Patch International Inc.

November 16, 2016 10:55 ET

Patch International Inc. Announces Signing of Definitive Agreement

CALGARY, ALBERTA--(Marketwired - Nov. 16, 2016) -

NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Patch International Inc. ("Patch" or the "Corporation") is pleased to announce that it has entered into an arrangement agreement (the "Arrangement Agreement") with Stem Holdings, Inc., a corporation existing under the laws of the State of Nevada ("Stem"). Pursuant to the Arrangement Agreement, among other things, Stem proposes to acquire all of the issued and outstanding Class "A" common shares in the capital of Patch (the "Patch Common Shares") in exchange for shares in the common stock in the capital of Stem ("Purchaser Shares") by way of a court-approved plan of arrangement (the "Arrangement") under the Business Corporations Act (Alberta). On completion of the Arrangement, holders of Patch Shares will own approximately 19% of the issued and outstanding Purchaser Shares of Stem.

Stem is a strategic real estate holding company whose primary focus is acquiring, developing and building out commercial facilities to be leased and utilized by the commercial marijuana industry, initially in Oregon, pursuant to applicable state law. Stem management believes that this approach provides investors with a low risk entry into the marijuana space with initial revenues being derived from "triple net" rental income from marijuana retail or growing properties while providing Stem with a built-in mechanism to acquire one of the premium marijuana brands in the U.S. once it is permissible for Stem to carry on this business under all applicable law, including but not limited to federal law.

The landscape of the marijuana business in the U.S. is rapidly changing. In November 2016, voters in five new states (California, Nevada, Alaska, Massachusetts and Maine) voted to approve the legalization of the sale of both medical and recreational marijuana. Three states (Oregon, Washington and Colorado) had already approved such sales. In addition, 17 states have already approved the sale of marijuana for medical purposes. In the aggregate, 25 of the 50 U.S. states have approved the sale of either medical or recreational marijuana.

To date Stem has raised over US$2,000,000 through two equity offerings and expects to raise over US$3,000,000 by the completion of its most recent offering. Stem has completed one property acquisition and has several other acquisitions which are pending. Stem will not initially be involved in the operation of these properties or in the growing or sale of cannabis.

Stem's goal is to capitalize on the legalization of medical and recreational marijuana, initially in Oregon, by bringing together the proven best growers, extractors, contractors, construction teams, R&D operators and designers in the Northwest U.S. and the talents of highly experienced traditional business executives. Stem has brought together an experienced management team comprising persons with extensive business development, operations, finance and real estate experience and a well-qualified board of directors. Stem intends to become a publicly-reporting company both in the United States and Canada.

Stem does not grow, harvest, distribute, or sell cannabis or any substances that violate United States law or the Controlled Substances Act. At August 31, 2016, Patch did not have any operating business and had net working capital of C$3,669,377. Following the completion of the Arrangement, Stem intends to invest these funds in additional income-producing properties in the State of Oregon.

Pursuant to the Arrangement, Stem will acquire 37,850,724 Patch Common Shares which are currently issued and outstanding, and an additional 6,101,489 Patch Common Shares to be issued upon the redemption of the Patch Exchangeable Shares (as defined herein) through the issuance of Purchaser Shares valued at a deemed price of US$2.40 per Purchaser Share. Subject to final determination of the Patch Working Capital as at the effective date for the Arrangement (the "Effective Date"), Patch Shareholders (as defined below) are expected to receive approximately 0.0255 of a Purchaser Share for each Patch Common Share held, with each such fraction of a Purchaser Share valued at a deemed price of C$0.083 as at the date hereof. The aggregate number of Purchaser Shares that will be issued in exchange for the Patch Common Shares will be finally determined three business days prior to the Effective Date, all as further described in the Arrangement Agreement.

In accordance with the Arrangement Agreement, prior to the Effective Date Patch Energy Inc. ("Patch Energy"), a subsidiary of Patch, will redeem all of the outstanding Series A Preferred shares of Patch Energy (the "Patch Exchangeable Shares") in exchange for Patch Common Shares on a one-for-one basis (the "Redemption"). Immediately following the Redemption and prior to the Effective Date, Patch will repurchase from 1973803 Alberta Ltd. the sole issued and outstanding Class "A" Preferred voting share in the capital of Patch and the sole issued and outstanding Class "B" Preferred voting share in the capital of Patch (together, the "Patch Preferred Shares"), for nominal consideration.

The completion of the Arrangement requires the approval of the holders of the Patch Common Shares, and the holder of the Patch Preferred Shares on behalf of the holders of the Patch Exchangeable Shares (collectively, the "Patch Shareholders"), voting together as a single class. The Arrangement Agreement provides that Patch must call a shareholder meeting to approve the Arrangement (the "Special Meeting") and that the Arrangement must be approved by the Patch Shareholders by no later than January 31, 2017. The completion of the Arrangement is also subject to a number of additional conditions set out in the Arrangement Agreement.

The board of directors of Patch has unanimously determined that the Arrangement is in the best interests of Patch and is fair to the Patch Shareholders. The board of directors of Patch has unanimously recommended that the Patch Shareholders approve the Arrangement. The board of directors of Patch has called for the Special Meeting to be held on January 5, 2017.

The Arrangement is expected to close on or about January 6, 2017.

Copies of the Arrangement Agreement, the information circular and proxy statement for the Special Meeting and certain related documents will be filed on SEDAR and will be available for viewing under Patch's issuer profile at www.sedar.com.

Update on C$500,000 Loan to Formation Fluid Management Inc.

On October 11, 2016 Robix Environmental Technologies, Inc. ("Robix") announced the completion of its acquisition of Formation Fluid Management Inc. ("FFM") pursuant to which FFM will continue as a wholly-owned subsidiary of Robix.

Patch is in discussions with Robix, as successor to FFM, regarding the repayment of the C$500,000 loan evidenced by the promissory note and loan agreement dated November 6, 2015 between FFM, as borrower, and Patch, as lender (the "Loan"). On November 7, 2016 Patch announced that it has agreed to extend the term of the Loan to December 5, 2016.

Upon repayment of the Loan, Patch Shareholders will receive additional Purchaser Shares in an amount based on the amount of proceeds received by Patch.

Forward-Looking Information Advisory

Statements in this news release may contain forward-looking information. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Forward-looking information is subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements. The Corporation believes that the expectations reflected in the forward-looking statements contained in this news release are reasonable, but no assurance can be given that they will prove to be correct. Actual results and future events may differ materially from those anticipated and accordingly forward-looking statements should not be unduly relied upon. Forward-looking statements contained in this document speak only as of the date of this news release. Except as required by applicable law, the Corporation disclaims any obligation to update any forward-looking information.

Completion of the Arrangement is subject to a number of conditions, including but not limited to, court approval and applicable regulatory approval. The Arrangement cannot close until the required approval is obtained from Patch Shareholders. There can be no assurance that the Arrangement will be completed as proposed or at all.

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