Trees Corporation and 1287406 B.C. Ltd Announce Execution of Amalgamation Agreement and Private Placement Financing

Published: October 28, 2021

Trees Corporation and 1287406 B.C. Ltd Announce Execution of Amalgamation Agreement and Private Placement Financing

Trees Corporation (“Trees”) and 1287406 B.C. Ltd., (“406”) are pleased to announce that the parties have entered into an amalgamation agreement dated October 26, 2021 (the “Amalgamation Agreement”) in connection with the proposed amalgamation (the “Amalgamation”) of Trees and 406. Trees and 406 are also pleased to announce the launch of a non-brokered private placement (the “Private Placement”) of subscription receipts of Trees (the “Subscription Receipts”) at a price of $0.02 (the “Subscription Price”) per Subscription Receipt for gross proceeds of a minimum of $2,000,000.  Each Subscription Receipt will be automatically exchanged for one class A common share (each, a “Trees Share”) in the capital of Trees prior to the consummation of the Amalgamation upon the satisfaction or waiver of the Escrow Release Conditions (as defined below).

The parties have submitted an initial listing application to the Neo Exchange Inc. (the “NEO”) in connection with the contemplated listing of the common shares (“Resulting Issuer Shares”) of the issuer resulting from the Amalgamation (the “Resulting Issuer”) on the NEO following the completion of the transactions contemplated by the Amalgamation Agreement. Completion of the proposed Amalgamation and listing of Resulting Issuer Shares on the NEO is subject to the satisfaction of certain conditions precedent, including, but not limited to, receipt of all necessary regulatory and shareholder approvals.

The Amalgamation Agreement

The Amalgamation Agreement provides for the Amalgamation, pursuant to which, among other things, Trees and 406 shall be amalgamated and continue as one corporation. The Amalgamation Agreement contemplates that the following conditions precedent be met prior to the closing of the Amalgamation, including but not limited to, (a) conditional acceptance by the NEO of the listing of Resulting Issuer Shares on the NEO and receipt of other applicable regulatory approvals; (b) completion of the Private Placement (as defined below); (c) receipt of the requisite shareholder approvals by Trees and 406; (d) that Trees and 406 continue their corporate existence out of their respective provinces, being Alberta and British Columbia, and into Ontario in accordance with the provisions of the Business Corporations Act (Ontario) (the “Trees Continuance” and the “406 Continuance”, respectively); (f) that all of the outstanding Trees Shares, including any Trees Shares issued in connection with the exchange of Subscription Receipts for Trees Shares pursuant to the terms of the Subscription Receipt Agreement (as defined below), shall be consolidated at a ratio of between 2:1 and 50:1 (the “Trees Consolidation”), as determined by, and subject to the discretion of, the board of directors of Trees;  (g) that 406, prior to the Effective Time (as defined below), shall effect a consolidation of the outstanding common shares in the capital of 406 (each, a “406 Share”) on the ratio that results in the post-consolidated 406 Shares outstanding immediately prior to the Amalgamation (the “Effective Time”) having an aggregate value of $1,500,000 (the “406 Consolidation”); and (h) no adverse material change in the business, affairs, financial condition or operations of Trees or 406 shall have occurred between the date of entering into the Amalgamation Agreement and the closing of the Amalgamation. If all conditions to the implementation of the Amalgamation have been satisfied or waived, Tees and 406 will carry out the Amalgamation. There can be no assurance that the Amalgamation will be completed as proposed or at all.

Pursuant to the terms of the Amalgamation Agreement, it is expected that the following security conversions, exercises and issuances will occur among 406, Trees and the securityholders of 406 and Trees at the Effective Time:

(a)  each 406 Share (post-406 Consolidation) outstanding immediately prior to the Effective Time held by a 406 Shareholder that dissents to the 406 Continuance or the 406 Consolidation (each, a “Dissenting 406 Shareholder”) will become an entitlement to be paid the fair value of such share;

(b)  each Trees Share (post-Trees Consolidation) outstanding immediately prior to the Effective Time held by a Trees Shareholder that dissents to the Trees Continuance or the Trees Consolidation (each, a “Dissenting Trees Shareholder”) will become an entitlement to be paid the fair value of such share;

(c)  each of the stock options of 406 granted to the directors, officers, employees and consultants of 406, outstanding as of the Effective Time shall be cancelled and no consideration shall be paid in connection therewith;

(d)  each 406 Share (post-406 Consolidation) (other than those held by Dissenting 406 Shareholders) outstanding immediately prior to the Effective Time shall be cancelled and, in consideration therefor, the holder of such 406 Share shall receive one fully paid and non-assessable Resulting Issuer Share;

(e)  each Trees Share (post-Trees Consolidation) (other than those held by Dissenting Trees Shareholders) outstanding immediately prior the Effective Time shall be cancelled and, in consideration therefor, the holder of such Trees Share shall receive one fully paid and non-assessable Resulting Issuer Share;

(f)  each stock option (each, a “Trees Option”) and performance share unit (each, a “Trees PSU”) of Trees outstanding immediately prior to the Effective Time, shall be exchanged for an option or performance share unit of the Resulting Issuer, as applicable, on substantially the same terms as the Trees Options or Trees PSUs, as applicable, subject to any changes required by applicable laws or the policies of the NEO; and

(g)  the registered holders of each of the broker warrants of Trees outstanding immediately prior to the Effective Time shall continue to be registered holders of such warrants, except that such registered holders shall be entitled to Resulting Issuer Shares in lieu of Trees Shares, all in accordance with the terms of the certificates evidencing (or to evidence) such securities.

Following completion of the Amalgamation, and assuming the closing of the Private Placement on the terms contemplated herein, it is currently anticipated that former 406 Shareholders will hold approximately 6% of the then issued and outstanding Resulting Issuer Shares and former Trees Shareholders will hold approximately 94% of the then outstanding Resulting issuer Shares (including those Resulting Issuer Shares expected to be issued to investors under the Private Placement, which is anticipated to represent approximately 8% of the outstanding Resulting Issuer Shares). The number of Resulting Issuer Shares that will be issued and outstanding at the Effective Time is subject to the impact of the consolidation ratio applicable to each of the 406 Consolidation and Trees Consolidation, as well as the impact of any additional financings that may be completed by Trees prior to the completion of the transactions contemplated by the Amalgamation Agreement.

About 406
406 was incorporated under the Business Corporations Act (British Columbia) as “1287406 B.C. Ltd.” on February 3, 2021 as a wholly-owned subsidiary of 1289625 B.C. Ltd. (“406 Parent”). Pursuant to the arrangement agreement dated March 25, 2021 entered into among 406, 1289625 B.C. Ltd., 1287390 B.C. Ltd., 1287398 B.C. Ltd., 1287401 B.C. Ltd., 1287405 B.C. Ltd., 1287396 B.C. Ltd., 1287409 B.C. Ltd., 1287411 B.C. Ltd., 1287412 B.C. Ltd. and 1287413 B.C. Ltd., 1289625 B.C. Ltd., 406 Parent reorganized its capital such that each holder of common shares disposed of their holdings to 1289625 B.C. Ltd. and, in consideration therefor, received, among other things, certain 406 Shares, which resulted in 406 ceasing to be a subsidiary of 1289625 B.C. Ltd.

About Trees
Trees is an independent retail cannabis operator that currently operates six fully licensed retail cannabis stores that sell cannabis products and accessories in the Province of Ontario. Trees intends to enter the British Columbia retail cannabis market upon the closing of the acquisition of 1015712 B.C. Ltd. (“101”) pursuant to the terms of the second amended and restated asset purchase agreement (the “101 Purchase Agreement”) entered into between Trees and 101. 101 currently operates five existing retail cannabis stores in the Province of British Columbia. The closing of the transactions contemplated by the 101 Purchase Agreement is subject to certain conditions precedent, including the receipt of certain licensing approvals and related regulatory consents.

In addition to the six retail cannabis stores that Trees currently owns and operates in the Province of Ontario, Trees has completed the construction and build-out of two additional stores, which stores have received conditional licenses to operate, with final approval subject to the completion of final regulatory inspections. Trees has also identified an additional seven unbuilt cannabis retail store locations for which it has received conditional license approvals from the provincial regulator, with final licensing approvals subject to completion of store construction and final regulatory inspections.

Private Placement
The Subscription Receipts to be issued under the Private Placement will be governed by the terms of a subscription receipt agreement (the “Subscription Receipt Agreement”) to be entered into on the Closing Date (as defined below) between Trees and Odyssey Trust Company (the “Subscription Receipt Agent”).

Pursuant to and in accordance with the Subscription Receipt Agreement, each Subscription Receipt shall be automatically exchanged, without payment of any additional consideration and any further action by the holder thereof, for one Trees Share upon the satisfaction or waiver of certain escrow release conditions set out in the Subscription Receipt Agreement (“Escrow Release Conditions”) at or before 11:59 p.m. (Toronto time) on the date that is 120 days after the Closing Date (the “Escrow Release Deadline”).

On the Closing Date, the gross proceeds of the Private Placement, less 50% of the Finder’s Fee (as defined below) will be delivered to and held in escrow by the Subscription Receipt Agent (together with all interest and other income earned thereon, the “Escrowed Funds”), pending the satisfaction or waiver of the Escrow Release Conditions at or prior to the Escrow Release Deadline, in accordance with the provisions of the Subscription Receipt Agreement.

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