may change its recommendation to
Tilrays stockholders in connection with a superior offer or an intervening event. Further, Privateer may terminate the Merger Agreement in connection with an adverse change in the recommendation of the Tilray Board of Directors to
Tilrays stockholders.