Pauric Duffy and Peter Comerford Announce Conversion of Preferred Shares of The Flowr Corporation

- December 23rd, 2019

Pauric Duffy and Peter Comerford announce that convertible preferred shares in the capital of The Flowr Corporation will be converted into Common Shares

Pauric Duffy (“PD”) and Peter Comerford (“PC”) announce today that certain Series 1 voting convertible redeemable preferred shares (the “Preferred Shares”) in the capital of The Flowr Corporation (“Flowr” or the “Issuer”) (TSXV:FLWR) will be converted into Common Shares (as defined below) on February 20, 2020. PD and PC previously acquired, through DFT Trading Limited (“Pauric Holdco”) and Pleiades Trading Ltd. (“Peter Holdco”), respectively, indirect ownership of an aggregate of 32,632,545 Preferred Shares (the “Consideration Shares”) as partial consideration for the sale of their respective interests in Holigen Holdings Limited (“Holigen”). The sale of Holigen to Flowr (the “Acquisition”) was completed pursuant to a share purchase agreement dated June 24, 2019, as amended, between Flowr (as purchaser), Pauric Holdco and Peter Holdco (together, the “Vendors”) (as vendors), and Pleiades Holdings Ltd. (“Peter Topco”), DFT Holdings Limited (“Pauric Topco”), PC and PD (as guarantors) (the “SPA”). In connection with the SPA, the Vendors entered into a share conversion agreement with Flowr (the “Conversion Agreement”) that sets out the process for, and conditions to, conversion of the Consideration Shares into common shares of the Issuer (“Common Shares”). This press release is being issued pursuant to Canadian early warning requirements.

Pursuant to the terms of the Conversion Agreement, on February 20, 2020, 40% of the Consideration Shares (the “Converted Shares”) will convert to Common Shares (the “Conversion”).

The Converted Shares, being 13,053,018 Preferred Shares, immediately prior to the Conversion, represent approximately 50% of the issued and outstanding Preferred Shares on a non-diluted basis.

Together, immediately following the Conversion, PD and PC (including, for certainty their joint actors) will beneficially own, and have control and direction over 13,053,019 Preferred Shares, representing all of the issued and outstanding Preferred Shares.

No consideration will be paid or received in connection with the Conversion.

The conversion of the Converted Shares will be for investment purposes. The Preferred Shares are subject to the terms of escrow agreements dated as of the date of closing of the Acquisition, in each case, among the applicable Vendor, Flowr and The Laurel Hill Advisory Group Company, as escrow agent, (the “Escrow Agreements”). In addition, in connection with the closing of the Acquisition, each Vendor has entered into a lock-up agreement with Flowr (collectively, the “Vendor Lock-Up Agreements”), the Vendors have entered into the Conversion Agreement and PD has entered into a governance agreement with Pauric Holdco and Flowr (the “Governance Agreement”). Subject to the terms of the SPA, the Escrow Agreements, the Vendor Lock-Up Agreements, the Conversion Agreement and the Governance Agreement, PD, PC and their respective joint actors may, from time to time and at any time, acquire, as applicable, additional Preferred Shares and/or Common Shares and/or other equity, debt or other securities or instruments of Flowr in the open market or otherwise, as applicable, and reserve the right to dispose of any or all of the Preferred Shares and/or Common Shares in the open market or otherwise at any time and from time to time, and to engage in similar transactions with respect to the Preferred Shares and/or Common Shares, the whole depending on market conditions, the business and prospects of Flowr and other relevant factors, including compliance with applicable securities laws and the terms of the relevant agreements described herein.

Pursuant to the SPA, Flowr appointed PD to the Flowr Board following the closing of the Acquisition.

Board Observer Right

Until the earlier of (i) the first business day on which PD beneficially owns Preferred Shares and Common Shares (the “Shares”) representing less than 10% of the then issued and outstanding Common Shares on a partially diluted basis, and (ii) the first business day on which PD ceases to be a director of Flowr, PD has the right to appoint one non-voting observer to attend and observe meetings of the Flowr Board, subject to such observer first providing Flowr a confidentiality agreement in form and content satisfactory to Flowr, acting reasonably.

Consent Right

Until the earlier of the first business day on which (i) PD beneficially owns Shares representing less than 13% of the then issued and outstanding Common Shares on a partially diluted basis, and (ii) the conversion or redemption of all of the Preferred Shares held by PD and his affiliates, the completion of a Consent Transaction (as defined herein) by Flowr will require the prior written consent of PD (not to be unreasonably withheld). This consent right, however, will not restrict the board of directors of Flowr (the “Flowr Board”) from exercising its fiduciary duties to the Issuer. “Consent Transaction” means either (A) a merger, amalgamation, arrangement, reorganization, or other business combination or similar transaction involving Flowr and/or any of its subsidiaries in which (i) the consent or approval of the Flowr Board and the holders of Common Shares is required to complete the transaction, (ii) less than 10% of the total consideration payable pursuant to the transaction is cash consideration, and (iii) the holders of Common Shares on a partially diluted basis immediately before the completion of the transaction would hold less than 50% of the common shares or other equity securities of Flowr’s successor or of the continuing or surviving entity immediately following the completion of such transaction, assuming the conversion of all of the Preferred Shares and Class A preferred shares of The Flowr Canada Holdings ULC immediately prior to the completion of the transaction; or (B) (i) a share sale transaction that would result in a direct or indirect change of control of RPK Biopharma, Unipessoal Lda. (“RPK”) or TCann Pty Ltd. (“TCann”); or (ii) the sale of all or substantially all of the assets of RPK or TCann (in the case of (i) and (ii), to a person that is not an affiliate of Flowr, but for avoidance of doubt does not include an internal reorganization the result of which would have Flowr continue to have ultimate control of such entities).

Standstill

Until the first business day on which PD and his affiliates collectively beneficially own Shares (including other equity rights convertible into shares or equity interests of Flowr) representing less than 5% of the then issued and outstanding Common Shares (on a partially diluted basis), PD and his affiliates will not, directly or indirectly, without the prior written consent or waiver by Flowr: (i) acquire, or agree to acquire, or make any proposal to acquire, directly or indirectly, by means of purchase, merger, consolidation, take-over bid, exchange offer, tender offer, business combination, arrangement, amalgamation or in any other manner, whether in one transaction or a series of transactions, any securities or assets of Flowr or any of its subsidiaries, other than conversion of Preferred Shares into Common Shares through the process set out in the Conversion Agreement; or (ii) undertake certain additional actions that may affect control of or which are hostile to Flowr (including, among others as set out in the Governance Agreement, initiating any shareholder proposals or soliciting proxies, commencing any take-over bid or similar transaction; acting alone or in concert with others to control Flowr or any of its subsidiaries, assisting with the foregoing or announcing any intention with respect to the foregoing).

Voting

Subject to compliance with applicable laws, in the event that the holders of Preferred Shares are entitled to vote as a separate class on a shareholder proposal, PD has agreed to vote any Preferred Shares (and use commercially reasonable efforts to cause all of the Preferred Shares owned or beneficially owned by PD or any of his affiliates or over which PD or any of his affiliates has voting control or the power to direct voting control), to be voted in accordance with a recommendation of the Flowr Board.

Flowr’s head office is located at 60 Adelaide Street East, Suite 1000, Toronto, Ontario, M5C 3E4. A copy of the early warning reports with respect to the foregoing will appear on Flowr’s profile on the System for Electronic Document Analysis and Retrieval at www.sedar.com. A copy of the early warning report with respect to PD may be obtained by contacting PD at +351 219 259 507. A copy of the early warning report with respect to PC may be obtained by contacting PC at +351 219 259 507.

Pauric Duffy
Lara Buildings,
Level 1 Guzeppi
Calleja Street
Iklin IKL 1264
Malta

Peter Comerford
Lara Buildings,
Level 1 Guzeppi
Calleja Street
Iklin IKL 1264
Malta

Forward-Looking Information and Statements

This press release includes forward-looking information within the meaning of Canadian securities laws regarding Flowr and its business, which may include, but are not limited to: statements with respect to the release date of Flowr’s financial results,  Flowr’s investment in research and development along with its sense of craftsmanship and a spirit of innovation enabling it to provide premium-quality cannabis that appeals to the adult-use recreational market and address specific patient needs in the medicinal market  and other factors. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “is expected”, “expects”, “scheduled”, “intends”, “contemplates”, “anticipates”, “believes”, “proposes” or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Such statements are based on the current expectations of Flowr’s management and are based on assumptions and subject to risks and uncertainties. Although Flowr’s management believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect. The forward-looking events and circumstances discussed in this press release may not occur by certain specified dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting Flowr, including risks associated with a delay  in releasing Flowr’s financial statements (which could result in a violation  of applicable laws), Flowr not being able to sustain its competitive advantage in cultivation and being unable to remain at the forefront of industry innovation, whether as a result of failed construction of the facilities or otherwise, Flowr not being able to meet demand or fulfill purchase orders, which could materially impact revenues and its relationships with purchasers, Flowr requiring additional financing from time to time in order to continue its operations and such financing may not be available when needed or on terms and conditions acceptable to the Company, new laws or regulations adversely affecting the Company’s business and results of operations, results of operation activities and development of projects, project cost overruns or unanticipated costs and expenses, the inability of Flowr’s products to be high quality, the inability of Flowr’s products to appeal to the adult-use recreational market and address specific patient needs in the medicinal market, the inability of Flowr to produce and distribute premium, high quality products, the inability to supply products or any delay in such supply, Flowr’s securities, the inability to generate cash flows, revenues and/or stable margins, the inability to grow organically, risks associated with the geographic markets in which Flowr operates and/or distributes its products, risks associated with fluctuations in exchange rates (including, without limitation, fluctuations in currencies), risks associated with the use of Flowr’s products to treat certain conditions, the cannabis industry and the regulation thereof, the failure to comply with applicable laws, risks relating to partnership arrangements, possible failure to realize the anticipated benefits of partnership arrangements, product launches (including, without limitation, unsuccessful product launches), the inability to launch products, the failure to obtain regulatory approvals, economic factors, market conditions, risks associated with the acquisition and/or launch of products, the equity and debt markets generally, risks associated with growth and competition (including, without limitation, with respect to Flowr’s products), general economic and stock market conditions, risks and uncertainties detailed from time to time in Flowr’s filings with the Canadian Securities Administrators and many other factors beyond the control of Flowr.  Although Flowr has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking information can be guaranteed. Except as required by applicable securities laws, forward-looking information speaks only as of the date on which it is made and Flowr undertakes no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events, or otherwise.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

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