Cannabis Payment Solutions Provider Merrco Payments Launches $30 Million Capital Raise Ahead of Public Trading


Merrco Payments targets U.S. payments sector with TSX-V listing, $30 million private placement
Merrco Payments targets U.S. payments sector with TSX-V listing, $30 million private placement
Strategic partnership, $13 million anchor investment from global payments provider
Agreement to complete reverse takeover to obtain public listing on the TSX-V
Capital raise intended to fund strategic investment in U.S. online bank and launch of U.S. payments business

TORONTO, Oct. 25, 2018 (GLOBE NEWSWIRE) – Merrco Payments Inc. (“Merrco” or the “Company”), a customized payments solution provider with expertise in cannabis and other regulated industries, and HAW Capital Corp. (“HAW”) today announced that the Company has launched a private placement financing for aggregate gross proceeds of up to $30 million. As part of the financing, Merrco has an anchor investment of up to $13 million and a strategic partnership with a global payments provider. The strategic partnership is expected to provide the Company with sales volume, revenue and access to leading edge technology.

Merrco Private Placement

Canaccord Genuity Corp. and Eight Capital have been engaged to act as lead agents and joint bookrunners on a $17 million private placement of subscription receipts of Merrco on a best efforts basis alongside the anchor investment. The anchor investment will be for debenture units (comprised of convertible debentures and warrants convertible into Merrco common shares) and, together with the strategic partnership, is subject to the negotiation of definitive agreements. Particulars of the private placement are described in more detail below.

Strategic Rationale

Merrco continues to bolster its market position in Canada as leading technology-driven payment specialists while establishing a U.S. footprint.

Merrco intends to use the proceeds from the private placement in part for an acquisition of a non-voting equity stake in a federally chartered U.S. bank (the “Bank”) recognized for its focus in payments and fintech partnerships, and to establish a secure U.S. merchant acquiring business. The transaction is subject to regulatory non-objection by U.S. banking authorities and to the negotiation of definitive agreements with the Bank.

We intend to establish a footprint in the U.S. through our targeted investment in the Bank, focused on providing payment processing across broad industries. Longer term, we believe that this footprint could provide an important first-mover advantage should cannabis become legal at the federal level in that country. Our recent acquisition of Payfirma allows us to bring our depth of experience, technology and best practices from mainstream industries to the new world of legalized cannabis.

Fern Glowinsky, President and Chief Executive Officer at Merrco

Coming together as Merrco Payfirma reflects the strength of our combined assets, including people, technology, partners and customers. We believe we have the platform to increase market share in the Canadian cannabis market and to build scale in the U.S. and other countries as legalization of cannabis continues to expand globally.

Proposed Public Listing

This announcement follows a press release issued by HAW on October 22, 2018, that provided detail on a definitive amalgamation agreement (the “Amalgamation Agreement”) for a transaction involving HAW and Merrco that, if completed, will serve as the qualifying transaction for HAW and would result in Merrco obtaining a public listing on the TSX-V (the “Transaction”). Per the announcement, the resulting issuer is expected to be known as Merrco Payfirma Corp. Further details on the qualifying transaction are provided in HAW’s press release which is available under HAW’s profile on www.sedar.com.

Terms of the Private Placement

The proposed Merrco private placement is expected to consist of the sale of up to 1,133,333 subscription receipts (“SR”) at a price of $15.00 per SR (the “SR Price”) for aggregate gross proceeds of up to $17,000,000 (the “SR Placement”), and up to 13,000 senior unsecured debenture units (the “DUs”), each DU consisting of one $1,000 principal amount senior unsecured debenture (the “Debentures”) and 27 common share purchase warrants each exercisable for one common share at an exercise price equal to the SR Price at any time prior to the final maturity of the Debentures (the “DU Warrants”), at a price per DU of $1,000, for aggregate gross proceeds of up to $13,000,000 (the “DU Placement”, and together with the SR Placement, the “Private Placement”), for combined aggregate gross proceeds of up to $30,000,000.

Subscription Receipts

Each SR shall be exchanged, without payment of any additional consideration and without further action on the part of the holder thereof, for one common share of Merrco (the “Merrco Common Shares”) upon, among other things, the satisfaction of certain customary conditions (the “Escrow Release Conditions”) within 120 days of the closing of the SR Placement. Once the Escrow Release Conditions have been satisfied, the gross proceeds raised from the sale of the SRs will be released from escrow.

Holders of Merrco Common Shares issued in exchange for the SRs will be entitled to receive common shares of the Resulting Issuer (the “Resulting Issuer Shares”) on the same terms and conditions as the other holders of Merrco Common Shares in connection with the completion of the Transaction.

Debenture Units

Subject to the negotiation and entering into of definitive agreements with respect to the DU Placement, it is expected that the Debentures will bear interest at a rate of 7.5% per year (compounded semi-annually) and will accrue and be capitalized to the principal amount of the Debentures, with one third of the principal amount of the Debentures (plus accrued interest) to be repaid on the third, fourth and fifth year anniversaries of the issue date, as such dates may be extended in accordance with the terms of the Debenture. The Debentures are also expected to have standard anti-dilution protections.

It is also expected that the debentures will be redeemable at the company’s option at par plus accrued interest upon notice to the holders, provided that if the Debentures are redeemed on or before the first anniversary of their issue, 50% of the DU Warrants will be automatically cancelled for no consideration provided that they have not already been exercised on the date on which the redemption notice is delivered. Holders of the Debentures will have the option to convert the Debentures into Merrco Common Shares at any time prior to the maturity date of the relevant Debenture or the date on which a redemption notice is delivered. The conversion price is expected to be the SR Price plus a conversion premium of approximately 25%, subject to adjustment in certain circumstances. The DUs will include customary change of control provisions upon the acquisition of voting control or direction of more than 50% of the common shares.

Agents and Commissions

Canaccord Genuity and Eight Capital (together, the “Lead Agents”) have been engaged by Merrco as co-lead agents and joint bookrunners, together with potential additional investment dealers (collectively with the Lead Agents, the “Agents”) to complete the SR Placement on a best-efforts agency basis. Canaccord Genuity has been engaged by Merrco as sole agent and bookrunner to complete the DU Placement on a best-efforts agency basis.

A commission of 6.0% of the aggregate gross proceeds under the SR Placement is payable to the Agents by Merrco and a commission of 6.0% of the aggregate gross proceeds under the DU Placement is payable to Canaccord by Merrco. In addition, Merrco will issue broker warrants to the Agents in respect of the SR Placement (the “SR Broker Warrants”) and to Canaccord Genuity in respect of the DU Placement (the “DU Broker Warrants”) that are exercisable to acquire, within 18 months from the satisfaction of the Escrow Release Conditions or the closing of the DU Placement (as the case may be), in the aggregate, Merrco Common Shares equal to 6% of the gross proceeds of the SR Placement and 6% of the gross proceeds of the DU Placement, respectively, in each case divided by the SR Price, at an exercise price per Merrco Common Share equal to the SR Price.

Use of Proceeds

As noted above, it is intended that part of the proceeds of the private placement will be used to fund the proposed transaction with the Bank (the “Bank Transaction”), with the balance expected to be used for working capital and general corporate purposes (including payment of costs relating to the Transaction).

About Merrco Payments Inc.

Merrco is a payment processing company that enables its merchant customers to accept credit, debit and alternative payments online and at the point of sale. Merrco markets its services directly to merchants and through a network of channel and integrated partners.

Merrco has developed specialized expertise in regulated industries and has exclusivity arrangements with its bank sponsor and payment gateway partner for cannabis and cannabis-related transactions. The legalization of recreational cannabis on October 17th, together with the growing medical cannabis market in Canada present a significant market opportunity for Merrco’s services.

In February 2018, Merrco acquired Payfirma Corporation, which operates as a wholly-owned subsidiary of Merrco. Payfirma offers payment processing services and financial technology that assists businesses to accept and process payments. Merrco and Payfirma are registered Independent Sales Organizations with Visa and registered Member Service Providers with Mastercard. Together, they offer merchants specialized payments expertise across retail, ecommerce and mobile, and regulated industry.

For further information, please contact:

Merrco Payments Inc.Fern Glowinsky, President & Chief Executive Officerfern.glowinsky@merrco.ca

HAW Capital Corp.David Hyman, CFOhaw.investors@gmail.com

Original press release

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