Australis Concerned Shareholders Outline Continued Major Governance Concerns with Proposed Related Party Acquisition of Passport Technology Inc.

• Group of Concerned Australis Shareholders Grows to Include Duke Fu and Green Therapeutics
• Shareholders are encouraged to contact Laurel Hill Advisory Group at 1-877-452-7184 to register their support for the Concerned Shareholders.

TORONTO, July 21, 2020 /CNW/ - A group of shareholders of Australis Capital Inc. ("Australis" or the "Company") (CSE: AUSA), including Roger Sykes, 1703469 Alberta Ltd., Duke Fu and Green Therapeutics LLC ("Green Therapeutics") and other concerned shareholders (together, the "Concerned Shareholders") announce that they are seeking to oppose the oppressive actions of management and the current board in connection with the proposed acquisition of Passport Technology Inc. ("Passport") (the "Related Party Transaction"). Collectively, the Concerned Shareholders hold 6.2% of Australis' outstanding common shares.

Since announcing the Related Party Transaction on June 25, 2020, alarming new information has brought into question the merits of the Related Party Transaction, the judgment of the current board and management, and how Scott Dowty, the Company's Executive Chairman and former CEO, will be personally enriched at the expense of other Australis shareholders (the "Shareholders").

• The Related Party Transaction is a non-arm's length transaction and the current board does not have shareholders' best interests in mind. 51% of Passport is indirectly owned by Scott Dowty and, according to Mr. Dowty, approximately 7-8% is owned by his brother. Mr. Dowty confirmed the Concerned Shareholders' view that the proposed Related Party Transaction creates a win-win proposition for him in an e-mail communication to Passport shareholders that the Concerned Shareholders have become aware of. In the communication, Mr. Dowty states
  
  
  "If AUSA does not gain Shareholder approval for the transaction and meet other requirements, the deal will not proceed and as negotiated, AUSA will pay Passport a $2,500,000 USD break fee. Passport will be back to business as usual with a tiny black-eye with a failed deal."
  
  
  Effectively, Australis is asking shareholders to pay at least $31.4 million for assets of unknown value, based on "hockey stick" projections which have not been independently verified as reasonable and likely to be met. As a result of his ownership interest in Passport, this translates into Mr. Dowty standing to receive at least 51% or almost $16 million in value through his ownership of Passport (and his brother receiving approximately $2.5 million) or if the transaction fails Mr. Dowty indirectly receiving $1.25 million (and his brother indirectly receiving $200,000).
  
  
  If ever Australis shareholders needed confirmation of Mr. Dowty's self-interest in proposing the Related Party Transaction, he has done so by his own hand.
  
  
• Australis has already paid $4,175,000 to Passport - including $375,000 in cash, and 5 million shares of Body and Mind Inc., and 1,829,219 shares of Australis. The Related Party Transaction is not the first transaction that the Australis board has approved with Passport. Buried in a press release announcing the appointment of a new auditor on November 29, 2019 was an announcement of the above $4,175,000 payment to Passport. This press release announced the payments without any disclosure regarding the approval process that the board followed nor other disclosure typically included in the announcement of a related party transaction. The payments already made to Passport by Australis only inflate Passport's current valuation and amount to Australis paying for the same assets twice. Australis shareholders will be asked to accept that valuation as the basis for the excessive consideration the Company proposes to pay to Passport shareholders under the terms of the Related Party Transaction.
  
  
• The Break Fee is Much Higher than is Typical and Amounts to an Attempt to Coerce Shareholders. The $2,500,000 break fee amounts to approximately 8% of the value of the transaction, whereas typically break fees range between 3% to 5% of transaction value, if included at all. Moreover, for a related party transaction, a break fee of even 3 to 5% is excessive as a break fee for such a transaction should be equal to no more than the transaction costs incurred. The inclusion of a break fee of this scale is a clear failure of the board of directors of Australis to exercise their fiduciary duties and amounts to a blatant attempt to coerce Australis shareholders to vote in favour of the Related Party Transaction by diminishing independent shareholders' incentive to oppose the deal. The Concerned Shareholders believe that including a break fee of this magnitude is unethical and serves as further evidence of the poor governance practices of Australis and its board of directors. Furthermore, Australis agreed this excessive break fee even though its board was aware on April 8, 2020 that the properties included in the consideration for the Related Party Transaction were subject to litigation by Green Therapeutics at the time of the announcement of the transaction on June 25, 2020.
  
  
• The Related Party Transaction Will Destroy Value for Australis Shareholders. Pursuant to the Related Party Transaction, Australis will pay a minimum of $31.4 million (including $9.6 million of cash) and more than $4.0 million of contingent consideration for a company that has not publicly disclosed the value of its assets or the amount of revenue it generated in the last 12 months. Furthermore, Mr. Dowty has lauded the financial merits of the Related Party Transaction by citing valuation multiples for Passport based on highly speculative and unsubstantiated forecasted 2021 financial performance. Australis claims that the Company will pay roughly 9.1x 2021 operating income IF Passport achieves its expectations. However, Australis has thus far refused to disclose how the transaction is valued based on the current or historical financial performance of Passport.
  
  
• Minimal Traction and Unproven Business Model. Management claims that Passport is a disruptive cash access service for gaming establishments but has failed to provide sufficient disclosure regarding the business development of Passport or any current or historical financial information necessary for Shareholders to properly assess the merits of the transaction. Instead, management's weak and selective disclosure has been limited to the fact that Passport has yet to achieve any traction in the U.S. and has meager run rate monthly revenues of USD $23,000 and USD $50,000 in Canada and the U.K., respectively. With a completely unproven business model and only $3.1 million of run rate annual revenue, is this really a business worth $31.4 million and possibly more?
  
  
• Australis' Questionable Financial Advice and Negotiation Process. During an investor call, Mr. Dowty stated that he represented Passport in its negotiations with Australis. Australis' press release dated June 29, 2020, stated that negotiations on behalf Passport were handled by "Kurt Sullivan of Passport Technology". Who in fact negotiated on behalf of Passport? Good governance would dictate that Mr. Dowty recuse himself from negotiations in which he has clear interests on both sides of the transaction. Mr. Dowty also lead the June 26, 2020 corporate update call regarding the Related Party Transaction. It would seem inconsistent if he did not lead the process, as he stated, to lead the corporate update call. Mr. Dowty's involvement in the negotiation process and the inconsistent information relating to the process is yet further evidence of the flawed corporate governance process followed by Australis in negotiating the terms of the Related Party Transaction, and continuing today.

The Concerned Shareholders firmly believe that fellow shareholders of Australis are in imminent danger of a massive loss of value should the Company proceed with the overvalued and dilutive Related Party Transaction. As such, the Concerned Shareholders are working to protect fellow shareholders from the misinformation tactics and oppressive conduct of Australis' current management and board.

The Concerned Shareholders are dismayed that the current board and management made no attempt to reach out to the many shareholders, including the Concerned Shareholders, who have voiced their opposition to the Related Party Transaction. This is another example of an out-of-touch board, failing to even attempt to understand the concerns of the Company's shareholders and trying to push through a transaction that primarily benefits Scott Dowty, Executive Chairman of Australis and Chair of the Board of Passport, as well as his family members.

Given the litany of corporate governance and disclosure issues relating to the Related Party Transaction, the Concerned Shareholders reiterate their view that under no circumstances should Australis be engaging in any material transactions at this time, including any transactions that could adversely impact shareholders, the Company's balance sheet, and/or the Company's ability to effectively progress its plant-touching cannabis operations.

The Concerned Shareholders are grateful for the calls and e-mails received from other Australis shareholders who share their concerns and have advised that they will vote AGAINST any resolution to approve the Related Party Transaction at the annual and special meeting of Australis shareholders that has been called for September 22, 2020 (the "Meeting"), to approve, among other things, the Related Party Transaction.

Register your opposition today:
The Concerned Shareholders encourage shareholders who are opposed to the Related Party Transaction to contact Laurel Hill Advisory Group by phone, toll-free at 1-877-452-7184 (North American shareholders) or [phone] (shareholders outside North America) or by e-mail at [email protected] to register their support for the Concerned Shareholders.

Additional Information                                                                                                        

The information contained in this news release does not and is not meant to constitute a solicitation of a proxy within the meaning of applicable securities laws.  In connection with the Meeting, the Concerned Shareholders intend to file a dissident information circular in due course in compliance with applicable corporate and securities laws.

Notwithstanding the foregoing, the Concerned Shareholders are voluntarily providing the disclosure required under section 9.2(4) of National Instrument 51-102 – Continuous Disclosure Obligations in accordance with securities laws applicable to public broadcast solicitations.

This news release and any solicitation made by the Concerned Shareholders in advance of the Meeting is, or will be, as applicable, made by the Concerned Shareholders, and not by or on behalf of the management of Australis. All costs incurred for any solicitation will be borne by the Concerned Shareholders, provided that, subject to applicable law, the Concerned Shareholders may seek reimbursement from Australis of the Concerned Shareholders' out-of-pocket expenses, including proxy solicitation expenses and legal fees.

The Concerned Shareholders are not soliciting proxies in connection with the Meeting at this time, and shareholders are not being asked at this time to execute proxies in favour of the Concerned Shareholders (in respect of the Meeting). Proxies may be solicited by the Concerned Shareholders pursuant to an Information Circular sent to shareholders after which solicitations may be made by or on behalf of the Concerned Shareholders, by mail, telephone, fax, email or other electronic means as well as by newspaper or other media advertising, and in person by the Concerned Shareholders, who will not be specifically remunerated therefor. The Concerned Shareholders may also solicit proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws, conveyed by way of public broadcast, including through press releases, speeches or publications, and by any other manner permitted under applicable Canadian laws. The Concerned Shareholders may engage the services of one or more agents and authorize other persons to assist in soliciting proxies on behalf of the Concerned Shareholders.

The Concerned Shareholders are not requesting that Australis shareholders submit a proxy at this time. If and when the Concerned Shareholders commence a formal solicitation of proxies in connection with the Meeting, proxies may be revoked by a registered holder of the Company's shares (i) by completing and signing a valid proxy bearing a later date and returning it in accordance with the instructions contained in the accompanying form of proxy; (ii) by depositing an instrument in writing executed by the shareholder or by their attorney authorized in writing, as the case may be: (a) at the registered office of the Company at any time up to and including the last business day preceding the day the Meeting or any adjournment or postponement of the Meeting is to be held; or (b) with the Chairman of the Meeting prior to its commencement on the day of the Meeting or any adjournment or postponement of the Meeting; or (iii) in any other manner permitted by law.  If and when the Concerned Shareholders have commenced a formal solicitation of proxies in connection with the Meeting, proxies may be revoked by a non-registered holder of the Company's shares at any time by written notice to the intermediary in accordance with the instructions given to the non-registered holder by its intermediary. None of the Concerned Shareholders or, to their knowledge, any of their associates or affiliates, has any material interest, direct or indirect, in any matter proposed to be acted on at the Meeting.  Based on public disclosure documents, it is our understanding that the head office of Australis is 376 E. Warm Springs Road, Suite 190, Las Vegas, Nevada 89119.

A copy of this news release may be obtained on Australis' SEDAR profile at www.sedar.com.

SOURCE Concerned Shareholders of Australis Capital Inc.

For further information, please contact the Concerned Shareholders' shareholder communications advisor: Laurel Hill Advisory Group : Toll Free: 1-877-452-7184, International: [phone] outside Canada and the US, By Email: [email protected]