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

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CALGARY, AB, Oct. 27, 2021 /CNW/ - 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.

406 is a reporting issuer under the securities laws of the jurisdictions of Alberta and British Columbia and currently has 3,850,000 406 Shares issued and outstanding. None of its securities, including the 406 Shares, are listed or posted for trading on any stock exchange and no public market exists for any securities of 406. 406 has no material assets and does not currently conduct any business operations.

406's head office is located at 3400 22 Adelaide S.W., Toronto, ON M5H 4E3 and its registered and records offices are located at 1200 Waterfront Centre, 200 Burrard Street, Vancouver, BC V7X 1T2.

About Trees

Trees was incorporated under the Business Corporations Act (Alberta) (the "ABCA") on February 2, 2018. On December 15, 2020, Trees changed its name from "Budbank Information Systems Corp." to "Trees Corporation" pursuant to the filing of articles of amendment pursuant to the ABCA.

Trees' registered and head office is located at 1600, 520 – 3rd Ave SW, Calgary AB, T2P 0R3.

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.

The Escrowed Funds will be released to Trees upon the satisfaction or waiver of the Escrow Release Conditions at or before the Escrow Release Deadline, at which time each Subscription Receipt shall automatically be exchanged for one Trees Share. Each post-Consolidation Trees Share will be exchanged for one Resulting Issuer Share upon completion of the transactions contemplated by the Amalgamation Agreement.

In the event that: (i) the Escrow Release Conditions are not satisfied or waived (to the extent such waiver is permitted) on or before the Escrow Release Deadline; (ii) prior to the Escrow Release Deadline, Trees announces to the public that it does not intend to or cannot satisfy any one or more of the Escrow Release Conditions; or (iii) the Amalgamation Agreement is terminated in accordance with its terms at any earlier time, then Trees will direct the Subscription Receipt Agent to return to the holders of the Subscription Receipts an amount equal to the aggregate purchase price for the Subscription Receipts held by such holder plus a pro rata share of any interest or other income earned on the subscription proceeds (less applicable withholding tax, if any). To the extent that the Escrowed Funds are insufficient to refund 100% of the aggregate purchase price of the Subscription Receipts to the holders thereof, Trees will be liable for and will be required to contribute such amounts as are necessary to satisfy any shortfall.

In connection with the Private Placement, certain persons may receive from Trees a cash fee (the "Finder's Fee") of up to 7.0% of the aggregate gross proceeds raised in the Private Placement and warrants (the "Finder's Warrants") to purchase up to such number of Trees Shares as is equal to 7.0% of the aggregate number of Subscription Receipts sold pursuant to the Private Placement. The Finder's Warrants shall be exercisable upon satisfaction of the Escrow Release Conditions for a period of two years from the date of completion of the completion of the transactions contemplated by the Amalgamation Agreement at an exercise price per share equal to the Subscription Price, as may be adjusted to account for the Trees Consolidation, as applicable.

The Private Placement is expected to close on or about November 8, 2021, or on such other date or dates as Trees may determine (as applicable, the "Closing Date"). The Private Placement may close in multiple tranches.

Engagement of Investor Relations Firm

In connection with the launch of the Private Placement and contemplated listing of Resulting Issuer Shares on NEO, Trees has entered into a marketing agreement (the "Hybrid Agreement") with Hybrid Financial Ltd. ("Hybrid") pursuant to which Hybrid will provide certain investor relations and marketing services to Trees, which services include, but are not limited to: (i) direct correspondence with qualified North American investment professionals relating to the Private Placement; and (ii) marketing advice and strategy development. Pursuant to the terms of the Hybrid Agreement, Trees shall be required to pay Hybrid a one-time fee of $50,000 upon completion of the Private Placement as well as an ongoing fee of $22,500 per month during the initial term of the Hybrid Agreement.

Further Information

406 and Trees will provide further details in respect of the Amalgamation, the Private Placement and the Resulting Issuer in due course by way of a subsequent news release, however, 406 and Trees will make available to the NEO, all information, including financial information, as may be requested or required by the NEO.

All information contained in this news release with respect to 406 and Trees was supplied by the respective party, for inclusion herein, without independent review by the other party, and each party and its directors and officers have relied on the other party for any information concerning the other party.

Completion of the Amalgamation is subject to a number of conditions, including but not limited to, NEO acceptance. The Amalgamation cannot close until the required Trees shareholder approval is obtained. There can be no assurance that the Amalgamation or the Private Placement will be completed as proposed or at all.

Readers are cautioned that, except as disclosed in the management information circular of Trees to be prepared in connection with the Amalgamation, any information released or received with respect to the Amalgamation may not be accurate or complete and should not be relied upon. Trading in the securities of the Resulting Issuer should be considered highly speculative.

The NEO has not in any way passed upon the merits of the proposed Amalgamation and has neither approved nor disapproved the contents of this news release.

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities 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.

Forward Looking Information

Certain statements and information herein, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Such forward-looking statenoments or information include but are not limited to statements or information with respect to: the Private Placement, including amounts anticipated to be raised thereunder; the Escrow Release Conditions and the use of net proceeds therefrom; the terms and conditions of the Amalgamation, including receipt of NEO and shareholder approval; the details of any securities issuances, exchanges or cancellations; the expected capitalization of the Resulting Issuer; and the closing of the Amalgamation. Often, but not always, forward-looking statements or information can be identified by the use of words such as "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should" and the negative of these words or such variations thereon or comparable terminology are intended to identify forward-looking statements and information.

With respect to forward-looking statements and information contained herein, 406 and Trees have made numerous assumptions including among other things, assumptions about general business and economic conditions of Trees and the market in which it operates. The foregoing list of assumptions is not exhaustive.

Although management of 406 and Trees believe that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that forward-looking statements or information herein will prove to be accurate. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. These factors include, but are not limited to: risks relating to the Private Placement; risks relating to the receipt of all requisite approvals for the Amalgamation and/or other ancillary transactions, including the approval of Trees and 406 shareholders and the NEO; and other risk factors as detailed from time to time. 406 and Trees do not undertake to update any forward-looking information, except in accordance with applicable securities laws.

Readers should not place undue reliance on the forward-looking statements and information contained in this news release. 406 and Trees assume no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change, except as required by law. The statements in this press release are made as of the date of this release.

SOURCE Trees Corporation

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View original content: http://www.newswire.ca/en/releases/archive/October2021/27/c3166.html

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