SNDL Inc F-3, filed Aug 4, 2020
SNDL Inc. (SNDL)
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As filed with the United States Securities and Exchange Commission on August 4, 2020
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Sundial Growers Inc.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
| Province of Alberta | 2833 | Not Applicable | ||
| (State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
#300, 919 – 11 Avenue SW
Calgary, AB T2R 1P3
(403) 948-5227
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Corporation Service Company
1180 Avenue of the Americas, Suite 210
New York, NY 10036-8401
Telephone: +1 800 927 9801
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
| Jason Lehner Merritt Johnson Shearman & Sterling LLP 199 Bay Street Toronto, ON M5L 1E8 (416) 360-8484 |
Nathan Robb McCarthy Tétrault LLP Suite 4000 421 - 7th Avenue SW Calgary AB T2P 4K9 (403) 260-3500 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging Growth Company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
CALCULATION OF REGISTRATION FEE
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| Title of each class of securities to be registered |
Amount to be registered(1)(2) |
Proposed maximum offering price per unit(3) |
Proposed offering price(4) |
Amount of registration fee | ||||
| Common shares, no par value |
(1) | |||||||
| Preferred shares, no par value |
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| Warrants |
(1) | |||||||
| Rights |
(1) | |||||||
| Units(5) |
(1) | |||||||
| Total |
$100,000,000 | $100,000,000 | $12,980 | |||||
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| (1) | There are being registered hereunder such indeterminate number of the securities of each identified class being registered as may be sold by the registrant from time to time at indeterminate prices, with the maximum aggregate public offering price not to exceed $100,000,000. Securities registered hereby may be offered for U.S. dollars or the equivalent thereof in foreign currencies. Securities registered hereunder may be sold separately, together or in units with other securities registered hereunder. |
| (2) | The securities being registered hereby may be convertible into or exchangeable or exercisable for other securities of any identified class. In addition to the securities set forth in the table, there is being registered hereunder such indeterminate aggregate number or amount, as the case may be, of the securities of each identified class as may from time to time be issued in connection with any share split, share dividend or similar transaction, including under any applicable anti-dilution provisions. (including, without limitation, upon adjustment of the conversion or exchange rate thereof). Separate consideration may or may not be received for securities that are issued upon the conversion or exercise of, or in exchange for, other securities offered hereby. |
| (3) | The proposed maximum aggregate offering per unit of each class of securities will be determined from time to time by the registrant in connection with the issuance by the registrant of the securities registered hereunder and is not specified as to each class of securities pursuant to the General Instruction II.C. of Form F-3 under the Securities Act of 1933. |
| (4) | Estimated solely for purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. In no event will the aggregate offering price of all securities sold by the registrant from time to time pursuant to this registration statement exceed $100,000,000. |
| (5) | Consisting of some or all of the securities listed above, in any combination, including common shares, preferred shares and warrants. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
| PROSPECTUS (Subject to Completion) | Dated August 4, 2020 |
$100,000,000
Common Shares
Preferred Shares
Warrants
Rights
Units
This prospectus relates to common shares, preferred shares, warrants, rights and units that Sundial Growers Inc. may sell from time to time in one or more offerings on terms to be determined at the time of sale. We refer to the common shares, preferred shares, and any related guarantees, warrants, rights and units collectively as the “securities.” We will provide specific terms of these securities in supplements to this prospectus. You should read this prospectus and any supplement carefully before you invest. This prospectus may not be used to offer and sell securities unless accompanied by a prospectus supplement for those securities.
These securities may be sold directly by us, through dealers or agents designated from time to time, to or through underwriters or through a combination of these methods. See “Plan of Distribution” in this prospectus. We may also describe the plan of distribution for any particular offering of these securities in any applicable prospectus supplement. If any agents, underwriters or dealers are involved in the sale of any securities in respect of which this prospectus is being delivered, we will disclose their names and the nature of our arrangements with them in a prospectus supplement. The net proceeds we expect to receive from any such sale will also be included in a prospectus supplement.
Our common shares are listed for trading on the Nasdaq Global Select Market (“Nasdaq”), under the symbol “SNDL”. On July 30, 2020, the closing sale price of our common shares as reported by Nasdaq was US$0.57. On May 12, 2020, the Company was notified by the Listing Qualifications Department of the Nasdaq that the closing bid price of the Company’s common shares for the last 30 consecutive business days from March 30, 2020 to May 11, 2020 did not meet the minimum bid price of US$1.00 per share as set forth in Nasdaq Listing Rule 5450(a)(1) required for continued listing on Nasdaq (the “minimum bid requirement”). The Company has until December 28, 2020 to regain compliance with the minimum bid requirement. Our shareholders have granted approval to our board of directors to, in its discretion, implement a reverse share split of our common shares (“reverse split”) if then necessary to attempt to comply with the minimum bid requirement. If at any time prior to December 28, 2020, the closing bid price of the Company’s common shares is at least US$1.00 for a minimum of ten consecutive business days, the Company will be considered by Nasdaq to have regained compliance with the minimum bid requirement and the reverse split may not be necessary. No decision has been made yet by our board of directors to implement the reverse split.
We are an “emerging growth company” and a “foreign private issuer” under applicable Securities and Exchange Commission rules, and will be subject to reduced public company reporting requirements for this prospectus and future filings.
You should rely only on the information contained herein or incorporated by reference in this prospectus and any applicable prospectus supplement. We have not authorized any other person to provide you with different information.
The enforcement by investors of civil liabilities under U.S. federal securities laws may be affected adversely by the fact that the Company is incorporated under the laws of the Province of Alberta, that all of its officers and directors are residents of Canada, that some or all of the experts named in the registration statement are residents of Canada, and that a substantial portion of the assets of the Company and said persons are located outside the United States.
Our business and an investment in our common shares involve significant risks. These risks are described under the caption “Risk Factors” beginning on page 7 of this prospectus and in the documents incorporated by reference into this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
, 2020
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| UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION |
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We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we do not take responsibility for any other information others may give you. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information in this prospectus and the documents incorporated by reference herein is current only as of its date, regardless of its time of delivery or the time of sale of any of our securities. Our business, financial condition, results of operations and prospects may have changed since such dates.
Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
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About this Prospectus
This prospectus is part of a registration statement on Form F-3 that we filed with the Securities and Exchange Commission (the “SEC”), utilizing a “shelf” registration process. Under this shelf process, we may from time to time sell any combination of securities described in this prospectus in one or more offerings.
This prospectus provides you with a general description of the securities we may offer. Each time we sell securities under this shelf registration process, we will provide a prospectus supplement that will contain specific information about the terms of the securities being offered. That prospectus supplement may include a discussion of any risk factors or other special considerations that apply to those securities. The prospectus supplement may also add, update or change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and a prospectus supplement, you should rely on the information in that prospectus supplement.
The registration statement we filed with the SEC includes exhibits that provide more detail of the matters discussed in this prospectus. You should read this prospectus, the related exhibits filed with the SEC, any applicable prospectus supplement and the documents incorporated by reference herein before making your investment decision. You should rely only on the information provided in this prospectus or any amendment thereto, any applicable prospectus supplement and the documents incorporated by reference herein. In addition, this prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the headings “Where You Can Find More Information” and “Incorporation by Reference.” Information contained in later-dated documents incorporated by reference will automatically supplement, modify or supersede, as applicable, the information contained in this prospectus or in earlier-dated documents incorporated by reference.
Trademarks, Trade Names and Service Marks
We own or otherwise have rights to the trademarks, trade names and service marks, including Top Leaf, Sundial Cannabis, Palmetto, Grasslands and others mentioned in this prospectus or in the documents incorporated by reference herein, used in conjunction with the marketing and sale of our products. Solely for convenience, the trademarks, trade names and service marks may appear in this prospectus or the documents incorporated by reference therein without the ® and ™ symbols, but any such references are not intended to indicate, in any way, that we forgo or will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, trade names and service marks. All trademarks, trade names and service marks appearing in this prospectus or the documents incorporated by reference therein are the property of their respective owners.
Basis of Presentation
Unless otherwise indicated, all references in this prospectus to the “Company”, “Sundial”, “we”, “us”, “our” or similar terms refer to Sundial Growers Inc. and its subsidiaries.
Unless otherwise indicated, all references in this prospectus to “Bridge Farm” refer to Bridge Farm Nurseries Limited, its subsidiaries and, subsequent to August 11, 2017, Project Seed Topco Limited, the parent of Bridge Farm Nurseries Limited. We completed the Bridge Farm Disposition (as defined herein) on June 5, 2020.
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Presentation of Financial Information
We present our financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
None of the financial statements incorporated by reference into this prospectus were prepared in accordance with generally accepted accounting principles in the United States.
Effective for the fiscal year ended December 31, 2018, we changed our fiscal year end from February 28 to December 31. As a result of this change, the figures presented in our consolidated financial statements for the ten months ended December 31, 2018, or the transition period, are not entirely comparable to those for the fiscal years ended February 28, 2018 and 2017. We do not present financial statements for a separate historical period that is comparable to the transition period. Following the transition period, we prepare annual consolidated financial statements for each fiscal year ending December 31, beginning with the fiscal year ending December 31, 2019. References in this prospectus to our “fiscal year ended December 31, 2018” shall mean the ten months ended December 31, 2018.
We publish our consolidated financial statements in Canadian dollars and Bridge Farm has historically published its financial statements in British pound sterling. In this prospectus, unless otherwise specified, all monetary amounts are in Canadian dollars, all references to “$”, “C$”, “CDN$”, “CAD$” and “dollars” mean Canadian dollars, all references to “£”, “pounds” and “pound sterling” mean British pound sterling and all references to “US$” and “USD” mean U.S. dollars. Except with respect to U.S. dollar and British pound sterling, amounts presented as contractual terms or as otherwise indicated, all amounts that are presented in U.S. dollars herein have been translated from Canadian dollars solely for convenience at an exchange rate of $1.3373 per US$1.00, which was the daily exchange rate as of July 28, 2020, as reported by the Bank of Canada.
Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
Presentation of Share Information
All references to “shares” or “common shares” in this prospectus refer to the common shares of Sundial Growers Inc., no par value.
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This summary highlights information contained elsewhere in this prospectus or incorporated by reference herein and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our shares, you should read this entire prospectus and any applicable prospectus supplement carefully, including the sections of this prospectus entitled “Risk Factors”, “Cautionary Note Regarding Forward-Looking Statements”, and “Unaudited Pro Forma Condensed Consolidated Financial Information”, the section entitled “Risk Factors” in our annual report on Form 20-F or Form 40-F for the most recent year incorporated by reference herein (together with any material changes thereto contained in subsequent filed quarterly and current reports on Form 6-K), our consolidated financial statements and the related notes incorporated by reference in this prospectus and all other information included or incorporated by reference in this prospectus. Unless the context otherwise requires, references in this prospectus to the “Company”, “Sundial”, “we”, “us” and “our” refer to Sundial Growers Inc. and its subsidiaries.
Our Company
Sundial is a licensed producer that grows cannabis using state-of-the-art indoor facilities.
Sundial cultivates cannabis using an individualized “room” approach, in approximately 479,000 square feet of total space.
Sundial’s brand portfolio includes Top Leaf (Premium), Sundial Cannabis (Premium Core), Palmetto (Core) and Grasslands (Value).
Sundial currently produces and markets cannabis products for the Canadian adult-use market. Sundial’s purpose-built indoor modular grow rooms create consistent, highly controlled cultivation environments and are the foundation of the Company’s production of high-quality, strain-specific cannabis products. The Company has established supply agreements with nine Canadian provinces, with approval recently received from Quebec, and has a distribution network that covers 98% of the national recreational industry.
The Company’s primary focus has been on producing and distributing premium inhalable products and brands (flower, pre-rolls and vapes). Upon receiving a licence from Health Canada to sell cannabis oil products, the Company began the sale and distribution of cannabis vape products in December 2019. The Company is currently marketing its adult-use products under its Top Leaf (Premium), Sundial Cannabis (Premium Core), Palmetto (Core) and Grasslands (Value) brands and intends to introduce new products under these brands and other brands as it expands its brand portfolio.
The majority of the Company’s sales in the three months ended March 31, 2020 were to provincial boards; however, Sundial continues to enter into agreements to supply other licensed producers in Canada.
The Company’s planned medical cannabis offerings are supported through its 50% equity interest in Pathway Rx Inc. (“Pathway Rx”) which uses advanced technology and an extensive library of cannabis strains to identify and customize targeted treatments for a wide range of medical conditions. The Company has a license agreement with Pathway RX enabling the Company the use of certain strains for commercial production. See Exhibit 10.1 to the registration statement of which this prospectus forms a part for more information.
In July 2019, the Company acquired Bridge Farm, a grower of ornamental plants and herbs, based in the United Kingdom, with the intention of converting Bridge Farm’s existing facilities to the cultivation, processing and distribution of cannabidiol (CBD) products. On June 5, 2020, the Company completed the Bridge Farm Disposition as described under “—Recent Developments—Sale of Bridge Farm”.
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Recent Developments
Sale of Bridge Farm
On May 15, 2020, the Company, as guarantor, and Sundial UK Limited (the “Seller”), a wholly-owned subsidiary of the Company, entered into a share purchase agreement (the “SPA”) with, inter alios, Project Giant Bidco Limited (the “Purchaser”), a company incorporated under the laws of England and Wales, to sell all of the issued and outstanding shares of the Project Seed Topco Limited (the “Target”), which comprises the Company’s business known as Bridge Farm (the “Bridge Farm Disposition”). The SPA also provided for the sale to the Purchaser of loan notes previously issued to the Seller by Project Seed Bidco Limited, a wholly-owned subsidiary of the Target.
The Bridge Farm Disposition closed on June 5, 2020, for total non-cash consideration of approximately $90.0 million.
As consideration for the Bridge Farm Disposition, the Purchaser (i) assumed $45.0 million of debt under Sundial’s $115.0 million Original SAF Credit Agreement (as defined herein), (ii) assumed the contingent consideration liabilities related to the remaining earn-out and additional share obligations under the original Bridge Farm acquisition agreement, dated as of July 2, 2019, and (iii) canceled approximately 2,700,000 Sundial common shares currently held by certain individuals affiliated with the Purchaser. Sundial did not receive any cash consideration in connection with the transaction.
The above does not purport to be a complete description of the SPA or the Bridge Farm Disposition and is qualified in its entirety by reference to the full text of Exhibit 2.1 to the registration statement of which this prospectus forms a part.
Amendment and Restatement of Credit Agreement
The Company entered into a credit agreement dated August 29, 2019 among, inter alia, the Company, as borrower, ATB Financial and other persons party thereto from time to time as lenders (collectively, the “Lenders”), and ATB Financial (the “Agent”), as administrative agent for the Lenders (the “Original First Lien Credit Agreement”).
On June 5, 2020, the Company entered into an amended and restated credit agreement among, inter alios, the Company, as borrower, the Lenders, and the Agent, as administrative agent for the Lenders (the “Amended and Restated Credit Agreement”). Amendments to the Original First Lien Credit Agreement, among other items, included a waiver of the Company’s first quarter 2020 financial covenants, the elimination of financial covenants other than a covenant to maintain minimum cash balance of $2.5 million until December 31, 2020 or later and the addition of a covenant requiring the Company to raise equity capital of at least US$10.0 million by December 1, 2020. Additionally, principal repayments of $2.1 million per quarter have been rescheduled to commence on September 30, 2020.
The above does not purport to be a complete description of the Amended and Restated Credit Agreement and is qualified in its entirety by reference to the full text of Exhibit 10.4 to the registration statement of which this prospectus forms a part.
Restructuring and Novation Agreement
SGI Partnership (the “Original Borrower”), SAF Jackson II LP (the “Creditor”) and the other lenders from time to time party to the credit agreement as lenders (the “SAF Lenders”), and the Creditor, as administrative agent, were party to a credit agreement dated June 27, 2019, as supplemented by a waiver and consent dated August 29, 2019 (as supplemented, the “Original SAF Credit Agreement”).
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On June 5, 2020, the Company, and the Creditor, in its capacity as administrative agent, and the SAF Lenders, among others, entered into restructuring and novation agreement (the “Restructuring and Novation Agreement”) pursuant to which, inter alia, (a) the Original Borrower assigned all of the Original Borrower’s right, title and interest in and to, and all benefits of the Original Borrower under, the Original SAF Credit Agreement to the Company, to the extent of $73,227,465.75 of the accommodations outstanding, together with deferred and accrued interest, on the date of such assignment (collectively, the “Parent Obligations Outstanding”) and the Company assumed and agreed to perform and discharge all obligations and liabilities of the Original Borrower under the Original SAF Credit Agreement as if it were the original borrower and party to the Original SAF Credit Agreement to the extent of the Parent Obligations Outstanding; (b) the Original Borrower assigned all of Original Borrower’s right, title and interest in and to, and all benefit of the Original Borrower under, the Original SAF Credit Agreement to the Seller to the extent of $45,000,000 of the accommodations outstanding on the date of such assignment (the “Sundial UK Obligations Outstanding”) and the Seller assumed, and agreed to perform and discharge all the obligations and liabilities of the Original Borrower under the Original SAF Credit Agreement as if it were the original borrower and party to the Original SAF Credit Agreement to the extent of the Sundial UK Obligations Outstanding (the “First Assignment and Assumption”); and (c) immediately following the First Assignment and Assumption, the Seller assigned all of the Seller’s right, title and interest in and to, and all benefits of the Seller under, the Original SAF Credit Agreement to the Purchaser. Pursuant to the extent of the Sundial UK Obligations Outstanding and the Purchaser assumed, and agreed to perform and discharge all the obligations and liabilities of the Seller under the Original SAF Credit Agreement as if it were the original borrower and party to the Original SAF Credit Agreement to the extent of the Sundial UK Obligations Outstanding.
SAF Transaction
On June 5, 2020, in connection with the Restructuring and Novation Agreement, the Company and the Creditor entered into a securities restructuring agreement (the “Securities Restructuring Agreement”) pursuant to which: (i) the Company and the Creditor amended and restated the Parent Obligations Outstanding by issuing a senior second lien convertible note of the Company, in the aggregate principal amount of $73,227,465.75 (the “SAF Convertible Note”), convertible into common shares (subject to strict limitations) issuable pursuant to the terms of the SAF Convertible Note at an initial conversion price of US$1.00 per common share (the “SAF Convertible Note Issuance”), and (ii) in consideration of SAF agreeing to amend and restate the Parent Obligations Outstanding, the Company issued to the Creditor common share purchase warrants to acquire up to 17,500,000 common shares at an exercise price of US$1.00 per warrant and common share purchase warrants to acquire up to 17,500,000 common shares at an exercise price of US$1.20 per warrant (together, the “SAF Warrants”) (the “SAF Warrants Issuance” and together with the SAF Convertible Note Issuance, the “SAF Transaction”). In connection with the issuance of the SAF Convertible Note and SAF Warrants, the Company granted certain registration rights to the Creditor requiring the Company to register the underlying common shares.
The above does not purport to be a complete description of the Securities Restructuring Agreement and is qualified in its entirety by reference to the full text of Exhibit 10.5 to the registration statement of which this prospectus forms a part. See “Description of Other Securities—Description of SAF Transaction”.
Private Placement of New Investor Convertible Notes and New Investor Warrants
On June 5, 2020, and concurrent with the Debt Restructuring Transactions, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors named therein (the “Investors”), providing for the sale of a new series of unsecured senior subordinated convertible notes in the aggregate principal amount of US$18.0 million (the “New Investor Convertible Notes”), convertible into common shares at any time at the option of the holders at an initial conversion price of US$1.00, and common share purchase warrants to acquire up to 14,457,059 common shares at an initial exercise price of US$0.9338 per common share (the “New Investor Warrants”). Proceeds from the sale of the New Investor Convertible Notes,
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net of original issue discount, placement agents’ fees and other expenses, amount to approximately US$13.3 million, which will be used for general corporate purposes. Cash payments, if any, required to be made under the New Investor Convertible Notes or the New Investor Warrants will be subordinated in certain circumstances to payments under the Amended and Restated Credit Agreement and SAF Convertible Note; however, such cash pay obligations would be senior to any claims of our shareholders. In connection with the issuance of the New Investor Convertible Notes and New Investor Warrants, the Company granted certain registration rights to the investors named in the Securities Purchase Agreement, requiring the Company to register the underlying common shares.
The above does not purport to be a complete description of the Securities Purchase Agreement and is qualified in its entirety by reference to the full text of Exhibit 10.6 to the registration statement of which this prospectus forms a part. See “Description of Other Securities—Description of Private Placement”.
Placement Agent Warrants
Canaccord Genuity LLC (“Canaccord”) and AltaCorp Capital Inc. (“AltaCorp” and, together with Canaccord, the “Placement Agents”) acted as placement agents for the offering of the New Investor Convertible Notes and New Investor Warrants and were each issued common share purchase warrants to acquire up to 540,000 common shares at an exercise price of US$1.00 per common share (collectively, the “Placement Agent Warrants”). Each Placement Agent Warrant also provides for certain registration rights to require us to register the common shares underlying the warrants pursuant to the Securities Act and certain distribution rights under Canadian securities laws. Each of Canaccord and AltaCorp will initially be restricted from exercising their respective Placement Agent Warrants.
The above does not purport to be a complete description of the Placement Agent Warrants and is qualified in its entirety by reference to the full text of Exhibit 4.4 to the registration statement of which this prospectus forms a part.
Corporate Information
Sundial Growers Inc. was incorporated under the Business Corporations Act (Alberta) (the “ABCA”) on August 19, 2006. On July 22, 2019, we filed articles of amendment to effect a 1 to 1.6 share split. We have 8 direct and indirect subsidiaries, all of which are wholly-owned, and a 50% interest in Pathway Rx. On August 1, 2019, our common shares commenced trading on the Nasdaq under the symbol “SNDL”.
Our headquarters, principal executive and registered offices are located at #300, 919 – 11 Avenue SW, Calgary, Alberta, Canada T2R 1P3. Our phone number is +1 (403) 948-5227. Our website is www.sndlgroup.com. The information on or accessible through our website is not part of and is not incorporated by reference into this prospectus, and the inclusion of our website address in this prospectus is only for reference.
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Investing in our securities involves a high degree of risk. You should carefully consider the risk factors described below and in our annual report on Form 20-F or Form 40-F for our most recent fiscal year (together with any material changes thereto contained in subsequent filed quarterly and current reports on Form 6-K) and those contained in our other filings with the SEC, which are incorporated by reference in this prospectus and any accompanying prospectus supplement.
The prospectus supplement applicable to each type or series of securities we offer may contain a discussion of risks applicable to the particular types of securities that we are offering under that prospectus supplement. Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the caption “Risk Factors” in the applicable prospectus supplement, together with all of the other information contained in the prospectus supplement or appearing or incorporated by reference in this prospectus. These risks could materially affect our business, results of operations or financial condition and cause the value of our securities to decline. You could lose all or part of your investment.
Risks Related to the Private Placement of New Investor Convertible Notes and New Investor Warrants and the SAF Transaction
The holders of New Investor Convertible Notes may, at their option, at any time, convert their New Investor Convertible Notes into, or exercise their New Investor Warrants for, common shares based on agreed-upon formulas. The holder of the SAF Convertible Note and SAF Warrants may do the same after the Threshold Date (as defined herein). Any such conversion or exercise will result in significant dilution to our shareholders.
Our shareholders may experience significant dilution as a result of our issuance of common shares pursuant to the New Investor Convertible Notes and New Investor Warrants and, following the Threshold Date, the SAF Convertible Note and the SAF Warrants. The conversion price for the New Investor Convertible Notes will initially be equal to US$1.00 and is subject to adjustment upon an event of default as well as customary anti-dilution provisions. In addition, beginning on the earlier of the date of effectiveness of this registration statement and September 1, 2020, and on the first day of each calendar month thereafter, the holders will have the right to convert an additional US$4.0 million of aggregate principal amount of New Investor Convertible Notes into our common shares at an alternate optional conversion price as described in “Description of Other Securities—Description of Private Placement—New Investor Convertible Notes—Alternate Optional Conversion”.
We have also issued 14,457,059 New Investor Warrants to the holders of the New Investor Convertible Notes. The New Investor Warrants have an initial exercise price of US$0.9338 per warrant (subject to customary anti-dilution protections) and will expire on the 42-month anniversary of the date on which the shares underlying the New Investor Warrants become freely tradeable. See “Description of Other Securities—Description of Private Placement—New Investor Warrants”.
The holder of the SAF Convertible Note will be able to convert the SAF Convertible Note into common shares at any time after the Threshold Date at certain conversion prices as described in “Description of SAF Transaction—SAF Convertible Note—Conversion”.
We have also issued 35,000,000 SAF Warrants to the holder of the SAF Convertible Note. The warrants are exercisable following the Threshold Date. Half of the SAF Warrants have an initial exercise price of US$1.00 per warrant and half of the SAF Warrants have an initial exercise price of US$1.20 per warrant, in each case subject to customary anti-dilution protections. See “Description of Other Securities—Description of SAF Transaction—SAF Warrants”.
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In addition, as part of the placement agent fees payable in connection with the private placement of the New Investor Convertible Notes and New Investor Warrants, we have issued a total of 1,080,000 Placement Agent Warrants to the Placement Agents. See “Prospectus Summary—Recent Developments—Placement Agent Warrants”.
Although we have the option to settle the principal payments on the New Investor Convertible Notes in cash and certain conversion and exercise restrictions are placed upon the holders of the New Investor Convertible Notes, the New Investor Warrants, the SAF Convertible Note, the SAF Warrants and the Placement Agent Warrants, the issuance of material amounts of common shares by us pursuant to the conversion or exercise, as applicable, of these securities would cause our shareholders to experience significant dilution in their investment in our Company.
The New Investor Convertible Notes, the New Investor Warrants, the SAF Convertible Note, the SAF Warrants and the Placement Agent Warrants have anti-dilution provisions triggered by the issuance of our common shares and securities convertible or exercisable for common shares at prices below the then-current conversion price for such notes or the then-current exercise price of such warrants. Any such adjustments would increase the number of common shares issuable upon conversion or exercise of such securities, as the case may be, and increase the dilutive effect of such securities on our current shareholders.
The conversion price for the New Investor Convertible Notes and the SAF Convertible Note will initially be equal to US$1.00. The New Investor Warrants have an initial exercise price of US$0.9338 per warrant, the Placement Agent Warrants and half of the SAF Warrants have an initial exercise price of US$1.00 per warrant and half of the SAF Warrants have an initial exercise price of US$1.20 per warrant. Both the conversion and exercise prices for the securities are subject to reduction upon the issuance of our common shares or securities exercisable or convertible for our common shares at a per share price below the then-current conversion price or exercise price, as applicable. In such event, the conversion prices or exercise prices as applicable, will be reduced in accordance with agreed-upon formulae. As a result of any such adjustment, the number of common shares issuable upon conversion or exercise, as applicable, of the foregoing securities will be increased, which will increase the dilutive effect of such securities on our shareholders.
Any further issuances of our common shares may adversely affect the market price of our common shares.
We are filing this prospectus in accordance with the New Investor Registration Rights Agreement. In connection with the SAF Transaction and the Placement Agent Warrants, we have agreed to file a registration statement with the SEC with respect to the common shares issuable upon conversion or exercise of such notes or warrants, as applicable, following the Threshold Date. In addition, under the Amended and Restated Credit Agreement and the SAF Convertible Note, we have covenanted to raise at least US$10.0 million in new equity capital prior to December 1, 2020, which will have the effect of further diluting our shareholders. If we fail to consummate such an equity capital raise by the applicable deadline, we will be in default under such agreements and securities.
In addition, although the Securities Purchase Agreement, the New Investor Convertible Notes, the Securities Restructuring Agreement and the SAF Convertible Note restrict our ability to issue additional equity and equity-linked securities, we still have the ability to issue a significant number of additional common shares, including pursuant to existing agreements and in connection with employee and director compensation. Any further issuances, or the perception of further issuances, of our common shares or securities convertible or exercisable for our common shares may cause our share price to decline. Furthermore, our share price may be impacted as additional common shares become freely tradeable as the lockup restrictions entered into connection with our initial public offering, including the plan of arrangement in our charter and the lockup extension agreements, fall away.
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The Securities Purchase Agreement for the New Investor Convertible Notes and the New Investor Warrants and the Securities Restructuring Agreement for the SAF Convertible Note and the SAF Warrants (as well as such securities themselves) contain representations, warranties and covenants that if breached could require us to make cash payments, further adjust the conversion price or require us to redeem the New Investor Convertible Notes and the SAF Convertible Note in cash. As a result, we may be forced to reduce or cease our operations. In addition, our business, financial condition and results of operations, and the rights of our shareholders, could be materially harmed.
The Securities Purchase Agreement, the New Investor Registration Rights Agreement, and the Securities Restructuring Agreement (as well as the New Investor Convertible Notes, the New Investor Warrants, the SAF Convertible Note and the SAF Warrants themselves) contain representations, warranties and covenants that if breached provide the holders with certain rights, including the right to receive cash payments, the ability to charge interest, the ability to adjust the conversion price or exercise price, as applicable, and/or the ability to require us to redeem the New Investor Convertible Notes and the SAF Convertible Note at a premium. In addition, holders may have the ability to redeem their New Investor Convertible Notes and the SAF Convertible Note for cash at a premium in the event of a Fundamental Transaction (as defined in the New Investor Convertible Notes and the SAF Convertible Note, as applicable), including a Change of Control (as defined in the New Investor Convertible Notes and the SAF Convertible Note, as applicable). We may not have the funds available to make one or more of such payments when due. Even if we do have funds so available, the use of cash to make such payments could adversely affect our ability to fund operations due to the diversion of necessary cash flow to fund payments on the New Investor Convertible Notes and the SAF Convertible Note.
See “Description of Other Securities—Description of Private Placement—New Investor Convertible Notes—Events of Default; Redemption Rights” and “Description of Other Securities—Description of Private Placement—New Investor Convertible Notes—Fundamental Transactions; Change of Control” for a summary of the Investors’ rights in connection with an event of default or Change of Control under the New Investor Convertible Notes. See “Description of Other Securities—Description of SAF Transaction—SAF Convertible Note—Events of Default; Redemption Rights” and “Description of Other Securities—Description of SAF Transaction—SAF Convertible Note—Fundamental Transactions; Change of Control” for a summary of the Creditor’s rights in connection with an event of default or Change of Control under the SAF Convertible Note. Our cash pay obligations to the Investors in connection with our New Investor Convertible Notes upon a Bankruptcy Event of Default (as defined in the New Investor Convertible Notes) would be subordinated to our obligations under the Amended and Restated Credit Agreement and the SAF Convertible Note; however, such cash pay obligations would be senior to any claims of our common shareholders.
The exercise of any of the foregoing rights we may be forced to reduce or cease our operations. In addition, our business, financial condition and results of operations, and the rights of shareholders, could be materially harmed.
The agreements governing our indebtedness, including the Securities Purchase Agreement, the Securities Restructuring Agreement, the Amended and Restated Credit Agreement, the New Investor Convertible Notes and the SAF Convertible Note, contain covenants that reduce our financial flexibility and could impede our ability to operate.
The agreements governing our indebtedness, including the Securities Purchase Agreement and the New Investor Convertible Notes, the Amended and Restated Credit Agreement, the Securities Restructuring Agreement and the SAF Convertible Note, each impose significant operating and financial restrictions on us. These restrictions will limit our and our subsidiaries’ ability to, among other things:
| • | incur or guarantee additional debt or issue disqualified stock or preferred stock; |
| • | pay dividends and make other distributions on, or redeem or repurchase, capital stock; |
| • | make certain investments; |
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| • | incur certain liens; |
| • | enter into transactions with affiliates; |
| • | merge or consolidate; and |
| • | transfer or sell assets. |
In addition, such agreements subject us and our subsidiaries to covenants, representations and warranties, and beginning on December 31, 2020, the Amended and Restated Credit Agreement will subject us to various financial and other maintenance covenants.
As a result of these restrictions, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to fund our operations, compete effectively or to take advantage of new business opportunities. For example, the New Investor Convertible Notes, the New Investor Warrants, the SAF Convertible Note and the SAF Warrants prohibit us from engaging in Fundamental Transactions (as defined in such instruments), including specified transactions related to Change of Control (as defined in such instruments), unless the successor entity assumes all of our obligations under such instruments under a written agreement in form and substance satisfactory to, and approved by, the Investors or the Creditor, as applicable. These restrictions could impede a merger, amalgamation, takeover or other business combination involving us or discourage a potential acquiror from making a tender offer for our common shares, which, under certain circumstances, could reduce the market price of our common shares. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants. Pursuant to the Amended and Restated Credit Agreement, we recently obtained waivers from our lenders with respect to potential breaches of certain covenants as of March 31, 2020 and a suspension of such covenants until December 31, 2020; however, there is no guarantee that we will be able to obtain similar waivers or suspensions in the future.
Our failure to comply with the restrictive covenants described above as well as the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision.
Furthermore, if we were unable to repay the amounts due and payable under the Amended and Restated Credit Agreement or the SAF Convertible Note, those lenders or investors, as applicable, could proceed against the collateral securing such indebtedness. In the event our lenders or holders of the New Investor Convertible Notes and/or the SAF Convertible Note accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness or if we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Risks Related to this Offering and Our Common Shares
Holders of our common shares may be subject to dilution resulting from future offerings of securities hereunder, the conversion or exercise, as applicable, of the New Investor Convertible Notes, the SAF Convertible Note, the New Investor Warrants, the SAF Warrants and the Placement Agent Warrants and the issuance of equity-based compensation by us.
We may raise additional funds in the future pursuant to this registration statement, by issuing common shares, or securities exerciseable or convertible into common shares, including preferred shares, warrants, rights or units comprising two or more of the foregoing securities. Holders of our common shares will have no preemptive rights in connection with such further issuances. Our board of directors has the discretion to determine if an issuance of securities hereunder is warranted, the price at which such issuance is effected and the other terms of any such future issuance. In addition, additional common shares may be issued by us in connection with the
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exercise of options and exchange of RSUs and DSUs granted by us or as part of an employee compensation plan or agreement. Such additional equity issuances could, depending on the price at which such securities are issued, substantially dilute the interests of the holders of our common shares. In addition, the holders of New Investor Convertible Notes may, at their option, at any time, convert their New Investor Convertible Notes into, or exercise their New Investor Warrants for, common shares based on agreed-upon formulas. The holders of the SAF Convertible Note, SAF Warrants and Placement Agent Warrants may do the same after the Threshold Date. Any such conversion or exercise will result in significant dilution to our shareholders. See “—Risks Related to the Private Placement of New Investor Convertible Notes and New Investor Warrants and the SAF Transaction—The holders of New Investor Convertible Notes may, at their option, at any time, convert their New Investor Convertible Notes into, or exercise their New Investor Warrants for, common shares based on agreed-upon formulas. The holder of the SAF Convertible Note and SAF Warrants may do the same after the Threshold Date (as defined herein). Any such conversion or exercise will result in significant dilution to our shareholders” above.
As of July 28, 2020, there were 720,600 stock options and 18,099,206 warrants for the purchase of our common shares outstanding, of which 85,600 stock options and 15,254,272 warrants were vested and exercisable into an aggregate number of 15,339,872 common shares, at weighted average exercise prices of $1.28 and $5.68, respectively. In addition, 2,989,127 restricted share units and 1,347,661 deferred share units were outstanding and exchangeable for an equal number of common shares. In addition, as of July 28, 2020, the outstanding New Investor Convertible Notes were convertible into 17,100,000 common shares (assuming an initial conversion price of US$1.00), the SAF Convertible Note was convertible into 54,757,695 common shares (assuming the current conversion price as of the date of this prospectus and based on the daily exchange rate of $1.3373 per US$1.00 as of July 30, 2020, as reported by the Bank of Canada), the New Investor Warrants were exercisable into 14,457,059 common shares, the SAF Warrants were exercisable into 35,000,000 common shares and the Placement Agent Warrants were exercisable into 1,080,000 common shares.
Any securities issued hereunder will be subordinate to our existing and future indebtedness, including our New Investor Convertible Notes, SAF Convertible Note and indebtedness under the Amended and Restated Credit Agreement, and any common shares issued hereunder will be subordinate to any preferred shares issued hereunder.
Common shares are equity interests in our Company and do not constitute indebtedness. As such, our common shares will rank junior to all indebtedness, including our outstanding New Investor Convertible Notes, SAF Convertible Note and indebtedness under the Amended and Restated Credit Agreement, and other non-equity claims on our Company with respect to assets available to satisfy claims on our Company, including in a liquidation of our Company. Additionally, our board of directors is authorized to issue series of preferred shares without any action on the part of shareholders of our common shares. Holders of our common shares are subject to the prior dividend, liquidation preferences, terms of redemption, conversion rights and voting rights, if any, of any holders of our preferred shares or depositary shares representing such preferred shares then outstanding.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “assume”, “believe”, “contemplate”, “continue”, “could”, “due”, “estimate”, “expect”, “goal”, “intend”, “may”, “objective”, “plan”, “predict”, “potential”, “positioned”, “pioneer”, “seek”, “should”, “target”, “will”, “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
| • | our ability to operate on a going concern basis, including our ability to raise future capital through debt or equity financing transactions; |
| • | our ability to successfully implement our cost and asset optimization initiatives; |
| • | the continued development and growth of the demand and markets for medical and adult-use cannabis; |
| • | the maintenance of our existing licences and the ability to obtain additional licences as required; |
| • | our ability to establish and market our brands within our targeted markets and compete successfully; |
| • | our ability to produce and market additional products as regulations permit; |
| • | the number of flowering rooms and combined production capacity therefrom that we expect to have by the end of 2020; |
| • | our growth strategies, including plans to sell edibles and other forms of cannabis; |
| • | the timing and the amount of capital expenditures related to the proposed maintenance and expansion of our facilities; |
| • | the outcome of medical research by our partners and the acceptance of such findings in the medical community; |
| • | our ability to attract and retain key employees; |
| • | our ability to manage growth in our business; and |
| • | our ability to identify and successfully execute strategic partnerships. |
Although we base the forward-looking statements contained in this prospectus on assumptions that we believe are reasonable, we caution you that actual results and developments (including our results of operations, financial condition and liquidity, and the development of the industry in which we operate) may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if results and developments are consistent with the forward-looking statements contained in this prospectus, those results and developments may not be indicative of results or developments in subsequent periods. Certain assumptions made in preparing the forward-looking statements contained in this prospectus include:
| • | our ability to maintain compliance with various financial and other covenants in our debt instruments and avoid events of default; |
| • | our ability to obtain and maintain financing on acceptable terms to allow us to maintain operations; |
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| • | our ability to implement our operational and liquidity strategies; |
| • | our ability to optimize our costs by implementing cost-cutting initiatives, deferring capital expenditures and conducting a strategic review of certain facilities; |
| • | our competitive advantages; |
| • | the development of new products and product formats for our products that align market demand; |
| • | the impact of competition; |
| • | the changes and trends in the cannabis industry; |
| • | changes in laws, rules and regulations; |
| • | our ability to maintain and renew required licences; |
| • | our ability to maintain good business relationships with our customers, distributors and other strategic partners; |
| • | our ability to keep pace with changing consumer preferences; |
| • | our ability to protect our intellectual property; |
| • | our ability to manage and integrate acquisitions; |
| • | our ability to retain key personnel; and |
| • | the absence of material adverse changes in our industry or the global economy, including as a result of the COVID-19 pandemic. |
These forward-looking statements are based on our current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions, and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this prospectus and the section entitled “Risk Factors” of our annual report on Form 20-F or Form 40-F for our most recent fiscal year (together with any material changes thereto contained in subsequent filed quarterly and current reports on Form 6-K), which is incorporated by reference into this prospectus. Readers of this prospectus are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information”.
This prospectus contains or incorporates by reference estimates, projections and other information concerning our industry, our business, and the markets for our products. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in our annual report on Form 20-F or Form 40-F for our most recent fiscal year (together with any material changes thereto contained in subsequent filed quarterly and current reports on Form 6-K). These and other factors could cause our future performance to differ materially from our assumptions and estimates.
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Unless otherwise indicated in the applicable prospectus supplement, we intend to use the net proceeds from the sale of securities for general working capital purposes.
Investors are cautioned, however, that expenditures may vary substantially from these uses. Investors will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds of this offering. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount of cash generated by our operations, the amount of competition and other operational factors. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.
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We may sell the securities offered by this prospectus to one or more underwriters or dealers for public offering, through agents, directly to one or more purchasers or through a combination of any such methods of sale. The name of any such underwriters, dealers or agents involved in the offer and sale of the securities, the amounts underwritten and the nature of its obligation to take the securities will be specified in the applicable prospectus supplement. We have reserved the right to sell the securities directly to investors on our own behalf in those jurisdictions where we are authorized to do so. The sale of the securities may be effected in one or more transactions (a) on any national or international securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, (b) in the over-the-counter market, (c) in transactions otherwise than on such exchanges or in the over-the-counter market or (d) through the writing of options. Each time that we sell securities covered by this prospectus, we will provide a prospectus supplement or supplements that will describe the method of distribution and set forth the terms and conditions of the offering of such securities, including the offering price of the securities and the proceeds to us, if applicable.
We and our agents and underwriters may offer and sell the securities at a fixed price or prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The securities may be offered on an exchange, which will be disclosed in the applicable prospectus supplement. We may, from time to time, authorize dealers, acting as our agents, to offer and sell the securities upon such terms and conditions as set forth in the applicable prospectus supplement. We may also sell the securities offered by any applicable prospectus supplement in “at-the-market offerings” within the meaning of Rule 415 of the Securities Act of 1933 (the “Securities Act”), to or through a market maker or into an existing trading market, on an exchange or otherwise.
If we use underwriters to sell securities, we will enter into an underwriting agreement with them at the time of the sale to them. In connection with the sale of the securities, underwriters or agents may receive compensation from us in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the securities for whom they may act as agent. The names of any underwriters, any underwriting compensation paid by us to underwriters or agents in connection with the offering of the securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement to the extent required by applicable law. Underwriters may sell the securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions (which may be changed from time to time) from the purchasers for whom they may act as agents. If a dealer is utilized in the sale of the securities being offered by this prospectus, the securities will be sold to the dealer, as principal. The dealer may then resell the securities to the public at varying prices to be determined by the dealer at the time of resale.
Dealers and agents participating in the distribution of the securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions under the Securities Act. Unless otherwise indicated in the applicable prospectus supplement, an agent will be acting on a best efforts basis.
If so indicated in the prospectus supplement, we will authorize underwriters, dealers or agents to solicit offers by certain specified institutions to purchase offered securities from us at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject to any conditions set forth in the applicable prospectus supplement and the prospectus supplement will set forth the commission payable for solicitation of such contracts. The underwriters and other persons soliciting such contracts will have no responsibility for the validity or performance of any such contracts. Offers to purchase the securities being offered by this prospectus may also be solicited directly.
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Underwriters, dealers and agents may be entitled, under agreements entered into with us, to indemnification against and contribution towards certain civil liabilities, including any liabilities under the Securities Act.
To facilitate the offering of securities, certain persons participating in the offering may engage in transactions that stabilize, maintain, or otherwise affect the price of the securities. These may include over-allotment, stabilization, syndicate short covering transactions and penalty bids. Over-allotment involves sales in excess of the offering size, which creates a short position. Stabilizing transactions involve bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate short covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim selling concessions from dealers when the securities originally sold by the dealers are purchased in covering transactions to cover syndicate short positions. These transactions may cause the price of the securities sold in an offering to be higher than it would otherwise be. These transactions, if commenced, may be discontinued by the underwriters at any time.
Any securities other than our common shares issued hereunder may be new issues of securities with no established trading market. Any underwriters or agents to or through whom such securities are sold for public offering and sale may make a market in such securities, but such underwriters or agents will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of the trading market for any such securities. The amount of expenses expected to be incurred by us in connection with any issuance of securities will be set forth in the applicable prospectus supplement. Certain of the underwriters, dealers or agents and their associates may engage in transactions with, and perform services for, us and certain of our affiliates in the ordinary course of business.
During such time as we may be engaged in a distribution of the securities covered by this prospectus we are required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes us, any affiliated purchasers, and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M also restricts bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of our shares of common shares.
The specific terms of any lock-up provisions in respect of any given offering will be described in the applicable prospectus supplement.
The underwriters, dealers and agents may engage in transactions with us, or perform services for us, in the ordinary course of business for which they receive compensation.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information is based upon the historical financial statements of the Company after giving effect to the Bridge Farm Disposition, the Debt Restructuring Transactions and the issuance of the New Investor Convertible Notes, the New Investor Warrants and the Placement Agent Warrants (collectively, the “June 2020 Transactions”).
The unaudited pro forma condensed consolidated statement of financial position as of March 31, 2020 adjusts the historical statement of financial position of the Company, giving effect to the June 2020 Transactions, as if they had been completed on March 31, 2020. Since the June 2020 Transactions occurred subsequent to March 31, 2020, the Company’s historical statement of financial position does not yet include the effects of that divestiture and, therefore, certain pro forma adjustments are necessary to present the unaudited pro forma condensed consolidated statement of financial position.
The unaudited pro forma condensed consolidated statements of loss and comprehensive loss for the three months ended March 31, 2020 and the year ended December 31, 2019 give effect to the June 2020 Transactions as if they had occurred on January 1, 2019, except as described below.
The following unaudited pro forma condensed consolidated financial information and related notes present the historical financial information of the Company adjusted to give pro forma effect to events that are (i) directly attributable to the June 2020 Transactions, and (ii) factually supportable. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the:
| • | audited consolidated financial statements of the Company as at and for the year ended December 31, 2019 and the related notes, incorporated by reference in this prospectus. |
| • | unaudited condensed interim consolidated financial statements of the Company as at and for the three months ended March 31, 2020 and the related notes, incorporated by reference in this prospectus. |
The presentation of the unaudited pro forma condensed consolidated financial information is prepared in conformity with Article 11 of Regulation S-X.
The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the June 2020 Transactions had been completed on the dates indicated. The pro forma adjustments represent management’s best estimate and are based upon currently available information and certain assumptions the Company believes are reasonable under the circumstances. Refer to footnotes to the unaudited pro forma condensed consolidated financial information for more information on the basis of preparation.
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Sundial Growers Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Financial Position
As at March 31, 2020
| (amounts presented in CAD thousands) | Historical Sundial Growers Inc. |
Pro Forma Adjustments |
Notes | Pro Forma Sundial Growers Inc. |
||||||||||||
| Assets |
||||||||||||||||
| Current assets |
||||||||||||||||
| Cash and cash equivalents |
21,157 | (1,676 | ) | a | ) | 36,923 | ||||||||||
| (1,480 | ) | b | ) | |||||||||||||
| 18,922 | d | ) | ||||||||||||||
| Restricted cash |
5,332 | — | 5,332 | |||||||||||||
| Accounts receivable |
28,591 | (10,268 | ) | a | ) | 18,323 | ||||||||||
| Biological assets |
13,808 | (4,456 | ) | a | ) | 9,352 | ||||||||||
| Inventory |
67,588 | (888 | ) | a | ) | 66,700 | ||||||||||
| Prepaid expenses and deposits |
8,578 | — | 8,578 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| 145,054 | 154 | 145,208 | ||||||||||||||
| Non-current assets |
||||||||||||||||
| Property, plant and equipment |
278,891 | (91,752 | ) | a | ) | 187,139 | ||||||||||
| Intangible assets |
43,719 | (25,158 | ) | a | ) | 18,561 | ||||||||||
| Goodwill |
11,727 | (11,727 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total assets |
479,391 | (128,483 | ) | 350,908 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Liabilities |
||||||||||||||||
| Current liabilities |
||||||||||||||||
| Accounts payable and accrued liabilities |
73,213 | (17,477 | ) | a | ) | 54,706 | ||||||||||
| (3,227 | ) | c | ) | |||||||||||||
| 2,197 | c | ) | ||||||||||||||
| Current portion of debt |
169,785 | (37,849 | ) | a | ) | 6,141 | ||||||||||
| (73,059 | ) | b | ) | |||||||||||||
| 6,141 | b | ) | ||||||||||||||
| (58,877 | ) | c | ) | |||||||||||||
| Current portion of lease obligation |
608 | (150 | ) | a | ) | 458 | ||||||||||
| Contingent consideration |
35,251 | (35,251 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| 278,857 | (217,552 | ) | 61,305 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Non-current liabilities |
||||||||||||||||
| Long term portion of debt |
— | 65,599 | b | ) | 65,599 | |||||||||||
| SAF Convertible Note |
— | 68,634 | c | ) | 68,634 | |||||||||||
| New Investor Notes |
— | 17,287 | d | ) | 17,287 | |||||||||||
| Derivative liabilities – SAF Warrants |
— | 4,593 | c | ) | 4,593 | |||||||||||
| Derivative liabilities – New Investor Warrants |
— | 3,158 | d | ) | 3,158 | |||||||||||
| Derivative liabilities – Placement Agent Warrants |
— | 835 | d | ) | 835 | |||||||||||
| Lease obligations |
16,561 | (15,368 | ) | a | ) | 1,193 | ||||||||||
| Deferred tax liabilities |
3,219 | (3,219 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| 298,637 | (76,033 | ) | 222,604 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
18
Table of Contents
| (amounts presented in CAD thousands) | Historical Sundial Growers Inc. |
Pro Forma Adjustments |
Notes | Pro Forma Sundial Growers Inc. |
||||||||||||
| Equity |
||||||||||||||||
| Share capital |
510,314 | (2,452 | ) | a | ) | 507,862 | ||||||||||
| Warrants |
27,831 | — | 27,831 | |||||||||||||
| Contributed surplus |
31,378 | — | 31,378 | |||||||||||||
| Contingent consideration |
2,279 | — | 2,279 | |||||||||||||
| Accumulated deficit |
(404,233 | ) | (25,600 | ) | a | ) | (445,672 | ) | ||||||||
| (161 | ) | b | ) | |||||||||||||
| (13,320 | ) | c | ) | |||||||||||||
| (2,358 | ) | d | ) | |||||||||||||
| Accumulated other comprehensive income |
8,559 | (8,559 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| 176,128 | (52,450 | ) | 123,678 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Non-controlling interest |
4,626 | — | 4,626 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and equity |
479,391 | (128,483 | ) | 350,908 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement of Financial Position.
19
Table of Contents
Sundial Growers Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Financial Position
(all amounts presented in $CAD thousands unless otherwise noted)
| a) | On June 5, 2020, the Company closed the Bridge Farm Disposition which included the sale all of the issued and outstanding shares of Bridge Farm. As consideration for the Bridge Farm Disposition, the Purchaser assumed $45 million of debt under Sundial’s existing $115 million Original SAF Credit Agreement, the contingent consideration liabilities related to the remaining earn-out and additional share obligations assumed under the original Bridge Farm acquisition agreement, dated as of July 2, 2019, and the cancellation of approximately 2,700,000 of Sundial common shares held by certain members of the Purchaser. Sundial did not receive any cash consideration in connection with the transaction. Pro forma adjustment represents the estimated net loss on the Bridge Farm Disposition: |
| CAD thousands | ||||
| Book value of assets acquired by the buyer |
(145,925 | ) | ||
| Book value of liabilities assumed by the buyer |
109,314 | |||
| Fair value of cancelled common shares |
2,452 | |||
| Reclassification of foreign currency translation reserve |
8,559 | |||
|
|
|
|||
| Estimated loss on disposal |
(25,600 | ) | ||
|
|
|
|||
| b) | Pro forma adjustment represents the modification of the Original First Lien Credit Agreement whereby the carrying amount of the Original First Lien Credit Agreement will be revised to reflect the new cashflows under the Amended and Restated First Lien Credit agreement discounted by the effective interest rate on the Original First Lien Credit Agreement resulting in a modification loss. Directly attributable transaction costs, estimated at $1.5 million, incurred upon modifying the loan are capitalized as debt issue costs resulting in a revised book value of $71.7 million of which $6.1 million is classified as a current liability and the remaining $65.6 million is classified as a long term liability: |
| CAD thousands | ||||
| Book value of Original First Lien Credit Agreement |
73,059 | |||
| Book value of Amended and Restated Credit Agreement |
(71,740 | ) | ||
| Transaction costs |
(1,480 | ) | ||
|
|
|
|||
| Estimated modification loss |
(161 | ) | ||
|
|
|
|||
| c) | Pro forma adjustment represents the derecognition of the remaining book value associated with the $70 million of aggregate principal amount outstanding under the Original SAF Credit Agreement plus $3.2 million in accrued interest outstanding under the Original SAF Credit Agreement which was exchanged for the issuance of $73.2 million aggregate principal amount of the SAF Convertible Note and 35 million SAF warrants resulting in a loss on extinguishment of debt. The fair value of the SAF Convertible Note inclusive of the conversion feature has been estimated to be $68.6 million and the associated fair value of the SAF Warrants has been estimated to be $4.6 million. The SAF Convertible Note has been designated to be measured as at fair value through profit or loss in these pro forma financial statements. These are provisional amounts subject to change: |
| CAD thousands | ||||
| Book value of remaining Original SAF Credit Agreement |
58,877 | |||
| Book value of accrued interest |
3,227 | |||
| Fair value of SAF Convertible Note |
(68,634 | ) | ||
| Fair value of SAF Warrants |
(4,593 | ) | ||
| Estimated transaction costs |
(2,197 | ) | ||
|
|
|
|||
| Estimated loss on extinguishment of debt |
(13,320 | ) | ||
|
|
|
|||
20
Table of Contents
| d) | Pro forma adjustment represents the issuance of US$18.0 million aggregate principal amount of New Investor Convertible Notes and issuance of 14.5 million New Investor Warrants and 1.1 million Placement Agent Warrants less the original discount of US$3.0 million (CAD$4.3 million) and expensed transaction fees of US$1.1 million (CAD$2.4 million) for net cash proceeds of US$13.3 million (CAD$18.9 million). The fair value of the New Investor Convertible Notes inclusive of the conversion feature has been estimated as $17.3 million and the associated fair value of the New Investor Warrants and Placement Agent Warrants estimated as $3.2 million and $0.8 million, respectively. The New Investor Convertible Notes have been designated to be measured as at fair value through profit or loss in these pro forma financial statements. These are provisional amounts subject to change. |
21
Table of Contents
Sundial Growers, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Loss and Comprehensive Loss
Three months ended March 31, 2020
| (Amounts presented in CAD thousands) | Historical Sundial Growers Inc. |
Pro forma adjustments |
Notes | Pro Forma Sundial Growers Inc. |
||||||||||||
| Revenue |
||||||||||||||||
| Gross revenue |
25,621 | (9,031 | ) | a | ) | 16,590 | ||||||||||
| Excise taxes |
2,584 | — | 2,584 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Net revenue |
23,037 | (9,031 | ) | 14,006 | ||||||||||||
| Cost of sales |
20,489 | (6,982 | ) | a | ) | 13,507 | ||||||||||
| Inventory obsolescence |
7,715 | — | 7,715 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Gross margin before fair value adjustments |
(5,167 | ) | (2,049 | ) | (7,216 | ) | ||||||||||
| Change in fair value of biological assets |
7,083 | (668 | ) | a | ) | 6,415 | ||||||||||
| Change in fair value realized through inventory |
(9,692 | ) | — | (9,692 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Gross margin |
(7,776 | ) | (2,717 | ) | (10,493 | ) | ||||||||||
| General and administrative |
14,393 | (3,785 | ) | a | ) | 10,608 | ||||||||||
| Sales and marketing |
2,280 | (488 | ) | a | ) | 1,792 | ||||||||||
| Research & development |
307 | — | 307 | |||||||||||||
| Depreciation and amortization |
2,247 | (1,590 | ) | a | ) | 657 | ||||||||||
| Foreign exchange loss/(gain) |
170 | (1,724 | ) | a | ) | (1,554 | ) | |||||||||
| Share based compensation |
1,236 | — | 1,236 | |||||||||||||
| Restructuring costs |
2,719 | — | 2,719 | |||||||||||||
| Asset impairment |
5,659 | — | 5,569 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Loss from operations |
(36,787 | ) | 4,870 | 31,917 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Transaction costs |
(1,101 | ) | — | (1,101 | ) | |||||||||||
| Finance costs |
(6,174 | ) | 192 | a | ) | (1,748 | ) | |||||||||
| (292 | ) | b | ) | |||||||||||||
| 4,526 | c | ) | ||||||||||||||
| Gain on disposal of property, plant and equipment |
610 | — | 610 | |||||||||||||
| Change in fair value of contingent consideration |
(761 | ) | 761 | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Loss before tax |
(44,213 | ) | 10,057 | (34,156 | ) | |||||||||||
| Income tax recovery |
230 | (230 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Net loss |
(43,983 | ) | 9,827 | (34,156 | ) | |||||||||||
| Gain on currency translation of foreign operations |
1,693 | (1,693 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|||||||||||||
| Comprehensive loss |
(42,290 | ) | 8,134 | (34,156 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Basic and diluted loss per share |
$ | (0.41 | ) | e | ) | $ | (0.33 | ) | ||||||||
|
|
|
|
|
|
|
|||||||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Loss and Comprehensive Loss.
22
Table of Contents
Sundial Growers, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Loss and Comprehensive Loss
Year ended December 31, 2019
| (Amounts presented in CAD thousands) | Historical Sundial Growers Inc. |
Pro forma adjustments |
Notes | Pro Forma Sundial Growers Inc. |
||||||||||||
| Revenue |
||||||||||||||||
| Gross revenue |
79,225 | (12,928 | ) | a | ) | 66,927 | ||||||||||
| Excise taxes |
3,365 | — | 3,365 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Net revenue |
75,860 | (12,298 | ) | 63,562 | ||||||||||||
| Cost of sales |
56,147 | (9,426 | ) | a | ) | 46,721 | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Gross margin before fair value adjustments |
19,713 | (2,872 | ) | 16,841 | ||||||||||||
| Change in fair value of biological assets |
30,726 | (386 | ) | a | ) | 30,340 | ||||||||||
| Change in fair value realized through inventory sold |
(10,685 | ) | — | (10,685 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Gross margin |
39,754 | (3,258 | ) | 36,496 | ||||||||||||
| General and administrative |
44,449 | (5,515 | ) | a | ) | 38,934 | ||||||||||
| Sales and marketing |
8,888 | (820 | ) | a | ) | 8,068 | ||||||||||
| Research & development |
2,410 | — | 2,410 | |||||||||||||
| Depreciation and amortization |
4,077 | (3,482 | ) | a | ) | 595 | ||||||||||
| Foreign exchange loss/(gain) |
(840 | ) | 1,779 | a | ) | 939 | ||||||||||
| Share based compensation |
39,524 | — | 39,524 | |||||||||||||
| Asset impairment |
162 | — | 162 | |||||||||||||
| Goodwill impairment |
100,305 | (100,305 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Loss from operations |
(159,221 | ) | 105,085 | (54,136 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Transaction costs |
(10,069 | ) | 1,588 | a | ) | (8,481 | ) | |||||||||
| Finance costs |
(28,198 | ) | 417 | a | ) | (34,900 | ) | |||||||||
| (552 | ) | b | ) | |||||||||||||
| (4,209 | ) | c | ) | |||||||||||||
| (2,358 | ) | d | ) | |||||||||||||
| Loss on financial obligation |
(60,308 | ) | — | (60,308 | ) | |||||||||||
| Gain on disposal of property, plant and equipment |
21 | (13 | ) | a | ) | 8 | ||||||||||
| Loss on disposal of Bridge Farm |
— | (25,600 | ) | a | ) | (25,600 | ) | |||||||||
| Change in fair value of contingent consideration |
(18,645 | ) | 18,645 | a | ) | — | ||||||||||
| Change in fair value of investment |
165 | (165 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Loss before tax |
(276,265 | ) | 92,838 | (183,417 | ) | |||||||||||
| Income tax recovery |
4,626 | (1,017 | ) | a | ) | 3,609 | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Net loss |
(271,629 | ) | 91,821 | (179,808 | ) | |||||||||||
| Gain on currency translation of foreign operations |
6,866 | (6,866 | ) | a | ) | — | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Comprehensive loss |
(264,763 | ) | 84,955 | (179,808 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Basic and diluted loss per share |
$ | (3.17 | ) | e | ) | $ | (2.17 | ) | ||||||||
|
|
|
|
|
|
|
|||||||||||
See accompanying Notes to the Unaudited Pro Forma Consolidated Statement of Loss and Comprehensive Loss.
23
Table of Contents
Sundial Growers Inc.
Notes to Unaudited Pro Forma Consolidated Statement of Loss and Comprehensive Loss
| a) | Pro forma adjustments are to reflect the loss associated with Bridge Farm Disposition and remove historical activity related to Bridge Farm as recorded within the condensed consolidated statement of loss and comprehensive loss for the three months ended March 31, 2020 and the consolidated statement of loss and comprehensive loss for the year ended December 31, 2019, respectively. |
| b) | Pro forma adjustments are to remove accretion on the Original First Lien Credit Agreement as recorded within the condensed consolidated statement of loss and comprehensive loss for the three months ended March 31, 2020 and the consolidated statement of loss and comprehensive loss for year ended December 31, 2019, respectively, and to record estimated accretion incurred in relation to the Amended and Restated First Lien Credit Agreement for the same respective periods. The pro forma adjustments also reflect the estimated loss on modification of debt within the year ended December 31, 2019: |
| Three months ended March 31, 2020 |
Year ended December 31, 2019 |
|||||||
| Removal of accretion on Original First Lien Credit Agreement |
168 | 223 | ||||||
| Estimated accretion on Amended and Restated First Lien Credit agreement |
(460 | ) | (614 | ) | ||||
| Estimated modification loss |
— | (161 | ) | |||||
|
|
|
|
|
|||||
| (292 | ) | (552 | ) | |||||
| c) | Pro forma adjustments are to remove accretion and interest on the Original SAF Credit Agreement as recorded within the condensed consolidated statement of loss and comprehensive loss for the three months ended March 31, 2020 and the consolidated statement of loss and comprehensive loss for year ended December 31, 2019, respectively, and to record the estimated loss on extinguishment in relation to the SAF Transaction. There have been no pro forma adjustments to reflect the estimated change in fair value of the SAF Convertible Note and SAF Warrants for these periods as the market condition in which these agreements were negotiated were not reflective of the market conditions in place during the periods presented: |
| Three months ended March 31, 2020 |
Year ended December 31, 2019 |
|||||||
| Removal of accretion on Original SAF Credit Agreement |
1,723 | 3,397 | ||||||
| Removal of interest on Original SAF Credit Agreement |
2,803 | 5,714 | ||||||
| Estimated loss on extinguishment |
— | (13,320 | ) | |||||
|
|
|
|
|
|||||
| 4,526 | (4,209 | ) | ||||||
| d) | Pro forma adjustments are to record the estimated transaction costs of $2.4 million incurred in relation to the issuance of US$18.0 million New Investor Convertible Notes and the issuance of the New Investor Warrants and Placement Agent Warrants. There have been no pro forma adjustments to reflect the estimated change in fair value of the New Investor Convertible Notes. New Investor Warrants and Placement Agent Warrants for these periods as the market condition in which these agreements were negotiated were not reflective of the market conditions in place during the periods presented. |
24
Table of Contents
| e) | Pro forma adjustments are to reflect the cancellation of 2.7 million shares in the calculation of the weighted average shares outstanding to determine the impact of the pro forma adjustments on basic and diluted loss per share for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively: |
| Three months ended March 31, 2020 |
Year ended December 31, 2019 |
|||||||
| Weighted average shares for the period |
107,320 | 85,750 | ||||||
| Cancellation of shares |
(2,700 | ) | (2,700 | ) | ||||
|
|
|
|
|
|||||
| Pro forma adjusted weighted average shares for the period |
104,620 | 83,050 | ||||||
|
|
|
|
|
|||||
| Pro forma adjusted net loss |
(34,156 | ) | (179,808 | ) | ||||
| Pro forma adjusted basic and diluted loss per share |
$ | (0.33 | ) | $ | (2.17 | ) | ||
25
Table of Contents
DESCRIPTION OF COMMON SHARES WE MAY OFFER
Set forth below is a summary of certain information concerning our share capital and the general terms and conditions of the common shares we may offer. The summary below contains only material information concerning our share capital, common shares and corporate status and does not purport to be complete and is qualified in its entirety by reference to our articles of incorporation and applicable Alberta law.
We may offer our common shares, including common shares issuable upon the conversion of preferred shares and upon the exercise of warrants.
Authorized Capital
We are authorized to issue an unlimited number of common shares, no par value, of which, as of July 28, 2020, 106,142,715 are issued and outstanding as fully paid and non-assessable.
Dividends
The holders of common shares are entitled to receive any dividend declared by the Company on the common shares, provided that the Company shall be entitled to declare dividends on any other classes of shares without being obliged to declare dividends on the common shares. Sundial is authorized to issue an unlimited number of preferred shares, issuable in series, none of which are issued and outstanding as of the date hereof. With respect to the payment of dividends, the Company’s preferred shares, if issued, would be entitled to preference over the common shares.
Voting Rights
The holders of common shares are entitled to attend and vote at all meetings of the shareholders of the Company.
Rights Upon Dissolution
Subject to the rights, privileges, restrictions and conditions attaching to any other class of the Company’s shares, the holders of the common shares are entitled to share equally in such of the Company’s property as is distributable to the holders of common shares. With respect to the distribution of assets or the return of capital in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, any preferred shares, if issued, would be entitled to preference over the common shares.
Limitations on Liability and Indemnification of Directors and Officers
Under the ABCA, except in respect of an action by or on behalf of a corporation to procure a judgment in its favor (in the absence of court approval in respect of costs, charges and expenses), we may indemnify our current or former directors or officers or another individual who acts or acted at our request as a director or officer of the Company, or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor and the individual’s heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal or administrative proceeding in which the individual is made a party by reason of being a director or officer of the Company or another body corporate. The ABCA also provides that we may advance monies to a director, officer or other individual for costs, charges and expenses reasonably incurred in connection with such a proceeding; provided that such individual shall repay the moneys if the individual does not fulfill the conditions described below or is not successful on the merits in their defense of the action or proceeding.
26
Table of Contents
However, indemnification is prohibited under the ABCA unless the individual:
| • | acted honestly and in good faith with a view to our best interests; and |
| • | in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful. |
Our by-laws require us to indemnify, to the fullest extent permitted by the ABCA, each of our current or former directors and each person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor (or a person who undertakes or has undertaken any liability on behalf of the Company or any such body corporate) and the individual’s heirs and legal representatives, against all costs, charges and expenses, including, without limitation, any amount paid to settle an action or satisfy a judgment reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with us or another entity.
Our by-laws authorize us to purchase and maintain such insurance for the benefit of our directors and officers as our board of directors may determine from time to time.
At present, we are not aware of any pending or threatened litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification would be required or permitted.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
Registration Rights
For a discussion of the registration rights agreement with our former Executive Chairman Edward Hellard, see “Major Shareholders and Related Party Transactions—Related Party Transactions—Agreements with Directors and Officers—Registration Rights Agreement” in our annual report on Form 20-F for the year ended December 31, 2019, filed with the SEC on March 31, 2020 and Exhibit 4.2 to the registration statement of which this prospectus forms a part.
In connection with the SAF Transaction, the Company entered into a registration rights agreement to provide the Creditor and its permitted assigns (i) certain rights to require the Company to register the common shares underlying the SAF Convertible Note and the SAF Warrants under the Securities Act and applicable state securities laws and (ii) certain distribution rights under Canadian securities laws. See “Description of SAF Transaction—Registration Rights Agreement”.
In connection with such sale of the New Investor Convertible Notes and New Investor Warrants, the Company also entered into the New Investor Registration Rights Agreement to provide the holders of the New Investor Convertible Notes and the New Investor Warrants certain rights to require the Company to register the common shares underlying the New Investor Convertible Notes and the New Investor Warrants under the Securities Act. We are filing this prospectus in accordance with the New Investor Registration Rights Agreement. See “Description of Private Placement—Registration Rights Agreement”.
Pursuant to the terms of the Placement Agent Warrants as described under “Prospectus Summary—Recent Developments—Placement Agent Warrants”, the Company provided the Placement Agents (i) certain rights to require the Company to register the common shares underlying the Placement Agent Warrants under the Securities Act and applicable state securities laws and (ii) certain distribution rights under Canadian securities laws.
27
Table of Contents
DESCRIPTION OF PREFERRED SHARES WE MAY OFFER
Set forth below is a summary of certain information concerning the general terms and conditions of the preferred shares we may offer. The summary below contains only material information concerning the preferred shares we may offer and does not purport to be complete and is qualified in its entirety by reference to our articles of incorporation and applicable Alberta law.
The specific terms of any series of preferred shares will be described in a prospectus supplement. Those terms may differ from the terms discussed below. Any series of preferred shares we issue will be governed by our articles of incorporation.
Authorized Preferred Shares
We are authorized to issue an unlimited number of preferred shares, issuable in series, none of which are issued and outstanding as of the date hereof. Each series of preferred shares shall consist of such number of shares and having such designation, rights, privileges, restrictions and conditions as may be determined by our board of directors prior to the issuance thereof. Holders of preferred shares, except as otherwise provided in the terms specific to a series of preferred shares or as required by law, will not be entitled to vote at meetings of holders of shares.
Specific Terms of a Series of Preferred Shares
The preferred shares we may offer will be issued in one or more series. A prospectus supplement will discuss the following features of the series of preferred shares to which it relates:
| • | the designations and stated value per share; |
| • | the number of shares offered; |
| • | the amount of liquidation preference per share; |
| • | the public offering price at which the preferred shares will be issued; |
| • | the dividend rate, the method of its calculation, the dates on which dividends would be paid and the dates, if any, from which dividends would cumulate; |
| • | any redemption or sinking fund provisions; |
| • | any conversion or exchange rights; and |
| • | any additional voting, dividend, liquidation, redemption, sinking fund and other rights, preferences, privileges, limitations and restrictions. |
Rank
Unless otherwise stated in the prospectus supplement, the preferred shares will have priority over our common shares with respect to dividends and distribution of assets, but will rank junior to all our outstanding indebtedness for borrowed money. Any series of preferred shares could rank senior, equal or junior to our other series of preferred shares, as may be specified in a prospectus supplement, as long as our articles of incorporation so permit.
Dividends
Holders of each series of preferred shares shall be entitled to receive cash dividends to the extent specified in the prospectus supplement when, as and if declared by the Board of Directors, from funds legally available for the payment of dividends. The rates and dates of payment of dividends of each series of preferred shares will be
28
Table of Contents
stated in the prospectus supplement. Dividends will be payable to the holders of record of preferred shares as they appear on our books on the record dates fixed by the Board of Directors. Dividends on any series of preferred shares may be cumulative or non-cumulative, as discussed in the applicable prospectus supplement. If any cumulative dividends or amounts payable on the return of capital in respect of a series of preferred shares are not paid in full, all series of preferred shares shall participate ratably in respect of accumulated dividends and accumulated capital.
Convertibility
Shares of a series of preferred shares may be exchangeable or convertible into our common shares, another series of preferred shares or other securities or property. The conversion or exchange may be mandatory or optional. The prospectus supplement will specify whether the preferred shares being offered has any conversion or exchange features, and will describe all the related terms and conditions.
Redemption
The terms, if any, on which preferred shares of a series may be redeemed will be discussed in the applicable prospectus supplement.
Liquidation
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of each series of preferred shares will be entitled to receive distributions upon liquidation in the amount described in the related prospectus supplement. These distributions will be made before any distribution is made on any securities ranking junior to the preferred shares with respect to liquidation, including our common hares. If the liquidation amounts payable relating to the preferred shares of any series and any other securities ranking on a parity regarding liquidation rights are not paid in full, the holders of the preferred shares of that series will share ratably in proportion to the full liquidation preferences of each security. If the liquidation amounts payable are insufficient to pay any distribution to the preferred shares of any series and any other securities ranking on a parity regarding liquidation rights, the holders of the preferred shares of that series will receive nothing. Holders of our preferred shares will not be entitled to any other amounts from us after they have received their full liquidation preference.
Voting
The holders of preferred shares of each series will have no voting rights, except as required by law and as described below or in a prospectus supplement. Our Board of Directors may, upon issuance of a series of preferred shares, grant voting rights to the holders of that series to elect additional board members if we fail to pay dividends in a timely fashion.
Without the affirmative vote of a majority of the shares of preferred shares of any series then outstanding, we may not:
| • | increase or decrease the aggregate number of authorized shares of that series’ |
| • | increase or decrease the par value of the shares of that series; or |
| • | alter or change the powers, preferences or special rights of the shares of that series so as to affect them adversely |
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No Other Rights
The shares of a series of preferred shares will not have any preferences, voting powers or relative, participating, optional or other special rights except:
| • | as discussed above or in the prospectus supplement; |
| • | as provided in our articles of incorporation; or |
| • | as otherwise required by law. |
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DESCRIPTION OF WARRANTS WE MAY OFFER
We may issue warrants for the purchase of debt securities, preferred shares or common shares. Warrants may be issued independently or together with debt securities, preferred shares or common shares and may be attached to or separate from any offered securities. Any issue of warrants will be governed by the terms of the applicable form of warrant and any related warrant agreement which we will file with the SEC and they will be incorporated by reference to the registration statement of which this prospectus is a part on or before the time we issue any warrants.
The particular terms of any issue of warrants will be described in the prospectus supplement relating to the issue. Those terms may include:
| • | the title of such warrants; |
| • | the aggregate number of such warrants; |
| • | the price or prices at which such warrants will be issued; |
| • | the currency or currencies (including composite currencies) in which the price of such warrants may be payable; |
| • | the terms of the securities purchasable upon exercise of such warrants and the procedures and conditions relating to the exercise of such warrants; |
| • | the price at which the securities purchasable upon exercise of such warrants may be purchased; |
| • | the date on which the right to exercise such warrants will commence and the date on which such right shall expire; |
| • | any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the warrants; |
| • | if applicable, the minimum or maximum amount of such warrants that may be exercised at any one time; |
| • | if applicable, the designation and terms of the securities with which such warrants are issued and the number of such warrants issued with each such security; |
| • | if applicable, the date on and after which such warrants and the related securities will be separately transferable; |
| • | information with respect to book-entry procedures, if any; and |
| • | any other terms of such warrants, including terms, procedures and limitations relating to the exchange or exercise of such warrants. |
The prospectus supplement relating to any warrants to purchase equity securities may also include, if applicable, a discussion of certain U.S. and Canadian federal income tax and Employee Retirement Income Security Act of 1974 considerations.
Each warrant will entitle its holder to purchase the principal amount of debt securities or the number of preferred or common shares at the exercise price set forth in, or calculable as set forth in, the applicable prospectus supplement.
After the close of business on the expiration date, unexercised warrants will become void. We will specify the place or places where, and the manner in which, warrants may be exercised in the applicable prospectus supplement.
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Prior to the exercise of any warrants to purchase debt securities, preferred shares or common shares, holders of the warrants will not have any of the rights of holders of the debt securities, preferred shares or common shares purchasable upon exercise.
As of July 28, 2020, there were 18,099,206 warrants for the purchase of our common shares outstanding, of which 15,254,272 15,339,872 warrants were vested and exercisable into an equal number of common shares, at a weighted average exercise price of $5.68. In addition, as of July 30, 2020, the New Investor Warrants were exercisable into 14,457,059 common shares, the SAF Warrants were exercisable into 35,000,000 common shares and the Placement Agent Warrants were exercisable into 1,080,000 common shares.
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DESCRIPTION OF RIGHTS WE MAY OFFER
We may issue rights to purchase our debt securities, common shares, preferred shares or other securities. These rights may be issued independently or together with any other security offered hereby and may or may not be transferable by the shareholder receiving the rights in such offering. In connection with any offering of such rights, we may enter into a standby arrangement with one or more underwriters or other purchasers pursuant to which the underwriters or other purchasers may be required to purchase any securities remaining unsubscribed for after such offering.
Each series of rights will be issued under a separate rights agreement which we will enter into with a bank or trust company, as rights agent, all which will be set forth in the relevant offering material. The rights agent will act solely as our agent in connection with the certificates relating to the rights and will not assume any obligation or relationship of agency or trust with any holders of rights certificates or beneficial owners of rights.
The following description is a summary of selected provisions relating to rights that we may offer. The summary is not complete. When rights are offered in the future, a prospectus supplement, information incorporated by reference or a free writing prospectus, as applicable, will explain the particular terms of those securities and the extent to which these general provisions may apply. The specific terms of the rights as described in a prospectus supplement or free writing prospectus will supplement and, if applicable, may modify or replace the general terms described in this section.
The specific terms of any rights offered will be set forth in a rights agreement and the rights certificate, as applicable. We will file each of these documents, as applicable, with the SEC and they will be incorporated by reference to the registration statement of which this prospectus is a part on or before the time we issue a series of rights. See “Where You Can Find More Information” and “Incorporation by Reference” below for information on how to obtain a copy of a document when it is filed.
The applicable prospectus supplement or free writing prospectus may describe:
| • | in the case of a distribution of rights to our shareholders, the date of determining the shareholders entitled to the rights distribution; |
| • | in the case of a distribution of rights to our shareholders, the number of rights issued or to be issued to each shareholder; |
| • | the exercise price payable for the underlying debt securities, common shares, preferred shares or other securities upon the exercise of the rights; |
| • | the number and terms of the underlying debt securities, common shares, preferred shares or other securities which may be purchased per each right; |
| • | the extent to which the rights are transferable; |
| • | the date on which the holder’s ability to exercise the rights shall commence, and the date on which the rights shall expire; the extent to which the rights may include an over-subscription privilege with respect to unsubscribed securities; |
| • | if applicable, the material terms of any standby underwriting or purchase arrangement entered into by us in connection with the offering of such rights; and |
| • | any other terms of the rights, including, but not limited to, the terms, procedures, conditions and limitations relating to the exchange and exercise of the rights. |
The provisions described in this section, as well as those described under “— Description of Common Shares We May Offer” and “— Description of Preferred Shares We May Offer” above, will apply, as applicable, to any rights we offer.
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DESCRIPTION OF UNITS WE MAY OFFER
We may issue units composed of any combination of our common shares, preferred shares and warrants. We will issue each unit so that the holder of the unit is also the holder of each security included in the unit. As a result, the holder of a unit will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified date.
The following description is a summary of selected provisions relating to units that we may offer. The summary is not complete. When units are offered in the future, a prospectus supplement, information incorporated by reference or a free writing prospectus, as applicable, will explain the particular terms of those securities and the extent to which these general provisions may apply. The specific terms of the units as described in a prospectus supplement or free writing prospectus will supplement and, if applicable, may modify or replace the general terms described in this section.
The specific terms of any units offered will be set forth in a unit agreement, collateral arrangements and depositary arrangements, if applicable. We will file each of these documents, as applicable, with the SEC and they will be incorporated by reference to the registration statement of which this prospectus is a part on or before the time we issue a series of units. See “Where You Can Find More Information” and “Incorporation by Reference” below for information on how to obtain a copy of a document when it is filed.
The applicable prospectus supplement or free writing prospectus may describe:
| • | the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held or transferred separately; |
| • | any provisions for the issuance, payment, settlement, transfer, or exchange of the units or of the securities composing the units; |
| • | whether the units will be issued in fully registered or global form; and |
| • | any other terms of the units. |
The applicable provisions described in this section, as well as those described under “Description of Common Shares We May Offer,” “Description of Preferred Shares We May Offer” and “Description of Warrants We May Offer” above, will apply to each unit and to each security included in each unit, respectively.
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DESCRIPTION OF OTHER SECURITIES
Description of Private Placement
On June 5, 2020, and concurrent with the Debt Restructuring Transactions, the Company entered into the Securities Purchase Agreement with the Investors, providing for the sale of the New Investor Convertible Notes in the aggregate principal amount of US$18,000,000, convertible into common shares at any time at the option of the holders at an initial conversion price of US$1.00, and the New Investor Warrants to acquire up to 14,457,059 common shares at an initial exercise price of US$0.9338 per common share. Proceeds from the sale of the New Investor Convertible Notes, net of original issue discount, placement agents’ fees and other expenses, amount to approximately US$13.3 million, which will be used for general corporate purposes. Cash payments, if any, required to be made under the Securities Purchase Agreement, the New Investor Convertible Notes, the New Investor Warrants and the New Investor Registration Rights Agreement will be subordinated in certain circumstances to payments under the Amended and Restated Credit Agreement and SAF Convertible Note; however, such cash pay obligations would be senior to any claims of our shareholders.
New Investor Convertible Notes
The New Investor Convertible Notes were issued to the Investors on June 5, 2020 and mature on June 5, 2022 (subject to extension in certain circumstances, including bankruptcy and other events of default). The following is a brief summary of the terms of the New Investor Convertible Notes:
Interest
The New Investor Convertible Notes do not bear interest, except upon the occurrence (and during the continuance) of a Triggering Event (as defined in the New Investor Convertible Notes), in which case the New Investor Convertible Notes will accrue interest at the rate of 18.0% per annum. See “—Events of Default; Redemption Rights” below.
Conversions
General
The New Investor Convertible Notes are convertible, at the option of the Investors, into common shares at an initial conversion price of US$1.00. The conversion price is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the conversion price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. If we issue, sell or enter into any agreement to issue or sell, any variable rate securities, the Investors have the additional right to substitute the variable price (or formula) of such securities for the conversion price.
Alternate Optional Conversion
Beginning on the earlier of the date of effectiveness of this registration statement and September 1, 2020, and on the first day of each calendar month thereafter, the Investors will have the right to convert up to US$4.0 million of aggregate principal amount of New Investor Convertible Notes into our common shares at an alternate optional conversion price equal to the lower of (i) the applicable conversion price as in effect on such conversion date and (ii) the greater of (x) US$0.1624 and (y) 88% of the lowest volume-weighted average price (“VWAP”) of our common shares during the five consecutive trading day period ending and including the date of the delivery of the applicable conversion notice with respect to such conversion.
Alternate Conversion upon Triggering Event
If a Triggering Event has occurred under the New Investor Convertible Notes, the holders may elect to alternatively convert the New Investor Convertible at an alternate triggering conversion price equal to the lower
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of (i) the then-current conversion price and(ii) the greater of (x) US$0.1624 and (y) 80% of the lowest VWAP of the common shares during the eight consecutive trading day period ending and including the date of the delivery of the applicable conversion notice (the “Alternate Triggering Event Conversion Price”).
Conversion Limitation
The Investors will not have the right to convert any portion of the New Investor Convertible Notes, to the extent that, after giving effect to such conversion, such Investor (together with certain related parties) would beneficially own in excess of 9.99% of the shares of our common stock outstanding immediately after giving effect to such conversion.
Events of Default; Redemption Rights
The New Investor Convertible Notes include certain customary events of default. If an Event of Default (other than a Bankruptcy Event of Default (as defined in the New Investor Convertible Notes)) were to occur, the holders may require all or any portion of the New Investor Convertible Notes to be redeemed by the Company at a price equal to the greater of (i) the product of (A) the amount to be redeemed multiplied by (B) a redemption premium of 125% and (ii) the product of (X) the then-current conversion rate multiplied by (Y) the product of (1) a redemption premium of 125% multiplied by (2) the greatest closing sale price of the common shares on any trading day during the period commencing on the date immediately preceding such Event of Default and ending on the trading day immediately prior to the date on which the Company makes the entire payment required to be made.
In addition, if a Bankruptcy Event of Default were to occur, the New Investor Convertible Notes would automatically become immediately due and payable in cash in an amount equal to all outstanding principal, accrued and unpaid interest and unpaid late charges thereon multiplied by a redemption premium of 125%.
Fundamental Transactions; Change of Control
The New Investor Convertible Notes prohibit us from entering into Fundamental Transactions (as defined in the New Investor Convertible Notes), including specified transactions involving a Change of Control (as defined in the New Investor Convertible Notes), unless the successor entity assumes all of our obligations under the New Investor Convertible Notes under a written agreement, satisfactory in form and substance to, and approved by, the Investors, before the transaction is completed.
In connection with a Change of Control, the Investors may require us to redeem in cash all or any portion of the New Investor Convertible Notes. The redemption price will equal the greatest of (i) 125% of the outstanding principal of the New Investor Convertible Notes to be redeemed, and accrued and unpaid interest and unpaid late charges thereon, (ii) 125% of the market value of the shares of our common stock underlying the New Investor Convertible Notes, as determined in accordance with the terms of the New Investor Convertible Notes, and (iii) 125% of the aggregate cash consideration that would have been payable in respect of the common shares underlying the New Investor Convertible Notes, as determined in accordance with the terms of the New Investor Convertible Notes.
Covenants
Pursuant to the New Investor Convertible Notes, we are subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters.
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Company’s Right of Optional Redemption
At any time after the later of (i) the date the New Investor Convertible Notes become freely tradeable and (ii) the date no Equity Conditions Failure (as defined in the New Investor Convertible Notes) exists, we may redeem all (but not less than all) of the New Investor Convertible Notes outstanding, including accrued and unpaid interest and unpaid late charges thereon, at a price equal to 125% of the greater of (i) the amount to be redeemed, and (ii) the product of (1) the then-applicable conversion rate and (2) the greatest closing sale price of the common shares on any trading day during the period commencing on the date immediately preceding the date of the redemption notice and ending on the trading day immediately prior to the date of redemption.
New Investor Warrants
The New Investor Warrants were issued to the Investors on June 5, 2020, are immediately exercisable, and expire 42 months from the date that the underlying common shares become freely tradeable. The following is a brief summary of the terms of the New Investor Warrants:
Exercise Price
The New Investor Warrants will initially be exercisable at an exercise price of US$0.9338 per common share, subject to adjustment as provided in “—Adjustments” below. The New Investor Warrants may be exercised for cash or, at the option of the holder, on a cashless basis if, after the six-month anniversary of the issuance date of the New Investor Warrants, there is no effective registration statement registering, or no current prospectus available for, the resale of the common shares underlying the New Investor Warrants.
Adjustments
The exercise price is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the exercise price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. Upon any adjustment to the exercise price, the number of common shares that may be purchased upon exercise of the New Investor Warrants will be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of common shares issuable upon warrant exercise will be the same as the aggregate exercise price in effect immediately prior to such adjustment. If we issue, sell or enter into any agreement to issue or sell, any variable rate securities, the Investors have the additional right to substitute the variable price (or formula) of such securities for the exercise price.
Exercise Limitations
The New Investor Warrants may not be exercised if, after giving effect to the exercise, the Investors (together with certain related parties), would beneficially own in excess of 9.99% of our common shares outstanding immediately after giving effect to the issuance of such common shares upon exercise.
Fundamental Transactions; Change of Control
The New Investor Warrants prohibit us from entering into Fundamental Transactions (as defined in the New Investor Warrants), including specified transactions involving a Change of Control (as defined in the New Investor Warrants), unless the successor entity assumes all of our obligations under the New Investor Warrants under a written agreement, satisfactory in form and substance to, and approved by, the Investors, before the transaction is completed.
In connection with a Change of Control, we or a successor entity (as the case may be) may be required to redeem or exchange, as applicable, the New Investor Warrants for consideration equal to the Black Scholes
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Value (as defined in the New Investor Warrants) of such portion of the New Investor Warrants subject to exchange. We may, at our election, pay such consideration either (i) in cash or (ii) in the same form of consideration as was paid to the shareholders in such Change of Control transaction.
Registration Rights Agreement
Pursuant to the New Investor Registration Rights Agreement, we have granted certain registration rights to the Investors. The New Investor Registration Rights Agreement requires us to file a registration statement covering the resale of the common shares underlying the New Investor Convertible Notes and New Investor Warrants within 30 days and to have the registration statement declared effective within 90 days of after the date of the Securities Purchase Agreement. It also grants the Investors customary “piggyback” registration rights. If we fail to file the registration statement or have it declared effective by the deadlines above, or if certain other conditions relating to the availability of the registration statement and current public information are not met, we will pay certain Registration Delay Payments (as defined in the New Investor Registration Rights Agreement) to such noteholders.
Securities Purchase Agreement
The Securities Purchase Agreement contains certain representations and warranties, covenants and indemnities customary for similar transactions. Under the Securities Purchase Agreement, we also agreed to the following additional covenants:
| • | During the period commencing on the issuance date of the New Investor Convertible Notes through and including the 30th trading day after the earlier to occur of (i) the first date on which this registration statement is declared effective by the SEC, or (ii) the first date on which all of the common shares being offered hereby are eligible to be resold by the Investors pursuant to Rule 144, we may not issue, offer, sell or grant any equity or equity-linked security, subject to certain limited exceptions. |
| • | So long as the New Investor Convertible Notes remain outstanding, we will not effect or enter an agreement to effect any variable rate transaction (other than the SAF Transaction and the Placement Agent Warrants). |
In addition, we granted the Investors participation rights in future equity and equity-linked offerings of securities during the two years after the closing in an amount of up to 30% of the securities being sold in such offerings.
In addition, the Securities Purchase Agreement, the New Investor Convertible Notes, the New Investor Warrants and the New Investor Registration Rights Agreement may require us to make certain cash payments to the Investors in the event we fail to deliver unrestricted common shares upon conversion or exercise, as applicable, and in certain other circumstances. Any such cash payments will be subordinated in certain circumstances to payments under the Amended and Restated Credit Agreement and SAF Convertible Note; however, such cash pay obligations would be senior to any claims of our shareholders.
The foregoing summary is not intended to modify or supplement any disclosures about us in our reports filed with the Securities and Exchange Commission. In particular, the agreements and the related summary are not intended to be, and should not be relied upon, as disclosures regarding any facts and circumstances relating to the Company or any of its subsidiaries or affiliates. The agreements contain representations and warranties by us, which were made only for purposes of such agreements and as of specified dates. The representations, warranties and covenants in the agreements were made solely for the benefit of the parties to the agreements; may be subject to limitations agreed upon by the contracting parties, including being subject to confidential disclosures that may modify, qualify or create exceptions to such representations and warranties; may be made for the purposes of allocating contractual risk between the parties to the agreements
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instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the agreements, which subsequent information may or may not be fully reflected in our public disclosures.
The above does not purport to be a complete description of the Securities Purchase Agreement, the New Investor Convertible Notes, the New Investor Warrants and the New Investor Registration Rights Agreement and is qualified in its entirety by reference to the full text of Exhibit 10.6 to the registration statement of which this prospectus forms a part.
Description of SAF Transaction
On June 5, 2020, in connection with the Securities Restructuring Agreement: (i) the Company and the Creditor amended and restated the Parent Obligations Outstanding by issuing the SAF Convertible Note, in the aggregate principal amount of $73,227,465.75, convertible into common shares (subject to strict limitations) issuable pursuant to the terms of the SAF Convertible Note at an initial conversion price of US$1.00 per common share, and (ii) in consideration of SAF agreeing to amend and restate the Parent Obligations Outstanding, the Company issued to the Creditor the SAF Warrants to acquire up to 17,500,000 common shares at an exercise price of US$1.00 per warrant and common share purchase warrants to acquire up to 17,500,000 common shares at an exercise price of US$1.20 per warrant.
SAF Convertible Note
General
The SAF Convertible Note was issued to the Creditor on June 5, 2020 and matures on June 5, 2022 (subject to extension in certain circumstances, including bankruptcy and outstanding events of default). The following is a brief summary of the terms of the SAF Convertible Note:
Interest
The SAF Convertible Note does not bear interest, except upon the occurrence (and during the continuance) of a Triggering Event (as defined in the SAF Convertible Note), in which case the SAF Convertible Note will accrue interest at the rate of 3.0% per annum. See “—Events of Default; Redemption Rights” below.
Ranking; Guarantees; Collateral
The SAF Convertible Note is a senior obligation of the Company and the guarantors thereto. The Company’s obligations under the SAF Convertible Note are guaranteed by each of the Company’s Material Subsidiaries (as defined in the SAF Convertible Note). The SAF Convertible Note is secured by a second priority perfected lien in the assets and property of the Company and the guarantors that secure the Amended and Restated Credit Agreement.
Conversion
General
The holder of the SAF Convertible Note will be able to convert the SAF Convertible Note into common shares at any time after the earlier of (x) the date upon which the indebtedness outstanding under the New Investor Convertible Notes is less than a certain amount and (y) February 1, 2021 (a date so determined, the “Threshold Date”). The SAF Convertible Note is convertible at an initial conversion price of US$1.00, subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the conversion price then in effect and standard adjustments in the event of any share split, share dividend, share combination,
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recapitalization or other similar transaction. If we issue, sell or enter into any agreement to issue or sell, any variable rate securities, the Creditor has the additional right to substitute the variable price (or formula) of such securities for the conversion price. The Company may prepay any portion of the outstanding principal, accrued and unpaid interest on principal and interest, if any, at any time prior to the maturity date of the SAF Convertible Note in its sole discretion subject to the intercreditor agreement among the agent for the Amended and Restated Credit Agreement, the Creditor and the Company and certain of its subsidiaries.
Alternate Optional Conversion
Beginning on the Threshold Date, and on the first day of each calendar month thereafter, the holder will have the right to convert an additional US$10.0 million of aggregate principal amount of the SAF Convertible Note into our common shares at an alternate optional conversion price equal to the lower of (i) the then-current conversion price, and (ii) the greater of (x) US$0.1624 and (y) 92% of the VWAP of our common shares during the eight consecutive trading day period ending and including the date of the delivery of the applicable conversion notice with respect to such conversion.
Alternate Conversion upon Triggering Event
Following the Threshold Date, if a Triggering Event (as defined in the SAF Convertible Note) were to occur, the holder may elect to alternatively convert the SAF Convertible Note at an alternate triggering conversion price equal to the lower of (i) the then-current conversion price, and (ii) the greater of (x) US$0.1624 and (y) 92% of the VWAP of our common shares during the eight consecutive trading day period ending and including the date of the delivery of the applicable conversion notice with respect to such conversion.
Conversion Limitation
The holder will not have the right to convert any portion of the SAF Convertible Note, to the extent that, after giving effect to such conversion, the holder (together with certain related parties) would beneficially own in excess of 9.99% (after taking into account any other holdings) of our common shares outstanding immediately after giving effect to such conversion.
Events of Default; Redemption Rights
If an Event of Default (as defined in the SAF Convertible Note) (other than a Bankruptcy Event of Default (as defined in the SAF Convertible Note)) were to occur, the holder may require all or a portion of the SAF Convertible Note to be redeemed by the Company at a price equal to the greater of (i) the product of (A) the amount to be redeemed multiplied by (B) a redemption premium of 103% (to be increased, in certain circumstances, to 115%) (the “SAF Redemption Premium”) and (ii) the product of (X) the then-current conversion rate multiplied by (Y) the product of (1) the SAF Redemption Premium multiplied by (2) the greatest closing sale price of the common shares on any trading day during the period commencing on the date immediately preceding such event of default and ending on the trading day immediately prior to the date on which the Company makes the entire payment required to be made.
In addition, if a Bankruptcy Event of Default (as defined in the SAF Convertible Note) were to occur, the SAF Convertible Note would automatically become immediately due and payable in cash in an amount equal to all outstanding principal and interest multiplied by the SAF Redemption Premium, in addition to any and all other amounts due thereunder.
Fundamental Transactions; Change of Control
The SAF Convertible Note prohibits us from entering into Fundamental Transactions (as defined in the SAF Convertible Note), including specified transactions involving a Change of Control (as defined in the SAF
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Convertible Note), unless the successor entity assumes all of our obligations under the SAF Convertible Note under a written agreement, satisfactory in form and substance to, and approved by, the Creditor, before the transaction is completed.
In connection with a Change of Control, the holder may require us to redeem all or any portion of the SAF Convertible Note. The redemption price per share will equal the greatest of (i) 103% (the “SAF Change of Control Premium”) of the outstanding principal of the SAF Convertible Note to be redeemed, and accrued and unpaid interest and unpaid late charges thereon, (ii) the product of (x) the SAF Change of Control Premium and (y) the market value of our common shares underlying the SAF Convertible Note, as determined in accordance with the terms of the SAF Convertible Note, and (iii) the product of (x) the SAF Change of Control Premium and (y) the aggregate cash consideration that would have been payable in respect of the common shares underlying the SAF Convertible Note, as determined in accordance with the terms of the SAF Convertible Note. If the Change of Control occurs within 12 months of the issue date of the SAF Convertible Note and, at the time of delivery of the redemption notice related to such Change of Control, the Redemption Market Price (as defined in the SAF Convertible Note) is below the then-current exercise price of the SAF Warrants, the SAF Change of Control Redemption Premium will increase to 115%.
Covenants
We are subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters.
SAF Warrants
The SAF Warrants were issued to the Creditor on June 5, 2020 and expire 36 months from the date of issuance. The holder of the SAF Warrants will be able to exercise the SAF Warrants at any time after the Threshold Date. The following is a brief summary of the terms of the SAF Warrants:
Exercise Price
Half of the SAF Warrants will initially be exercisable at an exercise price of US1.00 per common share and half of the SAF Warrants will initially be exercisable at an exercise price of US $1.20 per common share, subject to adjustment as provided in “—Adjustments” below. The SAF Warrants may be exercised for cash or, at the option of the holder, on a cashless basis if, after the later of (i) six-month anniversary of the issuance date of the SAF Warrants and (ii) the Threshold Date, there is no effective registration statement registering, or no current prospectus available for, the resale of the common shares underlying the SAF Warrants. In certain circumstances, the SAF Warrants are subject to forced exercise provisions. If we issue, sell or enter into any agreement to issue or sell, any variable rate securities, the Creditor has the additional right to substitute the variable price (or formula) of such securities for the exercise price.
Adjustments
The exercise price is subject to full ratchet antidilution protection upon any subsequent transaction at a price lower than the exercise price then in effect and standard adjustments in the event of any share split, share dividend, share combination, recapitalization or other similar transaction. Upon any adjustment to the exercise price, the number of common shares that may be purchased upon exercise of the SAF Warrants will be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of common shares issuable upon warrant exercise will be the same as the aggregate exercise price in effect immediately prior to such adjustment.
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Exercise Limitations
The SAF Warrants may not be exercised if, after giving effect to the exercise, the holder thereof (together with certain related parties), would beneficially own in excess of 9.99% (taking into account any other current holdings) of our common shares outstanding immediately after giving effect to the issuance of such common shares upon exercise.
Fundamental Transactions; Change of Control
The SAF Warrants prohibit us from entering into Fundamental Transactions (as defined in the SAF Warrants), including specified transactions involving a Change of Control (as defined in the SAF Warrants), unless the successor entity assumes all of our obligations under the SAF Warrants under a written agreement, satisfactory in form and substance to, and approved by, the Creditor, before the transaction is completed.
In connection with a Change of Control, we or a successor entity (as the case may be) may be required to redeem or exchange, as applicable, the SAF Warrants for consideration equal to the Black Scholes Value (as defined in the SAF Warrants) of such portion of the SAF Warrants subject to exchange. We may, at our election, pay such consideration either (i) in cash or (ii) in the same form of consideration as was paid to the shareholders in such Change of Control transaction.
Registration Rights Agreement
In connection with the SAF Transaction as set out above and as contemplated in the Securities Restructuring Agreement, the Company entered into a registration rights agreement (the “SAF Registration Rights Agreement”) to provide the Creditor and its permitted assigns (i) certain rights to require the Company to register the common shares underlying the SAF Convertible Note and the SAF Warrants under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), and applicable state securities laws and (ii) certain distribution rights under Canadian securities laws. The SAF Registration Rights Agreement allows the holder of the SAF Convertible Note and SAF Warrants to make up to four demands for registration of at least US$2.0 million of registrable securities pursuant to a registration statement covering the resale of the common shares underlying the SAF Convertible Note and the SAF Warrants, which registration statement shall be filed within 20 days of such registration demand and made effective within 60 days of such registration demand. The SAF Registration Rights Agreement also grants the Creditor customary “piggyback” registration rights.
Securities Restructuring Agreement
The Securities Restructuring Agreement contains certain representations and warranties, covenants and indemnities customary for similar transactions. Under the Securities Restructuring Agreement, we also agreed to the following additional covenants:
| • | During the period commencing on the Threshold Date through and including the 30th calendar day after the principal amount outstanding under the SAF Convertible Note is less than $50.0 million, we may not issue, offer, sell or grant any equity or equity-linked security, subject to certain limited exceptions. |
| • | So long as the SAF Convertible Note remains outstanding, we will not effect or enter an agreement to effect any variable rate transaction (other than the New Investor Convertible Notes, New Investor Warrants or the Placement Agent Securities). |
In addition, we granted the Creditor participation rights in future equity and equity-linked offerings of securities consummated on or prior to the earlier of (x) the three-month anniversary of the Threshold Date and (y) the date the SAF Convertible Note is not outstanding, in an amount of up to 10% of the securities being sold in such offerings.
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The foregoing summary is not intended to modify or supplement any disclosures about us in our reports filed with the Securities and Exchange Commission. In particular, the agreements and the related summary are not intended to be, and should not be relied upon, as disclosures regarding any facts and circumstances relating to the Company or any of its subsidiaries or affiliates. The agreements contain representations and warranties by us, which were made only for purposes of such agreements and as of specified dates. The representations, warranties and covenants in the agreements were made solely for the benefit of the parties to the agreements; may be subject to limitations agreed upon by the contracting parties, including being subject to confidential disclosures that may modify, qualify or create exceptions to such representations and warranties; may be made for the purposes of allocating contractual risk between the parties to the agreements instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the agreements, which subsequent information may or may not be fully reflected in our public disclosures.
The above does not purport to be a complete description of the Securities Restructuring Agreement, the SAF Convertible Note or the SAF Warrants and is qualified in its entirety by reference to the full text of Exhibit 10.5 to the registration statement of which this prospectus forms a part.
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The material Canadian and U.S. federal income tax consequences relating to the purchase, ownership and disposition of any of the securities offered by this prospectus will be set forth in the prospectus supplement offering those securities.
The validity of the issuance of the shares offered in this prospectus and certain other matters of Canadian law will be passed upon for us by McCarthy Tétrault LLP, Calgary, Canada. We are being represented by Shearman & Sterling LLP, Toronto, Canada, with respect to certain matters of U.S. law. Additional legal matters may be passed upon for us and any underwriters, dealers or agents by counsel that we will name in the applicable prospectus supplement.
The consolidated financial statements of Sundial Growers Inc. as at and for the year ended December 31, 2019, ten months ended December 31, 2018 and the year ended February 28, 2018 incorporated by reference into this prospectus from our annual report on Form 20-F for the year ended December 31, 2019, have been audited by KPMG LLP. KPMG LLP have confirmed with respect to Sundial Growers Inc. that they are independent within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations and also that they are independent accountants with respect to Sundial Growers Inc. under all relevant U.S. professional and regulatory standards. Such consolidated financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The offices of KPMG LLP are located at 205–5th Avenue SW, Suite 2700, Calgary, Alberta, Canada.
CHANGE IN THE REGISTRANT’S CERTIFYING ACCOUNTANT
Effective for the fiscal year ended December 31, 2018, MNP LLP (“MNP”) resigned as our independent auditors as we engaged new auditors in connection with the listing to which the registration statement of which this prospectus forms a part relates. MNP did not audit our consolidated financial statements for any period subsequent to the year ended February 28, 2018.
For the years ended February 28, 2018 and 2017, no report by MNP on our consolidated financial statements contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended February 28, 2018 and 2017, and the subsequent period through the appointment of KPMG as our auditor, (i) there were no disagreements (as that term is used in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between us and MNP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of MNP, would have caused MNP to make reference thereto in its report upon on our audited consolidated financial statements for the years ended February 28, 2018 and 2017, and (ii) there were no “reportable events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K.
Effective for the fiscal year ended December 31, 2018, our board of directors appointed KPMG as our independent registered public accounting firm to audit our consolidated financial statements prepared in accordance with IFRS as issued by the IASB for the fiscal year ended December 31, 2018, and to re-audit our consolidated financial statements prepared in accordance with IFRS as issued by the IASB for the years ended February 28, 2018 and 2017.
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During the fiscal years ended December 31, 2019, December 31, 2018, February 28, 2018 and February 28, 2017, and the subsequent period preceding our engagement of KPMG as our independent registered public accounting firm, we did not consult with KPMG on matters that involved the application of accounting principles to a specified transaction, the type of audit opinion that might be rendered on our consolidated financial statements or any other matter that was either the subject of a disagreement or reportable event.
The Canadian transfer agent and registrar for our common shares is Odyssey Trust Company at its principal office in Calgary, Alberta. The United States transfer agent and registrar for our common shares is Equity Stock Transfer, LLC at its principal office in New York, New York.
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ENFORCEMENT OF CIVIL LIABILITIES
We are incorporated under the laws of Alberta. All of our directors and officers, and some of the experts named in this prospectus, are residents of Canada or otherwise reside outside of the United States, and all or a substantial portion of their assets, and all or a substantial portion of our assets, are located outside of the United States. We have appointed an agent for service of process in the United States, but it may be difficult for shareholders who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for shareholders who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors, officers and experts under the United States federal securities laws. There can be no assurance that U.S. investors will be able to enforce against us, members of our board of directors, officers or certain experts named herein who are residents of Canada or other countries outside the United States, any judgments in civil and commercial matters, including judgments under the federal securities laws.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement (including amendments and exhibits to the registration statement) on Form F-3 under the Securities Act with respect to the common shares offered in this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information with respect to Sundial Growers Inc. and the common shares offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address is www.sec.gov.
We are subject to the reporting requirements of the Exchange Act applicable to foreign private issuers. Because we are a foreign private issuer, the SEC’s rules do not require us to deliver proxy statements or to file quarterly reports on Form 10-Q, among other things. However, we currently produce quarterly financial reports and furnish them to the SEC after the end of each of the first three quarters of our fiscal year and file our annual report within four months after the end of our fiscal year. Our annual consolidated financial statements are prepared in accordance with IFRS as issued by the IASB and certified by an independent public accounting firm.
As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations required of us as a foreign private issuer are different than those required by other U.S. domestic reporting companies, our shareholders, potential shareholders and the investing public in general should not expect to receive information about us in the same amount and at the same time as information is received from, or provided by, other U.S. domestic reporting companies.
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The SEC allows us to “incorporate by reference” the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Any information that we file or furnish later with the SEC and that is deemed incorporated by reference will also be considered to be part of this prospectus and will automatically update and supersede the information in this prospectus. In all cases, you should rely on the later information over different information included in this prospectus. This prospectus incorporates by reference the documents listed below, and any future Annual Reports on Form 20-F or Form 40-F that we file with the SEC and certain reports on Form 6-K that we furnish to the SEC (but only to that extent that such Form 6-K states that it is incorporated by reference herein), until the offering of the securities under the registration statement is terminated:
| • | our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, which was filed with the SEC on March 31, 2020, including our audited consolidated balance sheets as at December 31, 2019 and December 31, 2018, and the consolidated statements of financial position, loss and comprehensive loss, changes in shareholders’ equity and cash flows for the year ended December 31, 2019, the ten month period ended December 31, 2018 and the year ended February 28, 2018; |
| • | our report on Form 6-K furnished to the SEC on April 24, 2020 (Acc. No. 0001564590-20-018564), including our notice of 2020 annual general and special meeting of shareholders and information circulated dated April 20, 2020, for the annual general meeting and special meeting of shareholders held on May 20, 2020, which was included as part of Exhibit 99.1, but excluding Exhibit 99.2 thereto; |
| • | our condensed consolidated unaudited interim consolidated financial statements and notes to the condensed consolidated unaudited interim consolidated financial statements for the three months ended March 31, 2020 and 2019, which were included as Exhibit 99.1 to the report on Form 6-K furnished to the SEC on May 15, 2020 (Acc. No. 0001279569-20-000791), together with the Management Discussion and Analysis of financial condition and performance for the three months ended March 31, 2020 and 2019 (our “Q1 2020 MD&A”), which was included as Exhibit 99.2 to the report on Form 6-K furnished to the SEC on May 15, 2020 (Acc. No. 0001279569-20-000791); |
| • | our reports on Form 6-K furnished to the SEC on January 10, 2020, January 30, 2020, April 9, 2020, April 15, 2020, April 24, 2020 (Acc. No. 00001279569-20-000611), May 1, 2020, May 12, 2020, May 15, 2020 (Acc. No. 0001279569-20-000790), May 21, 2020, May 26, 2020, June 1, 2020, June 8, 2020, and June 19, 2020; and |
| • | the description of our securities as set forth on Exhibit 2.4 of our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, which was filed with the SEC on March 31, 2020. |
Copies of the documents incorporated herein by reference may be obtained on request without charge from our Chief Financial Officer at #300, 919 – 11 Avenue SW Calgary, AB T2R 1P3, telephone +1 (403) 948-5227 or on our website at www.sndlgroup.com. The information on our website is not incorporated by reference into this prospectus. These documents are also available through the Internet on SEDAR, which can be accessed online at www.sedar.com, and on the SEC’s Electronic Data Gathering and Retrieval System at www.sec.gov.
You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of those documents.
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Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein, or in a subsequently filed document incorporated by reference herein, modifies or supersedes that statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this prospectus.
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$100,000,000
Common Shares
Preferred Shares
Warrants
Rights
Units
PROSPECTUS
, 2020
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PART II
Information Not Required in Prospectus
| Item 8. | Indemnification of Directors and Officers. |
Under the Business Corporations Act (Alberta), or the ABCA, except in respect of an action by or on behalf of a corporation to procure a judgment in its favor (in the absence of court approval in respect of costs, charges and expenses), we may indemnify our current or former directors or officers or another individual who acts or acted at our request as a director or officer, or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor and the individuals heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal or administrative proceeding in which the individual is made a party because of his or her association with us or another entity. The ABCA also provides that we may advance monies to a director, officer or other individual for costs, charges and expenses reasonably incurred in connection with such a proceeding; provided that such individual shall repay the moneys if the individual does not fulfill the conditions described below or is not successful on the merits in their defense of the action or proceeding.
However, indemnification is prohibited under the ABCA unless the individual:
| • | acted honestly and in good faith with a view to our best interests; and |
| • | in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful. |
Our by-laws require us to indemnify to the fullest extent permitted by the ABCA each of our current or former directors and each person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor (or a person who undertakes or has undertaken any liability on behalf of the Company or any such body corporate) and the individuals heirs and legal representatives, against all costs, charges and expenses, including, without limitation, an amount paid to settle an action or satisfy a judgment reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with us or another entity.
Our by-laws authorize us to purchase and maintain such insurance for the benefit of our directors and officers as our board of directors may determine from time to time, subject to any limitations in the ABCA.
| Item 9. | Exhibits and Financial Statement Schedules. |
| (a) | Exhibits. |
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EXHIBIT INDEX
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| † | Portions of this exhibit have been omitted pursuant to Item 601(a)(6), Item 601(b)(2)(ii) or Item 601(b)(10)(iv), as applicable, of Regulation S-K under the Securities Act of 1933, as amended, because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed or include information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. |
(b) Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.
| Item 10. | Undertakings. |
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
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(4) To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Item 8.A of Form 20-F if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities
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to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-3 and has duly caused this Registration Statement on Form F-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in Calgary, Canada, on August 4, 2020.
| By: | /s/ Zachary George | |
| Name: | Zachary George | |
| Title: | Chief Executive Officer |
Each of the undersigned members of the board of directors of the Registrant hereby severally constitutes and appoints Zachary George and James Keough as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any subsequent registration statements pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature |
Title |
Date | ||
| /s/ Zachary George Zachary George |
Chief Executive Officer and Director (Principal Executive Officer) |
August 4, 2020 | ||
| /s/ James Keough James Keough |
Chief Financial Officer (Principal Financial and Accounting Officer) |
August 4, 2020 | ||
| /s/ J. Gregory Mills J. Gregory Mills |
Chairman and Director |
August 4, 2020 | ||
| /s/ Gregory Turnbull Gregory Turnbull |
Director |
August 4, 2020 | ||
| /s/ Elizabeth Cannon Elizabeth Cannon |
Director |
August 4, 2020 | ||
| /s/ Bryan D. Pinney Bryan D. Pinney |
Director |
August 4, 2020 | ||
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Signature of Authorized U.S. Representative of Registrant
Pursuant to the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Sundial Growers Inc., has signed this Registration Statement on August 4, 2020.
| By: | /s/ Donald J. Puglisi | |
| Name: | Donald J. Puglisi | |
| Title: | Managing Director, Puglisi & Associates |
Exhibit 5.1
| McCarthy Tétrault LLP Suite 4000 Toronto-Dominion Bank Tower 421-7th Avenue S.W. Calgary, Alberta, T2P 4K9 Canada |
August 4, 2020
Sundial Growers Inc.
#300, 919 – 11 Avenue SW
Calgary, Alberta T2R 1P3
Canada
Dear Sirs/Mesdames:
| RE: | Sundial Growers Inc. – Registration Statement on Form F-3 |
We have acted as Canadian counsel to Sundial Growers Inc. (the “Corporation”), a corporation existing under the laws of the Province of Alberta, in connection with the Registration Statement on Form F-3 (the “Registration Statement”) of the Corporation to be filed with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended. The Registration Statement registers the issuance and sale of up to US$100,000,000 of the Corporation’s common shares (“Common Shares”), preferred shares (“Preferred Shares”), warrants (“Warrants”), rights (“Rights”) and units, comprised of one or more other Securities, in any combination (“Units” and, together with the Common Shares, Preferred Shares, Warrants and Rights, the “Securities”) that the Corporation may sell from time to time in one or more offerings on terms to be determined at the time of sale pursuant to the Registration Statement and one or more prospectus supplements to the Registration Statement.
In so acting, we have examined copies of the Registration Statement. We have also examined copies, certified or otherwise identified to our satisfaction, of such public and corporate records, certificates, instruments and other documents and have considered such questions of law as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. With respect to the accuracy of factual matters material to this opinion, we have relied upon certificates or comparable documents and representations of public officials and of officers and representatives of the Corporation.
We have assumed (i) the genuineness of all signatures on all documents examined by us and the conformity to original documents of all documents submitted to us as copies, whether facsimile, electronic, photostatic, certified or otherwise, and the authenticity of the originals of such copies, (ii) all information contained in all documents reviewed by us is true and correct, (iii) each natural person signing any document reviewed by us had the legal capacity to do so, none of which facts we have independently verified, (iv) no order, ruling or decision of any court or regulatory or administrative body is in effect at any relevant time that restricts the issuance of the Securities, (v) there is no foreign law that would affect the opinion expressed herein, and (vi) at the time of the execution and delivery of any documents relating to the Securities or the offering thereof, to the extent such documents purport to constitute agreements, such documents constitute valid and binding obligations of such parties. We also have assumed the due authorization, execution and delivery of all documents where authorization, execution and delivery are prerequisites to the effectiveness of such documents.
We have also assumed that:
| 1. | the Corporation has the necessary corporate power and capacity to execute, deliver and perform its obligations under the terms and conditions of any purchase, underwriting or other agreement, indenture or instrument relating to the Corporation’s creation, authentication, issuance, sale and/or delivery of the Securities to which the Corporation is party (any such agreement, the “Agreement”); |
| 2. | the Corporation has the necessary corporate power and capacity to authorize, create, authenticate, validly issue, sell and deliver the Securities and perform its obligations under the terms and conditions of the Securities; |
| 3. | all necessary corporate action has been taken by the Corporation to duly authorize the execution and delivery by the Corporation of the Agreement and the performance of its obligations under the terms and conditions thereof; |
| 4. | all necessary corporate action has been taken by the Corporation to duly authorize, create, authenticate, sell, deliver and validly issue the Securities and to perform its obligations under the terms and conditions of the Securities, and all of the terms and conditions relevant to the execution, delivery and issuance of the Securities in the applicable Agreement have been complied with; |
| 5. | all necessary corporate action has been taken by the Corporation to duly authorize the terms of the offering of the Securities and related matters; |
| 6. | the Agreement: (i) has been duly authorized, executed and delivered by all parties thereto and such parties have the capacity to do so; (ii) constitutes a legal, valid and binding obligation of all parties thereto; (iii) is enforceable in accordance with its terms against all parties thereto; and (iv) is governed by the laws of the Province of Alberta; |
| 7. | the Securities have been duly authorized, created, authenticated, sold and delivered and validly issued by the Corporation and any other person signing or authenticating the Securities, as applicable; |
| 8. | the terms of the offering of the Securities and related matters have been duly authorized by the Corporation; |
| 9. | the execution and delivery of the Agreement and the performance by the Corporation of its obligations under the terms and conditions thereunder do not and will not conflict with and do not and will not result in a breach of or default under, and do not and will not create a state of facts which, after notice or lapse of time or both, will conflict with or result in a breach of or default under any of the terms or conditions of the articles of the Corporation, any resolutions of the board of directors or shareholders of the Corporation, any agreement or obligation of the Corporation or applicable law; |
| 10. | the authorization, creation, authentication, sale, delivery and issuance of the Securities and the Corporation’s performance of its obligations under the terms and conditions of the Securities do not and will not conflict with and do not and will not result in a breach of or default under, and do not and will not create a state of facts which, after notice or lapse of time or both, will conflict with or result in a breach of or default under any of the terms or conditions of the articles of the Corporation, any resolutions of the board of directors or shareholders of the Corporation, any agreement or obligation of the Corporation or applicable law; and |
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| 11. | the terms of the offering of the Securities and related matters do not and will not conflict with and do not and will not result in a breach of or default under, and do not and will not create a state of facts which, after notice or lapse of time or both, will conflict with or result in a breach of or default under any of the terms or conditions of the articles of the Corporation, any resolutions of the board of directors or shareholders of the Corporation, any agreement or obligation of the Corporation or applicable law. |
Based and relying upon the foregoing, and subject to the qualifications, assumptions and limitations expressed herein, we are of the opinion that, upon payment for the applicable Securities provide for in the applicable Agreement and when issued, sold and delivered in accordance with such Agreement, (i) the Common Shares and Preferred Shares will be validly issued, fully paid and non-assessable shares in the capital of the Corporation, and (ii) the Warrants, Rights and Units will be validly created and issued securities of the Corporation and will be binding obligations of the Corporation.
This opinion is limited to the laws of the Province of Alberta and the laws of Canada applicable therein.
We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement and to the use of the reference to our firm under the heading “Legal Matters” in the prospectus forming part of the Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder.
This opinion is furnished solely for the benefit of the addressee hereof in connection with the Registration Statement and the transactions contemplated thereby. The opinions herein expressed are given and effective as of the date hereof and we undertake no duty to update or supplement such opinions to reflect subsequent factual or legal developments which may come or be brought to our attention.
Yours truly,
/s/ McCarthy Tétrault LLP
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Exhibit 23.1
KPMG LLP
205 5th Avenue SW
Suite 3100
Calgary AB T2P 4B9
Tel (403) 691-8000
Fax (403) 691-8008
www.kpmg.ca
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Sundial Growers Inc.
We, KPMG LLP, consent to the use of our report dated March 30, 2020, on the consolidated financial statements of Sundial Growers Inc. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2019 and December 31, 2018, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for the year ended December 31, 2019, the ten month period ended December 31, 2018 and the year ended February 28, 2018, and the related notes, which are incorporated by reference, and to the reference to our firm under the heading “Experts” in this registration statement.
Our report dated March 30, 2020 contains an explanatory paragraph that states the Company was in breach of its debt covenants as at December 31, 2019, has incurred losses since inception, and has net current liabilities at December 31, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ KPMG LLP |
| Chartered Professional Accountants |
| August 4, 2020 |
| Calgary, Canada |
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.