UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

(Amendment No. 1)

 

  x  Filed by the Registrant ¨  Filed by a Party other than the
Registrant
 

 

Check the appropriate box:
x Preliminary Proxy Statement
¨ Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))
¨ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to ss.240.14a-12

 

Acreage Holdings, Inc. 

(Name of Registrant as Specified In Its Charter)

  

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):
¨ No fee required.
x Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
  (1) Title of each class of securities to which transaction applies: Class A Subordinate Voting Shares, no par value
  (2) Aggregate number of securities to which transaction applies: As of June 30, 2020, 99,407,959 Class A Subordinate Voting Shares, which is the sum of (A) 76,980,347 Class A Subordinate Voting Shares issued and outstanding, plus (B) 22,259,612 Class A Subordinate Voting Shares issuable upon conversion of Class B Proportionate Voting Shares of registrant, plus (C) 168,000 Class A Subordinate Voting Shares issuable upon conversion of Class C Multiple Voting Shares of registrant
  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): Solely for the purpose of calculating the filing fee, the underlying value of the transaction was ‎calculated as the sum of: (A) 76,980,347 Class A Subordinate Voting Shares issued and outstanding, plus ‎‎(B) 22,259,612 Class A Subordinate Voting Shares issuable upon conversion of Class B Proportionate ‎Voting Shares of registrant, plus (C) 168,000 Class A Subordinate Voting Shares issuable upon ‎conversion of Class C Multiple Voting Shares of registrant, divided by $37,500,024.00 (the ‎maximum aggregate value of the transaction).‎
  (4) Proposed maximum aggregate value of transaction: ‎$37,500,024.00‎
  (5) Total fee paid: ‎$4,867.50, determined, in accordance with Section 14(g) of the Securities Exchange Act of 1934, as ‎amended, by multiplying 0.0001298 by the proposed maximum aggregate value of the transaction ‎of $37,500,024.00.‎
x Fee paid previously with preliminary materials.

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1) Amount Previously Paid:
  (2) Form, Schedule or Registration Statement No.:
  (3) Filing Party:
  (4) Date Filed:

 

 

 

 

 

No securities regulatory authority or stock exchange in Canada, the United States or any other jurisdiction has expressed an opinion about, or passed ‎upon the fairness or merits of, the transactions described in this document, the securities offered pursuant to such ‎transactions or the adequacy of the information contained in this document and it is an offense to claim ‎otherwise.‎

 

  

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

to be held September 16, 2020

 

and

 

PROXY STATEMENT AND MANAGEMENT INFORMATION CIRCULAR

 

with respect to a proposed

 

AMENDED PLAN OF ARRANGEMENT

 

involving

 

ACREAGE HOLDINGS, INC.,

 

SECURITYHOLDERS OF ACREAGE HOLDINGS, INC.

 

and

 

CANOPY GROWTH CORPORATION

 

 

THE BOARD OF DIRECTORS OF ACREAGE HOLDINGS, INC. RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE AMENDMENT RESOLUTION

 

These materials are important and require your immediate attention. They require shareholders of Acreage Holdings, Inc. (“Acreage”) to make important decisions. If you are in doubt as to how to make such decisions, please contact your financial, legal or other professional advisor.

 

The accompanying proxy statement and management information circular is dated August [¨], 2020 and is first being mailed to shareholders of Acreage on or about August 21, 2020.

 

If you have any questions or require assistance, please contact Kingsdale Advisors, the strategic shareholder advisor and proxy solicitation agent for Acreage, by telephone at 1-877-657-5856 toll-free in North America (+1-416-867-2272 collect) or by e-mail at contactus@kingsdaleadvisors.com, or your professional advisor.

 

August [¨], 2020

 

 

 

 

 

August [¨], 2020

 

Dear Shareholder:

 

The Board of Directors (the “Acreage Board”) of Acreage Holdings, Inc. (“Acreage”) cordially invites you to ‎attend the special meeting (the “Meeting”) of holders (the “Shareholders”) of Acreage’s issued and outstanding shares to be held at 11:00 a.m. (New York time) ‎on September 16, 2020. In light of the recent coronavirus (COVID-19) outbreak and in order to address potential issues arising from the unprecedented public health impact of the novel coronavirus (COVID-19‎), comply with applicable public health directives that may be in force at the time of the Meeting‎, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, the Meeting will be held in a virtual format, which will be ‎conducted via live webcast online at web.lumiagm.com/‎221798142 (password: Acreage2020‎). Shareholders will not need to, or be able to, physically attend the Meeting. Shareholders will have an ‎equal opportunity to attend, ask questions and vote at the Meeting online regardless of their geographic ‎location. Inside this document, you will find important information and instructions about how to participate ‎in the Meeting.

 

‎On June 24, 2020, Acreage entered into a proposal agreement with Canopy Growth Corporation (“Canopy Growth”), which sets out, among other things, the terms and conditions upon which the parties are proposing to enter into an amending agreement (the “Amending Agreement”) to amend the existing arrangement agreement between Acreage and Canopy Growth dated April 18, 2019, as amended on May 15, 2019 (the “Existing Arrangement Agreement”), amend and restate the existing plan of arrangement (the “Amended Plan of Arrangement”) and implement the Amended Plan of Arrangement pursuant to the Business ‎Corporations Act ‎‎(British Columbia) (the “Amended Arrangement”).

 

At the Meeting, you will be asked to consider and approve ‎a special resolution authorizing and approving (i) the Amended Arrangement, (ii) the Amending Agreement, (iii) the Amended Plan of Arrangement, and (iv) the second amended and restated equity incentive plan (the “Amended and Restated Omnibus Equity Incentive Plan”).

 

Please complete the enclosed form of proxy and submit it to our transfer agent and registrar, Odyssey Trust Company, as soon as possible but not later than 48 hours (excluding Saturdays, Sundays and holidays) prior to ‎the time of the Meeting or any adjournment or postponement thereof.‎

 

Pursuant to the ‎Amended Plan of Arrangement, among other things, Canopy Growth will ‎make an aggregate cash payment of US$37,500,024 to the ‎Shareholders and ‎certain holders of securities exchangeable for ‎ Existing Shares and Acreage will complete a capital reorganization (the “Capital ‎Reorganization”) ‎whereby: (i) each Class A subordinate voting ‎share (each, an “Existing SVS”) will be exchanged for 0.7 of a ‎Class E subordinate voting ‎share (each whole share, a “Fixed Share”) and 0.3 of ‎a Class D subordinate voting share ‎‎(each whole share, a “Floating Share”); (ii) ‎each Class B proportionate voting share (each, an “Existing PVS”) will be exchanged for 28 ‎Fixed Shares and 12 Floating Shares; ‎and (iii) each Class C multiple ‎voting share (each, an “Existing MVS”, and together with the Existing SVS and Existing MVS, the “Existing Shares”) will be exchanged for 0.7 ‎of a new multiple voting ‎share (each whole share, a “Fixed Multiple Share”) and 0.3 of a ‎Floating Share. ‎Each Fixed Existing MVS ‎will be ‎entitled to 4,300 votes at all meetings of Shareholders with ‎each Fixed Share and ‎each Floating Share entitled to one vote per share at ‎such meetings.‎

 

As a condition to implementation of the Amended Arrangement, an affiliate of Canopy Growth (the “Lender”) will advance the first tranche of US$50,000,000 of a loan of up to US$100,000,000 (the “Loan”) to an affiliate of the Company that operates solely in the hemp industry in full compliance with all applicable laws (“Hempco”) pursuant to a secured debenture (the “Debenture”).

 

 

 

 

Pursuant to the Amended Plan of Arrangement, upon the occurrence of a change in federal laws in the United States to permit the general cultivation, distribution and ‎possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from ‎the federal laws of the United States or waiver thereof (at ‎the discretion of Canopy Growth), ‎Canopy Growth will, subject to the satisfaction or waiver of ‎certain closing conditions set out ‎in the Amended Arrangement Agreement: (i) acquire all of ‎the issued and outstanding Fixed Shares ‎‎(following the mandatory conversion of ‎the Fixed Multiple Shares into Fixed Shares) on the ‎basis of 0.3048 of a common share in the capital of Canopy Growth (a “Canopy ‎Growth Share”) for each Fixed Share ‎held at the time of ‎the acquisition of the Fixed Shares (the “Acquisition Time”), subject to ‎‎adjustment in accordance with the terms of the Amended Plan of Arrangement ‎‎(the “Canopy ‎Call Option”); and (ii) have the right (but not the obligation) (the ‎‎“Floating Call Option”), ‎exercisable for a period of 30 days following the Floating Rate Date to acquire all of the ‎issued and outstanding Floating Shares. Upon exercise of the Floating Call Option, Canopy Growth may acquire the Floating Shares for cash or for Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the Canadian Securities Exchange (the “CSE”) (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Floating Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the New York Stock Exchange (the “NYSE”) (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option (the “Floating Ratio”). The Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to ‎the ‎Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option. It is proposed that the Canopy Call Option and the Floating Call Option will expire 10 years from the Amendment Time. There can be no guarantee as to the value of a Canopy Growth Share at the Acquisition Time.

 

The Special Committee and the Acreage Board considered a number of factors including, among others, the following:

 

(a) Preserving Shareholder Value Acreage assessed the alternatives reasonably available to it and determined that the Amended Arrangement represents the best current prospect for its continued viability and the preservation of Shareholder value. Acreage assessed the alternatives reasonably available to it given disappointing performance, sector-wide stock valuation erosion, significant constraints on funding sources and the very real prospect of being unable to comply with the Existing Arrangement Agreement. Based on these factors and the valuable relationship with Canopy Growth, Acreage determined that entry into the Amending Agreement represents the best current prospect for viability and the preservation of Shareholder value.

 

(b) Aggregate Amendment Option Payment.  At the Amendment ‎Time, Canopy ‎Growth will pay the Aggregate Amendment Option Payment of US$37,500,024 to the Shareholders, the High Street Holders and the USCo2 Holders, with the amount each such holder is entitled to receive estimated to be approximately $[] per Existing SVS. Given that there is no certainty that the Existing Canopy Option will be exercised prior to its expiry, a cash payment to Shareholders is advantageous. The Amended Arrangement still represents an attractive premium to shareholders of approximately 120% to the June 24, 2020 closing price of the Existing Shares on the CSE.

 

(c) Potential Upside with Floating Shares. Shareholders will receive Floating Shares pursuant to the Amended Arrangement.  If Canopy Growth acquires the Floating Shares pursuant to the Floating Call Option, it will do so at a price based upon the 30-day volume-weighted average trading price of the Floating Shares on the CSE, subject to a minimum of US$6.41 per Floating Share. The Acreage Board believes that, the Floating Shares, if acquired by Canopy Growth, and depending on market factors and the growth of Acreage’s business between the Amendment Time and the Acquisition Date, when combined with the consideration to be received for the Fixed Shares at the Acquisition Time, could produce a more attractive Shareholder return as compared to the Existing Arrangement 

 

 

 

 

(d) Canopy Growth Loan to Hempco.  As a condition to the Amended Arrangement becoming effective, the Lender will provide Hempco with an Initial Advance of US$50,000,000 pursuant to the Debenture. A further US$50,000,000 advance will be made available upon satisfaction of specified Hempco conditions precedent.  The Loan is anticipated to provide Acreage with the necessary financing for Hempco’s operations in the CBD market.  Acreage anticipates that Hempco’s operations will leverage Canopy Growth’s current U.S. CBD business, be accretive and drive overall value for Shareholders.

 

(e) Management Service Agreements. Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a competitor of Acreage in the United States, Canopy Growth, as a condition to completing such transaction, will require the target entity (the “Target Cannabis Operator”) to enter into a commercially reasonable management service agreement with Acreage on terms acceptable to Acreage, acting reasonably. In the event that the Target Cannabis Operator and Acreage cannot agree upon a commercially reasonable management service agreement, the Target Cannabis Operator will pay a management fee to Acreage equal to a percentage of net revenue generated by the Target Cannabis Operator.

 

(f) Waivers and Consents Obtained under Existing Arrangement.  As a condition to entering into the Proposal Agreement, Canopy Growth provided Acreage with advance consent required pursuant to the Arrangement Agreement to (i) enable Acreage to sell all or substantially all of the assets of Acreage or its Subsidiaries situated or located outside of the Identified States on such terms as Acreage may negotiate from time to time; and (ii) sell particular real property on terms that may be negotiated by Acreage.

 

For additional information with respect to these and other ‎anticipated benefits of the Amended Arrangement, see the section in the proxy statement and management information circular accompanying this letter (the “Circular”) entitled “The Amended Arrangement – Reasons for the ‎Amended Arrangement”.‎

 

The special resolution approving the Amended Arrangement, the Amending Agreement, the Amended Plan of Arrangement and the Amended and Restated Omnibus Equity Incentive Plan (the “Amendment Resolution”) must be approved by at least 66⅔% of ‎the votes cast at the Meeting by the holders of Existing Shares, voting together as a single class. In addition, the ‎Amendment Resolution is subject to approval by a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes in respect of Existing Shares which are owned, held, controlled or directed by Mr. Kevin Murphy. The Amendment ‎Resolution is also subject to the approval of a simple majority of the votes cast by the holders of outstanding Existing SVS, Existing PVS and Existing MVS, voting together as a single class, excluding the votes in respect of Existing Shares which are owned, held, controlled or directed by Mr. Murphy. Abstentions and broker non-votes will not have any effect on the approval of the Amendment Resolution.

 

Eight Capital ‎has delivered an opinion to the special committee of the Acreage Board (the ‎‎“Special Committee”), which states that, as of the date thereof, and subject to the assumptions, ‎qualifications and limitations set out therein, the consideration to be ‎received by the Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders ‎‎(the “New Fairness Opinion”).

After consulting with Acreage management and receiving advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors, including, among others, receipt of the unanimous recommendation from the Special Committee, the New Fairness Opinion and the factors set out in the Circular under the heading “Reasons for the Amended Arrangement”, the members of the Acreage Board unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) determined that the Amended Arrangement and entry into the Proposal Agreement are in the best interests of Acreage ‎and are fair to Shareholders and recommend that Shareholders vote FOR the Amendment Resolution. The accompanying Circular describes the background to the Acreage Board’s‎ determinations and recommendations.

 

The accompanying Circular contains a detailed description of the Amended Arrangement‎ and includes other information to assist you in considering the matters to be voted upon which we encourage you to carefully consider. If you require assistance, you should consult your financial, tax, legal and other professional advisors.

 

 

 

 

Your vote is important regardless of the number of Existing Shares you own. All Shareholders are encouraged to ‎take the time to complete, sign, date and return the applicable form of proxy in accordance with the instructions set ‎out therein and in the accompanying Circular so that your Existing Shares are voted at the Meeting in ‎accordance with your instructions. If you are a non-registered Shareholder and hold your Existing Shares through a ‎broker, custodian, nominee or other intermediary, please follow their instructions.

 

Please vote as soon as possible.

 

While certain matters, such as the timing of the receipt of court approval and the satisfaction of certain other ‎conditions, are beyond Acreage’s control, if the requisite approvals are obtained from Shareholders, it is ‎anticipated that the Amended Arrangement will be completed in September of 2020.

 

Enclosed is a letter of transmittal for registered Shareholders explaining how you can deposit your Existing Shares and obtain the Fixed Shares and Floating Shares in exchange therefor in connection with the Capital Reorganization. The letter of transmittal will also be available on the Company’s website at [] as well as on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar or by contacting Odyssey Trust Company (using the information set out on the back of the accompanying Circular).

 

If you have any questions regarding the submission of your proxy, please contact Odyssey Trust Company, at its ‎North American toll-free number: ‎1-888-290-1175 ‎or ‎Kingsdale Advisors, the strategic advisor and the proxy ‎solicitation agent for Acreage, by telephone at 1-877-657-5856 toll-‎free in North America (+1-416-867-2272 collect) or by e-mail at contactus@kingsdaleadvisors.com‎.

On behalf of Acreage, I would like to thank all Shareholders for your ongoing support.

Sincerely,

 

William C. Van Faasen

 

William C. Van Faasen

Interim Chief Executive Officer

Acreage Holdings, Inc.

 

 

 

 

NOTICE OF MEETING

 

NOTICE IS HEREBY GIVEN that a special meeting (the “Meeting”) of the holders (the “Existing SVS ‎Shareholders”) of Class A subordinate voting shares (the “Existing SVS”), the holders (the ‎‎“Existing PVS Shareholders”) of Class B proportionate voting shares (the “Existing PVS”) and ‎the holders (the “Existing MVS Shareholders” and, together with the Existing SVS Shareholders and the Proportionate ‎Shareholders, the “Shareholders”) of Class C multiple voting shares (the “Existing MVS”, and together ‎with the Existing SVS and the Existing PVS, the “Existing Shares”) of Acreage ‎Holdings, Inc. (“Acreage” or the “Company”) will be held on September 16, 2020 at 11:00 a.m. (New York time) for the following ‎purposes: ‎

 

1. to consider pursuant to an interim order of the Supreme Court of British Columbia (the “Court”) dated [¨‎‎], 2020 (the ‎‎“Amendment Interim Order”) and, if thought advisable, to pass, with or without variation, a special resolution (the ‎‎‎“Amendment Resolution”‎), the full text of which is set forth in Appendix “A” to the accompanying proxy statement and management ‎information circular (the “Circular”), approving (a) an amended arrangement (the “Amended Arrangement”) under Section 288 of the ‎Business Corporations Act (British Columbia) (“BCBCA”), (b) the amending agreement (the “Amending Agreement”) in the form attached hereto as Appendix “B”, which, among other things, provides for certain amendments to the arrangement agreement between Acreage and Canopy Growth Corporation (“Canopy Growth”) dated April 18, 2019, as amended on May 15, 2019, (c) the amended and restated plan of arrangement of the Company (the “Amended Plan of Arrangement”), the full text of which is set forth in Appendix “C” to the Circular, and (d) the second amended and restated equity incentive plan (the “Amended and Restated Omnibus Equity Incentive Plan”). Pursuant to the Amended Arrangement, among other things, upon receipt of a final ‎order of the Court approving the Amended Arrangement and the satisfaction or waiver of all ‎other conditions to the implementation of the Amended Arrangement set out in the proposal agreement (the “Proposal Agreement”) dated June 24, 2020 between the Company and Canopy Growth: ‎

 

(i) the Articles of the Company will be amended to, among other things, create three new classes of shares in the capital of Acreage, being Class E subordinate voting ‎shares (the “Fixed Shares”), Class D subordinate voting shares ‎‎(the “Floating Shares”) and new multiple voting ‎shares (the “Fixed Multiple Shares”);

 

(ii) the Company will complete a capital reorganization (the “Capital Reorganization”) whereby, (i) each Existing SVS will be exchanged for ‎‎0.7 of a Fixed Share and ‎‎0.3 of a Floating Share; ‎‎(ii) each Existing PVS will be exchanged for 28 ‎Fixed Shares and 12 Floating ‎Shares; and (iii) each Existing MVS will be exchanged for 0.7 ‎of a Fixed Multiple Share and 0.3 of a ‎Floating ‎Share;

 

(iii) Canopy Growth will be provided with the option (the “Canopy Call Option”) to acquire all of the issued and outstanding Fixed Shares, subject to certain conditions more particularly described in the accompanying Circular, which Canopy Call Option shall be deemed to be exercised in certain instances;

 

(iv) Canopy Growth will be provided with the option (the “Floating Call Option”) to acquire all of the issued and outstanding Floating Shares, subject to certain conditions more particularly described in the accompanying Circular;

 

(v) Shareholders and certain other holders of securities exchangeable for Existing Shares‎ will receive an aggregate total payment of US$37,500,024‎ (the “Aggregate Amendment Option Payment”) upon the Amended Arrangement becoming effective;

 

(vi) upon the exercise (or deemed exercise) of the Canopy Call Option, holders of Fixed Shares (following the mandatory conversion of all of the then outstanding Fixed Multiple Shares) will receive ‎0.3048 ‎of a common share in the capital of Canopy Growth (each, a “Canopy Growth Share”) (subject to adjustment in accordance with the Amended Plan of Arrangement) for each such Fixed Share; and

 

(vii) if the Floating Call Option is exercised by Canopy Growth, Canopy Growth will purchase the then outstanding Floating Shares at a price equal to the 30-day volume weighted average trading price of the Floating Shares on the Canadian Securities Exchange (or other recognized stock exchange on which the ‎ Floating Shares are primarily traded), subject to a minimum of US$6.41 per share, payable in either cash or Canopy Growth Shares or a combination thereof, at Canopy Growth’s option; and

 

 

 

 

2. to transact such other business as may properly be brought before the Meeting or any adjournment or postponement thereof.

 

The Circular provides additional information relating to the matters to be addressed at the Meeting, including the Amended Arrangement‎.

 

The full text of the Amended Plan of Arrangement, the Amending Agreement and the Amendment Interim Order are attached to the Circular as Appendix “C”, Appendix “B” and Appendix “E”, respectively.

 

Additional information relating to the matters to be brought before the Meeting is set forth in the Circular which accompanies this Notice.

 

The Company’s board of directors (the “Acreage Board”) unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) recommends that Shareholders vote FOR the Amendment Resolution. It is a condition of the execution of the Amended Arrangement Agreement and the implementation of the Amended Arrangement that the Amendment Resolution is adopted at the Meeting.

 

The Acreage Board fixed August 13, 2020, as the record date for the Meeting (the “Record Date”). Shareholders of record at the close of business on the Record Date are entitled to notice of the Meeting and to vote thereat or at any adjournment or postponement thereof on the basis of: (i) one vote for each Existing SVS held; (ii) 40 votes for each Existing PVS held; and (iii) 3,000 votes for each Existing MVS held. To be adopted, the Amendment Resolution must be approved by: (i) at least 66⅔% of the votes cast by Shareholders, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) in accordance with Multilateral Instrument 61-101 – Protection of Minority Securityholders in Special Transactions (“MI 61-101”), a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes cast by any “interested party”, any “related party” of an “interested party” or any “joint actor” (as such terms are defined in MI 61-101) (the “Interested Parties”); and (iii) in accordance with Ontario Securities Commission Rule 56-501 (“OSC Rule 56-501”) and National Instrument 41-101 – General Prospectus Requirements (“NI 41-101”), a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, excluding the votes cast by any affiliates of the Company and securities held directly or indirectly by control persons of the Company (the “Related Parties”). Abstentions and broker non-votes will not have any effect on the approval of the Amendment Resolution. Since all of the holders of Existing MVS are ‎Interested Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to MI 61-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Interested Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of MI 61-101.‎ In addition, since Mr. Murphy, the sole holder of Existing MVS, is ‎a Related Party, the votes with respect to all of the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Related Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101.

 

 

 

 

Meeting Format

 

The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Shareholders will not be able to attend the Meeting in person.

 

To address potential issues arising from the unprecedented public health impact of the novel coronavirus (COVID-19), comply with applicable public health directives that may be in force at the time of the Meeting‎, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, we will be holding the Meeting in a virtual only format. Shareholders will not need to, or be able to, physically attend the Meeting. Registered Shareholders and duly appointed proxyholders are entitled to vote at the Meeting either by attending virtually or by submitting a form of proxy, as described in the Circular under the headings, “General Proxy Information” and “How to Vote Your Shares”.

 

In order to attend, participate in or vote at ‎the Meeting (including for voting and asking questions at the Meeting), Registered Shareholders and duly appointed proxyholders must have a valid ‎username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the ‎Meeting. To join as a guest please visit the Meeting online at web.lumiagm.com/‎221798142 and select “Join as a Guest” ‎when prompted.

 

Non-Registered Shareholders (being beneficial Shareholders who hold their Existing Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able to attend the Meeting as a guest and view the webcast but will not be able to participate in or vote at the Meeting. Registered Shareholders may attend, participate in and vote at the Meeting or may be represented by proxy. Registered Shareholders and duly appointed proxyholders will be to access the Meeting at web.lumiagm.com/‎221798142. Registered Shareholders may enter the Meeting by clicking ‎‎“I have a login” and entering a username and password before the start of the Meeting.

 

Registered Shareholders: The control number located on the form of proxy is the username. The password for the Meeting is “Acreage2020” (case sensitive). If as a Registered Shareholder you use your control number to access the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided with the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, you will not be able to participate at the Meeting online and can only attend the meeting as a guest.

 

Duly appointed proxyholders: Shareholders who wish to appoint a third -party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who have appointed themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or voting instruction form, as applicable, AND register the proxyholder in advance of the proxy cut-off at 11:00 a.m. (New York time) on September 14, 2020. Following registration of a proxyholder, Odyssey Trust Company will provide duly appointed proxyholders with a username by e-mail after the voting deadline has passed. The password for the Meeting is “Acreage2020” (case sensitive). Non-Registered Shareholders who have not duly appointed themselves as proxyholder will be able to attend the Meeting as a guest but will not be able to participate in or vote at the Meeting.

 

If you are a Registered Shareholder and are unable to attend the Meeting virtually, please exercise your right to vote by completing, signing, dating and returning the applicable accompanying form of proxy to Odyssey Trust Company, the transfer agent of the Company as soon as possible, so that as large a representation as possible may be had at the Meeting. To be valid, completed proxy forms must be signed, dated and deposited with Odyssey Trust Company using one of the following methods:

 

By Mail or Hand Delivery:

Odyssey Trust Company

Attention: Proxy Department

323 – 409 Granville Street, Vancouver, BC V6C 1T2

Facsimile: 1.800.517.4553
By Internet: https://www.shareholderaccountingsoftware.com/odyssey/pxlogin ‎

 

Proxies must be deposited with Odyssey Trust Company not later than 11:00 a.m. (New York time) on September 14, 2020, or, if the Meeting is adjourned or postponed, not later than 48 hours, excluding Saturdays, Sundays and holidays, preceding the time of such reconvened Meeting or any adjournment or postponement thereof. The Chair of the Meeting shall have the discretion to waive or extend the proxy deadlines without notice.

 

If you are unable to attend the Meeting, we encourage you to complete and return the enclosed form of proxy as soon as possible so that as large a representation as possible may be had at the Meeting. If a Shareholder receives more than one form of proxy because such holder owns Existing Shares of different classes and/or registered in different names or addresses, each form of proxy must be completed and returned in order to ensure all Existing Shares are voted.

 

 

 

 

Registered Shareholders have the right to dissent with respect to the Amendment Resolution and, if the Amendment Resolution is adopted, to be paid the fair value of their Existing Shares in accordance with the provisions of the BCBCA as modified by the Amended Plan of Arrangement, the Amendment Interim Order and the final order of the Court approving the Amended Plan of Arrangement (the “Amendment Final Order”), as described in the accompanying Circular under the heading “Dissent Rights”. Failure to strictly comply with the requirements with respect to the dissent rights set forth in the BCBCA, as modified by the Amended Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order may result in the loss of any right to dissent. Persons who are beneficial owners of Existing Shares registered in the name of a broker, custodian, nominee or other intermediary and who wish to dissent must make arrangements for the Existing Shares beneficially owned by them to be registered in their name prior to the time the written objection to the Amendment Resolution is required to be received by the Company or, alternatively, make arrangements for the registered holder of such Existing Shares to dissent on their behalf.

 

If you are a Registered Shareholder and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance with the instructions provided to you by your broker or other intermediary, as applicable.

 

Enclosed is a letter of transmittal for registered Shareholders explaining how you can deposit your Existing ‎Shares and obtain the Fixed Shares and Floating Shares in exchange therefor in connection with the Capital ‎Reorganization. The letter of transmittal will also be available on the Company’s website at [¨] as well as on ‎SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar or by contacting Odyssey Trust Company (using ‎the information set out on the back of the accompanying Circular).

If you have any questions or require assistance, please contact Kingsdale Advisors, our strategic shareholder advisor and proxy ‎solicitation agent, by telephone at 1-877-657-5856 toll-‎free in North America (+1-416-867-2272 collect calls outside of North America) or by e-mail at contactus@kingsdaleadvisors.com, or your ‎professional advisor.

 

DATED at New York, New York this [¨] day of August, 2020.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

(Signed) “[¨]”  

[¨]

[Title]

 

 

 

 

 

 

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE AMENDED ARRANGEMENT, THE POTENTIAL ACQUISITION AND THE MEETING

 

The information contained below is of a summary nature and therefore is not complete. This summary information is qualified in its entirety by the more detailed information contained elsewhere in or incorporated by reference into this Circular, including the Appendices hereto, the form of proxy, and the Capital Reorganization Letter of Transmittal, each of which are important and should be reviewed carefully. Capitalized terms used in these questions and answers but not otherwise defined herein have the meanings set forth in the “Glossary of Terms” in this Circular. See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors”.

 

Q&A ON THE AMENDED ARRANGEMENT

 

General

 

Q: What are the Shareholders being asked to vote on?

 

A: Shareholders are being asked to vote on a special resolution to, among other things, approve: (i) the Amended Arrangement; (ii) the Amending Agreement; (iii) the Amended Plan of Arrangement to terminate the Existing Canopy Option and provide for the Canopy Call Option and the Floating Call Option; and (iv) the Amended and Restated Omnibus Equity Incentive Plan.

 

See “The Amended ‎Arrangement – Required Shareholder Approvals”.

 

Q: What changes are being proposed to the Existing Canopy Option?

 

A: Under the Existing Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the ‎issued and outstanding Existing SVS (after each Existing MVS and Existing PVS is converted into an Existing SVS) in exchange for 0.5818 of a ‎Canopy Growth Share for each Existing SVS‎, subject to adjustment in certain circumstances as set out in the Arrangement Agreement.

 

As described in greater detail below, the Amended Plan of Arrangement will include, the Capital Reorganization pursuant to which, among other things (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of ‎a Floating Share; (ii) ‎each outstanding Existing PVS will be exchanged for 28 ‎Fixed Shares and 12 Floating Shares; ‎and (iii) each outstanding Existing MVS will be exchanged for 0.7 ‎of a Fixed Multiple Share and 0.3 of a ‎Floating Share. Under the Amended Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will (i) acquire all of ‎the issued and outstanding Fixed Shares ‎‎(following the mandatory conversion of ‎the Fixed Multiple Shares into Fixed Shares) on the ‎basis of the Exchange Ratio ‎for each Fixed Share held at the Acquisition Time; and (ii) have the right (but not the obligation) exercisable for a period of 30 days following the Floating Rate Date, to exercise the ‎‎Floating Call Option to acquire all of the ‎issued and outstanding Floating Shares. The Existing Canopy Option expires on December 27, 2026. Under the Amended Arrangement, the Canopy Call Option will expire 10 years from the Amendment Time.

 

If Canopy Growth exercises the Floating Call Option, it may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Fixed Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option.

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement”.‎

 

 

 

 

Q: What will I receive for my Shares upon implementation of the Amended Plan of Arrangement?

 

A: If implemented, at the Amendment ‎Time, Canopy ‎Growth will pay the Aggregate Amendment Option Payment of US$37,500,024 on a pro rata basis to each ‎Shareholder, High Street Holder and USCo2 Holder and each of the holders thereof will be entitled to receive approximately $[¨] per Existing SVS (assuming the conversion or exchange of such Eligible Securities for Existing SVS) based on the number of outstanding Existing Shares as of the date hereof. In addition, among other things, the Company will complete the Capital Reorganization whereby, (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of ‎a Floating Share; (ii) ‎each outstanding Existing PVS will be exchanged for 28 ‎Fixed Shares and 12 Floating Shares; ‎and (iii) each outstanding Existing MVS will be exchanged for 0.7 ‎of a Fixed Multiple Share and 0.3 of a ‎Floating Share. No fractional Fixed Shares, Fixed Multiple Shares or Floating Shares will be ‎‎issued pursuant to the Capital Reorganization. Each Fixed Multiple Share ‎will be ‎entitled to 4,300 votes at all meetings of Shareholders and ‎each Fixed Share and ‎each Floating Share will be entitled to one vote per share at ‎such meetings.‎

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement”, “Transaction Agreements – Amending Agreement – Amended Plan of Arrangement” and “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth ‎Consideration – Treatment of Fractional Consideration”.‎

 

Q: What will I receive for my Fixed Shares upon exercise (or deemed exercise) of the Canopy Call Option?

 

A: Under the Amended Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will acquire all of ‎the issued and outstanding Fixed Shares ‎‎(following the mandatory conversion of ‎the Fixed Multiple Shares into Fixed Shares) in exchange for 0.3048 of a Canopy ‎Growth Share for each Fixed Share ‎held at the Acquisition Time, subject to ‎adjustment in accordance with the terms of ‎the Amended Arrangement, ‎for each Fixed Share held at the Acquisition Time.

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement”, “The Amended Arrangement – Description of the Amended Arrangement” “Transaction Agreements – Amending Agreement – Amended Plan of Arrangement”, and “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth ‎Consideration – Treatment of Fractional Consideration”.‎

 

Q: What will I receive for my Floating Shares if Canopy Growth exercises the Floating Call Option?

 

A: Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth ‎will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of ‎the Acquisition Closing Conditions, Canopy Growth will have the right (but not the obligation) exercisable for ‎a period of 30 days following the Floating Rate Date, to exercise the ‎‎Floating Call Option to acquire all of the ‎‎issued and outstanding Floating Shares‎.

 

Canopy Growth may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Fixed Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to ‎the ‎Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option.

 

 

 

 

At the time of the Meeting, Shareholders will not know whether or not the Floating Call Option will be exercised by Canopy Growth and, if exercised, whether Shareholders will receive cash, Canopy Growth Shares or a combination thereof in consideration for their Floating Shares. In addition, at the time of the Meeting, Shareholders will not know the value to be received in exchange for their Floating Shares, assuming that the Floating Call Option is exercised, as the Floating Ratio is based upon the future value of the Floating Shares, determined as of the date of the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event. Within 30 days of the exercise (or deemed exercise) of the Canopy Call Option, Canopy Growth must decide whether or not to exercise the Floating Call Option and publicly announce whether the consideration for the Floating Shares will be comprised of cash, Canopy Growth Shares or a combination thereof.

 

See “The Amended Arrangement – Description of the Amended Arrangement”, “The Amended Arrangement – Principal Steps of the Amended Arrangement” and “Transaction Agreements – Amending Agreement - Amended Plan of Arrangement”.‎

 

Q: What will happen to my Acreage Options, Acreage Compensation Options and Acreage RSUs pursuant to the Amended Plan of Arrangement?

 

A: At the Amendment Time, on the terms and subject to the conditions of the Amended Plan of ‎‎Arrangement, each Acreage Option, Acreage RSU and Acreage Compensation Option that is outstanding immediately prior to the Amendment Time, will be ‎exchanged for a Fixed Share Replacement Security to acquire 0.7 of a Fixed Share and a Floating Share ‎Replacement Security to acquire 0.3 of a Floating Share in order to account for ‎the Capital Reorganization.‎ The exercise price payable in respect of the Fixed Share Replacement Securities and Floating Share ‎Replacement Securities will be multiplied by 0.7 or 0.3, as applicable, to reflect the Capital Reorganization‎.

 

At the Acquisition Time, on the terms and subject to the conditions of the Amended ‎Plan of ‎Arrangement, each Fixed Share Replacement Security will be exchanged for ‎a Replacement ‎Option, Replacement RSUs or Replacement Compensation Options, as ‎applicable, to acquire from ‎Canopy Growth such number of Canopy Growth Shares ‎as is equal to: (i) the number of ‎Fixed Shares that were issuable upon exercise of ‎such Fixed Share Replacement Security ‎immediately prior to the Acquisition Time, ‎multiplied by (ii) the Exchange Ratio in effect ‎immediately prior to the Acquisition ‎Time (provided that if the foregoing would result in the ‎issuance of a fraction of a ‎Canopy Growth Share, then the number of Canopy Growth Shares ‎to be issued will ‎be rounded down to the nearest whole number).‎

 

If the Floating Call Option is exercised and Canopy Growth acquires ‎the ‎Floating Shares at the Acquisition Time, on the terms and subject to the ‎conditions of the ‎Amended Plan of Arrangement, each Floating Share Replacement ‎Security will be exchanged ‎for a Replacement ‎Option, Replacement RSUs or Replacement Compensation Options, as applicable, ‎to acquire from Canopy Growth ‎such number of Canopy Growth Shares as is equal to: (i) the ‎number of Floating ‎Shares that were issuable upon exercise of such Floating Share ‎Replacement ‎Security immediately prior to the Acquisition Time, multiplied by (ii) the ‎Floating ‎Ratio (provided that if the foregoing would result in the issuance of a fraction of a ‎‎Canopy Growth Share, then the number of Canopy Growth Shares to be issued will ‎be ‎rounded down to the nearest whole number).‎

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement”.

 

Q: What will happen to my High Street Units and USCo2 Shares that are currently convertible or ‎exchangeable into Existing SVS pursuant to the Amended Plan of Arrangement‎?

 

A: In order to reflect the Capital Reorganization, following the Amendment Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable on the basis of 0.7 of a Fixed Share and 0.3 of a Floating Share in respect of each Existing SVS that otherwise would have been issuable upon such exercise, conversion or exchange.

 

If the Canopy Call Option and the Floating Call Option are exercised, following the Acquisition Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Growth Shares on the basis of the Exchange Ratio and the Floating Ratio.

 

See “The Amended Arrangement – Treatment of High Street Holders and USCo2 Holders” and “Securities Law Matters – U.S. Securities LawsExemption from U.S. Registration”.

 

 

 

 

Q: What are the consequences of the Amending Agreement becoming effective at the Amendment Time?

 

A: If the Amendment Resolution is adopted and the Amending Agreement is executed, the Amending Agreement will provide for, among other things: (i) the ‎‎implementation of the Amended Plan of Arrangement; and (ii) amendments to the ‎definition ‎of Canopy Growth Approved Share Threshold (being the maximum number of Shares that may be issued without the consent of Canopy Growth and without reducing the Exchange Ratio) to ‎reduce the number of shares of the Company available to be issued ‎by the Company such that, following ‎the Amendment Time, the Company may ‎issue a maximum of 32,700,000 shares ‎‎(or convertible securities in proportion to the ‎foregoing), which will include (a) ‎‎3,700,000 Option ‎‎Shares; (b) 8,700,000 Floating Shares other than the Option Shares; and (c) ‎‎20,300,000 ‎Fixed Shares. Notwithstanding the foregoing, the Amending Agreement ‎provides that the Company ‎may not issue any equity securities, without Canopy ‎Growth’s prior consent, other than: (i) ‎upon the exercise or conversion of ‎convertible securities outstanding as of the Amendment ‎Date; (ii) contractual ‎commitments existing as of the Amendment Date; (iii) the Option ‎Shares; (iv) the ‎issuance of up to US$3,000,000 worth of Fixed Shares pursuant to an at-the-‎market ‎offering to be completed no more than four times during any one-year period; (v) ‎the ‎issuance of up to 500,000 Fixed Shares in connection with debt financing ‎transactions that ‎are otherwise in compliance with the terms of the Arrangement ‎Agreement, as amended by ‎the Amending Agreement; or (vi) pursuant to one ‎private placement or public offering of ‎securities during any one-year period for ‎aggregate gross proceeds of up to US$20,000,000, ‎subject to specific limitations as ‎set out in the Amending Agreement.‎

 

In addition, the Amending Agreement will provide for, among other things: (i) ‎various ‎Canopy Growth rights that extend beyond the Acquisition Date and ‎continue until the End Date, including, among ‎others, rights to nominate a majority of the Acreage ‎Board following the Acquisition ‎Time, rights to designate all replacement officers, following the resignation or termination, as applicable, of the officers following the Acquisition Time, restrictions on the Company’s ability to incur certain ‎indebtedness without ‎Canopy Growth’s consent; (ii) restrictive covenants in respect of the ‎business ‎conduct in favor of Canopy Growth; (iii) termination of non-competition and ‎‎exclusivity rights granted to the Company by Canopy Growth in the Arrangement ‎Agreement in ‎the event that the Company does not meet certain specified financial ‎targets on an annual basis ‎during the term of the Canopy Call Option as further ‎described below; (iv) implementation of ‎further restrictions on the Company’s ‎ability to operate its business, including its ability to hire ‎certain employees or make ‎certain payments or incur any non-trade-payable debt without ‎Canopy Growth’s ‎consent in the event that the Company does not meet certain specified financial ‎‎targets on a quarterly basis during the term of the Canopy Call Option as further ‎described ‎below; (v) a specified set of criteria that each new director and officer, as applicable, is required to meet, unless the consent of Canopy Growth is obtained; and (vi) termination of the Arrangement Agreement and Canopy ‎Growth’s obligation ‎to complete the acquisition of the Fixed Shares pursuant to the ‎Canopy Call Option in the ‎event that the Company does not meet certain specified ‎financial targets in the trailing 12 month ‎period as further described below.

 

See “Transaction Agreements – Amending Agreement”.‎

 

Q: What happens if Acreage does not meet or exceed the targets related to the Initial Business Plan?

 

A: In the event that Acreage has not satisfied: ‎‎(i) 90% of the Pro-Forma Net Revenue Target or the Consolidated ‎Adj. EBITDA Target set forth in the Initial Business Plan, measured on a quarterly basis, an Interim Failure to ‎Perform will occur and the Austerity Measures shall become applicable and provide significant restrictions on ‎Acreage’s ability to take certain actions otherwise permitted by the Amended Arrangement Agreement; (ii) ‎‎ 80% ‎of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial Business ‎Plan, ‎as determined on an annual basis (commencing in respect of the fiscal year ending December 31, 2021), a ‎Material Failure to Perform will occur and (a) certain restrictive covenants ‎applicable to Canopy ‎Growth under the ‎Amended Arrangement Agreement will cease to apply in order ‎to permit ‎Canopy Growth to acquire, or ‎conditionally acquire, a competitor of the Company ‎in the ‎United States should it wish to do so, and (b) an event of default under the Debenture will likely occur resulting in the Loan becoming immediately due and payable; and ‎‎(iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial ‎Business Plan for the trailing 12 month ‎period ending on the date that is 30 days prior ‎to the proposed Acquisition Time, a Failure to Perform shall occur and a ‎material adverse impact will be deemed to have occurred ‎for ‎purposes of Section ‎‎6.2(2)(h) of the Arrangement Agreement and Canopy Growth will ‎not be required ‎to complete ‎the Acquisition of the Fixed Shares pursuant to the Canopy Call ‎Option‎. ‎‎

 

See “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans”, “Business Plan Requirements” and “Risk Factors”.

 

 

 

 

Q: What assumptions used to formulate the Initial Business Plan are most likely to cause a Failure to Perform, a Material Failure to Perform and/or an Interim Failure to Perform to occur?

 

A: The Initial Business Plan was prepared based on the current expectations of management and the Acreage Board with respect to the anticipated results of Acreage’s business for each of the fiscal years ending December 31, 2020 through December 31, 2029, which management and the Acreage Board believe are based on reasonable assumptions as of the date hereof. There can be no certainty that the assumptions underlying the Consolidated Adj. EBITDA Targets or the Pro-Forma Net Revenue Targets set out in the Initial Business Plan will prove to be accurate and the results of Acreage may deviate from the expectations of management and the Acreage Board described under the heading “Business Plan Requirements” in this Circular. These risks to achieving the targets set out in the Initial Business Plan include, among others, adverse regulatory changes in the Identified States, the failure to adequately raise the capital necessary to operate Acreage’s business, the inability to attract and retain appropriate employees and those other items identified under the heading “Risk Factors”. If Acreage does not meet the targets in the Initial Business Plan, there may be an Interim Failure to Perform, a Material Failure to Perform and, depending on when the Canopy Call Option is exercised, a Failure to Perform may occur.

 

See “Risk Factors”.

 

Q: If the Austerity Measures are implemented at any point in time, what implications would the Austerity Measures have for Acreage’s business and Acreage’s ability to avoid a Material Failure to Perform or a Failure to Perform?

 

A: In the event of an Interim Failure to Perform and the imposition of the Austerity Measures, the likelihood that, absent Canopy Growth’s consent to facilitate Acreage taking actions necessary to alleviate such Interim Failure to Perform, there will be a Material Failure to Perform and, if the Canopy Call Option is exercised, a Failure to Perform would be increased. Accordingly, the requirement of Canopy Growth to complete the Acquisition pursuant to the Canopy Call Option may be jeopardized; however, Canopy Growth would have the option, in its sole discretion, to waive such rights and complete the Acquisition notwithstanding any such Failure to Perform.

 

Q: When will the Amendment Time occur?

 

A: Subject to obtaining the Amendment Final Order as well as the satisfaction of all other conditions precedent set out in the Proposal Agreement, it is anticipated that the Amendment Time will occur in September, 2020. The Acquisition forming part of the Amended Arrangement will be completed upon occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event (at the discretion of Canopy Growth), subject to the satisfaction or waiver of the Acquisition Closing Conditions as described in the Circular.

 

See “Transaction Agreements - The Proposal Agreement - Conditions for Implementation of the Amended Arrangement” and “Transaction Agreements - Amending Agreement”.

 

Q: What will happen if the Amendment Resolution is not adopted or the Amended Arrangement is not implemented for any reason?

 

A: If the Amendment Resolution is not approved, the Proposal Agreement will terminate and cease to be effective and the Existing Arrangement, including the terms of the Existing Canopy Option, will remain in place, the Capital Reorganization will not be completed, the proposed amendments to the Arrangement Agreement will not be effective, the Debenture will not be entered into and the Initial Advance will not be made to Hempco. Canopy Growth will continue to be required to acquire the Existing SVS in accordance with the Existing Canopy Option upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event and the satisfaction or waiver of the Acquisition Closing Conditions. In addition, the A&R License will continue to govern the relationship between the parties thereto. If the Acreage Board makes a Change in Recommendation, the Amendment Resolution is not approved and the Proposal Agreement is subsequently terminated, Acreage will be required to pay the Termination Expense Reimbursement to ‎Canopy Growth in the amount of ‎US$3,000,000; provided, ‎however, that Acreage will not be required to make ‎such payment if the Change in ‎Recommendation was the result of a Purchaser ‎Material Adverse Effect (as defined in the Arrangement Agreement). See “Risk Factors - Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect”, “Transaction Agreements - The Proposal Agreement – Termination of Proposal Agreement” and “Transaction Agreements - The Proposal Agreement – Termination of Proposal Agreement – Expenses of the Amended Arrangement - Termination Expense Reimbursement.”‎

 

Q: When is Canopy Growth expected to exercise the Canopy Call Option?

 

A: If the Amendment Resolution is adopted and the Amending Agreement is executed, the Existing Canopy Option expires on December 27, 2026. Under the Amended Arrangement, the Canopy Call Option expires 10 years from the Amendment Time. Canopy Growth is contractually obligated to exercise the Canopy Call Option upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event; provided that the acquisition of the Fixed Shares is subject to the satisfaction or waiver of the Acquisition Closing Conditions. Canopy Growth may, in its sole discretion, elect to exercise the Floating Call Option within 30 days of the exercise (or deemed exercise) of the Canopy Call Option.

 

See “The Amended Arrangement – Description of the Amended Arrangement”, “The Amended Arrangement – Timing for Implementation of the Amended Arrangement”, “The Amended Arrangement – Principal Steps of the Amended Arrangement” or the Amended Plan of Arrangement, a copy of which is attached as ‎Appendix “C” to this Circular.‎

 

 

 

 

Q: Will the Existing SVS continue to trade following the Amendment Date?

 

A: No, the Existing SVS will cease to trade on the CSE, the OTCQX and the Frankfurt Stock Exchange following the Amendment Date. Following the Capital Reorganization, each of the Fixed Shares and the Floating Shares will be listed on the CSE. Any Person who acquires Fixed Shares or Floating Shares following the Amendment Date (whether from a new issuance from treasury or a transfer) will acquire such Fixed Shares and Floating Shares subject to the terms and conditions of the Amended Plan of Arrangement, including the Canopy Call Option and the Floating Call Option.

 

See “Regulatory Matters - Stock Exchange Matters”.

 

Q: Who will be the directors and officers of Acreage following implementation of the Amended Plan of Arrangement and the Acquisition?‎

 

A: Following the Amendment Time, it is not currently expected that there will be any change to the directors and ‎officers of Acreage. During the Amendment Interim Period, other than the existing directors and officers of ‎the Company, ‎Acreage cannot nominate or appoint, as applicable, any individual to serve as a director or officer of the ‎Company that does not meet the Required Director Criteria or ‎the Required Officer Criteria, as applicable. At ‎the Acquisition ‎Time, each of the directors and officers are expected to resign and Canopy Growth will be ‎entitled to designate all replacement directors and officers to fill such vacancies In the event that the Floating ‎Call Option is not exercised, Canopy Growth will have the right, until the End ‎Date, to nominate a majority of ‎the directors on the Acreage ‎Board‎.

 

See “Transaction Agreements – Amending Agreement – Covenants Regarding Acreage’s Directors and Officers”.‎

 

Q. Will the Exchange Ratio and/or the Floating Ratio be reduced prior to the Triggering Event Date?

 

A: The Exchange Ratio and the Floating Ratio will only be reduced in the event that Acreage breaches certain covenants set out in the Amended Arrangement Agreement with respect to the maximum number of Fixed Shares and Floating Shares it may issue during the Amendment Interim Period, or, in the case of the Exchange Ratio, if Acreage is required to make a Payout.

 

Q: Are there any risks I should consider in connection with the Amended Arrangement?‎

 

A: Yes. There are a number of risk factors relating to the Amended Arrangement, the Acquisition, and the business and ‎operations of each of Acreage and Canopy Growth, all of which should be carefully considered. These risks include, among others: the significant restriction on the ability of the Company to conduct its business in the ordinary course in the event that certain Pro-Forma Net Revenue Targets and Consolidated Adj. EBITDA Targets for each applicable fiscal year ‎of the Initial Business Plan are not met; ‎the Company may be unable to raise additional funds as needed, the scope of the Company’s operations or growth may be ‎reduced and, as a ‎result, the Company may be unable to fulfil its long-term goals; the Company may breach its restrictive covenants under the Arrangement Agreement, which could result in Canopy Growth ‎‎not having to complete the Acquisition at the Acquisition Time; and the possibility that Canopy Growth will exercise the Canopy Call Option and not exercise the Floating Call Option, and the depressing effect on the trading price of the Floating Shares that would likely have‎. See “Risk Factors”.‎

 

Q: Given the significant restrictions on issuing Company Debt and securities of Acreage, how does Acreage anticipate financing its business on an on-going basis?

 

A: Acreage has refined its business strategy by taking steps to target cash flow positive operations and its expectation is that all future growth of Acreage will be principally driven by its operational success. Such steps will include the proposed Non-Core Divestitures and limitation of the Company’s business to the Identified States. Depending upon the timing of the Acquisition and the state of Acreage’s business, Acreage may need to obtain additional financing and, any such financing must be done in accordance with the restrictions contained in the Amended Arrangement Agreement or with the consent of Canopy Growth.

 

 

 

 

Q: Are Shareholders entitled to Dissent Rights?

 

A: Yes. Under the Amendment Interim Order, Registered Shareholders are entitled to Dissent Rights if the ‎Amendment Resolution is approved, but only if such Registered Shareholders follow the procedures specified in the ‎BCBCA, as modified by the Amended Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order. If you wish to exercise ‎Dissent Rights, you should review the requirements summarized in this Circular carefully and consult with your legal ‎advisor. Any failure by a Shareholder ‎to fully comply with the provisions of the BCBCA, as modified by the Amended Plan of Arrangement, the Amendment Interim Order ‎and the Amendment Final Order, may result in the loss of that holder’s Dissent Rights.‎

 

See “Dissenting Shareholders’ Rights”.‎

 

Q: Do Shareholders, High Street Holders and USCo2 Holders need to provide a letter of transmittal or take any other steps to receive their portion of the Aggregate Amendment Option Payment?

 

A: No. All holders of Shares, High Street Units and USCo2 Shares as of the close of business on the Business Day ‎immediately prior to the Amendment Date will be entitled to receive their pro rata share of the Amendment ‎Consideration without taking any further action‎.

 

See “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth ‎Consideration”.

 

Q: Should I send in my Capital Reorganization Letter of Transmittal and Existing Share certificates now?

 

A: All Registered Shareholders should complete, sign and return the Capital Reorganization Letter of Transmittal with accompanying Existing Share certificate(s) or direct registration advice to the Transfer Agent as soon as possible. If the Amendment Resolution is adopted and the Amending Agreement is executed, all deposits of Existing Shares, as applicable, made under the Capital Reorganization Letter of Transmittal are irrevocable.

 

Any certificate(s) or direct registration advice that immediately prior to the Amendment Time represent Existing Shares shall be deemed after the Amendment Time to represent only the right to receive certificate(s) or a direct registration advice representing the Shares to be issued in exchange therefor upon surrender thereof.

 

See “The Amended Arrangement - Capital Reorganization Letter of Transmittal”.

 

Background

 

Q: What is the process that led to the proposed amendments to the Plan of Arrangement and the Arrangement Agreement?

 

A: Since inception, Acreage made significant investments into its business for growth, operational and capital ‎needs and suffered substantial losses‎.  Following implementation of the Existing Arrangement on June 27, 2019, ‎Acreage attempted to leverage the Existing Canopy Option and Acreage’s ‎relationship with Canopy Growth in pursuit of various alternatives to finance Acreage’s business, including certain potential ‎acquisition alternatives; however, these efforts were not successful. Given the structural limitations on ‎financing alternatives imposed on companies operating in the U.S. cannabis industry and the challenging capital ‎markets conditions that Acreage faced in the latter half of 2019, efforts to secure third party financing in late 2019 were ‎unsuccessful. Canopy Growth’s regulatory and compliance ‎constraints restricted its ability to directly or indirectly invest in Acreage‎. Faced with a working capital shortfall, Acreage embarked on various financing ‎alternatives‎ throughout much of the past year. The Arrangement Agreement contained a number of constraints on Acreage which prevented it from pursuing financing and M&A transactions which fell outside a narrow set of parameters without Canopy Growth’s consent.  Acreage considered a number of potential financing proposals; however, it did not identify any options which were satisfactory to Acreage and complied with the Arrangement Agreement.

 

Initially, when discussing the terms upon which the Existing Arrangement would be amended, Canopy Growth indicated that it would be willing to consider alternatives to assist Acreage, provided that any such alternatives would be subject to a concurrent reduction of the Existing Exchange Ratio to 0.1 of a Canopy Growth Share to align with the then current trading prices of the Existing SVS and the Canopy Growth Shares. ‎Through extensive negotiations with Canopy Growth, the Company was ultimately able to negotiate an improved exchange ratio of 0.3048 of a Canopy Growth Share for each Fixed Share as well as the issuance of the Floating Shares, which are anticipated to provide additional upside to Shareholders.

 

 

 

 

A summary of the material events leading up to the negotiation of the Proposal Agreement and the Amended Arrangement and the material meetings, negotiations and discussions between Acreage and Canopy Growth and their respective advisors that preceded the execution of the Proposal Agreement and public announcement of the Amended Arrangement is included in this Circular under the heading “The Amended Arrangement - Background to the Amended Arrangement. See also “Reasons for the Amended Arrangement” and “Cautionary Statement Regarding Forward-Looking Information”‎.

 

Q: Has a fairness opinion been provided on the Amended Arrangement?

 

A: Yes, the Special Committee received the New Fairness ‎Opinion, pursuant to which Eight Capital provided its opinion that, as at the date of each such opinion and subject to the assumptions, qualifications and limitations set out therein, and such other matters as Eight Capital considered relevant, the Consideration to be received by Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders. The New Fairness Opinion can be found in Appendix “D” to the Circular.

 

See “The Amended Arrangement‎ – New Fairness Opinion”.

 

Q: Does the Acreage Board support the amendments to the Arrangement Agreement and the Amended Plan of Arrangement?

 

A: Yes. The Acreage Board has unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) determined, that the Amended Arrangement and entry into the Proposal Agreement are in the best interests of Acreage and are fair to Shareholders and recommends that Shareholders vote FOR the Amendment Resolution.

 

In making its recommendation, the Acreage Board consulted with Acreage management and received the advice and assistance of its financial and legal advisors, and carefully considered a number of alternatives and factors including, among others, the unanimous recommendation of the Special Committee and the New Fairness Opinion and the factors described in this Circular under the heading “The Arrangement – Reasons for the Arrangement”. All directors and officers, including Mr. Murphy, entered into Voting Agreements with Canopy Growth pursuant to which each of them has agreed to vote their Shares in favor of the Amendment Resolution.

See “The Amended Arrangement – Background to the Amended Arrangement”, “The Amended Arrangement – Recommendation of the Special Committee”, “The Amended Arrangement – Recommendation of the Acreage Board” and “The Arrangement – Reasons for the Arrangement”.

 

Q: What strategic benefits have been realized by Acreage through its relationship with Canopy Growth since the implementation of the Existing Arrangement and will the A&R License and the Amended Arrangement Agreement provide any additional benefits?

 

A: Acreage has commenced selling products under Canopy Growth’s Tweed brand in multiple states and Acreage anticipates that it will continue to take advantage of opportunities to market and sell products under Canopy Growth brands. As a condition to the Amending Agreement becoming effective, a subsidiary of Canopy Growth will provide Hempco with a US$100,000,000 loan pursuant to the Debenture, of which US$50,000,000 will be advanced at the Amendment Time. This will provide Acreage with the necessary funding to operate in the CBD market. Acreage anticipates that the operations of Hempco will be profitable and drive overall value for Shareholders.

 

See “The Amended Arrangement – Reasons for the Amended Arrangement” and “Cautionary Note Regarding Forward-Looking Information”.

 

 

 

 

Approvals

 

Q: What approvals are required of Shareholders at the Meeting?

 

A: To be adopted, the Amendment Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the Amendment Resolution by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, ‎excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, ‎excluding the votes of the Related Parties. Abstentions and broker non-votes will not have any effect on the approval of the Amendment Resolution.

 

See the sections in the Circular entitled “The Amended ‎Arrangement – Required Shareholder Approvals”, “The Amended Arrangement – Interests of Certain Persons in the Amended Arrangement”, “Securities Law Matters – Canadian Securities Laws – ‎Multilateral Instrument 61-101” and “Securities Law Matters – Canadian Securities Laws – ‎Restricted Securities Matters”.‎

 

Q: Are there voting agreements or lock-ups?

 

A: The Acreage Locked-Up Shareholders have entered into Voting Agreements with Canopy Growth pursuant to which the Acreage Locked-Up Shareholders have agreed to vote their Existing Shares in favor of the Amendment Resolution.

 

As of the Record Date, the Acreage Locked-Up Shareholders collectively beneficially owned or exercised ‎control or direction over [] Existing SVS, [] Existing PVS and 168,000 ‎Existing MVS, representing on a non-diluted basis, approximately []% of the outstanding Existing SVS, approximately []% of the outstanding Existing PVS and 100% of the outstanding Existing MVS. The ‎Interested Parties that are Acreage Locked-Up Shareholders own, control or direct approximately []% of the outstanding ‎Existing SVS, approximately []% of the outstanding Existing PVS and 100% of the outstanding ‎Existing MVS subject to the Voting Agreements. On an aggregate basis, the Interested Parties ‎own, control or direct approximately []% of the outstanding voting rights in the Company.‎

 

See “Transaction Agreements – Voting Agreements”.‎

 

Q: What other conditions need to be satisfied for the Amended Arrangement to become effective?

 

A: The Amendment Resolution must be approved by the Shareholders at the Meeting in accordance with the Amendment Interim Order and applicable Law.‎ In addition, the Amendment Final Order must be issued by the Court. The necessary approvals from the CSE must also be obtained to list the Fixed Shares and the Floating Shares. ‎Furthermore, it is a condition that certain agreements are entered into or amended, as applicable, including the Amending Agreement, the Housekeeping Amendments and the Credit Agreement Amendment.

 

For a full description of the conditions listed above and the other conditions to the implementation of the Arrangement, see “Transaction Agreements – Proposal Agreement – Conditions for Implementation of the Amended Arrangement”.

 

Q: What other conditions are required to be satisfied or waived for the Acquisition to be completed pursuant to the Amended Arrangement?

 

A: The Acquisition is dependent on the satisfaction of the Acquisition Regulatory Approvals, which includes ‎‎approval: (i) under the HSR Act; (ii) by certain of the state cannabis regulatory authorities that govern Acreage’s ‎‎operations in each state in which it or its managed entities then carry on business; and (iii) by each of the stock ‎‎exchanges on which the Canopy Growth Shares are then listed and posted for trading to permit Canopy Growth to ‎acquire all of the issued and outstanding Shares and to permit the listing of the Consideration Shares, and ‎any Canopy Growth Shares issuable upon the exercise of Replacement Options, Replacement RSUs and ‎Replacement Compensation Options. In addition, the Acquisition is subject to other Regulatory Approvals, and the ‎satisfaction or waiver of other closing conditions. ‎

 

For a full description of the conditions to the consummation of the Acquisition, see “Transaction Agreements – The ‎Arrangement Agreement – Conditions for Completion of the Acquisition”, “Regulatory Approvals – HSR Act” and “Regulatory Approvals – Stock Exchange Matters”.

 

 

 

 

Operational Constraints and Canopy Growth Rights

 

Q: What operational constraints will be imposed on Acreage by Canopy Growth during the Amendment Interim Period?

 

A: During the Amendment Interim Period, Acreage will, and will cause each of its Subsidiaries to, conduct its and their business only in the ordinary course and in accordance with, in all material respects, all applicable Laws, with the exception of the Controlled Substances Act as it applies to marijuana, and use commercially reasonable efforts to maintain and preserve its and their business. The operations of Acreage during the Amendment Interim Period remain subject to the operational covenants under the Arrangement Agreement as well as the additional operational covenants under the Amending Agreement as described under “Transaction Agreements – Amending Agreement”, which include, but are not limited to, restrictions on the ability of the Company and its Subsidiaries to issue any securities and incur any debt obligations, in each case, other than in certain limited circumstances.

 

Pursuant to the Arrangement Agreement, during the Interim Period, Acreage will be required to obtain Canopy Growth’s approval prior to taking certain actions, including, without limitation, amendments to its constating documents and/or capitalization, distributions on its outstanding securities or otherwise, amendments to its employment, retention and/or compensation arrangements, incurring debt above certain thresholds, or ‎otherwise taking any actions that would be reasonably expected to result in a Company Material Adverse Effect.‎

 

The Amending Agreement also precludes the Company from entering into any contract ‎in respect of ‎Company ‎Debt if, among ‎other restrictions: (i) ‎such contract would be materially inconsistent with market ‎standards for ‎companies ‎operating in the United States cannabis industry; (ii) such ‎contract prohibits a prepayment of ‎the ‎principal amount of such Company Debt, ‎requires a make-whole payment for the interest ‎owing during the ‎remainder of the ‎term of such contract or charges a prepayment fee in an ‎amount greater than 3.0% ‎of the ‎principal amount to be repaid; (iii) such contract would ‎provide for interest ‎payments to be paid through the ‎issuance of securities as opposed to ‎cash; or (iv) ‎such contract has a principal amount of more than ‎US$10,000,000 or a Cost of ‎‎Capital that is greater than 30.0% per ‎annum; ‎provided that, if such Company ‎Debt is fully secured by cash in a blocked ‎account, the Cost of Capital may not be greater than 3.0% per ‎annum. ‎Notwithstanding the foregoing, Canopy ‎Growth’s consent will not be required for ‎Acreage or any of its Subsidiaries to enter into a ‎maximum of two transactions ‎for Company Debt during any one-year period, ‎in accordance ‎with the following ‎terms: (i) the principal amount of the Company Debt per transaction may ‎not ‎‎exceed US$10,000,000, (ii) the Company Debt is not convertible into any ‎securities; and ‎‎(iii) the contract ‎does not provide for the issuance of more than ‎‎500,000 Shares (or ‎securities convertible into or exchangeable ‎for ‎‎500,000 Shares). The Amending Agreement will also require the Company to limit its operations to the ‎‎Identified States, subject to obtaining Canopy Growth’s consent‎.

 

For a description of the additional restrictions on the activities of Acreage during the Amendment Interim Period, see “Transaction Agreements – Proposal Agreement – Covenants”, “Transaction Agreements –Amendments to the Arrangement Agreement” and “Transaction Agreements – Amending Agreement – Covenants Regarding Acreage’s Business Plans”.

 

Q: If Canopy Growth does not exercise the Floating Call Option, during the period following the Acquisition Date until the End Date, will there be any covenants in favor of Canopy Growth?

 

A: The Amending Agreement will provide for certain covenants of Acreage regarding its business and operations that will be effective from the Acquisition Time until the End Date, including, among other things:

 

(a) the right for Canopy Growth to nominate a majority of the Acreage Board;

 

(b) pre-emptive rights and top-up rights in favor of Canopy Growth;

 

 

 

 

(c) restrictions on the acquisition of shares or similar equity interest, assets, businesses or operations with an aggregate value of more than US$250,000,000, in a single transaction or series of related transactions;

 

(d) restrictions on the ability to amend the constating documents of Acreage or the Key Subsidiaries;

 

(e) restrictions on issuing additional High Street Units or USCo2 Shares;

 

(f) restrictions on the sale, transfer, lease, pledge or other disposal of any assets, business or operations (in a single transaction or a series of related transactions) in the aggregate with a value of more than US$20,000,000;

 

(g) prohibitions on entering into agreements or arrangements that limit or otherwise restrict Acreage from competing in any manner in any material respect;

 

(h) approval rights on the Approved Business Plan; and

 

(i) certain audit and inspection rights.

 

See “Transaction Agreements – Amending Agreement – Covenants Following the Acquisition Time until the End Date”.

 

In addition, pursuant to the A&R License, following the Acquisition Time, the Company is required to ‎pay a royalty to Canopy Growth equal to a percentage of all gross revenue ‎generated by the Company as a result of the use of the rights granted pursuant to the ‎A&R License. ‎Moreover, revenue under the Management Service Agreements, if any, will no longer be required to be paid to Acreage by the Target Cannabis Operators, if any, following the Acquisition Time.

 

Q: If Canopy Growth does not exercise the Floating Call Option, following the Acquisition Time, what Acreage activities will require Canopy Growth’s approval?

 

A: During the period from the Acquisition Date until the End Date, there will be a number of restrictions imposed on both the Company and its Subsidiaries, subject to obtaining Canopy Growth’s approval, including, without limitation, restrictions regarding:

 

(a) paying any dividend or other distribution in respect of any securities, ‎unless paid in respect of all Shares, in accordance with their respective ‎rights, other than dividends paid between two wholly-owned Subsidiaries and tax distributions ‎from High Street to the extent permitted in the TRA, Tax ‎Receivable Bonus Plan and/or the High Street Operating Agreement;‎

 

(b) consolidating or merging into or with another Person or entering into any other similar business ‎combination, subject to certain limited exceptions; ‎

 

(c) acquiring any shares, instruments convertible into or exchangeable ‎for shares, assets, businesses or operations with an ‎aggregate value of more than US$250,000,000, in a single transaction or a series of ‎related transactions; ‎

 

(d) amending its constating documents;‎

 

(e) issuing additional USCo2 Shares or securities convertible, exchangeable or ‎exercisable for or into USCo2 Shares;‎

 

(f) issuing additional High Street Units or securities convertible, exchangeable or ‎exercisable for or into High Street Units for cash proceeds;‎

 

(g) selling, transferring, leasing, pledging or otherwise disposing of any of its or any of its Subsidiaries’ ‎assets, business or operations in the aggregate with a value of more than US$20,000,000; ‎

 

 

 

 

(h) entering into any agreement or arrangement that limits or otherwise restricts in any material ‎respect the Company or any successor thereto or any Subsidiary, or that would limit or restrict in any material respect the Company or ‎any of its affiliates from competing in any manner;‎

 

(i) abandoning or failing to diligently pursue any application for any licences, permits, ‎Authorizations or registrations that would cause a Company Material Adverse ‎Effect;‎ or

 

(j) granting or committing to grant a licence or otherwise transfer abandon, or permit to become ‎abandoned any Intellectual Property or exclusive rights in or in respect thereof ‎that would reasonably be expected to have a Company Material Adverse Effect.‎

 

See “Transaction Agreements – Amending Agreement – Covenants Following the Acquisition Time until the ‎End Date”.‎

 

Q: What are the expected consequences of limiting Acreage’s ability to operate to the Identified States?

 

A: With a reduced geographic footprint, Acreage will be able to focus its strategic plan on deploying its capital in a manner that Acreage believes will be immediately accretive. Given that Acreage has recently faced challenges raising capital and, when available, the cost of capital has been high in recent financings, a focus on the Identified States is anticipated to allow Acreage to improve its results from the Identified States while maximizing potential margins on sales and scaling its production capabilities (where Acreage’s licenses permit).

 

See “Cautionary Note Regarding Forward-Looking Information”.

 

Hempco Business

 

Q: Can Canopy Growth compete with Acreage’s business or the business of Hempco?

 

A: There is no restriction in respect of Canopy Growth’s ability to compete with the business of Hempco, provided that the activities carried on by Canopy Growth do not violate applicable Laws, including, without limitation, Federal Cannabis Laws‎. Notwithstanding the foregoing, in the event of a Material Failure to Perform, Canopy Growth will no longer be restricted from operating within the United States in violation of Federal Cannabis Laws.

 

Q: What are the expected benefits to Shareholders of the Hempco business?

 

A: The potential enhancement of profitability and the potential consequent ability to attract new investors could be a value driver for Shareholders.

 

See “Cautionary Note Regarding Forward-Looking Information”.

 

Q: What is the expected use of the net proceeds of the Initial Advance of US$50,000,000 to Hempco pursuant to ‎the Debenture?

 

A: Acreage is developing a multi-pronged approach for the business of Hempco, including a store-within-a-store ‎concept to sell CBD exclusive products, and a wholesale and OMNI channel approach. These various ‎delivery methods require capital assets and additional operating costs to support the business ‎strategy‎.

 

See “Cautionary Note Regarding Forward-Looking Information”.

 

Tax Consequences

 

Q: What are the Canadian federal income tax consequences of the Amended Arrangement?

 

A: It is expected that Shareholders who are residents of Canada for the purposes of the Tax Act and who hold their Existing SVS as capital property will be deemed to have disposed of a property and realize a capital gain from the receipt of a portion of the Aggregate Amendment Option Payment as ‎consideration for granting the Canopy Call Option and the Floating Call Option. If the Canopy Call Option and/or the Floating Call Option are exercised (or deemed to be exercised), Shareholders who are resident in Canada should no longer be deemed to have disposed of property in the year in which the Canopy Call Option and the Floating Call Option were granted. Instead, the amount of the Aggregate Amendment Option Payment received by such Shareholder should be included in the Shareholder’s proceeds of disposition from the disposition of the Fixed Shares and/or the Floating Shares to Canopy. In such case, a tax election may be available to provide for a full or partial tax-deferred rollover.

 

 

 

 

Shareholders who are not residents of Canada for the purposes of the Tax Act will not be subject to tax ‎under the Tax Act on the capital gain deemed to be realized in respect of the receipt of a portion of the Aggregate Amendment Option ‎Payment as consideration for granting the Canopy Call Option and the Floating Call Option.‎

 

Shareholders who hold their Existing SVS as capital property and who exchange their Existing SVS for 0.7 of a Fixed Share and 0.3 of a Floating Share pursuant to the Capital Reorganization will be deemed to have disposed of their Existing SVS for proceeds equal to their ‎adjusted cost base of those shares and will acquire the Fixed Shares and Floating Shares at an aggregate ‎adjusted cost base equal to that amount. As a result, the Capital Reorganization will not result in a recognition of a capital ‎gain or loss for Canadian income tax purposes.‎

 

For a summary of certain material Canadian income tax consequences of the Arrangement, see “Certain ‎Canadian Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice to any ‎particular Shareholder. Shareholders should consult their own tax advisors with respect to their ‎particular circumstances.‎

 

Q: What are the Canadian federal income tax consequences of the Acquisition?

 

A: Generally, Shareholders who are residents of Canada for the purposes of the Tax Act, who have received a portion of ‎the ‎Aggregate Amendment Option Payment pursuant to the Arrangement, and who dispose of their Fixed Shares and/or Floating Shares to Canopy ‎Growth ‎pursuant to the Acquisition will be considered to have realized a capital gain (or capital loss) for the ‎purposes ‎of the Tax Act as a result of the Acquisition unless the Shareholder makes a Joint Tax Election ‎with Canopy ‎Growth following the Acquisition.‎

 

Shareholders who are not residents of Canada for the purposes of the Tax Act (a Non-Canadian Holder) generally should not be ‎subject to ‎tax under the Tax Act on any capital gain realized in respect of the Acquisition provided that the Fixed ‎Shares and/or Floating Shares ‎are not “taxable Canadian property” to such Shareholder for purposes of the Tax Act.‎

 

For a summary of certain material Canadian income tax consequences of the Acquisition, see “Certain Canadian ‎‎Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice to any particular ‎Shareholder. Shareholders should consult their own tax advisors with respect to their particular ‎circumstances.‎

 

Q: What are the United States federal income tax consequences associated with the Option Premium?

 

A: Pursuant to the Plan of Arrangement, Canopy Growth paid the Option Premium to all holders of Existing ‎Shares, High Street Holders and USCo2 Holders as consideration for the grant of the ‎Existing Canopy Option. It was intended, for U.S. federal income tax purposes, that the ‎payment of the Option Premium, would be treated as a part of a continuing, open transaction that generally did ‎not result in immediate recognition of income to the Shareholders and certain other securityholders. However, ‎given the amendments to the Existing Arrangement pursuant to the Amended Arrangement, it is now expected ‎that U.S. Holders who have received a portion of the Option Premium will be required to report (to the extent ‎not previously included in income) the portion of the Option Premium they received as short-term capital gain ‎in the taxable year in which the Amended Plan of Arrangement becomes effective. Non-U.S. Holders will only ‎be subject to U.S. federal income tax to the extent described below with respect to Non-U.S. Holders generally ‎for gain recognized in connection with the Acquisition‎.

 

For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, ‎including the Option Premium, see “Certain United States Federal Income Tax Considerations”. Such ‎summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax ‎advisors with respect to the tax consequences to them of the Amended Arrangement in general and ‎based on their particular circumstances‎.

 

 

 

 

Q: What are the United States federal income tax consequences of the Aggregate Amendment Option Payment?

 

A: The U.S. federal income tax treatment of the Aggregate Amendment Option Payment‎ is unclear.  The Aggregate Amendment Option Payment‎ will be paid to the Shareholders, High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment‎ would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment‎, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their portion of the Aggregate Amendment Option Payment‎.

 

Non U.S. Holders will generally be limited in their recognition of gain or income upon receipt of the Aggregate Amendment Option Payment‎ and should consult with their own tax advisors to determine the extent that such income or gain will be recognized.

 

The amount of cash received with respect to the Aggregate Amendment Option Payment‎ may not be sufficient to meet the tax obligations of the Shareholders triggered with respect to the Option Premium and the Aggregate Amendment Option Payment‎ described above.

 

For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, including the payment of the Aggregate Amendment Option Payment‎, see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to them of the Amended Arrangement in general and based on their particular circumstances.

 

Q: What are the United States federal income tax consequences of the Capital Reorganization?

 

A: Acreage will undertake the Capital Reorganization whereby each outstanding Existing Share will be exchanged for Fixed Shares (or Fixed Multiple Shares) and Floating Shares. For U.S. federal income tax purposes, the Company intends that the Capital Reorganization will be treated as a “recapitalization” within the meaning of Section 368(a)(1)(E) of the Code. Assuming the Capital Reorganization qualifies as a recapitalization, the Shareholders generally will not recognize gain or loss in the exchange of Existing Shares for Fixed Shares (or Fixed Multiple Shares) and Floating Shares. The tax basis of the Shares received by a Shareholder in the Capital Reorganization will generally the same as the basis of the Existing Shares surrendered in exchange therefor. A Shareholder must allocate its tax basis in its Existing Shares between the Fixed Shares (or Fixed Multiple Shares) and Floating Shares that the Shareholder receives in proportion to their relative fair market values determined on the date of the Capital Reorganization. The holding period of the Fixed Shares (or Fixed Multiple Shares) and Floating Shares received will include such holder’s holding period in the Existing Shares with respect to which the Fixed Shares (or Fixed Multiple Shares) and Floating Shares were exchanged.

 

For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, including the Capital Reorganization, see “Certain United States Federal Income Tax Considerations.” Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to them of the Amended Arrangement in general and based on their particular circumstances.

 

Q: What are the United States federal income tax consequences of the Acquisition?

 

A: Under the Existing Arrangement, it was intended that (i) the Plan of Arrangement and culminating Acquisition (as defined in the Existing Arrangement) would be treated as a single integrated transaction for U.S. federal income tax purposes, (ii) such Acquisition would qualify as a “reorganization” within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and the Treasury Regulations promulgated thereunder, each as in effect on the date of the Existing Arrangement, and (iii) such Acquisition would not be treated as a taxable transaction pursuant to Section 367(a) of the Code and the Treasury Regulations promulgated thereunder, each as in effect on such date (which assumed that certain factual requirements would be met with respect to the ownership, value and operations of Canopy Growth and Acreage, certain five-percent shareholders of Canopy Growth immediately after the Acquisition enter into gain recognition agreements as required by the applicable U.S. Treasury Regulations, and certain reporting requirements would be met (collectively the “Section 367 Requirements”))

 

 

 

 

Under the Amended Arrangement, it is intended that the steps of the Acquisition will be treated as a single integrated transaction for U.S. federal income tax purposes, and will involve Canopy Growth acquiring all of the Fixed Shares (and New Multiple Shares exchanged into Fixed Shares), and, if applicable, the Floating Shares, in three steps: first, each New Multiple Share outstanding immediately prior to the Acquisition Time shall be exchanged for one Fixed Share; second, Canopy Growth will acquire the Fixed Shares held by Acreage Non-U.S. Shareholders (other than those Acreage Non-U.S. Shareholders that exercise Dissent Rights) and, to the extent Canopy Growth exercises the Floating Call Option, the Floating Shares, in a direct exchange of those Fixed Shares and Floating Shares, if applicable, for Canopy Growth Shares (or, in the event a Canopy Change of Control has occurred prior to the Acquisition Date, the Alternate Consideration); and third, Canopy Growth will acquire the remaining Fixed Shares held by Acreage U.S. Shareholders (other than those Acreage U.S. Shareholders that exercise Dissent Rights) in the Merger in exchange for Canopy Growth Shares (or, in the event a Canopy Change of Control has occurred prior to the Acquisition Date, the Alternate Consideration). Canopy Growth will have the option, but not the obligation, to acquire the Floating Shares.

 

The description of the U.S. federal income tax consequences of the Acquisition that follows is based on the assumption that U.S. Holders who received a portion of the Option Premium will be required to report such Option Premium (to the extent not previously included in income) as short-term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective, and that the Aggregate Amendment Option Payment‎ will be treated as ordinary income upon receipt.

 

Under the Amended Plan of Arrangement, if Canopy Growth does not acquire the Floating Shares, the Acquisition will not qualify as a reorganization for U.S. federal income tax purposes and, therefore, will be a fully taxable transaction in which a U.S. Holder that receives Canopy Growth Shares in exchange for Fixed Shares in the Merger generally will recognize capital gain or loss equal to the difference between the fair market value of the Canopy Growth Shares received and the U.S. Holder’s adjusted tax basis in the Fixed Shares exchanged therefor. The gain or loss would be determined separately for each block of Fixed Shares (i.e., Fixed Shares acquired at the same cost in a single transaction). Capital gains recognized by an individual upon the disposition of Fixed Shares that have been held for more than one year are generally eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations.

 

Even if both the Fixed Shares and the Floating Shares are acquired by Canopy Growth in the Acquisition, the Acquisition may not qualify as a reorganization for U.S. federal income tax purposes. Certain factors that affect the U.S. federal income tax treatment of the Acquisition will not be determinable until the Acquisition Date, including whether the Floating Consideration is paid in Floating Share Consideration, Floating Cash Consideration or a combination thereof, and the value of the Canopy Growth Shares received in the Acquisition. Depending on these and other factors, the Acquisition may be treated as a taxable transaction in which gain or loss is generally recognized for U.S. federal income tax purposes, or it may be treated as a reorganization for U.S. federal income tax purposes (and which also meet the Section 367 Requirements). Neither Acreage nor Canopy Growth have sought, nor expect to seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein.

 

If the Acquisition qualifies as a “reorganization” under Section 368(a) of the Code, and the Section 367 Requirements are met, it is expected that a U.S. Holder receiving Canopy Growth Shares in exchange for its Shares in connection with the Acquisition will not generally recognize gain or loss on the exchange.

 

Even if the Acquisition qualifies as a reorganization, there is a risk that the Acquisition could fail to meet the Section 367 Requirements. If the Acquisition fails to meet the Section 367 Requirements, the transaction will be taxable to U.S. Shareholders as described above, notwithstanding that it was a reorganization under the Code.

 

The rules described above for U.S. Holders should generally also apply to a Non-U.S. Holder that directly exchanges its Shares for Canopy Growth Shares, except that any such gain recognized by a Non-U.S. Holder generally will not be subject to U.S. federal income tax unless (i) the gain is “effectively connected” with such Non U. S. Holder’s conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that such Non-U.S. Holder maintains in the United States if that is required by an applicable income tax treaty as a condition for subjecting such person to U.S. taxation on a net income basis, or (ii) the Non-U.S. Holder is an individual, is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist.

 

For a summary of certain U.S. federal income tax consequences of the Acquisition see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to U.S. federal income tax consequences of the Acquisition in general and based on their particular circumstances.

 

 

 

 

Questions

 

Q: Who can help answer my questions?

 

A: If you have any questions about this Circular or the matters described in this Circular, please contact Kingsdale Advisors or your professional advisor. Shareholders who would like additional copies, without charge, of this Circular or have additional questions about the procedures for voting Existing Shares, should contact their broker or Kingsdale Advisors by e-mail, or at the telephone number below.

     
North American Toll Free:   1-877-657-5856
Outside North America Collect:   +1-416-867-2272
By E-mail:   contactus@kingsdaleadvisors.com

 

Q&A ON PROXY VOTING

 

Q: Who is entitled to vote on the Amendment Resolution?

 

A: The record date for determining the Shareholders entitled to receive notice of and to vote at the Meeting was August 13, 2020. Only Shareholders of record as of the close of business on the Record Date are entitled to receive notice of and to vote at the Meeting. Any securities of the Company, High Street or USCo2 that were not exercised or exchanged for Existing Shares prior to the Record Date are not permitted to vote on the Amendment Resolution.

 

Q: What if I acquire ownership of Existing Shares after the Record Date?‎

 

A: You will not be entitled to vote Existing Shares acquired after the Record Date at the Meeting. Only Persons ‎owning Existing Shares as of the Record Date are entitled to vote at the Meeting. ‎‎Shareholders will still be able to receive the Aggregate Amendment Option Payment if they hold Existing Shares as of the close of business on the Amendment Date. ‎

 

Q: What do I need to do now in order to vote on the Amendment Resolution?

 

A: You should carefully read and consider the information contained in this Circular.

The Company‎ is holding the Meeting as a virtual meeting, which will be conducted via live webcast. To address potential issues arising from the unprecedented public health impact of COVID-19, comply with applicable public health directives that may be in force at the time of the Meeting‎, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, we will be holding the Meeting in a virtual only format as described in the Circular under the headings, “General Proxy Information” and “How to Vote Your Shares”.

 

In order to attend, participate in or vote at the Meeting (including for voting and asking questions at the Meeting), Registered Shareholders and duly appointed proxyholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting. To join as a guest please visit the Meeting online at web.lumiagm.com/221798142 and select “Join as a Guest” when prompted.

 

Registered Shareholders and duly appointed proxyholders will be able to access the Meeting online at web.lumiagm.com/221798142. Such persons may then enter the Meeting by clicking “I have a login” and entering a username and password before the start of the Meeting:

 

· Registered Shareholders: The control number located on the form of proxy is the username. The password for the Meeting is “Acreage2020” (case sensitive). If as a Registered Shareholder you are using your control number to access the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided with the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, you will need to attend the Meeting as a guest and will not be able to participate in the Meeting.

 

 

 

 

· Duly appointed proxyholders: Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or VIF, as applicable, AND register the proxyholder. See “How to Vote Your Shares - Appointment of Proxies”. Following registration of a proxyholder, the Transfer Agent will provide duly appointed proxyholders with a username by e-mail after the voting deadline has passed. The password for the Meeting is “Acreage2020” (case sensitive). Non-Registered Shareholders who have not duly appointed themselves as proxyholder will be able to attend the Meeting as a guest but will not be able to participate in or vote at the Meeting.

 

If you are a Non-Registered Shareholder and wish to attend, participate in or vote at the Meeting, you have to insert your own name in the space provided on the VIF sent to you by your Intermediary, follow all of the applicable instructions provided by your Intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing your Intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your Intermediary.

 

There are three ways to submit your vote by proxy, in accordance with the instructions on the form of proxy:

 

By Mail or Hand Delivery:

Odyssey Trust Company

Attention: Proxy Department

323 – 409 Granville Street, Vancouver, BC V6C 1T2

Facsimile: 1.800.517.4553
By Internet: https://www.shareholderaccountingsoftware.com/odyssey/pxlogin ‎

 

Each completed form of proxy must be submitted no later than 11:00 a.m. (New York time) on September 14, 2020, or, in the event that the Meeting is adjourned or postponed, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to ‎the time of the reconvened Meeting or any adjournment or postponement thereof.

 

If you hold your Existing Shares through an Intermediary, please follow the instructions provided by such Intermediary to ensure that your vote is counted at the Meeting and contact your Intermediary for instructions and assistance in delivering the share certificate(s) representing those shares.

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

Q: Should I send in my proxy now?

 

A: Yes. Once you have carefully read and considered the information contained in this Circular, to ensure your vote is counted, you need to complete and submit the enclosed form of proxy or, if applicable, provide your Intermediary with voting instructions. You are encouraged to vote well in advance of the proxy cut-off at 11:00 a.m. (New York time) on September 14, 2020 (or if the Meeting is postponed or adjourned, not later than 48 hours (excluding Saturdays, Sundays and holidays) before the time for holding the postponed or adjourned meeting).

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

Q: What happens if I sign and submit the form of proxy sent to me?

 

A: Signing and depositing the enclosed form of proxy gives authority to the Person(s) designated by management of Acreage on such form to vote your Existing Shares at the Meeting. If the instructions in a proxy given to Acreage’s management are specified, the Existing Shares represented by such proxy will be voted for or against in accordance with your instructions on any poll that may be called for. If a choice is not specified, the Existing Shares represented by a proxy given to Acreage’s management will be voted FOR the approval of the Amendment Resolution as described in this Circular.

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

 

 

 

Q: Can I appoint someone other than the Person(s) designated by management of Acreage to vote my Existing Shares?

 

A: Yes. Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or VIF and register the proxyholder in advance of the proxy cut-off at 11:00 a.m. (New York time) on September 14, 2020 to attend the Meeting virtually.

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

Q: What if amendments are made to these matters or if other matters are brought before the Meeting?

 

A: The form of proxy accompanying this Circular confers discretionary authority upon the proxy nominee with respect to any amendments or variations to matters identified in the Notice of Meeting and any other matters that may properly come before the Meeting or any postponement or adjournment thereof. As of the date of this Circular, Acreage’s management is not aware of any such amendments or variations, or of other matters to be presented for consideration at the Meeting. However, if any amendments to matters identified in the accompanying Notice of Meeting or any other matters which are not now known to management should properly come before the Meeting or any postponement or adjournment thereof, the Existing Shares represented by properly executed proxies given in favor of the Person(s) designated by management of Acreage in the enclosed form of proxy will be voted on such matters pursuant to such discretionary authority.

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

Q: Can I change my vote after I have voted by proxy?

 

A: Yes. A Registered Shareholder who has given a proxy may revoke the proxy at any time prior to use by: (i) ‎depositing an instrument in writing, including another completed form of proxy, executed by such Registered Shareholder or ‎by his or her attorney authorized in writing or by electronic signature, or, if the Registered Shareholder is a corporation, by an ‎authorized officer or attorney thereof, or by transmitting by telephone or electronic means, a revocation signed, subject to ‎the BCBCA, by electronic signature: (i) to the head office of the Company, located at 366 Madison Avenue, 11th Floor, ‎New York, New York 10017, at any time prior to 5:00 p.m. (New York time) on the last Business Day preceding the day of the Meeting ‎or any adjournment or postponement thereof; (ii) with the Chair of the Meeting on the day of the Meeting or any ‎adjournment or postponement thereof, prior to the start of the Meeting or any adjournment or postponement thereof; or (iii) ‎in any other manner permitted by Law.‎ If as a Registered Shareholder you are using your control number to access the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided with the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, you will need to attend the Meeting as a guest and will not be able to participate in the Meeting.

 

Only Registered Shareholders have the right to revoke a proxy. A Non-Registered Shareholder who has submitted a form of proxy may revoke it by contacting the Intermediary through ‎which its Existing Shares are held and following the instructions of the Intermediary respecting the revocation of proxies.‎

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

Q: Who will count the votes?

 

A: Acreage’s transfer agent, Odyssey Trust Company, will count and tabulate the votes received for the Meeting.

 

Q: If my Existing Shares are held by my Intermediary, will they vote my Existing Shares?

 

A: Generally, Non-Registered Shareholders who have not ‎waived the right to receive Meeting Materials will be sent either:‎

 

(a) a VIF which is not signed by the Intermediary and which, when properly completed and signed by the ‎Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. Typically, the VIF will consist of a ‎one-page pre-printed form. Sometimes, instead of the one-page pre-printed form, the VIF will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label with a bar-code and other information. In order for the form of proxy to validly ‎constitute a VIF, the Non-Registered Shareholder must remove the label from the instructions and ‎affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the ‎Intermediary or its service company in accordance with the instructions of the Intermediary or its ‎service company; or

 

 

 

 

(b) a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped ‎signature), which is restricted as to the number of Existing Shares beneficially owned by the Non-‎Registered Shareholder but which is otherwise not completed by the Intermediary. Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed ‎by the Non-Registered Shareholder when submitting the proxy. In this case, the Non-Registered ‎Shareholder who wishes to submit a proxy should properly complete the form of proxy and deposit it with Odyssey Trust Company, ‎323 – 409 Granville Street, Vancouver, BC V6C 1T2‎.‎

 

If an Intermediary holds your Existing Shares in “street name,” your Intermediary will vote your Existing Shares only if you provide instructions on how to vote by filling out the VIF sent to you by your Intermediary with this Circular.

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

If you have any questions please contact Kingsdale at 1.877.657.5856 toll-free in North America or +1.416.867.2272 outside of North America or by email at contactus@kingsdaleadvisors.com. Please visit [X] for additional information.

  

 

 

 

TABLE OF CONTENTS

 

PURPOSE OF SOLICITATION 1
GENERAL MATTERS 1
SUMMARY 3
NOTICE TO SHAREHOLDERS OUTSIDE OF CANADA 26
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION 27
GLOSSARY OF TERMS 29
GENERAL PROXY INFORMATION 59
HOW TO VOTE YOUR SHARES 61
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF 64
THE AMENDED ARRANGEMENT‎ 67
Principal Steps of the Amended Arrangement‎ 68
Description of the Amended Arrangement 72
Background to the Amended Arrangement‎ 73
Reasons for the Amended Arrangement‎ 80
Approval of the Amendment Resolution 86
New Fairness Opinion 87
Foros 88
Recommendation of the Special Committee 89
Recommendation of the Acreage Board 89
Treatment of High Street Holders and USCo2 Holders 89
Timing for Implementation of the Amended Arrangement 90
Required Shareholder Approvals 90
‎Interests of Certain Persons in the Amended Arrangement 91
Court Approval of the Amended Arrangement and Implementation of the Amended Arrangement 95
Effects of the Amended Arrangement on Shareholders’ Rights 95
Capital Reorganization Letter of Transmittal 95
TRANSACTION AGREEMENTS 97

 

 

 

 

The Arrangement Agreement 97
The Proposal Agreement 97
Voting Agreements 102
A&R License 103
Amending Agreement 105
Debenture 110
Tax ‎Receivable Agreement Amendments 113
Tax Receivable Bonus Plan 1 Amendments 113
Tax Receivable ‎Bonus Plan 2 Amendments 113
High Street Operating Agreement Amendments 113
Amendments to USCo2 Constating ‎Documents 114
SECURITIES LAW MATTERS 114
REGULATORY MATTERS 122
RISK FACTORS ‎ 123
Floating Shares will not trade at an intrinsic value 132
Taxable Events 132
Adverse U.S. federal income tax consequences if the Acquisition does not qualify as a tax-deferred transaction 132
DISSENT RIGHTS 140
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS 143
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS 154
Certain U.S. Federal Income Tax Consequences of the Amended Arrangement 155
Option Premium 155
Aggregate Amendment Option Payment 156
Capital Reorganization 156
Tax Treatment of the Acquisition/Floating Call Option Not Exercised 157
U.S. Holders 157
Non-U.S. Holders 157
Tax Treatment of the Acquisition/Floating Call Option Exercised 158
U.S. Holders 159

 

 

 

 

Non-U.S. Holders 159
Fractional Shares 160
Payments Related to Dissent Rights 160
U.S. Holders 160
Non-U.S. Holders 160
Interest Payment Related to Dissent Rights 160
Backup Withholding and Information Reporting 161
U.S. Federal Income Tax Consequences Relating to Ownership and Disposition of Canopy Growth Shares by U.S. Holders 161
Passive Foreign Investment Company 161
Distributions 161
Dispositions 162
Tax on Net Investment Income 162
Backup Withholding and Information Reporting 162
U.S. Federal Income Tax Consequences Relating to Ownership and Disposition of Canopy Growth Shares by Non- U.S. Holders 163
Distributions 163
Dispositions 163
Backup Withholding and Information Reporting 163
Foreign Account Tax Compliance 164
INFORMATION CONCERNING ACREAGE 164
PROCEDURES FOR PAYMENT OF AGGREGATE AMENDMENT OPTION PAYMENT AND CANOPY GROWTH ‎CONSIDERATION 169
OTHER BUSINESS 171
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON 172
INDEBTEDNESS OF DIRECTORS AND OFFICERS 172
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS 172
STATEMENT OF RIGHTS 172
WHERE YOU CAN FIND MORE INFORMATION 173
EXPERTS 175

 

 

 

 

LEGAL MATTERS 175
QUESTIONS AND FURTHER ASSISTANCE 175
APPENDIX “A” - AMENDMENT RESOLUTION A-1
APPENDIX “B” - AMENDING AGREEMENT B-1
APPENDIX “C” - AMENDED PLAN OF ARRANGEMENT C-1
APPENDIX “D” - NEW FAIRNESS OPINION D-1
APPENDIX “E” - COURT MATERIALS E-1
APPENDIX “F” - AMENDED AND RESTATED OMNIBUS EQUITY INCENTIVE PLAN F-1
APPENDIX “G” - INFORMATION CONCERNING CANOPY GROWTH G-1
APPENDIX “H”- INFORMATION CONCERNING CANOPY GROWTH  FOLLOWING THE COMPLETION OF THE ARRANGEMENT H-1
APPENDIX “I” PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF CANOPY GROWTH FOLLOWING COMPLETION OF THE ACQUISITION I-1
APPENDIX “J” - DIVISION 2 OF PART 8 OF THE BCBCA J-1
APPENDIX “K” - COMPARISON OF SHAREHOLDER RIGHTS UNDER THE BCBCA AND CBCA K-1
APPENDIX “L” - CAPITAL REORGANIZATION LETTER OF TRANSMITTAL L-1

 

 

 

 

ACREAGE HOLDINGS, INC.‎

CSE: ACRG.U

OTCQX: ACRGF

FSE: 0VZ

 

PROXY STATEMENT AND MANAGEMENT INFORMATION CIRCULAR

FOR THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 16, 2020

 

PURPOSE OF SOLICITATION

 

This proxy statement and management information circular (the “Circular”) and accompanying form of proxy are furnished in connection ‎with the solicitation of proxies by the management of Acreage Holdings, Inc. (“Acreage” or the “Company”) for use at ‎the special meeting (the “Meeting”) of holders (the “Existing SVS Shareholders”) of the Class A subordinate voting shares (the “Existing SVS”), the holders (the ‎‎“Existing PVS Shareholders”) of Class B proportionate voting shares (the “Existing PVS”) and ‎the holders (the “Existing MVS Shareholders” and, together with the Existing SVS Shareholders and the Proportionate ‎Shareholders, the “Shareholders”) of Class C multiple voting shares (the “Existing MVS”, and together ‎with the Existing SVS and the Existing PVS, the “Existing Shares”) of the Company ‎to be held on September 16, 2020 commencing at 11:00 a.m. (New York time), and at any adjournment or ‎postponement thereof, for the purposes set forth in the accompanying notice of special meeting (the “Notice of Meeting”).

 ‎

The Company‎ is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Shareholders will not be able to attend the Meeting in person.

 

All summaries of, and references to, the Proposal Agreement, the Amended Plan of Arrangement, the Amendment Resolution, the Amending Agreement, other related agreements, and the ‎New Fairness Opinion in this Circular are qualified in their entirety by reference to ‎the complete text of these documents, each of which is either included as an appendix to this Circular or filed under the ‎Company’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar‎. Shareholders are urged to carefully read the full text of these documents.‎

 

GENERAL MATTERS

 

Defined Terms

 

In this Circular, unless otherwise indicated or the context otherwise requires, terms defined in the Glossary of ‎Terms herein shall have the meanings attributed thereto. Words importing the singular include the plural and vice versa and words ‎importing gender include all genders.

 

Information Contained in this Circular

 

The information contained in this Circular, unless otherwise indicated, is given as of August [¨], 2020.

 

No Person is authorized by Acreage to give any information (including any representations) in connection with the matters to be considered at the Meeting other than the information contained in this Circular. This Circular does not constitute an offer to sell, or a solicitation of an offer to acquire, any securities, or a solicitation of a proxy, by any Person in any jurisdiction in which such an offer or solicitation is not authorized or is unlawful.

 

Information contained in this Circular should not be construed as legal, tax or financial advice, and Shareholders should consult their own professional advisors concerning the consequences of the Amended Arrangement‎ in their own circumstances.

 

Neither the Proposal Agreement (including its fairness or merits), Amending Agreement (including its fairness or merits), Amended Arrangement‎ (including its fairness or merits), Amended Plan of Arrangement (including its fairness or merits) nor this Circular (including the accuracy or adequacy of the information contained in this Circular) has been approved or disapproved by any securities regulatory authority (including any Canadian provincial or territorial securities regulatory authority, the SEC or any other securities regulatory authority), and any representation to the contrary is unlawful.

 

1

 

 

Information Contained in this Circular Regarding Canopy Growth

 

Certain information included or incorporated by reference in this Circular pertaining to Canopy Growth, including, but not ‎limited to, information pertaining to Canopy Growth in Appendix “G” – Information Concerning Canopy Growth and ‎Appendix “H” – Information Concerning Canopy Growth following Completion of the Arrangement, has been furnished by ‎Canopy Growth, or is derived from Canopy Growth’s publicly available documents. With respect to this information, the ‎Acreage Board has relied exclusively upon Canopy Growth, without independent verification by the Company. Although ‎the Company does not have any knowledge that would indicate that such information is untrue or incomplete, neither the ‎Company nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such ‎information, or for the failure by Canopy Growth to disclose events or information that may affect the completeness or ‎accuracy of such information.‎

 

For further information regarding Canopy Growth, please refer to Canopy Growth’s filings with the securities regulatory ‎authorities which may be obtained under Canopy Growth’s profile on SEDAR at www.sedar.com and with the SEC and available on EDGAR at www.sec.gov/edgar. See also Appendix “G” – ‎Information Concerning Canopy Growth.‎

 

Financial Information

 

Unless otherwise indicated, all financial information referred to in this Circular was derived from financial statements prepared in accordance with U.S. GAAP.

 

Currency

 

Acreage publishes their consolidated financial statements in U.S. dollars. Unless otherwise indicated in this Circular, all references to “$”, “US$” or “dollars” set forth in this Circular are to United States dollars and references to “Canadian dollars” and “C$” are to the currency of Canada.

 

The following table sets forth, for each period indicated, the high and low exchange rates, the average exchange rate, and the exchange rate at the end of the period, based on the rate of exchange of one U.S. dollar in exchange for Canadian dollars published by the Bank of Canada.

 

      Year ended
 December 31
  Three months ended
March 31
 
      2019       2018       2020  
High     C$1.3600       C$1.3642       C$1.4496  
Low     C$1.2988       C$1.2288       C$1.2970  
Average     C$1.3269       C$1.2957       C$1.3449  
Closing     C$1.2988       C$1.3642       C$1.4187  

 

On June 24, 2020, the Business Day immediately prior to the Announcement Date, the average daily exchange rate as reported by the Bank of Canada was US$1.00 = C$1.3591 or C$1.00 = US$0.7358. On August [], 2020, the average daily exchange rate as reported by the Bank of Canada was US$1.00 = C$0.[] or C$1.00 = US$[].

 

2

 

 

 

 

 

SUMMARY

 

This summary is qualified in its entirety by the more detailed information appearing elsewhere in this Circular, including the Appendices (which are incorporated into and form part of this Circular). Terms with initial capital letters in this summary are defined in the Glossary of Terms immediately following this summary.

 

The Meeting

 

The Company is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Shareholders will not need to, or be able to attend the Meeting in person.

 

To address potential issues arising from the unprecedented public health impact of COVID-19, comply with applicable public health directives that may be in force at the time of the Meeting‎, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, we will be holding the Meeting in a virtual only format.

 

In order to attend, participate in or vote at the Meeting (including for voting and asking questions at the Meeting), Shareholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate or vote at the Meeting.

 

See “General Proxy Information” and “How to Vote Your Shares”.

 

Record Date

 

Only Shareholders of record at the close of business on August 13, 2020 will be entitled to receive notice of and to vote at the Meeting, or any adjournment or postponement thereof.

 

Purpose of the Meeting

 

The purpose of the Meeting is for Shareholders to consider and vote upon the Amendment Resolution and such other proposals as may properly come before the Meeting, and any adjournment or postponement thereof. The Meeting may be postponed at the discretion of the Acreage Board. To be adopted, the Amendment Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the Amendment Resolution by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, ‎‎excluding the votes of the Interested Parties; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, ‎excluding the votes of the Related Parties.

 

Description of the Amended Arrangement

 

On June 24, 2020, Canopy Growth and Acreage entered into the Proposal Agreement‎, which sets out, among other things, the terms and conditions upon which the Amended Arrangement will be implemented, including the terms of the Amended Plan of Arrangement. The effectiveness of the Amended Arrangement Agreement and the Amending Agreement and the implementation of the Amended Plan of Arrangement is subject to the conditions set out in the Proposal Agreement and the Amending Agreement, including, among others, obtaining the Shareholder Approval, Amendment Regulatory Approvals and the Amendment ‎Final Order. Upon receipt of Shareholder Approval, the Amendment Regulatory Approvals, the Amendment ‎Final Order and the satisfaction or waiver of all other conditions set out in the Proposal Agreement, including the Initial Advance of US$50,000,000 to Hempco pursuant to the Debenture and the execution of the Amending Agreement, Canopy Growth and Acreage will complete the Required Filing sand implement the Amended Plan of Arrangement. See “The Amended Arrangement - Description of the Amended Arrangement” and “Transaction ‎Agreements – The Proposal Agreement”. ‎

 

 

 

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Pursuant to the Amended Plan of Arrangement, among other things, the Company’s Articles will be amended to (i) create the classes of Fixed Shares, Floating Shares and Fixed Multiple Shares, and (ii) provide Canopy Growth with the Canopy Call Option and the Floating Call Option. In accordance with the Amended Plan of Arrangement, promptly ‎following the Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basis to the Shareholders, the High Street Holders and the USCo2 Holders. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement. See “Transaction ‎Agreements – Amending Agreement”. ‎

 

Under the Existing Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of the ‎Triggering Event, Canopy Growth will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, ‎acquire all of the issued and outstanding Existing SVS (after each Existing MVS and Existing PVS is converted into ‎an Existing SVS) in exchange for 0.5818 of a Canopy Growth Share for each Existing SVS, subject to adjustment in ‎certain circumstances as set out in the Arrangement Agreement. The Amended Plan of Arrangement will result in, ‎among other things, (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of a ‎Floating Share; (ii) each outstanding Existing PVS will be exchanged for 28 Fixed Shares and 12 Floating Shares; ‎and (iii) each outstanding Existing MVS will be exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating ‎Share. Under the Amended Arrangement, upon the occurrence or waiver (at the discretion of Canopy Growth) of ‎the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to ‎the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will (i) acquire all of the issued and ‎outstanding Fixed Shares (following the mandatory conversion of the Fixed Multiple Shares into Fixed Shares) on ‎the basis of the Exchange Ratio for each Fixed Share held at the Acquisition Time; and (ii) have the right (but not ‎the obligation) exercisable for a period of 30 days following the Floating Rate Date, to exercise the Floating Call ‎Option to acquire all of the issued and outstanding Floating Shares. The Existing Canopy Option expires on ‎December 27, 2026. Under the Amended Arrangement, the Canopy Call Option will expire 10 years from the ‎Amendment Time.

 

If Canopy Growth exercises the Floating Call Option, it may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Fixed Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to ‎the ‎Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option.

 

If the Canopy Call Option is exercised (or deemed to be exercised) and the Acquisition of the Fixed Shares is completed, that will result in Canopy Growth becoming the owner of all of the Fixed ‎Shares on the Acquisition Date, and the Company will become a partially-owned subsidiary of Canopy Growth. If the Floating Call Option is exercised and Canopy Growth ‎acquires the ‎Floating Shares on the Acquisition Date, the Company will be a ‎wholly-owned subsidiary of ‎Canopy Growth and Canopy Growth will continue the operations of Canopy Growth and Acreage on a combined basis. If Canopy Growth completes the Acquisition of the Fixed Shares but does not acquire the Floating Shares at the Acquisition Time, the Floating Call Option will terminate, and the Floating Shares shall remain outstanding.

  

 

 

 

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‎For further information regarding Canopy Growth following completion of ‎the Amended Arrangement, see Appendix “H” – “The Amended Arrangement - Description of the Amended Arrangement”.‎

 

Background to the Amended Arrangement‎

 

The entry of Acreage and Canopy Growth into the Proposal Agreement, and the proposed Amended Arrangement, is the result of arm’s length discussions among representatives of Acreage, Canopy Growth and their respective legal and financial advisors. A summary of the material events leading up to the negotiation of the Proposal Agreement and the Amended Arrangement and the material meetings, negotiations and discussions between Acreage and Canopy Growth and their respective advisors that preceded the execution of the Proposal Agreement and public announcement of the Amended Arrangement is included in this Circular under the heading “The Amended Arrangement - Background to the Amended Arrangement”.

 

Reasons for the Amended Arrangement‎

 

In evaluating the Amended Arrangement and in making their respective recommendations, the Special Committee and the Acreage Board each consulted with Acreage management, received the advice and assistance of their respective legal and financial advisors and gave careful consideration to the current and expected future financial position of Acreage and all terms of the Proposal Agreement, the Amending Agreement, the Amended Plan of Arrangement, the A&R License, the Debenture and the proposed amendments to the Original Credit Agreement. The Special Committee and the Acreage Board considered a number of factors including, among others, the following in determining that the Amended Arrangement and entry into the Proposal ‎Agreement are in the best interests of Acreage and are fair to ‎Shareholders and authorizing Acreage to enter into the Proposal Agreement and related agreements:

 

(a) Preserving Shareholder Value. Acreage assessed the alternatives reasonably available to it and determined that the Amended Arrangement represents the best current prospect for its continued viability and the preservation of Shareholder value. The Amended Arrangement is expected to provide Acreage with the greatest chance of success relative to the alternatives available to it in the context of the Existing Arrangement, namely: (i) continuing to operate and attempting to raise capital under current market conditions and the restrictive covenants imposed under the Arrangement Agreement; and (ii) operating in potential breach of the restrictive covenants in the Arrangement Agreement and facing potential claims from Canopy Growth that there was a breach of a material term of the Arrangement Agreement, which, if successful, would permit Canopy Growth to not complete the Acquisition upon the occurrence of the Triggering Event. Relative to the alternatives available to Acreage in the context of the Existing Arrangement, the Loan pursuant to the Debenture and the implementation of the Amended Arrangement is expected to preserve and, potentially increase, Shareholder value relative to the scenarios in (i) and (ii) above.

  

(b) Aggregate Amendment Option Payment. At the Amendment ‎Time, Canopy ‎Growth will pay the Aggregate Amendment Option Payment of US$37,500,024 to the Shareholders, the High Street Holders and the USCo2 Holders, with the amount that each such holder is entitled to receive estimated to be approximately $[¨] per Existing SVS (assuming the conversion or exchange of such Eligible Securities for Existing SVS) based on the number of outstanding Existing Shares as of the date hereof. Given that there is no certainty that the Existing Canopy Option will be exercised prior to its expiry, a cash payment to Shareholders is advantageous.

  

(c) Potential Upside with Floating Shares. Shareholders will receive Floating Shares pursuant to the Amended Arrangement. If Canopy Growth acquires the Floating Shares pursuant to the exercise of the Floating Call Option, it will do so at a price based upon the 30-day volume-weighted average trading price of the Floating Shares on the CSE, subject to a minimum of US$6.41 per Floating Share. Canopy Growth may acquire the Floating Shares for cash or for Canopy Growth Shares or a combination thereof (in Canopy Growth’s sole discretion) with the number of Canopy Growth Shares to be determined on the basis of the trading price of the Canopy Growth Shares. If the Floating Call Option is not exercised, the Floating Shares will continue to trade on the CSE and, upon a Triggering Event, Acreage believes the trading price of the Floating Shares should increase in a manner commensurate to the increased value attributed to Acreage’s business, operational and financial performance. If Acreage meets each of the annual targets set out in the Initial Business Plan, Acreage anticipates that the value of the Floating Shares will increase over time.

 

 

 

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(d) Canopy Growth Loan to Hempco. As a condition to the Amended Arrangement becoming effective, the Lender will provide Hempco with an Initial Advance of US$50,000,000 pursuant to the Debenture. A further US$50,000,000 advance will be made available upon satisfaction of specified Hempco conditions precedent. The Loan is anticipated to provide Acreage with the necessary financing for Hempco’s operations in the CBD market. Acreage anticipates that Hempco’s operations will leverage Canopy Growth’s current U.S. CBD business, be accretive and drive overall value for Shareholders.

 

(e) Management Service Agreements. Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a competitor of Acreage in the United States, Canopy Growth, as a condition to completing such transaction, will require the Target Cannabis Operator to enter into a Management Service Agreement with Acreage on terms acceptable to Acreage, acting reasonably. In the event that the Target Cannabis Operator and Acreage cannot agree upon a commercially reasonable management service agreement, the Target Cannabis Operator will pay a management fee to Acreage equal to a percentage of net revenue generated by the Target Cannabis Operator.

 

(f) Waivers and Consents Obtained under Existing Arrangement. As a condition to entering into the Proposal Agreement, Canopy Growth provided Acreage with advance consent required pursuant to the Arrangement Agreement to (i) enable Acreage to sell all or substantially all of the assets of Acreage or its Subsidiaries situated or located outside of the Identified States on such terms as Acreage may negotiate from time to time; and (ii) sell particular real property on terms that may be negotiated by Acreage.

 

(g) Key Shareholder Support. The Acreage Locked-Up Shareholders who collectively hold, as at the Record Date, approximately [¨]% of the issued and outstanding Existing SVS, approximately [¨]% of the issued and outstanding Existing PVS and 100% of the issued and outstanding Existing MVS and which collectively represent approximately [¨]% of the ‎voting rights attached to outstanding Existing Shares, entered into the Voting Agreements with Canopy Growth under which they have agreed, among other things, to vote FOR the Amendment Resolution. See “Transaction Agreements - Voting Agreements”.

  

(h) Public affirmation by Canopy Growth. The Amended Arrangement further evidences that Acreage is Canopy Growth's vehicle for an accelerated pathway into the United States once federally permissible.

  

(i) Increased royalty income. Canopy Growth's brand recognition and product offerings are well established and respected. Acreage desires to further the growth of such brands and products in the United States, where permissible. As such, Acreage intends to aggressively pursue further promotion of Canopy Growth products and brands, which will produce additional income opportunities for Acreage.

  

(j) Shareholder Approval. The structure of the Shareholder Approval is protective of the rights of Shareholders. Pursuant to the Amendment Interim Order and the BCBCA, the Amendment Resolution must be ‎approved, with ‎or without variation, by the affirmative vote of at least 66⅔% of the votes cast by holders of ‎Existing SVS, Existing PVS and Existing MVS present virtually or represented by proxy and entitled to vote at the Meeting, ‎with all Shareholders ‎voting together as a single class. In addition, (i) pursuant to MI 61-101, the ‎Amendment Resolution must be approved by at ‎least a simple majority of votes cast by the holders of Existing ‎SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101, and (ii) pursuant to OSC Rule 56-501 and NI 41-101, the Amendment ‎Resolution must be approved by at ‎least a majority of the votes cast by holders of Existing SVS and ‎Existing PVS present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single ‎class, excluding all Existing Shares held by Related Parties.

 

 

 

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(k) Court Process. The Amended Arrangement will be subject to a judicial determination of the Court that the Amended Arrangement is procedurally and substantively fair and reasonable to Shareholders.

  

(l) Dissent Rights. Registered Shareholders who do not vote in favor of the Amendment Resolution are entitled to be paid the fair value of the Existing ‎Shares held by such holder in accordance with Section 245 of ‎the BCBCA, as modified by the Amended Plan of Arrangement, the Amendment Interim Order and the ‎Amendment Final Order, if such holder properly exercises Dissent Rights and the Amended Arrangement ‎‎becomes effective‎ (subject to compliance with certain conditions). Pursuant to the Proposal Agreement, Canopy Growth is required to make any payments to Shareholders who validly exercise Dissent Rights.

  

(m) Preservation of Change in Recommendation. The Proposal Agreement preserves the right of the Acreage Board to make a Change in Recommendation in certain circumstances. If the Acreage Board determines that a fact or circumstance occurred prior to the date of the Proposal Agreement that was known but not disclosed by Canopy Growth or that a fact or circumstance has occurred since the date of the Proposal Agreement and, as a result of the occurrence of such fact or circumstance, continuing to make the Board Recommendation would constitute a violation of its fiduciary and statutory duties under applicable Law (including in accordance with MI 61-101 and the interpretive guidance promulgated under Multilateral Staff Notice 61-302), then the Acreage Board may submit the Amendment Resolution to Shareholders without recommendation or may withdraw its support for the Amended Arrangement, in Acreage Board’s sole discretion, although the Meeting shall be held unless Canopy Growth otherwise agrees. If the ‎Proposal Agreement is terminated by Canopy Growth in the event of (i) a Change in Recommendation, or (ii) the failure to ‎obtain the Required Shareholder Approval following a Change in Recommendation, the Termination Expense Reimbursement will be payable by Acreage to Canopy Growth; provided, however, that ‎Acreage will not be required to pay the Termination Expense Reimbursement if the Change in Recommendation ‎was made as a result of a Purchaser Material Adverse Effect.

  

(n) Receipt of New Fairness Opinion. The Special Committee received the New Fairness Opinion, in which Eight Capital provided an opinion to the effect that, as of the date of such opinion, and subject to the assumptions, limitations and qualifications set forth therein and such other matters as Eight Capital considered relevant, the Consideration to be received by the Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders. Eight Capital is independent of Acreage and Canopy Growth for purposes of the Amended Arrangement and Eight Capital is only entitled to receive a fixed fee for delivery of its fairness opinion, regardless of its conclusions.

  

(o) Other Factors. The Acreage Board and the Special Committee each also carefully considered the Amended Arrangement with reference to the Existing Arrangement, current economics, industry and market trends affecting each of Acreage and Canopy Growth in their respective markets, information concerning the business, operations, assets, financial condition, operating results and prospects of each of Acreage and Canopy Growth and the historical trading prices of the Existing SVS and Canopy Growth Shares.

 

Acreage Board Support

 

The Acreage Board (with the exception of Mr. Murphy, who ‎declared his interest in the transactions ‎contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in ‎respect thereof ‎) unanimously recommended support for the Amended Arrangement.‎

  

Special Committee

 

The process of evaluating the Amended Arrangement was led by the Special Committee, which is ‎comprised of members of the Acreage Board who are not members of management. The members of ‎the Special Committee met regularly with its and Acreage’s legal and financial advisors and members ‎of management and communicated directly with representatives of Canopy Growth throughout the ‎process of negotiating the Amended Arrangement. ‎

  

See “The Amended Arrangement – Reasons for the Recommendation”.

 

 

 

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 New Fairness Opinion

 

Eight Capital was formally engaged by the Special Committee on May 28, 2020 pursuant to the Eight Capital Engagement ‎Agreement to provide a long-form opinion as to the fairness, from a financial point of view, of the Consideration to be received by the Shareholders pursuant to the Amended Arrangement. On June 21, 2020, Eight Capital verbally delivered the ‎its opinion to the Special Committee, which opinion was reconfirmed on June 24, ‎‎2020 by Eight Capital and was subsequently confirmed in writing to the effect that, based upon and subject to the scope of review, analyses, assumptions, ‎limitations, qualifications and other matters described therein, the Consideration to be received by the Shareholders pursuant to the Amended Arrangement is fair, from ‎a financial point of view, to the Shareholders‎.

 

Eight Capital based its conclusion in the New Fairness Opinion upon a number of quantitative and qualitative factors ‎including, but not limited to the historical trading analysis approach, market capitalization, size and trading liquidity, revenue and EBITDA profile, timing of certain precedent transactions and other financial metrics that Eight Capital considered relevant.

 

Based upon and subject to the assumptions, qualifications and limitations contained therein, Eight Capital ‎is of the opinion that, as of the date of the New Fairness Opinion, the Consideration to be received by the Shareholders pursuant ‎to the Amended Arrangement is fair, from a financial point of view, to the Shareholders

 

The summary of the New Fairness Opinion in this Circular is qualified in its entirety by, and should be read in conjunction with, ‎the full text of the New Fairness Opinion attached to this Circular as Appendix “D”. The full text of the New Fairness Opinion describes, among other things, the assumptions made, matters considered and limitations and qualifications on the review ‎undertaken in connection with the New Fairness Opinion. Shareholders are encouraged to read the New Fairness Opinion ‎carefully in its entirety.‎

 

See “The Amended Arrangement‎ – New Fairness Opinion”.

 

Recommendation of the Special Committee

 

The Special Committee, after consultation with Acreage management and receipt of advice and assistance of its and Acreage’s ‎financial and legal ‎‎advisors and after careful consideration of a number of alternatives and factors, including, among others, the New Fairness Opinion ‎and the factors set out below ‎under the heading “Reasons for the Amended Arrangement”, ‎unanimously ‎determined that the Amended Arrangement ‎and entry into the Proposal Agreement and related agreements are in the best ‎interests of Acreage and its minority shareholders and ‎unanimously ‎determined to recommend to the Acreage Board that it approve and authorize Acreage to enter ‎into ‎the Proposal Agreement and related agreements.‎

 

See “The Amended Arrangement – Recommendation of the Special Committee”.‎

 

Recommendation of the Acreage Board

 

The Acreage Board, after consultation with Acreage management and receipt of advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors including, among others, ‎the receipt of the unanimous recommendation of the Special ‎‎Committee, the New Fairness Opinion and the factors set out below under the ‎heading ‎‎“Reasons for the Amended Arrangement”, unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) ‎determined that the Amended Arrangement and entry into the Proposal ‎Agreement are in the best interests of Acreage and are fair to ‎Shareholders and approved and authorized Acreage to enter into the Proposal Agreement and related agreements. Accordingly, the Acreage ‎Board unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) recommends that ‎Shareholders ‎vote FOR the Amendment Resolution.‎

 

See “The Amended Arrangement – Recommendation of the Acreage Board”.‎

 

 

 

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Principal Steps of the Amended Arrangement

 

Pursuant to the Amended Plan of Arrangement attached to this Circular at Appendix “C”, commencing at the Amendment Time, each of the transactions or events set out below, among others, will occur as set out in the Amended Plan of Arrangement:‎

 

(a) each Existing Share held by a Dissenting Shareholder will be surrendered to ‎Acreage and canceled, and each Dissenting Shareholder will cease to have any rights as a holder of such ‎ Existing Shares other than a claim against Canopy Growth in an amount determined and payable in ‎accordance with such Dissenting Shareholder’s rights as outlined in the Amended Plan of Arrangement;‎

 

(b) the Amendment Option Payment Paying Agent, on behalf of Canopy ‎Growth, will pay the Aggregate Amendment Option Payment on a pro rata basis to each ‎Shareholder, ‎High Street Holder and USCo2 Holder‎;

 

(c) Acreage will complete a Capital Reorganization ‎whereby: (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of ‎a Floating Share; (ii) ‎each outstanding Existing PVS will be exchanged for 28 ‎Fixed Shares and 12 Floating Shares; ‎and (iii) each outstanding Existing MVS will be exchanged for 0.7 ‎of a Fixed Multiple Share and 0.3 of a ‎Floating Share; and

 

(d) each Acreage Option, Acreage RSU and Acreage Compensation Option to acquire ‎Existing SVS that is outstanding immediately prior to ‎the Amendment Time, will be ‎exchanged for a Fixed Share Replacement Security and a ‎Floating Share Replacement Security in order to account for ‎the Capital ‎Reorganization.‎

 

Each Person (other than Canopy Growth or any affiliate of Canopy Growth) who, at any time after the Amendment Time and prior to the Acquisition Time, acquires a Fixed Share or a Floating Share, as applicable, will hold Fixed Shares which are subject to the Canopy Call Option and Floating Shares which are subject to the Floating Call Option; provided, that Canopy ‎Growth will not be required to pay, nor will such Person be entitled to receive any payment of the Aggregate Amendment Option Payment. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to ‎conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement.‎

 

Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event prior to the Acquisition Closing Outside Date, Canopy ‎‎Growth will exercise (or be deemed to exercise) the ‎Canopy ‎Call Option and will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Fixed Shares (including the Fixed Shares ‎issued following the automatic conversion of the issued and outstanding Fixed Multiple Shares) in ‎accordance with the Amended Plan of Arrangement.‎ In exchange for each whole Fixed Share, at the Acquisition Time, each holder of a Fixed Share will be entitled to receive 0.3048 of a Canopy Growth Share pursuant to the exercise (or deemed exercise) of the Canopy Call Option. The Floating Call ‎Option is exercisable for a period of 30 ‎days following the exercise (or deemed exercise) of the ‎Canopy ‎Call Option and the acquisition ‎of the Floating Shares pursuant to ‎the Floating Call ‎Option, if exercised, will take place ‎concurrently with the acquisition ‎of the ‎Fixed Shares pursuant to the Canopy ‎Call Option. No fractional ‎Canopy Growth Shares will be ‎issued pursuant to the ‎Amended Plan of ‎Arrangement. The Canopy Call Option and the Floating Call Option ‎will ‎expire 10 ‎years from the Amendment Time.

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement” or the Amended Plan of Arrangement, a copy of which is attached as ‎Appendix “C” to this Circular.‎

 

Treatment of High Street Holders and USCo2 Holders

 

In order to reflect the Capital Reorganization, following the Amendment Time, all High Street Units and USCo2 ‎Shares will be exercisable, convertible or exchangeable on the basis of 0.7 of a Fixed Share and 0.3 of a Floating ‎Share in respect of each Existing SVS that otherwise would have been issuable upon such exercise, conversion or ‎exchange.‎

 

Pursuant to the Proposal Agreement, at the Amendment Time, High Street Holders and USCo2 Holders are entitled to receive the Aggregate Amendment Option Payment in respect of each Existing SVS they could acquire on exchange of their Common ‎Membership Units or USCo2 Shares. High Street Holders and USCo2 Holders will ‎receive the Aggregate Amendment Option Payment on a pro rata basis with the Shareholders (on an as exchanged for Existing SVS basis) ‎assuming exchange of their High Street Units and USCo2 Shares, ‎respectively, for Existing SVS in accordance ‎with their terms.‎

 

 

 

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All High Street Units and USCo2 Shares that are not exchanged for Shares, prior to the Acquisition Time and that remain outstanding immediately prior to the Acquisition Time shall be treated in accordance with the provisions of the certificates, award agreements, indentures or other documents governing such securities as at the Amendment Time. If the Canopy Call Option and the Floating Call Option are exercised, following the Acquisition Time, all High ‎Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Growth Shares on the ‎basis of the Exchange Ratio and the Floating Ratio‎.

 

See “The Amended Arrangement – Treatment of High Street Holders and USCo2 Holders”.‎

 

Timing for Completion of the Amended Arrangement

 

Subject to the satisfaction or waiver of the conditions in the Proposal Agreement, the Amended Arrangement will become effective at 12:01 a.m. ‎‎(Vancouver time) on the Amendment Date, being the date upon which all of the conditions to the implementation of the Amended Arrangement as set out in the Proposal Agreement have been satisfied or waived in accordance with the Proposal Agreement and all documents agreed to be delivered thereunder have been delivered to the satisfaction of the recipient, acting reasonably.

 

Although Acreage’s and Canopy Growth’s objective is to have the Amendment Date occur as soon as possible after the Meeting, the Amendment Date could be delayed for several reasons, including, but not limited to, an objection before the Court at the hearing of the application for the Amendment Final Order or any delay in obtaining any required Amendment Regulatory Approvals.

 

The Amendment Date will be the date upon which Acreage and Canopy Growth agree in writing following the satisfaction or waiver of all conditions to the implementation of the Amended Arrangement as set out in the Proposal Agreement (excluding any conditions that, by their terms, cannot be satisfied until the Amendment Date, but subject to the satisfaction or waiver of those conditions). The implementation of the Amended Arrangement is expected to occur in September, 2020; however, it is possible that completion may be delayed beyond this date if the conditions to the implementation of the Amended Arrangement cannot be met on a timely basis.

 

See “The Amended Arrangement – Timing for Completion of the Amended Arrangement”.‎

 

Required Shareholder Approvals

 

Pursuant to the Amendment Interim Order and the BCBCA, in order to be adopted, the Amendment Resolution must be ‎approved, with ‎or without variation, by the affirmative vote of at least 66⅔% of the votes cast by holders of ‎Existing SVS, Existing PVS and Existing MVS, ‎with all Shareholders ‎voting together as a single class. In addition, (i) pursuant to MI 61-101, the ‎Amendment Resolution must be approved by at ‎least a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101, and (ii) pursuant to OSC Rule 56-501 and NI 41-101, the Amendment ‎Resolution must be approved by at ‎least a majority of the votes cast by holders of Existing SVS and ‎Existing PVS, voting together as a single ‎class, excluding all Existing Shares held by Related Parties. Since all holders ‎of Existing MVS are Interested Parties and Related Parties, respectively, the votes with respect to all of the Existing MVS will not be considered for ‎purposes of determining whether “minority approval” has been obtained for the purposes of each of MI 61-101, OSC Rule 56-501 and NI 41-101. The votes attaching to the Existing SVS and Existing PVS held by the Interested Parties and Related Parties, respectively, will also be excluded for the purposes of determining whether “minority approval” has been obtained for the purposes of MI 61-101, in the case of the Interested Parties, and for the purposes of OSC Rule 56-501 and NI 41-101, in the case of the Interested Parties. Since Mr. Murphy, the sole holder of Existing MVS, is an ‎Interested Party, the votes carried by the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to MI 61-101, OSC Rule 56-501 and NI 41-101.

 

See “The Amended Arrangement – Required Shareholder Approvals”.‎

 

 

 

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Capital Reorganization Letter of Transmittal

 

At the time of sending this Circular to each Shareholder, Acreage is also sending the Capital Reorganization Letter of Transmittal to each Registered Shareholder. Each Registered Shareholder must forward a properly completed and signed Capital Reorganization Letter of Transmittal, with the certificate(s) or direct registration advice representing the Existing Shares, as applicable, together with such other documents and instruments as the Transfer Agent may reasonably require as set forth in the Capital Reorganization Letter of Transmittal, in order to receive the certificate(s) or direct registration advice representing the Shares to which such Shareholder is entitled to in exchange for such Existing Shares under the Capital Reorganization. It is recommended that Shareholders complete, sign and return the Capital Reorganization Letter of Transmittal with the certificate(s) or direct registration advice representing the Existing Shares, together with such other documents and instruments as the Transfer Agent may reasonably require, to the Transfer Agent as soon as possible. If the Amendment Resolution is adopted and the Amending Agreement is executed, all deposits of Existing Shares made under the Capital Reorganization Letter of Transmittal are irrevocable. Copies of the form of Capital Reorganization Letter of Transmittal are available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

 

See “The Amended Arrangement - Capital Reorganization Letter of Transmittal”.

 

Interests of Certain Persons in the Amended Arrangement

 

‎In considering the Amended Arrangement and the unanimous recommendation of the Acreage Board (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) with respect to the Amended Arrangement, Shareholders should be aware that certain directors and certain executive officers of the Company have interests in ‎connection with ‎the Amended Arrangement that may present them with actual or potential conflicts of interest in connection with the Amended ‎Arrangement. These ‎interests and ‎benefits are described under the heading “The Amended Arrangement – Interests of Certain Persons in the Amended Arrangement” and ‎‎“Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101”.‎

 

Court Approval of the Amended Arrangement and Implementation of the Amended Arrangement

 

The Amended Arrangement requires Court approval under Division 5 of Part 9 of the BCBCA. On August [¨], 2020, prior to the mailing of this Circular, the Company obtained the Amendment Interim Order, ‎which provides for the calling and holding of the Meeting, the Dissent Rights and other procedural matters. A copy of the Interim ‎Order is attached as Appendix “E” to this Circular.

 

Subject to obtaining Shareholder Approval, the hearing in respect of the Amendment Final Order is currently scheduled to take place on or ‎about [¨], 2020 in‎ Vancouver, British Columbia.‎

 

See “The Amended Arrangement – Court Approval of the Amended Arrangement and Implementation of the Amended Arrangement” and “Securities Law Matters – ‎U.S. Securities Laws”.‎

 

Effect of the Amended Arrangement on Shareholders’ Rights

 

The rights of Shareholders are currently governed by the BCBCA and by Acreage’s Articles. ‎Shareholders receiving Canopy Growth ‎Shares pursuant to the Acquisition will become shareholders of Canopy Growth, ‎which is governed by the CBCA and the articles and ‎by-laws of Canopy Growth. Although the rights and privileges of shareholders ‎under the CBCA are in many instances comparable to ‎those under the BCBCA, there are several differences. See Appendix “K” – Comparison of Shareholder Rights under the BCBCA and ‎CBCA for a comparison of certain of these rights.‎

 

 

 

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Procedures for Payment of Aggregate Amendment Option Payment and Canopy Growth Consideration

 

If the Amendment Resolution is adopted, following receipt of the Amendment Final Order and prior to completing the Required Filings with the Registrar, Canopy Growth shall deliver or cause to be delivered to the Amendment Option Payment Paying Agent in escrow pending the Amendment Time, sufficient cash to pay the Aggregate Amendment Option Payment payable to the Shareholders, High Street Holders and USCo2 Holders pursuant to the Amended Plan of Arrangement in accordance with the terms of the Paying Agent Agreement.

 

As soon as practicable ‎following the ‎Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basis to the ‎Acreage ‎Holders of record as ‎of the Amendment Date‎. Unless otherwise directed, cheques ‎representing the pro rata portion ‎of the Aggregate Amendment Option Payment ‎payable to an Acreage ‎Holder pursuant to the Amended Plan of Arrangement will be issued in ‎the name ‎of the registered holder of such securities. Unless ‎an Acreage ‎Holder instructs ‎the Amendment Option Payment Paying Agent to hold a cheque ‎for pick-up, such cheques will be ‎forwarded by mail to the address of ‎‎the Acreage Holder as shown on the applicable ‎register.‎

 

The Company and the Amendment Option Payment Paying Agent will be entitled to deduct and withhold from any consideration otherwise ‎‎payable to ‎an ‎Acreage Holder, such amounts as the Company, or the Amendment Option Payment Paying Agent is required to deduct and ‎withhold ‎with respect to ‎such ‎payment under any provision of applicable Laws.‎

 

See “Procedures For Payment Of Aggregate Amendment Option Payment And Canopy Growth ‎Consideration”.

 

Tax Consequences to Canadian Holders of the Aggregate Amendment Option Payment and Capital Reorganization

 

It is expected that Canadian Holders will be deemed to have disposed of a property and realize a capital gain that will be subject to tax under the ‎Tax Act in respect of the receipt of a portion of the Aggregate Amendment Option Payment as ‎consideration for granting the Canopy Call Option and the Floating Call Option. If the Canopy Call Option and/or the Floating Call Option are exercised (or deemed to be exercised), Canadian Holders should no longer be deemed to have disposed of property in the year in which the Canopy Call Option and the Floating Call Option were granted. Instead, the amount of the Aggregate Amendment Option Payment received by such Shareholder should be included in the Shareholders proceeds of disposition from the disposition of the Fixed Shares and/or the Floating Shares to Canopy, as applicable. In such case, a tax election may be available to provide for a full or partial tax-deferred rollover.

 

Shareholders who hold their Existing SVS as capital property and who exchange each of their Existing SVS for 0.7 of a Fixed Share and 0.3 of a Floating Share pursuant to the Capital Reorganization will be deemed to have disposed of their Existing SVS for proceeds equal to their ‎adjusted cost base of those shares and will acquire the Fixed Shares and Floating Shares at an aggregate ‎adjusted cost base equal to that amount. As a result, the Capital Reorganization will not result in a recognition of a capital ‎gain or loss for Canadian income tax purposes.‎

 

For a summary of certain material Canadian income tax consequences of the Acquisition, see “Certain Canadian ‎‎Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice to any particular ‎Shareholder. Shareholders should consult their own tax advisors with respect to their particular ‎circumstances.‎

 

Tax Consequences to U.S. Holders of Option Premium and Aggregate Amendment Option Payment

 

Pursuant to the Plan of Arrangement, Canopy Growth paid the Option Premium to all holders of Existing Shares and the High Street Holders and the USCo2 Holders as consideration for the grant of the Existing Canopy Option.

 

The Company intended, for U.S. federal income tax purposes, that the payment of the Option Premium to U.S. Holders of Existing Shares in exchange for their granting of the Existing Canopy Option would be treated as a part of a continuing, open transaction that generally did not result in immediate income tax consequences to the U.S. Holders of Existing Shares.

 

 

 

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‎Accordingly, it was intended that the Option Premium would not have been includable in ‎income for U.S. Holders of Existing Shares until the earlier of (i) the sale or disposition of such holders’ Existing Shares, (ii) the disposition of such shareholder’s Existing Shares in the Acquisition under the Existing Arrangement, or (iii) the lapse or termination of the Existing Canopy Option. As a result of the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option and amendments to the Existing Arrangement pursuant to the Amended Plan of Arrangement, it is now expected that U.S. Holders who received the Option Premium, but have not previously included the Option Premium in income, will be required to report the Option Premium as short-term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective. No ruling has been or will be sought from the U.S. Internal Revenue Service as to the U.S. federal income tax consequences with respect to the payment or receipt of the Option Premium or the Amended Plan of Arrangement.

 

The U.S. federal income tax treatment of the Aggregate Amendment Option Payment‎ is unclear.  The Aggregate Amendment Option Payment‎ will be paid to the Shareholders, High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment‎ would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment‎, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment‎.

 

The Proposal Agreement

 

On June 24, 2020, Canopy Growth and the Company entered into the Proposal Agreement, which sets out, among other things, the terms and conditions upon which the Amended Arrangement will be implemented, including the terms of the Amended Plan of Arrangement.

 

A description of certain provisions of the Proposal Agreement are included in this Circular under the heading “Transaction ‎Agreements – The Proposal Agreement”. The description is not comprehensive and is qualified in its entirety by the full text of the ‎ Proposal Agreement which has been filed by the Company with the SEC ‎and is available on EDGAR at www.sec.gov/edgar and under the Company’s profile on SEDAR at www.sedar.com.‎

 

Amending Agreement

 

If the Amendment Resolution is adopted and the Amending Agreement is executed, the Amending Agreement will provide for, among other things: (i) the ‎‎implementation of the Amended Plan of Arrangement; and (ii) amendments to the ‎definition ‎of Canopy Growth Approved Share Threshold (being the maximum number of Shares that may be issued without the consent of Canopy Growth and without reducing the Exchange Ratio) to ‎change the number of shares of the Company available to be issued ‎by the Company such that, following ‎the Amendment Time, the Company may ‎issue a maximum of 32,700,000 shares ‎‎(or convertible securities in proportion to the ‎foregoing), which will include (a) ‎‎3,700,000 Option Shares; (b) 8,700,000 Floating Shares other than the Option Shares; and (c) ‎‎20,300,000 ‎Fixed Shares. Notwithstanding the foregoing, the Amending Agreement ‎provides that the Company ‎may not issue any equity securities, without Canopy ‎Growth’s prior consent, other than: (i) ‎upon the exercise or conversion of ‎convertible securities outstanding as of the Amendment ‎Date; (ii) contractual ‎commitments existing as of the Amendment Date; (iii) the Option ‎Shares; (iv) the ‎issuance of up to US$3,000,000 worth of Fixed Shares pursuant to an at-the-‎market ‎offering to be completed no more than four times during any one-year period; (v) ‎the ‎issuance of up to 500,000 Fixed Shares in connection with debt financing ‎transactions that ‎are otherwise in compliance with the terms of the Arrangement ‎Agreement, as amended by ‎the Amending Agreement; or (vi) pursuant to one ‎private placement or public offering of ‎securities during any one-year period for ‎aggregate gross proceeds of up to US$20,000,000, ‎subject to specific limitations as ‎set out in the Amending Agreement.

 

 

 

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In addition, the Amending Agreement will provide for, among other things: (i) ‎various ‎Canopy Growth rights that extend beyond the Acquisition Date and ‎continue until the End Date, including, among ‎others, rights to nominate a majority of the Acreage ‎Board following the Acquisition ‎Time , rights to designate all replacement officers, following the resignation or termination, as applicable, of the officers following the Acquisition Time, restrictions on the Company’s ability to incur certain ‎indebtedness without ‎Canopy Growth’s consent; (ii) restrictive covenants in respect of the business conduct in favor of Canopy Growth; (iii) termination of non-competition and ‎‎exclusivity rights granted to the Company by Canopy Growth in the Arrangement ‎Agreement in ‎the event that the Company does not meet certain specified financial ‎targets on an annual basis ‎during the term of the Canopy Call Option as further ‎described below; (iv) implementation of ‎further restrictions on the Company’s ‎ability to operate its business, including its ability to hire ‎certain employees or make ‎certain payments or incur any non-trade-payable debt without ‎Canopy Growth’s ‎consent in the event that the Company does not meet certain specified financial ‎‎targets on a quarterly basis during the term of the Canopy Call Option as further ‎described ‎below; (v) a specified set of criteria that each new director and officer, as applicable, is required to meet, unless the consent of Canopy Growth is obtained; and (vi) termination of the Arrangement Agreement and Canopy ‎Growth’s obligation ‎to complete the acquisition of the Fixed Shares pursuant to the ‎Canopy Call Option in the ‎event that the Company does not meet certain specified ‎financial targets in the trailing 12 month ‎period as further described below. Each of ‎the financial targets referred to above is specified ‎in the Amending Agreement and ‎related to the performance of the Company relative to the ‎Initial Business Plan.‎ See “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans” and “Risk Factors”.

 

The Amending Agreement will preclude the Company from entering into any contract ‎in respect of ‎Company Debt if, among ‎other restrictions: (i) ‎such contract would be materially inconsistent with market ‎standards for companies ‎operating in the United States cannabis industry; (ii) such ‎contract prohibits a prepayment of ‎the principal amount of such Company Debt, ‎requires a make-whole payment for the interest ‎owing during the remainder of the ‎term of such contract or charges a prepayment fee in an ‎amount greater than 3.0% ‎of the principal amount to be repaid; (iii) such contract would ‎provide for interest ‎payments to be paid through the issuance of securities as opposed to ‎cash; or (iv) ‎such contract has a principal amount of more than US$10,000,000 or a Cost of ‎‎Capital that is greater than 30.0% per ‎annum; ‎provided that, if such Company Debt is fully secured by cash in a blocked ‎account, the Cost of Capital may not be greater than 3.0% per annum. ‎Notwithstanding the foregoing, Canopy ‎Growth’s consent will not be required for ‎Acreage or any of its Subsidiaries to enter into a ‎maximum of two transactions ‎for Company Debt during any one-year period, in accordance ‎with the following ‎terms: (i) the principal amount of the Company Debt per transaction may ‎not ‎exceed US$10,000,000, (ii) the Company Debt may not be convertible into any ‎securities; and ‎‎(iii) the contract may not provide for the issuance of more than ‎‎500,000 Shares (or ‎securities convertible into or exchangeable for ‎‎500,000 Shares).‎ See “Transaction Agreements - Amended Arrangement - Amendments to the Arrangement Agreement

 

If executed, the Amending Agreement will also provide for certain financial ‎reporting obligations and will prohibit the Company from nominating or ‎appointing any new ‎director or appointing any new officer who does not meet the Required Director Criteria or Required Officer Criteria, as applicable. Pursuant to the ‎Amending Agreement, the Company will agree to submit an Approved Business Plan to ‎Canopy Growth on a quarterly basis that ‎complies with certain specified criteria, ‎including the Initial Business Plan. In the event that ‎the Company has not achieved: ‎‎(i) 90% of the Pro-Forma Net Revenue Target or the Consolidated ‎Adj. EBITDA Target set forth in the Initial ‎Business Plan ‎measured on a quarterly basis, certain additional restrictive covenants ‎will become operative ‎as Austerity Measures for the Company’s business; (ii) 80% ‎of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial Business ‎Plan, ‎as determined on an annual basis, certain restrictive covenants ‎applicable to Canopy ‎Growth under the Arrangement Agreement will cease to apply in order ‎to permit ‎Canopy Growth to acquire, or conditionally acquire, a competitor of the Company ‎in the ‎United States should it wish to do so; and (iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial ‎Business Plan for the trailing 12 month ‎period ending on the date that is 30 days prior ‎to the proposed Acquisition Time, a ‎material adverse impact will be deemed to have occurred ‎for purposes of Section ‎‎6.2(2)(h) of the Arrangement Agreement and Canopy Growth will have the right to terminate the Amended Arrangement Agreement, and will ‎not be required ‎to complete the acquisition of the Fixed Shares pursuant to the Canopy Call ‎Option. ‎‎

 

The Amending Agreement will also require the Company to limit its operations to the ‎Identified States. In connection with the ‎‎execution of the Proposal Agreement, the Company was provided with consent ‎from Canopy ‎Growth to make Non-Core Divestitures.‎ As described below, the Debenture requires that Acreage divest of its assets outside of the Identified States within 18 months of the date the Debenture is executed.

 

 

 

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In addition, the Amending Agreement will include certain covenants that will apply ‎following the ‎Acquisition Time until the End Date. Such covenants include, among ‎others, ‎pre-emptive rights and top-up rights in favor of Canopy Growth, ‎restrictions on M&A ‎activities, approval rights for the Company’s quarterly ‎business plan, nomination rights for a ‎majority of the directors on the Acreage ‎Board and certain audit and inspection rights. ‎

 

The foregoing summary of the Amending Agreement does not purport to ‎be complete and is ‎qualified in its entirety by reference to the ‎Amending Agreement which is attached to this Circular as Appendix “B”.‎

 

See “Transaction Agreements – Amending Agreement” and “Risk Factors”.

 

Voting Agreements

 

Pursuant to the Proposal ‎ Agreement, the Company agreed to deliver the Voting Agreements from each of the Acreage Locked-Up Shareholders. On June 24, 2020, each of the Acreage Locked-Up Shareholders entered into a Voting Agreement with Canopy Growth, ‎whereby, among other things, ‎such Acreage Locked-Up Shareholders, in their ‎capacities as security holders and not in their capacities as directors ‎or officers of ‎the Company have agreed, among other things, (i) to vote or cause to be voted all ‎‎Acreage Holder ‎Securities in favor of the Amendment Resolution and against any ‎matter that could reasonably ‎be expected to adversely affect the successful completion of the ‎Amended ‎Arrangement, (ii) not to exercise any dissent rights, and (iii) not to sell, transfer, ‎otherwise ‎convey or encumber any Acreage Holder Securities, with certain ‎exceptions.

 

As of the Record Date, to the knowledge of the Company, the Acreage Locked-Up Shareholders beneficially owned, or exercised control or direction over, an aggregate of approximately [¨]% of the votes attached to the Existing Shares on a non-diluted basis. As of the Record Date, to the knowledge of the Company, the Acreage Locked-Up Shareholders also beneficially owned, or exercised control or direction over, [¨] High Street Units, [¨] Existing Options and [¨] Existing RSUs.‎

 

The foregoing summary of the Voting Agreement does not purport to be complete ‎and is qualified ‎in its entirety by reference to the Voting Agreements, which is attached as Schedule C to the Proposal Agreement which has been filed by Acreage with the SEC and is available on EDGAR at www.sec.gov/edgar and under Acreage’s SEDAR profile at www.sedar.com.

 

See “Transaction Agreements – Voting Agreements”.

 

A&R License

 

Concurrent with the execution of the Proposal Agreement, on June 24, 2020, the ‎Company, Canopy Growth and each of the Licensors entered into the A&R ‎License, which amends and restates the Original License. The primary differences between the A&R License and the Original Agreement include, without limitation:

 

· that Acreage may sublicense use of the Trademarks, Systems and/or Intellectual Property; provided that, any sublicense to a third-party will require the prior written consent of Canopy Growth unless the third-party complies with the Licensing Criteria;
     
· the requirement of the Company, following the Acquisition Time, to pay to Canopy Growth a royalty in respect of the net revenue generated by the Company, directly or indirect, from the Trademarks, Systems ‎or Intellectual Property; and
     
· the initial term of the A&R License is 10 years, rather than 90 months under the Original License. ‎

 

 

 

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The foregoing summary of the A&R License does not purport to be a complete ‎description of ‎all the parties’ rights and obligations under the A&R License and is ‎qualified in its entirety by ‎the full text of the A&R License, a copy of which is attached as Schedule D to the Proposal ‎Agreement, which has been filed by the Company with the SEC and is ‎available on EDGAR at www.sec.gov/edgar and under the Company’s SEDAR profile at www.sedar.com. ‎

 

See “Transaction Agreements – A&R License”.‎

 

Debenture

 

As a condition to implementation of the Amended Arrangement, on the Amendment Date, the Lender, an affiliate of ‎Canopy Growth, will enter into the Debenture and provide the Initial Advance of US$50,000,000 to Hempco, an affiliate of the Company ‎that operates solely in the hemp industry, in ‎full compliance with all applicable Laws. The second tranche of US$50,000,000 will be advanced to Hempco if certain conditions are satisfied.

 

The principal amount of the Loan will bear interest from the date of advance, ‎compounded ‎annually, and be payable on each anniversary of the date of the ‎Debenture in cash in U.S. dollars at ‎a rate of 6.1% per annum. The Loan will ‎mature 10 years from the date of the Initial Advance.‎

 

The Loan must be used exclusively for U.S. hemp-related operations and on the ‎express ‎condition that such amount will not be used, directly or indirectly, in ‎connection with or for the ‎operation or benefit of any of Hempco’s affiliates ‎other than Subsidiaries of Hempco ‎exclusively engaged in U.S. hemp-related ‎operations and not directly or indirectly, towards the ‎operation or funding of any ‎activities that are not permissible under applicable Law. The Loan ‎proceeds must be ‎segregated in a distinct bank account and detailed records of debits to such ‎distinct ‎bank account will be maintained by Hempco.‎

 

The foregoing summary of the Debenture does not purport to be complete ‎and is qualified in its entirety by ‎reference to the Debenture, which is attached ‎as Schedule F to the Proposal ‎Agreement, which has been filed by the Company with the SEC and is ‎available on EDGAR at www.sec.gov/edgar and under the Company’s SEDAR profile at www.sedar.com. ‎

 

See “Transaction Agreements – Debenture”.‎

 

Tax ‎Receivable Agreement Amendments

 

In connection with the RTO, USCo entered into the TRA with certain key individuals, each of whom owns High Street Units. The TRA will be amended to reflect the terms of the Amended Arrangement and make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.

 

Tax Receivable Bonus Plan 1 Amendments

 

Pursuant to the TRA, certain key individuals are entitled to payment by USCo equal to 65% of the amount of net tax benefits, if any, realized (or deemed to be realized) by USCo attributable to each such member under the terms of the TRA. An additional 20% of such net tax benefits are available for payment to the TRA Parties under the Tax Receivable Bonus Plan 1. Mr. Murphy, as the administrator of the Tax Receivable Bonus Plan 1, has the right to determine the amount each participant receives under the Tax Receivable Bonus Plan 1. Acreage and Canopy Growth have agreed to amend Tax Receivable Bonus Plan 1 to provide, among other things, that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of the Company) as the administrator of the Tax Receivable Bonus Plan 1, and (ii) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.

 

 

 

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Tax Receivable ‎Bonus Plan 2 Amendments

 

Mr. Murphy has waived his right to receive 30.77% of the aggregate tax benefit payments to which he may otherwise be entitled under the TRA in order to create a Tax Receivable Bonus Plan 2. Participants in the Tax Receivable Bonus Plan 2 include Mr. Leibowitz, Mr. Doherty, Mr. Daino, Mr. Damashek and Mr. MacDonald. The amount available under the Tax Receivable Bonus Plan 2 will be equal to the payments pursuant to the TRA waived by Mr. Murphy. Mr. Murphy, as the administrator of the Tax Receivable Bonus Plans, has the right to determine the amount each participant receives under the Tax Receivable Bonus Plans. Acreage and Canopy Growth have agreed to amend Tax Receivable Bonus Plan 2 to provide, among other things, that (i) Mr. Murphy will continue indefinitely (and regardless of whether Mr. Murphy ceases to be a director of the Company) as the administrator of the Tax Receivable Bonus Plan 2, and (ii) make any other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal Agreement and the Amended Plan of Arrangement.

 

High Street Operating Agreement Amendments

 

The High Street Operating Agreement will be amended, as may be determined by the Company to be necessary, ‎acting reasonably, to (i) reflect the creation of the Fixed Shares and the Floating Shares, (ii) reflect the amended Exchange Ratio, (iii) otherwise reflect the terms of the Amended Arrangement, and (iv) make any ‎other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or ‎necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal ‎Agreement and the Amended Plan of Arrangement.

 

Amendments to USCo2 Constating ‎Documents

 

The USCo2 Constating Documents will be amended, as may be determined by the Company to be necessary, ‎acting reasonably, to (i) reflect the creation of the Fixed Shares and the Floating Shares, (ii) reflect the amended Exchange Ratio, (iii) otherwise reflect the terms of the Amended Arrangement, and (iv) make any ‎other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or ‎necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal ‎Agreement and the Amended Plan of Arrangement.

 

Business Plan Requirements

 

As further disclosed in “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans”, pursuant to the Amending Agreement, Acreage will agree to submit an Approved Business Plan to Canopy Growth on a quarterly basis that complies ‎with certain specified criteria, including the Initial Business Plan. ‎‎The Initial Business Plan contains annual revenue and earnings targets for each of Acreage’s fiscal years ‎ending on December 31, 2020 to December 31, 2029, as outlined below:

 

Fiscal Year Ending Pro-Forma Net Revenue Target (in
US$000’s)
Consolidated Adj. EBITDA Target
(in US$000’s)
2020 166,174 (22,499)
2021 253,296 36,720
2022 289,528 53,222
2023 375,274 102,799
2024 558,599 166,744
2025 641,047 190,385
2026 740,194 218,108
2027 848,498 244,402
2028 973,402 273,434
2029 1,120,177 305,840

 

A number of factors may cause Acreage to fail to meet the Pro-Forma Net Revenue Targets or the Consolidated Adj. EBITDA Targets set forth in the Initial Business Plan and outlined above. See “Risk Factors”.

 

 

 

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In the event that Acreage has not satisfied: ‎‎(i) 90% of the Pro-Forma Net Revenue Target or the Consolidated ‎‎Adj. EBITDA Target set forth in the Initial Business Plan, measured on a quarterly basis, an Interim Failure to ‎‎Perform will occur and the Austerity Measures shall become applicable and provide significant restrictions on ‎‎Acreage’s ability to take certain actions otherwise permitted by the Amended Arrangement Agreement; (ii) ‎‎‎80% ‎of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial ‎Business ‎Plan, ‎as determined on an annual basis (commencing in respect of the fiscal year ending December ‎‎31, 2021), a ‎Material Failure to Perform will occur and (a) certain restrictive covenants ‎applicable to Canopy ‎‎Growth under the ‎Amended Arrangement Agreement will cease to apply in order ‎to permit ‎Canopy Growth to ‎acquire, or ‎conditionally acquire, a competitor of the Company ‎in the ‎United States should it wish to do so, ‎and (b) an event of default under the Debenture will likely occur resulting in the Loan becoming immediately ‎due and payable; and ‎‎(iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target ‎set forth in the ‎Initial ‎Business Plan for the trailing 12 month ‎period ending on the date that is 30 days prior ‎to ‎the proposed Acquisition Time, a Failure to Perform shall occur and a ‎material adverse impact will be deemed ‎to have occurred ‎for ‎purposes of Section ‎‎6.2(2)(h) of the Arrangement Agreement and Canopy Growth will ‎‎not be required ‎to complete ‎the Acquisition of the Fixed Shares pursuant to the Canopy Call ‎Option‎.‎

 

Canadian Securities Laws

 

A general overview of certain requirements of Canadian Securities Laws that may be applicable to Shareholders, Acreage ‎Optionholders, Acreage RSU Holders and ‎Acreage Compensation Option Holders is described in this Circular under the heading ‎‎“Securities Law Matters – Canadian Securities Laws”. Each securityholder is urged to consult such holder’s professional advisors to ‎determine the Canadian conditions and restrictions applicable to trade in the Canopy Growth Shares issuable pursuant to the ‎Acquisition.‎

 

The issuance of the Fixed Shares and the Floating Shares pursuant to the Capital Reorganization and the issuance of Canopy Growth Shares pursuant to the Acquisition will each constitute a distribution of securities that is exempt ‎from the ‎prospectus requirements of applicable Canadian Securities Laws. The Fixed Shares and the Floating Shares issued pursuant to the Capital Reorganization and the Canopy Growth Shares issued pursuant to the Acquisition may be ‎resold in each province and territory of Canada‎ provided that certain conditions are met.‎

 

To the extent that a Shareholder resides in a non-Canadian jurisdiction, the Fixed Shares, Floating Shares and the Canopy Growth Shares received by the ‎ Shareholder pursuant to the Amended Plan of Arrangement may be subject to certain additional trading restrictions under Securities Laws of such jurisdiction. All ‎ Shareholders residing ‎outside Canada are advised to consult their own legal advisors regarding such resale ‎restrictions.‎

 

See “Securities Law Matters – Canadian Securities Laws”.‎

 

Multilateral Instrument 61-101‎

 

The Amended Arrangement is subject to the requirements of MI 61-101. MI 61-101 regulates certain transactions to ensure equality ‎of ‎‎treatment among securityholders, generally requiring enhanced disclosure, approval by a majority of securityholders ‎‎excluding ‎”interested parties”, “related parties” or “joint actors”, independent valuations and, in certain instances, approval and oversight of ‎the ‎transaction by a ‎special committee of independent directors. The protections of MI 61-101 apply to a reporting issuer ‎‎proposing to carry out a ‎‎“business combination” (as defined in MI 61-101) that terminates the interests of securityholders without their consent.‎ A transaction such as the Amended Arrangement constitutes a “business combination” for ‎purposes of MI 61-101 if, at the time the ‎‎Arrangement is agreed to, a “related party” of Acreage, such as a director or senior officer ‎‎(as defined in MI 61-101) or a ‎‎holder of 10% or more of any class of Existing Shares, is entitled to receive, as a consequence of the ‎transaction, a ‎‎‎”collateral benefit” (as defined in MI 61-101).

 

 

 

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The Special Committee has determined that, for purposes of MI 61-101, the payments, entitlements or benefits to which Mr. Murphy will or may be entitled to receive pursuant to the Amended Arrangement are classified as “collateral benefits” for purposes of MI 61-101. Since Mr. Murphy is a “related party” of Acreage and is receiving a collateral benefit, the Arrangement constitutes a “business combination” for purposes of MI 61-101. Mr. Murphy is also classified as an “interested party” and therefore, the Existing Shares held by the Interested Parties will not be counted for purposes of the tabulation of the “minority approval” of the Amendment Resolution in accordance with MI 61-101.‎

 

Pursuant to an application dated July 8, 2020 made to the OSC, as principal regulator, the ‎Company obtained an order ‎from the OSC dated August [¨], 2020, exempting the ‎Company from the requirements in subsection 8.1(1) of MI 61-101 to obtain minority approval for the ‎ Amendment Resolution pursuant to MI 61-101 from the ‎holders of each affected class of Existing Shares, each voting separately as a class‎.‎ Accordingly, holders of Existing SVS and Existing PVS who are not Interested Parties will vote together as a single class for the purposes of obtaining approval pursuant to MI 61-101. As Mr. Murphy, who is an Interested Party, is the only beneficial holder of Existing MVS, Existing MVS will be excluded entirely from such vote. Aside from having a voting right of 40 votes per share, the holders of the Existing PVS are entitled to the same rights as the holders of the Existing SVS, and no holder thereof is entitled to any privilege, priority or preferences in relation to any other holders of Existing Shares. The holders of Existing SVS comprise: (i) those Shareholders who held either Existing SVS or Existing PVS at the effective time of the Existing Arrangement; and (ii) holders of Existing SVS acquired subsequent to the effective time of the Existing Arrangement. Certain holders of Existing SVS may, therefore, not have received the original Option Premium. The Existing PVS Shareholders comprise those holders of Existing PVS who held such shares at the effective time of the Existing Arrangement and, accordingly, received their pro rata share of the Option Premium. To the extent that there are adverse U.S. income tax consequences arising from receipt by U.S. holders of the Option Premium or the Aggregate Amendment Option Payment resulting from the Amended Arrangement, all holders of Existing PVS will be affected whereas only certain holders of Existing SVS will be affected. As such, the classes of Existing Shares may be differentially affected for U.S. tax purposes. The holders of Existing Shares are advised to consult their own tax advisors with respect to the receipt of their portion of Aggregate Amendment Option Payment based on their particular circumstances. See “Certain United States Federal Income Tax Considerations”.

 

For the purposes of obtaining “minority approval” of the Amendment Resolution pursuant to MI 61-101, an aggregate of [¨] ‎Existing SVS (representing approximately [¨]% of the issued and outstanding Existing SVS as of the ‎Record Date), an aggregate of [¨] ‎Existing PVS (representing approximately [¨]% of the issued and outstanding Existing PVS as of the ‎Record Date) and 168,000 Existing MVS (representing approximately 100% of the issued and outstanding Existing MVS as of the Record Date) are required to be excluded.

 

See “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101” and “The Amended Arrangement – Interests of ‎Certain Persons in the Amended Arrangement”.‎

 

Restricted Securities Matters

 

The Existing SVS are “restricted shares” within the meaning of OSC Rule 56-501 and “restricted securities” within the meaning of NI 41-101. In connection with the Capital Reorganization, the Fixed Shares and the Floating Shares are being created and distributed, each of which classes will constitute “restricted shares” within the meaning of OSC Rule 56-501 and “restricted securities” within the meaning of NI 41-101. In order to: (a) create and distribute the Fixed Shares, Floating Shares and Fixed Multiple Shares in connection with the Capital Reorganization; and (b) effect distributions of Fixed Shares and/or Floating Shares in the future either pursuant to a prospectus or on a prospectus-exempt basis, in each case, without obtaining minority approval for any such distribution, the Company is seeking minority approval for the Amendment Resolution.

 

In relation to the Amendment Resolution, pursuant to OSC Rule 56-501 and NI 41-101, “minority approval” ‎means approval by the affirmative vote of a simple majority of the votes cast by the holders of Existing SVS, ‎Existing PVS and Existing MVS, voting together as a single class, excluding votes cast by Related Parties. For the ‎purposes of obtaining “minority approval” of the Amendment Resolution pursuant to OSC Rule 56-501 and NI 41-‎‎101, an aggregate of [¨‎] ‎Existing SVS (representing approximately [¨‎‎]% of the issued and outstanding Existing ‎SVS as of the ‎Record Date), an aggregate of [¨‎‎] ‎Existing PVS (representing approximately [¨‎‎]% of the issued and ‎outstanding Existing PVS as of the ‎Record Date) and 168,000 Existing MVS (representing approximately 100% of ‎the issued and outstanding Existing MVS as of the Record Date) are required to be excluded‎.

 

 

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Securities Law Matters – Canadian Securities Laws – Restricted Securities”.

 

U.S. Securities Laws

 

A general overview of certain requirements of U.S. Securities Laws that may be applicable to Shareholders, Acreage Optionholders, ‎Acreage RSU Holders and Acreage Compensation Option Holders‎ is described in this Circular under the heading “Securities Law ‎Matters – U.S. Securities Laws”. ‎ Each securityholder is urged to consult such holder’s professional advisors to determine the U.S. conditions and restrictions applicable to trades in the Canopy Growth Shares issuable pursuant to the Amended Arrangement.

 

The Canopy Growth Shares, Replacement Options, Replacement RSUs and Replacement Compensation ‎Options to be issued to Shareholders, holders of Fixed Share Replacement Securities and holders of Floating Share Replacement Securities, respectively, under the Amended Plan of Arrangement and pursuant to ‎the Acquisition have not been and are not expected to be registered under the U.S. Securities Act or the ‎Securities Laws of any state of the United States and will be issued in reliance upon the Section 3(a)(10) ‎Exemption and exemptions provided in respect of the Securities Laws of states of the U.S. in which U.S. ‎Holders reside‎.

 

Further ‎information applicable to the holders of such securities resident in the United States is disclosed in this Circular under the heading ‎‎“Securities Law Matters – U.S. Securities Laws”.‎

 

Regulatory Approvals

 

Other than the Shareholder Approval, the Amendment Regulatory Approvals and the Acquisition Regulatory Approvals, the Company is not aware of any material approval, consent or other action by any federal, provincial, state or foreign government or any administrative or regulatory agency that would be required to be obtained in order to implement the Amended Arrangement or the Acquisition, as applicable. While there can be no assurance that any regulatory consents or approvals that are determined to be required will be obtained, the Company currently anticipates that any such consents and approvals, other than the amendment of federal Laws in the United States to permit the general cultivation, distribution and possession of marijuana or the removal of the regulation of such activities from the federal Laws of the Unites States, that are determined to be required will have been obtained or otherwise resolved by the Amendment Date or the Acquisition Date, as applicable.‎

 

See “Regulatory Matters”.‎

 

Stock Exchange Matters

 

The Existing SVS are currently listed on the CSE under the symbol “ACRG.U”, are quoted on the OTCQX ‎under the ‎symbol “ACRGF” and are traded on the Open Market of the Frankfurt ‎Stock Exchange under the symbol “0VZ”. ‎It is anticipated that in connection with the implementation of the Amended Arrangement and completion of the Capital Reorganization, the Existing SVS will be delisted and each of the Fixed Shares and Floating Shares will become listed on the CSE in their place.

 

It is expected that Canopy Growth will apply to have the Fixed Shares delisted from ‎the CSE, the OTCQX and the Frankfurt ‎Stock Exchange as promptly as possible following the Acquisition Date and, if the Floating Call Option is exercised, it is expected that Canopy Growth will also apply to have the Floating Shares delisted from the CSE.‎ In addition, in the event that both the Canopy Call Option and the Floating Call Option are exercised (or deemed exercised), it is expected that Canopy Growth will apply to have ‎Acreage cease to be a reporting issuer in all jurisdictions in which it is a reporting issuer and thus will terminate Acreage’s reporting ‎obligations in Canada and the United States following completion of the Acquisition.‎

 

The Canopy Growth Shares are currently listed and posted for trading on the TSX under the symbol “WEED” and on the ‎NYSE under ‎the symbol “CGC”. ‎It is a condition of completion of the Acquisition that Canopy Growth will have obtained conditional approval of ‎the stock ‎exchange(s) on which the Canopy Growth Shares are listed for the listing of the Canopy Growth Shares issuable: (i) to ‎‎Shareholders under the Amended Arrangement; (ii) upon exercise of Replacement Options, Replacement RSUs and Replacement ‎‎‎Compensation Options; and ‎‎(iii) upon exchange or redemption of High Street Units and USCo2 Shares‎, subject to ‎customary listing ‎conditions‎.‎ As of the date of this Circular, Canopy Growth has received conditional approval of the TSX for the listing of such Canopy Growth Shares.

 

 

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See “Regulatory Matters - Stock Exchange Matters”.‎

 

Dissent Rights

 

Section 238 of the BCBCA provides registered shareholders of a corporation with the right to dissent from certain resolutions that ‎effect extraordinary corporate transactions or fundamental corporate changes. The Amendment Interim Order expressly provides Registered ‎Shareholders with the right to dissent from the Amendment Resolution pursuant to Section 238 of the BCBCA in the manner set forth ‎in Sections 242 to 247 of the BCBCA, with modifications or supplements to the provisions of Sections 237 to 247 as provided in the ‎ Amended Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order. Any Registered Shareholder who dissents from the Amendment Resolution in ‎compliance with Section 238 of the BCBCA, as modified or supplemented by the Amended Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order, will be ‎entitled, if ultimately successful and in the event the Amended Arrangement becomes effective, to be paid the fair value of Existing Shares held ‎by such Dissenting Shareholder determined as of the close of business on the last Business Day before the day on which the ‎Amendment Resolution is adopted by Shareholders at the Meeting.‎

 

A brief summary of the Dissent Rights available to Registered Shareholders is set forth under the heading “Dissent Rights” in this Circular. However, such summary is qualified in its entirety by the provisions of Section 237 to 247 of the BCBCA, the ‎full text of which is set forth in Appendix “J” to this Circular, and by the Amended Plan of Arrangement, the Amended Plan of Arrangement, the Amendment Interim Order and the Amendment Final Order. Failure to strictly ‎comply with the requirements with respect to the dissent rights set forth in the BCBCA, the Proposal Agreement and the Amendment Interim Order ‎may result in the loss of any right to dissent.‎

 

Any Existing SVS or Existing PVS in respect of which Dissent Rights have been ‎properly ‎exercised and not withdrawn pursuant to the BCBCA, will be entitled to be ‎paid the fair value ‎of such shares in accordance with the BCBCA, as modified by ‎the Amended Plan of ‎Arrangement and the Amendment Interim Order and Amendment Final Order of the ‎Court.‎

 

Anyone who is a beneficial owner of Existing Shares registered in the name of an Intermediary and who wishes to dissent should be ‎aware that only Registered Shareholders are entitled to exercise Dissent Rights.‎

 

Risk Factors

 

Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect

 

In assessing the Amended Arrangement, Shareholders should carefully consider the risk that the Amended Arrangement is not approved and the Existing Arrangement remains in effect. These risks include, but are not limited to: the fact that the Company has negative working capital and cash flow from operations; the fact that the Arrangement Agreement restricts Acreage from taking specified actions during the Interim Period under the Existing Arrangement, ‎including, ‎without limiting the generality of the foregoing, incurring debt or issuing additional Existing ‎Shares beyond permitted ‎levels, without the consent of Canopy Growth which may adversely affect the ‎ability of Acreage to execute certain ‎business strategies; the fact that, if the Amended Arrangement is not implemented, Acreage will be subject to the restrictive covenants and ‎consent requirements under the Existing Arrangement Agreement; risk that the Company will not be able to secure additional financing it requires for the continued development of the Company’s business; risk that the Company may not be able to access public or private capital on terms more favorable than the terms of the Debenture, or at all; risk that the Company will not be able to secure the additional cash or working capital it may require to continue operations under the Existing Arrangement; risk of a material decline in the price of the Existing SVS or that the Existing SVS trade at a price that is not reflective of the performance of the Company or the trading price of the Canopy Growth Shares based on the exchange ratio under the Existing Arrangement; and risks related to the tax deferral treatment in respect of the Acquisition.‎

 

 

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Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth in the event that the Amended Arrangement is not approved and the Existing Arrangement remains in effect.

 

See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors - Risks if the Amended Arrangement is Not Approved and the Existing Arrangement Remains in Effect”.‎

 

Risks Relating to the Acquisition

 

In assessing the Amended Arrangement, Shareholders should carefully consider the risk factors relating to the Acquisition. Some of these risks include, but are not limited to: risk that Canopy Growth could fail to complete the Acquisition or the Acquisition may be completed on different ‎terms; risks associated with a fixed exchange ratio; market overhang risk; risk that the Company will incur substantial transaction-related costs in connection with the Acquisition; risk that, prior to the Acquisition being completed‎, the Company is restricted from taking certain actions; risk that during the Amendment Interim Period, the attention of the Company’s management may be diverted; risk that the Canopy Growth Shares to be received by Shareholders as a result of the Acquisition will have different rights from the Shares; risk that the Company and Canopy Growth may not integrate successfully; risk that Canopy Growth may issue additional equity securities during the Interim Period; risk that the Acquisition will adversely affect the rights of Shareholders; risks related to the tax deferral treatment in respect of the Acquisition; risk that the Exchange Ratio may be decreased in certain circumstances; risk that the A&R License may be terminated early by Canopy Growth; and risk that Canopy Growth may be acquired prior to the Acquisition.

 

Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following completion of the Acquisition.

 

See “Cautionary Note Regarding Forward-Looking Information” and “Risk FactorsRisks Related to the Acquisition”.

 

Risks Relating to the Implementation of the Amended Arrangement

 

In assessing the Amended Arrangement, Shareholders should carefully consider the risk factors relating to the implementation of the Amended Arrangement. Some of these risks include, but are not limited to: risks that the Company may fail to receive the necessary court and/or regulatory approval; risks that the Company may fail to implement the Amended Arrangement or that the Amended Arrangement may be completed on different terms; risks that the Company will incur substantial transaction-related costs in connection with the Amended Arrangement; risk that, while the Amended Arrangement is pending, the Company is restricted from taking certain actions; risk that the pending Arrangement may divert the attention of the Company’s management; risk that the amount of the Aggregate Amendment Option Payment received may fluctuate; risk of securities class actions and derivative lawsuits; risk that directors and senior officers of the Company may have interests in the Amended Arrangement that are different from those of the Shareholders; ‎ risk that the Fixed Shares trade at a significant discount to a price that reflects the performance of the Company or at a price relative to the trading price of the Canopy Growth Shares based upon ‎the Exchange Ratio; the Floating Shares will not trade at an intrinsic value; U.S. Holders who received the Option Premium, and U.S. Holders that receive the payment of the Aggregate Amendment Option Payment, will be subject to U.S. federal income tax; risks related to the tax deferral treatment in respect of the Amended Arrangement; risk that the consideration to be received under the Amended Arrangement may be less than under the Existing Arrangement; risk that the Company will be restricted from taking certain actions in order to raise additional capital; risks associated with non-compliance with the Initial Business Plan; risk that certain U.S. states do not legalize recreational cannabis within a proximate timeframe; the restrictions imposed on the use of the Loan under the Debenture; risk of failure to make Non-Core Divestitures within the prescribed time limit; risk that the Company does not receive meaningful financial contribution from the Management Service Agreement or sublicenses under the A&R License; risk related to the early termination of the A&R License; risk that the Company will not be able to retain or attract directors and officers; risk that the Exchange Ratio may be decreased in certain circumstances  risk that the Termination Expense Reimbursement and the terms of the Voting Agreements may discourage other parties from attempting to acquire the Company; and risks related to the deadline to implement the Amended Arrangement.

 

 

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Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following implementation of the Amended Arrangement.

 

See “Cautionary Note Regarding Forward-Looking Information” and “Risk FactorsRisks Related to the Implementation of the Amended Arrangement”.

 

Risks Related to the Acquisition by Canopy Growth of the Fixed Shares only and not the Floating Shares

 

In assessing the Amended Arrangement, Shareholders should carefully consider the possibility that Canopy Growth will only acquire the Fixed Shares and not the Floating Shares and risks related thereto. Some of these risks include, but are not limited to: risks associated with holding securities of a company with a majority controlling shareholder; risk that there may not be an active trading market for the Floating Shares; risk that the Floating Shares will not trade at an intrinsic value; risks that the Company will be restricted from pursuing strategic and organic growth opportunities without Canopy Growth’s consent; risk of loss of revenue under the Management Services Agreements; and risks that Canopy Growth may compete with the Company or divert opportunities to its other investees that participate in the U.S. cannabis industry.

 

Additional risks and uncertainties, including those currently unknown or considered immaterial by the Company and Canopy Growth, may also adversely affect the business of the Company or Canopy Growth following the Acquisition of the Fixed Shares only and not the Floating Shares.

 

See “ Cautionary Note Regarding Forward-Looking Information” and “Risk Factors - Risks Related to the Acquisition by Canopy Growth of the Fixed Shares only and not ‎the Floating Shares”.‎

 

Fees and Expenses

 

The Termination Expense Reimbursement is payable by Acreage to Canopy Growth upon termination of the ‎Proposal Agreement by Canopy Growth in the event of (a) a Change in Recommendation. or (b) the failure to ‎obtain the Required Shareholder Approval, following a Change in Recommendation; provided, however, that ‎Acreage will not be required to pay the Termination Expense Reimbursement if a Change in Recommendation was ‎made as a result of a Purchaser Material Adverse Effect. See “The Amended Arrangement‎ – The Proposal ‎Agreement – Expenses of the Amended Arrangement - Termination Expense Reimbursement”. ‎ See “The Amended Arrangement‎ – The Proposal Agreement – Expenses of the Amended Arrangement - Termination Expense Reimbursement”.

 

The Company estimates that it will incur fees and related expenses in the amount of approximately US$6,600,000 relating to the Proposal Agreement‎ including, without limitation, financial, advisory, legal and accounting fees, filing fees and the costs of preparing, printing and mailing this Circular.

 

 Conditions to the Amended Arrangement‎ Becoming Effective

 

The effectiveness of the Amending Agreement and the implementation of the Amended Plan of Arrangement is subject to the satisfaction of the following conditions:

 

  the Amendment Resolution will have been approved and adopted by the Shareholders at the Meeting in accordance with the Amendment Interim Order and applicable Law;  
     
  each of the Amendment Interim Order and the Amendment Final Order will have been obtained on terms consistent with the Proposal Agreement, and will not have been set aside or modified in a manner unacceptable to the Parties, acting reasonably, on appeal or otherwise;  

 

 

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  the necessary approvals, subject only to customary typical listing conditions, as the case may be, of the CSE will have been obtained, to permit the (i) listing of the Floating Shares and the Fixed Shares; and (ii) the filing of the Required Filings;  
     
  the Amended Arrangement Issued Securities will be exempt from the registration requirements of the U.S. Securities Act pursuant to the Section 3(a)(10) Exemption and pursuant to exemptions from applicable state securities laws;
     
    no Law being in effect or proceeding having otherwise been taken, that makes the consummation of the Amended Arrangement illegal or otherwise, directly or indirectly, prohibits or enjoins the Company or Canopy Growth from filing the Required Filings or consummating the Amended Arrangement, with the exception of the Controlled Substances Act, as it applies to marijuana or any other U.S. federal Law the violation of which is predicated upon a violation of the Controlled Substances Act as it applies to marijuana;

 

  the Company and Canopy Growth will have entered into the Amended Arrangement Agreement;
     
  Canopy Growth shall have deposited or caused to be deposited with the Amendment Option Payment Paying Agent in escrow, the Aggregate Amendment Option Payment to be paid pursuant to the Amended Arrangement;

 

  the Housekeeping Amendments will have each been made;

 

  the Credit Agreement will have been amended on terms satisfactory to each of the Company and Canopy Growth, each acting reasonably;
     
  US$50,000,000 shall have been advanced to Canopy Growth’s counsel in trust for the benefit of Hempco, to be released at the Amendment Time;

 

  each of the Company and Canopy Growth will have fulfilled or complied in all material respects with each of their respective obligations contained in the Proposal Agreement to be fulfilled or complied with by it on or prior to the Amendment Time; and

 

  Dissent Rights will not have been exercised with respect to more than 5% of the issued and outstanding Existing Shares.

 

See “Transaction Documents‎ – Proposal Agreement - Conditions for Implementation of the Amended Arrangement.

 

Income Tax Considerations

 

Holders of securities of the Company should consult their own tax advisors about the applicable Canadian or United States federal, ‎provincial, state and local tax consequences of the Amended Arrangement. See “Certain Canadian Federal Income Tax Considerations” and ‎‎“Certain United States Federal Income Tax Considerations”.‎

 

Pursuant to the Plan of Arrangement, Canopy Growth paid the Option Premium to all holders of Existing Shares and the High Street Holders and the USCo2 Holders as consideration for the grant of the Existing Canopy Option. It was intended, for U.S. federal income tax purposes, that the payment of the Option Premium, would be treated as a part of a continuing, open transaction that generally did not result in immediate recognition of income to the Shareholders and certain other securityholders. However, as a result of the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement, it is now expected that U.S. Holders who received the Option Premium, but have not previously included the Option Premium in income, will be required to report the Option Premium as short-term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective.

 

 

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The U.S. federal income tax treatment of the Aggregate Amendment Option Payment‎ is unclear.  The Aggregate Amendment Option Payment‎ will be paid to the Shareholders and High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment‎ would be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment‎, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment‎.

 

Non U.S. Holders will generally be limited in their recognition of gain or income upon receipt of their share of the Aggregate Amendment Option Payment‎ and should consult with their own tax advisors to determine the extent that such income or gain will be recognized.

 

The U.S. federal income tax consequences of the Acquisition pursuant to the Amended Plan of Arrangement are also uncertain. If Canopy Growth does not acquire the Floating Shares, the Acquisition will not qualify as a reorganization for U.S. federal income tax purposes and, therefore, will be a fully taxable transaction. Even if both the Fixed Shares and the Floating Shares are acquired by Canopy Growth in the Acquisition, the Acquisition may not qualify as a reorganization for U.S. federal income tax purposes. Certain factors that affect the U.S. federal income tax treatment of the Acquisition will not be determinable until the Acquisition Date, including whether the Floating Consideration is paid in Floating Share Consideration, Floating Cash Consideration or a combination thereof, and the value of the Canopy Growth Shares received in the Acquisition. Depending on these and other factors, the Acquisition may be treated as a taxable transaction in which gain or loss is generally recognized for U.S. federal income tax purposes, or it may be treated as a reorganization for U.S. federal income tax purposes (and which also meets the Section 367 Requirements). Neither Acreage nor Canopy Growth have sought, nor expect to seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein.

 

For ‎additional ‎information, see the section entitled “Certain United States Federal Income Tax Considerations”, “Risk Factors”‎ and “Cautionary Note Regarding Forward-Looking Information”.

 

Completion of the Amended Arrangement and any subsequent Acquisition may have tax consequences under the Laws of the United States, and any such tax consequences ‎are not described in this Circular. United States securityholders of Acreage are urged to consult their own tax advisors to determine any ‎particular tax consequences to them of the transactions contemplated in connection with the Amended Arrangement.

 

Information Concerning Acreage

 

For information concerning Acreage see “Information Concerning Acreage”.‎

 

Information Concerning Canopy Growth and Unaudited Pro-Forma Financial Statements

 

Canopy Growth is a leading cannabis company with operations in countries throughout the world. Canopy Growth ‎produces, distributes and sells a diverse range of cannabis and hemp-based products for both recreational and ‎medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, and globally ‎pursuant to applicable international and Canadian legislation, regulations and permits. Canopy Growth’s core operations ‎are in Canada, the United States, Germany, and the UK, with developing opportunity markets in Australia, ‎Denmark, Peru and Brazil. Canopy Growth is a reporting issuer in each of the provinces of Canada, other than ‎Quebec. Canopy Growth’s head and registered office is located at 1 Hershey Drive, Smiths Falls, ON, K7A 0A8. For additional information concerning Canopy Growth, see Appendix “G” ‎‎and for information concerning Canopy Growth following completion of the ‎ Acquisition please see Appendix “H”.‎

 

The unaudited pro-forma condensed consolidated financial information of Canopy Growth following completion of the Acquisition, ‎which is ‎included in this Circular at Appendix “I”, has been derived from the unaudited pro-forma condensed consolidated financial ‎‎statements of Canopy Growth after giving effect to the Acquisition. The unaudited pro forma condensed consolidated statement of ‎financial ‎position as of March 31, 2020 gives pro ‎forma effect to the Completion of the Arrangement as if it were completed as at March 31, 2020. The unaudited ‎pro forma condensed consolidated statement of operations for the year ended March 31, 2020 gives pro forma ‎effect to the Completion of the Arrangement as if it were completed on April 1, 2019‎.‎

 

The pro forma financial information presented in this Circular should be read in conjunction with the (i) the audited ‎consolidated financial statements of Acreage ‎as at and for the year ended March 31, 2020; (iii) the audited ‎consolidated financial statements of Acreage ‎as at and for the year ended December 31, 2019; and (iv) the ‎unaudited condensed interim consolidated financial statements of ‎Acreage for the three months ended March 31, ‎‎2020.‎

 

 

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NOTICE TO SHAREHOLDERS OUTSIDE OF CANADA

 

Acreage is a corporation existing under the laws of the Province of British Columbia. Acreage has prepared this Circular in accordance with the disclosure requirements of Canadian and United States securities laws and the Amended Arrangement‎ is to be carried out in accordance with the laws of the Province of British Columbia. Shareholders should be aware that such requirements are different from those in other jurisdictions.

 

Shareholders who are not residents of Canada for purposes of the Tax Act should be aware that the disposition of securities pursuant to the Amended Arrangement‎ may have tax consequences both in Canada and in any applicable foreign jurisdiction in which the Shareholder is subject to tax. Such foreign tax considerations (other than U.S. federal income tax considerations) are not described herein. It is recommended that Shareholders consult their own tax advisors in this regard.

 

Information for U.S. Securityholders

 

The enforcement by Shareholders of civil liabilities under United States federal securities laws may be affected adversely by the fact that Acreage is organized under the laws of a jurisdiction outside the United States.

 

Neither the SEC nor any state securities regulatory authority has approved or disapproved the Proposal Agreement, the Amended Arrangement‎, passed upon the merits or fairness of the Amended Arrangement‎ or passed upon the adequacy or accuracy of the disclosure in this Circular. Any representation to the contrary is a criminal offense.

 

Certain United States Federal Income Tax Considerations of the Aggregate Amendment Option Payment

 

The U.S. federal income tax treatment of the Aggregate Amendment Option Payment‎ is unclear.  The Aggregate Amendment Option Payment‎ will be paid to the Shareholders, High Street Holders and USCo2 Holders in connection with the reduction of the Exchange Ratio and the modification of the terms of the Existing Canopy Option through the issuance of the Canopy Call Option and Floating Call Option under the Amended Plan of Arrangement. For U.S. federal income tax purposes, this payment may be treated as ordinary income, short-term capital gain, option premium that is part of an open transaction and not immediately includible in income, or other consideration paid in connection with modifying the Existing Arrangement. Acreage expects that the Aggregate Amendment Option Payment‎ would generally be treated as ordinary income. However, due to the absence of guidance bearing directly on the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment‎, this expectation is not free from doubt. The Shareholders should consult their own tax advisors in regard to the tax consequences to them of the receipt of their share of the Aggregate Amendment Option Payment‎

 

Non U.S. Holders will generally be limited in their recognition of gain or income upon receipt of their share of the Aggregate Amendment Option Payment‎ and should consult with their own tax advisors to determine the extent that such income or gain will be recognized. For a summary of certain U.S. federal income tax consequences of the Amended Arrangement, including the payment of the Aggregate Amendment Option Payment, see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Shareholders are urged to consult their own tax advisors with respect to the tax consequences to them of the Amended Arrangement in general and based on their particular circumstances.

 

The foregoing is a brief summary of the material United States federal income tax consequences only. Shareholders should read carefully the information in the Circular under the heading “Certain United States Federal Income Tax Considerations”, which qualifies the summary set forth above. Shareholders are urged to consult their own tax advisors to determine the particular tax consequences to them of the Amended Arrangement‎.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

 

This Circular contains “forward-looking statements” within the meaning of the ‎United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” ‎within the meaning of applicable Canadian securities legislation, including future-oriented financial information and financial outlook within the meaning of applicable Canadian securities legislation. Often, but not always, forward-‎looking statements and information can be identified by the use of words such as “plans”, ‎‎“expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not ‎anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, ‎events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. ‎Forward-looking statements or information involve known and unknown risks, uncertainties and ‎other factors which may cause the actual results, performance or achievements of the Company or ‎its Subsidiaries to be materially different from any future results, performance or achievements ‎expressed or implied by the forward-looking statements or information contained in this Circular. Examples of such statements include statements with respect to the timing and ‎outcome of the Amended Arrangement; the intentions, plans and future actions of Canopy Growth and Acreage; the timing for the implementation of the Amended Arrangement‎; the anticipated benefits of the Amended Arrangement, including preserving Shareholder value and the potential upside of the Floating Shares; the likelihood of the Amended Arrangement‎ being completed; certain of the expectations of the Special Committee and the Acreage Board with respect to the potential future value of the Floating Shares; the amount of the up-front payment per Existing Share;  the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event; the likelihood of the acquisition of the Existing SVS in ‎accordance with the terms of the Existing Arrangement; the satisfaction or waiver of the closing ‎conditions set out in the Arrangement Agreement; the satisfaction of the conditions set out in the ‎Proposal Agreement; the ability of the Company to complete certain financing transactions and complete the Non-Core Divestitures; the use of proceeds under the Debenture; the ability of Acreage to license the Trademarks, Systems and/or Intellectual Property resulting in increased royalty income; the expected consequences of limiting Acreage’s ability to operate to the Identified States; the expected benefits to Shareholders of the Hempco business; the expected use of the net proceeds of the Initial Advance to Hempco; the effects of the Existing Arrangement remaining in place; the timing and outcome of the Acquisition; the anticipated benefits of the Acquisition; the likelihood of entering into a Management Service Agreement; the ability of the Company to comply with the Initial Business Plan, including the Consolidated Adj. EBITDA Targets and the Pro-Forma Net Revenue Targets; and the potential tax consequences to Shareholders of the Amended Arrangement. To the extent any forward-‎looking information constitutes future-oriented financial information or financial outlook, such information is being provided to describe the Amended Arrangement, and readers are cautioned this information may not be appropriate for any other purpose, including investment decisions, and the reader should not place undue reliance ‎on such future-oriented financial information and financial ‎outlooks. The Company’s actual financial position ‎and results of operations may differ materially from management’s ‎current expectations and, as a result, ‎the Company’s revenue and earnings may differ materially from those targets contained in the Initial Business Plan, including the Consolidated Adj. EBITDA Targets and the Pro-Forma Net Revenue Targets. Such future-oriented financial information or financial outlook contained in this Circular ‎may not ‎be an indication of the Company’s actual financial position or results of operations.‎

 

Risks, uncertainties and other factors involved with forward-looking information could cause actual ‎events, results, performance, prospects and opportunities to differ materially from those expressed ‎or implied by such forward-looking information, including the occurrence of changes in U.S. ‎federal Laws regarding the cultivation, distribution or possession of marijuana; the ability of the ‎parties to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and ‎Shareholder approvals; the ability of the parties to satisfy, in a timely manner, the other conditions ‎to the completion of the Proposal Agreement; the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event prior to the Canopy Call Option Expiry Date; the ability of Canopy Growth and the Company to satisfy, in a ‎timely manner, the Acquisition Closing Conditions; in the event that the Amended Arrangement is not implemented, the likelihood of completion of the ‎Acquisition on the terms of the Existing Arrangement; in the event that the Amended Arrangement is implemented, the likelihood ‎of Canopy Growth completing the acquisition of the Fixed Shares and/or Floating Shares; risks related to certain directors and executive officers of Acreage possibly having interests in the transactions contemplated by the Proposal Agreement and the Amended Arrangement‎ that are different from those of other Shareholders; risks relating to the possibility that holders of more than 5% of the Existing Shares may exercise their right to dissent; other ‎expectations and assumptions concerning the transactions contemplated between Canopy Growth ‎and the Company; the available funds of the Company and the anticipated use of such funds; the ‎availability of financing opportunities for the Company and the risks associated with the ‎completion thereof; regulatory and licensing risks; changes in general economic, business and ‎political conditions, including changes in the financial and stock markets; risks related to infectious ‎diseases, including the impacts of the COVID-19; legal and regulatory risks inherent in the ‎cannabis industry, including the global regulatory landscape and enforcement related to cannabis, ‎political risks and risks relating to regulatory change; risks relating to anti-money laundering Laws; ‎compliance with extensive government regulation and the interpretation of various Laws regulations ‎and policies; risk associated with divesting certain assets; public opinion and perception of the ‎cannabis industry; and such other risks set forth under the heading “Risk Factors” below and those contained in the public filings of the Company filed with ‎Canadian Securities Regulators and available under the Company’s profile on SEDAR at ‎www.sedar.com and with the SEC and available on ‎EDGAR at www.sec.gov/edgar, including the Acreage Annual Report.‎

 

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In respect of the forward-looking statements and information concerning the anticipated benefits ‎and completion of the Amended Arrangement and the anticipated timing for completion of the ‎Amended Arrangement, the Company has provided such statements and information in reliance on ‎certain assumptions that the Company believes are reasonable at this time. Although the Company ‎believes that the assumptions and factors used in preparing the forward-looking information or ‎forward-looking statements in this Circular are reasonable, undue reliance should not ‎be placed on such information and no assurance can be given that such events will occur in the ‎disclosed time frames or at all. The forward-looking information and forward-looking statements ‎included in this Circular are made as of the date of this Circular and ‎the Company does not undertake any obligation to publicly update such forward-looking ‎information or forward-looking information to reflect new information, subsequent events or ‎otherwise unless required by applicable Securities Laws. There can be no assurance that the ‎Acquisition, the Amended Arrangement, the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event or the acquisition ‎of the Fixed Shares and/or the Floating Shares will occur, or that such events will occur on the ‎terms and conditions contemplated in this Circular. The Proposal Agreement, the Arrangement Agreement or the Amended Arrangement could be ‎modified, restructured or terminated. Forward-looking information is information about the future and is inherently uncertain. There can be no assurance that the ‎forward-looking information will prove to be accurate. Actual results could differ materially from those reflected in the ‎forward-looking information as a result of, among other things, the matters set out or incorporated by reference in this ‎Circular generally and economic and business factors, some of which may be beyond the control of the Company. Some of ‎the more important risks and uncertainties that could affect forward-looking information are described further under the ‎heading “Risk Factors”. Additional risks are discussed in the Acreage Annual Report, a copy of which is ‎available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar. The Company expressly ‎disclaims any intention or obligation to update or revise any information contained in this Circular (including forward-‎looking information) except as required by applicable Laws, and Shareholders should not assume that any lack of update to ‎information contained in this Circular means that there has been no change in that information since the date of this ‎Circular and should not place undue reliance on forward-looking information.‎

 

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GLOSSARY OF TERMS

 

In this Circular and accompanying Notice of Meeting, unless there is something in the subject matter inconsistent therewith, the following terms shall have the respective meanings set out below, words importing the singular number shall include the plural and vice versa and words importing any gender shall include all genders.

 

A&R License”

 

has the meaning ascribed thereto under the heading “Transaction Agreements – A&R License”.
Acceleration Event has the meaning ascribed thereto under the heading “The Amended Arrangement – Interests of Certain Persons in the Amended Arrangement – Acceleration Agreements”.
Acquisition means (i) the acquisition by Canopy Growth of the issued and outstanding Fixed Shares following the exercise (or deemed exercise) of the Canopy Call Option; and (ii) if applicable, the concurrent acquisition by Canopy Growth of the issued and outstanding Floating Shares following the exercise of the Floating Call Option.
   
‎“Acquisition Closing Outside Date

means the Canopy Call Option Expiry Date, or, if (i) the ‎ Canopy Call Option is exercised, or (ii) a Triggering Event Date occurs prior to the Canopy ‎Call Option Expiry Date, the date that is 12 months following such exercise of the Canopy Call ‎Option or Triggering Event Date, as applicable; provided that: ‎

 

(a)    if the exercise of the Canopy Call Option or Triggering Event Date has occurred prior ‎to the Canopy Call Option Expiry Date and the reason the Acquisition Date ‎has not occurred prior to the Acquisition Closing Outside Date is because all of ‎the Regulatory Approvals included in the Acquisition Closing Conditions ‎‎(which, for certainty, does not include those Regulatory Approvals, the failure of ‎which to obtain would not reasonably be expected to have a Company Material ‎Adverse Effect) have not been satisfied or waived and, at such Acquisition Closing Outside Date, the Party responsible for obtaining such outstanding Regulatory Approvals is continuing to use ‎good faith reasonable commercial efforts to obtain such Regulatory Approvals ‎and there is a reasonable prospect that such Regulatory Approvals will be received, then the Acquisition Closing Outside Date shall automatically be extended to the date that is two Business Days following the date all such outstanding ‎Regulatory Approvals are received or waived; or ‎

 

(b)   if the exercise of the Canopy Call Option or Triggering Event Date has occurred prior to the ‎ Canopy Call Option Expiry Date and the reason the Acquisition Date has not occurred prior to ‎the Acquisition Closing Outside Date is because all of the Acquisition Closing Conditions included in the Acquisition Closing Conditions have not been satisfied or waived, then the ‎Acquisition Closing Outside Date shall automatically be extended to the date that is the earliest ‎of (i) two Business Days following the date all such outstanding Purchaser Acquisition Closing ‎Conditions are satisfied or waived, or (ii) the date on which Canopy Growth, acting reasonably, determines that there is no longer a reasonable prospect that such outstanding Purchaser Acquisition ‎Closing Conditions will be satisfied or waived.‎

 

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‎“Acquisition Closing Conditions means the conditions to closing of the Acquisition, as set out in the Arrangement Agreement.
   

‎“Acquisition Date

 

 

 

means the date specified in the Canopy Call Option Exercise Notice or the Triggering Event Notice ‎delivered in accordance with the terms of the Canopy Call Option and the Floating Call ‎Option, if applicable, on which the closing of the purchase and sale of the Canopy Call Option ‎Shares pursuant to the Canopy Call Option is to occur and the Floating Shares pursuant to the ‎Floating Call Option, if applicable; provided that, notwithstanding the foregoing, if the ‎Acquisition Closing Conditions are not satisfied or waived prior to such date, the Acquisition ‎Date shall automatically be extended, without any further action by any Person, to the date that ‎is two Business Days following the satisfaction or waiver of the Acquisition Closing Conditions; ‎provided further that, under no circumstances shall the Acquisition Date be a date that is after the ‎Acquisition Closing Outside Date.‎
   

‎“Acquisition Regulatory Approvals

 

means all Regulatory Approvals and all other third-party consents, waivers, ‎permits, orders and approvals that are necessary, proper or advisable to consummate the Acquisition, including, but ‎not limited to:

  

(a)  any filings required by the HSR Act and any applicable foreign investment and competition Law approvals ‎in Canada, the United States and elsewhere;‎

  

(b)   the approval from the stock exchange(s) on which the Consideration Shares are listed to permit Canopy ‎Growth to acquire all of the issued and outstanding Shares; and

 

(c)    the approval from the stock exchange(s) on which the Consideration Shares are listed, for the listing of the ‎Consideration Shares, and any Canopy Growth Shares issuable upon the exercise of Replacement Options, Replacement RSUs and Replacement Compensation Options.‎

   
‎“Acquisition Time means 12:01 a.m. (Vancouver time) on the Acquisition Date, or such other time on the ‎Acquisition Date as the Parties agree to in writing before the Acquisition Date. ‎
   
Acreage Annual Report means the Company’s annual report on Form 10-K for the year ended December 31, 2019 dated May 29, 2020.
   
Acreage Board means the board of directors of the Company as constituted from time to time.
   
Acreage Canadian Shareholder means a Person (other than Canopy Growth) who is a Shareholder at the Acquisition Time ‎and who has indicated in the Letter of Transmittal that the Shareholder is (i) resident in Canada ‎for purposes of the Tax Act, or (ii) a “Canadian partnership” as defined in the Tax Act.‎
   
Acreage Compensation Option Holders means the registered holders of Acreage Compensation Options.

 

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Acreage Compensation Options means the compensation options and the warrants of the Company which are outstanding as of the Amendment Time.
   
Acreage Existing Securities means, collectively, Existing Shares, Acreage Options, Acreage RSUs and Acreage Compensation ‎‎Options. ‎
   

Acreage Holder Securities

 

has the meaning ascribed thereto under the heading “Transaction Agreements – Voting Agreements”.
   
Acreage Holders means, collectively, the Shareholders, High Street Holders and USCo2 Holders.‎
   
Acreage Locked-Up Shareholders means all of the directors and senior officers of Acreage.‎
   
Acreage Non-U.S. Shareholder means a Shareholder (other than Canopy Growth) that is not an Acreage U.S. Shareholder.
   
Acreage Option In-The-Money Amount means in respect of an Acreage Option means the amount, if any, determined immediately before the ‎Amendment Time, by which the total Fair Market Value of the Existing SVS that a holder is entitled to acquire on exercise of the Acreage Option, exceeds the ‎aggregate exercise price payable to acquire such Existing SVS at that ‎time.
   
‎“Acreage Optionholders” ‎ means the holders of Acreage Options.
   

Acreage Options

 

means the options to purchase Existing SVS issued pursuant to the Existing Omnibus Incentive Plan prior to the Amendment Time, which are outstanding as of the Amendment Time.
   
Acreage RSU Holders means the holders of Acreage RSUs.
   
Acreage RSUs means the restricted share units that may be settled by the Company in either cash or Existing SVS which are outstanding as of the Amendment Time.
   
Acreage Subsidiaries means Subsidiaries of Acreage and “Acreage Subsidiary” means any one of them.
   
Acreage U.S. Shareholder means a Shareholder (other than Canopy Growth or an Acreage Canadian Shareholder) that is a ‎‎“United States person” within the meaning of Section 7701(a)(30) of the Code.‎

 

Affiliate has the meaning ascribed thereto in the Securities Act.
   
Aggregate Amendment Option Payment means an amount, equal to US$37,500,024, which shall be paid to the Shareholders, High Street Holders and USCo2 Holders at the Amendment Time in accordance with the Paying Agent Agreement.
   
Amendment Option Payment Paying Agent means Odyssey Trust Company.

 

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‎“ALBF Bridge Loan” ‎ means the loan in the amount of US$15,000,000 made to the Company pursuant to an agreement dated ‎June 16, 2020 bearing interest at an annual rate equal to 60% per annum, which becomes ‎due and payable on October 16, 2020‎.
   
‎“Alternate Consideration means the consideration to be received by Shareholders in exchange for their Shares on the Acquisition Date instead of the Canopy Growth Share Consideration in the event that a Canopy Growth Change of Control occurs prior to the Acquisition Date, being the number of shares or other securities or property (including cash) that such Shareholder would have been entitled to receive on such Canopy Growth Change of Control if, at the effective time of such Canopy Growth Change of Control, such ‎Shareholder had been the registered holder of that number of Canopy Growth Shares ‎which is equal ‎to the number of Canopy Growth Shares which it would otherwise have been ‎entitled to receive in ‎exchange for its Fixed Shares pursuant to the Amended Arrangement if the ‎Acquisition had ‎been ‎completed effective immediately prior to the effective time of such Canopy Growth Change of ‎Control‎.
   
‎“Alternate Floating Consideration means the number of shares or other securities or property ‎‎(including cash) that a Floating Shareholder would have been entitled to receive on a Canopy Growth ‎Change of Control, if, at the effective time of such Canopy Growth Change of Control, such Floating ‎Shareholder had been the registered holder of that number of Canopy Growth Shares which the ‎Floating Shareholder would otherwise have been entitled to receive in exchange for its Floating ‎Shares pursuant to the Amended Arrangement if the Acquisition of the Floating Shares had been completed effective immediately prior to the ‎effective time of the Canopy Growth Change of Control; provided that, for the purposes of ‎determining the number of Canopy Growth Shares which the Floating Shareholder would otherwise ‎have been entitled to receive in exchange for its Floating Shares, “B” in the formula of the ‎Floating Rate shall be calculated by reference to (i) the volume weighted average trading price ‎expressed in US$ of the securities of the acquiror in connection with such Canopy Growth Change of ‎Control on the stock exchange on which the securities are primarily traded (as determined by ‎volume) for the 30 trading day period immediately prior to the Floating Rate Date; multiplied by ‎‎(ii) the Canopy Growth Change of Control Valuation.‎
   
allowable capital loss has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   

Amended and Restated Omnibus

 

Equity Incentive Plan‎

 

means the amended and restated Existing Omnibus Incentive Plan proposed to be approved and adopted at the Meeting pursuant to the Amendment Resolution.

 

Amended Arrangement means the arrangement under Section 288 of the BCBCA on the terms and subject to the conditions set out in the Amended Plan of Arrangement.
   
Amended Arrangement Agreement means the Arrangement Agreement, as further amended by the Amending Agreement.
   
Amended Arrangement Issued Securities has the meaning ascribed thereto under the heading “The Amended Arrangement – Court Approval of the Amended Arrangement and Implementation of the Amended Arrangement”.

 

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Amended Plan of Arrangement means the amended and restated plan of arrangement, substantially in the form attached as Schedule A to the Amending Agreement and which is attached as Appendix “C” to this Circular, subject to any amendments or variations to such plan made in accordance with the Amended Plan of Arrangement or made at the direction of the Court in the Amendment Final Order with the prior written consent of the Company and Canopy Growth, each acting reasonably.
   
Amending Agreement means the second amendment to the Arrangement Agreement proposed to be entered into between the Company and Canopy Growth at the Amendment Time in the form attached as Appendix “B” to this Circular.
   
Amendment Date means the date on which the Required Filings are filed with the Registrar in accordance with the terms of the Amending Agreement.
   
Amendment Final Order means the final order of the Court approving the Amended Arrangement under Section 291 of the BCBCA, in a form acceptable to the Company and Canopy Growth, each acting reasonably, after a hearing upon the procedural and substantive fairness of the terms and conditions of the Amended Arrangement, as such order may be amended by the Court (with the consent of both the Company and Canopy Growth, each acting reasonably) at any time prior to the Amendment Time or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both the Company and Canopy Growth, each acting reasonably) on appeal.
   
Amendment Interim Order means the interim order of the Court dated August [¨], 2020, after being informed of the intention of the Parties to rely upon the exemption from registration under U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act with respect to the Amended Arrangement Issued Securities issued pursuant to the Amended Arrangement, providing for, among other things, the calling and holding of the Meeting, as such order may be amended by the Court with the consent of the Company and Canopy Growth, each acting reasonably.
   
‎“Amendment Interim Period means the period from the Amendment Date until the earlier of (i) the date the Acquisition ‎is completed; and (ii) the date that the Amended Arrangement Agreement is terminated in accordance with its terms.‎
   

Amendment Regulatory Approvals

 

means: (a) the grant of the Amendment Interim Order and the Amendment Final Order; and (b) in relation to the Company, the approval of the CSE in respect of the Amended Arrangement, including the delisting of the Existing SVS and the listing of the Fixed Shares and Floating Shares.
   
‎“Amendment Resolution”‎ means the special resolution of the Shareholders to be considered at the Meeting, approving (i) the Amended Arrangement, (ii) the Amending Agreement, (iii) the Amended Plan of Arrangement, and (iv) the Amended and Restated Omnibus Equity Incentive Plan, substantially on the terms and in the form set out in Appendix “A” hereto.

 

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Amendment Time means 12:01 a.m. (Vancouver time) on the Amendment Date, or such other time on the Amendment Date as the Parties agree to in writing before the Amendment Date.
   
“‎Announcement Date means June 25, 2020, being the date that Acreage announced the entering ‎into of the ‎Proposal Agreement‎.‎
   
Approved Business Plan means any Business Plan that is approved by the Acreage Board and that contains the Mandatory Requirements and complies with the Initial Business Plan.

 

Arrangement Agreement means the arrangement agreement dated as of April 18, 2019, as amended on May 15, 2019, between Canopy Growth and the Company, including the schedules and exhibits thereto, as the same may be further amended, supplemented or restated.

 

associate has the meaning ascribed thereto in the Securities Act.
   
Austerity Measures has the meaning ascribed thereto under the heading “Transaction Agreements – Amending Agreement – Covenants Regarding Acreage’s Business Plans”.

 

 

BCBCA

 

 

means the Business Corporations Act (British Columbia).

 

Board Recommendation means the unanimous determination of the Acreage Board (with directors abstaining or recusing themselves as required), after receiving legal and financial advice that: (i) the Amended Arrangement is fair to the Shareholders; (ii) the Amended Arrangement and the entering into of the Proposal Agreement is in the best interests of Acreage; and (iii) Shareholders vote in favor of the Amendment Resolution.

 

Broadridge means Broadridge Financial Solutions, Inc‎.

 

Business Day means any day of the year, other than a Saturday, Sunday or any day on which major banks are generally closed for ‎business in Toronto, Ontario or Vancouver, British Columbia or New York, New York as the context requires‎.
   
Business Plan means for each fiscal quarter: (i) a description of proposed operations of Acreage ‎and its Subsidiaries; (ii) an estimate of revenue to be received by Acreage and its ‎Subsidiaries; (iii) the capital and operating budget setting out the expenditures of Acreage and its Subsidiaries for operating and capital improvements; and (iv) such ‎other matters as Acreage may reasonably consider to be necessary to illustrate the ‎results intended to be achieved by Acreage during such quarter‎.
   
Canadian Holder” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
‎“Canadian Securities Laws means the Securities Act, together with all other applicable federal and provincial Securities ‎Laws and the rules and ‎regulations and published policies of the securities authorities thereunder, as now in effect and as ‎they may be ‎promulgated or amended from time to time, and includes the rules and policies of the CSE.‎ ‎

 

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Canadian Securities Regulators means the OSC and the other securities regulatory authorities in the provinces of Canada in which the Company is a reporting issuer.
   
Canopy Call Option means, pursuant to the special rights and restrictions of the Shares (other than the Floating ‎Shares), the embedded option of Canopy Growth to acquire such Shares on the terms and conditions set forth in Exhibit B to the Amended Plan of Arrangement.
   
‎“Canopy Call Option Exercise Notice means a notice in writing, substantially in the form attached as Exhibit C to the Amended Plan of Arrangement, delivered by Canopy Growth to the Company (with a copy to the ‎Depositary) stating that Canopy Growth is exercising its rights pursuant to the Canopy Call ‎Option to acquire all (but not less than all) of the Canopy Call Option Shares, and specifying a ‎Business Day (to be not less than 61 days and not more than 90 days following the date such Canopy Call Option Exercise Notice is delivered to the Company) on which the closing of the ‎purchase and sale of the Canopy Call Option Shares pursuant to the Canopy Call Option is to ‎occur, subject to the satisfaction or waiver of the Acquisition Closing Conditions. ‎
   
‎“Canopy Call Option Share means a Share (other than a Floating Share) in respect of which ‎a Canopy Call Option is embedded in the special rights and restrictions of such Shares.‎
   
Canopy Growth means Canopy Growth Corporation, a corporation existing under the federal laws of Canada.
   
Canopy Growth Approved Share Threshold has the meaning specified in Section 2.1(7) of the Amending Agreement‎.
   
‎“Canopy Growth Change of Control means any business consolidation, amalgamation, arrangement, merger, redemption, compulsory acquisition or similar transaction pursuant to which 100% of the shares or all or substantially all of the assets of Canopy Growth are transferred, sold or conveyed, directly or indirectly, to any other Person or group of Persons, acting jointly or in concert.‎

 

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‎“Canopy Growth Change of Control Valuation

 

means the fraction, calculated to six decimal places, ‎determined by the formula A/(A+B) where: ‎

 

“A”‎     equals the total value of all consideration payable to holders of Canopy Growth Shares ‎upon a Canopy Growth Change of Control, and if such consideration includes securities ‎that are issuable in connection with such Canopy Growth Change of Control, such ‎securities shall be valued based upon the volume weighted average trading price ‎expressed in US$ of the securities of the acquiror in connection with such ‎ Canopy Growth Change of Control on the stock exchange on which the securities are ‎primarily traded (as determined by volume) for the 30 trading day period ‎immediately prior to the Canopy Growth Change of Control, and ‎

 

“B”‎     equals the total value of the issued and outstanding securities of the acquiror in ‎connection with such Canopy Growth Change of Control immediately prior to the ‎ Canopy Growth Change of Control which shall be determined based upon the volume ‎weighted average trading price expressed in US$ of the securities of the acquiror ‎in connection with such Canopy Growth Change of Control on the stock exchange on ‎which the securities are primarily traded (as determined by volume) for the 30 ‎trading day period immediately prior to the Canopy Growth Change of Control.‎

   
Canopy Growth Equity Incentive Plan means the Amended and Restated Omnibus Incentive Plan of Canopy Growth as approved by the Canopy Growth Shareholders on July 30, 2018, as the same may be amended, supplemented or ‎restated in accordance therewith, prior to the Acquisition Time.
   
‎“Canopy Growth Share means a common share in the capital of Canopy Growth‎.
   
Canopy Growth Share Consideration means the number of Canopy Growth Shares issuable per Fixed Share in ‎accordance with the Amended Plan of ‎Arrangement, based on the Exchange Ratio in effect ‎immediately prior to the Acquisition Time.
   
‎“Canopy Growth Shareholders means a registered or beneficial holder of one or more Canopy Growth Shares, as the context ‎requires.
   
Canopy Growth Subco means 1208640 BC Ltd., a wholly-owned direct subsidiary of Canopy Growth, incorporated under ‎the BCBCA for the purposes of completing the Merger.‎
   
Canopy Growth Subco Share means the common shares in the capital of Canopy Growth Subco.
   
Capital Reorganization has the meaning ascribed thereto under the heading “The Amended Arrangement – Principal Steps of the Amended Arrangement”.
   
Capital Reorganization Letter of Transmittal means the letter of transmittal for use by Registered Shareholders in connection with the Capital Reorganization, in the form accompanying this Circular as Appendix “L”.
   
Cassels Cassels Brock & Blackwell LLP, Canadian legal counsel to Canopy Growth.
   
‎“CBCA‎” means the Canada Business Corporations Act.‎
   
CBD means cannabidiol.
   
Change in Recommendation means the submission of the Amendment Resolution by the Acreage Board to the Shareholders at the Meeting without recommendation, or the withdrawal of the Board Recommendation as a result of the determination by the Acreage Board, in good faith and acting on the advice of its outside legal counsel that a fact or circumstance that was known but not disclosed by Canopy Growth occurred prior to the date of the Proposal Agreement or that a fact or circumstance has occurred since the date of the Proposal Agreement and, as a result of the occurrence of such fact or circumstance, continuing to make the Board Recommendation would constitute a violation of its fiduciary and statutory duties under applicable Law (including in accordance with MI 61-101 and the interpretive guidance promulgated under Multilateral Staff Notice 61-302).

 

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Circular means the accompanying Notice of Meeting and this proxy statement and management information circular, including all schedules, appendices and exhibits hereto, as amended, supplemented or otherwise modified from time to time.
   
Coattail Agreement”‎ has the meaning ascribed thereto under the heading “Voting Securities And Principal Holders Thereof”.‎
   
‎“Code means the U.S. Internal Revenue Code ‎of 1986, as amended.‎
   
‎“Common Membership Units means the common membership units of High Street ‎‎outstanding from ‎time to time, other than common membership units held by USCo and ‎USCo2. ‎

 

CompanyorAcreage means Acreage Holdings, Inc., a corporation existing under the BCBCA.
   
‎“Company Debt

‎ means,

 

(a)     all items that would, at the relevant time, be classified as liabilities on the Company’s ‎consolidated balance sheet; and

 

(b)    without duplication, any item that is: (i) an obligation in respect of borrowed money or ‎that is evidenced by a note, bond, debenture, or any other similar instrument; (ii) a ‎transfer with recourse or with an obligation to repurchase; (iii) an obligation ‎secured by any lien; (iv) a lease that would be capitalized under GAAP (except ‎for any obligation under a lease for real property); (v) an obligation arising in ‎connection with an acceptance facility or letter of credit or letter of guarantee; (vi) ‎the aggregate amount at which any Company Securities that are redeemable or ‎retractable at the option of the holder of those shares (except where the holder is ‎the Company or its Subsidiaries) may be redeemed or retracted; or (vii) any other ‎obligation arising under arrangements or agreements that, in substance, provide ‎financing; provided, however, that there will not be included for the purpose of ‎this definition any item that is on account of

 

(i)        issued share capital or surplus, subject to paragraph (vii) above;‎

 

(ii)       reserves for deferred income taxes or general contingencies;‎

 

(iii)      minority interests in Subsidiaries; ‎

 

(iv)     trade accounts payable and accrued liabilities (including deferred revenues and ‎income taxes payable) incurred in the ordinary course, unless any of the ‎trade accounts payable or accrued liabilities under this paragraph remain ‎unpaid more than 120 days after the date on which they were incurred; or ‎

 

(v)     intercompany and affiliate payables/notes to the extent they are offset by intercompany and ‎affiliate receivables/notes.‎

 

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Company Material Adverse Effect has the meaning ascribed thereto in the Arrangement Agreement.

 

Consideration

means the aggregate value of the Canopy Growth Share Consideration and the Floating Share Consideration.

 

‎“Consideration Shares” ‎

means Canopy Growth Shares to be received by Shareholders (other than Canopy Growth) upon exercise of (i) the Canopy Call Option, or (ii) the Floating Call Option, if applicable.

 

‎“Consolidated Adj. EBITDA Target” ‎

means for each of the fiscal years ending December 31, 2020 through December 31, ‎‎2029, the Consolidated ‎Adj. EBITDA Target set forth for the applicable fiscal year in ‎the Initial Business Plan, subject to ‎adjustment in accordance with the terms of the Proposal Agreement.‎

 

Consolidated EBITDA means EBITDA, excluding, in respect of the fiscal period, the following: (i) income or loss from investments; (ii) security-based compensation; (iii) non-cash impairment losses; (iv) costs associated with the Arrangement Agreement; and (v) other non-recurring expenses as mutually determined by Canopy Growth and the Company, acting reasonably, provided that in the event of a disagreement as to the Consolidated EBITDA on the Acquisition Date, such amount of non-recurring expenses shall be determined by a nationally recognized chartered accounting firm who is independent of Canopy Growth and the Company.
   
‎“Controlled Substances Act means the Controlled Substances Act, 21 USC 801 et seq. (including any implementing ‎regulations and schedules in effect at the relevant time).‎
   
Controlling Individual has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Eligibility for Investment”.
   
Cost of Capital means the effective annual interest associated with any contract for Company Debt, ‎including for the purposes of calculating such annual interest, any interest payments, ‎whether in cash or Securities, origination fees, standby fees, original issue discounts, ‎bonus issuances of Securities, any and all charges and expenses, whether in the form of a ‎fee, fine, penalty, commission or other similar charge or expense or in any other form, ‎paid or payable for the advancing of credit under the contract, any fee, fine, penalty, ‎commission and other similar charge or expense directly or indirectly incurred under the ‎Contract or any other form of payment, whether in cash or Securities; provided that the ‎value attributed to any Fixed Share will be equal to the Fair Market Value of ‎a Canopy Growth Share at such time multiplied by 0.3048.‎

 

Court means the Supreme Court of British Columbia.
   
COVID-19 means the novel coronavirus first identified in December 2019.

 

CRA means the Canada Revenue Agency.

 

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Credit Agreement Amendment means the amendment to be entered into on or prior to the Amendment Date and effective at the Amendment Time, to the Original Credit Agreement.
   
CSE means the Canadian Securities Exchange.
   

Debenture

 

means the debenture to be entered into between Hempco and the Lender at or prior to the Amendment Time, whereby ‎the Lender shall advance funds as a loan to Hempco‎.
   

Deep Roots Merger Agreement

 

means the agreement and plan of merger entered into on April 18, 2019, by and among Deep Roots Medical LLC, High Street, Challenger Merger Sub, LLC and DRM Member Representative LLC, solely in its capacity as the member representative, as amended by that certain first amendment to the agreement and plan of merger, dated as of July 22, 2019, pursuant to which High Street was to acquire 100% of Deep Roots Medical LLC.
   
Depositary means Computershare Trust Company of Canada, or any other depositary or trust company, bank ‎or financial institution as Canopy Growth may appoint to act as depositary with the approval of the ‎Company, acting reasonably, for the purpose of, among other things, exchanging certificates ‎representing Shares for Consideration Shares and, if applicable, the Floating Cash Consideration in connection with the Amended Arrangement‎.‎

 

Dissent Payment has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax ‎Considerations – Dissent Rights”.

 

Dissent Rights means the rights of dissent of Shareholders in respect of the Amendment Resolution as contemplated in the Amended Plan of Arrangement.
   
Dissenting Shareholder means a registered holder of Existing Shares who has properly exercised its Dissent Rights in respect of the Amendment Resolution in accordance with Section 4.1 of the Amended Plan of Arrangement and has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights and who is ultimately determined to be entitled to be paid the fair value of his, her or its Existing Shares.
   
‎“Dissenting Shares means the Existing Shares in respect of which a Dissenting Shareholder dissents.‎
   
DLA Piper means DLA Piper (Canada) LLP, Canadian legal counsel to Acreage.
   
‎“DOJ means the United States Department of Justice.‎
   
DPSPs

has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Eligibility for Investment”.

 

EBITDA means earnings before interest taxes depreciation and amortization‎.
   
Eight Capital means Eight Capital, financial advisor to the Special Committee‎.

 

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Eight Capital Engagement Agreement” 

means the engagement agreement dated May 28, ‎‎2020 between Eight Capital and the Special Committee.‎
   
Elected Amount has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
Election Deadline has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
Eligible Holder means a Person (other than Canopy Growth) who is a Shareholder at ‎‎the Acquisition Time ‎and who has indicated in the Letter of ‎‎Transmittal (or in such other document or form, or in such ‎other ‎‎manner, as may be specified in the Circular) that the Shareholder is (i) ‎‎resident in Canada ‎for purposes of the Tax Act and is not exempt from ‎‎tax under Part I of the Tax Act, or (ii) a “Canadian partnership” as ‎‎defined in the Tax Act‎.
   
Eligible Institution means a Canadian Schedule I Chartered Bank, a member of the Securities Transfer Agents Medallion Program (STAMP), a member of the Stock Exchanges Medallion Program (SEMP) or a member of the New York Stock Exchange Inc. Medallion Signature Program (MSP).
   
Eligible Securities means, collectively, the Existing PVS, the Existing MVS, the USCo2 Shares and the High Street Units.
   
End Date means, following the Acquisition Date, the earlier of the date that Canopy Growth: (i) has acquired all of the issued and outstanding Floating Shares; and (ii) no longer holds at least 35% of the Shares‎.‎
   
EV means enterprise value.

 

Exchange Ratio

means 0.3048 of a Canopy Growth Share to be issued by Canopy Growth for each one Fixed Share exchanged pursuant to the Amended Arrangement, provided that, if the aggregate number ‎of Fixed Shares on a Fully Diluted Basis at the Acquisition Time is greater ‎than the number of‎ Fixed Shares set out in the definition of “Exchange Ratio” in the Amended Plan of Arrangement on a Fully Diluted Basis, and Canopy Growth has not provided ‎written approval for the issuance of such additional Securities, the Exchange Ratio shall be the ‎fraction, calculated to six decimal places, determined by the formula A x B/C, where: ‎

 

‎“A” ‎ equals 0.3048, ‎

 

“B” ‎ equals the number of Fixed Shares on a Fully Diluted Basis issued at ‎the Amendment Time pursuant to the steps in the Amended Plan of Arrangement up until ‎Section 3.2(j) of the Amended Plan of Arrangement, as increased for the issuance of such additional Securities in ‎accordance with Canopy Growth Approved Share Threshold, and ‎

 

‎ “C” ‎ equals the aggregate number of Fixed Shares on a Fully Diluted Basis ‎at the Acquisition Time,‎

 

in each case subject to adjustment in accordance with Section 2.14 of the Arrangement ‎Agreement; provided that in the event of a Payout, the Exchange Ratio shall be decreased and ‎the two references to 0.3048 above shall instead refer to the number determined by the formula ‎‎(D – E) / (F x G), where:‎

 

‎“D” ‎ equal 0.3048 x (F x G)

 

“E” ‎ equals the Payout, and

 

“F” ‎ equals the aggregate number of Fixed Shares on a Fully Diluted Basis ‎at the Acquisition Time‎

 

“G” ‎ the Fair Market Value of the Canopy Growth Shares immediately prior to the ‎Acquisition Date.‎

 

40

 

 

‎“Exchange Ratio Adjustment Event has the meaning ascribed thereto under the heading “Procedures for Payment of ‎Aggregate Amendment Option Payment and Canopy Growth Consideration – Adjustment of Consideration – Exchange Ratio ‎Adjustment Event.”‎
   
Existing Arrangement means the arrangement with Canopy Growth implemented by the Company on June 27, 2019 under section 288 of the BCBCA.
   
Existing Canopy Option means the option of Canopy Growth, upon the occurrence of a Triggering Event, to acquire all of the issued and outstanding Existing Shares (after each Existing MVS and Existing PVS is converted into an Existing SVS) pursuant to the Existing Arrangement.
   

 

‎“Existing Exchange Ratio

 

 

 

means 0.5818 of a Canopy Growth Share to be issued by Canopy Growth for each one Existing SVS exchanged pursuant to the Existing Arrangement, provided that, if the aggregate number of Existing SVS on a fully diluted basis at the Acquisition Time is greater than 188,235,587 Existing SVS on a fully diluted basis, and Canopy Growth has not provided written approval for the issuance of such additional ‎Acreage Existing Securities, the Existing Exchange Ratio shall be the fraction, calculated to six decimal places, determined by the formula ‎A x B/C, where: ‎

 

‎“A” equals 0.5818, ‎

  

‎“B” equals the current number of Existing SVS on a fully diluted basis as increased for the ‎issuance of Acreage Existing Securities in accordance with the Canopy Growth Approved Share Threshold (as such term is defined in the Arrangement Agreement), and

  

‎“C” equals the aggregate number of Existing SVS on a fully diluted basis at the Acquisition Time,‎

  

in each case subject to adjustment in accordance with the Arrangement Agreement; provided that in the event ‎of a Payout, the Existing Exchange Ratio shall be decreased and the two references to 0.5818 above shall instead refer ‎to the number determined by the formula (D - E) / (F x G), where:‎

  

‎“D” equal 0.5818 x F x G

  

“E” equals the Payout, ‎

  

“F” equals the aggregate number of Existing SVS on a fully diluted basis at the Acquisition Time, and

 

“G” equals the Fair Market Value of the Canopy Growth Shares immediately prior to the Acquisition Time.‎

 

41

 

 

Existing MVS means the shares of the Company designated as Class C multiple voting shares, each convertible ‎into one Existing SVS and each entitling the holder thereof to ‎3,000 ‎votes ‎per share at shareholder meetings of the Company‎.
   
Existing MVS Shareholders means the registered or beneficial holders of the Existing MVS.
   
Existing Omnibus Incentive Plan means Acreage’s omnibus equity plan last approved by the Company Shareholders on June 19, 2019 and as proposed to be amended and restated at the Meeting as the Amended and Restated Omnibus Equity Incentive Plan.
   
Existing PVS means the shares of the Company designated as Class B proportionate voting shares, each ‎convertible into 40 Existing SVS and each entitling the holder thereof to ‎‎40 votes per share at shareholder meetings of the Company‎.
   
Existing PVS Shareholders means the registered or beneficial holders of the Existing PVS.
   
Existing Share means a share of the Company, and includes the Existing SVS, the ‎ Existing PVS and the Existing MVS ‎
   
Existing SVS means the shares of the Company designated as Class A subordinate voting shares, each entitling ‎the holder thereof to one vote per share at shareholder meetings of the Company‎.
   
Existing SVS Shareholders means the registered or beneficial holders of the Existing SVS.

 

executive officer has the meaning ascribed thereto in National Instrument 51-102 – Continuous Disclosure Obligations.
   
Failure to Perform has the meaning ascribed thereto under the heading “Transaction Agreements – Amending Agreement – Covenants Regarding Acreage’s Business Plans”.
   

 

42

 

 

Fair Market Value means (i) in respect of the Existing SVS, Fixed Shares or the Floating Shares, as applicable, the volume weighted average trading ‎price of the applicable share on the CSE (or other recognized stock exchange on which the ‎applicable shares are primarily traded as determined by volume), subject to a minimum amount of ‎US$6.41 in respect of the Floating Shares; and (ii) in respect of the Canopy Growth Shares, the volume ‎weighted average trading price of the Canopy Growth Shares on the NYSE (or other recognized stock ‎exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE, as ‎determined by volume, and reflected in US$), in each case, for the five trading day period ‎immediately prior to the Amendment Date or the Acquisition Date, as applicable. ‎
   

FATCA

 

 

has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.
   
Federal Cannabis Laws has the meaning ascribed thereto under the heading “Transaction Agreements – A&R License”.
   
Fixed Compensation Options means the compensation options and warrants to purchase Floating Shares at or ‎following the Amendment Time, which remain outstanding as of Acquisition Time.
   

Fixed Multiple Shares

 

 

means shares of the Company to be created pursuant to the Amended Plan of Arrangement and designated as multiple voting shares, each entitling the holder thereof to 4,300 votes per share at shareholder meetings of the Company.
   
‎“Fixed Option In-The-Money-Amount” ‎ in respect of a Fixed Option means the amount, if any, ‎determined immediately before the Acquisition Time, by which the total Fair Market ‎Value of the Fixed Shares that a holder is entitled to acquire on exercise of the Fixed ‎Option, exceeds the aggregate exercise price payable to acquire such Fixed Shares at ‎that time.
   
‎“Fixed Options means the options to purchase Fixed Shares issued pursuant to the ‎Amended and Restated Omnibus Equity Incentive Plan at or following the Amendment Time, which are outstanding as ‎of the Acquisition Time.‎
   
‎“Fixed RSUs means the restricted share units that may be settled by the Company in either cash ‎or Fixed Shares issued pursuant to the Amended and Restated Omnibus Equity Incentive Plan at or ‎following the Amendment Time, which are outstanding as of the Acquisition Time.‎
   
Fixed Share Replacement Securities means Fixed Options, Fixed RSUs, Fixed Compensation Options to acquire Fixed Shares in replacement of the options, restricted share units, compensation ‎options and warrants to acquire ‎Existing SVS that are outstanding immediately prior to ‎the Amendment Time in order to account for ‎the Capital ‎Reorganization.

Fixed Shares

 

 

 

means the Class E subordinate voting shares of the Company to be created pursuant to the Amended Plan of Arrangement and designated as subordinate voting shares, each entitling the holder thereof to one vote per share at shareholder meetings of the Company.
   
Floating Call Option means, pursuant to the special rights and restrictions of the Floating Shares, the embedded option of Canopy Growth to acquire each Floating Share at the Acquisition Time, on the terms and conditions set forth in Exhibit B to the Amended Plan of Arrangement.

 

43

 

 

‎“Floating Call Option Exercise Notice means a notice in writing, substantially in the form attached as Exhibit E to the Amended Plan of Arrangement. delivered by Canopy Growth to the Company (with a copy to the ‎Depositary) stating that Canopy Growth is exercising its rights pursuant to the Floating Call Option ‎to acquire all (but not less than all) of the Floating Shares on the Acquisition Date, subject to the ‎satisfaction or waiver of the Acquisition Closing Conditions.‎
   
‎“Floating Cash Consideration means a cash amount in US$ equal to the product of the ‎Floating Share Consideration multiplied by the volume weighted average trading price ‎expressed in US$ of the Canopy Growth Shares on the NYSE (or other recognized stock exchange on ‎which the Canopy Growth Shares are primarily traded if not then traded on the NYSE, as determined ‎by volume) for the 30 trading day period immediately prior to the Floating Rate Date.
   
Floating Compensation Options means the compensation options and the warrants to purchase ‎Floating Shares issued by the Company at or following the Amendment Time, which are ‎outstanding as of the Acquisition Time
   
‎“Floating Consideration means, at the option of Canopy Growth pursuant to the Floating Call ‎Option Exercise Notice, either (i) the Floating Share Consideration; (ii) the Floating Cash ‎Consideration; or (iii) a combination of (i) and (ii) in such amount as Canopy Growth shall ‎determine in accordance with the Amended Plan of Arrangement; provided that in no circumstances shall the non-cash ‎portion of the aggregate Floating Consideration include Canopy Growth Shares in an amount greater ‎than the Floating Share Maximum without the prior written consent of Canopy Growth. ‎
   
‎“Floating Options means the options to purchase Floating Shares issued pursuant to the ‎Amended and Restated Omnibus Equity Incentive Plan at or following the Amendment Time, which are outstanding as ‎of the Acquisition Time.‎
   
Floating Rate

means the fraction, calculated to six decimal places, determined by the formula A/B where:‎

 

‎“A”‎ equals the volume weighted average trading price expressed in US$ of the ‎Floating Shares on the CSE (or other recognized stock exchange on which the ‎Floating Shares are primarily traded as determined by volume) for the 30 trading ‎day period immediately prior to the Floating Rate Date, subject to a minimum ‎amount of US$6.41 and

“B”‎ equals the volume weighted average trading price expressed in US$ of the‎ Canopy Growth Shares on the NYSE (or other recognized stock exchange on which the ‎Canopy Growth Shares are primarily traded if not then traded on the NYSE, as ‎determined by volume) for the 30 trading day period immediately prior to the ‎Floating Rate Date.‎

   
‎“Floating Rate Date means the date of the exercise (or deemed exercise) of the Canopy Call ‎Option.‎

 

44

 

 

Floating Ratio

means the Floating Rate of a Canopy Growth Share to be issued by Canopy Growth for each one Floating Share exchanged pursuant to the Amended Arrangement, provided that, if the aggregate number of Floating Shares on a Fully-Diluted Floating Basis at the Acquisition Time is greater ‎than the number of‎ Floating Shares set out in the definition of “Floating Ratio” in the Amended Plan of Arrangement, and Canopy Growth has not provided written approval for the issuance of such additional Securities, the Floating Ratio shall be the fraction, calculated to six decimal places, determined by the formula A x B/C, where:

 

“A” equals the Floating Rate,

 

“B” equals the number of Floating Shares on a Fully-Diluted Floating Basis issued at the Amendment Time pursuant to the steps in the Amended Plan of Arrangement up until Section 3.2(j), as increased for the issuance of such additional Securities in accordance with the Canopy Growth Approved Share Threshold, and

 

“C” equals the aggregate number of Floating Shares on a Fully-Diluted Floating Basis at the Acquisition Time,

 

in each case subject to adjustment in accordance with the Arrangement Agreement.

   
Floating RSUs means the restricted share units that may be settled by the Company in either cash or Floating Shares issued pursuant to the Amended and Restated Omnibus Equity Incentive Plan at or following the Amendment Time, which are outstanding as of the Acquisition Time.
   
‎“Floating Share Replacement Securities means Floating Options, Floating RSUs, Floating Compensation Options to acquire Floating Shares in replacement of the options, restricted share units, compensation ‎options and warrants to acquire ‎Existing SVS that are outstanding immediately prior to ‎the Amendment Time in order to account for ‎the Capital ‎Reorganization.
   
Floating Shareholder means a registered or beneficial holder of one or more Floating Shares, as the context requires.
   

Floating Share Consideration

 

 

 

means that number of Canopy Growth Shares issuable per Floating Share based on the Floating Ratio.
   
Floating Share Maximum has the meaning ascribed thereto in Section 1.1‎ of the Amended Plan of Arrangement.
   
Floating Shares means the Class D subordinate voting shares of the Company to be created pursuant to the Amended Plan of Arrangement, each entitling the holder thereof to one vote per share at shareholder meetings of the Company.
   
Foros means Foros Securities LLC, financial advisor to the Company.
   
‎“FTC means the United States Federal Trade Commission‎.‎

 

45

 

 

Fully Diluted Basis means the aggregate number of Fixed Shares assuming the conversion, exercise or exchange, as applicable, of the Fixed Multiple Shares, Fixed Options, Fixed RSUs, Fixed Compensation Options and any other warrants, options or other securities, including the Common Membership Units and USCo2 Shares, convertible into or exercisable or exchangeable for Fixed Shares (as such convertible securities have been adjusted to reflect the Capital Reorganization, as applicable and assuming the conversion of any underlying Fixed Multiple Shares) but excluding, for greater certainty, the Floating Shares, the Floating Options, the Floating RSUs and the Floating Compensation Options
   
Fully Diluted Floating Basis means the aggregate number of Floating Shares assuming the conversion, exercise or exchange, as applicable, of the Floating Options, Floating RSUs and Floating Compensation Options and any other warrants, options or other securities convertible into or exercisable or exchangeable for Floating Shares, including assuming the conversion, exercise or exchange, as applicable, of the Common Membership Units and the USCo2 Shares.
   
‎“GAAP means: (i) generally accepted accounting principles as set out in the CPA ‎Canada Handbook – Accounting for an entity that prepares its financial statements in ‎accordance with IFRS, at the relevant time, applied ‎on a consistent basis; and (ii) means U.S. GAAP for an entity that, in accordance with ‎applicable corporate and securities Laws, prepares its financial statements in accordance ‎with U.S. GAAP.‎

 

Governmental Entity means any (i) international, multinational, national, federal, provincial, state, regional, ‎municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, ‎commission, commissioner, board, bureau, ministry, agency or instrumentality, domestic or foreign, (ii) subdivision or ‎authority of any of the above, (iii) quasi-governmental or private body exercising any regulatory, expropriation or taxing ‎authority under or for the account of any of the foregoing or (iv) stock exchange‎.
   
Hemp

means hemp and derivatives thereof, including, without limitation, cannabidiol (CBD), to the ‎extent such ‎products are not considered a controlled substance pursuant to the Controlled Substances Act, 21 USC 801 et ‎seq.‎

 

‎‎“Hempco means an affiliate of the Company ‎that operates solely in the hemp industry in ‎full compliance with all applicable Laws.
   
High Street means High Street Capital Partners, LLC, a Delaware limited liability company‎.
   

 

46

 

 

Housekeeping Amendments means all amendments to the TRA, ‎the Tax Receivable Bonus Plans, the High Street ‎Operating Agreement, the USCo2 Constating Documents, the Coattail Agreement, the Lock-up and Incentive ‎Agreements as may be determined by the Company to be necessary, acting reasonably, to (i) ‎ensure that the terms of the Amended Plan of Arrangement can be carried out as ‎contemplated therein, (ii) provide that Mr. Murphy will continue indefinitely (and ‎regardless of whether Mr. Murphy ceases to be a director of the Company) as the ‎administrator of the Tax Receivable Bonus Plans, ‎‎(iii) enable the acceleration of vesting of awards provided to such Specified Individuals as ‎contemplated in the Amending Agreement, (iv) enable Mr. Murphy’s existing Acreage RSUs ‎‎(including any Replacement RSUs) to vest in accordance with the terms thereof ‎regardless of Mr. Murphy ceasing to be an employee or officer of the Company, provided ‎that Mr. Murphy remains a director of the Company, and (v) make any other changes that ‎the Company and Canopy Growth may mutually agree, acting reasonably, is advisable or ‎necessary in order to carry out the purpose and intention of the transactions contemplated ‎in the Proposal Agreement and the Amended Plan of Arrangement‎.
   
High Street ‎Operating Agreement means the Third Amended and Restated Operating ‎Agreement of High Street, d/b/a Acreage Holdings LLC, a Delaware ‎limited liability company, ‎dated November 14, 2018, as amended on May 10, 2019 and June 27, 2019, by and among High Street and the members signatory thereto‎.
   
‎“High Street Holder means any holder of High Street Units, excluding Acreage and USCo.‎
   
‎“High Street Units means, collectively, the Common Membership Units and the Profit Interests.‎

 

 “HSR Act means the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as ‎amended, supplemented ‎or restated from time to time and any successor to such statute and the ‎rules and regulations promulgated thereunder.‎
   
Identified States means Connecticut, Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania, ‎Illinois and Ohio‎.
   
‎“IFRS means International Financial Reporting Standards as issued by the International Accounting Standards Board, ‎as incorporated in the CPA Canada Handbook at the relevant time applied on a consistent basis.‎
   
Initial Advance

means the first advance of US$50,000,000 of the Loan under the Debenture.

 

Initial Business Plan

means the Company’s business plan for the fiscal years ending December 31, 2020 through December 31, ‎‎2029, a copy of which is attached as a schedule to the Proposal Agreement.

 

Intellectual Property

 

 

 

has the meaning ascribed thereto under the heading “Transaction Agreements – A&R License”.
‎“Interested Parties has the meaning ascribed thereto under the heading “Securities Laws Matters – Canadian ‎Securities Laws – Multilateral Instrument 61-101”.‎
   
Interim Failure to Perform

means that:

 

(a)     an Approved Business Plan does not comply with the Mandatory Requirements; or

 

(b)    the Company and the Subsidiaries have not complied with an Approved Business Plan as determined at the Quarterly Determination Date and either:

 

(i)            the Pro-Forma Revenue at the Quarterly Determination Date is less than 90% of the Pro-Forma Net Revenue Target for the relevant fiscal year, as determined on a year-to-date basis; or

 

(ii)          the Consolidated EBITDA at the Quarterly Determination Date is less than 90% of the Consolidated Adj. EBITDA Target for the relevant fiscal year, as determined on a year-to-date basis.

 

47

 

 

‎“Interim Period means the period from April 18, 2019 until the earlier of (i) the date the Acquisition ‎is completed; and (ii) the date that the Arrangement Agreement is terminated in accordance with its terms.‎

 

Intermediary means an intermediary such as a bank, trust company, securities dealer, broker, ‎trustee or administrator of a self-administered registered retirement savings plan, registered retirement income fund, registered education savings plan or similar plan or other nominee.
   
“Interest Coverage Ratio is calculated as EBITDA for the reporting period divided by the interest expense during ‎the same reporting period
   

IRS

 

 

has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.
   
Joint Tax Election” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
‎“Kingsdale Advisors means Kingsdale Partners L.P., operating as Kingsdale Advisors, the Company’s strategic ‎‎shareholder advisor and proxy solicitation agent.‎

 

knowledge of Acreage means the actual knowledge, after due and reasonable inquiry, of ‎Acreage’s Interim Chief Executive Officer, Chief Financial Officer, ‎Chief Operating Officer and General Counsel.

 

LaworLaws means, with respect to any Person, any and all applicable law (statutory, common or otherwise), constitution, treaty, ‎convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement, ‎whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or ‎applicable to such Person or its business, undertaking, property or securities, and to the extent that they have the force of ‎law, policies, guidelines, notices and protocols of any Governmental Entity, as amended‎.
   
Lender means the affiliate of ‎Canopy Growth that will provide the Loan pursuant to the Debenture.

 

Letter of Transmittal ‎means the letter of transmittal to be sent by the Company to Registered Shareholders ‎following the receipt by the ‎Company of the Canopy Call Option Exercise Notice or the Triggering ‎Event Notice, as the case may be, and, if applicable, the Floating Call Option Exercise Notice.‎
   
Loan means a loan of up to US$100,000,000 to be advanced by the Lender to Hempco pursuant to and in accordance with the Debenture.‎
   
Lock-up and Incentive ‎Agreements means the respective lock-up and incentive agreements entered into between the Company, Canopy Growth and each of Mr. Murphy, Glen ‎Leibowitz, Robert Daino and James Doherty pursuant to the Arrangement Agreement as a condition to the implementation of the Existing Arrangement.
   
Licensing Criteria has the meaning ascribed thereto in the A&R License.

 

48

 

 

 

Licensors Means, collectively, TS Brandco and Tweed.
   
‎“Managed Entities” ‎

means Persons (other than Subsidiaries) where the Company or its Subsidiaries fully operate all aspects of the ‎business of such Persons through management service or other contracts.‎

 

Management Service Agreement

has the meaning ascribed thereto under the heading “Transaction Agreements – Amending Agreement”.

 

Mandatory Requirements means a Business Plan that (i) limits operations to the Identified States and the State of ‎Florida if the Acreage Board approves expanding the operations of Acreage or ‎any of its Subsidiaries to the State of Florida; (ii) is fully funded from a liquidity ‎perspective with the necessary levels of working capital in order to achieve the Business ‎Plan; (iii) ensures Acreage will generate positive Consolidated EBITDA by the ‎fiscal quarter commencing January 1, 2021 and every fiscal quarter thereafter in ‎accordance with the Consolidated Adj. EBITDA Target; (iv) ensures Acreage will ‎generate positive Operating Cash Flow from operations by the fiscal quarter ‎commencing January 1, 2021 and every fiscal quarter thereafter; (v) ensures the ‎Company will generate Pro-Forma Revenue in accordance with the Pro-Forma Net ‎Revenue Target; (vi) limits capital expenditures to the Identified States with a ‎prohibition on new capital expenditures and capital leases outside of the Identified ‎States; (vii) limits corporate overhead expenditures as a percentage of consolidated ‎revenue of Acreage and its Subsidiaries calculated in accordance with U.S. GAAP ‎to 25.0%, 20.0% and 15.0% for the fiscal years ending December 31, 2021, December ‎‎31, 2022 and December 31, 2023, respectively; (viii) maintains a minimum net working ‎capital amount of US$10,000,000 and a minimum non-restricted cash and cash ‎equivalent balance of US$5,000,000; and (ix) limits Company Debt such that the Interest ‎Coverage Ratio during the applicable fiscal quarter is at least 4.0‎.
   
Material Failure to Perform has the meaning ascribed thereto under the heading “Transaction Agreements - Amending Agreement - Covenants Regarding Acreage’s Business Plans”.

 

Meeting means the special meeting of Shareholders, including any adjournment or postponement thereof in accordance with the terms of the Proposal Agreement, to be called and held in accordance with the Amendment Interim Order to consider, among other things, the Amendment Resolution.
   
‎‎“Meeting Materials has the meaning ascribed thereto under the heading “General Proxy Information – Non-Registered Shareholders”‎.
   
Merger has the meaning ascribed thereto under the heading “The Amended Arrangement - Principal Steps of the Amended Arrangement”.
   
Mergeco has the meaning ascribed thereto under the heading “The Amended Arrangement - Principal Steps of the Amended Arrangement”.
   
Mergeco Fixed Shares means the subordinate voting shares of Mergeco.

 

49

 

 

MI 61-101 means Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.

 

misrepresentation has the meaning ascribed thereto in the Securities Act.
   
Mr. Murphy Amount has the meaning ascribed thereto under the heading “Securities Law Matters – Canadian Securities Laws - Multilateral Instrument 61-101”.

 

Named Executive Officers has the meaning ascribed thereto in the Securities Act.

 

New Fairness Opinion means the opinion of Eight Capital to the effect that, as of the date of such opinion, and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by the Shareholders (other than Canopy Growth and/or its affiliates) pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders (other than Canopy Growth and/or its affiliates), a copy of which is attached as Appendix “D” to this Circular.
   
NI 41-101 means National Instrument 41-101 – General Prospectus Requirements.
   
NI 51-102 means National Instrument 51-102 – Continuous Disclosure Obligations.
   
NI 52-110 means National Instrument 52-110 - Audit Committees.
   
NI 51-102F5 means Form 51-102 – Information Circular.
   
‎“NI 54-101 means National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting ‎Issuer.‎
   
NI 62-104 means National Instrument 62-104Take-over Bids and Issuer Bids.
   
Non-Canadian Holder has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
‎‎“Non-Core Divestitures means the proposed divestiture by the Company of all assets outside of the Identified States.‎

 

Non-Registered Shareholder means: (i) prior to the Amendment Time, a non-registered holder of Existing Shares whose Existing Shares are registered in the name of an Intermediary; and (ii) following to the Amendment Time, a non-registered holder of Shares whose Shares are registered in the name of an Intermediary.
   
Non-U.S. Holder has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.
   
Notice of Dissent has the meaning ascribed thereto under the heading “The Amended Arrangement – Dissent Rights”‎.

 

50

 

 

Notice of Meeting means the Notice of Special Meeting of Shareholders that accompanies this Circular.
   
‎“NYSE means the New York Stock Exchange.‎

 

officer has the meaning ascribed thereto in the Securities Act (Ontario).
   
Operating Cash Flow means cash flows from operating activities as calculated in ‎accordance with U.S. GAAP.‎
   
Option Premium means the aggregate cash payment of US$300,000,000 that was made to holders of Existing Shares, the High Street Holders and the USCo2 Holders pursuant to the Existing Arrangement as consideration for the grant of the Existing Canopy Option.
   
Option Shares has the meaning ascribed thereto under the heading “Transaction Agreements – Amending Agreement.
   
Original Credit Agreement means the credit agreement dated March 6, 2020 between Acreage Finance ‎Delaware, LLC, as borrower, and Acreage IP Holdings, LLC, Prime Wellness of Connecticut, ‎LLC, D&B Wellness, LLC and Thames Valley Apothecary, LLC, as guarantors, and Poppins, as ‎lender, administrative agent and collateral agent‎.
   
Original License

means the intellectual property and trademark license ‎agreement between Canopy Growth and the Company dated as of June 27, 2019.

 

OSC means the Ontario Securities Commission.
   
OSC Rule 56-501 means Ontario Securities Commission Rule 56-501.
   
‎“OTCQX means the OTCQX® Best Market by OTC Markets Group.‎

 

Parties means Acreage and Canopy Growth and “Party” means any one of them.
   

Paying Agent Agreement

 

means the paying agent agreement to be entered into by Canopy Growth, the Company and the Paying Agent prior to the Amendment Time providing for the payment by Canopy Growth of the Aggregate Amendment Option Payment.
   
Payout means any amount paid by the Company or any of its Subsidiaries over US$20,000,000 in order to either (i) settle; (ii) satisfy ‎a judgment; or (iii) acquire the disputed minority non-controlling interest, in connection with the claim filed by EPMMNY ‎LLC against certain Subsidiaries of the Company‎. ‎
   
Payout Value has the meaning ascribed thereto under the heading “The Amended Arrangement – Dissent Rights”‎.

 

51

 

 

Person shall be broadly interpreted and includes any natural person, legal person, partnership, limited partnership, joint venture, unincorporated association or other organization, trust, trustee, executor, administrator or liquidator, regulatory body or agency, government or governmental agency, authority or entity (including any Governmental Entity), however designated or constituted and whether or not a legal entity.
   

PFIC

 

 

has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.

 

Poppins means IP Investment Company, LLC, a Delaware limited liability company.
   
‎“Pro-Forma Net Revenue Target” ‎

means for each of the fiscal years ending December 31, 2020 through December 31, 2029, the Pro-Forma ‎Net Revenue Target set forth for the applicable fiscal year in the Initial Business Plan, subject to adjustment in accordance ‎with the terms of Proposal Agreement.‎

 

‎“Pro-Forma Revenue”‎

means the sum of (i) gross revenue for the Company and its Subsidiaries from results of operations as ‎calculated in accordance with U.S. GAAP (and for greater certainty, net of discounts, buy-downs, promotions, ‎bona fide returns and refunds and exclusive of the amount of any tax or fee imposed by any federal, ‎provincial, state, local or municipal Governmental Entity directly on sales, including any excise taxes and/or ‎taxes collected from customers if such tax is added to the selling price actually remitted to such Governmental ‎Entity); and (ii) gross revenue of Managed Entities from results of operations as calculated in accordance with ‎U.S. GAAP (and for greater certainty, net of discounts, buy-downs, promotions, bona fide returns and refunds ‎and exclusive of the amount of any tax or fee imposed by any federal, provincial, state, local or municipal ‎Governmental Entity directly on sales, including any excise taxes and/or taxes collected from customers if ‎such tax is added to the selling price actually remitted to such Governmental Entity), provided that such ‎amounts from Managed Entities are not included in clause (i).‎

 

‎“Profit Interests means the Class C-1 units in the capital of High Street ‎outstanding from time to ‎time. ‎
   
Proposal Agreement means the proposal agreement dated June 24, 2020 between the Company and Canopy Growth.
   
Proposal Interim Period means the period from June 24, 2020 until the Amendment Date.
   
Proposed Amendments has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.

 

“proxyholder” means a Person that is duly appointed by a Shareholder to be that Shareholder’s representative at the Meeting.
   
“Purchaser Acquisition Closing Conditions has the meaning ascribed thereto in the Arrangement Agreement.
   
Purchaser Material Adverse Effect has the meaning ascribed thereto in the Arrangement Agreement.

 

Record Date means August 13, 2020.

 

52

 

 

Registered Plans has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Eligibility for Investment”.

 

Registered Shareholder means: (i) prior to the Amendment Time, a registered holder of Existing Shares who is in possession of a physical share ‎certificate or who is entitled to receive a physical share certificate and whose name and address are recorded in the ‎Company’s shareholders’ register maintained by the Transfer Agent; and (ii) following to the Amendment Time, a registered holder of Shares who is in possession of a physical share ‎certificate or who is entitled to receive a physical share certificate and whose name and address are recorded in the ‎Company’s shareholders’ register maintained by the Transfer Agent.‎
   
Regulatory Approval means any consent, waiver, permit, exemption, review, order, decision or approval of, or any registration and filing with, any Governmental Entity, or the expiry, waiver or termination of any waiting period imposed by Law or a Governmental Entity, in each case in connection with the Amended Arrangement.
   
Related Parties has the meaning ascribed thereto under the heading “Securities Laws Matters – Canadian ‎Securities Laws – Restricted Securities Matters”.
   
Registrar means the Person appointed as the Registrar of Companies pursuant to Section 400 of the BCBCA.
   
‎“Replacement Compensation Options means options or rights to purchase Canopy Growth Shares ‎granted by Canopy Growth in replacement of (i) Fixed Compensation Options; and/or (ii) if applicable, Floating Compensation Options.‎
   
‎“Replacement Option means an option or right to purchase Canopy Growth Shares granted by Canopy Growth in exchange for (i) Fixed Options; and/or (ii) ‎if applicable, Floating Options.‎
   
‎“Replacement Option In-The-Money Amount means, in respect of a Replacement Option, the ‎amount, if any, determined immediately after the exchange of the Fixed Options or the Floating Options, as applicable, by which the total Fair Market Value of the Canopy Growth Shares that a ‎holder is entitled to acquire on exercise of the Replacement Option exceeds the aggregate ‎exercise price payable to acquire such Canopy Growth Shares at that time.‎
   
Replacement RSUs means restricted share units that may be settled in cash or Canopy Growth Shares granted by Canopy Growth in exchange for (i) Fixed RSUs; and (ii) if ‎applicable, Floating RSUs.‎

 

53

 

 

‎“Required Director Criteria”‎ means an individual who (i) is independent (as defined in Section 1.4 and Section 1.5 ‎of NI 52-110) of Canopy Growth and the Company; (ii) meets the qualification ‎requirements to serve as a director under applicable Laws and the rules of any stock ‎exchange on which the Shares are then listed; (iii) is not subject to any of the “bad actor” ‎disqualifying events described in Rule 506(d)(1)(i)-(viii) under the U.S. Securities Act; ‎‎(iv) is not subject to any (A) criminal convictions, court injunction, or restraining orders; ‎‎(B) order of a state or federal regulator; (C) SEC disciplinary order; (D) SEC cease-and-‎desist order; (E) SEC stop order; (F) suspension or expulsion from membership in a self-‎regulatory organization; or (G) U.S. Postal Service false representation orders; (v) is ‎financially literate (as defined in Section 1.6 of NI 52-110); (vi) has at least five years of ‎service as a director or officer of a company listed on a recognized stock exchange in ‎Canada or the United States; (vii) has at least five years of experience in the cannabis ‎industry and/or consumer packaged goods industry and/or with a Fortune 500 company; ‎‎(viii) has completed a directors’ education program; and  (ix) has committed to a ‎minimum of 14 hours of ongoing governance education annually.
   
Required Filings means the records and information required to be provided to the Registrar pursuant to Section 292(a) of the BCBCA in respect of the Amended Arrangement, together with a copy of the Amendment Final Order.
   
‎“Required Officer Criteria”‎ means an individual who (i) meets the qualification requirements to ‎serve as an officer under the rules of any stock exchange on which ‎the Shares are then listed; (ii) is not subject to any of the “bad ‎actor” disqualifying events described in Rule 506(d)(1)(i)-(viii) ‎under the U.S. Securities Act; (iii) is not subject to any (A) criminal ‎conviction, court injunction, or restraining order; (B) order of a ‎state or federal regulator; (C) SEC disciplinary order; (D) SEC ‎cease-and-desist order; (E) SEC stop order; (F) suspension or ‎expulsion from membership in a self-regulatory organization; or (G) ‎U.S. Postal Service false representation order; (iv) has sufficient ‎qualification, education and experience to effectively carry out the ‎responsibilities of the proposed position; and (v) has at least five ‎years of experience in the cannabis industry and/or consumer ‎packaged goods industry and/or with a Fortune 500 company‎.
   
Response has the meaning ascribed thereto under the heading “The Amended Arrangement - Court Approval of the Amended Arrangement and Implementation of the Amended Arrangement”.
   
‎“RTO means the reverse takeover of Applied Inventions Management Corp. by the Company on November 14, 2018.‎
   
SEC means the Securities Exchange Commission of the United States of America.
   
Second Advance has the meaning ascribed thereto under the heading “Transaction Agreements - Debenture”.
   

Section 3(a)(10) Exemption

  

has the meaning ascribed thereto under the heading “The Amended Arrangement - Court Approval of the Amended Arrangement and Implementation of the Amended Arrangement

Section 367 Requirements

 

has the meaning ascribed thereto under the heading “Questions and Answers About the Amended Arrangement, the Potential Acquisition and the Meeting - Q&A on the Amended Arrangement - Tax Consequences

   
Securities means, collectively, Fixed Shares, Fixed Multiple Shares, Floating Shares, Fixed Options, Floating Options, Fixed RSUs, Floating RSUs, Fixed Compensation Options and Floating Compensation Options.

 

Securities Act means the Securities Act (Ontario), as amended from time to time.

 

54

 

 

Securities Authorities means the Canadian Securities Regulators and the SEC.

 

‎“Securities Laws means Canadian Securities Laws and U.S. Securities Laws and all applicable stock exchange rules ‎and listing standards.‎

 

SEDAR means the System for Electronic Document Analysis and Retrieval as outlined in National Instrument 13-101 – System for Electronic Document Analysis and Retrieval, which can be accessed online at www.sedar.com.

 

senior officer has the meaning ascribed thereto in MI 61-101.
   
Share Exchange has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.

 

Shareholder Approval

means approval of the Amendment Resolution must by: (i) not less than 66⅔% of the votes cast on the Amendment Resolution by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, ‎excluding the votes of the Related Parties.

   
Shareholders means: (i) prior to the Amendment Time, the registered or beneficial holders of the Existing Shares; and (ii) following the Amendment time, the registered or beneficial holders of the Shares.
   
Shares means, collectively, the Fixed Shares, the Fixed Multiple Shares and the ‎Floating Shares.‎
   
Special Committee means the special committee of the Acreage Board formed in connection with the Amended Arrangement.
   

Specified Individuals

 

means Mr. Leibowitz, Mr. Daino, Mr. Doherty, John Boehner, Douglas Maine, ‎Brian Mulroney and William C. Van Faasen.
   
Standards has the meaning ascribed thereto under the heading “Transaction Agreements – A&R License”.

 

Subsidiary has the meaning ascribed thereto in the Securities Act.
   
Systems

has the meaning ascribed thereto under the heading “Transaction Agreements – A&R License”.

 

55

 

 

Target Cannabis Operator has the meaning ascribed thereto under the heading “Transaction Agreements – Amending Agreement”.

 

Tax Act means the Income Tax Act (Canada), including all regulations made thereunder, as amended from time to time.
   
Tax Instruction Letter has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
Tax Receivable Bonus Plan 1 means the Second Amended and Restated Acreage Holdings Tax Receivable Bonus Plan dated June 27, 2019.
   
Tax Receivable Bonus Plan 2 means the Acreage Holdings Tax Receivable Bonus Plan II dated April 17, 2019.

 

Tax Receivable Bonus Plans means, collectively, Tax Receivable Bonus Plan 1 and Tax Receivable Bonus Plan 2.
   
taxable capital gain has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.
   
Termination Expense Reimbursement means US$3,000,000.
   

Territory

 

has the meaning ascribed thereto under the heading “Transaction Agreements – A&R License”.
TRA means the tax receivable agreement dated November 14, 2018 ‎between USCo, High Street and, among others, the TRA ‎Parties‎, as amended by that certain First Amendment to the Tax Receivable Agreement dated June 27, 2019.
   
TRA Parties means each of Kevin Murphy, Melvin Yellin, Devin Binford, George Allen, James Doherty, Glen Leibowitz, Robert Daino, Christopher Tolford and Harris Damashek.
   
‎“Transfer Agent means Odyssey Trust Company.‎
   

Treasury Regulations

 

has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.
   
Triggering Event means the amendment of federal Laws in the United States to permit ‎the general cultivation, distribution and possession of marijuana (as defined in 21 U.S.C ‎‎802) or to remove the regulation of such activities from the federal Laws of the United States. ‎
   

‎“Triggering Event Date

means the date on which the Triggering Event occurs. ‎

 

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Triggering Event Notice means a notice in writing, substantially in the form attached as Exhibit D to the Amended Plan of Arrangement, delivered by Canopy Growth to the Company (with a copy to the Depositary) stating ‎that the Triggering Event Date has occurred and specifying a Business Day (to be not less than ‎‎61 days and not more than 90 days following the date such Triggering Event Notice is delivered ‎to the Company) on which the closing of the purchase and sale of the Canopy Call Option ‎Shares pursuant to the Canopy Call Option is to occur, subject to the satisfaction or waiver of ‎the Acquisition Closing Conditions. ‎
   
Trustee has the meaning ascribed thereto under the heading “Voting Securities And Principal Holders Thereof”.‎
   
TS Brandco means TS Brandco Inc.

 

TSX means the Toronto Stock Exchange.
   
Tweed means Tweed Inc.

 

U.S. Exchange Act means the United States Securities Exchange Act of 1934, as amended, supplemented or restated from time to time and any successor to such statute, and the rules and regulations promulgated thereunder.
   
‎“U.S. GAAP means generally accepted accounting principles in the United States.‎
   
U.S. Holder has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”‎

 

U.S. Securities Act means the United States Securities Act of 1933, as amended, supplemented or restated from time to time and any successor to such statute, and the rules and regulations promulgated thereunder.
   
‎“U.S. Securities Laws means all applicable securities legislation in the U.S., including the U.S. Securities Act, the U.S. ‎Exchange Act, and the rules and regulations promulgated thereunder, including judicial and administrative ‎interpretations thereof, and the Securities Laws of the states of the U.S.‎
   

U.S. Treaty

 

has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.
   
‎“United States” or “U.S. means the United States of America, its territories and possessions, any State of the United ‎States and the District of Columbia.‎
   
United States Persons has the meaning ascribed thereto under the heading “Certain United States Federal Income Tax Considerations”.
   
‎“USCo means Acreage Holdings America, Inc., a Subsidiary of Acreage existing under the Laws of the State ‎of ‎Nevada. ‎

 

57

 

 

   
‎“USCo2 means Acreage Holdings WC Inc., a subsidiary of the Company existing under the Laws of the State ‎of ‎‎Nevada‎.‎
   
USCo2 Constating Documents means the constating documents of USCo2.
   
‎“USCo2 Holders means the holders of USCo2 Shares.‎
   
‎“USCo2 Shares means the outstanding Class B non-voting common shares in the capital of USCo2‎.‎
   
 “VIF ‎means a voting instruction form‎.
   

Voting Agreements

 

means, collectively, the respective voting support agreements dated June 24, 2020, between Canopy Growth and each of the Acreage Locked-up Shareholders setting forth the terms and conditions upon which the Acreage Locked-up Shareholders have agreed, among other things, to vote their Existing Shares FOR the Amendment Resolution.‎

 

‎“Yorkville Bridge Loan” ‎ means the loan in the amount of US$11,000,000 made to the Company pursuant to an agreement dated May 29, 2020, bearing interest at an annual rate of 15% per annum, which loan becomes due and ‎payable the earlier of (i) May 29, 2021, or (ii) on the consummation of one or more debt, equity or a ‎combination of debt and equity financing transactions in which the Company and/or one or more of its ‎existing or future Subsidiaries receive gross proceeds of US$40,000,000 or more.

 

58

 

 

GENERAL PROXY INFORMATION

 

Solicitation of Proxies

 

This Circular is furnished in connection with the solicitation of proxies by the management of the Company for use at ‎the Meeting to be held at 11:00 a.m. (New York time) on September 16, 2020 and at any adjournment or postponement thereof for ‎the purposes set forth in the accompanying Notice of Meeting.

 

The solicitation of proxies will be made primarily by mail and ‎may be supplemented by telephone or other personal contact by the directors, officers and employees of the Company. ‎Directors, officers and employees of the Company will not receive any extra compensation for such activities. The ‎Company has retained Kingsdale Advisors as its strategic shareholder advisor and proxy solicitation agent and will pay fees ‎of approximately C$125,000 to Kingsdale Advisors for ‎proxy solicitation services in addition to certain out-of-pocket ‎expenses‎. The Company may pay brokers or other Persons holding Existing Shares in their own names, or in the names of ‎nominees, for their reasonable expenses for sending forms of proxy and this Circular to beneficial owners of Existing Shares ‎and obtaining proxies therefrom. The cost of any such solicitation will be borne by the Company.

 

No Person is authorized to give any information or to make any representation other than those contained in this Circular ‎and, if given or made, such information or representation should not be relied upon as having been authorized by the ‎Company. The delivery of this Circular shall not, under any circumstances, create an implication that there has not been ‎any change in the information set forth herein since the date hereof.‎

 

Meeting Format

 

The Company‎ is holding the Meeting as a virtual meeting, which will be conducted via live webcast. Shareholders will not be able to attend the Meeting in person.

 

To address potential issues arising from the unprecedented public health impact of COVID-19, comply with applicable public health directives that may be in force at the time of the Meeting‎, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, we will be holding the Meeting in a virtual only format. Shareholders will not need to, or be able to, physically attend the Meeting.

 

The Meeting will be conducted via live webcast. In order to attend, participate, vote or ask questions at the Meeting, Shareholders must have a valid username. Guests are welcome to attend and view the webcast, but will be unable to participate in or vote at the Meeting. To join as a guest please visit the Meeting online at web.lumiagm.com/221798142 and select “Join as a Guest” when prompted.

 

Registered Shareholders and duly appointed proxyholders will be able to access the Meeting online at web.lumiagm.com/221798142. Such Persons may enter the Meeting by clicking “I have a login” and entering a username and password before the start of the Meeting:

 

· Registered Shareholders: The control number located on the form of proxy is the username. The password for the Meeting is “Acreage2020” (case sensitive). If as a Registered Shareholder you are using your control number to access the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided with the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, you will not be able to participate at the Meeting online and can only attend the Meeting as a guest.
     
  · Duly appointed proxyholders: Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting (including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting) MUST submit their duly completed proxy or VIF, as applicable, AND register the proxyholder in advance of the proxy cut-off at 11:00 a.m. (New York time) on September 14, 2020. See “Appointment of a Third-Party as a Proxy”. Following registration of a proxyholder, the Transfer Agent will provide duly appointed proxyholders with a username by e-mail after the voting deadline has passed. The password for the Meeting is “Acreage2020” (case sensitive). Non-Registered Shareholders who have not duly appointed themselves as proxyholder will be able to attend the Meeting as a guest but will not be able to participate in or vote at the Meeting.

 

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Appointment of a Third-Party as a Proxy

 

The following applies to Shareholders who wish to appoint a Person, other than the management nominees set forth in the form of proxy or VIF, as proxyholder, including Non-Registered Shareholders who wish to appoint themselves as proxyholder to attend, participate in or vote at the Meeting.

 

Shareholders who wish to appoint a third-party proxyholder to attend, participate in or vote at the Meeting as their proxy MUST submit their proxy or VIF (as applicable) appointing such third-party proxyholder AND register the third-party proxyholder, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your proxy or VIF. Failure to register the proxyholder will result in the proxyholder not receiving a username to attend, participate in or vote at the Meeting.

 

  · Step 1 - Submit your proxy or VIF: To appoint a third-party proxyholder, insert such Person's name in the blank space provided in the form of proxy or VIF (if permitted) and follow the instructions for submitting such form of proxy or VIF. This must be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or VIF. If you are a Non-Registered Shareholder located in the United States, you must also provide the Transfer Agent with a duly completed legal proxy if you wish to attend, participate in or vote at the Meeting or, if permitted, appoint a third-party as your proxyholder. See “General Proxy Information – Legal Proxy – U.S. Non-Registered Shareholders” for additional details.
     
  ·  Step 2 - Register your proxyholder: To register a proxyholder, Shareholders MUST send an email to Acreage@odysseytrust.com by 11:00 a.m. (New York time) on September 14, 2020 and provide the Transfer Agent with the required proxyholder contact information, the number of Existing Shares subject to the proxy, the name in which the Existing Shares are registered if they are a Registered Shareholder, or the name of the Intermediary holding the Existing Shares if they are a Non-Registered Shareholder, so that the Transfer Agent may provide the proxyholder with a username via email. Without a username, proxyholders will not be able to attend, participate in or vote at the Meeting.

 

If you are a Non-Registered Shareholder and wish to attend, participate in or vote at the Meeting, you have to insert your own name in the space provided on the VIF sent to you by your Intermediary, follow all of the applicable instructions provided by your Intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing your Intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your Intermediary.

 

The Persons named in the form of proxy accompanying this Circular are directors and/or officers of the Company. A ‎Shareholder has the right to appoint a Person (who need not be a Shareholder), other than the Persons whose names ‎appear in such form of proxy, to attend and act for and on behalf of such Shareholder at the Meeting virtually and at any ‎adjournment or postponement thereof. Such right may be exercised by either striking out the names of the Person ‎specified in the form of proxy and inserting the name of the Person to be appointed in the blank space provided in the ‎form of proxy, or by completing another proper form of proxy and, in either case, delivering the completed and ‎executed proxy to the Transfer Agent in time for use at the Meeting in the manner specified in the Notice of Meeting or ‎depositing the completed and executed form of proxy with the Chair of the Meeting prior to the commencement of the ‎Meeting or any adjournment or postponement thereof.‎

 

Legal Proxy – U.S. Non-Registered Shareholders

 

If you are a Non-Registered Shareholder located in the United States and wish to attend, participate in or vote at the Meeting or, if permitted, appoint a third-party as your proxyholder, in addition to the steps described herein, you must obtain a valid legal proxy from your Intermediary. Follow the instructions from your Intermediary included with the legal proxy form and VIF sent to you, or contact your Intermediary to request a legal proxy form or a legal proxy if you have not received one. After obtaining a valid legal proxy from your Intermediary, you must then submit such legal proxy to the Transfer Agent. Requests for registration from Non-Registered Shareholders located in the United States that wish to attend, participate in or vote at the Meeting or, if permitted, appoint a third-party as their proxyholder must be sent by e-mail to Acreage@odysseytrust.com and received by 11:00 a.m. (New York time) on September 14, 2020.

 

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Record Date

 

Only Shareholders of record as of the close of business on August 13, 2020 will be entitled to vote at the Meeting. No Shareholder who becomes a Shareholder after the Record Date shall be entitled to notice of, or to vote at, the Meeting.

 

HOW TO VOTE YOUR SHARES

 

Your vote is important. Please read the information below so that your Existing Shares are properly voted.

 

Registered Shareholders and Non-Registered Shareholders

 

How you vote your Existing Shares depends on whether you are a Registered Shareholder or a Non-Registered Shareholder. In either case, there are two ways you can vote at the Meeting – by appointing a proxyholder or by attending the Meeting.

 

Registered Shareholder

 

You are a Registered Shareholder if you hold one or more share certificates which indicate your name and the number of Existing Shares which you own. As a Registered Shareholder, you will receive a form of proxy from the Transfer Agent representing the Existing Shares you hold. If you are a Registered Shareholder refer to “How to Vote – Registered Shareholders” below.

 

Non-Registered Shareholder

 

You are a Non-Registered Shareholder if an Intermediary such as a securities dealer, broker, bank, trust company or other nominee holds your Existing Shares for you, or for someone else on your behalf, registered in the name of the nominee. In accordance with Securities Laws, the Company distributes copies of its Meeting materials to Non-Registered Shareholders to Intermediaries for onward distribution to Non-Registered Shareholders. As a Non-Registered Shareholder, you will most likely receive a VIF from Broadridge on behalf of the Intermediary holding your Existing Shares. It is also possible, however that in some cases you may receive a form of proxy directly from the Intermediary holding your Existing Shares. If you are a Non-Registered Shareholder, refer to “How to Vote – Non-Registered Shareholders” below.

 

Intermediaries who hold Existing Shares in “street name” for a Non-Registered Shareholder typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from Non-Registered Shareholder. However, Intermediaries are not allowed to exercise their voting discretion with respect to the approval of matters that are “non-routine,” such as approval of the Amendment Resolution, without specific instructions from the Non-Registered Shareholder. Broker non-votes refers to Existing Shares held by an Intermediary that are present virtually or otherwise represented at the Meeting, but with respect to which the Intermediary is not instructed by the Non-Registered Shareholder to vote on the particular proposal and the Intermediary does not have discretionary voting power with respect to such proposal. Because all proposals for the Meeting are non-routine and non-discretionary, Acreage anticipates that there will not be any broker non-votes in connection with the Amendment Resolution. If an Intermediary holds your Existing Shares in “street name,” your Intermediary will vote your Existing Shares only if you provide instructions on how to vote by filling out the VIF sent to you by your Intermediary with this Circular.

 

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How to Vote – Registered Shareholders

 

If you are a Registered Shareholder you may either vote by proxy or online at the Meeting.

 

Submitting Votes by Proxy

 

There are three ways to submit your vote by proxy, in accordance with the instructions on the form of proxy:

 

By Mail or Hand Delivery:

Odyssey Trust Company

Attention: Proxy Department

323 – 409 Granville Street, Vancouver, BC V6C 1T2

Facsimile: 1.800.517.4553
By Internet: https://www.shareholderaccountingsoftware.com/odyssey/pxlogin ‎

 

Each completed form of proxy must be submitted no later than 11:00 a.m. (New York time) on September 14, 2020, or, in the event that the Meeting is adjourned or postponed, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to ‎the time of the reconvened Meeting or any adjournment or postponement thereof.

 

If you are voting by facsimile or internet, you will need the pre-printed control number and holder account number on your form of proxy.

 

A form of proxy submitted by mail must be in writing, dated the date on which you signed it and signed by you (or your authorized attorney). If such a form of proxy is being submitted on behalf of a corporate Shareholder, the form of proxy must be signed by an authorized officer or attorney of that corporation, whose title should be indicated, and the corporate seal affixed if the corporation has a corporate seal. A form of proxy executed by a Person acting as attorney or in some other representative capacity should state such Person’s capacity following his or her signature and should be accompanied by the appropriate instrument evidencing qualification and authority to act. If a form of proxy submitted by mail is not dated, it will be deemed to bear the date on which it was sent to you.

 

Revocation of Proxies

 

A Registered Shareholder who has given a proxy may revoke the proxy at any time prior to use by: (i) ‎depositing an instrument in writing, including another completed form of proxy, executed by such Registered Shareholder or ‎by his or her attorney authorized in writing or by electronic signature, or, if the Registered Shareholder is a corporation, by an ‎authorized officer or attorney thereof, or by transmitting by telephone or electronic means, a revocation signed, subject to ‎the BCBCA, by electronic signature: (i) to the head office of the Company, located at 366 Madison Avenue, 11th Floor, ‎New York, New York 10017, at any time prior to 5:00 p.m. (New York time) on the last Business Day preceding the day of the Meeting ‎or any adjournment or postponement thereof; (ii) with the Chair of the Meeting on the day of the Meeting or any ‎adjournment or postponement thereof, prior to the start of the Meeting or any adjournment or postponement thereof; or (iii) ‎in any other manner permitted by Law.‎

 

Exercise of Discretion by Proxies

 

The Existing Shares represented by a valid form of proxy will be voted on any ballot that may be conducted at the Meeting, ‎or at any adjournment or postponement thereof, in accordance with the instructions contained on the form of proxy and, if ‎the Shareholder specifies a choice with respect to any matter to be acted on, the Existing Shares will be voted accordingly. In ‎the absence of instructions, the Persons named in the form of proxy will vote such Existing Shares FOR the Amendment Resolution.‎

 

The enclosed form of proxy, when properly completed and signed, confers discretionary authority upon the Persons ‎named therein to vote on any amendments to or variations of the matters described in the Notice of Meeting and on ‎other matters, if any, which may properly be brought before the Meeting or any adjournment or postponement thereof, ‎whether or not any amendments variations or other matters are routine or contested. As at the date hereof, management ‎of the Company knows of no such amendments or variations or other matters to be brought before the Meeting. However, if ‎any other matter which is not now known to management of the Company should properly be brought before the Meeting, ‎or any adjournment or postponement thereof, the Existing Shares represented by such proxy will be voted on such matter in ‎accordance with the judgment of the Persons named as proxy thereon.‎

 

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Signing of Proxy

 

The form of proxy must be signed by a Registered Shareholder or the duly appointed attorney thereof authorized in writing or, if the ‎Registered Shareholder is a corporation, by an authorized officer of such corporation. A form of proxy signed by the Person acting as ‎attorney of the Registered Shareholder or in some other representative capacity, including an officer of a corporation which is a Registered ‎Shareholder, should indicate the capacity in which such Person is signing. A Registered Shareholder or his or her attorney may sign the ‎form of proxy or a power of attorney authorizing the creation of a proxy by electronic signature provided that the means of ‎electronic signature permits a reliable determination that the document was created or communicated by or on behalf of ‎such Registered Shareholder or by or on behalf of his or her attorney, as the case may be.‎

 

How to Vote – Non-Registered Shareholders

 

Only Registered Shareholders of the Company, or the Persons they appoint as their proxy, are entitled to attend, participate in and ‎vote at the Meeting. The Existing Shares of a Non-Registered Shareholder) who ‎beneficially owns Existing Shares will generally be registered in the name of either:‎

 

(a) an Intermediary with whom the Non-Registered Shareholder deals in respect of their Existing Shares; or

 

(b) a clearing agency (such as CDS Clearing and Depository Services Inc.) of which the Intermediary is a participant.‎

 

In accordance with the requirements of NI 54-101, the Company has ‎distributed copies of the Notice of Meeting, this Circular and the accompanying form of proxy (collectively, the ‎‎“Meeting Materials”) to the Intermediaries for onward distribution to Non-Registered Shareholders. Intermediaries ‎are required to forward the Meeting Materials to Non-Registered Shareholders unless the Non-Registered Shareholders have waived the right to receive them. Intermediaries often use service companies such as Broadridge to forward the Meeting Materials to Non-Registered Shareholders. Generally, Non-Registered Shareholders who have not ‎waived the right to receive Meeting Materials will be given either:‎

 

(a) a VIF which is not signed by the Intermediary and which, when properly completed and signed by the ‎Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. Typically, the VIF will consist of a ‎one page pre-printed form. Sometimes, instead of the one page pre-printed form, the VIF will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label with a bar-code and other information. In order for the form of proxy to validly ‎constitute a VIF, the Non-Registered Shareholder must remove the label from the instructions and ‎affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the ‎Intermediary or its service company in accordance with the instructions of the Intermediary or its ‎service company; or

 

(b) a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped ‎signature), which is restricted as to the number of Existing Shares beneficially owned by the Non-‎Registered Shareholder but which is otherwise not completed by the Intermediary. Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed ‎by the Non-Registered Shareholder when submitting the proxy. In this case, the Non-Registered ‎Shareholder who wishes to submit a proxy should properly complete the form of proxy and deposit it with Odyssey Trust Company, ‎323 – 409 Granville Street, Vancouver, BC V6C 1T2‎.‎

 

In either case, the purpose of these procedures is to permit Non-Registered Shareholders to direct the voting of the ‎Existing Shares they beneficially own. Should a Non-Registered Shareholder who receives either a VIF or a form of ‎proxy wish to attend and vote at the Meeting (or have another Person attend and vote on its behalf), the Non-Registered Shareholder should strike out the names of the Persons named in the ‎form of proxy and insert the Non-Registered Shareholder’s (or such other Person’s) name in the blank space provided or, in the case of a VIF, follow the directions indicated on the form. Non-Registered Shareholders should carefully follow the instructions of their Intermediaries and their service companies, including those instructions ‎regarding when and where the VIF or the form of proxy is to be delivered.‎

 

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A Non-Registered Shareholder who has submitted a form of proxy may revoke it by contacting the Intermediary through ‎which its Existing Shares are held and following the instructions of the Intermediary respecting the revocation of proxies.‎

 

Quorum

 

The quorum for the Meeting will be two Persons present virtually, each being a Shareholder entitled to vote thereat or a duly appointed proxy for an absent Shareholder so entitled, representing in the aggregate ‎‎25% of the votes attached to the issued and outstanding Existing Shares entitled to vote at such meeting. In the ‎event that a quorum is not present at the time fixed for holding the Meeting, the Meeting shall stand adjourned to ‎such date and to such time and place as may be determined by the Shareholders present at the Meeting.‎

 

‎Abstentions (as described in the section entitled “The Amended Arrangement—Required Shareholder ‎Approvals”) are not counted for the purpose of determining whether a quorum is present. Because ‎brokers do not have discretionary authority to vote on any of the proposals at the Meeting, if you do ‎not instruct your bank, broker or other nominee to vote your Existing Shares, your Existing Shares will not be voted (“broker non-votes”) and are not counted for the purpose of determining the ‎presence of a quorum.

 

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

 

The Acreage Board has fixed August 13, 2020 (the “Record Date”) as the record date for the determination of the ‎Shareholders entitled to receive the Notice of Meeting. Shareholders of record at the close of business on the Record Date ‎will be entitled to vote at the Meeting ‎or at any adjournment or postponement thereof on the basis of: (i) one vote for each ‎Existing SVS ‎held; (ii) 40 votes for each Existing PVS held; and (iii) 3,000 votes for each ‎Existing MVS held.

To be adopted, the Amendment Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the Amendment Resolution by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, ‎excluding the votes of the Related Parties. Abstentions and broker non-votes will not have any effect on the approval of the Amendment Resolution.

 

Since all of the holders of Existing MVS are ‎Interested Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to MI 61-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Interested Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of MI 61-101.‎ In addition, since all of the holders of Existing MVS are ‎Related Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Related Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101.‎ See “The Amended ArrangementRequired Shareholder Approvals”, “Securities Law MattersCanadian Securities LawsMultilateral Instrument 61-101” and “Securities Law MattersCanadian Securities LawsRestricted Securities Matters”.

 

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The authorized capital of the Company consists of an unlimited number of Existing SVS, an ‎unlimited number of Existing PVS and 168,000 Existing MVS. As of [¨], 2020, the Company had: (i) ‎[¨] ‎Existing SVS outstanding; (ii) [¨]‎ Existing PVS outstanding; and (iii) 168,000 Existing MVS outstanding.

 

Each Existing PVS is convertible at the option of the holder thereof into 40 Existing SVS. Each Existing MVS is convertible, at the option of the holder, into one Existing SVS. Each ‎Existing MVS shall automatically convert, without any action on the part of the holder, into one Existing SVS upon the Acquisition Date.‎

 

The Existing SVS are “restricted securities” within the meaning of such term under applicable ‎Canadian Securities Laws. As of the date of this Circular, the ‎Existing SVS represent approximately [¨]% of the voting rights attached to outstanding Existing Shares, the Existing PVS represent approximately [¨]% of the voting rights attached to ‎outstanding Existing Shares and the Existing MVS represent approximately [¨]% of the ‎voting rights attached to outstanding Existing Shares.

 

On November 14, 2018, Acreage, Odyssey Trust Company, as trustee for the benefit of the holders of Existing SVS (in ‎such capacity, the “Trustee”), Mr. Murphy and Murphy Capital, LLC, being the only Existing MVS Shareholders, entered ‎into a coattail agreement (the “Coattail Agreement”) under which the Existing MVS Shareholders, as the only holders of Existing MVS, and holders of High Street Units, are prohibited from selling, ‎directly or indirectly, any Existing MVS or High Street Units pursuant to a takeover bid, if applicable securities ‎legislation would have required the same offer to be made to the Existing SVS Shareholders had the sale been a sale ‎of Existing SVS rather than Existing MVS or High Street Units. The prohibition does not apply if a ‎concurrent offer is made to purchase Existing SVS if: (i) the price per Existing SVS under ‎such concurrent offer is at least as high as the price to be paid for the Existing MVS or High Street Units, assuming ‎their conversion to Existing SVS; (ii) the percentage of Existing SVS to be taken up ‎under such concurrent offer is at least as high as the percentage of Existing MVS or High Street Units to be sold; (iii) ‎such concurrent offer is unconditional, other than the right not to take up and pay for any Existing SVS tendered if no Existing MVS or High Street Units are purchased; and (iv) such concurrent offer is in all other ‎material respects identical to the offer for Existing MVS or High Street Units. The Coattail Agreement does not apply ‎to prevent the sale or transfer of High Street Units to Mr. Murphy and members of his immediate family, or a Person or ‎company controlled by Mr. Murphy or a member of his immediate family. If Existing SVS Shareholders ‎representing not less than 10% of the then outstanding Existing SVS determine that the Existing MVS Shareholders or the Company have breached or intend to breach any provision of the Coattail Agreement, they ‎may by written requisition require the Trustee to take such action as is specified in the requisition in connection with ‎the breach or intended breach, and the Trustee is to forthwith take such action or any other action it considers ‎necessary to enforce its rights under the Coattail Agreement on behalf of the Existing SVS Shareholders. The ‎obligation of the Trustee to take such action on behalf of the Existing SVS Shareholders is conditional upon the ‎provision to the Trustee of such funds and indemnity as it may reasonably require in respect of any costs or ‎expenses it may incur in connection with such action. Existing SVS Shareholders may not institute any action or ‎proceeding, or exercise any other remedy to enforce rights under the Coattail Agreement unless they have submitted ‎such a requisition, and provided such funds and indemnity, to the Trustee, and the Trustee shall have failed to act ‎within 30 days of receipt thereof.‎ As a condition to the completion of the Amended Arrangement, the Housekeeping Amendments shall have been made on terms satisfactory to each of the Company and Canopy Growth, each acting reasonably, which includes, but is not limited to amendments to the terms of the Coattail Agreement to carry out the purpose and intention of the transactions contemplated ‎in the Proposal Agreement and the Amended Arrangement‎. Such amendments to the Coattail Agreement will be made to provide the proposed holders of Fixed Shares and Floating Shares with the same rights against the proposed holders of Fixed Multiple Shares as the Existing SVS Shareholders under the Coattail Agreement as at the date of this Circular.

 

As of the date hereof, neither Canopy Growth nor any of its affiliates owns, or controls or directs, directly or indirectly, any Existing Shares.

 

Additional information concerning the rights attaching to the Existing Shares can be found in the Acreage Annual Report, a copy of which has been filed on SEDAR at www.sedar.com under the Company’s profile and with the SEC and available on EDGAR at www.sec.gov/edgar.‎

 

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As of the date of this Circular, to the knowledge of the directors and executive officers of the Company, except as set out ‎below, no Person beneficially owns, or controls or directs, directly or indirectly, Existing Shares carrying 10% ‎or more of the voting rights attached to any class of Existing Shares.

 

Name, Jurisdiction of
Residence
Number of
Shares
(1)(3)
Class of Shares Method of
Ownership

Percentage of Class

(1)(2)

Percentage of
Voting Rights of
the Existing Shares

Kevin Murphy

(Texas, United States)

168,000 Existing MVS

Record and

Beneficially

100% [¨]%
[¨](2) Existing PVS Beneficial [¨]% [¨]%
[¨] Existing SVS

Record and

Beneficially

[¨]% [¨]%

 

Notes:‎

 

(1) On a non-diluted basis, without giving effect to the exercise of securities convertible, redeemable or exchangeable into Existing SVS.‎

 

‎(2) [¨] of the Existing PVS are registered in the name of Murphy Capital, LLC, an entity over which Mr. Murphy exercises ‎direction or control, and [¨] Existing PVS are registered in the name of The Kevin Murphy 2018 Annuity Trust over which Mr. Murphy exercises ‎direction or control.

 

‎(3) Mr. Murphy also owns [¨] High Street Units, which High Street Units are redeemable or exchangeable, as applicable, subject to contractual restrictions, for newly-issued Existing SVS on a one-to-one basis.

 

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THE AMENDED ARRANGEMENT

At the Meeting, Shareholders will be asked to consider and, if thought advisable, to pass, with or without amendment, the Amendment Resolution to approve, (i) the Amended Arrangement, (ii) the Amending Agreement, (iii) the Amended Plan of Arrangement, and (iv) the Amended and Restated Omnibus Equity Incentive Plan. The Proposal Agreement, the Amended Arrangement‎, the Acquisition, the Amended Plan of Arrangement, the terms of the Amending‎ Agreement, related agreements and the Amended and Restated Omnibus Equity Incentive Plan are summarized below. This summary does not purport to be complete and is qualified in its entirety by reference to the Proposal Agreement, the Amending‎ Agreement, the Amended Plan of Arrangement and the Amended and Restated Omnibus Equity Incentive Plan, copies of which are attached as a ‎schedule to the Proposal Agreement. A copy of the Proposal ‎Agreement, including the schedules thereto, has been ‎filed on the ‎Company’s SEDAR profile at www.sedar.com ‎and with the SEC and available on ‎EDGAR at www.sec.gov/edgar.‎ A copy of the Amending Agreement ‎is also attached as Appendix “B” of this Circular. A copy of the Amended Plan of Arrangement ‎is also attached as Appendix “C” of this Circular. A copy of the Amended and Restated Omnibus Equity Incentive Plan ‎is also attached as Appendix “F” of this Circular.

 

To be adopted, the Amendment Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the Amendment Resolution by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, ‎excluding the votes of the Related Parties.

 

Since Mr. Murphy, the sole holder of Existing MVS, is an Interested Party, the votes cast by Mr. Murphy as a holder of Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to MI 61-101. ‎The votes attaching to the ‎Existing SVS and Existing PVS held by the Interested Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of MI 61-101.‎ In addition, since Mr. Murphy is a Related Party , the votes cast by Mr. Murphy as a holder of Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Related Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101.‎ See “The Amended ArrangementRequired Shareholder Approvals”, “Securities Law MattersCanadian Securities LawsMultilateral Instrument 61-101”, “Securities Law MattersCanadian Securities LawsRestricted Securities Matters” and “Interests of Certain Persons in ‎the Amended Arrangement”. A copy of the Amendment Resolution is set out in Appendix “A” of this Circular.

After consulting with Acreage management and receiving advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors, including, among others, receipt of the unanimous recommendation from the Special Committee, the New Fairness Opinion and the factors set out below under the heading “Reasons for the Amended Arrangement”, the members of the Acreage Board unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) determined that the Amended Arrangement and entry into the Proposal Agreement are in the best interests of Acreage ‎and are fair to the Shareholders and recommend that Shareholders vote FOR the Amendment Resolution.

 

Unless otherwise directed in properly completed forms of proxy, it is the intention of the Persons named in the ‎enclosed form of proxy to vote FOR the Amendment Resolution. If you do not specify how you want your Existing Shares to be ‎voted at the Meeting, the Persons named as proxyholders in the enclosed form of proxy will cast the votes ‎represented by your proxy at the Meeting FOR the Amendment Resolution.

 

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If the Amendment Resolution is adopted at the Meeting, the Amendment Final Order approving the Amended Plan of ‎Arrangement is issued by the Court and the applicable conditions to the implementation of the Amended ‎Arrangement are satisfied or waived, the Amended Arrangement is expected to take effect at 12:01 a.m. (Vancouver time) on ‎the Amendment Date, which is expected to occur in September, 2020, or such other date as may be ‎agreed by Canopy Growth and the Company.‎

 

Principal Steps of the Amended Arrangement‎

 

Under the Amended Plan of Arrangement, commencing at the Amendment Time, the following principal steps shall occur and shall be deemed to occur in the following order without any further act or formality:

 

(a) Dissenting Shareholders. Each Existing Share held by a Dissenting Shareholder will be surrendered to ‎Acreage and canceled, and each Dissenting ‎Shareholder will cease to have any rights as a holder of such ‎Existing Shares other than a claim ‎against Canopy Growth in an amount determined and payable in ‎accordance with such Dissenting ‎Shareholder’s rights as outlined in the Amended Plan of Arrangement‎. The name of each Dissenting Shareholder shall be removed from the Company’s shareholder register. Each Dissenting Shareholder will cease to have any rights as a holder of such Existing Shares, other than a claim against Canopy Growth to be paid the fair value for each Existing Share in respect of which they have exercised Dissent Rights.

 

(b) Aggregate Amendment Option Payment. At the Amendment Time, the Amendment Option Payment Paying Agent, on behalf of Canopy Growth, will pay the Aggregate Amendment Option Payment on a pro rata basis to each ‎Shareholder, High Street Holder and USCo2 Holder.

 

(c) Capital Reorganization. Acreage will complete a capital reorganization (the “Capital Reorganization”), pursuant to which it will amend its Notice of Articles and Articles to, among other things, create the Fixed Shares, Floating Shares and Fixed Multiple Shares and remove the Existing SVS, Existing PVS and Existing MVS. Pursuant to the Capital Reorganization (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of ‎a Floating Share; (ii) ‎each outstanding Existing PVS will be exchanged for 28 ‎Fixed Shares and 12 Floating Shares; ‎and (iii) each outstanding Existing MVS will be exchanged for 0.7 ‎of a Fixed Multiple Share and 0.3 of a ‎Floating Share. The Company expects that, promptly following the Amendment Time, the Existing SVS will be delisted from the CSE, and the Fixed Shares and Floating Shares will be listed on the CSE.

 

(d) Capital Reorganization of Convertible Securities. In order to account for the Capital Reorganization: (A) each Acreage Option will be exchanged for (i) a Fixed Option to acquire such number of Fixed Shares as is equal to the number of Existing SVS that were issuable upon the exercise of such Acreage Option immediately prior to the Amendment Time, multiplied by 0.7, and (ii) a Floating Option to acquire such number of Floating Shares as is equal to the number of Existing SVS that were issuable upon the exercise of such Acreage Option immediately prior to the Amendment Time, multiplied by 0.3; (B) each Acreage Compensation ‎Option will be exchanged for (i) a Fixed Compensation Option to acquire such number of Fixed Shares as is equal to the number of Existing SVS that were issuable upon the exercise of such Acreage Compensation Option immediately prior to the Amendment Time, multiplied by 0.7, and (ii) a Floating Compensation Option to acquire such number of Floating Shares as is equal to the number of Existing SVS that were issuable upon the exercise of such Acreage Compensation Option immediately prior to the Amendment Time, multiplied by 0.3; and (C) each Acreage RSU will be exchanged for (i) a Fixed RSU to acquire such number of Fixed Shares as is equal to the number of Existing SVS that were issuable upon the exercise of such Acreage RSU immediately prior to the Amendment Time, multiplied by 0.7, and (ii) a Floating RSU to acquire such number of Floating Shares as is equal to the number of Existing SVS that were issuable upon the exercise of such Acreage RSU immediately prior to the Amendment Time, multiplied by 0.3. The exercise price payable in respect of the Fixed Share Replacement Securities and Floating Share Replacement Securities will be multiplied by 0.7 or 0.3, as applicable to reflect the Capital Reorganization. Notwithstanding the foregoing, if required, the exercise price of the Fixed Options or Floating Options will be ‎increased such that the Fixed Option In-The-Money Amount immediately after ‎the exchange ‎does not exceed the Acreage Option In-The-Money Amount of the Acreage Option ‎‎(or a fraction ‎thereof) exchanged for such Fixed Option or Floating Option immediately before the exchange. All other terms of the Fixed Share Replacement Securities and Floating Share Replacement Securities, including the term of expiry conditions to and manner of exercising will be the same as the securities for which they were exchanged, and the exchange shall not provide any additional benefits as compared to the original Acreage Option, Acreage Compensation Option or Acreage RSU. The Fixed Options, Floating Options, Fixed RSUs and Floating RSUs will be governed by the terms of the‎ Amended and Restated Omnibus Equity Incentive Plan. The Existing Omnibus Incentive Plan is proposed to be replaced with the Amended and Restated Omnibus Equity Incentive Plan to reflect the Capital Reorganization and the creation of the Fixed Shares and Floating Shares.

 

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Each Person (other than Canopy Growth or any affiliate of Canopy Growth) who, at any time after the Amendment Time and prior to the Acquisition Time, acquires a Fixed Share or a Floating Share, will hold Fixed Shares which are subject to the Canopy Call Option, and Floating Shares which are subject to the Floating Call Option; provided that, Canopy ‎Growth will not be required to pay, nor will such Person be entitled to receive, any payment of the Aggregate Amendment Option Payment. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to ‎conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement.

 

Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event prior to the Acquisition Closing Outside Date, Canopy ‎‎Growth will exercise (or be deemed to exercise) the ‎Canopy ‎Call Option and will, subject to the satisfaction or waiver of the Acquisition Closing Conditions, acquire all of the issued and outstanding Fixed Shares (including the Fixed Shares ‎issued following the automatic conversion of the issued and outstanding Fixed Multiple Shares) in ‎accordance with the Amended Plan of Arrangement.‎ The Floating Call ‎Option is exercisable for a period of 30 ‎days following the exercise (or deemed exercise) of the ‎Canopy ‎Call Option and the acquisition ‎of the Floating Shares pursuant to ‎the Floating Call ‎Option, if exercised, will take place ‎concurrently with the acquisition ‎of the ‎Fixed Shares pursuant to the Canopy ‎Call Option. No fractional ‎Canopy Growth Shares will be ‎issued pursuant to the ‎Amended Plan of ‎Arrangement. The Canopy Call Option and the Floating Call Option ‎will ‎expire 10 ‎years from the Amendment Time. ‎

 

Pursuant to the Amended Plan of Arrangement attached to this Circular at Appendix “C”, commencing at the Acquisition Time, each of the transactions or events set out below, among others, will occur as set out in the Amended Plan of Arrangement:

 

(a) Exchange of Fixed Multiple Shares. Each issued and outstanding Fixed Multiple Share will be exchanged for one Fixed Share.

 

 

(b) Transfer of Fixed Shares by Acreage Non-U.S. Shareholders. In accordance with the terms of the Canopy Call Option, each Fixed Share held by an ‎Acreage Non-U.S. Shareholder will be deemed to be transferred to Canopy Growth for the Canopy Growth Share Consideration (or, in the event a Canopy Growth Change of Control has occurred prior ‎to the Acquisition Date, the ‎‎Alternate Consideration.

 

 

(c) Canadian Tax Elections. Each Eligible Holder shall be entitled to make a joint tax election with Canopy Growth pursuant to section 85(1) or 85(2) of the Tax Act, as applicable, in respect of any Fixed Shares or Floating Shares transferred to Canopy Growth. Within 60 days of the Acquisition Date, Canopy Growth will make the relevant tax election forms available on its website. Any Eligible Holder who wants to make such election and otherwise qualifies to make such election may do so by providing to Canopy Growth two signed copies of the necessary election forms within 120 days following the Acquisition Date, duly completed with the details of the number of Fixed Shares and/or Floating Shares transferred and the applicable agreed amount or amounts for the purposes of such election. Duly completed tax election forms will then be signed by Canopy Growth and returned to such Eligible Holder by ordinary mail within 30 days after the receipt thereof by Canopy Growth for filing with the CRA (or the applicable provincial or territorial taxing authority). Canopy Growth will not be responsible for the proper completion of any election form, except for the obligation of Canopy Growth to sign and return duly completed election forms which are received by Canopy Growth within 120 days following the Acquisition Date. Canopy Growth will not be responsible for any taxes, interest or penalties resulting from the failure by an Eligible Holder to properly complete or file the election forms in the form and manner and within the time prescribed by the Tax Act (or any applicable provincial or territorial legislation).

 

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(d) Merger of Acreage with Canopy Growth Subco. Canopy Growth Subco will merge with and into Acreage (the “Merger”), except that the legal existence of ‎Acreage will not cease and Acreage will survive the Merger (such surviving entity, “Mergeco”) and ‎each Fixed Share held by an Acreage U.S. Shareholder will, in accordance with the ‎Canopy Call Option, be deemed to be transferred to Canopy Growth for the Canopy Growth ‎Share Consideration (or, in the event a Canopy Growth Change of Control has occurred prior to the ‎Acquisition Date, the Alternate Consideration.

 

(e) Canopy Growth and Mergeco Share Exchange. Each Fixed Share owned by Canopy Growth immediately prior to the Merger will be ‎exchanged for one Mergeco Fixed Share

  

(f) Floating Share Exchange. Each Floating Share outstanding immediately prior to the Merger shall be exchanged for one Mergeco Fixed Share.

 

(g) Canopy Growth Subco and Mergeco Share Exchange. Each Canopy Growth Subco Share outstanding immediately prior to the Merger will be exchanged for one ‎Mergeco Fixed Share.‎

  

(h) Mergeco Consideration. In consideration for the Consideration Shares issued to the Acreage U.S. Shareholders in ‎accordance with paragraph (d) above, Mergeco will issue to Canopy Growth one Mergeco ‎ Fixed Share for each Canopy Growth Share issued by Canopy Growth to the Acreage ‎U.S. Shareholders.‎

 

(i) Issuance of Replacement Options. Each Fixed Option will be exchanged for a Replacement Option to acquire from Canopy Growth such ‎number of Canopy Growth Shares as is equal to: (A) the number of Fixed Shares that ‎were issuable upon exercise of such Fixed Option immediately prior to the Acquisition ‎Time, multiplied by (B) the Exchange Ratio in effect immediately prior to the Acquisition Time. Such Replacement Options will provide for an exercise price per Replacement Option equal to ‎the quotient obtained when: (i) the exercise price per Fixed Share that would otherwise ‎be payable pursuant to the Fixed Option it replaces is divided by (ii) the Exchange Ratio in effect ‎immediately prior to the Acquisition Time. Except as provided in the Amended Plan of Arrangement, ‎all terms and conditions of a Replacement Option will be the same as the Fixed Option for which it ‎was exchanged and will be governed by the terms of Canopy Growth Equity Incentive Plan. ‎Notwithstanding the foregoing, if required, the exercise price of a Replacement Option will be ‎increased such that the Replacement Option In-The-Money Amount immediately after the exchange ‎does not exceed the Fixed Option In-The-Money Amount of the Fixed Option (or a fraction ‎thereof) exchanged for such Replacement Option immediately before the exchange.

 

(j) Issuance of Replacement Compensation Options. Each Fixed Compensation Option will be exchanged for a Replacement Compensation Option to ‎acquire from Canopy Growth such number of Canopy Growth Shares as is equal to: (A) the number of ‎Fixed Shares that were issuable upon exercise of such Fixed Compensation Option ‎immediately prior to the Acquisition Time, multiplied by (B) the Exchange Ratio in effect ‎immediately prior to the Acquisition Time. Such Replacement Compensation Option will ‎provide for an exercise price per Replacement Compensation Option equal to the quotient obtained ‎when: (i) the exercise price per Fixed Share that would otherwise be payable pursuant ‎to the Fixed Compensation Option it replaces is divided by (ii) the Exchange Ratio in effect ‎immediately prior to the Acquisition Time. Except as provided in the Amended Plan of Arrangement, ‎all terms and conditions of a Replacement Compensation Option will be the same as the Fixed Compensation Option for which it was exchanged.‎

 

(k) Issuance of Replacement RSUs. Each Fixed RSU will be exchanged for a Replacement RSU to acquire from Canopy Growth such ‎number of Canopy Growth Shares as is equal to: (A) the number of Fixed Shares that ‎were issuable upon vesting of such Fixed RSU immediately prior to the Acquisition Time, ‎multiplied by (B) the Exchange Ratio in effect immediately prior to the Acquisition Time. ‎Such Replacement RSU will provide for a conversion price per Replacement RSU equal to the ‎quotient obtained when: (i) the conversion price per Fixed Share that would otherwise ‎be applicable pursuant to the Fixed RSU it replaces is divided by (ii) the Exchange Ratio in effect ‎immediately prior to the Acquisition Time. Except as provided in the Amended Plan of Arrangement, ‎all terms and conditions of a Replacement RSU will be the same as the Fixed RSU for which it was ‎exchanged.

 

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If the Floating Call Option is exercised, on the date on which Canopy Growth delivers the Floating Call Option Exercise Notice to Acreage, Canopy Growth will publicly announce, by way of press release: (i) its determination that the Floating Consideration will be comprised solely of Floating Share Consideration, (ii) its determination that the Floating Consideration will be comprised solely of Floating Cash Consideration, or (iii) its determination that the Floating Consideration to be received for each Floating Share held shall be comprised of a proportion of Floating Share Consideration and a proportion of Floating Cash Consideration, and thereafter the following steps will occur concurrently with the closing of the acquisition ‎of the ‎Fixed Shares pursuant to the Canopy ‎Call Option, as set out above:

  

(l) Transfer of Floating Shares. In accordance with the terms of the Floating Call Option, each Floating Share held by a Shareholder (other than Floating Shares held by Canopy Growth) will be deemed to be transferred to Canopy Growth for the Floating Consideration (or, in the event a Canopy Growth Change of Control has occurred prior ‎to the Acquisition Date, the ‎‎Alternate Floating Consideration, if, at the effective time of such Canopy Growth Change of Control, such ‎Shareholder had been the registered holder of that number of Canopy Growth Shares ‎which is equal ‎to the number of Canopy Growth Shares which it would otherwise have been ‎entitled to receive in ‎exchange for its Floating Shares pursuant to the Amended Arrangement if the ‎Acquisition had ‎been ‎completed effective immediately prior to the effective time of the Canopy Growth Change of ‎Control).

 

(m) Issuance of Replacement Options. Each Floating Option will be exchanged for a Replacement Option to acquire from Canopy Growth ‎such ‎number of Canopy Growth Shares as is equal to: (A) the number of Floating Shares that ‎were ‎issuable upon exercise of such Floating Option immediately prior to the Acquisition ‎‎Time, multiplied by (B) the Floating Ratio in effect immediately prior to the Acquisition Time. Such Replacement Options will provide for an exercise price per Replacement Option equal to ‎‎the quotient obtained when: (i) the exercise price per Floating Share that would otherwise ‎be payable ‎pursuant to the Floating Option it replaces is divided by (ii) the Floating Ratio in effect ‎‎immediately prior to the Acquisition Time. Except as provided in the Amended Plan of ‎Arrangement, ‎all terms and conditions of a Replacement Option will be the same as the Floating ‎Option for which it ‎was exchanged and will be governed by the terms of Canopy Growth Equity ‎Incentive Plan. ‎Notwithstanding the foregoing, if required, the exercise price of a Replacement ‎Option will be ‎increased such that the Replacement Option In-The-Money Amount immediately after ‎the exchange ‎does not exceed the Acreage Option In-The-Money Amount of the Floating Option ‎‎(or a fraction ‎thereof) exchanged for such Replacement Option immediately before the exchange.‎

 

(n) Issuance of Replacement Compensation Options. Each Floating Compensation Option will be exchanged for a Replacement Compensation Option to ‎‎acquire from Canopy Growth such number of Canopy Growth Shares as is equal to: (A) the number ‎of ‎ Floating Shares that were issuable upon exercise of such Floating Compensation Option ‎‎immediately prior to the Acquisition Time, multiplied by (B) the Floating Ratio in effect ‎‎immediately prior to the Acquisition Time. Such Replacement Compensation Option will ‎‎provide for an exercise price per Replacement Compensation Option equal to the quotient obtained ‎‎when: (i) the exercise price per Floating Share that would otherwise be payable pursuant ‎to the Floating Compensation Option it replaces is divided by (ii) the Floating Ratio in effect ‎immediately ‎prior to the Acquisition Time. Except as provided in the Amended Plan of Arrangement, ‎all ‎terms and conditions of a Replacement Compensation Option will be the same as the Floating ‎‎Compensation Option for which it was exchanged.‎

 

(o) Issuance of Replacement RSUs. Each Floating RSU will be exchanged for a Replacement RSU to acquire from Canopy Growth ‎such ‎number of Canopy Growth Shares as is equal to: (A) the number of Floating Shares that ‎were ‎issuable upon vesting of such Floating RSU immediately prior to the Acquisition Time, ‎‎multiplied by (B) the Floating Ratio in effect immediately prior to the Acquisition Time. ‎Such ‎Replacement RSU will provide for a conversion price per Replacement RSU equal to the ‎quotient ‎obtained when: (i) the conversion price per Floating Share that would otherwise ‎be applicable pursuant to ‎the Floating RSU it replaces is divided by (ii) the Floating Ratio in effect ‎immediately prior to the ‎Acquisition Time. Except as provided in the Amended Plan of Arrangement, ‎all terms and ‎conditions of a Replacement RSU will be the same as the Floating RSU for which it was ‎‎exchanged.‎

 

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Description of the Amended Arrangement 

 

On June 24, 2020, Canopy Growth and Acreage entered into the Proposal Agreement‎, which sets out, among other things, the terms and conditions upon which the Amended Arrangement will be implemented, including the terms of the Amended Plan of Arrangement. The effectiveness of the Amending Agreement and the implementation of the Amended Plan of Arrangement is subject to the conditions set out in the Proposal Agreement, including, among others, obtaining the Shareholder Approval, Amendment Regulatory Approvals and the Amendment ‎Final Order. Upon receipt of Shareholder Approval, the Amendment Regulatory Approvals, the Amendment ‎Final Order and the satisfaction or waiver of all other conditions set out in the Proposal Agreement, including the Initial Advance of US$50,000,000 to Hempco pursuant to the Debenture, Canopy Growth and Acreage will execute the Amending Agreement, complete the Required Filings and implement the Amended Plan of Arrangement. See “Transaction ‎Agreements – The Proposal Agreement”. ‎

 

Pursuant to the Amended Plan of Arrangement, among other things, (i) the Company’s Articles will be amended to create the classes of Fixed Shares, Floating Shares and Fixed Multiple Shares, and (ii) provide Canopy Growth with the Canopy Call Option and the Floating Call Option. In accordance with the Amended Plan of Arrangement, promptly ‎following the Amendment Time, the Amendment Option Payment Paying Agent will deliver the Aggregate Amendment Option Payment on a pro rata basis to the Shareholders, the High Street Holders and the USCo2 Holders. Following the Amendment Time, Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Amended Arrangement Agreement. See “Transaction ‎Agreements – Amending Agreement”. ‎

 

If the Amending Agreement is executed, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will exercise (or be deemed to exercise) the Canopy Call Option and subject to the satisfaction or waiver of the Acquisition Closing Conditions, Canopy Growth will (i) acquire all of ‎the issued and outstanding Fixed Shares ‎‎(following the mandatory conversion of ‎the Fixed Multiple Shares into Fixed Shares) on the ‎basis of the Exchange Ratio ‎for each Fixed Share held at the Acquisition Time; and (ii) have the right (but not the obligation) exercisable for a period of 30 days following the Floating Rate Date, to exercise the ‎‎Floating Call Option to acquire all of the ‎issued and outstanding Floating Shares. Canopy Growth may acquire the Floating Shares for cash or Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Floating Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the NYSE (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option. The foregoing Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to ‎the ‎Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option.

 

If the Canopy Call Option is exercised (or deemed to be exercised) and the Acquisition of the Fixed Shares is completed, that will result in Canopy Growth becoming the owner of all of the Fixed ‎Shares on the Acquisition Date, and the Company will become a partially-owned subsidiary of Canopy Growth. If the Floating Call Option is exercised and Canopy Growth ‎acquires the ‎Floating Shares on the Acquisition Date, the Company will be a ‎wholly-owned subsidiary of ‎Canopy Growth and Canopy Growth will continue the operations of Canopy Growth and Acreage on a combined basis. If Canopy Growth completes the Acquisition of the Fixed Shares but does not acquire the Floating Shares at the Acquisition Time, the Floating Call Option will terminate, and the Floating Shares shall remain outstanding.

 

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In the event that the Canopy Call Option and the Floating Call Option are exercised (or deemed to be exercised), assuming the conversion of all outstanding securities of Acreage, on ‎the Acquisition Date, existing Acreage Holders would own approximately [¨]% of the ‎outstanding Canopy Growth Shares on a fully diluted basis and existing Canopy Growth Shareholders would own approximately [¨]% of ‎the outstanding Canopy Growth Shares on a fully diluted basis, based on the number of securities of Acreage (on an as converted to Fixed Share basis) and Canopy Growth issued and outstanding as of the Announcement Date. If Acreage issues the maximum number of Shares permitted to be issued under the Canopy Growth Approved Share Threshold, on the ‎Acquisition Date, existing Acreage Holders would own approximately [¨]% of the ‎outstanding Canopy Growth Shares on a fully diluted basis and existing Canopy Growth Shareholders would own approximately [¨]% of ‎the outstanding Canopy Growth Shares on a fully diluted basis, based on the number of securities of Acreage and Canopy Growth issued and outstanding as of the Announcement Date.

 

For further information regarding Canopy Growth following completion of ‎the Amended Arrangement, see Appendix “H” – “Information Relating to Canopy Growth following Completion of ‎the Acquisition”.‎

 

Amended and Restated Omnibus Equity Incentive Plan

 

Pursuant to the Amendment Resolution, the Existing Omnibus Incentive Plan is proposed to be replaced with the Amended and Restated Omnibus Equity Incentive Plan to reflect the Capital Reorganization and the creation of the Fixed Shares and Floating Shares. In addition, the Amended and Restated Omnibus Equity Incentive Plan is proposed to permit the acceleration of awards thereunder in the event that a holder’s employment is terminated by the Company following the implementation of the Amended Arrangement, or if such holder resigns following the one year anniversary of ‎the implementation of the Amended Arrangement, and will not require a minimum restriction period in such instances.

 

See the Amended and Restated Omnibus Equity Incentive Plan attached as Appendix “F” hereto.‎

 

Background to the Amended Arrangement‎

 

On June 24, 2020, Acreage and Canopy Growth entered into the Proposal Agreement, which, among other things, sets out the terms and conditions for implementing the Amended Arrangement. The entering into of the Proposal Agreement is the result of extensive arm’s length negotiations among representatives of Acreage, Canopy Growth and their respective legal and financial advisors.

 

Since inception, Acreage made significant investments into its business for growth, operational and capital needs and suffered substantial losses‎. Following implementation of the Existing Arrangement on June 27, 2019, Acreage attempted to leverage the Existing Canopy Option and Acreage’s relationship with Canopy Growth in pursuit of various alternatives to finance Acreage’s business, including certain potential acquisition alternatives; however, these efforts were not successful. Given the structural limitations on financing alternatives imposed on companies operating in the U.S. cannabis industry and the challenging capital markets conditions that Acreage faced in the latter half of 2019, efforts to secure third party financing in late 2019 were unsuccessful. In particular, Acreage’s financing and strategic acquisition efforts were impacted by Acreage’s declining share price over the second half of 2019 and counterparties failing to value the Existing Canopy Option and Acreage’s relationship with Canopy Growth in the manner anticipated by Acreage. As a result of regulatory and compliance constraints, Canopy Growth was, and remains, restricted in its ability to directly or indirectly invest in Acreage.

 

Faced with a working capital shortfall in the fall of 2019, Acreage pursued various financing alternatives, including a strategy to raise US$100,000,000 from Poppins, with Poppins being funded by a number of potential counterparties. On February 7, 2020, Acreage announced (i) that one of its Subsidiaries entered into a credit facility (the “Credit Facility”) with an institutional lender (the “Institutional Lender”) pursuant to which a US$100,000,000 credit facility was established, with US$49,000,000 expected to be available upon the initial drawdown under the Credit Facility, subject to Acreage providing sufficient cash collateral; (ii) the entry into of non-binding letters of intent pursuant to which Poppins would provide a loan to a Subsidiary of Acreage in the amount of US$50,000,000 to provide cash collateral as security for the US$49,000,000 to be drawn under the Credit Facility; and (iii) a proposed private placement of units of Acreage for gross proceeds of US$30,000,000, including the Option for the subscribers to increase the aggregate Private Placement size by a further US$20,000,000.

 

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On February 10, 2020, Acreage announced the closing of the Private Placement. Subsequently, on March 17, 2020, Acreage announced that it was only able to drawdown on US$21,000,000 pursuant to the Credit Facility with the Institutional Lender as it was only able to raise $22,000,000 from Poppins pursuant to the Original Credit Agreement, with US$21,000,000 of such amount provided by Mr. Murphy. The Company planned on raising US$50,000,000 pursuant to the Private Placement and the exercise of the Option; however, as a result of a decrease in the price of the Existing SVS, subscribers under the Private Placement did not exercise the Option. As a result of only being able to complete a portion of the targeted financing from Poppins and the Option not being exercised, Acreage remained significantly under-capitalized.

 

Throughout March of 2020, Acreage pursued additional financing sources through the assistance of several investment dealers and financial advisors. In addition, Acreage was approached by various parties regarding opportunities (the “Acquisition Opportunities”). Given the Existing Canopy Option and the terms of the Arrangement Agreement, proceeding with a certain potential Acquisition Opportunity (the “Proposed Acquisition Opportunity”) would have required the consent of Canopy Growth. In late March, William Van Faasen, at the time, an independent director on the Acreage Board, and Mr. James Doherty, Acreage’s Corporate Secretary and General Counsel, participated in a call with Mr. David Klein, Canopy Growth’s Chief Executive Officer to discuss the preliminary potential benefits of the Proposed Acquisition Opportunity and Acreage’s rationale for pursuing it as well as Acreage’s strained financial circumstances and Acreage’s need to focus on achieving breakeven cashflow and EBITDA.

 

On April 3, 2020, the Acreage Board met to discuss Acreage’s strategic alternatives, including the Proposed Acquisition Opportunity and the various financing alternatives that were being considered. On April 10, 2020, Acreage retained Foros to assist Acreage with exploring its strategic alternatives, including with Canopy Growth or other parties.

 

On April 14, 2020, a conference call was held among Mr. Van Faasen, a representative of Foros, and Mr. Klein. On this conference call, Mr. Klein reiterated Acreage’s need to prioritize achieving breakeven cashflow and EBITDA and indicated that Canopy Growth would be willing to consider alternatives to assist Acreage, provided that any such alternatives would be subject to a concurrent reduction of the Existing Exchange Ratio to 0.1 of a Canopy Growth Share to align with the then current trading prices of the Existing SVS and the Canopy Growth Shares. In addition, to address capital shortfalls and growth stagnation, and to mitigate against future business failures, the Parties began discussing potential amendments to the Existing Arrangement.

 

Throughout March and April, the COVID-19 pandemic further adversely impacted the sources of available capital and the terms of the financing options available to Acreage. Prospective lenders to Acreage proposed terms that included high interest rates and/or excessive costs of capital for Acreage and its Subsidiaries. The terms of certain of these proposals required Canopy Growth’s consent to avoid a breach of the Arrangement Agreement by Acreage. For loans that included the issuance of Existing SVS, the effective cost of capital to Canopy Growth was significantly higher due to the trading price of the Existing SVS relative to the Existing Exchange Ratio.

 

From mid-April to late May, 2020, Canopy Growth and Acreage engaged in various discussions regarding a number of potential financing options available to Acreage.

 

In early May, 2020, Mr. Murphy provided Mr. Klein with two term sheets from third parties that Acreage had entered into and which contemplated (i) a short-term bridge financing in the amount of US$15,000,000, and (ii) a secured term credit facility in the amount of up to US$50,000,000, which included an obligation to sell US$5,000,000 of Existing SVS on a monthly basis to be placed in a blocked account as well as a requirement to pledge all of the outstanding shares of Acreage’s Subsidiaries (collectively, the “Proposed Financing Transactions”).

 

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On May 11, 2020, Mr. Murphy provided Mr. Phillip Shaer, Canopy Growth’s Chief Legal Officer, with a formal request for consent to certain aspects of the Proposed Financing Transactions, as such transactions had been further negotiated since the date of the term sheets entered into in respect thereof. On May 15, 2020, Mr. Shaer sent two letters to Mr. Murphy by way of e-mail and confirmed that Canopy Growth refused to consent to the Proposed Financing Transactions.

 

On May 15, 2020, Mr. Michael Lee, Canopy Growth’s Chief Financial Officer, contacted Mr. Glen Leibowitz, Acreage’s Chief Financial Officer, and advised Mr. Leibowitz that Canopy Growth would not consent to the Proposed Financing Transactions. Mr. Lee reiterated that Canopy Growth would only consider strategic alternatives in connection with a concurrent reduction of the Existing Exchange Ratio.

 

Following receipt of the letters from Mr. Shaer, Mr. Klein, Mr. Murphy and Mr. Van Faasen had a call on the afternoon of May 15, 2020. On this call, Mr. Klein suggested an alternative to the Proposed Financing Transactions, pursuant to which Canopy Growth would provide a loan of up to US$50,000,000 to a wholly-owned Subsidiary of Acreage operating solely in the hemp industry in full compliance with all applicable Laws. Mr. Klein also indicated that a third party may be willing to provide up to US$20,000,000 of short-term bridge financing to Acreage. The proposal from Canopy Growth was contingent on amending the Existing Arrangement to substantially reduce the Existing Exchange Ratio and restructure the Acreage share capital to provide for Fixed Shares and Floating Shares. Mr. Klein also indicated that Canopy Growth would require the imposition of significant additional operational covenants with respect to the conduct of Acreage’s business with a view to ensuring the survival and long-term profitability of Acreage, including holding Acreage’s management team to higher operational standards and accountable for achieving profitability against a realistic business plan for Acreage. Mr. Van Faasen advised Mr. Klein that Acreage would consider Canopy Growth’s proposal.

 

On the evening of May 15, 2020, the Acreage Board met with its financial advisors and with DLA Piper to discuss the Canopy Growth proposal and its strategic initiatives. The Acreage Board deliberated on the various alternatives available to it, including: (i) seeking financing on terms that would not require Canopy Growth consent in order to preserve the Existing Arrangement; (ii) proceeding with the Proposed Financing Transactions and disputing Canopy Growth’s assertions that such financings required Canopy Growth’s consent and that such consent, if required, was being reasonably withheld; and (iii) negotiating a comprehensive solution with Canopy Growth that would permit Acreage to continue as a going concern, work to achieve breakeven cashflow and EBITDA, achieve positive growth metrics, including expanding operations into the emerging US hemp industry and preserve value for Shareholders. The Acreage Board determined, after canvassing various financing alternatives (each of which had a high degree of risk in the face of not receiving Canopy Growth’s consent) and hearing from its advisors, that a public dispute with Canopy Growth would deter prospective lenders, jeopardize the Existing Arrangement and potentially prejudice Shareholders if Canopy Growth was successful in claiming that there was a breach of a material term of the Arrangement Agreement (in which case Canopy Growth would not be required to exercise the Existing Call Option). Accordingly, the Acreage Board after weighing the merits and risks of its alternatives and following discussions with representatives of Foros, elected to continue to engage with Canopy Growth and attempt to negotiate a comprehensive solution. The Acreage Board determined that, initially Mr. Van Faasen would act as the responsible independent director for purposes of these preliminary discussions with Canopy Growth.

 

From May 16 to May 20, 2020, Mr. Klein and Mr. Lee engaged in various discussions with representatives from Foros, Mr. Van Faasen, Mr. Murphy and Mr. Leibowitz. These discussions were, in large part, focused on providing Canopy Growth with a better understanding of Acreage’s strategic business plan, in particular, given Acreage’s announcement on April 3, 2020 that it was making a number of operational changes to enable Acreage to maintain its business goals of profitability and cash conservation and to execute its strategic plan. Acreage’s strategic business plan required Acreage to focus its operations in what it believed to be the “core” jurisdictions, which ultimately became the Identified States.

 

On May 21, 2020, Mr. Lee contacted Mr. Leibowitz and indicated that, based upon the strategic business plan that Acreage presented, Canopy Growth would be willing to proceed with a revised transaction on the following terms (the “Initial Canopy Proposal”): (i) each Existing SVS would be exchanged for 0.8 of a Fixed Share and 0.2 of a Floating Share; (ii) the Existing Exchange Ratio would be reduced from 0.5818 to 0.3150 of a Canopy Growth Share for each whole Fixed Share; (iii) Canopy Growth would have an option (but not an obligation) to acquire the Floating Shares based on a 30-day volume weighted trading price of the Floating Shares; (iv) the Canopy Growth Approved Share Threshold would be revised to permit a maximum of 25,000,000 Shares being available for future issuances (at this time, 25,000,000 Existing Shares remained available for issuance under the terms of the Arrangement Agreement out of a total of 58,000,000 Existing Shares); (v) a loan would be made to a wholly-owned Subsidiary of Acreage operating solely in the hemp industry in full compliance with all applicable Laws in the amount of US$50,000,000 to US$75,000,000; (vi) additional governance and operational covenants would be imposed with the aim of holding Acreage’s management to higher objective operational standards and to ensure there is accountability for achieving profitability against a realistic business plan for Acreage; (vii) Acreage would be required to restrict its ongoing business plan and operations to the Identified States; (viii) the exclusivity in the Arrangement Agreement would be amended such that the restrictions precluding Canopy Growth from acquiring multi-state operators that operate in states other than the Identified States would be removed; and (ix) up to an additional 2,700,000 Floating Options would be available to be granted to incentivize executives. In addition, Canopy Growth would consent to short-term financing for Acreage from a third party lender in an aggregate amount of US$20,000,000, available in two tranches of US$10,000,000 each, for a term of four months and secured by all of Acreage’s and its Subsidiaries’ assets (the “Short-Term Bridge Financing”).

 

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Throughout these discussions, Acreage continued to pursue other strategic and financing alternatives which would not require Canopy Growth’s consent.

 

On May 22, 2020, Acreage management, Mr. Van Faasen, Mr. Maine and representatives from Foros met to discuss the Initial Canopy Proposal and the Short-Term Bridge Financing and to prepare a potential counterproposal to be delivered to Canopy Growth. The Acreage Board met on the evening of May 22, 2020 and approved a counterproposal to Canopy Growth (the “Initial Acreage Counterproposal”) that included, among other things, the following terms: (i) the Existing Exchange Ratio would be reduced from 0.5818 to 0.4 per Fixed Share; (ii) each Existing SVS would be exchanged for 0.6 of a Fixed Share and 0.4 of a Floating Share; (iii) no amendment would be made to the number of Shares under the Canopy Growth Approved Share Threshold; (iv) a loan would be made to a wholly-owned Subsidiary of Acreage operating solely in the hemp industry in full compliance with all applicable Laws in the amount of up to US$100,000,000; (v) certain thresholds with respect to the restrictions on Acreage’s business activities under the Arrangement Agreement would be reduced to provide additional flexibility to Acreage; (vi) Canopy Growth would consent to short-term bridge financing from a second lender in addition to the Short-Term Bridge Financing; and (vii) the Acreage Board would be permitted to authorize the accelerated vesting of certain Acreage Options and Acreage RSUs held by executives and to restructure the existing exercise price of certain outstanding Acreage Options (see “The Amended Arrangement - Interests of Certain Persons in the Amended Arrangement”).

 

On May 23, 2020, various discussions took place in respect of the Initial Acreage Counterproposal among Mr. Van Faasen, representatives of Foros, Mr. Murphy, Mr. Doherty and Mr. Leibowitz. On the evening of May 23, 2020, Mr. Leibowitz contacted Mr. Lee and delivered the Initial Acreage Counterproposal. On May 23, 2020, Mr. Lee countered the Initial Acreage Counterproposal with what he indicated was Canopy Growth’s “best and final” offer and the terms upon which he would be willing to present a proposal to Mr. Klein and the Board of Directors of Canopy Growth. Mr. Lee proposed the following terms: (i) each Existing SVS would be exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share; (ii) the Existing Exchange Ratio would be reduced from 0.5818 to 0.33 of a Canopy Growth Share for each Fixed Share; (iii) there would be an agreed-upon floor price for the Floating Shares; (iv) a loan would be made to a wholly-owned Subsidiary of Acreage operating solely in the hemp industry in full compliance with all applicable Laws, with US$50,000,000 being available at the Amendment Time and a further US$50,000,000 being available upon the achievement of certain agreed upon financial targets; (v) the Canopy Growth Approved Share Threshold would be revised to permit a maximum of 30,000,000 Shares being available for future issuances; (vi) Canopy Growth would not require Acreage consent for any acquisition of a U.S. multi-state operator, unless there was overlap with more than 20% of revenue in the Identified States; and (vii) any acquisition of a U.S. multi-state operator by Canopy Growth for consideration of US$150,000,000 or less would not require Acreage’s consent.

 

Mr. Leibowitz asked Mr. Lee to have Canopy Growth deliver a letter of intent setting out the terms of its revised proposal for the Acreage Board to consider. Discussions continued between members of management of Acreage, certain of its directors and Canopy Growth on May 24, 2020 and, on the evening of May 24, 2020, Mr. Klein sent an initial letter of intent (the “Initial LOI”) to Mr. Van Faasen. On May 25, 2020, Acreage received the initial draft term sheet in respect of the Short-Term Bridge Financing (“Initial Bridge Financing Term Sheet”).

 

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On the morning of May 25, 2020, the Acreage Board met by conference call with representatives of Acreage management, Foros, DLA Piper and Cozen O’Connor, U.S. counsel to Acreage, to discuss the status of negotiations with Canopy Growth. At this meeting, the Acreage Board determined to form the Special Committee and appointed its members to lead the negotiations with Canopy Growth with the support of Mr. Van Faasen, Mr. Murphy and other members of the Acreage management team. Following this meeting, there was a further call between Mr. Van Faasen and Mr. Klein to clarify particular deal terms set out in the Initial LOI.

 

On May 25, 2020, DLA Piper provided the Acreage Board with a further written description of the duties of each of the members of the Acreage Board in connection with a potential change of control transaction (including the novel aspects of a proposed amendment to the Existing Canopy Option) and, on May 26, 2020, the Acreage Board met to receive a presentation from DLA Piper on such duties and obligations as well as some considerations based on the terms of the Initial LOI. On the evening of May 25, 2020, the Special Committee engaged Wildeboer Dellelce LLP, as counsel to the Special Committee. Representatives of Wildeboer Dellelce along with Cozen O’Connor and representatives of Foros attended the May 25, 2020 meeting of the Acreage Board.


On May 26, 2020, with input from Wildeboer Dellelce, DLA Piper provided a revised version of the Initial LOI to the Acreage Board along with a list of initial issues for discussion.

 

On May 27, 2020, the Acreage Board met by conference call to discuss the Initial LOI and to receive an update on discussions between Mr. Leibowitz and Mr. Maine with Mr. Lee. The Acreage Board also received an update from management on its ongoing negotiation of the Standby Equity Distribution Agreement and a potential convertible debenture offering. Following this meeting, with input from its financial and legal advisors, the Acreage Board agreed upon an initial issues list regarding the deal terms proposed in the Initial LOI.

 

On May 28, 2020, the Special Committee met to discuss the issues arising from the Initial LOI and to attend to certain procedural matters, including appointing Mr. Maine as the Chair of the Special Committee. The Special Committee also resolved to retain Eight Capital to provide a fairness opinion with respect to a potential transaction with Canopy Growth should the terms of such transaction be settled.

 

On May 29, 2020, Mr. Maine and Mr. Leibowitz discussed certain issues raised in the Initial LOI with Mr. Lee. Mr. Lee indicated that Canopy Growth’s position was that if Acreage determined to accept a “superior proposal” and terminate the Arrangement Agreement, the Existing Canopy Option would terminate and Canopy Growth expected a break-fee of US$300,000,000 to compensate Canopy Growth for the Option Premium paid at the time the Existing Arrangement was implemented.

 

On May 30, 2020, the Acreage Board met again with its external legal and financial advisors and counsel to the Special Committee to receive an update from Mr. Maine on the status of negotiations with Canopy Growth, including the discussions that took place on May 29, 2020 with Mr. Lee.

 

On June 1, 2020, following receipt of Canopy Growth’s consent, Acreage announced that it closed a private placement of convertible debentures in the principal amount of US$11,000,000 and that it had entered into the Standby Equity Distribution Agreement pursuant to which Acreage may, at its discretion, periodically sell to the Investor, and pursuant to which the Investor may, at its discretion, require Acreage to sell to it, up to US$50,000,000 of Existing SVS.

 

On June 2, 2020, at the direction of the Special Committee and the Acreage Board, with input from their financial and legal advisors, DLA Piper circulated a list of a number of significant issues with the transaction proposed in the Initial LOI to Cassels. In addition, on June 2, 2020, Mr. Maine and Mr. Boehner contacted Mr. Klein to discuss some of these significant issues and the lack of progress being made on the Short-Term Bridge Financing.

 

From the date of receipt of the Initial Bridge Financing Term Sheet, Acreage had continued to negotiate the terms of the Short-Term Bridge Financing. For a number of reasons, including the ever changing and increasingly onerous terms being requested by the lender, Acreage continued to aggressively pursue alternative financing options.

 

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The Acreage Board met with its financial and legal advisors and counsel to the Special Committee on June 2, 2020 to receive an update from Mr. Maine on his discussions with Mr. Klein and to discuss Acreage’s alternative financing options given the urgent and immediate need for capital, including to make a necessary payment in connection with Acreage obtaining its operational license in New Jersey. Mr. Murphy explained to the Acreage Board that he had been presented with a term sheet proposal for a US$15,000,000 loan from an institutional lender (the “Alternative Bridge Loan”), which the Acreage Board determined would, if completed, be a better alternative than the Short-Term Bridge Financing.

 

From June 2 to June 5, 2020, representatives of Acreage, the Special Committee and Canopy Growth, including their external legal advisors, engaged in various discussions and negotiations regarding the terms of the potential amendments to the Existing Arrangement and all ancillary matters. On June 4, 2020, the Special Committee (with Eight Capital in attendance) met to receive an update on the discussions with respect to the principal issues based on discussions that DLA Piper and Wildeboer Dellelce had with Cassels.

 

On June 5, 2020, Cassels provided DLA Piper with initial drafts of the Proposal Agreement, Amending Agreement, Amended Plan of Arrangement, A&R License and Debenture (collectively, the “Draft Definitive Documents”).

 

From June 6 to June 8, 2020, various informal discussions took place between members of the Special Committee and the Acreage Board as well as representatives of Foros, DLA Piper, Cozen O’Connor and Wildeboer Dellelce.

 

On June 9, 2020, the Acreage Board met to review a memorandum prepared by DLA Piper and Cozen O’Connor, with input and advice from Wildeboer Dellelce and Acreage’s management team, setting out the material business and legal issues identified in the course of their review of the Draft Definitive Documents. These issues included, among others, (i) the inclusion of a right for Canopy Growth to terminate (in its sole discretion) the Existing Canopy Option in the event that the Amendment Resolution was not approved by Shareholders; (ii) the inclusion of a US$300,000,000 payment payable to Canopy Growth in certain circumstances, including a Change of Recommendation; (iii) there being no upfront consent from Canopy Growth for the sale of non-core assets or interests in the states other than the Identified States; (iv) the inclusion of an expense reimbursement fee payable to Canopy Growth in the event that the Amendment Resolution was not approved, even if Canopy Growth elected to terminate the Existing Canopy Option; (v) there being no requirement for Canopy Growth to make the initial advance of US$50,000,000 pursuant to the Debenture as a condition to the effectiveness of the Amended Plan of Arrangement; (vi) the inclusion of restrictions on Acreage’s ability to exceed the Canopy Growth Approved Threshold even after the Acquisition Time; (vii) the imposition of significant operational covenants with respect the conduct of Acreage’s business until such time, following the Acquisition Time, that Canopy Growth ceased to hold at least 25% of the outstanding Shares; and (viii) various adverse tax consequences to Acreage U.S. Shareholders as a result of the proposed deal structure.

 

Mr. Leibowitz, on behalf of Acreage’s management, presented the Acreage Board with management’s assessment of the implications of not completing the transaction with Canopy Growth, including an assessment of Acreage’s current liquidity constraints and operating cash flow deficiency, future financing requirements and ability to continue as a going concern. Mr. Leibowitz also provided the Acreage Board with an overview of the financing initiatives that had been pursued by management.

 

Following the June 9, 2020 Acreage Board meeting, various discussions and negotiations ensued between representatives of Acreage, led by Mr. Maine with support principally from Mr. Leibowitz and Mr. Doherty, and the respective legal advisors to Acreage, the Special Committee and Canopy Growth. From June 9 to June 19, 2020, various discussions regarding tax matters and the potential implications of the transaction on Shareholders, High Street Holders and USCo2 Holders were conducted. As described in more detail under the heading “Certain United States Federal Income Tax Considerations - Certain U.S. Federal Income Tax Consequences of the Amended Arrangement - Option Premium”, it was determined that Acreage U.S. Shareholders who received a portion of the Option ‎‎Premium will be required to report (to the extent not previously included in income) the Option ‎Premium as ‎short term capital gain in the taxable year in which the Amended Plan of Arrangement ‎becomes effective.

 

On June 12, Cassels provided DLA Piper with further revised drafts of the Draft Definitive Documents reflecting the recent discussions between the Parties.

 

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On June 15, 2020, Mr. Maine, Mr. Van Faasen, members of Acreage management and representatives from Acreage’s financial and legal advisors met to discuss alternative transactions and, again revisited the alternative of not entering into the Proposal Agreement (the “Status Quo Strategy”). A further call with Mr. Maine, Mr. Van Faasen, members of Acreage management and representatives from Acreage’s financial and legal advisors to discuss the Status Quo Strategy, including the financial model related thereto, was convened for June 16, 2020. It was ultimately determined by Acreage management that the alternatives available to Acreage were less favorable than continuing to negotiate the potential transaction with Canopy Growth.

 

On June 17, 2020, Acreage announced the completion of the Alternative Bridge Loan. This financing was completed on more favorable terms than the proposed Short-Term Bridge Financing and provided a better strategic alternative for Acreage.

 

From June 12 to June 21, 2020, representatives of the Acreage Board (including members of the Special Committee) had numerous calls and videoconferences with members of management and representatives of Foros, DLA Piper, Cozen O’Connor and Wildeboer Dellelce on various occasions. Numerous calls and videoconferences also took place between representatives of Acreage, members of the Special Committee and Canopy Growth and their respective legal advisors. During the course of those discussions, Acreage requested that Canopy Growth provide additional cash consideration to Shareholders, High Street Holders and USCo2 Holders, with no adjustment to the negotiated 0.33 proposed Exchange Ratio. On June 20, 2020, the Acreage Board met to discuss the proposal from Canopy Growth to provide the Aggregate Amendment Option Payment in exchange for a reduction in the Exchange Ratio from 0.33 to 0.3048 and agreed to continue its negotiations on this basis.

 

Between June 12 and June 21, 2020, various revised versions of the Draft Definitive Documents were exchanged between Acreage’s legal advisors and Canopy Growth’s legal advisors. During this period, representatives of Acreage, led by Mr. Maine, and its legal advisors, and representatives of Canopy Growth and its legal advisors, engaged in negotiations with respect to the terms of the Draft Definitive Documents. Significantly, through its negotiations, the following changes, among others, were made to the terms of the Proposal Agreement, Amendment Agreement, Amended Plan of Arrangement, Debenture and A&R License: (i) an increase in the Shares available for issuance by Acreage pursuant the Canopy Growth Approved Share Threshold; (ii) the ability for the Acreage Board to make a Change in Recommendation and, should it do so, a US$300,000,000 break-fee would not be payable by Acreage (although a US$3,000,000 expense reimbursement payment would be required in certain circumstances); (iii) an upfront consent from Canopy Growth to permit Acreage to divest its assets and interests outside of the Identified States on terms acceptable to Acreage and to sell particular real property on terms that may be negotiated by Acreage; (iv) the inclusion of the Initial Advance of US$50,000,000 as a condition to the Amended Plan of Arrangement becoming effective; (v) the post-Acquisition Time operational covenants with respect to the conduct of Acreage’s business (including the Canopy Growth Approved Share Threshold surviving indefinitely) being limited and applying until such time as Canopy Growth ceased to hold at least 35% of the outstanding Shares; and (vi) the Aggregate Amendment Option Payment being paid to Shareholders, High Street Holders and USCo2 Holders to provide certainty of some payment given that the Canopy Call Option may never be exercised and to provide some immediate liquidity to Shareholders, High Street Holders and USCo2 Holders.

 

On June 21, 2020, the Special Committee met to receive (i) a presentation from DLA Piper on the near final terms negotiated in respect of the Proposal Agreement, Amendment Agreement, Amended Plan of Arrangement and matters ancillary thereto; (ii) a presentation from Eight Capital on the proposed terms of the Amended Arrangement, followed by a verbal opinion of Eight Capital that, subject to the assumptions set out in the New Fairness Opinion, the consideration to be received by Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders; and (iii) a presentation from Foros in respect of Acreage’s financing plan proposed under the Status Quo Strategy compared to the proposed financing plan under the Amended Arrangement. Following the delivery of the Eight Capital verbal opinion, the representatives from Eight Capital excused themselves from the meeting. Following the Foros presentation, the representatives of management, DLA Piper and Foros excused themselves from the meeting and the members of the ‎Special Committee then engaged in a discussion of the relative merits and disadvantages of the ‎proposed transaction with Canopy Growth. The Special Committee concluded that the anticipated benefits to Acreage and the Shareholders of the proposed ‎amended transaction with Canopy Growth when balanced against the additional covenants and constraints ‎contemplated thereby, exceed the anticipated benefits relative to the covenants and constraints ‎under the terms of the Existing Arrangement. The Special Committee, after consultation with Acreage management and receipt of advice and assistance of its and Acreage’s ‎financial and legal ‎advisors, and after careful consideration of a number of alternatives and factors including, among others, the Status Quo Strategy, the New Fairness Opinion and the factors set out below under the ‎heading ‎‎“Reasons for the Amended Arrangement”, unanimously determined that the Amended Arrangement, including the entering into of the Proposal Agreement and the related agreements, are in the best interests of Acreage and its minority shareholders, and recommended to the Acreage Board that it approve and authorize Acreage to enter ‎into ‎the Proposal Agreement and related agreements.‎ The foregoing was subject to, among other things, Acreage management continuing to work towards finalizing the Proposal Agreement on the terms presented to the Special Committee, and Canopy Growth obtaining all waivers and consents required in connection with its entry into the Proposal Agreement.

 

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Following the meeting of the Special Committee on June 21, 2020, the Acreage Board convened and received similar presentations from DLA Piper and Foros as those provided to the Special Committee. Following these presentations, the Acreage Board received the unanimous recommendation of the Special Committee and considered and discussed such matters as the members of the Acreage Board determined to be necessary or appropriate. After consultation with Acreage management and receipt of advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors including, among others, ‎the receipt of the unanimous recommendation of the Special ‎‎Committee and the New Fairness Opinion and the factors set out below under the ‎heading ‎‎“Reasons for the Amended Arrangement”, the Acreage Board unanimously (with the exception of Mr. Murphy, who ‎declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof): (i) determined that the Amended Arrangement and entry into the Proposal ‎Agreement are in the best interests of Acreage and are fair to ‎Shareholders and approved and authorized Acreage to enter into the Proposal Agreement and related agreements; and (ii) approved and authorized Acreage to enter into the Proposal Agreement and related agreements; and (iii) determined to recommend that Shareholders vote FOR the Amendment Resolution. The foregoing was subject to, among other things, Acreage management continuing to work towards finalizing the Proposal Agreement on the terms presented to the Acreage Board, and Canopy Growth obtaining all waivers and consents required in connection with its entry into the Proposal Agreement.

 

Following the approval of the Acreage Board, representatives of Acreage and Canopy Growth continued to negotiate various aspects of the definitive documents and legal counsel exchanged drafts thereof. Following these negotiations, the Acreage Board met again on June 22, 2020 to reaffirm its foregoing approval.

 

In accordance with the terms of a consent agreement between Canopy Growth and an affiliate of Constellation Brands, Inc. (“CBI”), Canopy Growth’s significant securityholder, Canopy Growth’s execution of the Proposal Agreement, the A&R License and certain ancillary documents was subject to Canopy Growth’s receipt of consent from CBI. On June 22, 2020, Mr. Doherty was advised that additional time was required to obtain CBI’s consent. On June 24, 2020, Canopy Growth confirmed that it had obtained the consents and approvals it required from CBI to proceed with the Amended Arrangement and the execution of the Proposal Agreement, the A&R License and the documents ancillary thereto. On June 24, 2020, Eight Capital reconfirmed its verbal fairness opinion in writing. Following this confirmation, the Proposal Agreement, the A&R License and certain ancillary documents were executed by the parties and the Amended Arrangement was announced jointly by Canopy Growth and Acreage prior to the opening of markets on June 25, 2020.

 

On August [¨], 2020, the Acreage Board approved the contents and mailing of this Circular to Shareholders and such other securityholders are entitled to receive it, all in accordance with the Interim Order.

 

On August [¨], 2020, the Court granted the Amendment Interim Order, attached as Appendix “E” to this Circular.

 

Reasons for the Amended Arrangement‎

 

In evaluating the Amended Arrangement and in making their respective recommendations, the Special Committee and the Acreage Board each consulted with Acreage management, received the advice and assistance of their respective legal and financial advisors and gave careful consideration to the current and expected future financial position of Acreage and all terms of the Proposal Agreement, the Amending Agreement, the Amended Plan of Arrangement, the A&R License, the Debenture and the proposed amendments to the Original Credit Agreement. The Special Committee and the Acreage Board considered a number of factors including, among others, the following in determining that the Amended Arrangement and entry into the Proposal ‎Agreement are in the best interests of Acreage and are fair to ‎Shareholders and authorizing Acreage to enter into the Proposal Agreement and related agreements:

 

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(a) Preserving Shareholder Value. Acreage assessed the alternatives reasonably available to it and determined that the Amended Arrangement represents the best current prospect for its continued viability and the preservation of Shareholder value. The Amended Arrangement is expected to provide Acreage with the greatest chance of success relative to the alternatives available to it in the context of the Existing Arrangement, namely: (i) continuing to operate and attempting to raise capital under current market conditions and the restrictive covenants imposed under the Arrangement Agreement; and (ii) operating in potential breach of the restrictive covenants in the Arrangement Agreement and facing potential claims from Canopy Growth that there was a breach of a material term of the Arrangement Agreement, which, if successful, would permit Canopy Growth to not complete the Acquisition upon the occurrence of the Triggering Event. Relative to the alternatives available to Acreage in the context of the Existing Arrangement, the Loan pursuant to the Debenture and the implementation of the Amended Arrangement is expected to preserve and, potentially increase, Shareholder value relative to the scenarios in (i) and (ii) above.

 

(b) Aggregate Amendment Option Payment. At the Amendment ‎Time, Canopy ‎Growth will pay the Aggregate Amendment Option Payment of US$37,500,024 to the Shareholders, the High Street Holders and the USCo2 Holders, with the amount that each such holder is entitled to receive estimated to be approximately $[¨] per Existing SVS (assuming the conversion or exchange of such Eligible Securities for Existing SVS) based on the number of outstanding Existing Shares as of the date hereof. Given that there is no certainty that the Existing Canopy Option will be exercised prior to its expiry, a cash payment to Shareholders is advantageous.

 

(c) Potential Upside with Floating Shares. Shareholders will receive Floating Shares pursuant to the Amended Arrangement. If Canopy Growth acquires the Floating Shares pursuant to the exercise of the Floating Call Option, it will do so at a price based upon the 30-day volume-weighted average trading price of the Floating Shares on the CSE, subject to a minimum of US$6.41 per Floating Share. Canopy Growth may acquire the Floating Shares for cash or for Canopy Growth Shares or a combination thereof (in Canopy Growth’s sole discretion) with the number of Canopy Growth Shares to be determined on the basis of the trading price of the Canopy Growth Shares. If the Floating Call Option is not exercised, the Floating Shares will continue to trade on the CSE and, upon a Triggering Event, Acreage believes the trading price of the Floating Shares should increase in a manner commensurate to the increased value attributed to Acreage’s business, operational and financial performance. If Acreage meets each of the annual targets set out in the Initial Business Plan, Acreage anticipates that the value of the Floating Shares will increase over time. The Acreage Board believes that the Floating Shares, if acquired by Canopy Growth, and depending on market factors and the growth of Acreage’s business between the Amendment Time and the Acquisition Date, when combined with the consideration to be received for the Fixed Shares at the Acquisition Time, could produce a more attractive Shareholder return as compared to the Existing Arrangement.

 

(d) Canopy Growth Loan to Hempco. As a condition to the Amended Arrangement becoming effective, the Lender will provide Hempco with an Initial Advance of US$50,000,000 pursuant to the Debenture. A further US$50,000,000 advance will be made available upon satisfaction of specified Hempco conditions precedent. The Loan is anticipated to provide Acreage with the necessary financing for Hempco’s operations in the CBD market. Acreage anticipates that Hempco’s operations will leverage Canopy Growth’s current U.S. CBD business, be accretive and drive overall value for Shareholders.

 

(e) Management Service Agreements. Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a competitor of Acreage in the United States, Canopy Growth, as a condition to completing such transaction, will require the Target Cannabis Operator to enter into a Management Service Agreement with Acreage on terms acceptable to Acreage, acting reasonably. In the event that the Target Cannabis Operator and Acreage cannot agree upon a commercially reasonable management service agreement, the Target Cannabis Operator will pay a management fee to Acreage equal to a percentage of net revenue generated by the Target Cannabis Operator.

 

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(f) Waivers and Consents Obtained under Existing Arrangement. As a condition to entering into the Proposal Agreement, Canopy Growth provided Acreage with advance consent required pursuant to the Arrangement Agreement to (i) enable Acreage to sell all or substantially all of the assets of Acreage or its Subsidiaries situated or located outside of the Identified States on such terms as Acreage may negotiate from time to time; and (ii) sell particular real property on terms that may be negotiated by Acreage.

 

(g) Key Shareholder Support. The Acreage Locked-Up Shareholders who collectively hold, as at the Record Date, approximately [¨]% of the issued and outstanding Existing SVS, approximately [¨]% of the issued and outstanding Existing PVS and 100% of the issued and outstanding Existing MVS and which collectively represent approximately [¨]% of the ‎voting rights attached to outstanding Existing Shares, entered into the Voting Agreements with Canopy Growth under which they have agreed, among other things, to vote FOR the Amendment Resolution. See “Transaction Agreements - Voting Agreements”.

 

(h) Public affirmation by Canopy Growth The Amended Arrangement further evidences that Acreage is Canopy Growth's vehicle for an accelerated pathway into the United States once federally permissible.

 

(i) Increased royalty income. Canopy Growth's brand recognition and product offerings are well established and respected. Acreage desires to further the growth of such brands and products in the United States, where permissible. As such, Acreage intends to aggressively pursue further promotion of Canopy Growth products and brands, which will produce additional income opportunities for Acreage.

 

(j) Shareholder Approval. The structure of the Shareholder Approval is protective of the rights of Shareholders. Pursuant to the Amendment Interim Order and the BCBCA, the Amendment Resolution must be ‎approved, with ‎or without variation, by the affirmative vote of at least 66⅔% of the votes cast by holders of ‎Existing SVS, Existing PVS and Existing MVS present virtually or represented by proxy and entitled to vote at the Meeting, ‎with all Shareholders ‎voting together as a single class. In addition, (i) pursuant to MI 61-101, the ‎Amendment Resolution must be approved by at ‎least a simple majority of votes cast by the holders of Existing ‎SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101, and (ii) pursuant to OSC Rule 56-501 and NI 41-101, the Amendment ‎Resolution must be approved by at ‎least a majority of the votes cast by holders of Existing SVS and ‎Existing PVS present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single ‎class, excluding all Existing Shares held by Related Parties.

 

(k) Court Process. The Amended Arrangement will be subject to a judicial determination of the Court that the Amended Arrangement is procedurally and substantively fair and reasonable to Shareholders.

 

(l) Dissent Rights. Registered Shareholders who do not vote in favor of the Amendment Resolution are entitled to be paid the fair value of the Existing ‎Shares held by such holder in accordance with Section 245 of ‎the BCBCA, as modified by the Amended Plan of Arrangement, the Amendment Interim Order and the ‎Amendment Final Order, if such holder properly exercises Dissent Rights and the Amended Arrangement ‎‎becomes effective‎ (subject to compliance with certain conditions). Pursuant to the Proposal Agreement, Canopy Growth is required to make any payments to Shareholders who validly exercise Dissent Rights.

 

(m) Preservation of Change in Recommendation. The Proposal Agreement preserves the right of the Acreage Board to make a Change in Recommendation in certain circumstances. If the Acreage Board determines that a fact or circumstance occurred prior to the date of the Proposal Agreement that was known but not disclosed by Canopy Growth or that a fact or circumstance has occurred since the date of the Proposal Agreement and, as a result of the occurrence of such fact or circumstance, continuing to make the Board Recommendation would constitute a violation of its fiduciary and statutory duties under applicable Law (including in accordance with MI 61-101 and the interpretive guidance promulgated under Multilateral Staff Notice 61-302), then the Acreage Board may submit the Amendment Resolution to Shareholders without recommendation or may withdraw its support for the Amended Arrangement, in Acreage Board’s sole discretion, although the Meeting shall be held unless Canopy Growth otherwise agrees. If the ‎Proposal Agreement is terminated by Canopy Growth in the event of (i) a Change in Recommendation, or (ii) the failure to ‎obtain the Required Shareholder Approval following a Change in Recommendation, the Termination Expense Reimbursement will be payable by Acreage to Canopy Growth; provided, however, that ‎Acreage will not be required to pay the Termination Expense Reimbursement if the Change in Recommendation ‎was made as a result of a Purchaser Material Adverse Effect.

 

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(n) Receipt of New Fairness Opinion. The Special Committee received the New Fairness Opinion, in which Eight Capital provided an opinion to the effect that, as of the date of such opinion, and subject to the assumptions, limitations and qualifications set forth therein and such other matters as Eight Capital considered relevant, the Consideration to be received by the Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders. Eight Capital is independent of Acreage and Canopy Growth for purposes of the Amended Arrangement and Eight Capital is only entitled to receive a fixed fee for delivery of its fairness opinion, regardless of its conclusions.

(o) Other Factors. The Acreage Board and the Special Committee each also carefully considered the Amended Arrangement with reference to the Existing Arrangement, current economics, industry and market trends affecting each of Acreage and Canopy Growth in their respective markets, information concerning the business, operations, assets, financial condition, operating results and prospects of each of Acreage and Canopy Growth and the historical trading prices of the Existing SVS and Canopy Growth Shares.

 

The Special Committee and the Acreage Board also considered a number of potential risks, potential negative factors and potentially adverse implications relating to the Amended Arrangement, including the following:

 

(a) Limited Alternatives. Given the Arrangement Agreement, the Existing Arrangement and the Voting Agreements, the Special Committee and Acreage Board were limited in the strategic alternatives available for consideration in the context of negotiating the Proposal Agreement, the Amending Agreement and the Amended Plan of Arrangement.

 

(b) Conditions and Requirement for Completion of the Acquisition. The obligation of Canopy Growth to complete the Acquisition is subject to a number of conditions, which the Special Committee and the Acreage Board believe were reasonable to accept given the circumstances giving rise to the Proposal Agreement.

 

(c) Failure to Perform. Acreage will need to satisfy the objectives prescribed by the Initial Business Plan and each subsequent Approved Business Plan. In the event that Acreage has not satisfied: ‎‎(i) 90% of the Pro-Forma Net Revenue Target or the Consolidated ‎Adj. EBITDA Target set forth in the Initial Business Plan, measured on a quarterly basis, an Interim Failure to ‎Perform will occur and the Austerity Measures shall become applicable and provide restrictions on ‎Acreage’s ability to take certain actions otherwise permitted by the Amended Arrangement Agreement; (ii) ‎‎80% ‎of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial Business ‎Plan, ‎as determined on an annual basis (commencing in respect of the fiscal year ending December 31, 2021), a ‎Material Failure to Perform will occur and (a) certain restrictive covenants ‎applicable to Canopy ‎Growth under the ‎Amended Arrangement Agreement will cease to apply in order ‎to permit ‎Canopy Growth to acquire, or ‎conditionally acquire, a competitor of Acreage ‎in the ‎United States should it wish to do so, and (b) an event of default under the Debenture will likely occur resulting in the Loan becoming immediately due and payable; and ‎‎(iii) 60% of the Pro-Forma Net Revenue Target or the Consolidated Adj. EBITDA Target set forth in the ‎Initial ‎Business Plan for the trailing 12 month ‎period ending on the date that is 30 days prior ‎to the proposed Acquisition ‎Effective Time, a Failure to Perform shall occur and a ‎material adverse impact will be deemed to have occurred ‎for ‎purposes of Section ‎‎6.2(2)(h) of the Arrangement Agreement and Canopy Growth will ‎not be required ‎to complete ‎the Acquisition of the Fixed Shares pursuant to the Canopy Call ‎Option‎. ‎‎

 

(d) Completion Risk. If the Amended Arrangement is not implemented or if the Canopy Call Option is never exercised, a considerable cost will have been incurred, a significant amount of time and effort of Acreage and its management team will have been diverted away from other important aspects of Acreage’s business activities and the pursuit of alternative financing arrangements and there could be negative and irreparable impacts on Acreage’s business relationships (including with current and prospective employees, customers, suppliers, partners and regulators, among others).

 

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(e) Reduction in Consideration Relative to Existing Arrangement. Pursuant to the terms of the Amended Arrangement Agreement, if Canopy Growth exercises (or is deemed to ‎exercise) the Canopy Call Option, Canopy Growth will, subject to the satisfaction or waiver of the Acquisition ‎Closing Conditions, be obliged to acquire only the Fixed Shares. The Acquisition of the Fixed Shares ‎represents, as of the Amendment Time, an acquisition of 70% of the Existing Shares held by each Shareholder. ‎In addition, the Exchange Ratio applicable under the Amended Arrangement is lower than the Existing Exchange Ratio under the Existing Arrangement, which means that Shareholders will receive fewer Consideration ‎Shares in exchange for their Fixed Shares under the Amended Arrangement than they would have received ‎under the Existing Arrangement, assuming that Acreage is able to satisfy the Acquisition Closing Conditions ‎and the Acquisition occurs under the Existing Arrangement‎

 

(f) Fixed Exchange Ratio. Given that the number of Canopy Growth Shares to be received in respect of each ‎Fixed Share under the Arrangement will not be adjusted to reflect any change in the market value of ‎the Fixed Shares, the market value of the Canopy Growth Shares to be received on the Acquisition Date may vary significantly from the market value of the Canopy Growth Shares at the Announcement Date.

 

(g) Uncertain Value of Floating Shares. Canopy Growth has the option (but ‎not the obligation) to exercise the Floating Call Option and acquire the Floating Shares at a price based on the ‎then fair market value of the Floating Shares relative to the Canopy Growth Shares (subject to a minimum ‎price of US$6.41‎, as may be adjusted pursuant to the Amended Plan of Arrangement). If the fair market value of the Floating Shares is ‎higher than Canopy Growth’s assessment of the intrinsic value of the Floating Shares at the time of the ‎exercise (or deemed exercise) of the Canopy Call Option, it is unlikely that Canopy Growth would exercise the Floating Call Option and effectively pay a ‎premium to acquire the Floating Shares. The Floating Shares will trade from time to time at a value that cannot be determined in advance based on market conditions and other factors at the time. ‎ See “Risk Factors - Risks Relating to the Implementation of the Amended Arrangement - The Consideration to be received by Acreage Shareholders under Amended Arrangement may be less than ‎Shareholders would have received under Existing Arrangement”.‎

 

(h) Adverse Income Tax Consequences to Acreage U.S. Shareholders in Respect of Call Option Premium. Pursuant to the Existing Arrangement, Canopy Growth paid a portion of the Option Premium to the ‎shareholders of Acreage in connection with the implementation of the Existing Arrangement. It was intended, for U.S. federal income tax purposes, that the ‎payment of the Option Premium would be treated as a part of a continuing, open transaction that generally did ‎not result in immediate recognition of income to the Acreage U.S. Shareholders because the grant of an option for ‎consideration generally does not constitute a realization event for U.S. federal income tax purposes. However, given the amendments to the Existing Arrangement pursuant to the Amended Arrangement, which ‎include the reduction in the Existing Exchange Ratio, the extension of the term of the Existing Call Option (now ‎referred to as the Canopy Call Option, which excludes Floating Shares), and the provision of the Floating Call ‎Option, it is now expected that Acreage U.S. Shareholders who received a portion of the Option ‎Premium in connection with the implementation of the Existing Arrangement will be required to report (to the extent not previously included in income) the Option Premium as ‎short term capital gain in the taxable year in which the Amended Plan of Arrangement becomes effective‎. See “Certain United States Federal Income Tax Considerations - Certain U.S. Federal Income Tax Consequences of the Amended Arrangement - Option Premium”.

 

(i) Taxable Transaction. The Amended Arrangement may result in the Acquisition not qualifying as a reorganization within the meaning of Section 368(a) of the Code. If the Acquisition does not qualify as a reorganization or ‎fails to meet the Section 367 Requirements, Acreage U.S. Shareholders may be required to pay substantial U.S. federal ‎income taxes in connection with the Acquisition. Although the U.S. federal income tax consequences of the receipt of the Aggregate Amendment Option Payment is not clear, it is expected that it generally will be treated as ordinary income. See “Certain United States Federal Income Tax Considerations.” The receipt of the Aggregate Amendment Option Payment will be a taxable transaction for Acreage Canadian Shareholders; however, a tax deferred “rollover” is expected to be available for Canadian income tax purposes with respect to the Acquisition provided that a Joint Tax Election is made with Canopy Growth. See “Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Procedure for Making Joint Tax Election”.

 

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(j) Requirement for Additional Capital. Proceeds to be received by Hempco pursuant to the Debenture are subject to restrictions that will provide strict limits on Hempco’s ability to use the Initial Advance of US$50,000,000 in connection with Acreage’s existing business. The Amended Arrangement does not alleviate Acreage’s requirements to repay short-term debt that is payable within the next 60 days, including a convertible debenture in the amount of US$11,000,000 and the Alternative Bridge Loan in the amount of US$15,000,000 (along with all interest and other obligations payable pursuant thereto) as described under “Background to the Amended Arrangement”. Acreage will, regardless of the implementation of the Amended Plan of Arrangement, need to raise additional capital (including potentially by way of divestitures of existing assets) to financing its on-going operations and pay existing accounts payable which may result in dilution to existing Shareholders. In the event that Acreage is not able to raise such additional capital, or should such capital not be available on terms that are favourable to Acreage, the business, financial conditions and operations of Acreage may be materially adversely affected, including through a potential insolvency or bankruptcy event.

 

(k) Expense Reimbursement. If the Proposal Agreement is terminated under certain limited circumstances, Acreage will be required to pay to Canopy Growth an expense reimbursement of US$3,000,000.

 

(l) Restrictions on Acreage’s Business. While Acreage will continue to operate independently and be controlled by the Acreage Board and its management, the Amending Agreement imposes certain additional restrictions on the conduct of Acreage’s business during the Amendment Interim Period that are in addition to the restrictions contained in the Arrangement Agreement; however, the Acreage Board believes that the restrictions imposed on Acreage’s business and operations during the pendency of the Amendment Date and the Acquisition Date, as described under the heading “Transaction Agreements – The Arrangement Agreement”, are reasonable and not unduly burdensome. Additionally, in the event that Canopy Growth acquires all of the Fixed Shares and does not exercise the Floating Call ‎Option, following the Acquisition Time until the End Date, the Amended Arrangement Agreement provides ‎that Canopy Growth will maintain certain rights including, without limitation the right to nominate a majority ‎of the Acreage Board, pre-emptive rights, top-up rights, approval rights in respect of the Approved Business ‎Plan and certain audit and inspection rights. In addition, during such time there will be a number of ‎restrictions imposed on Acreage, including, without limitation, restrictions regarding the payment of ‎dividends, Acreage’s M&A ‎activities, acquisitions, divestitures, amendments to constating documents, ‎the issuance of certain securities and entering into any agreements that limit Acreage’s ability to ‎compete, in each case without the consent of Canopy Growth.‎

 

(m) Acreage Operational Constraints. The Amending Agreement requires Acreage to limit its operations to the ‎Identified States. However, in ‎connection with the ‎‎execution of the Proposal Agreement, Acreage was provided with consent ‎from ‎Canopy ‎Growth to make Non-Core Divestitures.‎ As described in “Transaction Agreements - Debenture”, the Debenture requires that Acreage ‎divest of its assets outside of the Identified States within 18 months of the date the Debenture is executed‎.

 

(n) Uncertain Acquisition Timeline. The Canopy Call Option will expire 10 years following the Amendment Time. Canopy Growth is required to exercise the Canopy Call Option on the Triggering Event Date, provided that the Acquisition Closing Conditions are satisfied, in which case the Acquisition will be completed within 90 days of the occurrence or waiver of the Triggering Event. There can be no certainty, nor can Acreage provide any assurance, that all Acquisition Closing Conditions, including the occurrence of the Triggering Event, will be satisfied or waived or in what timeframe the satisfaction of such conditions may occur.

 

(o) Collateral Benefits. In connection with the Amended Arrangement, certain members of Acreage’s management and the Acreage Board, in their capacity as such and as set out in this Circular, will receive additional and separate benefits beyond those received by the Shareholders generally, as further described in “The Amended Arrangement - Interests of Certain Persons in the Amended Arrangement”.

 

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The Acreage Board (with the exception of Mr. Murphy, who ‎declared his interest in the transactions ‎contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in ‎respect thereof‎) unanimously recommended support for the Amended Arrangement‎. The process of evaluating the Amended Arrangement was led by the Special Committee, which is ‎comprised of members of the Acreage Board who are not members of management. The members of ‎the Special Committee met regularly with its and Acreage’s legal and financial advisors and members ‎of management and communicated directly with representatives of Canopy Growth throughout the ‎process of negotiating the Amended Arrangement‎.

 

The reasons of the Special Committee and the Acreage Board for recommending the Amended Arrangement include certain assumptions relating to forward-looking information, and such information and assumptions are subject to certain risks. See “Cautionary Statement Regarding Forward-Looking Information” and “Risk Factors” in this Circular. The Acreage Board and the Special Committee believe that, overall, the anticipated benefits of the Amended Arrangement to Acreage outweigh the potential risks, potential negative factors and potentially adverse implications.

 

The Special Committee and the Acreage Board evaluated all the factors summarized above based on their knowledge of the business and operations of Acreage and Canopy Growth and taking into account the advice and assistance of financial and legal advisors to the Special Committee and legal and financial advisors to the Acreage Board as well as the New Fairness Opinion and exercised their business judgment. However, the foregoing summary of the information and factors considered by the Special Committee and the Acreage Board is not intended to be exhaustive. In view of the variety of factors and the amount of information considered in connection with its evaluation of the Proposal Agreement, Amended Arrangement Agreement and Amended Arrangement, the Special Committee and the Acreage Board did not find it practicable to, and did not, quantify, rank or otherwise attempt to assign relative weights to the foregoing factors considered in their deliberations. In addition, in considering the factors described above, individual members of the Special Committee and the Acreage Board may have given different weights to various factors and may have applied different analysis to each of the material factors considered by the Special Committee and the Acreage Board.

 

Approval of the Amendment Resolution

 

At the Meeting, Shareholders will be asked to approve the Amendment Resolution, the full text of which is set out in Appendix “A” to this Circular. In order for the Amended Arrangement‎ to become effective, as provided in the Amendment Interim Order and by the BCBCA, the Amendment Resolution must be approved by: (i) not less than 66⅔% of the votes cast on the Amendment Resolution by Shareholders present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class; (ii) not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101; and (iii) not less than a simple majority of the votes cast by the holders of Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class, ‎excluding the votes of the Related Parties. Should Shareholders fail to approve the Amendment Resolution by the requisite majorities, the Amended Arrangement will not be completed.

 

After consulting with Acreage management and receiving advice and assistance of its ‎financial ‎and legal ‎advisors, and after careful consideration of a number of alternatives and factors, including, among ‎others, receipt of the unanimous recommendation from the Special Committee, the ‎New Fairness Opinion and the factors set out below under the heading “Reasons for the Amended Arrangement”, ‎the members of the Acreage Board unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) determined that the Amended Arrangement and entry into the Proposal Agreement are in the best interests of Acreage and are fair to Shareholders and recommend ‎that ‎Shareholders vote FOR the Amendment Resolution‎.

 

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New Fairness Opinion

 

Eight Capital was formally engaged by the Special Committee on May 28, 2020 pursuant to the Eight Capital Engagement ‎Agreement to act as financial advisor to the Special Committee and to provide a long-form opinion as to the fairness, from a financial point of view, of the Consideration to be received by the Shareholders pursuant to the Amended Arrangement. On June 21, 2020, Eight Capital verbally delivered the ‎its opinion to the Special Committee, which opinion was reconfirmed on June 24, ‎‎2020 by Eight Capital and was subsequently confirmed in writing to the effect that, based upon and subject to the scope of review, analyses, assumptions, ‎limitations, qualifications and other matters described therein, the Consideration to be received by the Shareholders pursuant to the Amended Arrangement is fair, from ‎a financial point of view, to the Shareholders‎.

 

Under the Eight Capital Engagement Agreement, Acreage has agreed to pay Eight Capital a fee of US$500,000 for the delivery of the New Fairness Opinion. In addition, Eight Capital is ‎to be reimbursed for its reasonable out-of-pocket expenses and is to be indemnified by the Company against certain liabilities in connection with its engagement. The fees payable to Eight ‎Capital by the Company in respect of the delivery of the New Fairness Opinion are not contingent upon the conclusions ‎reached by Eight Capital or the consummation of the Amended Arrangement or the Acquisition. ‎

 

In considering the fairness, from a financial point of view, of the Consideration to be received by ‎Shareholders pursuant to the Amended Arrangement, Eight Capital reviewed, considered and relied upon or carried ‎out, among other things, the following: (i) the historical trading value of the Existing SVS and the Canopy Growth Shares over a statistically significant period; (ii) to the 12-month ‎price targets of equity research analysts covering the Company and Canopy Growth, discounted at a calculated ‎cost of equity for the Company and Canopy Growth, respectively; (iii) the implied public market value of ‎ the Company and Canopy Growth based on publicly available business and financial data and derived ‎valuation multiples of certain publicly traded companies in the cannabis sector that were deemed ‎comparable and relevant; (iv) the implied public market value of the Company from an “en bloc” perspective ‎based on publicly available business and financial data and derived valuation multiples of certain publicly ‎traded companies in the cannabis sector that were deemed comparable and relevant, after adjusting the ‎valuation multiples upwards to account for a “control premium”; and (v) the implied public market value ‎of the Company from an “en bloc” perspective based on premiums paid and implied transaction multiples in ‎precedent transactions in the cannabis sector that were deemed comparable and relevant. All financial analyses were conducted with information available as of market close ‎on June 23, 2020. ‎

 

‎Eight Capital noted that the selection of comparable companies and precedent transactions involved ‎considerable subjectivity, in particular among companies engaged in an emerging industry, operating in a ‎rapidly evolving regulatory environment, and having low or negative EBITDA, earnings or free cash flows and significant stock price ‎volatility. While none of the comparable companies or precedent transactions are identical to the Company or ‎Canopy Growth (as applicable) or the Amended Arrangement or the Acquisition and certain of them may ‎have characteristics that are materially different from that of the Company or Canopy Growth (as applicable) ‎and the Amended Arrangement (in particular, none of the precedent transactions involve the acquirer securing an ‎option to acquire the target and none of the precedent transactions involve a public Canadian company ‎acquiring a public Canadian company with substantial operations in the U.S.), Eight Capital believes that ‎they share certain business, financial, and/or operational characteristics with those of the Company or Canopy ‎Growth (as applicable) and the Amended Arrangement and the Acquisition and Eight Capital used its professional ‎judgment in selecting such comparable companies and precedent transactions. ‎

 

Eight Capital based its conclusion in the New Fairness Opinion upon a number of quantitative and qualitative factors including, but not limited to: ‎

 

· the Consideration compares favorably with Eight Capital’s analysis using the historical trading ‎analysis approach;‎

 

· the Consideration compares favorably with Eight Capital’s analysis of comparable company ‎metrics by applying a range of both EV to revenue and EV to EBITDA ‎multiples to the Company’s 2020 and 2021 fiscal year estimates, including after applying a control premium to such multiples. Comparable companies that were considered relevant were ‎Harvest Health & Recreation Inc., Columbia Care Inc., 4Front Ventures Corp., TerrAscend ‎Corp. and Ayr Strategies Inc. Eight Capital compared the trading multiples observed for the ‎selected comparable companies with the Company, taking into account a number of factors including market capitalization, revenue and EBITDA profile and other financial metrics that ‎Eight Capital considered relevant;‎ and

 

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· the Consideration compares favorably with Eight Capital’s analysis of precedent transaction metrics in the cannabis sector by applying a range of both EV to revenue and EV to EBITDA multiples ‎to the Company’s 2020 and 2021 fiscal year estimates. Precedent transactions considered involved the ‎acquisition of companies with U.S. cannabis operations. Eight Capital compared the transaction ‎multiples observed for the selected precedent transactions with the Consideration , taking into account factors ‎such as size and trading liquidity, revenue and EBITDA profile, timing of the precedent transactions and other financial metrics that Eight Capital considered relevant.‎

 

The full text of the New Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the New Fairness Opinion, is attached as Appendix “D” to this Circular. The summary of the New Fairness Opinion described in this Circular is qualified in its entirety by, and should be read in conjunction with, the full text of the New Fairness Opinion.

 

None of Eight Capital, its Affiliates or associates, is an insider, associate or affiliate of the Company or Canopy Growth, or any of their respective ‎ Affiliates or associates. Eight Capital has neither provided financial advisory services nor participated in any financings involving ‎ the Company or Canopy Growth, or any of their respective ‎ Affiliates or associates over the past 24 months, other than services provided under the Eight Capital Engagement Agreement and as otherwise disclosed in the New Fairness Opinion. Eight Capital may however, in the ordinary course of its business, provide ‎financial advisory or investment banking services to one or more of Company, Canopy Growth or any of their respective Affiliates or associates from time to ‎time. ‎Eight Capital advised the Special Committee that it has no conflicts of interest ‎(real or perceived)‎ with regard to the Company, Canopy Growth or any of their respective Affiliates or associates in providing the New Fairness Opinion.

 

The New Fairness Opinion does not address the relative merits of the Amended Arrangement as compared to any ‎strategic alternatives that may be available to the Company, or the Amended Arrangement as compared to the ‎ Existing Arrangement, nor does it address the relative merits of any transactions entered into ‎by the Company in connection with the Amended Arrangement. The New Fairness Opinion is limited to the fairness, as of ‎the date thereof, of the Consideration, from a financial point of view, to the Shareholders, assuming such ‎consideration was paid on the date thereof, and does not express any opinion as to any decision which the Company, ‎the Acreage Board or the Special Committee may make regarding the Amended Arrangement.‎

 

The New Fairness Opinion is not intended to be and does not constitute a recommendation to the Special Committee, ‎the Acreage Board or to any Shareholder, security holder or creditor. The New Fairness Opinion should not be construed as, advice as to the price at which securities ‎of either the Company or Canopy Growth may trade or ‎be valued at any future date‎. The New Fairness Opinion was one of a number of factors taken into consideration by the Acreage Board and the Special Committee in considering the Amended Arrangement. The Acreage Board urges Shareholders to read the New Fairness Opinion carefully in its entirety. The New Fairness Opinion is reproduced in its entirety in Appendix “D” of this Circular.

 

Based upon and subject to the assumptions, qualifications and limitations contained therein, Eight Capital ‎is of the opinion that, as of the date of the New Fairness Opinion, the Consideration to be received by the Shareholders pursuant ‎to the Amended Arrangement is fair, from a financial point of view, to the Shareholders‎.

 

Foros

 

Foros was not engaged to, and did not, render to the Acreage Board or the Special Committee an opinion with respect to the fairness, from a financial point of view, of the Consideration to be received by the Shareholders other than Canopy Growth and/or its affiliates pursuant to the Amended Arrangement. Accordingly, Foros did not receive any fee with respect to the issuance of any fairness opinion to the Acreage Board or the Special Committee.

 

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Recommendation of the Special Committee

 

The Special Committee, after consultation with Acreage management and receipt of advice and assistance of its and Acreage’s ‎financial and legal ‎‎advisors and after careful consideration of a number of alternatives and factors including, among others, the New Fairness Opinion ‎and the factors set out below ‎under the heading “Reasons for the Amended Arrangement”, ‎unanimously ‎determined that the Amended Arrangement ‎and entry into the Proposal Agreement and related agreements are in the best interests of Acreage and its minority shareholders and recommended to the Acreage Board that it approve and authorize Acreage to enter into the ‎Proposal Agreement and related agreements.‎

 

Recommendation of the Acreage Board

 

The Acreage Board‎, after consultation with Acreage management and receipt of advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors including, among others, the receipt of the unanimous recommendation of the Special Committee, the New Fairness Opinion and the factors set out below under the heading “Reasons for the Amended Arrangement”, unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) determined that the Amended Arrangement and entry into the Proposal Agreement are in the best interests of Acreage and are fair to Shareholders and approved and authorized Acreage to enter into the Proposal Agreement and related agreements. Accordingly, the Acreage Board unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) recommends that Shareholders vote FOR the Amendment Resolution.

 

All of the Acreage Locked-Up Shareholders are required to vote all of their Existing Shares in favor of the Amendment Resolution, subject to the terms of the Amended Arrangement Agreement and the Voting ‎Agreements. See “Transaction Agreements – Voting ‎Agreements”.

 

Treatment of High Street Holders and USCo2 Holders

 

Pursuant to the Amended Arrangement Agreement, the High Street Operating Agreement and USCo2 Constating Documents will be amended as of the Amendment Time in order to reflect the terms of the Amended Arrangement and make any ‎other changes that the Company and Canopy Growth may mutually agree, acting reasonably, are advisable or ‎necessary in order to carry out the purpose and intention of the transactions contemplated in the Proposal ‎Agreement and the Amended Plan of Arrangement.

 

In order to reflect the Capital Reorganization, following the Amendment Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable on the basis of 0.7 of a Fixed Share and 0.3 of a Floating Share in respect of each Existing SVS that otherwise would have been issuable upon such exercise, conversion or exchange.

 

Pursuant to the Proposal Agreement, at the Amendment Time, High Street Holders and USCo2 Holders are entitled to receive the Aggregate Amendment Option Payment in respect of each Existing SVS which they are entitled to acquire upon the exchange of their Common ‎Membership Units or USCo2 Shares. High Street Holders and USCo2 Holders will ‎receive the Aggregate Amendment Option Payment on a pro rata basis‎ with the Shareholders (on an as exchanged for Existing SVS basis) assuming exchange of their High Street Units and USCo2 Shares, ‎respectively, for Existing SVS in accordance ‎with their terms.‎

 

All High Street Units and USCo2 Shares that are not exchanged for Shares, prior to the Acquisition Time and that remain outstanding immediately prior to the Acquisition Time shall be treated in accordance with the provisions of the certificates, award agreements, indentures or other documents governing such securities as at the Amendment Time. If the Canopy Call Option and the Floating Call Option are exercised, following the Acquisition Time, all High Street Units and USCo2 Shares will be exercisable, convertible or exchangeable for Canopy Growth Shares on the basis of the Exchange Ratio and the Floating Ratio.

 

On the third anniversary of the Acquisition Date, all High Street Holders and USCo2 Holders will be required, at Canopy Growth’s option, to exchange all of the outstanding High Street Units and USCo2 Shares for the applicable number of Consideration Shares based on the Exchange Ratio and, if applicable, the Floating Cash Consideration. On the seventh anniversary, all outstanding High Street Units held by the High Street Holders and USCo2 Holders can, at their option, be redeemed by High Street for their outstanding capital plus the High Street Holder Return.

 

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Timing for Implementation of the Amended Arrangement

 

Subject to the satisfaction or waiver of the conditions in the Proposal Agreement, the Amended Arrangement will become effective at 12:01 a.m. (Vancouver time) on the Amendment Date, being the date upon which all of the conditions to the implementation of the Amended Arrangement as set out in the Proposal Agreement have been satisfied or waived in accordance with the Proposal Agreement and all documents agreed to be delivered thereunder have been delivered to the satisfaction of the recipient, acting reasonably.

 

Although Acreage’s and Canopy Growth’s objective is to have the Amendment Date occur as soon as possible after the Meeting, the Amendment Date could be delayed for several reasons, including, but not limited to, an objection before the Court at the hearing of the application for the Amendment Final Order or any delay in obtaining any required Amendment Regulatory Approvals.

 

The Amendment Date will be the date upon which Acreage and Canopy Growth agree in writing following the satisfaction or waiver of all conditions to the implementation of the Amended Arrangement as set out in the Proposal Agreement (excluding any conditions that, by their terms, cannot be satisfied until the Amendment Date, but subject to the satisfaction or waiver of those conditions). The implementation of the Amended Arrangement is expected to occur in September, 2020; however, it is possible that completion may be delayed beyond this date if the conditions to the implementation of the Amended Arrangement cannot be met on a timely basis.

 

Acreage or Canopy Growth may determine not to implement the Amended Arrangement without prior notice to, or action on the part of, Shareholders or Canopy Growth Shareholders. See “Transaction Agreements – Amending Agreement”.

 

Following the Amendment Time, upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event and the satisfaction or waiver of the Acquisition Closing Conditions, the Acquisition will become effective at 12:01 a.m. (Vancouver time) on the Acquisition Date, being the date specified for completion of the Acquisition in either: (i) the Canopy Call Option Exercise Notice; or (ii) the Triggering Event Notice.

 

Although Acreage’s and Canopy Growth’s objective is to have the Acquisition Date occur as soon as possible after the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, the Acquisition Date could be delayed for several reasons, including, but not limited to, any delay in obtaining any required Acquisition Regulatory Approvals. The Triggering Event Date, being the date the federal Laws in the United States are amended to permit the general cultivation, distribution and possession of marijuana or to remove the regulation of such activities from the federal Laws of the United States, may or may not occur. The occurrence of the Triggering Event Date is beyond the control or influence of Acreage and Canopy Growth.

 

Notwithstanding anything to the contrary contained in the Amended Arrangement Agreement, the Acquisition will not be completed and the Amended Arrangement Agreement will terminate in the event that the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event does not occur on or prior to the Acquisition Closing Outside Date.

 

Required Shareholder Approvals

 

For the Amendment Resolution, you may vote “FOR” or “AGAINST”. Pursuant to the Amendment Interim Order and the BCBCA, in order to be adopted, the Amendment Resolution must be ‎approved, with ‎or without variation, by the affirmative vote of at least 66⅔% of the votes cast by holders of ‎Existing SVS, Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, ‎with all Shareholders ‎voting together as a single class. Abstentions and broker non-votes will not have any effect on the approval of the Amendment Resolution.

 

Pursuant to MI 61-101, the Amendment ‎Resolution must also be approved by not less than a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes of the Interested Parties pursuant to MI 61-101. Since all of the holders of Existing MVS are ‎Interested Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to MI 61-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Interested Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of MI 61-101.‎ Pursuant to an application made to the OSC, as principal regulator, the ‎Company obtained an order ‎from the OSC dated August [], 2020, exempting the ‎Company from the requirements in subsection 8.1(1) of MI 61-101 to obtain minority approval for the ‎Arrangement Resolution pursuant to MI 61-101 from the ‎holders of each affected class of Existing Shares, each voting separately as a class‎.‎ Accordingly, holders of Existing SVS and Existing PVS who are not Interested Parties will vote together as a single class for the purposes of obtaining approval pursuant to MI 61-101. As Mr. Murphy, who is an Interested Party, is the only beneficial holder of Existing MVS, Existing MVS will be excluded entirely from such vote.

 

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In addition, pursuant to OSC Rule 56-501 and NI 41-101, the ‎Amendment Resolution must also be approved by at ‎least a simple majority of the votes cast by holders of Existing SVS, ‎Existing PVS and Existing MVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single ‎class, excluding all Existing Shares held by Related Parties. Since all of the holders of Existing MVS are ‎Related Parties, the votes with respect to all of the Existing MVS will not be considered for purposes of ‎determining whether “minority approval” has been obtained pursuant to OSC Rule 56-501 and NI 41-101. ‎The votes attaching to the Existing SVS and ‎Existing PVS held by the Related Parties will also be excluded for the purposes of determining ‎whether “minority approval” has been obtained for the purposes of OSC Rule 56-501 and NI 41-101.‎

 

Shareholder Approval must be received in order for the Company to seek the Amendment Final Order and implement the Amended Arrangement on the Amendment Date. See “Securities Law Matters – Canadian Securities Laws – Multilateral Instrument 61-101”.

 

Should Shareholders fail to approve the Amendment Resolution by the requisite majority, the Amended Arrangement will not be completed. Notwithstanding the foregoing, the Amendment Resolution authorizes the Acreage Board, without further notice to or approval of Shareholders, to revoke the Amendment Resolution at any time prior to the Amendment Time.

 

The Acreage Board (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) has approved the terms of the Amended Arrangement and entry into the Proposal Agreement and related agreements and unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) recommends that Shareholders vote FOR the Amendment Resolution. See “The Amended Arrangement – Recommendation of the Acreage Board” and “The Amended Arrangement – Reasons for the Amended Arrangement”.

 

Interests of Certain Persons in the Amended Arrangement

 

In considering the Amended Arrangement and the unanimous recommendation of the Acreage Board (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) with respect to the Amended Arrangement, Shareholders should be aware that ‎certain directors and certain executive officers of the Company have interests in connection with the Amended Arrangement that may ‎present them with actual or potential conflicts of interest in connection with the Amended Arrangement. The Acreage Board and the Special Committee are aware of these interests and considered them along with other matters described above ‎under “The Amended Arrangement – Reasons for the Amended Arrangement”. These interests and benefits are described below.‎

 

Except as otherwise disclosed below or elsewhere in this Circular, all benefits received, or to be received, by directors or ‎executive officers of Acreage as a result of the Amended Arrangement are, and will be, solely in connection with their services as ‎directors or employees of Acreage. Except as disclosed below, no benefit has been, or will be, conferred for the purpose of ‎increasing the value of consideration payable to any such Person for Existing Shares, nor is it, or will it be, conditional on the ‎Person supporting the Amended Arrangement.‎

 

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Existing Shares

 

As of the Record Date, the directors and executive officers of Acreage beneficially owned, or exercised control or direction, directly or indirectly, over: (i) [¨] Existing SVS representing in the aggregate approximately [¨]% of all issued and outstanding Existing SVS; (ii) [¨] Existing PVS representing in the aggregate approximately [¨]% of all issued and outstanding Existing PVS; and (iii) [¨] Existing MVS representing in the aggregate 100% of all issued and outstanding Existing MVS. On an aggregate basis, the directors and executive officers of Acreage beneficially owned, or exercised control or direction, directly or indirectly, over [¨]% of the outstanding voting rights in the Company. All of the Existing Shares held by such directors and executive officers of Acreage will be treated in the same fashion under the Amended Plan of Arrangement as Existing Shares held by all other Shareholders (other than Canopy Growth). See “The Amended Arrangement – Principal Steps of the Amended Arrangement”.

 

Acreage Options

 

As of the Record Date, the directors and executive officers of Acreage owned an aggregate of [¨] Acreage Options granted pursuant to the Existing Omnibus Incentive Plan (representing in the aggregate approximately [¨]% of all outstanding Acreage Options), none of which were vested and exercisable as of the Record Date and [¨] of which were unvested and not exercisable as of the Record Date. The outstanding Acreage Options held by such directors and executive officers have an exercise price of US$[¨]. At the Amendment Time, the outstanding Acreage Options will be exchanged for Fixed Options and Floating Options as part of the Capital Reorganization. See “The Amended Arrangement – Principal Steps of the Amended Arrangement”.

 

In connection with the Acquisition, at the Acquisition Time, each Fixed Option will be exchanged for a Replacement Option. If the Floating Call Option is exercised, each Floating Option will be exchanged for a Replacement Option.

 

Except as provided in the Amended Plan of Arrangement, all terms and conditions of a ‎Replacement Option will be the same as the Fixed Option or Floating Option for which it is ‎exchanged and will be governed by the terms of the Canopy Growth Equity Incentive Plan. All of the Fixed Options and Floating Options held by the directors and executive officers of Acreage will be treated in the same fashion under the Amended Plan of Arrangement as the Fixed Options and Floating Options held by every other Acreage Optionholder.

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement”. See also “Securities Law Matters – Canadian Securities Laws – Minority Approval Requirements”.

 

Acreage RSUs

 

As of the Record Date, the directors and executive officers of Acreage owned an aggregate of [¨] Acreage RSUs granted pursuant to the Existing Omnibus Incentive Plan (representing in the aggregate approximately [¨]% of all outstanding Acreage RSUs), of which [¨] were vested as of the Record Date and [¨] of which were unvested as of the Record Date. At the Amendment Time, the outstanding Acreage RSUs will be exchanged for Fixed RSUs and Floating RSUs as part of the Capital Reorganization. See “The Amended Arrangement – Principal Steps of the Amended Arrangement”.

 

In connection with the Acquisition, at the Acquisition Time, each Fixed RSU will be exchanged for a Replacement RSU. If the Floating Call Option is exercised, each Floating RSU will be exchanged for a Replacement Option.

 

Except as provided in the Amended Plan of Arrangement, all terms and conditions of a ‎Replacement RSU will be the same as the Fixed RSU or Floating RSU for which it is exchanged and will be governed by the terms of the Canopy Growth Equity Incentive Plan. All of the Fixed RSUs and Floating RSUs held by the directors and executive officers of Acreage will be treated in the same fashion under the Amended Plan of Arrangement as Fixed RSUs and Floating RSUs held by every other Acreage RSU Holder.

 

See “The Amended Arrangement – Principal Steps of the Amended Arrangement”. See also “Securities Law Matters – Canadian Securities Laws – Minority Approval Requirements”.

 

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Acceleration Agreements

 

On June 24, 2020, the Company entered into agreements with each of the Specified Individuals providing that, if the Amendment Resolution is passed and the Amended and Restated Omnibus Equity Incentive Plan is adopted, and in the event that either: (i) the Company terminates the employment of Mr. Daino, Chief ‎Operating Officer, Mr. Leibowitz, Chief Financial Officer, or Mr. Doherty, General Counsel ‎and Secretary, at any time; or (ii) any of the foregoing or Mr. Boehner, Mr. Mulroney, Mr. ‎Maine or Mr. Van Faasen resigns from any and all positions with the Company on or after ‎the one year anniversary of the Amendment Date ‎(in either case, an “Acceleration Event”)‎, the Company will accelerate the vesting of all of ‎the Acreage RSUs, Fixed RSUs, Floating RSUs and Replacement RSUs, as applicable, granted to such Specified Individual that are outstanding as at the date on ‎which the Acceleration Event occurs.

 

Ownership of Existing Shares, Acreage Options and Acreage RSUs

 

The following table sets forth the information with respect to the beneficial ownership of securities of Acreage for (i) ‎each director, (ii) each executive officer, (iii) all current directors and executive officers as a group, and (iv) to the ‎knowledge of the directors and officers of the Company, the Persons or companies beneficially owning, directly or ‎indirectly, or exercising control or direction over, more than 5% of the outstanding Existing SVS, in each case as at the Record Date. Except as noted and to the knowledge of the Company, the beneficial owners listed below have sole voting ‎and investment power with respect to Existing Shares beneficially owned. ‎None of the directors and executive officers of Acreage nor, to the knowledge of Acreage after reasonable enquiry: (a) their respective associates and affiliates; (b) any insider of Acreage (other than the directors and executive officers) and their respective associates and affiliates; (c) any associate or affiliate of Acreage; and (d) any Person acting jointly or in concert with Acreage, beneficially own, or exercise control or direction over, securities of Acreage except as set forth below and which will be affected by the Amended Arrangement as described under “The Amended Arrangement – Principal Steps of the Amended Arrangement”:

 

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Securities of Acreage Beneficially

Owned, Directly or Indirectly, over

which Control or Direction is

Exercised

Name and Position(s) / Relationship with
Acreage
Number and Class of
Existing Shares Held (%)
Number of Acreage
Options Held (%)
Number of Acreage RSUs
Held (%)
Number of High Street
Units Held (%)
John Boehner, Director

[¨] Existing SVS

([¨]%)

-

[¨]

([¨]%)

[¨]

([¨]%)

Kevin P. Murphy, Director

[¨] Existing SVS

([¨]%)

 

[¨] Existing PVS(1)

([¨]%)

 

[¨] Existing MVS

([¨]%)

[¨]

([¨]%)

[¨]

([¨]%)

[¨]

([¨]%)

Douglas Maine, Director

[¨] Existing SVS

([¨]%)

[¨]

([¨]%)