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Non-Tech : Marijuana Stocks
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From: downandout12/3/2015 11:42:41 AM
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Genovation Capital signs binding deal for MKHS RTO

2015-11-25 11:22 PT - News Release

Mr. Robert van Santen reports


Genovation Capital Corp. has entered into a binding commitment letter dated Nov. 24, 2015, with MKHS LLC, an arm's-length private limited liability company incorporated pursuant to the laws of Arizona, in respect of the proposed business combination of the two companies first announced on Nov. 2, 2015.

Under the terms of the transaction, the company will proceed to consolidate its share capital on a one-for-three basis and complete a $450,000 (U.S.) offering (defined as follows). The shareholders of MKHS and Genovation Capital are expected to own, respectively, approximately 77 per cent and 23 per cent of the combined company after the offering, but excluding any shares issued in the financing (defined as follows).

MKHS is a vertically integrated, fully licensed, Arizona-based marijuana cultivation, extraction and medicinal dispensary business. MKHS operates a 11,000-square-foot warehouse cultivation, commercial kitchen and extraction facility, and a separate 3,000-square-foot automated greenhouse located on 9.5 acres, zoned for expansion to 100,000 square feet. The company supplies medical marijuana pursuant to the Arizona Medical Marijuana Act, operates two state-licensed healing centre dispensaries and distributes its own in-house prepared, branded line of edibles, concentrates and extracts.

Trading in the common shares of Genovation Capital was halted prior to and as a result of this announcement and will remain halted until such time as all required documentation has been filed with and accepted by the Canadian Securities Exchange and permission to resume trading has been obtained from the CSE.

"This transaction is an important and exciting milestone for the growth of our company," said Murphy Kittrell, president and founder of MKHS. He added, "It will provide the company with the necessary resources to become a leading supplier of organically grown, condition-specific medicinal cannabis in Arizona, enabling us to expand our existing production facilities, pursue additional licences and partnerships throughout North America and internationally, and assure patients and physicians of the quality, security and availability of our products."

Bridge financing

In order to accommodate the transaction, the company will complete a $450,000 (U.S.) non-interest-bearing convertible debenture financing, convertible at a postconsolidation price of 12 cents per share. The offering reflects an increase of $50,000 (U.S.) over that announced on Nov. 2, 2015, and includes the $200,000 (U.S.) tranche announced closed on Nov. 9, 2015.

In addition to the offering, Genovation Capital will undertake a debt financing and/or private placement to raise up to $500,000 (U.S.) for and/or on behalf of MKHS. The final terms are subject to mutual consent, and will be announced through a separate news release in due course.

Proceeds of the offering and financing will be used by MKHS to execute its business plan, including the buildout and expansion of a larger greenhouse facility, purchase of property required for expansion, and for general working capital purposes of both MKHS and Genovation Capital. All advances to MKHS by Genovation Capital will be secured and collateralized loans pending the closing of the transaction.

Highlights of the proposed transaction

Following the share consolidation and conversion of the offering, but before the financing and transaction, Genovation Capital will have approximately 11,014,879 common shares outstanding, issued options to acquire a total of 150,000 common shares at an exercise price of $3 per common share and 291,667 common shares at an exercise price of $1, as well as 944,444 warrants to acquire 944,444 common shares at an exercise price of 75 cents.

The transaction shall take place by way of a share exchange or other similar form of transaction. Genovation Capital, MKHS and the shareholders of MKHS have agreed to exchange all of the issued and outstanding shares of MKHS for 36,475,000 common shares of Genovation Capital, to be issued to the shareholders of MKHS and held under three-year voluntary and exchange-imposed escrow agreements.

As a result of the proposed transaction, Genovation Capital expects to have approximately 47,489,879 issued and outstanding common shares on an undiluted basis. Approximately 23.2 per cent of those shares will be held by shareholders of Genovation Capital and 76.8 per cent will be held by former shareholders of MKHS.

Conditions to transaction

The transaction as proposed will constitute a fundamental change pursuant to CSE Policy 8, whereby a major acquisition transaction results in a change of control, commonly referred to as a reverse takeover. An information circular will be prepared and delivered to securityholders of Genovation Capital, in conjunction with its next scheduled annual general meeting, containing prospectus-level disclosure of the resulting company. The information circular will provide historical financial statements for MKHS as if it were going public by way of prospectus and making application for listing, plus pro forma financial statements giving effect to the transaction for the last full fiscal year of MKHS and any quarter that has been completed in the current fiscal year. The information circular will be posted on the exchange's website and on SEDAR in due course.

The transaction terms outlined in the commitment letter are binding on the parties and are expected to form the basis of a definitive share exchange agreement. The transaction is subject to regulatory approval, including the approval of the CSE and standard closing conditions, including the approval of the transaction by the directors of each of Genovation Capital and MKHS, the completion of due diligence investigations to the satisfaction of each of the parties, as well as the conditions described as follows. The legal structure for the transaction will be determined after the parties have considered all applicable tax, corporate and securities law, and accounting efficiencies.

Other conditions to completion of the transaction include:

  • Completion of the bridge financing and/or a private placement or debt financing in at least such minimum amount as may be required to meet the terms of the commitment letter and CSE minimum listing requirements, if any.
  • Preparation and filing of a filing statement outlining the definitive terms of the transaction, in accordance with the rules of the CSE.

  • Investors are cautioned that, except as disclosed in the filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Genovation Capital should be considered highly speculative.

    We seek Safe Harbor.

    © 2015 Canjex Publishing Ltd. All rights reserved.
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