Full Press Release Details
MATERIAL CHANGE REPORT
Item One - Name and Address of Company
Organigram Holdings Inc. (the "Company")
145 King Street West, Suite 1400
Toronto, Ontario, Canada
Item Two - Date of Material Change
Item Three - News Release
The news release reporting the material change described in this report was issued in Toronto, Ontario on November 6, 2023 (the "News Release").
The News Release was distributed through Business Wire and filed with each of the relevant Canadian securities regulatory authorities via SEDAR+.
The News Release is available on SEDAR+ at www.sedarplus.ca.
Item Four - Summary of Material Change
On November 6, 2023, the Company announced the proposed private placement (the "Private Placement") to a wholly owned subsidiary (the "Investor") of British American Tobacco plc (the "Investor Parent") (LSE: BATS and NYSE: BTI) of C$124,559,674.36 worth of common shares ("Common Shares") and Class A preferred shares in the capital of the Company ("Class A Preferred Shares" and together with the
Common Shares issued in the Private Placement, the "Shares"). The Private Placement represents a strategic follow-on investment in the Company from the
Investor, which currently has beneficial ownership of 18.8% of the Company's Common Shares.
In connection with the announcement of the Private Placement, the Company entered into a subscription agreement with the Investor (the "Subscription Agreement"), pursuant to which the Investor will subscribe for the Shares in the following three tranches, each subject to the satisfaction of
certain conditions: (i) 12,893,175 Shares at a price of C$3.2203 per Subscription Share (the "Per Share Price") within three business days following the
date upon which all the First Tranche closing conditions are satisfied or waived or such earlier date as the parties may mutually agree, and currently expected to be on or around January 16, 2024 (the "First Tranche"); (ii) 12,893,175 Shares at the Per Share Price on or around August 30, 2024 (the "Second
Tranche"); and (iii) 12,893,175 Shares at the Per Share Price on or around February 28, 2025 (the "Third Tranche"), for an aggregate subscription
price of C$124,559,674.36 (the "Aggregate Subscription Proceeds"). The Investor's beneficial ownership will be subject to a 30% Common Share Limit (as
further described below).
The Private Placement is subject to the satisfaction of certain conditions, including approval from the Toronto Stock Exchange (the "TSX"), clearance under the Competition Act (Canada) and approval
by the Company's shareholders (the "Shareholders") (all as further described below).
Item Five - Full Description of Material Change
On November 6, 2023, the Company announced the Private Placement with the Investor. The following is a summary of the Private Placement and certain
matters in respect thereof.
The Private Placement
On November 5, 2023, the Company entered into the Subscription Agreement with the Investor, which provides for the subscription by the Investor of
38,679,525 Shares at the Per Share Price, for an aggregate subscription price of C$124,559,674.36, over the course of three tranches.
Under the First Tranche, which is expected to close on or around January 16, 2024, the Investor will subscribe for 12,893,175 Shares at the Per Share
Price, representing gross proceeds of C$41,519,891.45 (the "First Tranche Subscription Proceeds"). The closing of the First Tranche shall occur on the date that is three business days following the date upon
which all the First Tranche closing conditions are satisfied or waived or such earlier date as the parties may mutually agree. The First Tranche closing date shall be no later than April 30, 2024, unless the parties otherwise mutually agree.
Under the Second Tranche, which is expected to close on August 30, 2024 (or such earlier date as the Company and the Investor may mutually agree),
12,893,175 Shares will be issued to the Investor at the Per Share Price, representing gross proceeds of C$41,519,891.45 (the "Second Tranche Subscription Proceeds").
Under the Third Tranche, which is expected to close on February 28, 2025 (or such earlier date as the Company and the Investor may mutually agree),
12,893,175 Shares will be issued to the Investor at the Per Share Price, representing gross proceeds of C$41,519,891.45 (the "Third Tranche Subscription Proceeds").
Pursuant to the terms of the Subscription Agreement, if, after giving effect to the closing of any tranche, the aggregate number of Common Shares
beneficially owned or controlled, directly or indirectly, by the Investor, its affiliates, associates, related parties and any joint actors, would exceed 30% of the issued and outstanding Common Shares (the "30% Common Share Limit"), the Company shall issue to the Investor the greatest number of Common Shares issuable pursuant to such tranche without exceeding the 30% Common Share Limit, and shall
issue the balance of the Shares issuable in such tranche as Class A Preferred Shares (as more specifically set forth in the Subscription Agreement).
Amendment to the Articles of the Company
In connection with the closing of the First Tranche, and subject to approval of the Shareholders, the Company is required to file articles of
amendment in order to create the new class of Class A Preferred Shares to be issued in the Private Placement, in substantially the form attached as Schedule D to the Subscription Agreement (the "Articles of Amendment"). The Company intends
to call its annual and special shareholder meeting on or around January 15, 2024 (the "Meeting"), at which the Shareholders will be asked to approve, among other things, the Articles of Amendment.
The newly created Class A Preferred Shares shall be economically equivalent to Common Shares but shall be non-voting. In addition, the Class A
Preferred Shares shall be convertible into Common Shares at the option of the holder without payment of any additional consideration by the holder thereof. Initially, the conversion rate shall be one-for-one, however, commencing on the date on which
Class A Preferred Shares are first issued, subject to certain exceptions, the conversion rate shall accrete at a rate of 7.5% per annum, compounded annually, until such time as the holders of Class A Preferred Shares would beneficially own, or
exercise control or direction over, directly or indirectly, with their respective affiliates, associates, related parties and any joint actors, after giving effect to the conversion of the Class A Preferred Shares, 49.0% of the aggregate number of
Common Shares issued and outstanding.
The Investor shall periodically be required to convert the Class A Preferred Shares to Common Shares to the extent that the Investor beneficially
owns less than 30.0% of the issued and outstanding Common Shares, subject to certain exceptions set out in the Amended & Restated IRA (as defined below). Notwithstanding the foregoing, the Class A Preferred Shares cannot be converted if such
conversion would cause the 30% Common Share Limit to be exceeded, subject to certain exceptions in the event of a change of control transaction.
Full details regarding the Articles of Amendment will be included in the management information circular of the Company to be filed with securities
regulatory authorities and mailed to the Shareholders in connection with the approval of the Private Placement at the Meeting.
Business Reasons for the Private Placement
The majority of the investment will be used by the Company to create a strategic investment pool, named Jupiter (the "Jupiter Pool"). The Jupiter Pool will be used to make investments in and/or acquisitions of private and public companies or other businesses or assets related to the cannabis
Pursuant to the terms of the Subscription Agreement, and unless consented to in writing by the Investor in advance, one-half of the subscription
proceeds of the First Tranche and the Second Tranche and all of the subscription proceeds from the Third Tranche will be used to fund the Jupiter Pool. The Company shall use one-half of the subscription proceeds of the First Tranche and the Second
Tranche for general corporate purposes, subject to certain restrictions.
However, if the Jupiter Pool requires additional funding in advance of the closing of the Third Tranche, and provided such funding will not cause
the Company to be unable to satisfy its closing conditions of the First Tranche, the Second Tranche or the Third Tranche, as applicable, the Company shall use reasonable commercial efforts to reallocate funds to the Jupiter Pool in an amount no
greater than the Second Tranche Subscription Proceeds, and an amount from the Third Tranche Subscription Proceeds equal to such reallocated amount shall be made available to the Company for general corporate purposes, with the balance of the Third
Tranche Subscription Proceeds being used to fund the Jupiter Pool.
Anticipated Effect on Company's Business & Affairs
As noted above, the majority of the proceeds of the Private Placement will be used to fund the Jupiter Pool. The remaining proceeds will allocated
for general corporate purposes, subject to certain exceptions.
The flexibility afforded to the Company by the Private Placement will provide incremental capital to the Company to pursue new opportunities and
expand on existing initiatives aimed at fueling net revenue growth and achieving EBITDA objectives. Through the Private Placement, the Company aims to capitalize on its state-of-the-art facilities, support further work streams in research and
development, product development and deliver impactful product launches.
The Private Placement will also serve to deepen the strategic partnership between the Investor and the Company by enhancing the product development
collaboration agreement between the parties, which has been in place since March 2021 and has focused on cutting-edge research and development and product innovation.
Summary of the Subscription Agreement
The following is a summary only of certain provisions of the Subscription Agreement, is not intended to be complete and is qualified in its
entirety by the contents of the Subscription Agreement. A complete copy of the Subscription Agreement is available at www.sedarplus.ca.
(a) Representations and Warranties and Covenants
The Subscription Agreement contains customary representations and warranties made by the Company to the Investor in respect of the Company and its
subsidiaries and customary representations and warranties made by the Investor to the Company. The Subscription Agreement contains certain pre-closing covenants, including, among other things, agreements by the Company and the Investor to use
commercially reasonable efforts to obtain any required regulatory approvals.
The Company covenants to hold the Meeting to obtain the requisite shareholder approval of the Private Placement and related matters as soon as
reasonably practicable, but in any event, no later than February 28, 2024. The Subscription Agreement contains customary voting and support covenants of the Investor in connection with the approval of matters related to the Private Placement at the
The Company also covenants that from the closing of the First Tranche to the closing of the Second Tranche, the Investor shall be entitled to
designate 30% of the nominees to be elected to the Company's board of directors for so long as the Investor beneficially owns 25% of the Shares (measured on a partially diluted basis), in accordance with the nomination procedures set out in the
Amended & Restated IRA (as defined and described below).
In addition, the Company covenants not to issue or obligate itself to issue any securities, including Shares, during the term of the Subscription
Agreement, except (i) (A) with the prior written consent of the Investor, (B) as permitted under the Company's equity incentive plans, (C) as expressly contemplated by or pursuant to the Investor's top-up and pre-emptive rights under the Amended
& Restated IRA (as defined below), or (D) at a price that is at or above the Per Share Price, and (ii) initially up to 15,756,648 Shares (based
on estimated pro forma shareholdings that would result in the Investor owning at least 40% of the Company's outstanding Shares if the First Tranche, the Second Tranche, and the Third Tranche were completed) at any price, but subject to increase as
agreed to by the Company and the Investor acting reasonably, if the number of Shares outstanding increases over time.
(b) Conditions Precedent to the Closing of the Three Tranches
The closing of the First Tranche, the Second Tranche and the Third Tranche, as applicable, are subject to the satisfaction or waiver of: (i) the
approval of the Private Placement by the Shareholders at the Meeting; (ii) the approval of the Private Placement and the listing of the Shares (including the Common Shares underlying the Class A Preferred Shares) by the TSX; (iii) the Articles of
Amendment having been filed with Corporations Canada; (iv) the Private Placement being cleared under the Competition Act (Canada); and (v) other usual and
customary conditions for transactions of this nature.
The closing of the First Tranche, the Second Tranche and the Third Tranche, as applicable, are also conditional on the following conditions in
favour of the Investor: (i) the consummation of the First Tranche, the Second Tranche and the Third Tranche, as applicable, not being reasonably expected to result in a BAT Material Adverse Effect (as defined in the Subscription Agreement); and (ii)
the Investor, acting in good faith and reasonably, has not made a determination that, as a result of the passing of (A) a change to or interpretation of a law or an order by a governmental authority, or (B) the making of a policy, decision, position
or guidance by a governmental authority, material counterparty or material stakeholder of the Investor Parent and/or its subsidiaries, the consummation of the First Tranche, Second Tranche or Third Tranche, as applicable, would reasonably expected to
cause the Investor Parent and/or its subsidiaries to suffer losses material in proportion to the value of the First Tranche, the Second Tranche, or the Third Tranche (as applicable) (the "Change in Law Closing Condition").
(d) Termination of the Subscription Agreement
Prior to the closing of the Third Tranche, the Subscription Agreement may be terminated by (i) by the mutual written agreement of the parties; or
(ii) by the Company or the Investor, if either of their respective closing conditions cannot be satisfied on or before any applicable tranche closing date. Notwithstanding the foregoing, if any condition is unable to be satisfied, the Subscription
Agreement requires the parties to use commercially reasonable efforts to satisfy the condition within 30 days (and in the case of the Change in Law Closing Condition to address such matters of concern such that the condition may be satisfied), and