Tidal Royalty (CSE: RLTY.U) (OTC: TDRYF) provided an update today on the company’s executed business combination agreement with MichiCann Medical o/a Red White & Bloom (RWB). On May 13, 2019, Tidal announced it had signed a definitive agreement to merge with MichiCann (Red White & Bloom).
On March 12, 2020, Tidal and MichiCann entered into an amended and restated business combination agreement (Amended Agreement) pursuant to which the Company will acquire all of the issued and outstanding shares of MichiCann (Proposed Transaction) on a 2:1 basis, subject to adjustment in certain circumstances (Exchange Ratio).
The terms of the Amended Agreement provide that the share consideration will now be comprised of 1 common share (Common Shares) and 1 series 2 convertible preferred share (Series 2 Shares) of the resulting company (Resulting Issuer).
The Series 2 shares to be issued to MichiCann shareholders will:
- Carry voting rights that entitle the holder to 1 vote per Series 2 Share held, voting together with the holders of Common Shares.
- Be entitled to 5% annual dividends payable in additional Series 2 Shares.
- Be convertible (together with accrued Dividends) into Common Shares on a 1:1 basis at the option of the holder on or after the 7 month anniversary of their issuance date.
- Automatically be converted on the same basis on the 2 year anniversary of their issuance date.
All outstanding options and warrants to purchase MichiCann common shares will be exchanged with options and warrants to purchase Common Shares and Series 2 shares in accordance with the Exchange Ratio.
The proposed transaction will be completed by way of a three-cornered amalgamation under the Business Corporations Act (Ontario), whereby 2690229 Ontario Inc., a wholly-owned subsidiary of Tidal Royalty (Subco) will amalgamate with MichiCann (Amalgamation), which will require the approval of 66% or 2/3 of the votes cast by MichiCann shareholders at a special meeting of shareholders to be held.
The proposed transaction will constitute a Fundamental Change of the company, as such term is defined in the policies of the Canadian Securities Exchange (CSE) and as a result, Tidal will be required to obtain the approval of the holders of its outstanding common shares, by simple majority, which it intends to obtain by way of written consent.
The Amended Agreement contemplates the following changes. Immediately prior to the completion of the Amalgamation, Tidal Royalty will:
- Complete a share consolidation on a 16:1 basis (Consolidation).
- Change its name to Red White & Bloom Brands Inc. (Name Change)
- Reconstitute its board of directors such that the board of the Resulting Issuer will consist of 5 directors, which will include 2 members of the current board of Tidal and 3 nominees of MichiCann (Board Appointments).
Pursuant to the terms of the Amended Agreement, the closing of the Proposed Transaction is subject to a number of conditions, including but not limited to:
- Obtaining the requisite shareholder approvals.
- The completion of the Consolidation, the Name Change and the Board Appointments.
- Obtaining requisite regulatory approvals, including the approval of the CSE for the Proposed Transaction and the listing of the Common Shares.
- Obtaining escrow agreements from the directors and officers of each of MichiCann and Tidal, and certain shareholders of each of MichiCann, its Michigan based investee and Tidal pursuant to which the escrowed shares would be subject to restrictions on transfer and other dealings and released in three equal tranches over a period of 18 months following the closing of the Proposed Transaction.
- Other closing conditions customary for transactions of this nature.
On January 10, 2020, MichiCann closed the acquisition of Mid-American Growers, Inc. pursuant to an agreement and plan of merger dated October 9, 2019, as amended on January 9, 2020, by way of a merger between MichiCann’s wholly-owned subsidiary, RWB Acquisition Sub, Inc., and Mid-American Growers Inc. under the laws of Delaware to form MAG. On the same day, MichiCann’s wholly-owned subsidiary, RWB Illinois Inc., acquired 142 acres of land located at 14240 Greenhouse Avenue, Granville, Illinois, together with the buildings, plant facilities, structures, building systems fixtures and improvements located thereon and related personal property and intangibles.
In connection with the Proposed Transaction, Tidal and MichiCann have filed updated application materials with the CSE to list the Common Shares. The Proposed Transaction remains subject to a number of conditions, including CSE approval and requisite shareholder approvals. The common shares of Tidal are currently halted from trading on the CSE pending completion of the Proposed Transaction, and the parties are working towards obtaining CSE approval of the amended terms of the Proposed Transaction in March with the recommencement of trading shortly thereafter.
Disclosure: The Cannabis Investor holds a position in Red White & Bloom.