Preview
FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022
EXHIBIT 53
October 24, 2018 Merger Agreement between Cresco
and Valley
Index No. 652343/2018
FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022
Execution Version
AGREEMENT AND PLAN OF MERGER
dated as of October 24, 2018
among
CRESCO LABS, LLC
CLNY2, LLC
and
GLOUCESTER STREET CAPITAL, LLC
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FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022
TABLE OF CONTENTS
ARTICLE I THE MERGER; EFFECTS OF THE MERGER ........................................................1
Section 1.1 The Merger...................................................................................................1
Section 1.2 Closing.........................................................................................................2
Section 1.3 Closing Deliveries........................................................................................2
ARTICLE II MERGER CONSIDERATION; EXCHANGE PROCEDURES...............................3
Section 2.1 Payment Schedule........................................................................................3
Section 2.2 Merger Consideration ..................................................................................3
Section 2.3 Rights as Unitholders; Unit Transfers..........................................................7
Section 2.4 Exchange of Certificates..............................................................................7
Section 2.5 Dissenting Units.........................................................................................10
Section 2.6 Anti-Dilution Provisions............................................................................10
Section 2.7 Escrowed Units ..........................................................................................11
Section 2.8 Abandoned Property ..................................................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING GLOUCESTER...11
Section 3.1 Organization...............................................................................................11
Section 3.2 Capitalization.............................................................................................11
Section 3.3 Authorization .............................................................................................12
Section 3.4 No Conflicts...............................................................................................12
Section 3.5 Consents.....................................................................................................13
Section 3.6 Bankruptcy.................................................................................................13
Section 3.7 Litigation....................................................................................................13
Section 3.8 Material Contracts......................................................................................13
Section 3.9 No Violation of Laws.................................................................................14
Section 3.10 Preferential Rights .....................................................................................14
Section 3.11 Real Property .............................................................................................14
Section 3.12 Personal Property.......................................................................................15
Section 3.13 NY Cannabis License ................................................................................15
Section 3.14 Broker's Fees .............................................................................................15
Section 3.15 Employee Benefit Plans.............................................................................15
Section 3.16 Taxes..........................................................................................................15
Section 3.17 Gloucester's Financial Statements.............................................................16
Section 3.18 No Undisclosed Liabilities; No Adverse Changes.....................................16
Section 3.19 Employment Matters..................................................................................16
Section 3.20 Intellectual Property...................................................................................17
Section 3.21 Insurance....................................................................................................17
Section 3.22 Bank Accounts...........................................................................................18
Section 3.23 Investment Intent; Restricted Securities ....................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CRESCO................................19
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Section 4.1 Organization...............................................................................................19
Section 4.2 Authorization.............................................................................................19
Section 4.3 No Conflicts...............................................................................................20
Section 4.4 Consents.....................................................................................................20
Section 4.5 Bankruptcy.................................................................................................20
Section 4.6 Litigation....................................................................................................20
Section 4.7 New Units ..................................................................................................20
Section 4.8 Exemption from Registration.....................................................................20
Section 4.9 Taxes..........................................................................................................20
Section 4.10 Other Representation .................................................................................21
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER .......................................21
Section 5.1 Conduct of Business by Gloucester Pending the Merger ..........................21
ARTICLE VI ADDITIONAL AGREEMENTS............................................................................24
Section 6.1 Financial Statement Cooperation...............................................................24
Section 6.2 Employee Benefit Matters .........................................................................24
Section 6.3 Consents and Approvals ............................................................................25
Section 6.4 Public Statements.......................................................................................25
Section 6.5 Further Assurances.....................................................................................25
Section 6.6 Tax Matters................................................................................................26
Section 6.7 Notification of Certain Matters..................................................................26
Section 6.8 Access to Information................................................................................26
Section 6.9 Record Retention .......................................................................................27
Section 6.10 Cresco New Units ......................................................................................27
Section 6.11 Notification of Breaches ............................................................................28
Section 6.12 Gloucester Class B Units ...........................................................................29
Section 6.13 Exclusive Dealing......................................................................................29
Section 6.14 Gloucester Equity Plans.............................................................................29
Section 6.15 Operating Cashflow...................................................................................30
Section 6.16 D&O Indemnification and Insurance.........................................................30
Section 6.17 Loan Agreement.........................................................................................33
ARTICLE VII CONDITIONS.......................................................................................................33
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger....................33
Section 7.2 Conditions to Obligations of Cresco..........................................................33
Section 7.3 Conditions to Obligation of Gloucester.....................................................34
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...........................................35
Section 8.1 Termination................................................................................................35
Section 8.2 Effect of Termination.................................................................................36
Section 8.3 Fees and Expenses .....................................................................................36
Section 8.4 Amendment................................................................................................37
Section 8.5 Waiver........................................................................................................37
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ARTICLE IX INDEMNIFICATION............................................................................................37
Section 9.1 Survival of Representations, Warranties, Etc............................................37
Section 9.2 Indemnification in Favor of Cresco...........................................................37
Section 9.3 Indemnification Obligations of Cresco......................................................37
Section 9.4 Indemnification Procedure.........................................................................38
Section 9.5 Limitations.................................................................................................39
Section 9.6 Payment Procedures...................................................................................40
Section 9.7 Sole and Exclusive Remedy.......................................................................40
Section 9.8 Disclaimer..................................................................................................40
Section 9.9 Survival......................................................................................................41
ARTICLE X GENERAL PROVISIONS.......................................................................................41
Section 10.1 Notices.......................................................................................................41
Section 10.2 Definitions..................................................................................................42
Section 10.3 Knowledge Qualifiers................................................................................52
Section 10.4 Interpretations............................................................................................52
Section 10.5 Governing Law; Jurisdiction; Waiver of Jury Trial...................................52
Section 10.6 Counterparts; Facsimile Transmission of Signatures ................................53
Section 10.7 Assignment; No Third-Party Beneficiaries................................................53
Section 10.8 Severability................................................................................................54
Section 10.9 Entire Agreement.......................................................................................54
Section 10.10 Enforcement...............................................................................................54
Section 10.11 No Other Representations or Warranties...................................................54
Section 10.12 Non-Recourse ............................................................................................54
Section 10.13 Equityholder Representative......................................................................55
Section 10.14 Release.......................................................................................................56
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AGREEMENT AND PLAN OF MERGER
"
THIS AGREEMENT AND PLAN OF MERGER (this Agreement"), dated as of
October 24, 2018, is entered into by and among Cresco Labs, LLC, an Illinois limited liability
("
coinpaily Cresco"), CLNY2, LLC, a New York limited liability company and a wholly-owned
subsidiary of Cresco ("MergerCo") and Gloucester Street Capital, LLC, a New York limited
("
liability company Gloucester").
WHEREAS, Cresco desires for MergerCo, subject to the terms and conditions
hereinafter set forth below, to merge with and into Gloucester with Gloucester surviving the
merger (the "Merger");
WHEREAS, Gloucester desires, subject to the terms and conditions hereinafter set
forth below, for the Merger to occur; and
WHEREAS, the holders of 100% of the outstanding Gloucester Class A Units, have
executed and delivered a written consent to the Merger.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement and for other valuable consideration, the receipt and
sufEciency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER: EFFECTS OF THE MERGER
Section 1.1 The Merger.
(a) The Surviving Entity. Upon the terms and subject to the conditions set forth
in this Agreement, at the Merger Effective Time, MergerCo shall merge with and into Gloucester,
the separate existence of MergerCo shall cease and Gloucester shall survive and continue to exist
as a New York limited liability company (Gloucester, as the surviving entity in the Merger,
"
sometimes being referred to herein as the Surviving Entity"), such that following the Merger,
Cresco will be the sole member of Gloucester.
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Section 1.3 Closing Deliveries.
(a) At the Closing, Cresco shall deliver, cause to be delivered or pay the
following, as applicable:
(i) the Merger Consideration (less the Maximum Cashflow Amount) to
the Paying Agent to be distributed by the Paying Agent in accordance with Section 2.2 and
the Payment Schedule; provided, however, that the Deposit Amount shall be delivered to
the Paying Agent in accordance with Section 1.3(a)(vii) and Section 1.3(b)(vii) below;
(ii) the Escrowed Units to the Escrow Agent pursuant to the Contingent
Unit Escrow Agreement;
(iii) the Contingent Unit Escrow Agreement executed by Cresco, the
Equityholder Representative and the Escrow Agent (the "Contingent Unit Escrow
Agreement");
(iv) a certificate executed by an officer of Cresco to Equityholder
Representative, dated as of the Closing Date, certifying that the conditions set forth in
Section 7.3(a) and Section 7.3(b) have been satisfied;
(v) a certificate or certificates representing the Cresco Units and Cresco
Warrants (less the Cresco Units that are included in the Escrowed Units) executed by
Cresco and meeting the requirements of the Cresco Limited Liability Company Agreement,
free and clear of any Encuinbrânces, other than transfer restrictions under the Cresco
Limited Liability Company Agreement and applicable federal and state securities law;
(vi) The Employment Agreements executed by Cresco; and
(vii) Transfer Instruction to the Deposit Escrow Agent, duly completed
and executed by Cresco, directing the Deposit Escrow Agent to release the Deposit Amount
to Paying Agent according to the Payment Schedule.
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ARTICLE II
MERGER CONSIDERATION; EXCHANGE PROCEDURES
Section 2.1 Payment Schedule.
Section 2.2 Merger Consideration.
(a) On the date hereof Cresco shall deposit the Deposit Amount with Deposit
Escrow Agent pursuant to the terms of a Deposit Escrow Agreement.
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(b) Subject to the provisions of this Agreement, at the Merger Effective Time,
by virtue of the Merger and without any action on the part of Cresco, Gloucester or any holder of
Gloucester Class A Units:
(i) All the limited liability company interests in MergerCo outstanding
immediately prior to the Merger Effective Time shall be converted into and become a 100%
limited liability company interest in Gloucester, and Cresco, as the holder of such limited
liability company interests, shall be admitted as the sole member of Gloucester.
(ii) Each Gloucester Class A Unit issued and outstanding immediately prior to
the Merger Effective Time (other than the Dissenting Units) shall be converted into a right
to receive (subject to Section 2.4(b)(i) with respect to the Escrowed Units): (A) a number
of Cresco Units equal to the product of (x) the number of Cresco Units included in the
Merger Consideration multiplied by (y) a fraction, the numerator of which is one and the
denominator of which is the total number of Gloucester Class A Units issued and
outstanding immediately prior to the Merger Effective Time (the "Fraction"), which
Cresco Units shall be duly authorized and validly issued in accordance with applicable
Laws and the Cresco Limited Liability Company Agreement, fully paid (to the extent
required under the Cresco Limited Liability Company Agreement) and non-assessable
(such Cresco Units described in this clause (a)(ii) (including the Escrowed Units) shall be
referred to herein as the "New (Jnits"); (B) a portion of the Cash Merger Consideration
equal to the product of (x) the Cash Merger Consideration multiplied by (y) th.eFraction;
(C) a number of Cresco Warrants equal to the product of (x) the number of Cresco Warrants
included in the Merger Consideration multiplied by (y) the Fraction and (D) a portion of
the Maximum Cashflow Amount (paid in accordance with Section 2.2(c)) equal to the
product of (x) the Maximum Cashflow Amount multiplied by (y) the Fraction.
(iii) All the Gloucester Class A Units, when converted in the Merger, shall cease
to be outstanding and shall automatically be canceled and cease to exist. At the Merger
Effective Time, each holder of Gloucester Class A Units shall cease to have any rights with
respect thereto, except the right to receive (A) its Pro Rata Share of the Merger
Consideration and (B) any cash to be paid in lieu of any fractional New Units in accordance
with Section 2.4(e), in each case to be issued or paid in consideration therefore in
accordance with Section 2.4.
(iv) Each Dissenting Unit issued and outstanding immediately prior to the
Merger Effective Time shall cease to be outstanding, shall be cancelled without payment
of any consideration therefor and shall cease to exist, subject to the right of the record
holder of any Dissenting Unit to receive the payment for such Dissenting Unit pursuant to
Section 2.5.
(v) Prior to the Merger Effective Time, Gloucester shall take all actions
necessary to provide that each option or warrant to purchase Gloucester Class A Units
granted pursuant to the Gloucester Equity Plans or otherwise (each, an "Option") that is
outstanding immediately prior to the Merger Effective Time shall, as of immediately prior
to the Merger Effective Time, (A) vest in accordance with the terms and conditions
applicable to the Option such that all outstanding Options shall fully vest (to the extent
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unvested) immediately prior to the Merger Effective Time and (B) holders of such Options
shall be permitted to exercise such Options in accordance with their terms before the
Merger Effective Time and the Gloucester Class A Units issued pursuant to such exercise
shall be subject to Section 2.2(b)(ii) of this Agreement. Prior to the Merger Effective Time,
Gloucester shall take all actions necessary to provide that that each Option that is
outstanding as of the Merger Effective Time, shall, by virtue of the Merger and without any
action on the part of Cresco, MergerCo, Gloucester, the Gloucester Equityholders or any
other Person, be cancelled and terminated.
(c) After the Closing Date, during the five (5) year period following the date
that VA first has Operating Cashflow (as defined below) (the "PaymentPeriod'), Cresco shall pay
to the Gloucester Equityholders an aggregate amount of $10,000,000 of Operating Cashflow (the
"Maximum Cashflow Amount"). Operating Cashflow means Net Cash Flow from Operating
Activities as determined in accordance with GAAP (and, consistent with GAAP, excluding any
capital expenditures on real property) and incorporating any and allrevenue generated by Cresco,
Gloucester, VA, VARE, any other direct or indirect parent or Subsidiary of Cresco or any Affiliate
of Cresco, Gloucester, VA, VARE and any other direct or indirect parent or Subsidiary of Cresco
from operations and activities within New York State and adjusted as follows: (i) decreased for
capital expenditures on or for personal property; (ii)increased for any debt servicing payments or
charges, principal and interest of Cresco, any direct or indirect parent or Subsidiary of Cresco
(including Gloucester, VA or VARE) or any Affiliate of Cresco, Gloucester, VA, VARE or any
direct or indirect parent or Subsidiary of Cresco; (iii)increased for any rent payments between VA
and VARE or any other entity, whether related or unrelated to Cresco, for which the rent payment
provides for facilities for the cultivation, production, manufacturing, packaging, quality control or
research and development of products and for the avoidance of doubt, this exclusion does not
include rent and related payments for dispensary locations in the State of New York; and (iv)
increased for any general corporate allocation, but includes purchases of intercompany direct
services from Cresco or an Affiliate of Cresco which must be charged at arm's length pricing
("OperatingCashflow") less fifty percent (50%) of any Paying Agent Fees due in connection with
any payment of the Maximum Cashflow Amount during the Payment Period. Cresco agrees to use
reasonable best efforts to cause Gloucester to use Cresco services that are comparable in cost and
effectiveness to services that would be provided by a third party pursuant to an arm's length
arrangement. For the avoidance of doubt, the Gloucester Equityholders are entitled to receive
seventy-five percent (75%) of Operating Cashflow for each calendar year (or portion thereof)
during the Payment Period, not to exceed the Maximum Cashflow Amount;provided, that if atthe
end of the Payment Period, the Gloucester Equityholders have received less than the Maximum
Cashflow Amount, Cresco shall,within thirty (30) calendar days after such date pay in a lump sum
cash amount to the Gloucester Equityholders the difference between the Maximum Cashflow
Amount and the aggregate amount of Operating Cashflow payments made to the Gloucester
Equityholders during the Payment Period.
(d) Operating Cashflow shall be determined as of June 30 and December 31 of
each calendar year during the Payment Period (each intermediate period, an "OperatingCashflow
Determination Period"). Within thirty (30) calendar days following the end of an Operating
Cashflow Determination Period, Cresco shall deliver to the Gloucester Equityholders a statement
certified by Cresco's accountant setting forth a calculation of the Operating Cashflow for the
applicable Operating Cashflow Determination Period (the "Operating Cashflow Statement"). If
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the Equityholder Representative has any objection to the Operating Cashflow Statement, the
Equityholder Representative shall, within forty-five (45) days after receipt thereof (the "Notice
Period"), give written notice (the "Notice") to Cresco specifying in reasonable detail such
objections and the basis therefor. If the Equityholder Representative does not deliver the Notice
within the Notice Period, Cresco's determinations set forth in the Operating Cashflow Statement
shall be final, binding and conclusive on Cresco and the Gloucester Equityholders (a "Final
Operating Cashflow Statement"). During the Notice Period, Cresco shall provide the Equityholder
Representative such reasonable information as the Equityholder Representative may request to
enable the Equityholder Representative to review and verify the information set forth in an
Operating Cashflow Statement including reasonable access to Cresco's accountants, documents,
and information used in the preparation of, or necessary to prepare, an Operating Cashflow
Statement. If the Equityholder Representative provides a Notice within the Notice Period, Cresco
and the Equityholder Representative shall negotiate in good faith during the thirty (30) day period
(the "Resolution Period") after the date of Cresco's receipt of the Notice to resolve any disputes
regarding the Operating Cashflow Statement and to agree in writing on a Final Operating Cashflow
Statement. If Cresco and Equityholder Representative are unable to resolve allsuch disputes within
the Resolution Period, then within fifteen (15) Business Days after the expiration of the Resolution
Period, all unresolved disputes shall be submitted to a certified public accountant at a nationally
recognized accounting firm who is mutually agreeable to Cresco and Equityholder Representative
(the "Accountant"), who shall be engaged to provide a final, binding and conclusive resolution of
all such unresolved disputes within thirty (30) Business Days after such engagement. The
Accountant shall act as an independent arbitrator to determine, based solely on the presentations
by Cresco and Equityholder Representative and not by independent review, only those issues that
remain in dispute. Upon final resolution of alldisputed items, the Accountant shall issue a report
showing its final calculation of such disputed items which, together with the undisputed items,
constitute the Final Operating Cashflow Statement. The determination of the Accountant shall be
final, binding and conclusive on Cresco and the Gloucester Equityholders, and the fees and
expenses of the Accountant shall be borne equally by Cresco (on the one hand) and the Gloucester
Equityholders (on the other hand). In connection with the resolution of any dispute, each of Cresco
and the Gloucester Equityholders shall pay their own fees and expenses, including without
limitation, legal, accounting and consultant fees and expenses. Notwithstanding anything to the
contrary in this Agreement, any disputes regarding amounts shown in the Operating Cashflow
Statement shall be resolved as set forth in this Section 2.2(d).
(e) No later than fifteen (15) days following the date upon which a Final
Operating Cashflow Statement becomes final according to Section 2.2(d), Cresco shall deliver to
the Paying Agent any amounts owed to the Gloucester Equityholders according to the Payment
Schedule in cash by wire transfer of immediately available funds.
(f) To secure payment of the Maximum Operating Cashflow and the
performance of the covenants and obligations contained in this Section 2.2, Cresco shall grant a
right of mortgage on certain assets of Cresco in favor of the Gloucester Equityholders substantially
Mortgage"
in the forms attached hereto as Annex E-1 and Annex E-2 (the "Operating Cashflow );
provided, that that Cresco and Gloucester shall cooperate in good faith to verify true and accurate
legal descriptions are attached thereto prior to the Closing.
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(g) Cresco shall have the right to withhold and set off any amount of any
indemnifiable Losses under Section 9.2, subject to the terms of ARTICLE IX, against any amount
of Operating Cashflow otherwise owed to the Gloucester Equityholders pursuant to this
Section 2.2, provided such Loss is finally adjudicated to be payable pursuant to Article IX of this
Agreement.
(h) The Maximum Cash Flow Amount shall be treated as a contingent payment
to the Gloucester Equityholders for the Gloucester Class A Units, payable pursuant to
Section 2.2(c). Accordingly, Cresco shall not treat the payment as a distribution to holders of the
Cresco Units under Section 8.1 of the Cresco Limited Liability Company Agreement, and no
correlative allocation of net or gross income of Cresco shall result to the Gloucester Equityholders
for U.S. partnership tax purposes with respect to such contingent payments.
Section 2.3 Rights as Unitholders; Unit Transfers. At the Merger Effective Time,
Gloucester Equityholders and all other equity interests in Gloucester shall cease to be unitholders
of Gloucester and shall have no right as unitholders of Gloucester other than the right to receive
the consideration provided under this ARTICLE II. After the Merger Effective Time, there shall
be no transfers on the unit transfer books of Gloucester with respect to the Gloucester Class A
Units or any other equity interests of Gloucester. If, after the Merger Effective Time, any
Certificate is presented to the Surviving Entity, Cresco or the Paying Agent for transfer, itshall be
cancelled and, subject to compliance with the procedures set forth in Section 2.4, exchanged for
the Pro Rata Merger Consideration to which the holder thereof is entitled pursuant to this
ARTICLE II.
Section 2.4 Exchange of Certificates.
(a) Pa in A ent.
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(b) Exchange Procedures. Prior to the Merger Effective Time, Cresco shall
deliver to each record holder of Gloucester Class A Units a letter of transmittal instructions in the
form attached hereto as Annex C foruse in effecting the surrender of the Gloucester Class A Units
held by the holders thereof. At and after the Merger Effective Time, upon surrender to the Paying
Preview
FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 EXHIBIT 53 October 24, 2018 Merger Agreement between Cresco and Valley Index No. 652343/2018 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 Execution Version AGREEMENT AND PLAN OF MERGER dated as of October 24, 2018 among CRESCO LABS, LLC CLNY2, LLC and GLOUCESTER STREET CAPITAL, LLC 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRESOüüü8899 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 TABLE OF CONTENTS ARTICLE I THE MERGER; EFFECTS OF THE MERGER ........................................................1 Section 1.1 The Merger...................................................................................................1 Section 1.2 Closing.........................................................................................................2 Section 1.3 Closing Deliveries........................................................................................2 ARTICLE II MERGER CONSIDERATION; EXCHANGE PROCEDURES...............................3 Section 2.1 Payment Schedule........................................................................................3 Section 2.2 Merger Consideration ..................................................................................3 Section 2.3 Rights as Unitholders; Unit Transfers..........................................................7 Section 2.4 Exchange of Certificates..............................................................................7 Section 2.5 Dissenting Units.........................................................................................10 Section 2.6 Anti-Dilution Provisions............................................................................10 Section 2.7 Escrowed Units ..........................................................................................11 Section 2.8 Abandoned Property ..................................................................................11 ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING GLOUCESTER...11 Section 3.1 Organization...............................................................................................11 Section 3.2 Capitalization.............................................................................................11 Section 3.3 Authorization .............................................................................................12 Section 3.4 No Conflicts...............................................................................................12 Section 3.5 Consents.....................................................................................................13 Section 3.6 Bankruptcy.................................................................................................13 Section 3.7 Litigation....................................................................................................13 Section 3.8 Material Contracts......................................................................................13 Section 3.9 No Violation of Laws.................................................................................14 Section 3.10 Preferential Rights .....................................................................................14 Section 3.11 Real Property .............................................................................................14 Section 3.12 Personal Property.......................................................................................15 Section 3.13 NY Cannabis License ................................................................................15 Section 3.14 Broker's Fees .............................................................................................15 Section 3.15 Employee Benefit Plans.............................................................................15 Section 3.16 Taxes..........................................................................................................15 Section 3.17 Gloucester's Financial Statements.............................................................16 Section 3.18 No Undisclosed Liabilities; No Adverse Changes.....................................16 Section 3.19 Employment Matters..................................................................................16 Section 3.20 Intellectual Property...................................................................................17 Section 3.21 Insurance....................................................................................................17 Section 3.22 Bank Accounts...........................................................................................18 Section 3.23 Investment Intent; Restricted Securities ....................................................18 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CRESCO................................19 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008900 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 Section 4.1 Organization...............................................................................................19 Section 4.2 Authorization.............................................................................................19 Section 4.3 No Conflicts...............................................................................................20 Section 4.4 Consents.....................................................................................................20 Section 4.5 Bankruptcy.................................................................................................20 Section 4.6 Litigation....................................................................................................20 Section 4.7 New Units ..................................................................................................20 Section 4.8 Exemption from Registration.....................................................................20 Section 4.9 Taxes..........................................................................................................20 Section 4.10 Other Representation .................................................................................21 ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER .......................................21 Section 5.1 Conduct of Business by Gloucester Pending the Merger ..........................21 ARTICLE VI ADDITIONAL AGREEMENTS............................................................................24 Section 6.1 Financial Statement Cooperation...............................................................24 Section 6.2 Employee Benefit Matters .........................................................................24 Section 6.3 Consents and Approvals ............................................................................25 Section 6.4 Public Statements.......................................................................................25 Section 6.5 Further Assurances.....................................................................................25 Section 6.6 Tax Matters................................................................................................26 Section 6.7 Notification of Certain Matters..................................................................26 Section 6.8 Access to Information................................................................................26 Section 6.9 Record Retention .......................................................................................27 Section 6.10 Cresco New Units ......................................................................................27 Section 6.11 Notification of Breaches ............................................................................28 Section 6.12 Gloucester Class B Units ...........................................................................29 Section 6.13 Exclusive Dealing......................................................................................29 Section 6.14 Gloucester Equity Plans.............................................................................29 Section 6.15 Operating Cashflow...................................................................................30 Section 6.16 D&O Indemnification and Insurance.........................................................30 Section 6.17 Loan Agreement.........................................................................................33 ARTICLE VII CONDITIONS.......................................................................................................33 Section 7.1 Conditions to Each Party's Obligation To Effect the Merger....................33 Section 7.2 Conditions to Obligations of Cresco..........................................................33 Section 7.3 Conditions to Obligation of Gloucester.....................................................34 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...........................................35 Section 8.1 Termination................................................................................................35 Section 8.2 Effect of Termination.................................................................................36 Section 8.3 Fees and Expenses .....................................................................................36 Section 8.4 Amendment................................................................................................37 Section 8.5 Waiver........................................................................................................37 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008901 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 ARTICLE IX INDEMNIFICATION............................................................................................37 Section 9.1 Survival of Representations, Warranties, Etc............................................37 Section 9.2 Indemnification in Favor of Cresco...........................................................37 Section 9.3 Indemnification Obligations of Cresco......................................................37 Section 9.4 Indemnification Procedure.........................................................................38 Section 9.5 Limitations.................................................................................................39 Section 9.6 Payment Procedures...................................................................................40 Section 9.7 Sole and Exclusive Remedy.......................................................................40 Section 9.8 Disclaimer..................................................................................................40 Section 9.9 Survival......................................................................................................41 ARTICLE X GENERAL PROVISIONS.......................................................................................41 Section 10.1 Notices.......................................................................................................41 Section 10.2 Definitions..................................................................................................42 Section 10.3 Knowledge Qualifiers................................................................................52 Section 10.4 Interpretations............................................................................................52 Section 10.5 Governing Law; Jurisdiction; Waiver of Jury Trial...................................52 Section 10.6 Counterparts; Facsimile Transmission of Signatures ................................53 Section 10.7 Assignment; No Third-Party Beneficiaries................................................53 Section 10.8 Severability................................................................................................54 Section 10.9 Entire Agreement.......................................................................................54 Section 10.10 Enforcement...............................................................................................54 Section 10.11 No Other Representations or Warranties...................................................54 Section 10.12 Non-Recourse ............................................................................................54 Section 10.13 Equityholder Representative......................................................................55 Section 10.14 Release.......................................................................................................56 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008902 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 AGREEMENT AND PLAN OF MERGER " THIS AGREEMENT AND PLAN OF MERGER (this Agreement"), dated as of October 24, 2018, is entered into by and among Cresco Labs, LLC, an Illinois limited liability (" coinpaily Cresco"), CLNY2, LLC, a New York limited liability company and a wholly-owned subsidiary of Cresco ("MergerCo") and Gloucester Street Capital, LLC, a New York limited (" liability company Gloucester"). WHEREAS, Cresco desires for MergerCo, subject to the terms and conditions hereinafter set forth below, to merge with and into Gloucester with Gloucester surviving the merger (the "Merger"); WHEREAS, Gloucester desires, subject to the terms and conditions hereinafter set forth below, for the Merger to occur; and WHEREAS, the holders of 100% of the outstanding Gloucester Class A Units, have executed and delivered a written consent to the Merger. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants contained in this Agreement and for other valuable consideration, the receipt and sufEciency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I THE MERGER: EFFECTS OF THE MERGER Section 1.1 The Merger. (a) The Surviving Entity. Upon the terms and subject to the conditions set forth in this Agreement, at the Merger Effective Time, MergerCo shall merge with and into Gloucester, the separate existence of MergerCo shall cease and Gloucester shall survive and continue to exist as a New York limited liability company (Gloucester, as the surviving entity in the Merger, " sometimes being referred to herein as the Surviving Entity"), such that following the Merger, Cresco will be the sole member of Gloucester. 1 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008903 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 Section 1.3 Closing Deliveries. (a) At the Closing, Cresco shall deliver, cause to be delivered or pay the following, as applicable: (i) the Merger Consideration (less the Maximum Cashflow Amount) to the Paying Agent to be distributed by the Paying Agent in accordance with Section 2.2 and the Payment Schedule; provided, however, that the Deposit Amount shall be delivered to the Paying Agent in accordance with Section 1.3(a)(vii) and Section 1.3(b)(vii) below; (ii) the Escrowed Units to the Escrow Agent pursuant to the Contingent Unit Escrow Agreement; (iii) the Contingent Unit Escrow Agreement executed by Cresco, the Equityholder Representative and the Escrow Agent (the "Contingent Unit Escrow Agreement"); (iv) a certificate executed by an officer of Cresco to Equityholder Representative, dated as of the Closing Date, certifying that the conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied; (v) a certificate or certificates representing the Cresco Units and Cresco Warrants (less the Cresco Units that are included in the Escrowed Units) executed by Cresco and meeting the requirements of the Cresco Limited Liability Company Agreement, free and clear of any Encuinbrânces, other than transfer restrictions under the Cresco Limited Liability Company Agreement and applicable federal and state securities law; (vi) The Employment Agreements executed by Cresco; and (vii) Transfer Instruction to the Deposit Escrow Agent, duly completed and executed by Cresco, directing the Deposit Escrow Agent to release the Deposit Amount to Paying Agent according to the Payment Schedule. 2 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRESüûüü8904 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 ARTICLE II MERGER CONSIDERATION; EXCHANGE PROCEDURES Section 2.1 Payment Schedule. Section 2.2 Merger Consideration. (a) On the date hereof Cresco shall deposit the Deposit Amount with Deposit Escrow Agent pursuant to the terms of a Deposit Escrow Agreement. 3 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008905 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 (b) Subject to the provisions of this Agreement, at the Merger Effective Time, by virtue of the Merger and without any action on the part of Cresco, Gloucester or any holder of Gloucester Class A Units: (i) All the limited liability company interests in MergerCo outstanding immediately prior to the Merger Effective Time shall be converted into and become a 100% limited liability company interest in Gloucester, and Cresco, as the holder of such limited liability company interests, shall be admitted as the sole member of Gloucester. (ii) Each Gloucester Class A Unit issued and outstanding immediately prior to the Merger Effective Time (other than the Dissenting Units) shall be converted into a right to receive (subject to Section 2.4(b)(i) with respect to the Escrowed Units): (A) a number of Cresco Units equal to the product of (x) the number of Cresco Units included in the Merger Consideration multiplied by (y) a fraction, the numerator of which is one and the denominator of which is the total number of Gloucester Class A Units issued and outstanding immediately prior to the Merger Effective Time (the "Fraction"), which Cresco Units shall be duly authorized and validly issued in accordance with applicable Laws and the Cresco Limited Liability Company Agreement, fully paid (to the extent required under the Cresco Limited Liability Company Agreement) and non-assessable (such Cresco Units described in this clause (a)(ii) (including the Escrowed Units) shall be referred to herein as the "New (Jnits"); (B) a portion of the Cash Merger Consideration equal to the product of (x) the Cash Merger Consideration multiplied by (y) th.eFraction; (C) a number of Cresco Warrants equal to the product of (x) the number of Cresco Warrants included in the Merger Consideration multiplied by (y) the Fraction and (D) a portion of the Maximum Cashflow Amount (paid in accordance with Section 2.2(c)) equal to the product of (x) the Maximum Cashflow Amount multiplied by (y) the Fraction. (iii) All the Gloucester Class A Units, when converted in the Merger, shall cease to be outstanding and shall automatically be canceled and cease to exist. At the Merger Effective Time, each holder of Gloucester Class A Units shall cease to have any rights with respect thereto, except the right to receive (A) its Pro Rata Share of the Merger Consideration and (B) any cash to be paid in lieu of any fractional New Units in accordance with Section 2.4(e), in each case to be issued or paid in consideration therefore in accordance with Section 2.4. (iv) Each Dissenting Unit issued and outstanding immediately prior to the Merger Effective Time shall cease to be outstanding, shall be cancelled without payment of any consideration therefor and shall cease to exist, subject to the right of the record holder of any Dissenting Unit to receive the payment for such Dissenting Unit pursuant to Section 2.5. (v) Prior to the Merger Effective Time, Gloucester shall take all actions necessary to provide that each option or warrant to purchase Gloucester Class A Units granted pursuant to the Gloucester Equity Plans or otherwise (each, an "Option") that is outstanding immediately prior to the Merger Effective Time shall, as of immediately prior to the Merger Effective Time, (A) vest in accordance with the terms and conditions applicable to the Option such that all outstanding Options shall fully vest (to the extent 4 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008906 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 unvested) immediately prior to the Merger Effective Time and (B) holders of such Options shall be permitted to exercise such Options in accordance with their terms before the Merger Effective Time and the Gloucester Class A Units issued pursuant to such exercise shall be subject to Section 2.2(b)(ii) of this Agreement. Prior to the Merger Effective Time, Gloucester shall take all actions necessary to provide that that each Option that is outstanding as of the Merger Effective Time, shall, by virtue of the Merger and without any action on the part of Cresco, MergerCo, Gloucester, the Gloucester Equityholders or any other Person, be cancelled and terminated. (c) After the Closing Date, during the five (5) year period following the date that VA first has Operating Cashflow (as defined below) (the "PaymentPeriod'), Cresco shall pay to the Gloucester Equityholders an aggregate amount of $10,000,000 of Operating Cashflow (the "Maximum Cashflow Amount"). Operating Cashflow means Net Cash Flow from Operating Activities as determined in accordance with GAAP (and, consistent with GAAP, excluding any capital expenditures on real property) and incorporating any and allrevenue generated by Cresco, Gloucester, VA, VARE, any other direct or indirect parent or Subsidiary of Cresco or any Affiliate of Cresco, Gloucester, VA, VARE and any other direct or indirect parent or Subsidiary of Cresco from operations and activities within New York State and adjusted as follows: (i) decreased for capital expenditures on or for personal property; (ii)increased for any debt servicing payments or charges, principal and interest of Cresco, any direct or indirect parent or Subsidiary of Cresco (including Gloucester, VA or VARE) or any Affiliate of Cresco, Gloucester, VA, VARE or any direct or indirect parent or Subsidiary of Cresco; (iii)increased for any rent payments between VA and VARE or any other entity, whether related or unrelated to Cresco, for which the rent payment provides for facilities for the cultivation, production, manufacturing, packaging, quality control or research and development of products and for the avoidance of doubt, this exclusion does not include rent and related payments for dispensary locations in the State of New York; and (iv) increased for any general corporate allocation, but includes purchases of intercompany direct services from Cresco or an Affiliate of Cresco which must be charged at arm's length pricing ("OperatingCashflow") less fifty percent (50%) of any Paying Agent Fees due in connection with any payment of the Maximum Cashflow Amount during the Payment Period. Cresco agrees to use reasonable best efforts to cause Gloucester to use Cresco services that are comparable in cost and effectiveness to services that would be provided by a third party pursuant to an arm's length arrangement. For the avoidance of doubt, the Gloucester Equityholders are entitled to receive seventy-five percent (75%) of Operating Cashflow for each calendar year (or portion thereof) during the Payment Period, not to exceed the Maximum Cashflow Amount;provided, that if atthe end of the Payment Period, the Gloucester Equityholders have received less than the Maximum Cashflow Amount, Cresco shall,within thirty (30) calendar days after such date pay in a lump sum cash amount to the Gloucester Equityholders the difference between the Maximum Cashflow Amount and the aggregate amount of Operating Cashflow payments made to the Gloucester Equityholders during the Payment Period. (d) Operating Cashflow shall be determined as of June 30 and December 31 of each calendar year during the Payment Period (each intermediate period, an "OperatingCashflow Determination Period"). Within thirty (30) calendar days following the end of an Operating Cashflow Determination Period, Cresco shall deliver to the Gloucester Equityholders a statement certified by Cresco's accountant setting forth a calculation of the Operating Cashflow for the applicable Operating Cashflow Determination Period (the "Operating Cashflow Statement"). If 5 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008907 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 the Equityholder Representative has any objection to the Operating Cashflow Statement, the Equityholder Representative shall, within forty-five (45) days after receipt thereof (the "Notice Period"), give written notice (the "Notice") to Cresco specifying in reasonable detail such objections and the basis therefor. If the Equityholder Representative does not deliver the Notice within the Notice Period, Cresco's determinations set forth in the Operating Cashflow Statement shall be final, binding and conclusive on Cresco and the Gloucester Equityholders (a "Final Operating Cashflow Statement"). During the Notice Period, Cresco shall provide the Equityholder Representative such reasonable information as the Equityholder Representative may request to enable the Equityholder Representative to review and verify the information set forth in an Operating Cashflow Statement including reasonable access to Cresco's accountants, documents, and information used in the preparation of, or necessary to prepare, an Operating Cashflow Statement. If the Equityholder Representative provides a Notice within the Notice Period, Cresco and the Equityholder Representative shall negotiate in good faith during the thirty (30) day period (the "Resolution Period") after the date of Cresco's receipt of the Notice to resolve any disputes regarding the Operating Cashflow Statement and to agree in writing on a Final Operating Cashflow Statement. If Cresco and Equityholder Representative are unable to resolve allsuch disputes within the Resolution Period, then within fifteen (15) Business Days after the expiration of the Resolution Period, all unresolved disputes shall be submitted to a certified public accountant at a nationally recognized accounting firm who is mutually agreeable to Cresco and Equityholder Representative (the "Accountant"), who shall be engaged to provide a final, binding and conclusive resolution of all such unresolved disputes within thirty (30) Business Days after such engagement. The Accountant shall act as an independent arbitrator to determine, based solely on the presentations by Cresco and Equityholder Representative and not by independent review, only those issues that remain in dispute. Upon final resolution of alldisputed items, the Accountant shall issue a report showing its final calculation of such disputed items which, together with the undisputed items, constitute the Final Operating Cashflow Statement. The determination of the Accountant shall be final, binding and conclusive on Cresco and the Gloucester Equityholders, and the fees and expenses of the Accountant shall be borne equally by Cresco (on the one hand) and the Gloucester Equityholders (on the other hand). In connection with the resolution of any dispute, each of Cresco and the Gloucester Equityholders shall pay their own fees and expenses, including without limitation, legal, accounting and consultant fees and expenses. Notwithstanding anything to the contrary in this Agreement, any disputes regarding amounts shown in the Operating Cashflow Statement shall be resolved as set forth in this Section 2.2(d). (e) No later than fifteen (15) days following the date upon which a Final Operating Cashflow Statement becomes final according to Section 2.2(d), Cresco shall deliver to the Paying Agent any amounts owed to the Gloucester Equityholders according to the Payment Schedule in cash by wire transfer of immediately available funds. (f) To secure payment of the Maximum Operating Cashflow and the performance of the covenants and obligations contained in this Section 2.2, Cresco shall grant a right of mortgage on certain assets of Cresco in favor of the Gloucester Equityholders substantially Mortgage" in the forms attached hereto as Annex E-1 and Annex E-2 (the "Operating Cashflow ); provided, that that Cresco and Gloucester shall cooperate in good faith to verify true and accurate legal descriptions are attached thereto prior to the Closing. 6 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRES00008908 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 (g) Cresco shall have the right to withhold and set off any amount of any indemnifiable Losses under Section 9.2, subject to the terms of ARTICLE IX, against any amount of Operating Cashflow otherwise owed to the Gloucester Equityholders pursuant to this Section 2.2, provided such Loss is finally adjudicated to be payable pursuant to Article IX of this Agreement. (h) The Maximum Cash Flow Amount shall be treated as a contingent payment to the Gloucester Equityholders for the Gloucester Class A Units, payable pursuant to Section 2.2(c). Accordingly, Cresco shall not treat the payment as a distribution to holders of the Cresco Units under Section 8.1 of the Cresco Limited Liability Company Agreement, and no correlative allocation of net or gross income of Cresco shall result to the Gloucester Equityholders for U.S. partnership tax purposes with respect to such contingent payments. Section 2.3 Rights as Unitholders; Unit Transfers. At the Merger Effective Time, Gloucester Equityholders and all other equity interests in Gloucester shall cease to be unitholders of Gloucester and shall have no right as unitholders of Gloucester other than the right to receive the consideration provided under this ARTICLE II. After the Merger Effective Time, there shall be no transfers on the unit transfer books of Gloucester with respect to the Gloucester Class A Units or any other equity interests of Gloucester. If, after the Merger Effective Time, any Certificate is presented to the Surviving Entity, Cresco or the Paying Agent for transfer, itshall be cancelled and, subject to compliance with the procedures set forth in Section 2.4, exchanged for the Pro Rata Merger Consideration to which the holder thereof is entitled pursuant to this ARTICLE II. Section 2.4 Exchange of Certificates. (a) Pa in A ent. 7 46473443;16 CONFIDENTIAL - SUBJECT TO CONFIDENTIALITY STIPULATION AND ORDER CRESüüüü8909 FILED: NEW YORK COUNTY CLERK 01/06/2022 11:23 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 396 RECEIVED NYSCEF: 01/06/2022 (b) Exchange Procedures. Prior to the Merger Effective Time, Cresco shall deliver to each record holder of Gloucester Class A Units a letter of transmittal instructions in the form attached hereto as Annex C foruse in effecting the surrender of the Gloucester Class A Units held by the holders thereof. At and after the Merger Effective Time, upon surrender to the Paying