Harborside Progresses Towards Trading as a Public Company

Published by NCV Newswire

 Lineage Grow Company Ltd. (CSE:BUDD) (“Lineage”) and FLRish, Inc. d/b/a Harborside (“Harborside”), a private company incorporated under the laws of California, are pleased to announce today that they have entered into a definitive merger agreement (the “Definitive Agreement”), which, subject to certain conditions and the Canadian Securities Exchange (the “CSE”) approval, will result in the reverse takeover of Lineage by Harborside (the “RTO”).

MERGER HIGHLIGHTS:

  • On closing of the RTO and the Merger taking effect, the holders of Harborside’s shares will receive either a combination of Multiple Voting Shares and Subordinate Voting Shares, or Subordinate Voting Shares, for each Harborside share outstanding in the resulting issuer, Lineage. The voting rights underlying the Multiple Voting Shares track the respective economic interests of the underlying shares and have been adopted for tax efficiency purposes.
    The Resulting Issuer will seek a listing of the Subordinate Voting Shares on the CSE.

  • Lineage intends to effect a change of its name to “Harborside Inc.” and has reserved a new stock symbol to “HBOR”.

  • Harborside plans to conduct an offering of subscription receipts in a private placement to be conducted prior to the closing of the RTO, to raise up to C$70 million.

  • The Resulting Issuer’s business objective will be to maintain and build Harborside’s position as California’s premier vertically-integrated cannabis company.

  • Lineage common shares shall be consolidated and reclassified on a post-Consolidation basis as Subordinate Voting Shares, then the number of underlying shares will be adjusted so that 41.82 shares will be converted into one (1) Subordinate Voting Share.

  • Merger Agreement Includes Three Proposed Stock Dividends to Lineage shareholders to be granted subject to completion of i) the RTO, ii) the Lux acquisition, iii) the Agris acquisition.

  • Lineage Shareholders Meeting to approve the RTO, amongst other things, will be called imminently.

EXECUTIVE QUOTES:

Peter Bilodeau, CEO of Lineage: “This is a great day for Lineage Shareholders. Harborside is a “World Renowned” name in the cannabis space due to its exemplary trailblazing efforts towards the legalization of cannabis, as well as its Best in Class retail operations. Coupled with its vertically integrated supply chain, and the acquisitions forming part of this merger, and subject to regulatory approvals, Harborside becomes a great, value based, force to contend with in the public markets.

Today marks a major milestone in a strategy designed to fuel Harborside’s planned expansion. I am excited to announce this proposed merger with Lineage, which will enable us to move through 2019 with more assets and the resources we need to quickly expand our retail platform, drive revenue, and continue to deliver trust, choice and value to our patients and customers.

This combination with Lineage will significantly bolster our retail program and vertically-integrated, California-centric business model, and will position Harborside for growth and tremendously exciting times for the company, our staff and the industry.

- Andrew Berman, Chief Executive Officer of Harborside

Steve DeAngelo, Co-founder of Harborside and Chairman Emeritus: “Few cannabis companies in the U.S. or Canada have the legacy and track record of success that Harborside has achieved over the past 12 years. I founded Harborside with dress wedding in 2006 to provide a gold standard of medical cannabis retailing; serve patients with the most attractive facilities, highest levels of care, and best product knowledge in the industry; and to offer and produce safe, innovative and effective branded products that improve the quality of our customers’ lives. We are happy to have found a partner in Lineage who will help us continue to build on that legacy and spread Harborside’s mission.”

Adam Szweras, Lineage Secretary and Incoming Director; Chairman of Foundation Markets: “Harborside has been at the forefront of the cannabis legalization effort and our team is proud to be associated with this groundbreaking Company. We are confident that the Canadian capital markets will provide fertile support to allow the Company to continue to grow and flourish as an industry leader. The Lineage assets and team we have attracted are a natural fit with the Harborside team and will help to power growth in California and elsewhere. Exciting times are ahead.”

Merger/RTO

The RTO is currently structured as a three-cornered merger (the “Merger”), whereby Harborside will merge with a newly incorporated company under the laws of Delaware (and a direct, wholly-owned subsidiary of Lineage) to form a merged corporation (“Amalco”). Immediately prior to the Merger taking effect, Lineage will consolidate its outstanding common shares on the basis of 41.82 common shares into one (1) new common share (the “Consolidation”), reclassify the post-Consolidation Lineage common shares as subordinate voting shares (the “Subordinate Voting Shares”), and create a new class of multiple voting shares (the “Multiple Voting Shares”). On closing of the RTO and the Merger taking effect, the holders of Harborside’s shares will receive either a combination of Multiple Voting Shares and Subordinate Voting Shares, or Subordinate Voting Shares, for each Harborside share outstanding, and Amalco will become a wholly-owned subsidiary of Lineage.

Lineage as the resulting issuer on completion of the RTO and the Merger (the “Resulting Issuer”) will seek a listing of the Subordinate Voting Shares on the CSE. The Multiple Voting Shares will not be listed for trading on any exchange and will each carry the right to 15 votes at meetings of the shareholders of the Resulting Issuer, and the Subordinate Voting Shares will carry one (1) vote per share held.

Subject to certain conversion limitations, the Multiple Voting Shares are convertible into Subordinate Voting Shares at any time at the option of the holder on a 15:1 basis, subject to adjustment in certain customary circumstances. The conversion limitations will include the Resulting Issuer taking necessary actions to maintain its status as a “foreign private issuer” (as determined in accordance with Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Accordingly, the Resulting Issuer will not affect any conversion of Multiple Voting Shares to the extent that after giving effect to all permitted issuances after such conversion of Multiple Voting Shares, the aggregate number of Subordinate Voting Shares held of record, directly or indirectly, by residents of the United States (as determined in accordance with Rules 3b-4 and 12g3-2(a) under the Exchange Act) would exceed forty percent (40%) of the aggregate number of Subordinate Voting Shares.

A listing statement in respect of the RTO will be prepared and posted on the CSE website and under the profile of Lineage on SEDAR at www.sedar.com in accordance with Policy 2 of the CSE prior to the closing of the RTO. A press release will be issued once the listing statement has been filed.

Harborside Convertible Debenture / “CD Unit Offering”

From October 2018 up to February 6, 2019, FLRish completed a private placement (“CD Unit Offering”) of 45,852 units of Harborside (the “CD Units”) at a price of C$1,000 per CD Unit for aggregate gross proceeds of C$45,852,000, C$37,228,000 of which was issued for cash (the “Cash Portion”) and C$8,624,000 of which was issued in settlement of certain debts (the “Debt Portion”). Each CD Unit consisted of C$1,000 principal amount of unsecured convertible debentures (a “Harborside Convertible Debenture”) and 87 warrants of Harborside (each, a “CD Unit Warrant”). The Harborside Convertible Debentures bear interest at a rate of 12.0% per annum and the interest is payable in cash or by issuing Harborside Class B common shares at a price of C$6.90 per share against the amount of interest due, at the sole option of Harborside. The Harborside Convertible Debentures will mature on October 30, 2021. The principal amount of each Harborside Convertible Debenture is convertible into Harborside Class B common shares at the option of the holder and automatically upon completion of the RTO at a conversion price equal to the lower of: (a) C$6.90; or (b) a 10% discount to Harborside’s share price at listing for a financing equal to C$5,000,000 or greater, subject to adjustment in certain customary events. Harborside has the right to prepay the principal amount of the Harborside Convertible Debentures at any time. The Cash Portion of the Harborside Convertible Debentures are governed by a debenture indenture dated as of October 30, 2018, as amended on February 6, 2019 between Harborside and Odyssey Trust Company as debenture trustee. The Debt Portion of the Harborside Convertible Debentures are governed by a debenture indenture dated as of February 6, 2019 between Harborside and Odyssey Trust Company as debenture trustee.

Each CD Unit Warrant is exercisable into one Harborside Class B share at a price of C$8.60 per share until October 30, 2020, subject to adjustment and/or acceleration in certain circumstances. The CD Unit Warrants are governed by a warrant indenture dated as of as of October 30, 2018, as amended on February 6, 2019 between Harborside and Odyssey Trust Company as warrant agent.

Foundation Markets Inc. (“FMI”) acted as the agent for the CD Unit Offering, and received, along with certain other placement agents, a cash commission equal to 7% of the aggregate proceeds of sales of the CD Units to non-U.S. purchasers and an aggregate of 168,303 broker warrants. Each broker warrant issued in connection with the CD Unit Offering is exercisable into one Harborside Class B share at an exercise price of C$6.90 per share until the earlier of 60 months from October 30, 2018 and 24 months from the completion of the RTO, subject to adjustment and/or acceleration in certain circumstances.

On closing of the RTO, the Harborside Class B common shares issued upon the automatic conversion of the Harborside Convertible Debentures will be exchanged into Subordinate Voting Shares, or a combination of Subordinate Voting Shares and Multiple Voting Shares, and the CD Unit Warrants and the broker warrants will be replaced with equivalent securities of the Resulting Issuer.

Name Change

In connection with the transactions contemplated in the Definitive Agreement, Lineage intends to effect, among other items of special business, a change of its name to “Harborside Inc.” and has reserved a new stock symbol to “HBOR”.

Proposed Concurrent Financing

Harborside plans to conduct an offering of subscription receipts (the “Subscription Receipt”) in a private placement to be conducted prior to the closing of the RTO, to raise up to C$70 million (or such other amount as Harborside and Lineage may agree), with a 15% over allotment option (the “Concurrent Financing”). Each Subscription Receipt will entitle the holder to receive, automatically and with no further action on the part of the holder upon the satisfaction of certain conditions, one unit of Harborside (an “SR Unit”) at an issue price per SR Unit to be agreed upon by Harborside and Lineage (the “Concurrent Financing Price) with each SR Unit consisting of (i) one Harborside class D share and (ii) up to one common share purchase warrant at a per share exercise price in excess of the Concurrent Financing Price (the “Concurrent Financing Warrants”), subject to adjustment in certain customary circumstances, for a period of up to 24 months from the date the Concurrent Financing Warrants are issued. Harborside may agree to modify the terms of the Concurrent Financing in its sole discretion subject to certain conditions.

Harborside is in the process of engaging registered brokers to act as agents in the Concurrent Financing. The terms of the Concurrent Financing will be negotiated between Harborside and the brokers and the expected terms of the Concurrent Financing disclosed in this press release are subject to any terms agreed to by Harborside and the agents. Further details of the Concurrent Financing will be disclosed subsequently once they are agreed upon.

This news release does not constitute an offer to sell or a solicitation of an offer to sell the Subscription Receipts in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Capitalization

Lineage Capitalization

As of January 28, 2019, prior to the Consolidation, Lineage has the following securities issued and outstanding: (a) 75,643,484 Lineage common shares issued and outstanding; (b) convertible debentures with an aggregate principal amount of C$1,333,956, which are convertible into an aggregate of 3,389,781 Lineage common shares at a weighted average conversion price of C$0.33 (more specifically, (i) convertible debt in the principal amount of C$69,956 which is convertible into 349,781 Lineage common shares at a conversion price per share of C$0.20, and (ii) convertible debt in the principal amount of C$1,064,000, which is convertible into 3,040,000 Lineage common share at conversion price per share of C$0.35); (c) warrants exercisable for 23,640,998 Lineage common shares with a weighted average exercise price of approximately C$0.32; and (d) options to acquire a total of 5,613,333 Lineage common shares at a weighted average price of C$0.20. In addition, Lineage has committed or reserved for the payment of advisory fees in Lineage common shares to FMI Capital Advisory Inc. (“FMICA”) and FMI pursuant to a number of financing advisory agreements. Lastly, Lineage is expected to issue certain securities with respect to the proposed Lineage acquisitions, including securities issuable to the sellers in the acquisitions and the proposed stock dividend in Special Shares (defined below).

Upon closing of the RTO, the 75,643,484 Lineage common shares will be consolidated into and reclassified as 1,808,866 Subordinate Voting Shares, and all Lineage convertible securities will be adjusted based on the Consolidation and will become securities to acquire Subordinate Voting Shares.

Harborside Capitalization

As of February 11, 2019, Harborside has the following securities issued and outstanding: (a) 4,443,622 class A common shares, (b) 15,288,463 class B common shares, (c) 6,250,000 series A-1 preferred shares, (d) 1,422 series A-2 preferred shares, (e) 3,989,124 CD Unit Warrants, (f) Harborside Convertible Debentures in an aggregate principal amount of C$45,852,000 (g) broker warrants to purchase up to 168,303 class B common shares, and (h) an aggregate of 6,556,378 options and contingent stock grants to purchase class A common shares with, a weighted average exercise price of US$0.94 The series A-1 preferred shares and series A-2 preferred shares convert, upon certain occurrences including the proposed Merger, into class B common shares.

Subject to the terms and conditions of the Definitive Agreement, upon closing of the RTO and the Merger:

(i) Each Harborside class A common share shall be converted into the right to receive (A) 0.05 Multiple Voting Shares (the ratio of twenty (20) Harborside class A common share to one Multiple Voting Share is referred to herein as the “Series A Multiple Voting Share Conversion Ratio”) and (B) 0.25 Subordinate Voting Shares (the ratio of four (4) Harborside class A shares to one Subordinate Voting Share is referred to herein as the “Series A Subordinate Voting Share Conversion Ratio”);

(ii) each Harborside class B common share shall be converted into the right to receive (A) 0.05 Multiple Voting Shares (the ratio of twenty (20) Harborside class B common shares to one Multiple Voting Share is referred to herein as the “Series B Multiple Voting Share Conversion Ratio”) and (B) 0.25 Subordinate Voting Shares (the ratio of four (4) Harborside class B common shares to one Subordinate Voting Share is referred to herein as the “Series B Subordinate Voting Share Conversion Ratio”);

(iii) each Harborside class C common share shall be converted into the right to receive 0.0667 Multiple Voting Shares (the ratio of fifteen (15) Harborside class C common shares to one Multiple Voting Share is referred to herein as the “Series C Multiple Voting Share Conversion Ratio” and together with the Series A Multiple Voting Share Conversion Ratio and the Series B Multiple Voting Conversion Ratio, the “Multiple Voting Share Conversion Ratio”);

(iv) each Harborside class D common share shall be converted into the right to receive one (1) Subordinate Voting Shares (the ratio of one (1) Harborside class D common share to one Subordinate Voting Share is referred to herein as the “Series D Subordinate Voting Share Conversion Ratio” and together with the Series A Subordinate Voting Share Conversion Ratio and the Series B Subordinate Voting Share Conversion Ratio, the “Subordinate Voting Share Conversion Ratio”); and each share held by a dissenting shareholder shall be converted into the right to receive payment from the Resulting Issuer with respect thereto in accordance with the provisions of applicable corporate law; provided, however, that the Multiple Voting Share Conversion Ratio, the Subordinate Voting Share Conversion Ratio and the Lineage Subordinate Voting Share Conversion Ratio shall be equitably adjusted as needed to maintain and preserve “foreign private issuer” status as defined in the U.S. Securities Act, to reflect appropriately the effect of any equity split, reverse equity split, equity dividend (including any dividend or distribution of securities convertible into Harborside shares), cash dividends or distributions, reorganization, recapitalization, reclassification, combination, exchange of equity securities or other like change with respect to Harborside shares occurring on or after the date of the Definitive Agreement but not after the effective time of the Merger.

The number of Multiple Voting Shares and Subordinate Voting Shares to be issued upon conversion of all of the Harborside shares and all rights to acquire Harborside shares (excluding shares to be issued upon exercise of the CD Warrants or the Concurrent Financing Warrants) are referred to herein as the “Harborside Merger Consideration”.

At the effective time of the Merger and the RTO, each CD Warrant, each Convertible Debenture Warrant, Concurrent Financing Warrant, option, other warrants, convertible or exchangeable security or other right to purchase or acquire Harborside shares (each, a “Harborside Derivative Security”) that is outstanding immediately before the Effective Time, whether vested or unvested, shall, automatically and without any required action on the part of any holder or beneficiary thereof, be assumed by Resulting Issuer and converted into an option, warrant, convertible or exchangeable security or other right, as applicable, to purchase or acquire a number of Subordinate Voting Shares, determined in accordance with the Definitive Agreement, substantially the same terms and conditions as were applicable to such Harborside Derivative Security immediately before the effective time of the Merger and the RTO (including expiration date, vesting conditions and exercise provisions), except that each FLRish Derivative Security shall become a right to acquire that number of whole Subordinate Voting Shares (rounded down to the nearest whole share) equal to the product of: (i) the number of Harborside shares subject to such Harborside Derivative Security immediately prior to the effective time of the Merger and (ii) the number of Subordinate Voting Shares constituting the Harborside Merger Consideration. No fractional Subordinate Voting Shares or Multiple Voting Shares will be issued by virtue of the Merger or the other transactions contemplated by the Definitive Agreement. Instead, if a holder would otherwise be entitled to a fractional Subordinate Voting Share or Multiple Voting Share (after taking into account all certificates representing Harborside shares delivered by such holder), the aggregate number of Subordinate Voting Shares or Multiple Voting Shares, as applicable, to be issued will be rounded down to the next whole number and such holder will not be entitled to any compensation in respect of such fraction.

Sean Doyle