Harvest Announces Corporate Updates, Management and Board Changes

The company has announced progress on its ICG merger, the resignation of Executive Chairman Jason Vedadi and planned board appointments.

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PHOENIX, March 11, 2020 /PRNewswire/ -- PRESS RELEASE -- Harvest Health & Recreation Inc., a vertically integrated cannabis company with one of the largest and deepest footprints in the U.S., has announced the execution of a definitive merger agreement of the previously announced acquisition of Interurban Capital Group, Inc. (ICG), the resignation of Jason Vedadi from his role as Executive Chairman of the Board of Directors and planned updates to the Board.

Definitive Merger Agreement with Interurban Capital Group, Inc.

Harvest has entered into a definitive merger agreement to acquire ICG for consideration of approximately US$85.8 million payable by issuance of 309,452 multiple voting shares, assumption of approximately $19.1 million of debt convertible into 205,594 multiple voting shares and payment of an additional $9.3 million upon exercise of a call option agreement to acquire controlling interests in five Washington cannabis dispensaries or alternatively $12.4 million to acquire substantially all of the assets of these dispensaries. The call option exercise price is payable in Harvest multiple voting shares to be valued at a per share value equal to the volume weighted average sales price for each share of Harvest subordinate voting shares during the last 15 completed trading days prior to the date of closing under the call option agreement, and multiplied by 100 after adjustment of the exercise price to Canadian dollars.  ICG's assets include direct and indirect licenses and rights to acquire entities with licenses in California, Iowa and Washington. In addition, ICG is a service provider to these entities.

"We are excited to welcome the Have a Heart dispensaries into the Harvest family," said Harvest Chief Executive Officer Steve White. "The merger provides access to capital and a new set of shareholders that will provide Harvest with greater financial flexibility and resources to invest further in key markets such as Arizona, Florida, Maryland and Pennsylvania."

When consummated, the merger with ICG will add to Harvest's existing retail footprint three open retail locations and seven potential retail licenses in California, five open retail locations in Washington state and two open retail locations in Iowa.  Prior to completion, the merger remains subject to, among other things, the receipt of regulatory approvals and the satisfaction or waiver of closing conditions customary for transactions of this nature.

Management and Board Changes

As part of its ongoing efforts to create long-term shareholder value, Harvest is taking the next steps to simplify its operating model, build clear lines of responsibility within its executive team and further enhance Board governance structure. By agreement, Jason Vedadi will transition out of his role as the Executive Chairman at Harvest and resign from the Board, effective March 11, 2020. Vedadi will continue to be available to Harvest as a strategic advisor as needed, and White will immediately assume full responsibility for the executive team. Vedadi has voluntarily agreed to maintain the current lockup schedule for his existing shares of Harvest stock. In addition, Messrs. Vedadi and White have agreed to exchange the 1,000,000 Super Voting Shares held by Vedadi for an equivalent number of Multiple Voting Shares (on an as-converted basis).

"I set out to help build a first-class multi-state cannabis company," said Vedadi. "With the closing of this financing and the additional strength of ICG's management team, Harvest is well-positioned to take the next steps in its development and I felt it was a good time for me to step away and allow Steve and his team to move the company forward while continuing to be available as a resource to the company."

Current independent Board member Mark Barnard, who has served on the Board since the company went public in November of 2018, will assume duties as Chairman of the Board. He brings significant leadership experience gained through executive roles with Diageo PLC and Unilever, among others. Scott Atkison will be appointed to the Board following the required regulatory approval. Atkison has decades of executive experience in the timber and cannabis industries and brings valuable expertise, networks and fundraising skills to Harvest.

"Jason has made many valuable contributions as both Executive Chairman and as a Board member and we wish him the best," said White. "Harvest has a deep bench of talent and a strong leadership team in place that we are confident will continue to execute on our overall strategy with a focus on operational excellence and a return to profitability."

In addition to the transfer of his Super Voting Shares, in connection with his departure: (i) Vedadi has agreed to forego his 2.5 million stock options and any cash compensation upon his departure; (ii) Vedadi will assume all of Harvest's obligations on the remainder of a 10-year lease for premises which the corporation has no longer targeted for deployment,  (iii) in consideration of the terms above the corporation will assign one Arizona license to Vedadi; (iv) Vedadi has agreed to non-compete provisions which will prohibit Vedadi from competing with Harvest in all but two jurisdictions in which it operates for a period of time (v) Vedadi has also agreed to non-solicitation and non-interference prohibitions on his activities (vi) Vedadi has agreed to be available on a limited basis to assist the corporation with certain ongoing opportunities and for matters of strategic importance.  Messrs. Vedadi and White declared a conflict of interest in relation to the consideration of this transaction and did not participate in Board deliberations or approvals. The Board separately considered these matters and unanimously approved the transactions once negotiated to their satisfaction.

The transactions with Vedadi are transactions agreed with an "insider" and are considered to be a "related party transaction" for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Pursuant to MI 61-101, the corporation will file a material change report providing disclosure in relation to each "related party transaction" on SEDAR under the corporation's issuer profile at www.sedar.com. The corporation did not file the material change report more than 21 days before the expected closing date of the Vedadi Transaction as the details of the  Vedadi Transaction and the participation therein by the "related party" of the Corporation were not settled until shortly prior to the closing of the Vedadi transaction  and the corporation wished to close the Vedadi transaction on an expedited basis for sound business reasons. The corporation is relying on exemptions from the formal valuation and minority shareholder approval requirements available under MI 61-101. The corporation is exempt from the formal valuation requirement in section 5.4 of MI 61-101 in reliance on sections 5.5(a) and (b) of MI 61-101 as the fair market value of the transaction, insofar as it involves interested parties, is not more than the 25% of the corporation's market capitalization and the corporation has no securities listed on specified markets. Additionally, the corporation is exempt from minority shareholder approval requirement in section 5.6 of MI 61-101 in reliance on section 5.7(b) of MI 61-101 as the fair market value of the transaction, insofar as it involves interested parties, is not more than the 25% of the corporation's market capitalization.

As of Feb. 29, 2020, Harvest had US$50.9 million in cash and equivalents. Harvest expects to report fourth quarter and full year 2019 financial results during the week of April 6, 2020. Harvest will issue a separate press announcement with call and webcast details.

This press release does not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of any of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. 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 the securities laws of any state of the United States and may not be offered or sold within the "United States" (as such term is defined in Regulation S under the U.S. Securities Act) unless registered under the U.S. Securities Act and applicable state securities laws or pursuant to an exemption from such registration requirements.