Business Context and Reporting Period
Flora Growth Corp. filed this Form 6-K as a foreign private issuer for October 2022; the report was signed on October 24, 2022. The filing identifies Flora Growth Corp., not Zerostack Corp., as the registrant. On October 21, 2022, Flora entered into an arrangement agreement to acquire all outstanding common shares of Franchise Global Health Inc., a multinational medical cannabis and pharmaceutical operator with principal operations in Germany.
Transaction and Key Financial Terms
- Flora will issue between 36,515,060 and 43,525,951 Flora common shares to acquire 100% of Franchise, with the final amount subject to Flora’s Nasdaq Capital Market daily volume-weighted average price under the agreement.
- The consideration is equity-based; the filing text does not provide a cash purchase price or transaction valuation.
- Shares issued to former Franchise shareholders will be subject to a 90-day restrictive legend following closing.
- Franchise has agreed to pay Flora a CA$1.0 million termination fee in specified circumstances. Reciprocal expense reimbursement of CA$300,000 may also apply in specified termination circumstances.
- Franchise’s chairman and chief executive officer, Clifford Starke, and affiliated entities agreed to indemnify Flora for certain potential Franchise liabilities up to US$5.0 million.
- No revenue, profit, cash flow, margin, debt, liquidity, or other operating metrics are provided in the body of the filing. Historical and interim financial statements and unaudited pro forma information are incorporated through Exhibits 99.3 to 99.6.
Material Changes and Transaction Status
The proposed acquisition would expand Flora’s board from seven to nine directors, with Starke entitled to designate two directors. Starke and Franchise CFO Dany Vaiman are expected to join Flora’s management team, subject to employment agreements. Following completion, Franchise is expected to be delisted from the TSX Venture Exchange and to apply to cease being a Canadian reporting issuer.
Closing was anticipated in December 2022, subject to required conditions. Flora shareholder approval is not required under the agreement.
Conditions, Outlook, and Risks
- Required conditions include approval by the Supreme Court of British Columbia and approval by at least 66⅔% of votes cast by Franchise shareholders.
- If required under Canadian Multilateral Instrument 61-101, approval by a simple majority of disinterested Franchise shareholders is also required.
- Franchise directors, senior officers, and certain shareholders entered into voting and support agreements to support the transaction.
- The agreement includes non-solicitation provisions, fiduciary-out provisions allowing Franchise to consider a superior proposal, and Flora’s right to match such a proposal.
- Completion remains subject to customary closing conditions and could be delayed, modified, or terminated. The filing does not provide additional management guidance or quantified post-acquisition forecasts.
Investor Verification Items
- Verify the final number of Flora shares to be issued and the resulting dilution to existing Flora shareholders.
- Review the Franchise historical financial statements for 2020 and 2021, June 30, 2022 interim results, and the pro forma financial statements in Exhibits 99.3–99.6.
- Confirm satisfaction of court, shareholder, minority-holder, and other closing conditions and whether the transaction closed as anticipated.
- Assess Franchise’s German operations, liabilities, contingencies, and the scope and enforceability of the US$5.0 million indemnity.
- Review the employment agreements, termination provisions, share lock-up, termination fees, and potential superior-proposal process.