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Qualifying Transaction Update: Cinaport and Fire & Flower Enter into Acquisition Agreement

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Toronto, Ontario–(Newsfile Corp. – October 31, 2018) – Cinaport Acquisition Corp. II (TSXV: CPQ) (“Cinaport” or the “Company“), a capital pool company listed on the TSX Venture Exchange (the “Exchange“), and Fire & Flower Inc. (“Fire & Flower“) are pleased to announce that further to the Company’s press release issued on September 13, 2018 announcing the proposed qualifying transaction (the “Qualifying Transaction“) the Company, Fire & Flower and 11048449 Canada Inc. (a wholly-owned subsidiary of the Company) have entered into an acquisition agreement (the “Acquisition Agreement“) settling the terms of the Qualifying Transaction.

Terms of the Qualifying Transaction

Pursuant to the terms of the Acquisition Agreement, the parties have agreed that prior to the closing of the Qualifying Transaction, Cinaport will consolidate its common shares on a 10.64814815 to 1 basis (the “Share Consolidation“), whereby each post-Share Consolidation common share of the Company (or any other securities effected by the Share Consolidation) shall be rounded down to the nearest whole number of post-Share Consolidation common shares or other securities, as applicable, and no cash payment or other form of consideration will be payable in lieu thereof. The terms of the Qualifying Transaction will provide that, upon completion of the transaction, shareholders of Fire & Flower will receive one post-Share Consolidation common share of the Company (a “Post-Consolidation Resulting Issuer Share“) for every common share of Fire & Flower (each a “Fire & Flower Common Share“). In addition, all convertible securities, including options, warrants, broker warrants and compensation options, of Fire & Flower that are outstanding at the time of closing of the Qualifying Transaction will be exchanged for equivalent instruments of the Company exercisable for or convertible into Post-Consolidation Resulting Issuer Shares. For greater certainty, all Fire & Flower Common Shares, broker warrants and/or compensation options to be issued pursuant to the concurrent private placement (the “Private Placement“) of Fire & Flower previously announced by the Company and Fire & Flower on September 28, 2018 will be similarly exchanged for equivalent Post-Consolidation Resulting Issuer Shares and broker warrants and/or compensation options, as applicable, of the Company, respectively, on the same one-for-one basis.

The Company currently has 15,400,000 common shares issued and outstanding, as well as 1,540,000 options and 540,000 broker warrants to acquire common shares of the Company at an exercise price of $0.10 per share. After giving effect to the Share Consolidation, the Company will have 1,446,260 common shares, 144,626 options and 50,713 broker warrants issued and outstanding, with each option and broker warrant exercisable to purchase one Post-Consolidation Resulting Issuer Share at an exercise price of $1.064814815 per share (all such numbers subject to minor deviation as a result of the effects of rounding at the individual security holder level).

Fire & Flower currently has: (a) 77,090,769 Fire & Flower Common Shares; (b) 7,307,500 options; (c) 36,325,354 warrants; (d) 2,292,724 broker warrants and/or compensation options, issued and outstanding; and (e) 2,100,000 Fire & Flower Common Shares reserved for issuance in connection with Fire & Flower’s acquisition of Kardeo Inc. In addition, approximately 24,492,390 Fire & Flower Common Shares will be issued immediately prior to closing of the Qualifying Transaction upon conversion of the aggregate principal amount of $27,317,000 of the 8% unsecured convertible debentures issued by Fire & Flower in July and August 2018 (assuming that the conversion of all principal amount of debentures and accrued and unpaid interest thereon occurs on December 15, 2018). Subject to Exchange approval and assuming full subscription of the Private Placement and full exercise of the agents’ 15% over-allotment option in connection therewith (but not including any compensation securities related thereto), it is expected that the current shareholders of the Company will hold approximately 1.1355% of the total issued and outstanding Post-Consolidation Resulting Issuer Shares (or 0.9349% on a fully diluted basis) upon closing of the Qualifying Transaction.

Fire & Flower does not have any Control Persons (as such term is defined under the policies of the Exchange). No Insider, Promoter or Control Person (as such terms are defined in the policies of the Exchange) of the Company has any interest in Fire & Flower prior to giving effect to the Qualifying Transaction other than: Avi Grewal, CEO and a director of the Company, currently owns 485,430 Fire & Flower Common Shares, representing approximately 0.63% of the total issued and outstanding Fire & Flower Common Shares (or 0.33% on a fully diluted basis); Donald Wright, Chairman of the Company, currently owns 970,870 Fire & Flower Common Shares, representing approximately 1.26% of the total issued and outstanding Fire & Flower Common Shares (or 0.66% on a fully diluted basis); and John O’Sullivan, a director of the Company, currently owns 2,669,900 Fire & Flower Common Shares, representing approximately 3.46% of the total issued and outstanding Fire & Flower Common Shares (or 1.82% on a fully diluted basis). In addition to the foregoing, Cinaport Capital Inc., an affiliate of the Company, currently owns 173,913 warrants of Fire & Flower exercisable at a price of $1.15 per share for a term of one year, representing approximately 0.12% of the Fire & Flower Common Shares on a fully diluted basis. Cinaport Capital Inc. is also a party to a finder’s agreement with Fire & Flower with respect to which Cinaport Capital Inc. may receive finder’s fees up to $100,000 and broker warrants exercisable to acquire up 66,666 Fire & Flower Common Shares at a price of $1.50 for a term of 24 months in connection with a future financing. Each of Mr. Grewal, Mr. Wright and Mr. O’Sullivan currently owns 33.33% of the issued and outstanding common shares of Cinaport Capital Inc.

Due to Mr. Grewal, Mr. Wright and Mr. O’Sullivan’s limited involvement with Fire & Flower, they are not “Non-Arm’s Length Parties” or “Insiders” of Fire & Flower as such terms are defined under the policies of the Exchange policies and applicable securities laws.

Closing of the Qualifying Transaction is subject to closing of the Private Placement, completion and execution of all definitive transaction documents (including accuracy of representations and warranties, compliance of covenants and satisfaction of customary conditions) and receipt of all requisite approvals and consents for and in connection with the Qualifying Transaction as contemplated in the Acquisition Agreement including (a) approval by the Exchange for the Qualifying Transaction and the proposed new insiders of the Company; (b) approval by the board of directors of each of Fire & Flower and the Company; and (c) approval by the shareholders of Fire & Flower and Cinaport.

Directors, Officers and Other Insiders of the Company

Upon completion of the Qualifying Transaction, all current officers of Cinaport shall resign and senior management of Fire & Flower will serve in the same capacities as senior officers of the Company.

In addition, it is anticipated that upon completion of the Qualifying Transaction, the board of directors of the Company will be reconstituted to consist of the following four directors: Harvey Shapiro, Trevor Fencott, Norman Inkster and Donald Wright.

The following sets out the names and backgrounds of all persons who are expected to be considered insiders of the Company upon closing of the Qualifying Transaction:

Harvey Shapiro – Director and Executive Director

Mr. Shapiro has been an executive in the cannabis industry since 2014 as a founder, executive officer and director of Emblem Corp. (TSX-V: EMC). Prior to Emblem Corp., Mr. Shapiro was the Chief Executive Officer of Dynacare Inc., a TSX listed medical diagnostic services company which was acquired by NYSE-listed Laboratory Corp. of America Holdings for approximately $1 billion in 2002. Mr. Shapiro was a former corporate lawyer, practicing at Goodman & Carr LLP from 1973 to 1987.

Trevor Fencott – President, Chief Executive Officer and Director

Mr. Fencott has been an executive in the cannabis industry since 2013 as a co-founder of Mettrum Health Corp. where he also served as its chief legal officer, corporate secretary and director through its go public transaction in September 2014 and its subsequent acquisition by Canopy Growth Corporation in January 2017. Additionally, he is a director of Push Capital Limited, an early-stage venture capital company focusing on the high-growth cannabis and digital technology industries. In addition to experience in the regulated cannabis industry, Mr. Fencott has more than 15 years of experience operating, building and financing businesses in the technology and media sectors. Mr. Fencott serves on the board of PopReach Incorporated, a global mobile applications publisher, he was former President and Executive Director of bitHeads Inc., a software development company based in Ottawa as well as an investor and strategic business consultant to Fuse Powered, a Toronto-based mobile analytics and digital distribution company. Mr. Fencott holds a BA Hons. from Queen’s University and an LLB from the University of Western Ontario, Faculty of Law. He is a member in good standing of the Law Society of Ontario.

Norman Inkster – Director

Norman Inkster was the 18th Commissioner of the RCMP and is a former President of INTERPOL. Following his career in the RCMP, Mr. Inkster joined KPMG and became the Partner in charge of KPMG Forensic Canada and subsequently the Global Managing Partner KPMG Forensic. Mr. Inkster was appointed Chair of the Advisory Council on National Security by Prime Minister Harper a post he held for four years. Mr. Inkster served as an external advisor to the Departmental Audit Committee of Public Works and Government Services Canada and now serves in a similar capacity with Public Safety Canada. Mr. Inkster has served on the boards of several publicly traded companies acting as chair of both audit and governance committees, the most recent being Mettrum Health Corp., which was acquired by Canopy Growth Corporation. Mr. Inkster is currently the Chair of Technical Standards and Safety Authority of Ontario. Mr. Inkster holds a BA (Honours) and an LLD (Honourary) from the University of New Brunswick. He is also an Honourary Chief of the Blackfoot tribe and an Honourary member of the Cree Nation. Mr. Inkster is an Officer of the Order of Canada.

Donald Wright -Director

Mr. Wright’s career in the financial industry has spanned over 40 years. He has held a number of leadership positions, including President of Merrill Lynch Canada (1990 to 1994), Executive Vice President, director and member of the executive committee of Burns Fry Ltd. (1994), Chairman and Chief Executive Officer of TD Securities Inc. and Deputy Chairman of TD Bank Financial Group (2002). Mr. Wright retired from TD Bank in November 2002. Since his retirement, he has been an active investor in both the private and public equity markets and has been involved in financing small and medium cap companies with an emphasis in oil and gas, resources and technology and cannabis industries.

Fraser SinclairChief Financial Officer

Mr. Sinclair is a consultant providing senior level financial and business advisory services. He has over 20 years of diverse senior management experience with TSX, TSXV, NYSE MKT and NASDAQ listed companies, comprising financial management, strategic planning, acquisitions and corporate restructurings. Mr. Sinclair has served as a director of Argentum Silver Corporation; Chief Financial Officer and Corporate Secretary of Royal Nickel Corporation; Senior Vice President and Chief Financial Officer of Romarco Minerals Inc.; Vice President Finance and Chief Financial Officer of North American Palladium Ltd. and Chief Financial Officer and Corporate Secretary of Cedara Software Corp. Mr. Sinclair is a Chartered Professional Accountant and earned his designation with Arthur Young & Company (now Ernst & Young LLP). Mr. Sinclair is a member of the Chartered Professional Accountants of Ontario and the South African Institute of Chartered Accountants and holds a Bachelor of Commerce from the University of the Witwatersrand in South Africa.

Mike Vioncek – Chief Operating Officer

Mr. Vioncek comes with over 25 years of experience in the operations of major retail brands across Canada. With deep experience in regulated retail, Mr. Vioncek specializes in successfully opening locations in a regulated retail space. Prior to joining Fire & Flower, he was the President of Canadian Operations for Planet Fitness, specializing in opening new stores from location scouting, leasing, build-out, staffing through to start of operations. Previous to this, Mr. Vioncek was the Director of Operations for Liquor Stores North America, Regional Director for Rexall/Katz Group Canada and District Operations Manager for the Hudson’s Bay Company.

About Fire & Flower Inc.

Fire & Flower is an independent retail chain that offers cannabis products and accessories to the adult-use market in provinces where the sale of cannabis by private retailers is legal under: (a) An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (the “Cannabis Act“) which came into effect on October 17, 2018; and (b) applicable provincial regimes for regulating the sale of cannabis by licensed private retailers. Fire & Flower was founded by leading legal cannabis entrepreneurs in Canada, with significant combined experience in launching premium, successful businesses with extensive experience in the legal cannabis space.

Fire & Flower was incorporated under the Canada Business Corporation Act on March 17, 2017.

Fire & Flower has obtained provincial licences to operate six cannabis retail stores in Alberta and two cannabis retail stores in Saskatchewan, and is pursuing additional licences to operate stores in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario.

Selected Financial Information

The following table summarizes key unaudited financial and operating information of Fire & Flower over the twenty-six weeks of Fiscal 2018 ended August 4, 2018:

FY 2018
(August 4, 2018)
$’000’s
Net loss and comprehensive loss $(6,733)
Total Assets $47,297
Total Liabilities $27,594
Shareholders’ Equity $19,703

For more information, please contact:

Cinaport Acquisition Corp. II
Avi Grewal, Chief Executive Officer
Phone: (416) 213-8118 Ext. 210
E-mail: agrewal@cinaport.com

Fire & Flower Inc.
Trevor Fencott, Chief Executive Officer
E-mail: tfencott@fireandflower.com

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act“) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Completion of the Qualifying Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and, if applicable, pursuant to Exchange requirements, majority of the minority shareholder approval. Where applicable, the Qualifying Transaction cannot close until the required approval is obtained. There can be no assurance that the Qualifying Transaction will be completed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Qualifying Transaction, any information released or received with respect to the Qualifying Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed Qualifying Transaction and has neither approved nor disapproved the contents of this press release.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: This news release includes certain “forward-looking statements” under applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements with respect to: the terms and conditions of the proposed Qualifying Transaction; the terms and conditions of the proposed Private Placement; use of funds; and the business and operations of the Company after completion of the proposed Qualifying Transaction. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties; delay or failure to receive board, shareholder or regulatory approvals; and the results of operations. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Cinaport and Fire & Flower disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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

Not for distribution to U.S. news wire services or dissemination in the United States.