Lineage Grow Company Ltd. and FLRish, Inc. dba Harborside Announce Definitive Merger Agreement on Reverse Takeover

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TORONTO, Feb. 11, 2019 (GLOBE NEWSWIRE) -- Lineage Grow Company Ltd. (CSE:BUDD) ("") and FLRish, Inc. d/b/a 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 ""), which, subject to certain conditions and the Canadian Securities Exchange (the "") approval, will result in the reverse takeover of Lineage by Harborside (the "").

The RTO is currently structured as a three-cornered merger (the ""), 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 (""). 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 ""), reclassify the post-Consolidation Lineage common shares as subordinate voting shares (the ""), and create a new class of multiple voting shares (the ""). 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 "") 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 “”)). 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 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.

From October 2018 up to February 6, 2019, FLRish completed a private placement ("") of 45,852 units of Harborside (the "") 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 "") and C$8,624,000 of which was issued in settlement of certain debts (the ""). Each CD Unit consisted of C$1,000 principal amount of unsecured convertible debentures (a "") and 87 warrants of Harborside (each, a ""). 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. ("") 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.

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".

Harborside plans to conduct an offering of subscription receipts (the "") 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 ""). 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 "") at an issue price per SR Unit to be agreed upon by Harborside and Lineage (the ") 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 ""), 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 "") 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.

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. ("") 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.

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:

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 “”.

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 “”) 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.

Upon the RTO Closing, the Resulting Issuer will have the following capitalization on a fully-diluted basis, assuming a maximum offering of C$70 million and an issue price of C$950 for the Concurrent Financing:

Harborside currently manages and operates two cannabis stores and a cultivation facility for Patient Mutual Assistance Collective Corporation d/b/a PMACC (“”) and San Jose Wellness Solutions Corp. d/b/a SJW (""). Harborside also has an option to acquire 100% of the ownership interests in each of PMACC and SJW. Harborside has agreed in the Definitive Agreement to exercise the merger option to acquire PMACC and SJW immediately after the RTO closing, unless there is material change in the business or operations of either PMACC or SJW including tax liabilities arising from the application of IRC280E of more than C$38.7 million, as finally determined by the appropriate governmental authority on or prior to the closing of the RTO. If the Resulting Issuer's board of directors chooses not to exercise the merger options to acquire PMACC and SJW, on or after the RTO closing, the Resulting Issuer through its affiliates will exercise control over PMACC and SJW through the existing merger option agreements, as well as through other actions taken by Harborside, PMACC and SJW all of which shall be sufficient to effect the Resulting Issuer's control over PMACC and SJW such that on the RTO closing, the Resulting Issuer may consolidate the financial results of PMACC and SJW.

Prior to closing of the RTO and prior to the Consolidation taking effect, Lineage expects to file articles of amendment to create a class of unlimited number of special shares (the "") issuable in three series: Series A special shares (the ""), Series B special shares (the ""), and Series C special shares (the ""). 

The Special Shares will be non-voting and will not be entitled to receive notice of meeting of shareholders, unless otherwise required by law. The Special Shares will not be entitled to vote as a separate class, unless otherwise required by law. The Special Shares will not receive any dividend and will not participate in distribution of Lineage's assets in case of dissolution or winding up.

Each Series A Special Share will be automatically converted into one pre-Consolidation Lineage common share upon the completion of the RTO and Merger without payment of additional consideration or any further action by the holder. Each Series B Special Share will be automatically converted into one pre-Consolidation Lineage common share upon the completion of the proposed acquisition of shares of Lucrum Enterprises, Inc. d/b/a LUX (the "") without payment of additional consideration or any further action from the holder. Each Series C Special Share will be automatically converted into one pre-Consolidation Lineage common share upon the completion of the proposed acquisition of Walnut Oaks, LLC d/b/a Agris Farms (the "") without payment of additional consideration or any further action from the holder. 

Lineage will declare and pay a stock dividend to holders of Lineage common shares as of the record date which is expected to be the business day prior to the closing date of the RTO, in aggregate (a) 44,775,040 Lineage Series A Special Shares; (b) 11,513,581 Lineage Series B Special Shares; and (c) 14,072,155 Lineage Series C Special Shares.

If after the issuance of the Special Shares, the Lineage common shares are consolidated in the Consolidation and are reclassified on a post-Consolidation basis as Subordinate Voting Shares, then the number of underlying shares will be adjusted so that 41.818182 Special Shares will be converted into one Subordinate Voting Share.

Unless all of the Special Shares shall have otherwise been converted on or prior to April 30, 2019 with respect to Series A Special Shares, or 180 days after the RTO closing with respect to Series B Special Shares and Series C Special Shares, the applicable Special Shares shall be automatically redeemed and shall be deemed to be redeemed without any act by holders, at a redemption price of C$0.000001 per Special Share. All Special Shares redeemed by Lineage will be cancelled. 

Lineage will convene a special meeting of its shareholders to approve the amendment to the articles of Lineage to create the Special Shares, amendment to the articles of Lineage to create the new share provisions for the Subordinate Voting Shares and the Multiple Voting Shares, the Consolidation, a new equity incentive plan, an updated set of by-laws which will include advance notice provisions, and the change of name of the Resulting Issuer, which matters will be set out in a management information circular of Lineage to be mailed to shareholders of Lineage (and filed at ). With respect to the shareholder approval of the RTO, in additional to the shareholder approval required under corporate law, Lineage also expects to obtain a majority of minority approval for the RTO where a total of approximately 8,639,875 Lineage common shares held by Lineage insiders and FMI will be excluded from voting, to satisfy the requirements under Ontario Securities Commission Rule 56-501 – Restricted Shares, which requires that a restricted security reorganization receive prior majority of minority approval of the shareholders of Lineage.

Lineage will also prepare and file with the CSE a CSE Form 2A listing statement providing comprehensive disclosure on Harborside, the RTO and the Merger in connection with the CSE Listing. Lineage will use its best efforts to mail the listing statement to the Lineage shareholders with the meeting materials and will in any event file the listing statement on SEDAR prior to the special meeting.

Harborside was co-founded by Steve DeAngelo and dress wedding in 2006, after being awarded one of the first six medical cannabis licenses granted in the United States. As one of the oldest, largest and most respected cannabis retailers in the world, Harborside has played an instrumental role in making cannabis safe and accessible to a broad and diverse community of California consumers. Today, the Harborside brand is well known throughout California and all around the world, and is expanding, expecting to grow to five or more locations in 2019. In addition, Harborside owns and operates a cultivation campus in Salinas, California that was established in 2016 and produces high-quality, low-cost cannabis at scale for sale through the Harborside dispensaries, third-party dispensaries, distributors, and manufacturing partners. Harborside is currently structured as a private California corporation.

Lineage is a reporting issuer that is listed on the CSE. Lineage is currently focused on operating two retail licensed stores located in two prominent cities in Oregon (Portland and Eugene), and on assembling licensed operators with good growth potential and superior management, either through direct acquisition or through joint ventures, with an aim towards building a dominant vertically-integrated cannabis business that leverages best-in-class cultivation, brands, distribution, and retail assets. Lineage has entered into a purchase agreement with respect to the Agris Farms Acquisition and a binding letter of intent with respect to the Lux Acquisition.

The Resulting Issuer's business objective will be to maintain and build its position as one of California's premier vertically-integrated cannabis companies.

Upon completion of the transactions contemplated in the Definitive Agreement, including the Merger, the current directors and officers of Lineage (other than Mr. Peter Bilodeau, Lineage director and CEO, Mr. Keith Li, Lineage CFO, and Mr. Adam Szweras, Lineage director and Corporate Secretary) will resign and it is currently expected that the proposed board of directors and senior management of the Resulting Issuer will include the following individuals:

Set forth below is information on each individual that is currently anticipated to be a director or officer of the Resulting Issuer upon closing of the RTO.

The completion of the RTO and the Merger is subject to a number of conditions, including but not limited to the following:

There can be no assurance that the RTO or the Merger will be completed as proposed or at all.

Further details about the RTO, the Merger and the Resulting Issuer will be provided in the Listing Statement to be prepared and filed in respect of the transaction on the SEDAR profile of Lineage. Investors are cautioned that, except as disclosed in the Listing Statement to be prepared in connection with the RTO, any information released or received with respect to the RTO may not be accurate or complete and should not be relied upon. Trading in the common shares of the Lineage should be considered highly speculative.

Robert VaniskoNorth 6th Agency212-334-9753 ext.112Email:   

Lineage Grow Company Ltd. Attention: Peter Bilodeau, President & CEO Phone: 519.919.6500Email:  

More news and information about Lineage Grow Company Ltd.

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Globe Newswire: 15:59 GMT Monday 11th February 2019

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