Agrinam Acquisition Corporation
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the formal valuation and minority approval requirements in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- issuer is a special purpose acquisition corporation that will have no operations and generate no operating revenues until it completes its qualifying acquisition -- issuer's authorized capital consists of class A restricted voting shares which are entitled to be redeemed at the election of the holder prior to the completion of the qualifying acquisition for an amount equivalent to their initial investment, and class B shares that do not have any redemption rights but which have the residual right to share in the assets of the issuer on liquidation or dissolution -- the entirety of the gross proceeds from the initial public offering of the class A restricted voting shares were put into an escrow account to be used to, among other things, satisfy any redemptions in respect of the restricted voting shares and fund the qualifying acquisition -- the class B shares do not have access to, and cannot benefit from, the funds in the escrow account -- the class B shares are not posted for trading on an exchange -- relief granted subject to conditions, including that the related party transaction associated with the issuer's qualifying acquisition would qualify for the 25% market capitalization exemption if the class A restricted voting shares represented all of the outstanding equity securities of the issuer.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.4, 5.6, and 9.1(2).
November 7, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF AGRINAM ACQUISITION CORPORATION (the "Filer")
The principal regulator in the Jurisdiction ("Decision Maker") has received an application (the "Application") from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") that the Filer be granted an exemption pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") from the minority approval and formal valuation requirements under Part 5 of MI 61-101 as they would apply to the Exchange (as defined below), which constitutes a related party transaction for the purposes of MI 61-101 (the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the Application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in Alberta, Saskatchewan, Manitoba, and New Brunswick.
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined. For the purpose of this decision, the following terms have the meaning ascribed to them:
"Class A Restricted Voting Units" means Class A restricted voting units offered to the public pursuant to the final long-form prospectus of the Filer dated June 10, 2022, each comprised of one Class A Restricted Voting Share, one IPO Warrant and one Right (each as defined below);
"Extension" means one or more extensions to the Permitted Timeline, from 15 months to up to 36 months (without the requirement to fund any additional amounts into the escrow account) or from either 18 months to 21 months to up to 36 months (after the Filer has exercised its applicable Three-Month Extension Options), that has been approved by ordinary resolution of the holders of Class A Restricted Voting Shares and that is also approved by the board of directors of the Filer, in which case the redemption rights in article 28.5(b) of the Filer's amended and restated articles shall apply;
"IPO" means the Filer's initial public offering of its Class A Restricted Voting Units;
"Permitted Timeline" means the allowable time period within which the Filer must consummate its qualifying acquisition, being 15 months from the closing date of the IPO, or up to 21 months from the closing date of the IPO if the Filer has extended the available time to consummate a qualifying acquisition by up to two successive three-month periods by exercising its applicable Three-Month Extension Options, and as such allowable time period may be further extended to up to 36 months in the event it is extended by way of an Extension, and provided that, with 10 days' advance notice by way of a news release, the Filer may shorten the Permitted Timeline with the approval of the board of directors of the Filer;
"qualifying acquisition" has the meaning ascribed to such term in the TSX Company Manual;
"SPAC" means a special purpose acquisition corporation;
"Three-Month Extension Options" means the option of the Filer to extend the Permitted Timeline in each case by three-months (up to a maximum of two successive three-month periods) from 15 months up to 18 months and from 18 months up to 21 months, provided the Filer has deposited the requisite amounts into the escrow account, such amount being an aggregate of U.S.$400,000 in cash for each extension; and
"TSX" means the Toronto Stock Exchange.
This decision is based on the following facts represented by the Filer:
1. The Filer is a SPAC incorporated on December 1, 2021 under, and governed by the laws of, the Province of British Columbia. The Filer was formed for the purpose of effecting its qualifying acquisition pursuant to the acquisition of one or more businesses or assets, by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving the Filer. From the time of the Filer's IPO and until such time as the Filer completes its qualifying acquisition, the Filer has not had any operations and has generated no operating revenues. The Filer is in good standing under its incorporation statute.
2. The Filer's head office is located at Homero 109, Polanco, Polanco V Secc, Miguel Hidalgo, Ciudad de México, CDMX, 11560 and its registered office is located at Waterfront Centre, 200 Burrard St #1200, Vancouver, British Columbia V7X 1T2.
3. The Filer is a reporting issuer (or the equivalent thereof) in each of the provinces and territories of Canada (other than Quebec) and is not in default of securities legislation in any jurisdiction.
4. Pursuant to an Extension whereby the Filer exercised one of the Three-Month Extension Options, the Filer has until December 15, 2023 to close a qualifying acquisition. If a qualifying acquisition is not completed by December 15, 2023, and the Filer does not, prior to that date, exercise the second Three-Month Extension Option by depositing U.S.$400,000 in cash into the Filer's escrow account or receive shareholder approval for an Extension, the Filer will be required to liquidate.
5. The Filer is authorized to issue an unlimited number of Class A restricted voting shares ("Class A Restricted Voting Shares"), an unlimited number of Class B shares ("Class B Shares"), an unlimited number of common shares ("Common Shares") and an unlimited number of proportionate voting shares, each without nominal or par value. As at October 31, 2023, the Filer had 2,538,637 Class A Restricted Voting Shares issued and outstanding, and 3,450,000 Class B Shares issued and outstanding.
6. The Class A Restricted Voting Shares comprised part of the Class A Restricted Voting Units offered to the public in connection with the IPO. The Class B Shares were issued to Agrinam Investments, LLC, (the "Sponsor"), and certain of the Sponsor's and the Filer's affiliates, directors and officers (collectively, the "Founders") in connection with the IPO. The Filer also has an aggregate of (a) 13,800,000 warrants (the "IPO Warrants"), (b) 8,710,000 funding warrants (the "Funding Warrants"), and (c) 12,000,000 rights to receive, for no additional consideration, one-tenth (1/10) of one Class A Restricted Voting Share following the closing of a qualifying acquisition (the "Rights"), outstanding. The IPO Warrants and Rights were issued to holders of the Class A Restricted Voting Units and the Funding Warrants were issued to the Founders (including the Sponsor), each in connection with the IPO. As of October 31, 2023, the Sponsor holds 3,339,601 Class B Shares and 1 Class A Restricted Voting Share, representing 96.8% of the Filer's issued and outstanding Class B Shares and approximately 55.77% of the Filer's total issued and outstanding shares (including the Class A Restricted Voting Shares and Class B Shares and assuming no exercise of the IPO Warrants, Funding Warrants or Rights). The Sponsor also holds 8,627,200 Funding Warrants. As such, the Sponsor is a "related party" of the Filer, as that term is defined in MI 61-101.
7. In connection with the IPO, the entirety of the gross proceeds from the Class A Restricted Voting Shares, along with the gross proceeds of a portion of the sale of the Funding Warrants and contemporaneous capital contributions by the Sponsor to the Class A Restricted Voting Shares, were put into the Filer's escrow account (the "Escrowed Funds") to be used to, inter alia, satisfy the payment of the redemption price (the "Redemption Price") due to holders of Class A Restricted Voting Shares upon the exercise of the redemption right attached to the Class A Restricted Voting Shares, and fund a qualifying acquisition. Any Escrowed Funds which are not used to consummate a qualifying acquisition will be disbursed to the Filer and will, along with any other amounts not expended prior to the consummation of a qualifying acquisition, be used to fund general ongoing expenses of the resulting issuer.
8. Provided that holders of Class A Restricted Voting Shares adhere to the specified timing requirements, such holders are entitled to redeem all or a portion of their Class A Restricted Voting Shares, whether they vote for or against, or do not vote on, the qualifying acquisition for the applicable Redemption Price per Class A Restricted Voting Share. The applicable Redemption Price is payable in cash from the Escrowed Funds, and upon such payment, the holders of Class A Restricted Voting Shares will have no further rights in respect of the Class A Restricted Voting Shares. Any Class A Restricted Voting Shares that are not redeemed will be automatically converted immediately following the closing of the qualifying acquisition into Common Shares on the basis of one Common Share for each Class A Restricted Voting Share converted.
9. The net proceeds from the issuance of the Class B Shares offered to the Founders and Sponsor were not put into the Filer's escrow account and may be used towards the Filer's general ongoing expenses and funding the identification and completion of a qualifying acquisition. The holders of Class B Shares do not have access to, and cannot benefit from, the Escrowed Funds, and accordingly, do not have any redemption rights.
10. The Filer has entered into a business combination agreement (the "Business Combination Agreement") dated as of October 4, 2023 with Freight Farms, Inc. ("Freight Farms") and Agrinam Merger Sub, Inc., a wholly owned subsidiary of the Filer incorporated pursuant to the laws of Delaware, United States of America ("Merger Sub") pursuant to which the parties will complete a triangular merger whereby, among other things, Freight Farms will merge with Merger Sub and the Filer will acquire all of the issued and outstanding shares of Freight Farms in exchange for Common Shares (the "Proposed Transaction"). The Proposed Transaction will be considered Agrinam's qualifying acquisition.
11. Demeter Agrimex, LLC ("Demeter") and Maquia Capital Family Office, LLC ("MCFO", and together with Demeter, the "Lenders") are affiliates of the Sponsor.
12. The Lenders and the Sponsor entered into a convertible subordinated loan agreement (the "Loan Agreement") with Freight Farms on August 17, 2023, whereby the Lenders agreed to jointly and severally loan to Freight Farms the sum of U.S.$4,000,000 (the "Loan"), consisting of two tranches of U.S.$2,000,000. The Loan accrues simple interest at 10% per annum on any principal amount drawn on any tranche, calculated from the date of disbursement with respect to any such drawn principal; provided, however, that in the event of an Exchange (as defined below), the Loan shall be deemed to have accrued simple interest at 15% per annum instead of 10%. The Loan, together with all accrued but unpaid interest payable thereon, shall mature and become due and payable in full upon demand by the Sponsor at any time after the one-year anniversary of the disbursement of any principal under the first tranche (the "Maturity Date"). No payment of principal or interest of the Loan may be made prior to the Maturity Date without the written consent of the Lenders. Pursuant to the Loan Agreement, following the closing of the qualifying acquisition, the outstanding amount owing on the Loan, which amount includes the outstanding principal of the Loan, together with all accrued but unpaid interest payable thereon (the "Outstanding Amount"), will automatically convert into Common Shares (the "Exchange"), resulting in the issuance of the Filer's securities to affiliates of the Sponsor. It is anticipated that the Common Shares issued to the Lenders in connection with the Exchange will have a value approximately equal to the Outstanding Amount (being U.S.$4,180,016.71, assuming a closing date of December 15, 2023 for the qualifying acquisition).
13. The Exchange constitutes a related party transaction (the "Related Party Transaction") under MI 61-101 and would require the Filer to obtain a formal valuation and minority approval (the "Minority Protections"), unless an exemption is available.
14. A related party transaction that is subject to MI 61-101 may be exempt from the Minority Protections if, at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, exceeds 25% of the issuer's market capitalization (the "Transaction Size Exemption").
15. The Filer may not be entitled to rely on the Transaction Size Exemption because the definition of market capitalization is calculated with reference to the aggregate market price of all outstanding equity securities of the Filer.
16. For the purposes of MI 61-101, an equity security is a security that carries a residual right to participate in the earnings of the issuer, on liquidation or winding-up of the issuer, in its assets. The Class A Restricted Voting Shares do not meet the definition of an "equity security" under MI 61-101 because they are redeemable for a fixed amount equal to a pro rata portion of the funds held in escrow by the SPAC and do not have a residual right to share in the assets of the Filer on a liquidation or dissolution. This redemption feature is unique to the SPAC structure and is required by the rules of the TSX. Prior to the completion of the qualifying acquisition, the residual right to share in the assets of the Filer on liquidation or dissolution rests with the Class B Shares. If the Class B Shares were used to calculate the market capitalization, the Transaction Size Exemption may not be available.
17. Class A Restricted Voting Shares are listed and posted for trading on the TSX under the trading symbol "AGRI.U". The Class B Shares are not listed on any public stock exchange and prior to the completion of a qualifying acquisition, are not transferable absent TSX consent. For the purposes of the TSX and public shareholders, the aggregate market value of the Class A Restricted Voting Shares represents the market capitalization of the Filer.
18. If the market capitalization of the Filer was calculated on the basis of the outstanding Class A Restricted Voting Shares representing all of the outstanding equity securities of the Filer as of the close of business on the last business day of the calendar month preceding the calendar month in which the qualifying acquisition was agreed to, it would be U.S.$26,757,233.98 and thus, the Related Party Transaction would represent approximately 15.6% of the Filer's market capitalization.
19. The Filer has included in the material change report filed on October 13, 2023, in connection with the Proposed Transaction, and confirms that it will include in its non-offering prospectus to be filed in connection with its qualifying acquisition, a statement that it has applied for the Exemption Sought and a description of the substance and effects of the Exemption Sought, if granted.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought be granted provided that:
(a) the Exchange would qualify for the Transaction Size Exemption if the Class A Restricted Voting Shares represented all of the outstanding equity securities of the Filer;
(b) any disclosure document provided to holders of Class A Restricted Voting Shares, in connection with the Proposed Transaction and the Exchange (as described above), includes a statement that the Filer has applied for, and been granted, the Exemption Sought, and a description of the substance and effects of the Exemption Sought; and
(c) there be no material change to the terms of the Class A Restricted Voting Shares, including the conversion rights associated therewith, as described above and in the Filer's amended and restated articles dated June 10, 2022, as amended September 14, 2023.