Item 8.01. Other Events.
Cronos Investment
On December 7,
2018, Altria Summit LLC (Altria Sub), a wholly owned subsidiary of Altria Group, Inc. (Altria Parent and, collectively with Altria Sub, Altria), Cronos Group Inc., a globally diversified and vertically integrated
cannabis company with a presence across five continents headquartered in Toronto, Canada (Cronos), and, solely for the purposes set forth therein, Altria Parent, entered into a Subscription Agreement (the Subscription
Agreement) pursuant to which Cronos will sell and Altria Sub will purchase (i) approximately 146.2 million common shares of Cronos (Common Shares) for a per share purchase price of CAD$16.25 and (ii) a warrant to
purchase up to an additional approximately 72.2 million Common Shares (the Warrant) at a per share exercise price of CAD$19.00. The Warrant expires four years after issuance and is subject to customary anti-dilution adjustments. As
a result of the purchase of the Common Shares (the Transaction), Altria would own approximately 45% of the outstanding Common Shares. The aggregate purchase price for the Common Shares is approximately US$1.8 billion (approximately
CAD$2.4 billion based on the US dollar to CAD exchange rate on December 6, 2018), to be paid on the date of the closing of the Transaction (the Closing Date). Upon full exercise of the Warrant, Altria would own approximately
55% of the outstanding Common Shares assuming it has exercised its preemptive and top up rights.
The closing of the Transaction is
subject to certain customary closing conditions, including approval of Cronos shareholders and receipt of regulatory approvals.
The
Subscription Agreement contemplates that Altria and Cronos will enter into an Investor Rights Agreement (the IRA) on the Closing Date, pursuant to which the board of directors of Cronos (the Cronos Board) will be increased
from five directors to seven directors. Under the IRA, Altria will have the right to nominate four individuals (the Altria Nominees) for election or appointment to the Cronos Board so long as Altria continues to hold at least 40% of the
outstanding Common Shares. In the event that Altria no longer meets such minimum ownership requirements, but holds more than 10% of the outstanding Common Shares, Altria will be entitled to nominate a number of Altria Nominees that represents its
proportionate share of the number of directors comprising the Cronos Board (rounded up to the next whole number) based on its percentage ownership of the outstanding Common Shares. At least one Altria Nominee must be independent so long as Altria
has the right to nominate at least three Altria Nominees (unless Altria holds a majority of the outstanding Common Shares). Altria will no longer have director nomination rights if its ownership falls below 10%.
The IRA will also provide Altria certain rights subject to certain conditions, including approval rights for certain transactions,
pre-emptive
rights, registration rights and
top-up
rights, subject in each case to specified minimum ownership thresholds. In addition, the IRA will provide that, subject to
certain conditions, Altria and its affiliates will adhere to certain non-competition and exclusivity obligations until the earlier of (i) the
six-month
anniversary of the date that Altria holds less than
10% of the outstanding Common Shares and (ii) the
six-month
anniversary of the termination of the IRA.
The IRA terminates if Altria ceases to beneficially own at least 5% of the outstanding Common Shares. It may also be terminated by a party
following the material uncured breach by the other party if a court orders termination of the agreement or following the bankruptcy of the other party.
Altria and Cronos have committed to negotiate in good faith the definitive terms of certain commercial agreements pursuant to which Altria
and/or its affiliates will provide certain services to Cronos. Execution and delivery of these commercial agreements is not a condition to the closing of the Transaction.
Copies of each of the Subscription Agreement and the form of the IRA attached as an exhibit thereto are attached as Exhibit 99.1 to this
Current Report on Form
8-K.
Financing Commitment
On December 7, 2018, in connection with the Transaction, Altria Parent entered into a bridge loan facility commitment letter (the
Bridge Loan Commitment Letter), pursuant to which JPMorgan Chase Bank, N.A. (JPMorgan) committed to provide a senior unsecured
364-day
bridge loan facility in an aggregate principal
amount of CAD$2.4 billion (the Bridge Facility) for the purpose of financing the Transaction. JPMorgans commitment is subject to the satisfaction of certain customary conditions, including (i) the execution and delivery
of definitive documentation with respect to the Bridge Facility and (ii) the consummation of the Transaction in all material respects in accordance with the Subscription Agreement. The consummation of the Transaction is not conditioned on
obtaining financing.
-2-