As filed with the Securities and Exchange Commission on January 31, 2022
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Akanda Corp.
(Exact name of Registrant as specified in its charter)
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Ontario, Canada
(State or other jurisdiction of
incorporation or organization)
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2833
(Primary Standard Industrial
Classification Code Number)
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Not Applicable
(I.R.S. Employer
Identification No.)
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Akanda Corp.
1a, 1b Learoyd Road
New Romney TN28 8XU, United Kingdom
Tel: +44 (203) 488-9514
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
C T Corporation System
1015 15th Street N.W., Suite 1000
Washington, D.C., 20005
Tel: +1 (866) 925-9916
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
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Mark C. Lee
Rimon, P.C.
423 Washington Street, Suite 600
San Francisco, CA 94111
Tel: +1 (916) 603-3444
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Eric Foster
Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1 Canada
Tel: +1 (416) 863-4511
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Louis A. Bevilacqua
Bevilacqua PLLC
1050 Connecticut Ave., NW, Suite 500
Washington, DC 20036
Tel: +1 (202) 869-0888
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging Growth Company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the U.S. Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities, nor a solicitation of an offer to buy these securities, in any jurisdiction where the offer, solicitation, or sale is not permitted.
SUBJECT TO COMPLETION DATED JANUARY 31, 2022
PRELIMINARY PROSPECTUS
4,000,000 Common Shares
Akanda Corp.
This is our initial public offering of 4,000,000 Common Shares, no par value per share. We currently expect the initial public offering price to be between $4.00 and $6.00 per Common Share.
Prior to this offering, there has been no public market for our Common Shares. We have applied to list our Common Shares on the Nasdaq Capital Market under the symbol “AKAN.” We cannot guarantee that we will be successful in listing our Common Shares on Nasdaq; however, we will not complete this offering unless we are so listed.
We are organized under the laws of the Province of Ontario, Canada and are an “emerging growth company” and a “foreign private issuer” as defined under applicable United States federal securities laws, and are eligible for reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”
Investing in our securities is highly speculative and involves a high degree of risk. See “Risk Factors” beginning on page 11 for a discussion of information that should be considered in connection with an investment in our securities.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Common Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions(1)
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$
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$
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Proceeds to us (before expenses)
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$
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$
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(1)
We have agreed to reimburse the Boustead Securities, LLC for certain expenses in addition to underwriting discounts and commissions. We also have agreed to issue to Boustead Securities, LLC certain warrant compensation in connection with this offering. See “Underwriting” for additional information regarding compensation payable to the underwriters.
This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and purchase all of the Common Shares offered under this prospectus if any such shares are taken.
We have granted the underwriters an option to purchase up to 600,000 additional Common Shares from us at the public offering price, less underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable to the underwriters will be $ , and the total proceeds to us, before expenses, will be $ . If we complete this offering, net proceeds will be delivered to us on the closing date.
The underwriters expect to deliver the Common Shares to purchasers in the offering on or about , 2022.
BOUSTEAD SECURITIES, LLC
The date of this prospectus is , 2022
TABLE OF CONTENTS
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Page
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iii
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1
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9
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11
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35
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112
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113
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F-1
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You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us. Neither we nor the underwriters have authorized anyone to provide you with information that is different, and neither we nor the underwriters take any responsibility for, or provide any assurance as to the reliability of, any information, other than the information in this prospectus and any free writing prospectus prepared by us. We are offering to sell our securities, and seeking offers to buy our securities, only in jurisdictions where such offers and sales are permitted. This prospectus is not an offer to sell, or a solicitation of an offer to buy, our securities in any jurisdictions where, or under any circumstances under which, the offer, sale, or solicitation is not permitted. In particular, our securities have not been qualified for distribution by prospectus in Canada and may not be offered or sold in Canada during the course of their distribution hereunder except pursuant to a Canadian prospectus or prospectus exemption. The information in this prospectus and in any free writing prospectus prepared by us is accurate only as of the date on its respective cover, regardless of the time of delivery of this prospectus or any free writing prospectus or the time of any sale of our securities. Our business, results of operations, financial condition, or prospects may have changed since those dates.
Before you invest in our securities, you should read the registration statement (including the exhibits thereto and the documents incorporated by reference therein) of which this prospectus forms a part.
For investors outside of the United States: Neither we nor the underwriters have done anything that would permit this offering, or the possession or distribution of this prospectus, in any jurisdiction where
action for that purpose is required, other than in the United States. You are required to inform yourselves about, and observe any restrictions relating to, this offering and the distribution of this prospectus.
ABOUT THIS PROSPECTUS
As used in this prospectus, unless the context otherwise requires or otherwise states, references to “Akanda,” the “Company,” “we,” “us,” “our,” and similar references refer to Akanda Corp., a corporation formed under the laws of the Province of Ontario, Canada and its subsidiaries. References to “Bophelo” refer to Bophelo Bio Science and Wellness (Pty) Ltd., a company incorporated in the Kingdom of Lesotho, Africa and an indirect wholly-owned subsidiary of Akanda. References to “Canmart” refer to Canmart Ltd, a company incorporated under the laws of England and Wales and an indirect wholly-owned subsidiary of Akanda.
Our functional currency and reporting currency is the U.S. dollar, the legal currency of the United States (“USD”, “US$” or “$”).
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Our financial statements are prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board. Our fiscal year ends on December 31 of each year as does our reporting year.
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.
MARKET AND INDUSTRY DATA
This prospectus contains references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us. Some data is also based on our good faith estimates, which are derived from our review of internal surveys or data, as well as the independent sources referenced above. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”
TRADEMARKS
We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus also contains additional trademarks, trade names and service marks belonging to other companies. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this prospectus, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as “may”, “might”, “will”, “should”, “believe”, “expect”, “could”, “would”, “intend”, “plan”, “anticipate”, “estimate”, “continue”, “predict”, “project”, “potential”, “target,” “goal” or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this prospectus under the headings “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this prospectus, including among other things:
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our limited operating history;
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unpredictable events, such as the COVID-19 outbreak, and associated business disruptions;
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changes in cannabis laws, regulations and guidelines;
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decrease in demand for cannabis and cannabis-derived products;
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exposure to product liability claims and actions;
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damage to our reputation due to negative publicity;
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risks associated with product recalls;
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the viability of our product offerings;
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our ability to attract and retain skilled personnel;
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maintenance of effective quality control systems;
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regulatory compliance risks;
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risks inherent in an agricultural business;
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increased competition in the markets in which we operate and intend to operate;
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the success of our continuing research and development efforts;
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risks associated with expansion into new jurisdictions;
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risks related to our international operations in the United Kingdom and the Kingdom of Lesotho, including the implications of the United Kingdom’s recent withdrawal from the European Union;
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our ability to obtain and maintain adequate insurance coverage;
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our ability to identify and integrate strategic acquisitions, investments and partnerships and to manage our growth;
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our ability to raise capital and the availability of future financing;
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emerging market risks;
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global economy risks; and
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our ability to maintain the listing of our securities on Nasdaq.
These and other factors are more fully discussed in the “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by the forward-looking statements contained in this prospectus.
Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this prospectus. The forward-looking statements contained in this prospectus are not guarantees of future performance, and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this prospectus, they may not be predictive of results or developments in future periods.
All forward-looking statements included herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Any forward-looking statement that we make in this prospectus speaks only as of the date of this prospectus. Except as required by applicable law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise, after the date of this prospectus.
PROSPECTUS SUMMARY
This summary highlights selected information presented in greater detail elsewhere in this prospectus. This summary does not include all the information you should consider before investing in our securities. You should read this summary together with the more detailed information appearing elsewhere in this prospectus, including our financial statements, pro forma combined financial statements and related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. Some of the statements in this summary and elsewhere in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Our Company
We are a cannabis cultivation, manufacturing and distribution company whose mission is to provide premium quality medical cannabis products to patients worldwide. We cultivate and process natural cannabis at our facilities in the Kingdom of Lesotho, Africa and intend to supply medicinal-grade cannabis biomass, cannabis flower and cannabis concentrates to wholesalers in international markets. We also import and sell medical cannabis-based products to the domestic market in the United Kingdom.
We are an early stage, emerging growth company headquartered in London, the United Kingdom. We have a limited operating history and minimal revenues to date. We require funding from this offering to expand and further develop our operations in the Kingdom of Lesotho and to develop sales channels in international markets and in particular, in Europe, the United Kingdom and Africa.
Our Lesotho Operations
Our cultivation operations at Bophelo in the Kingdom of Lesotho were initially established in 2018, with initial non-commercial harvests undertaken in 2019, 2020 and 2021 as part of the establishment and set-up of our cultivation facility in the Kingdom of Lesotho. While we have successfully cultivated cannabis at our Lesotho site, we have not yet achieved any revenues from the sale of cannabis and we have not exported medical cannabis flower or biomass to the United Kingdom or any other country. To date, our Lesotho operations have yielded less than 1,500kg of dried cannabis flower.
The cultivation of cannabis at our Lesotho operations is subject to a number of risks, such as the seasonality of our cannabis production. Additionally, our ability to successfully cultivate cannabis is subject to emerging market related risks, exchange control restrictions, high domestic inflation and interest rates, as well as socio-political risk inherent in Southern African jurisdictions.
Our operations in Lesotho are dependent on access to land that is leased from a local non-profit development trust which is jointly controlled by our Executive Chairman.
Our United Kingdom Operations
Our distribution operations in the United Kingdom were established in 2019 and are at a very early stage. Our revenues from the sale and distribution of medical cannabis in the United Kingdom have not exceeded more than $4,000 in any 12 month period since the inception of our operations in the United Kingdom. The medical cannabis market in the United Kingdom is still emerging and a number of local companies are competing to supply this market.
International Cannabis Market
We are targeting what we believe to be the lucrative international medical cannabis market, which is estimated to be worth approximately $47 billion by 2027, according to Emergen Research (October 2020). We believe there has been a growing demand for medical cannabis around the world as a result of the increased legalization of cannabis for medical purposes as well as the rise in cannabis-related medical research activities. Our site at Bophelo offers us a cultivation environment that we believe can yield exceptional growing economics for premium quality cannabis. We intend to address the market needs of wholesalers in the international market for medicinal-grade cannabis supplied at a competitive price.
We also intend to address the growing market demand for medical cannabis-based products in the United Kingdom which, according to Prohibition Partners (2019), is estimated to be worth $3 billion by 2024.
Regulatory and Competitive Landscape
The cultivation, manufacturing, import and export of medical cannabis was legalized by the Kingdom of Lesotho in 2017. Bophelo is one of many companies in the Kingdom of Lesotho that hold licenses issued by the Lesotho Ministry of Health which enables it to cultivate medical cannabis. The number of licenses granted in Lesotho is not of public record. In addition to other medical cannabis companies operating in the Kingdom of Lesotho, Bophelo competes with medical cannabis producers based in other countries, most notably those in low-cost jurisdictions based in South America, such as Colombia. In terms of local laws and regulations applicable to cannabis license holders, Bophelo is required to pay an annual fee to renew its cannabis license annually with the Ministry of Health.
In the United Kingdom, the importation and supply of medical cannabis products is lawful when undertaken in terms of a relevant license issued by the United Kingdom Home Office. Canmart holds such a license issued by the United Kingdom Home Office and competes with a number of companies that import medical cannabis products into the United Kingdom for distribution to patients in the domestic market. Our licenses are subject to annual renewal fee requirements with the Home Office, which would also possibly require ad-hoc inspections of our distribution premises in the United Kingdom.
While there are no assurances that our operating licenses will be renewed on an annual basis, we are not aware of any current circumstances that could result in a non-renewal of our licenses.
Our Competitive Strengths
We believe that the following competitive strengths can contribute to our success and differentiate us from our competitors:
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Lesotho Cultivation Advantage. Through the cultivation operations of our indirect wholly-owned subsidiary Bophelo, our past harvests have shown that we have the ability to cultivate high yielding strains of cannabis for medical purposes, with certain strains historically cultivated reflecting cannabinoid concentrations in excess of 20%. Conditions at Bophelo’s site of operations near T’sakholo in the Mafeteng District of the Kingdom of Lesotho are conducive for the cultivation of medical-grade cannabis including suitable environmental conditions, abundant supply of semi-skilled and unskilled labor, quality road and air infrastructure network and favorable tax treatments.
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Significant Potential to Scale Up Production. Bophelo is one of the largest licensed landholders engaging in cannabis cultivation in the Kingdom of Lesotho. Bophelo is licensed to cultivate cannabis over an initial 5-hectare area under greenhouse or indoor conditions, with conditional government approval to expand our cultivation footprint up to 200 hectares. Such approval for expansion may be granted by the Ministry of Health on the main condition that Bophelo has fully utilized all of the first 5 hectares of its licensed cultivation area. This gives us the potential ability to significantly scale up production once the company has met this requirement of the Ministry of Health. Bophelo has leased a 200-hectare land package in an emerging Special Economic Zone in the Kingdom of Lesotho which is intended to be dedicated to the cannabis cultivation and related operations.
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Strong Partnership with Local Communities. Bophelo has worked and expects to continue to work with Mophuthi Matsoso Development Trust, a Lesotho non-profit organization (the “MMD Trust”), to provide for the construction of a learning center, a place of worship, feeding programs and other public good initiatives for the local community of T’sakholo. We believe a commitment to such initiatives and building a strong working relationship with the local African communities can promote goodwill towards our local operations and brands and benefit our long-term business growth. The MMD Trust is controlled by our Executive Chairman and Bophelo leases its premises on which it operates from the MMD Trust pursuant to a long-term lease agreement between the MMD Trust and Bophelo. As such, a potential conflict of interest may arise regarding the ongoing administration of the lease and any future negotiations around the lease terms.
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Experienced Management Team. Our management is experienced and has an extensive knowledge of the international cannabis industry as well as local conditions in Europe, the United Kingdom, and the Kingdom of Lesotho.
Our Growth Strategies
Our goal is to become a market leader in the cultivation, processing and supply of medicinal-grade cannabis and cannabis based medical and wellness products for international markets. Our primary strategies to achieve our goals include:
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Expanding our production capacity. In the near term, our primary strategy is to expand our production capacity as quickly as possible at Bophelo. We plan to take advantage of favorable cultivation conditions in the Kingdom of Lesotho to achieve economies of scale in our production of premium quality cannabis products, within the confines of market forces such as customer demand and pricing, as well as regulatory hurdles that may impede our ability to access foreign markets or which may slow overall market growth.
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Expanding our geographic footprint. While we currently import and sell cannabis-based products for medicinal use (“CBPMs”) sourced from third parties to dispensing pharmacists, clinics and other wholesale distributors in the United Kingdom, our plan is to establish direct sales channels to patients through Canmart-owned and operated clinics and pharmacies in the United Kingdom. Medical cannabis is currently scheduled as a “Schedule 2” unlicensed medicine and, as such, can only be prescribed by or under the care of a specialist medical practitioner. Furthermore, regulatory authorities in the United Kingdom require cannabis dispensing clinics to obtain a license from the Care Quality Commission (“CQC”). The CQC regulates clinics and conducts frequent audits and inspections to ensure compliance with license terms. Given the regulatory environment in the United Kingdom, we intend to achieve our plan to establish direct sales channels to patients by acquiring established clinics and pharmacies that are dispensing medical cannabis products in the United Kingdom, however, this strategy is dependent on identifying potential targets, negotiating acceptable purchase price and other conditions based on revenues, number of patients and size of the local market, and complying with any regulatory and licensing requirements. To that end, we recently entered into a non-binding letter of intent to acquire 100% of the issued and outstanding ordinary shares of Cellen Limited, a United Kingdom based provider of pain-focused clinical services for GBP £10 million (USD $13.361 million) in common shares of the Company. We are also working towards expanding sales of cannabis products produced by Bophelo to international markets, subject to regulatory conditions in such countries.
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Pursuing accretive acquisitions. We believe that our deal-making capabilities and experience can allow us to successfully identify, consummate and integrate acquisitions.
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Strong Partnership with Local Communities. We are committed to empowering women and vulnerable persons in local communities where Bophelo operates. We believe our efforts will enable us to build strong partnerships with the communities in which we operate, enhance the reputation of our brands and benefit our long-term growth.
Our History and Relationship with Halo
Acquisition of Subsidiaries from Halo
Akanda was incorporated in the Province of Ontario, Canada on July 16, 2021 in connection with the plan of Halo Collective Inc. (“Halo”), a publicly-traded, vertically integrated multinational cannabis company, to reorganize its medical cannabis market focused international business assets. On September 29, 2021, we entered into a share purchase agreement with Halo. Pursuant to this agreement, we acquired all the issued and outstanding equity interests of Cannahealth Limited, a Republic of Malta company (“Cannahealth”), from Halo (the “Acquisition”). At the closing of the Acquisition on November 3, 2021, Cannahealth owned all the issued and outstanding equity interests of Canmart and Bophelo Holdings Limited, a company incorporated under the laws of England and Wales (“Bophelo Holdings”), which owned all the issued and outstanding equity interests of Bophelo. As a result of the Acquisition, both Bophelo and Canmart
became our indirect wholly-owned subsidiaries. As consideration for this Acquisition, we issued 13,129,212 Common Shares to Halo at a price of $1.00 per share, resulting in Halo owning approximately 68.3% of all our outstanding Common Shares at the closing of the Acquisition.
Issuance of Secured Convertible Debenture to Halo
Historically, Halo has advanced loans to Bophelo to fund its operations and capital expenditures. In connection with our acquisition of Bophelo, at the closing of the Acquisition, we issued a secured convertible debenture to Halo in the principal amount of $6,559,294 (the “Debenture”) in exchange for setting off all outstanding indebtedness owed by Bophelo to Halo. The Debenture bears a compounded interest rate of 1.00% annually, which amount may be paid in the form of Common Shares to be issued by the Company at the applicable conversion price upon a conversion of the Debenture. The debenture matures on November 2, 2022 and is secured by all our assets except for any ownership interest or securities of Bophelo or any assets owned thereby.
The Debenture will be automatically converted into our Common Shares upon certain liquidity events including an initial public offering of our Common Shares resulting in our Common Shares being listed on a qualified stock exchange in Canada or the United States, which shall occur during the six months from the date of the Debenture (each, a “Triggering Event”). We may also elect to convert the Debenture prior to the maturity date. Upon an automatic or optional conversion, the conversion price shall be, subject to customary adjustments, the Current Market Price (as defined below) or, if no Current Market Price exists, the price of the last private placement of our securities where we raised more than $1,000,000. Current Market Price shall mean (i) the price of our Common Shares sold to the public in this offering to the extent that this offering qualifies as a Triggering Event or, (ii) the weighted average of the sale prices per Common Share at which our Common Shares have traded on a qualified stock exchange or, if the Common Shares are not listed on any stock exchange, then on the over-the-counter market, for any 20 consecutive trading days selected by us commencing not later than 45 trading days and ending no later than 5 trading days before the conversion date, subject to certain exceptions. Any conversion of the outstanding principal and accrued interest under the Debenture is subject to a limitation on the number of Common Shares that can be issued to Halo, which issuance shall not cause Halo to own more than 50% of our issued and outstanding Common Shares after the conversion (the “Ownership Limitation”).
We expect that the consummation of this offering will trigger a conversion of the Debenture pursuant to the terms of the Debenture, and upon such conversion, an estimated aggregate of 1,311,848 Common Shares will be issued to Halo at a conversion price of $5.00 per Common Share, assuming an initial public offering price of $5.00 per Common Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
Under the Debenture, Halo agrees that within 10 business days of the date of the Debenture, it shall dispose of such number of the Common Shares held by Halo that are necessary for Halo to hold less than 50% of our issued and outstanding Common Shares.
Additionally, under the Debenture, Halo agrees to enter into a lock-up agreement with us and Boustead Securities, LLC, pursuant to which Halo shall not offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any of our securities for a period of 270 days from the date on which the trading of our Common Shares on the Nasdaq Stock Market, LLC (“Nasdaq”) commences (the “Lock-Up Trigger Date”), subject to customary carve-outs. The lock-up agreement will permit that up to 50% of our securities held by Halo may be sold or transferred from the 271st day through the 365th day following the Lock-Up Trigger Date, and the remaining 50% of such securities may be sold or transferred without the lock-up restrictions beginning on the 366th day following the Lock-Up Trigger Date. The lock-up restrictions shall not prohibit Halo from selling or transferring such number of our Common Shares to comply with the Ownership Limitation.
Halo Investor Rights Agreement
In connection with the closing of the Acquisition, we entered into an investor rights agreement with Halo (the “Investor Rights Agreement”), pursuant to which Halo has the right to nominate one director to our Board of Directors or, if Halo’s nominee is not a current director, to appoint an observer to our Board of
Directors, so long as Halo holds at least 10% of our Common Shares. Philip van den Berg, the Chief Financial Officer and a director of Halo, is currently serving as Halo’s appointee to our Board of Directors. The Investor Rights Agreement contains a similar requirement for Halo to enter into a lock-up agreement as required by the Debenture.
Legal Entity Structure
On November 12, 2021, Halo transferred 2,100,000 Common Shares to an unaffiliated party, 1306077B.C. LTD. (the “Halo Transferee”), which resulted in Halo owning 49.6% of our issued and outstanding Common Shares (the “Halo Transfer”). The Halo Transferee is not affiliated with Halo, any of our founding shareholders, or any other shareholder which owns more than 5% of our outstanding Common Shares as of the date of the Halo Transfer. The following diagram summarizes our legal entity structure following the closing of the Acquisition and the Halo Transfer. Assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus is sold in this offering, Halo will own approximately 43.20% of our issued and outstanding Common Shares at the closing of this offering.
Recent Private Placements
On August 26, 2021, the Company sold 468,900 Common Shares to an accredited investor at a subscription price of $0.53 and received $250,000 in gross proceeds (the “Seed Financing”).
On November 10, 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of $2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
On November 12, 2021, the Company completed the initial closing of a private placement to accredited investors of 2,126,400 Common Shares, at a purchase price of $2.50 per share, for approximately $5,316,000 in gross proceeds and on January 17 and 26, 2022, the Company completed additional and final closings to accredited investors of 162,000 Common Shares at a purchase price of $2.50 per share, for approximately $405,000 (the “Private Placement”).
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering except that Boustead Securities, LLC served as the placement agent for the Seed Financing and the Private Placement. Boustead Securities, LLC waived any commission for the Seed Financing and received under the Private Placement: (a) a commission equal to 7% of the gross proceeds and (b) a non-accountable expense allowance equal to 1% of the gross proceeds. The issuances of the above Common Shares were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. The sale and issuance of Common Shares to investors outside the United States under these financings was also in reliance upon Regulation S promulgated under the Securities Act.
Corporate Information
Akanda Corp. was incorporated on July 16, 2021 in the Province of Ontario, Canada under the Business Corporations Act (Ontario). Our principal executive offices and mailing address are located at London, the United Kingdom, and our telephone number is +44 (203) 488-9514.
Our website is www.akandacorp.com. The information contained on our website or accessible through our website is not incorporated into this prospectus.
Summary of Risks Related to Our Business and Industry
There are a number of risks that you should carefully consider before making an investment decision regarding this offering. These risks are discussed more fully in the section entitled “Risk Factors” beginning on page 11 of this prospectus. You should read and carefully consider these risks and all of the other information in this prospectus, including our financial statements, pro forma combined financial statements and the related notes thereto included in this prospectus, before deciding whether to invest in our securities. If any of these risks actually occur, our business, financial condition, operating results and cash flows could be materially and adversely affected. In such case, the trading price of our securities would likely decline, and you may lose all or part of your investment. These risk factors include, but are not limited to:
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our limited operating history;
•
unpredictable events, such as the COVID-19 outbreak, and associated business disruptions;
•
changes in cannabis laws, regulations and guidelines;
•
decrease in demand for cannabis and cannabis-derived products;
•
exposure to product liability claims and actions;
•
damage to our reputation due to negative publicity;
•
risks associated with product recalls;
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the viability of our product offerings;
•
our ability to attract and retain skilled personnel;
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maintenance of effective quality control systems;
•
regulatory compliance risks;
•
risks inherent in an agricultural business;
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increased competition in the markets in which we operate and intend to operate;
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the success of our continuing research and development efforts;
•
risks associated with expansion into new jurisdictions;
•
risks related to our international operations in the United Kingdom and the Kingdom of Lesotho, including the implications of the United Kingdom’s recent withdrawal from the European Union;
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our ability to obtain and maintain adequate insurance coverage;
•
our ability to identify and integrate strategic acquisitions, investments and partnerships and to manage our growth;
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our ability to raise capital and the availability of future financing;
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emerging market risks;
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global economy risks; and
•
our ability to maintain the listing of our securities on Nasdaq.
Implications of Being an Emerging Growth Company and a Foreign Private Issuer
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to reporting companies that make filings with the U.S. Securities and Exchange Commission (the “SEC”). For so long as we remain an emerging growth company, we will not be required to, among other things:
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present more than two years of audited financial statements and two years of related management’s discussion and analysis of financial condition and results of operations disclosure in our registration statement of which this prospectus forms a part;
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have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);
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disclose certain executive compensation related items, to the extent applicable to our Company as a foreign private issuer; and
•
seek shareholder non-binding advisory votes on certain executive compensation matters and golden parachute arrangements, to the extent applicable to our Company as a foreign private issuer.
We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year during which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which means the market value of our common shares that are held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, upon the consummation of this offering, we will report in accordance with the rules and regulations applicable to a “foreign private issuer.” As a foreign private issuer, we will take advantage of certain provisions under the rules that allow us to follow the laws of the Province of Ontario for certain corporate governance matters. Even when we no longer qualify as an emerging growth company, as long as we continue to qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
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the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act;
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events; and
•
Regulation Fair Disclosure (“Regulation FD”), which regulates selective disclosures of material information by issuers.
As a foreign private issuer, we will have four months after the end of each fiscal year to file our annual report on Form 20-F with the SEC. In addition, our executive officers, directors, and principal shareholders will be exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act.
Foreign private issuers, like emerging growth companies, are exempt from certain more stringent executive compensation disclosure rules. As such, even when we no longer qualify as an emerging growth company, as long as we continue to qualify as a foreign private issuer under the Exchange Act, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are not foreign private issuers.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:
(i)
the majority of our executive officers or directors are U.S. citizens or residents;
(ii)
more than 50% of our assets are located in the United States; or
(iii)
our business is administered principally in the United States.
In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
THE OFFERING
Akanda Corp., an Ontario corporation
4,000,000 Common Shares (or 4,600,000 Common Shares if the underwriters exercise their over-allotment option in full)
The assumed public offering price is $5.00 per Common Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
Common Shares Outstanding Before this Offering
24,567,128 Common Shares.
Common Shares to be Outstanding Immediately After this Offering
28,567,128 Common Shares (or 29,167,128 Common Shares if the underwriters exercise the over-allotment option in full).
Underwriting; Over-Allotment Option
This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and pay for all of the Common Shares if any such shares are taken. We have granted to the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to 600,000 additional Common Shares from us at the initial public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.
Representative’s Warrants
We will issue to Boustead Securities, LLC (the “Representative”), the representative of the underwriters, or its permitted designees warrants to purchase up to 280,000 Common Shares (or 322,000 Common Shares if the underwriters exercise their over-allotment option in full). The Representative’s warrants will have an exercise price equal to the per Common Share public offering price, will be exercisable for a five year period commencing from the effective date of the registration statement of which this prospectus forms a part.
We estimate that the net proceeds to us from this offering will be approximately $17.8 million, assuming an initial public offering price of $5.00 per Common Share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use these proceeds for acquisitions, capital expenditures (including without limitation the construction of our planned greenhouse, post-harvest drying and extraction facilities at Bophelo), working capital, and general corporate purposes. See the “Use of Proceeds” and “Certain Relationships and Related Party Transactions” sections of this prospectus.
Our Company, our directors, executive officers and beneficial holders of 1% or more of our Common Shares have agreed with the Representative not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any of our securities for a period of 365 days from the date on which the trading of our Common Shares on Nasdaq commences, subject to certain exceptions. Additionally, certain other holders of our Common Shares have agreed to enter into lock-up agreements with us and the Representative. See “Underwriting” for more information.
We intend to qualify our Common Shares for listing on The Nasdaq Capital Market under the symbol “AKAN.” The approval of our listing on Nasdaq is a condition of closing this offering.
The transfer agent and registrar for our Common Shares is Continental Stock Transfer & Trust Company.
Investing in our securities is highly speculative and involves a high degree of risk. You should carefully read and consider the information set forth under the heading “Risk Factors” beginning on page 11, and all other information contained in this prospectus, before deciding to invest in our securities.
(1)
The number of Common Shares to be outstanding immediately after this offering does not include:
(a)
up to 600,000 Common Shares issuable upon the exercise in full by the underwriters of their option to purchase additional securities from us,
(b)
up to 322,000 Common Shares issuable upon the exercise in full of the Representative’s warrants; and
(c)
5,394,976 Common Shares reserved for future issuance under our Stock Option Plan (the “Plan”) as well as any automatic evergreen increases in the number of Common Shares reserved for future issuance under our Plan.
Except as otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase additional Common Shares from us.
RISK FACTORS
An investment in our securities is highly speculative and involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information contained in this prospectus, including our financial statements, pro forma combined financial statements and the related notes included in this prospectus, before deciding whether to invest in our securities. These risk factors are not presented in the order of importance or probability of occurrence. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. In that event, the market price of our securities could decline, and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to our Business and Industry
We are an early-stage company with limited operating history and may never become profitable.
Akanda was only recently incorporated to be a holding company. Each of our operating subsidiaries, Bophelo and Canmart, has a very limited operating history and has generated minimal revenue. Bophelo was formed and commenced operations in 2018 and has primarily engaged in construction and preparation activities since its inception. Bophelo has made only one sale of cannabis flower to a local buyer in March 2021 to date and generated sales revenue of $nil in the nine-month period ended September 30, 2021. Canmart was formed in 2018 and commenced operations in 2020. Canmart generated sales revenue of approximately $2,000 in 2020 and $17,359 in the nine-month period ended September 30, 2021. Following the completion of the Acquisition, we remain an early-stage company and will have limited financial resources and minimal operating cash flow. If we cannot successfully develop, manufacture and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to develop or offer market-ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market or expand our market share. A failure by us to achieve a low-cost structure through economies of scale or improvements in cultivation, manufacturing or distribution processes would have a material adverse effect on our commercialization plans and our business, prospects, results of operations and financial condition.
We expect to require adequate proceeds generated from this offering and additional funding to maintain and expand our operations and develop our sales and distribution channels. However, there can be no assurance that additional funding will be available to us for the development of our business, which will require the commitment of substantial resources. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that an early stage company with a very limited operating history will face. In particular, potential investors should consider that we may be unable to:
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successfully implement or execute our business plan, or that our business plan is sound;
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effectively pursue business opportunities, including potential acquisitions;
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adjust to changing conditions or keep pace with increased demand;
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attract and retain an experienced management team; or
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raise sufficient funds in the capital markets to effectuate our business plan, including expanding production capacity, licensing and approvals.
Our financial situation creates doubt as to whether we will continue as a going concern.
Each of Akanda, Bophelo and Canmart has generated no revenue or, only minimal revenue, since inception, and after the completion of the Acquisition, we expect to incur a net loss for the fiscal year ending December 31, 2021 and thereafter, primarily as a result of the costs of listing, as well as increased operating expenses to execute our business plan and growth strategy. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain
funding from this offering or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
Future acquisitions and strategic investments could be difficult to integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value, and harm our results of operations and financial condition.
We may in the future seek to acquire or invest in, businesses, products, or technologies that we believe could complement our operations or expand our breadth, enhance our capabilities, or otherwise offer growth opportunities. While our growth strategy includes broadening our product offerings, implementing an aggressive marketing plan and employing product diversification, there can be no assurance that our systems, procedures and controls will be adequate to support our operations as they expand. We cannot assure you that our personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of our planned growth and diversified product offerings, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. Additionally, the integration of our acquisitions and pursuit of potential future acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In addition, we have limited experience in acquiring other businesses. Specifically, we may not successfully evaluate or utilize the acquired products, assets or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized, or we may be exposed to unknown risks or liabilities associated with our acquisitions.
We may not be able to find and identify desirable acquisition targets or we may not be successful in entering into an agreement with any one target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could harm our results of operations. In addition, if an acquired business fails to meet our expectations, our business, results of operations, and financial condition may suffer. In some cases, minority shareholders may exist in certain of our non-wholly-owned acquisitions (for businesses we do not purchase as an 100% owned subsidiary) and may retain minority shareholder rights which could make a future change of control or necessary corporate approvals for actions more difficult to achieve and/or more costly.
We may also make strategic investments in early-stage companies developing products or technologies that we believe could complement our business or expand our breadth, enhance our technical capabilities, or otherwise offer growth opportunities. These investments may be in early-stage private companies for restricted stock. Such investments are generally illiquid and may never generate value. Further, the companies in which we invest may not succeed, and our investments could lose their value.
Demand for cannabis and its derivative products could be adversely affected and significantly influenced by scientific research or findings, regulatory proceedings, litigation, or media attention.
The legal cannabis industry in the United Kingdom, the European Union and in many other potential international markets for us is at an early stage of its development. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of medicinal cannabis are mixed and evolving and can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of medicinal cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other
research findings or publicity will be favorable to the medicinal cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity, could have a material adverse effect on the demand for medicinal cannabis and on our business, results of operations, financial condition and cash flows. Public opinion and support for medicinal cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. Our ability to gain and increase market acceptance of our business may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure to materialize into significant demand may have an adverse effect on our financial condition.
Our success will depend, in part, on our ability to continue to enhance our product offerings to respond to technological and regulatory changes and emerging industry standards and practices.
Rapidly changing markets, technology, emerging industry and regulatory standards and frequent introduction of new products characterize our business. The process of cultivating and processing our cannabis products to meet applicable standards and successfully marketing such products and obtaining necessary licenses requires significant continuing costs, marketing efforts, third-party commitments and regulatory approvals. Canmart has made a limited number of sales and Bophelo has made one sale to a local buyer to date. We currently aim to commence exporting medical cannabis biomass from Bophelo to Europe in 2022. From 2023 and beyond, we plan to expand our product offering to include cannabis oils and extracts, and ultimately, to produce consumer branded cannabis products for discerning patients. We may not be successful in timely expanding our production capacity, or obtaining any required regulatory approvals or licenses, to implement our growth plans, which, together with any capital expenditures made in our operations, may have a material adverse effect on our business, financial condition and operating results.
We are subject to the inherent risk of exposure to product liability claims.
As a cultivator and distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused bodily harm or injury. In addition, the sale of our products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning health risks, possible side effects or interactions with other substances. Product liability claims or regulatory actions against us could result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products.
We are subject to the inherent risks involved with product recalls.
Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection therewith. There can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if our products are subject to recall, our reputation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial condition. Additionally, product recalls may lead to increased scrutiny of our
operations by regulatory agencies, requiring further management attention, potential loss of applicable licenses, and increased legal fees and other expenses.
Research regarding the medical benefits, viability, safety, efficacy, use and social acceptance of cannabis or isolated cannabinoids (such as cannabidiol and tetrahydrocannabinol) remains in early stages.
There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as cannabidiol and tetrahydrocannabinol. Although we believe that the articles, reports and studies support our beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions related to medical cannabis, which could have a material adverse effect on the demand for our products and could result in a material adverse effect on our business, financial condition and results of operations or prospects.
We may not be able to maintain effective quality control systems.
We may not be able to maintain an effective quality control system. The effectiveness of our quality control system and our ability to obtain or maintain EU Good Manufacturing Practice (“EU GMP”) and Good Agricultural and Collecting Practices (“GACP”) certifications with respect to our manufacturing, processing and testing facilities depend on a number of factors, including the design of our quality control procedures, training programs, and the ability to ensure that our employees adhere to our policies and procedures. We also may depend on third party service providers to manufacture, process or test our products, that are subject to EU GMP and GACP requirements.
We expect that regulatory agencies will periodically inspect our and our service providers’ facilities to evaluate compliance with applicable EU GMP and GACP requirements. Failure to comply with these requirements may subject us or our service providers to possible regulatory enforcement actions. Any failure or deterioration of our or our service providers’ quality control systems, including loss of EU GMP and GACP certifications, may have a material adverse effect on our business, results of operations and financial condition.
The medical cannabis industry and market may not continue to exist or develop as we anticipate and we may ultimately be unable to succeed in this industry and market.
We are operating our current business in a relatively new industry, and our success depends on the continued growth of this market as well as our ability to attract and retain patients. Demand for pharmaceutical-grade cannabis and cannabis-based products is dependent on a number of social, political and economic factors that are beyond our control. Our projections on the number of people who have the potential to benefit from treatment with pharmaceutical-grade cannabis or cannabis-based products are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, and market research, and may prove to be incorrect. There is no assurance that an increase in existing demand will occur, that we will benefit from any such increased demand, or that our business will remain profitable even in the event of such an increase in demand.
In addition to being subject to the general business risks applicable to a business involving an agricultural product and a regulated medical product, we need to continue to build brand awareness within the medical cannabis industry and make significant investments in our business strategy and production capacity. These investments include introducing new medical cannabis products into the markets in which we operate, adopting quality assurance protocols and procedures, building our international presence and undertaking regulatory compliance efforts. These activities may not promote our products as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share.
Competitive conditions, physician preferences, patient requirements and spending patterns in the medical cannabis industry and market are relatively unknown and may have been uniquely impacted by circumstances unlike those in other existing industries and markets. Our target patient population may be
smaller than expected, may not be otherwise amenable to treatment with our products, or may become increasingly difficult to identify and access. Further, we may not be successful in our efforts to attract and retain patients, develop new pharmaceutical-grade cannabis and cannabis-based products, produce and distribute these products to the markets in which we operate or to which we export in time to be effectively commercialized. In order to be successful in these activities, we may be required to expend significantly more resources than we currently anticipate, which could adversely affect our business, financial condition, results of operations and prospects.
The cannabis and cannabinoid industries face strong opposition.
Many political and social organizations oppose hemp and cannabis and their legalization, and many people, even those who support legalization, oppose the sale of hemp, cannabis and their derivatives in their geographies. Our business will need support from local governments, industry participants, consumers and residents to be successful. Additionally, there are large, well-funded businesses and industry groups that may have a strong opposition to the cannabis industry. For example, the pharmaceutical and alcohol industries have traditionally opposed cannabis legalization. Any efforts by these or other industries opposed to cannabis to halt or impede the cannabis industry could have detrimental effects on our business.
We, or the medical cannabis industry more generally, may receive unfavorable publicity or become subject to negative patient, physician or investor perception.
We believe that the medical cannabis industry is highly dependent upon positive patient, physician or investor perception regarding the benefits, safety, efficacy and quality of the cannabis distributed to patients for medical use. Perception of the medical cannabis industry, medicinal cannabis products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) both in Israel and in other countries relating to the use of cannabis or cannabis-based products for medical purposes, including unexpected safety or efficacy concerns arising with respect to pharmaceutical-grade cannabis or cannabis-based products or the activities of medical-use cannabis industry participants.
There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the medical-use cannabis market or any particular medicinal cannabis products or will be consistent with prior publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our medicinal cannabis products or cannabis for medical use more generally. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis for medical purposes, or our current or future products specifically, or associating the use of cannabis with illness or other negative effects or events, could adversely affect us. This adverse publicity could arise even if the adverse effects associated with cannabis or cannabis-based products resulted from products that are not derived from medicinal cannabis or a patient’s failure to use such products legally, appropriately or as directed.
We are subject to the risks inherent in an agricultural business.
Following the completion of the Acquisition, our business involves the growing of cannabis, which is an agricultural product. The occurrence of severe adverse weather conditions, especially droughts, fires, storms or floods is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply of cannabis. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce our yields or require us to increase our level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts could reduce the yield and quality of our cannabis production, which could materially and adversely affect our business, financial condition and results of operations.
The occurrence and effects of plant disease, insects and pests can be unpredictable and devastating to agricultural production, potentially rendering all or a substantial portion of the affected harvests unsuitable
for sale. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs may have been incurred. Although some plant diseases are treatable, the cost of treatment can be high and such events could adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plant disease and the production is threatened, we may be unable to adequately supply our customers, which could adversely affect our business, financial condition and results of operations. There can be no assurance that natural elements will not have a material adverse effect on production.
Our business will be reliant upon third party suppliers, service providers and distributors.
As our business grows, we will need a supply chain for certain material portions of the production and distribution process of our products. Our suppliers, service providers and distributors may elect, at any time, to breach or otherwise cease to participate in supply, service or distribution agreements, or other relationships, on which our operations rely. Loss of our suppliers, service providers or distributors would have a material adverse effect on our business and operational results.
Bophelo currently purchases quality cannabis seeds primarily from OG DNA Genetics Inc. and also from other reputable suppliers of cannabis genetics based in Europe. If replacement seeds cannot be obtained at comparable prices, or at all, or if the necessary authorizations are not obtained, our business, financial condition and results of operations would be materially and adversely affected. Our operations could be materially and adversely affected if the supply of cannabis seeds is ceased or delayed and we do not find replacement suppliers and obtain all necessary authorizations.
Part of our strategy is to enter into and maintain arrangements with third parties related to the development, testing, marketing, manufacturing, distribution and commercialization of our products. Our revenues are dependent on the successful efforts of these third parties, including the efforts of our distribution partners. Entering into strategic relationships can be a complex process and the interests of our distribution partners may not be or remain aligned with our interests. Some of our current and future distribution partners may decide to compete with us, refuse or be unable to fulfill or honor their contractual obligations to us, or change their plans to reduce their commitment to, or even abandon, their relationships with us. There can be no assurance that our distribution partners will market our products successfully or that any such third-party collaboration will be on favorable terms.
Our profit margins and the timely delivery of our products are dependent upon the ability of our outside suppliers and manufacturers to supply us with products in a timely and cost-efficient manner. Our ability to develop our business and enter new markets and sustain satisfactory levels of sales in each market depends upon the ability of its outside suppliers and manufacturers to produce the ingredients and products and to comply with all applicable regulations. The failure of our primary suppliers or manufacturers to supply ingredients or produce its products could adversely affect our business operations.
There is no assurance that our sales and promotional activities will be successful.
Our future growth and profitability will depend on the effectiveness and efficiency of sales and promotional expenditures, including our ability to (i) create greater awareness of our products, (ii) determine the appropriate creative message and media mix for future marketing expenditures and (iii) effectively manage sales and promotional costs in order to maintain acceptable operating margins. We plan to continue to develop the direct sale model of Canmart, which may require us to establish our own clinics and pharmacies. There can be no assurance that our sales and promotional expenditures will result in revenues in the future or will generate awareness of our products and services. In addition, no assurance can be given that we will be able to manage our sales and promotional expenditures on a cost-effective basis.
We believe that maintaining and promoting our brand is critical to expanding our customer base. Maintaining and promoting our brand will depend largely on our ability to continue to provide quality, reliable and innovative products, which we may not do successfully. We may introduce new products or services that our customers do not like, which may negatively affect our brand and reputation. Maintaining and enhancing our brand may require us to make substantial investments, and these investments may not
achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business and financial results from operations could be materially adversely affected.
We may be unable to sustain its pricing model.
Significant price fluctuations or shortages in the cost of materials may increase our cost of goods sold and cause its results of operations and financial condition to suffer. If we are unable to secure materials at a reasonable price, we may have to alter or discontinue selling some of our products or attempt to pass along the cost to its customers, any of which could adversely affect our results of operations and financial condition.
Additionally, increasing costs of labor, freight and energy could increase our and our suppliers’ cost of goods. If our suppliers are affected by increases in their costs of labor, freight and energy, they may attempt to pass these cost increases on to us. If we pay such increases, we may not be able to offset them through increases in its pricing, which could adversely affect our results of operations and financial condition.
We may be unable to effectively manage future growth.
We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Rapid growth of our business may significantly strain our management, operations and technical resources. If we are successful in obtaining large orders for its products, we will be required to deliver large volumes of products to our customers on a timely basis and at a reasonable cost. We may not obtain large-scale orders for our products and if we do, we may not be able to satisfy large-scale production requirements on a timely and cost-effective basis. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations and prospects.
We are subject to significant competition by new and existing competitors in the cannabis industry.
The industry in which we operate is subject to intense and increasing competition. Many of our competitors have greater resources that may enable them to compete more effectively than us in the cannabis industry, or they have a longer operating history and greater capital resources and facilities, which may enable them to compete more effectively in this market. We expect to face additional competition from existing licensees and new market entrants who are granted licenses in the jurisdictions in which we expect to operate, including the United Kingdom and the Kingdom of Lesotho, and other jurisdictions in which we intend to expand our operations. If a significant number of new licenses are granted in the near term, we may experience increased competition for market share and may experience downward pricing pressure on our products as new entrants increase production. Such competition may cause us to encounter difficulties in generating revenues and market share, and in positioning our products in the market. If we are unable to successfully compete with existing companies and new entrants to the market, our lack of competitive advantage will have a negative effect on our business and financial condition.
The legalization of adult-use, recreational cannabis may reduce sales of medical cannabis.
Legalization of the sale to adults of recreational, non-medical cannabis in any country may increase competition in the medical cannabis market. We currently do not plan to sell recreational, non-medical cannabis products. We may not be able to achieve our business plan in a highly competitive market where recreational, adult-use cannabis is legal, or the market may experience a drop in the price of cannabis and cannabis products over time, decreasing our profit margins.
We are dependent upon our management and key employees, and the loss of any member of our management team or any key employee could have a material adverse effect on our operations.
Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management and key employees, including, without limitation, Louisa Mojela, our Executive Chairman, and Tejinder Virk, our Chief Executive Officer. The loss of any member of our management team or any of
our key employees could have a material adverse effect on our business and results of operations. While employment agreements and incentive programs are customarily used as primary methods of retaining the services of key employees, these agreements and incentive programs cannot assure the continued services of such employees. Any loss of the services of such individuals, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on our business, operating results or financial condition. We do not currently maintain key-person insurance on the lives of any of our key employees or members of management. Competition for qualified technical, sales and marketing staff, as well as officers and directors can be intense, and no assurance can be provided that we will be able to attract or retain such qualified individuals in the future, which may adversely affect our operations.
Our directors and officers may have conflicts of interest in conducting their duties.
We may be subject to various potential conflicts of interest because of the fact that some of our officers and directors may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to us. In some cases, our executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect our operations. These business interests could require significant time and attention of our executive officers and directors. For example, our Executive Chairman, Ms. Mojela controls the MMD Trust which leases premises to Bophelo. See a discussion of the Investor Rights Agreement under “Certain Relationships and Related Party Transactions — Our Transactions with Executive Chairman.”
The recent Coronavirus (“COVID-19”) outbreak and similar disease outbreaks or public health emergencies could adversely affect our future operations.
Our operations could be significantly and adversely affected by the effects of a widespread global outbreak of a contagious disease and other unforeseen events, including the recent outbreak of a respiratory illness caused by COVID-19 and the related economic repercussions. We cannot accurately predict the effects COVID-19 will have on our operations and the ability of others to meet their obligations with us, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In light of the recent COVID-19 pandemic, there could be a negative impact on sourcing medical cannabis products for our distribution in the United Kingdom or, the continued buildout and optimization of our cultivation and manufacturing facilities in the Kingdom of Lesotho in accordance with the requirement of EU GMP and the export of our cannabis products from Lesotho to other areas of the world. Additionally, COVID-19 has caused significant disruptions to the global financial markets, which could impact our ability to raise additional capital. The ultimate impact on us and our significant suppliers and prospective customers is unknown, but our operations and financial condition could suffer in the event of any of these types of unpredictable events. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition and cash flows.
At Bophelo and Canmart’s offices and operations facilities in the United Kingdom and the Kingdom of Lesotho, all employees wear masks and practice social distancing. There are strict protocols on screening of employees and visitors; which include temperature checks and the requirement to complete detailed questionnaires concerning, among other things, possible exposure to COVID-19. Hand sanitizer is provided and hand washing protocols are in place. Signage has been put in place at our operations reminding visitors and staff of COVID-19 protocols. Both the U.K. and Lesotho governments have commenced the roll-out of COVID-19 vaccines to the population of each of those countries. The U.K. population has reached a significant level of vaccination, while Lesotho’s rate of vaccination is still in its early stages. Bophelo and Canmart have encouraged all of their employees to be vaccinated. Despite these measures taken, there is no guarantee that the continued development of COVID-19 will not affect their operations negatively.
We could be subject to a security breach that could result in significant damage or theft of products and equipment.
Breaches of security at our facilities may occur and could result in damage to or theft of products and equipment. A security breach at our facilities could result in a significant loss of inventory or work in process,
expose us to liability under applicable regulations and increase expenses relating to the investigation of the breach and implementation of additional preventative security measures, any of which could have an adverse effect on our business, financial condition and results of operations.
We may incur significant costs to defend our intellectual property and other proprietary rights.
The ownership and protection of trademarks, patents, trade secrets and intellectual property rights are significant aspects of our future success. Unauthorized parties may attempt to replicate or otherwise obtain and use our products and technology. Policing the unauthorized use of our current or future trademarks, patents, trade secrets or intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others.
In addition, other parties may claim that our products infringe on their proprietary rights such as trade secrets. Such claims, regardless of their merit, may result in the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining orders and/or require the payment of damages. Additionally, we may need to obtain licenses from third parties who allege that we have infringed on their lawful rights. Such licenses may not be available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to intellectual property that we do not own.
If we sustain cyber-attacks or other privacy or data security incidents that result in security breaches that disrupt our operations or result in the unintended dissemination of protected personal information or proprietary or confidential information, or if we are found by regulators to be non-compliant with statutory requirements for the protection and storage of personal data, we could suffer a loss of revenue, increased costs, exposure to significant liability, reputational harm and other serious negative consequences.
As our operations expand, we may process, store and transmit large amounts of data in our operations, including protected personal information as well as proprietary or confidential information relating to our business and third parties. Experienced computer programmers and hackers may be able to penetrate our layered security controls and misappropriate or compromise our protected personal information or proprietary or confidential information or that of third parties, create system disruptions or cause system shutdowns. They also may be able to develop and deploy viruses, worms and other malicious software programs that attack our systems or otherwise exploit any security vulnerabilities. Hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Our facilities may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors, or other similar events that could negatively affect our systems and our customer’s data.
Risks Related to Our Expected International Operations and Operations in Emerging Markets
As a company based outside of the United States, we are subject to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated with conducting business outside of the United States. Following the completion of the Acquisition, our operations are based primarily in the United Kingdom and the Kingdom of Lesotho. Our principal office and Canmart’s operations are located in the United Kingdom, and Bophelo’s cultivation operations are located in the Kingdom of Lesotho. Accordingly, our future results could be harmed by a variety of factors, including, without limitation, the following:
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economic weakness, including inflation, or political instability in non-U.S. economies and markets;
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differing and changing regulatory requirements for product licenses and approvals;
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differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;
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difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;
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changes in applicable non-U.S. regulations and customs, tariffs and trade barriers;
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changes in applicable non-U.S. currency exchange rates and currency controls;
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changes in a specific country’s or region’s political or economic environment, including the implications of the recent decision of the United Kingdom to withdraw from the European Union;
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trade protection measures, import or export licensing requirements or other restrictive actions by governments;
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differing reimbursement regimes and price controls in certain non-U.S. markets;
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negative consequences from changes in tax laws;
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compliance with applicable tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable tax treatment in different jurisdictions of options granted under our share option schemes or equity incentive plans;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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difficulties associated with staffing and managing international operations, including differing labor relations;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, typhoons, floods and fires.
Our business could suffer as a result of the United Kingdom’s withdrawal from the European Union.
While we are incorporated in the Province of Ontario in Canada, our principal office, a number of our executive officers and key employees, and Canmart’s operations and assets are primarily located in the United Kingdom. The United Kingdom formally exited the European Union, commonly referred to as Brexit, on January 31, 2020. Under the terms of its departure, the United Kingdom entered into a transition period during which it continued to follow all European Union rules, and the trading relationship remained the same, until December 31, 2020. On December 24, 2020, the European Union and the United Kingdom entered into a new trade agreement to govern their relationship following Brexit. However, substantial uncertainty remains concerning which EU laws and regulations will continue to be implemented in the United Kingdom after Brexit (including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws).
The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the European Union after Brexit may negatively impact direct foreign investment in the United Kingdom, increase costs, depress economic activity and restrict access to capital. It may also be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise) beyond the date of Brexit. We may also face new regulatory costs and challenges that could have an adverse effect on our operations.
The United Kingdom’s withdrawal from the European Union could lead to increased market volatility, which could make it more difficult for us to do business in Europe or have other adverse effects on our business.
As a result of the United Kingdom’s withdrawal from the European Union, the United Kingdom now has third country status outside of the European Union. Before the end of 2020, the United Kingdom and the European concluded a Trade and Cooperation Agreement (“TCA”) which took effect January 1, 2021. The terms of the TCA allow for tariff-free and quota-free access to the EU market for the United Kingdom so long as the United Kingdom does not diverge from EU laws. To the extent the United Kingdom does diverge from EU laws, access to EU markets may be made more restricted than it currently is. In addition, the TCA does not allow U.K. institutions access to EU markets, so it is possible that there will be a period of considerable uncertainty, particularly in relation to U.K. financial and banking markets, as well as in
relation to the regulatory process in Europe. As a result of this uncertainty, financial markets could experience volatility. We may also face new regulatory costs and challenges that could have a material adverse effect on our operations. In this regard, the European Medicines Agency has already issued a notice reminding marketing authorization holders of centrally authorized medicinal products for human and veterinary use of certain legal requirements that need to be considered as part of Brexit, such as the requirement for the marketing authorization holder of a product centrally approved by the European Commission to be established in the European Union, and the requirement for some activities relating to centrally approved products to be performed in the European Union. As a third country, the United Kingdom will lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers which could make our doing business worldwide more difficult. In addition, currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit. Should this foreign exchange volatility continue, it could cause volatility in our financial results.
We expect to increase our international sales in the future, and such sales may be subject to unexpected exchange rate fluctuations, regulatory requirements and other barriers.
We currently expect that our sales will be denominated in U.S. Dollars and Euro and that we may, in the future, have sales denominated in the currencies of additional countries in which we establish operations or distribution. In addition, we expect to incur the majority of our operating expenses in U.S. Dollars, Euro, South African Rands and Lesotho Maloti. Our international sales may be subject to unexpected regulatory requirements and other barriers. Any fluctuation in the exchange rates of foreign currencies may negatively affect our business, financial condition and results of operations. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs or illiquid markets. In addition, those activities may be limited in the protection they provide from foreign currency fluctuations and can themselves result in losses.
A change in our tax residence could have a negative effect on our future profitability.
Although we are incorporated in the Province of Ontario in Canada, we are a resident in the United Kingdom for tax purposes. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review by our directors or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than the United Kingdom. Should we cease to be tax resident in the United Kingdom, we may have exposure related to unexpected tax liabilities, such as a charge of United Kingdom, capital gains tax on a deemed disposal at market value of our assets and of unexpected tax charges in other jurisdictions on our income. Similarly, if the tax residency of any of our future subsidiaries were to change from their current jurisdiction for any of the reasons listed above, we may be subject to a charge of local capital gains tax on the assets.
Tax regulations and challenges by tax authorities could have a material adverse effect on our business.
We expect to operate in a number of countries and will therefore be regularly examined by and remain subject to numerous tax regulations. Changes in our global mix of earnings could affect our effective tax rate. Furthermore, changes in tax laws could result in higher tax-related expenses and payments. Legislative changes in any of the countries in which we operate could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities. Additionally, the uncertain tax environment in some regions in which we operate may limit our ability to successfully challenge adverse determination by any local tax authorities. We expect to operate in countries with complex tax rules, which may be interpreted in a variety of ways and could affect our effective tax rate. Future interpretations or developments of tax regimes or a higher than anticipated effective tax rate could have a material adverse effect on our tax liability, return on investments and business operations.
In addition, we and our future subsidiaries operate in, are incorporated in and are tax residents of, various jurisdictions. The tax authorities in the various jurisdictions in which we and our subsidiaries operate, or are incorporated, may disagree with and challenge our assessments of our transactions, tax
position, deductions, exemptions, where we or our subsidiaries are tax resident, or other matters. If we are unsuccessful in responding to any such challenge from a tax authority, we may be required to pay additional taxes, interest, fines or penalties, we may be subject to taxes for the same business in more than one jurisdiction or may also be subject to higher tax rates, withholding or other taxes. A successful challenge could potentially result in payments to the relevant tax authority of substantial amounts that could have a material adverse effect on our financial condition and results of operations.
Even if we are successful in responding to challenges by taxing authorities, responding to such challenges may be expensive, consume time and other resources, or divert management’s time and focus from our business operations. Therefore, a challenge as to our tax position or status or transactions, even if unsuccessful, may have a material adverse effect on our business, financial condition, results of operations or liquidity or the business, financial condition, and results of operations.
We may be subject to emerging market risks.
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments.
The Kingdom of Lesotho has a history of economic instability and crises, as well as political instability. Laws and regulations applicable to our cultivation operations in the Kingdom of Lesotho are subject to change in the future and could adversely affect our business, financial condition and results of operations. In particular, fluctuations in the economy in Southern Africa and actions adopted by the government have had and may continue to have a significant impact on companies operating in Southern Africa, including in the Kingdom of Lesotho. Specifically, Bophelo may be impacted by inflation, foreign currency fluctuations, regulatory policies, business and tax regulations and, in general, by the political, social and economic scenarios in the Kingdom of Lesotho and other countries in which we may do business.
Global or regional economic crises could negatively affect investor confidence in emerging markets or the economies of the countries in Southern Africa, including the Kingdom of Lesotho. A significant decline in economic growth or a sustained economic downturn for any of Lesotho’s major trading partners (in particular, the United Kingdom, the United States and China) could have a material adverse impact on the balance of trade and remittances, resulting in lower economic growth. Deterioration in the economic and political situation in South Africa, which surrounds the Kingdom of Lesotho entirely, could adversely affect the local economy and cause instability by disrupting diplomatic or commercial relationships with other nearby countries. Any future tensions may cause political and economic uncertainty, instability, market volatility, low confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity generally in Southern Africa, including in the Kingdom of Lesotho. Such events could materially and adversely affect Bophelo’s business, financial condition and results of operations.
Exchange controls may restrict our ability to convert or transfer sums in foreign currencies.
Companies operating in Southern Africa are subject to exchange control limitations. Exchange controls in the Kingdom of Lesotho are administered by the Central Bank of Lesotho. While exchange controls have been relaxed in recent years and may continue to be relaxed, companies operating in Southern Africa remain subject to restrictions on their ability to export capital outside of the Common Monetary Area, which includes South Africa, Namibia, Lesotho and Eswatini. In addition, as the cash flows of certain countries are highly dependent on the export of certain raw materials, the ability to convert such currencies can be limited by the timing of payments for such exports, which may require us to organize our currency conversions around such constraints. These restrictions may affect the manner in which we finance our transactions outside Southern Africa and the geographic distribution of our debt.
We can offer no assurance that additional restrictions on currency exchange will not be implemented in the future or that these restrictions will not limit our ability to transfer cash, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
The markets in which we may operate are exposed to high inflation and interest rates which could increase our operating costs and reduce our profitability.
The economies of the countries in which we may operate, including the Kingdom of Lesotho, in the past have been, and in the future may continue to be, characterized by rates of inflation and interest rates
that are substantially higher than those prevailing in the United States and other highly developed economies. High rates of inflation could increase our costs in such regions and decrease our operating margins. The CPI inflation in the Kingdom of Lesotho is at 5.1 percent during the ongoing financial year 2021-22. Inflation in Southern African countries generally results in an increase in our operational costs. Higher and sustained inflation in the future, with a consequent increase in operational costs, could have a material adverse effect on our results of operations and our financial condition and could result in operations being discontinued or reduced or rationalized, which could have a material adverse effect on our business, financial condition and results of operations.
Although higher interest rates would increase the amount of income we earn on our cash balances, they would also adversely affect our ability to obtain cost-effective debt financing in certain countries in which we may operate.
Operating in emerging markets may subject us to greater political, economic and market risks than those we would face if we only operated in more developed markets, which could increase our operating costs.
Emerging markets, including the Kingdom of Lesotho in Southern Africa, are subject to greater risks than more developed markets. The political, economic and market conditions in many emerging markets present risks that could make it more difficult to operate our business successfully. These risks include:
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the strength of emerging market economies;
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fluctuations in interest rates;
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political and economic instability, including higher rates of inflation and currency fluctuations;
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high levels of crime and unemployment;
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higher levels of corruption, including bribery of public officials;
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loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
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lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;
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potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs, taxation and other laws or policies affecting foreign trade or investment;
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restrictions on the right to convert or repatriate currency or export assets;
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introduction or changes to indigenization and empowerment programs;
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logistical and communications challenges;
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difficulties in staffing and managing operations and ensuring the safety of our employees;
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greater risk of uncollectible accounts and longer collection cycles; and
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future downgrades of the debt ratings of the countries in which we operate.
If we are unable to effectively manage these risks, it could have a material adverse effect on our business, financial condition and results of operations.
Governments in Africa have in the past intervened in the economies of their respective countries and occasionally made significant changes in policy and regulations. Governmental actions have often involved, among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on wages and employee benefits, capital controls, limits on imports and arbitrary interference with private ownership of contract rights. Our business, financial condition and results of operations may be adversely affected by changes in government policies or regulations, including such factors as exchange rate and exchange control policies, inflation control policies, price control policies, consumer protection policies, import duties and restrictions, liquidity of domestic capital and lending markets, electricity rationing, tax policies, including tax increases and retroactive tax claims, and other political, diplomatic, social and economic developments in or affecting the countries where we operate. In the future, the level of
intervention by African governments may continue to increase. It is difficult to predict the future political, economic and market environment in these countries, and these or other measures could have a material adverse effect on the economy of the countries in which we may operate and, consequently, could have a material adverse effect on our business, financial condition and results of operations.
We face the risk of disruption from labor disputes and changes to labor laws, which could result in significant additional operating costs or alter our relationship with our employees.
We are required to comply with extensive labor regulations in each of the countries in which we will have employees, including with respect to wages, social security benefits and termination payments. For example, Lesotho laws relating to labor regulate work time, provide for mandatory compensation in the event of termination of employment for operational reasons, and impose monetary penalties for non-compliance with administrative and reporting requirements in respect of affirmative action policies, which could result in significant costs.
In addition, future changes to Lesotho legislation and regulations relating to labor may increase our costs or alter our relationship with our employees. Resulting disruptions could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to our Regulatory Framework
The medicinal cannabis regulatory regime is very restrictive and new in the United Kingdom, and laws and enforcement could rapidly change again.
There are significant legal restrictions and regulations that govern the cannabis industry in the United Kingdom. The legislative changes recently made to allow for the prescription and possession of medicinal cannabis without Home Office licenses were very narrow. “Cannabis” remains a Class B controlled drug under the Misuse of Drugs Act 1973 and remains a Schedule 1 drug under the Misuse of Drugs Regulation 2001 (“MDR 2001”). Schedule 1 contains drugs which are not used medically. Cultivation, distribution and possession of Schedule 1 controlled drug is illegal without appropriate licenses. It is only CBPMs that have been moved to various other schedules under the MDR 2001, which then allows for the prescription and possession of CBPMs without a license.
However, there are also strict requirements that need to be met for the supply of CBPMs to patients to be compliant with the regulations. Despite the demand for CBPMs, there has been great reluctance from the medical establishment in general to prescribe “medicinal products” for which there are no official prescribing guidelines and a lack of clinical data. In particular, the Royal College of Physicians and NHS England have issued guidelines for medical practitioners stating that there is currently limited evidence of the effectiveness of CBPMs, except in very limited cases. This appears to have made specialist doctors loathe to prescribe CBPMs against this explicit guidance. As the medical establishment and regulators are still firming up their approaches to guidance and enforcement, this can create a level of operating uncertainty.
Our activities are, and will continue to be, subject to evolving regulation by governmental authorities. Due to the current regulatory environment in the United Kingdom, new risks may emerge; management may not be able to predict all such risks.
U.K. based companies also need to be aware of the potential difficulties posed by the U.K. Proceeds of Crime Act 2002 (“POCA”). POCA prohibits dealing with any benefit (directly or indirectly) arising from criminal conduct. Conduct is criminal if it:
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constitutes an offence in any part of the United Kingdom, or
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would constitute an offence in part of the United Kingdom if it occurred there.
This principle of “dual criminality” means that measures to legalize cannabis overseas can be potentially irrelevant when it comes to investing in the United Kingdom, and medicinal cannabis companies operating in the United Kingdom.
Although the risk of action being taken against a U.K. investor by law enforcement may be considered low when dealing with the indirect proceeds of cannabis, U.K. companies and investors should be sure to
understand the precise nature of their investments or transactions and to keep in mind that investing in, or doing business with, companies involved in recreational cannabis, even where their activity is legal under the laws applicable to them, may nonetheless cause the U.K.-based investor or counterparty to violate U.K. money laundering laws.
Cannabis laws, regulations, and guidelines are dynamic and subject to changes.
Cannabis laws and regulations are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. It is also possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our businesses. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in the cannabis industry in the United Kingdom, the Kingdom of Lesotho and internationally will continue to be dynamic and will require innovative solutions to try to comply with this changing legal landscape in this nascent industry for the foreseeable future. Failure to comply with any such legislation may have a material adverse effect on our business, financial condition and results of operations.
Public opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public’s perception of the cannabis industry could affect future legislation or regulation in different jurisdictions.
There are risks associated with the regulatory regime and permitting requirements of our operations.
Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the cultivation, processing and sale of our products. Bophelo and Canmart currently holds the licenses required to conduct their respective operations. We may not be able to obtain or maintain the necessary licenses, permits, quotas, authorizations, certifications or accreditations to operate our business going forward, or may only be able to do so at great cost. We cannot predict the time required to secure all appropriate regulatory approvals for our products, or the extent of testing and documentation that may be required by local governmental authorities.
Our officers and directors must rely, to a great extent, on our local legal counsel and local consultants retained in the United Kingdom and Lesotho in order to keep abreast of material legal, regulatory and governmental developments as they pertain to and affect our business operations, and to assist us with governmental relations. We must rely, to some extent, on those members of management and the Board who have previous experience working and conducting business in the United Kingdom or the Kingdom of Lesotho in order to enhance our understanding of and appreciation for the local business culture and practices in such jurisdictions.
We also rely on the advice of local experts and professionals in connection with any current and new regulations that develop in respect of banking, financing and tax matters in the jurisdictions in which we operate. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices in such jurisdictions are beyond our control and may adversely affect our business.
We will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate those suffering loss or damage by reason of our operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition.
Any failure on our part to comply with applicable regulations or to obtain and maintain the necessary licenses and certifications could prevent us from being able to carry on our business, and there may be additional costs associated with any such failure.
Our business activities are heavily regulated in all jurisdictions where we do business. Our operations are subject to various laws, regulations and guidelines by governmental authorities relating to the cultivation, processing, manufacture, marketing, management, distribution, transportation, storage, sale, packaging, labelling, pricing and disposal of cannabis and cannabis products. In addition, we are subject to laws and regulations relating to employee health and safety, insurance coverage and the environment. Laws and regulations, applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over our activities, including the power to limit or restrict business activities as well as impose additional disclosure requirements on our products and services.
Any failure by us to comply with applicable regulatory requirements could:
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require extensive changes to our operations;
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result in regulatory or agency proceedings or investigations;
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result in the revocation of our licenses and permits, the imposition of additional conditions on licenses to operate our business, and increased compliance costs;
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result in product recalls or seizures;
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result in damage awards, civil or criminal fines or penalties;
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result in the suspension or expulsion from a particular market or jurisdiction of our key personnel;
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result in restrictions on our operations or the imposition of additional or more stringent inspection, testing and reporting requirements;
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harm our reputation; or
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give rise to material liabilities.
There can be no assurance that any future regulatory or agency proceedings, investigations or audits will not result in substantial costs, a diversion of management’s attention and resources or other adverse consequences to our business.
In addition, changes in regulations, government or judicial interpretation of regulations, or more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increase compliance costs or give rise to material liabilities or a revocation of our licenses and other permits. Furthermore, governmental authorities may change their administration, application or enforcement procedures at any time, which may adversely affect our ongoing regulatory compliance costs. There is no assurance that we will be able to comply or continue to comply with applicable regulations.
The legal cannabis market is a relatively new industry. As a result, the size of our target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of market data.
Because the cannabis industry is in a nascent stage, there is a lack of information about comparable companies available for potential investors to review in deciding whether to invest in us and, few, if any, established companies whose business model we can follow or upon whose success we can build. Accordingly, investors should rely on their own estimates regarding the potential size, economics and risks of the cannabis market in deciding whether to invest in our Common Shares. We are an early-stage company that has not generated net income. There can be no assurance that our growth estimates are accurate or that the cannabis market will be large enough for our business to grow as projected.
Although we are committed to researching and developing new markets and products and improving existing products, there can be no assurances that such research and market development activities will prove profitable or that the resulting markets or products, if any, will be commercially viable or successfully produced and marketed. We must rely largely on our own market research to forecast sales and design
products as detailed forecasts and consumer research are not generally obtainable from reliable third-party sources in the United Kingdom, the European market, Southern Africa, Canada and in other international jurisdictions.
In addition, there is no assurance that the industry and market will continue to exist and grow as currently estimated or anticipated or function and evolve in the manner consistent with management’s expectations and assumptions. We could also be subject to other events or circumstances that adversely affect the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets.
Marijuana remains illegal under U.S. federal law, and the enforcement of U.S. cannabis laws could change.
There are significant legal restrictions and regulations that govern the cannabis industry in the United States. Marijuana remains a Schedule I drug under the Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. In those states in which the use of marijuana has been legalized, its use remains a violation of federal law pursuant to the Controlled Substances Act. The Controlled Substances Act classifies marijuana as a Schedule I controlled substance, and as such, medical and adult use cannabis use is illegal under U.S. federal law. Unless and until the U.S. Congress amends the Controlled Substances Act with respect to marijuana (and the President approves such amendment), there is a risk that federal authorities may enforce current federal law. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money laundering legislation. While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis regulatory programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve us of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against us should we expand our operations into the U.S. Since U.S. federal law criminalizing the use of marijuana pre-empts state laws that legalize its use, enforcement of federal law regarding marijuana may be a significant risk and could greatly harm our business, prospects, revenue, results of operation and financial condition if we were to expand our operations into the United States. We currently have no operations in the United States and no plans to expand our operations into the United States in the foreseeable future.
Our activities are, and will continue to be, subject to evolving regulation by governmental authorities. The legality of the production, cultivation, extraction, distribution, retail sales, transportation and use of cannabis differs among states in the United States. Due to the current regulatory environment in the United States, new risks may emerge; management may not be able to predict all such risks. Due to the conflicting views between state legislatures and the federal government regarding cannabis, cannabis businesses are subject to inconsistent laws and regulations. There can be no assurance that the federal government will not enforce federal laws relating to marijuana and seek to prosecute cases involving marijuana businesses that are otherwise compliant with state laws in the future. To date, federal enforcement agencies have taken little or no action against state-compliant cannabis businesses in the United States. However, the DOJ may change its enforcement policies at any time, with or without advance notice. The uncertainty of U.S. federal enforcement practices going forward and the inconsistency between U.S. federal and state laws and regulations may present risks for us if we expand our operations into the United States in the future.
Risks Related to Financials and Accounting
There are tax risks we may be subject to in carrying out our business in multiple jurisdictions.
We will operate and, accordingly, will be subject to income tax and other forms of taxation in multiple jurisdictions. We may be subject to income taxes and non-income taxes in a variety of jurisdictions and our tax structure may be subject to review by both domestic and foreign taxation authorities. Those tax authorities may disagree with our interpretation and/or application of relevant tax rules. A challenge by a tax authority in these circumstances might require us to incur costs in connection with litigation against the relevant tax authority or reaching a settlement with the tax authority and, if the tax authority’s challenge is successful, could result in additional taxes (perhaps together with interest and penalties) being assessed on
us, and as a result an increase in the amount of tax payable by us. In addition, we may be subject to different taxes imposed by the local governments in the jurisdictions where we operate, and changes within such tax, legal and regulatory framework may have an adverse effect on our financial results.
Taxation laws and rates which determine taxation expenses may vary significantly in different jurisdictions, and legislation governing taxation laws and rates are also subject to change. Therefore, our earnings may be affected by changes in the proportion of earnings taxed in different jurisdictions, changes in taxation rates, changes in estimates of liabilities and changes in the amount of other forms of taxation. The determination of our provision for income taxes and other tax liabilities will require significant judgment (including based on external advice) as to the interpretation and application of these rules. We may have exposure to greater than anticipated tax liabilities or expenses.
There is a risk that we will be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current or any future taxable year, which could result in material adverse U.S. federal income tax consequences if you are a U.S. Holder.
If we (or any of our non-U.S. subsidiaries) are a PFIC for any taxable year during which a U.S. Holder owns Common Shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. The determination of whether a corporation is a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules that are subject to differing interpretations. In addition, the determination of whether a corporation will be a PFIC for any taxable year generally can only be made after the close of such taxable year. Therefore, it is possible that we could be classified as a PFIC for our initial taxable year or in future years due to changes in the nature of our business, composition of our assets or income, as well as changes in our market capitalization. In particular, our PFIC status will depend, in part, on the amount of cash that we raise in this offering and how quickly we utilize the cash in our business. Based upon the foregoing, it is uncertain whether we will be a PFIC for our current taxable year or any future taxable year. We have not determined, if we (or any of our non-U.S. subsidiaries) were to be classified as a PFIC for a taxable year, whether we will provide information necessary for a U.S. Holder to make a “qualified electing fund” election which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs. Accordingly, U.S. Holders should assume that they will not be able to make a qualified electing fund election with respect to our Common Shares. The PFIC rules are complex, and each U.S. Holder should consult his, her or its own tax advisor regarding the PFIC rules, the elections which may be available, and how the PFIC rules may affect the U.S. federal income tax consequences relating to the ownership and disposition of our Common Shares.
Failure to develop our internal controls over financial reporting as we grow could have an adverse effect on our operations.
As we mature, we will need to continue to develop and improve our current internal control systems and procedures to manage our growth. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish appropriate controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors.
Risks Related to Our Common Shares and This Offering
Investing in an emerging market poses a greater degree of risk than investing in more mature market economies.
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments. All of our cannabis cultivation operations are based in the Kingdom of Lesotho in Southern Africa. See “Risks Related to our International Operations” above.
Even if this offering is successful, we will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product and business development efforts or other operations.
We expect the net proceeds from this offering to be $17.8 million (or $20.0 million if the underwriters exercise in full their option to purchase up to 600,000 additional Common Shares from us) before deducting
offering expenses payable by us. We expect that the net proceeds from this offering will be sufficient to fund our current operations at least through the end of 2022. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances or a combination of these approaches. Raising funds in the current economic environment may present additional challenges. It is not certain that we have accounted for all costs and expenses of future development and regulatory compliance. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert the attention of our management team from their day-to-day activities, which may adversely affect our ability to launch our business and develop and commercialize our products. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any future financing may adversely affect the holdings or the rights of our shareholders, and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute our existing shareholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
We have a significant shareholder, which may limit your ability to influence corporate matters and may give rise to conflicts of interest.
We have a significant shareholder, Halo. Philip van den Berg, the Chief Financial Officer and a director of Halo, is currently serving as Halo’s appointee to our Board of Directors pursuant to the Investor Rights Agreement. See a discussion of the Investor Rights Agreement under “Prospectus Summary — Our History and Relationship with Halo.” As of the date of this prospectus, Halo owns approximately 47.4% of our outstanding Common Shares. Following this offering, assuming all of the Common Shares offered hereby are sold (assuming no exercise by the underwriters of their option to purchase additional Common Shares) and conversion of the Debenture at a conversion price of $5.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), we anticipate that Halo will own approximately 43.2% of our outstanding Common Shares. Accordingly, Halo exerts and may continue to exert significant influence over us and any action requiring the approval of the holders of our Common Shares, such as election of directors, amendments to our organizational documents, and approval of significant corporate transactions. This concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our Common Shares that you may feel are in your best interest as one of our shareholders. Furthermore, the interests of Halo may not always coincide with your interests or the interests of other shareholders and Halo may act in a manner that advances its best interests and not necessarily those of other shareholders. Additionally, our directors, Mr. Kié and Ms. Mojela each served as a director of Halo from October 2020 to July 2021, and July 2020 to July 2021, respectively. While our board does not believe any inherent conflict of interest exists due to each of Mr. Kie and Ms. Mojela’s role as directors of Halo, there may still be an appearance of a conflict of interest due to their prior roles.
If you purchase our Common Shares in this offering, you will incur immediate and substantial dilution in the book value of your Common Shares.
The initial public offering price of our Common Shares will be substantially higher than the pro forma as adjusted net tangible book value per share of our Common Shares immediately after the completion of
this offering. You will suffer immediate and substantial dilution in the net tangible book value of the Common Shares you purchase in this offering. Based on the initial public offering price of $5.00 per Common Share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the sale of 4,000,000 Common Shares (after deducting estimated offering expenses), purchasers of Common Shares in this offering will experience dilution of approximately $4.32 per Common Share (not including the over-allotment of up to an additional 600,000 Common Shares if the full over-allotment option is exercised by the underwriters) in net tangible book value of the Common Shares.
See “Dilution.” To the extent that new equity awards are issued under our share-based compensation plans or we issue additional Common Shares including upon any conversion of the Debenture as applicable after this offering, there will be further dilution to investors participating in this offering.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our Common Shares to decline.
We may issue additional securities following the closing of this offering. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing shareholders. We may sell Common Shares, convertible securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our Common Shares.
Listing our Common Shares on a securities exchange will likely increase our regulatory burden.
We have applied for the listing of our Common Shares under the symbol “AKAN” on the Nasdaq Capital Market. Our application has not yet been approved by Nasdaq, and there is no guarantee that our application will be approved in connection with this offering. Although to date we have not been subject to the continuous and timely disclosure requirements of exchange rules, regulations and policies of Nasdaq, we are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems to manage our obligations as a public company listed on Nasdaq. These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, we cannot assure holders of our shares that these and other measures that we might take will be sufficient to allow us to satisfy our obligations as a public company listed on Nasdaq on a timely basis and that we will be able to achieve and maintain compliance with applicable listing requirements. In addition, compliance with reporting and other requirements applicable to public companies listed on Nasdaq will create additional costs for us and will require the time and attention of management. We cannot predict the amount of the additional costs that we might incur, the timing of such costs or the effects that management’s attention to these matters will have on our business.
We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives.
As a public company, particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including requirements to file periodic and event-driven reports with respect to our business and financial condition and operations and establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel have limited experience operating a public company, which may result in operational inefficiencies or errors, or a failure to improve or maintain effective internal controls over financial reporting (“ICFR”) and disclosure controls and procedures necessary to ensure timely and accurate reporting of operational and financial results. Our existing management team will need to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with compliance. Moreover,
these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our ICFR, which, after we are no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for ICFR. If our management and/or auditors determine that there are one or more material weaknesses in our ICFR, such a determination could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some public company required activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention from revenue generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect that being a public company and complying with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our Board.
If we fail to meet applicable listing requirements, Nasdaq may not approve our listing application, or may delist our Common Shares from trading, in which case the liquidity and market price of our Common Shares could decline.
We cannot assure you that we will be able to meet Nasdaq’s initial listing standards, or that we will be able to meet the continued listing standards of Nasdaq in the future. If we fail to comply with the applicable listing standards and Nasdaq delists our Common Shares, we and our shareholders could face significant material adverse consequences, including:
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a limited availability of market quotations for our Common Shares;
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reduced liquidity for our Common Shares;
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a determination that our Common Shares are “penny stock”, which would require brokers trading in our Common Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Shares;
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a limited amount of news about us and analyst coverage of us; and
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a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.
Receiving financial benefit directly or indirectly as a result of ownership of Common Shares may be subject to anti-money laundering laws in the United Kingdom.
Cannabis-related financial transactions, including investment in the securities of cannabis companies and receipt of any associated benefits, such as dividends, could be subject to anti-money laundering laws in the U.K., specifically the Proceeds of Crime Act, however the application of these laws is still developing.
In the U.K., financial benefit directly or indirectly arising from conduct that would be considered unlawful if it were to take place in the U.K. may be viewed to be within the purview of these laws, and persons receiving any such benefit, including investors may be subject to liability under such laws. Each prospective investor should therefore contact his, her or its own legal advisor regarding the ownership of our Common Shares and any related potential liability. The Proceeds of Crime Act is further discussed on pages 23 and 65.
Our executive officers, directors, significant shareholder and their respective affiliates may continue to exercise significant control over us after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
As of the date of this prospectus, our executive officers, directors and significant shareholder, Halo, represent beneficial ownership, in the aggregate, of approximately 68.1% of our outstanding Common Shares. Immediately following the completion of this offering, and disregarding any Common Shares that they purchase in this offering, if any, the existing holdings of our executive officers, directors, significant shareholder, Halo, and their affiliates will represent beneficial ownership, in the aggregate, of approximately 60.1% of our outstanding Common Shares. As a result, these shareholders may be able to influence our management and affairs and control the outcome of matters submitted to our shareholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These shareholders may have interests with respect to their Common Shares that are different from those of investors in this offering, and the concentration of voting power among one or more of these shareholders may have an adverse effect on the price of our Common Shares. In addition, this concentration of ownership might adversely affect the market price of our Common Shares by:
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delaying, deferring or preventing a change of control in us;
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impeding a merger, consolidation, takeover or other business combination involving us; or
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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
Our directors and officers may have conflicts of interest in conducting their duties.
We may be subject to various potential conflicts of interest because of the fact that some of our officers and directors may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to us. In some cases, our executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect our operations. These business interests could require significant time and attention of our executive officers and directors.
We have broad discretion in how we use the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations and cause the price of our Common Shares to decline.
We will have considerable discretion in the application of the net proceeds of this offering. We intend to use the net proceeds from this offering for property, plant and equipment, operations, working capital, and general corporate purposes. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our shareholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
We are a foreign private issuer and intend to take advantage of the less frequent and detailed reporting obligations applicable to foreign private issuers.
We are a “foreign private issuer”, as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we will not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the
SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors, and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell shares, as the reporting deadlines under the corresponding Canadian insider reporting requirements are longer.
As a foreign private issuer, we will be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. We will also be exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While we will comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, we will have more time than U.S. domestic companies after the end of each fiscal year to file our annual report with the SEC and will not be required under the Exchange Act to file quarterly reports with the SEC.
In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the Canadian practices we follow instead. We may in the future elect to follow home country practices in Canada with regard to certain corporate governance matters.
As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance requirements.
We may lose our status as a foreign private issuer in the United States, which would result in increased costs related to regulatory compliance under United States securities laws.
We will cease to qualify as a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4 under the Exchange Act, if, as of the last business day of our second fiscal quarter, more than 50% of our outstanding Common Shares are directly or indirectly owned by residents of the United States and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we determine that we fail to qualify as a foreign private issuer, we will cease to be eligible to avail ourselves of the forms and rules designated for foreign private issuers beginning on the first day of the fiscal year following such determination. Among other things, this will result in loss of the exemption from registration under the Exchange Act provided by Rule 12g3-2(b) thereunder, and, if we are required to register our Common Shares under section 12(g) of the Exchange Act, we will have to do so as a domestic issuer. Further, any securities that we issue in unregistered or unqualified offerings both within and outside the United States will be “restricted securities” (as defined in Rule 144(a)(3) under the Securities Act) and will continue to be subject to United States resale restrictions notwithstanding their resale in “offshore transactions” pursuant to Regulation S under the Securities Act. As a practical matter, this will likely require us to register more offerings of our securities under the Securities Act on either a primary offering or resale basis, even if they take place entirely outside the United States. The resulting legal and administrative costs of complying with the resulting regulatory requirements are anticipated to be substantial, and to subject us to additional exposure to liability for which we may not be able to obtain insurance coverage on favorable terms, or at all.
If our share price fluctuates after the offering, you could lose a significant part of your investment.
The market price of our Common Shares could be subject to wide fluctuations in response to, among other things, the risk factors described in this section of this prospectus, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us. Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions, such as recessions,
interest rate changes or international currency fluctuations, may negatively affect the market price of our Common Shares. In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
The public offering price of our Common Shares has been determined by negotiations between us and the Representative based upon many factors and may not be indicative of prices that will prevail following the closing of this offering. Volatility in the market price of our Common Shares may prevent investors from being able to sell their shares at or above the initial public offering price. As a result, you may suffer a loss on your investment.
Investors may be unable to enforce judgments against our directors and officers because our directors and officers reside outside of the United States.
We are incorporated under the laws of the Province of Ontario, Canada and most of our assets are located outside of the United States. Furthermore, most of our directors and officers reside outside of the United States in Canada, the Kingdom of Lesotho and the United Kingdom. As a result, investors may not be able to effect service of process within the United States upon our directors or officers or enforce against them in U.S. courts, judgments predicated on U.S. securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts, judgments obtained against these persons in courts located in jurisdictions outside of the United States.
As a result of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our Board of Directors or controlling shareholders than they would as public shareholders of a U.S. based company.
We do not intend to pay dividends on our Common Shares in the near future, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Shares.
We have never declared or paid any cash dividend on our Common Shares and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in our Common Shares will depend upon any future appreciation in their value. There is no guarantee that our Common Shares will appreciate in value or even maintain the price at which you purchased them.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us, our share price and trading volume could decline.
The trading market for our Common Shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our operations. We do not have any control over these analysts and their research and reports. Securities and industry analysts do not currently, and may never, publish research on our business. If no security or industry analysts commence coverage on us, the trading price for our Common Shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our shares could decrease, which might cause our share price and trading volume to decline.
After the completion of this offering, we may be at an increased risk of securities class action litigation.
Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we are listed on an exchange or quoted over-the-counter and our share price decreases and we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
USE OF PROCEEDS
We estimate that we will receive approximately $17.8 million (based on an assumed initial public offering price of $5.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus) in net proceeds from the sale of 4,000,000 Common Shares offered by us in this offering, after deducting the underwriting discounts and commissions and estimated offering expenses of approximately $2.2 million payable by us.
The underwriters have an option to purchase up to 600,000 additional Common Shares at the public offering price less the underwriting discounts and commissions within 45 days after the date of this prospectus to cover-allotments, if any. Exercise by the underwriters of this option in full would result in additional net proceeds to us of approximately $2.2 million.
We intend to use the net proceeds from this offering for property, plant and equipment, operations, working capital, and general corporate purposes. Property, plant and equipment include the construction of greenhouses estimated at $3.5 million, an EU GMP post-harvest drying facility estimated at $1.5 million, and an EU GMP extraction facility estimated at $2 million.
Our management will have discretion in allocating the net proceeds in accordance with the above priorities and purposes. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our expansion and development efforts, whether or not we enter into strategic transactions, our general operating costs and expenditures, and the changing needs of our businesses.
Each $1.00 increase (decrease) in the assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by approximately $3.7 million, assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions payable by us. We may also increase or decrease the number of Common Shares we are selling in this offering. An increase (decrease) of 1,000,000 in the number of Common Shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $4.6 million, assuming the assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the underwriting discounts and commissions payable by us.
We believe that our funds and the net proceeds from this offering will be sufficient to continue our businesses and operations as currently conducted through 2022; however, changing circumstances may cause us to consume capital significantly faster than we currently anticipate.
DIVIDEND POLICY
We have never paid dividends on our Common Shares. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. As such, we do not intend to declare or pay cash dividends on our Common Shares in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our Board of Directors subject to applicable laws and will depend upon, among other factors, our earnings, operating results, financial condition and current and anticipated cash needs. Our future ability to pay cash dividends on our Common Shares may be limited by the terms of any then-outstanding debt or preferred securities.
CAPITALIZATION
The following table sets forth our cash and cash equivalents, debt and capitalization as of September 30, 2021:
•
on an actual basis;
•
on a pro forma basis to give effect to (i) the conversion of the Debenture assuming a conversion price equal to an assumed initial public offering price of $5.00 per Common Share in this offering (the midpoint of the price range set forth on the cover page of this prospectus); (ii) on a pro forma basis to give effect to the issuance of 2,280,400 Common Shares pursuant to the completion of the Private Placement at a price of $2.50 per Common Share, after deducting underwriting discounts and commissions and estimated related expenses payable by us; (iii) on a pro forma basis to give effect to the issuance of 880,000 shares at a price of $2.50 per Common Share to settle the Bridge Loan Facility; (iv) the issuance of 869,963 Common Shares to the ESG Trust, (v) the issuance of 13,129,212 Common Shares to Halo pursuant to the acquisition of Cannahealth Ltd, Bophelo Holdings Ltd, Canmart Ltd and Bophelo Bio Science and Wellness (Pty) Ltd.
•
on a pro forma, as adjusted, basis to give effect to the above and the issuance of 4,000,000 Common Shares in this offering at an assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as set forth in this prospectus.
You should read the following table in conjunction with the sections entitled “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our financial statements and the related notes thereto included elsewhere in this prospectus.
|
|
|
|
As of 30 September, 2021
|
|
|
(in [thousands/millions], except share amounts)
|
|
|
Actual(1)
|
|
|
Pro Forma(1)
|
|
|
Pro Forma,
as Adjusted(3)
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
959,832
|
|
|
|
|
$
|
6,204,752
|
|
|
|
|
$
|
24,048,201
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
$
|
11,313,959
|
|
|
|
|
$
|
3,304,188
|
|
|
|
|
$
|
3,304,188
|
|
|
|
Total non-current liabilities
|
|
|
|
$
|
3,405,581
|
|
|
|
|
$
|
3,405,581
|
|
|
|
|
$
|
3,405,581
|
|
|
|
Total debt:
|
|
|
|
$
|
14,719,540
|
|
|
|
|
$
|
6,709,769
|
|
|
|
|
$
|
6,709,769
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares (28,136,797 issued, unlimited
authorized)
|
|
|
|
$
|
251,775
|
|
|
|
|
$
|
29,560,069
|
|
|
|
|
$
|
47,403,517
|
|
|
|
Underwriter fee arrangement warrants issued
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Retained earnings (accumulated deficit)
|
|
|
|
$
|
(9,683,353)
|
|
|
|
|
$
|
(12,607,730)
|
|
|
|
|
$
|
(12,607,730)
|
|
|
|
Reserves
|
|
|
|
$
|
21,053
|
|
|
|
|
$
|
21,053
|
|
|
|
|
$
|
21,053
|
|
|
|
Other comprehensive income
|
|
|
|
$
|
196,568
|
|
|
|
|
$
|
(13,127,438)
|
|
|
|
|
$
|
(12,930,870)
|
|
|
|
Total shareholders’ equity (deficiency)
|
|
|
|
$
|
(9,213,957)
|
|
|
|
|
$
|
4,042,522
|
|
|
|
|
$
|
21,885,971
|
|
|
|
Total capitalization
|
|
|
|
$
|
5,505,583
|
|
|
|
|
$
|
10,752,291
|
|
|
|
|
$
|
28,595,740
|
|
|
(1)
Based on the exchange rate of 15.33, which was the foreign exchange rate on September 30, 2021, as reported by the South African Revenue Service in its published historical rates for the South African Rand, and as used in our unaudited financial statements as of September 30, 2021.
(2)
Excludes 5,394,976 Common Shares reserved for future issuance under our Plan as well as any automatic evergreen increases in the number of Common Shares reserved for future issuance under our Plan.
(3)
The number of Common Shares on a pro forma as adjusted basis excludes Common Shares issuable upon exercise of warrants to be issued to the Representative of the underwriters as part of this offering at an exercise price of $6.25 (assuming an initial public offering price of $5.00 per share (the midpoint of the price range set forth on the cover page of this prospectus)).
DILUTION
Purchasers of the Common Shares in this offering will experience immediate and substantial dilution to the extent of the difference between the initial public offering price per Common Share paid by the purchasers of the Common Shares in this offering and the pro forma, as adjusted net tangible book value per Common Share immediately after, and giving effect to, this offering. Dilution results from the fact that the initial public offering price per Common Share in this offering is substantially in excess of the net tangible book value per Common Share attributable to our existing shareholders for our presently outstanding Common Shares.
Our historical net tangible book value per Common Share is determined by dividing our net tangible book value, which is the book value of our total tangible assets less the book value of our total liabilities, by the number of outstanding Common Shares. As of September 30, 2021, the historical net tangible book value of our Common Shares was ($11,540,241), or ($1.89) per Common Share.
After giving effect to the (i) conversion of the Debenture assuming a conversion price equal to an assumed initial public offering price of $5.00 per Common Share in this offering (the midpoint of the price range set forth on the cover page of this prospectus), (ii) sale by us of 4,000,000 Common Shares in this offering at an assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus), (iii) the settlement of the bridge loan facility owing to Ms. Mojela by way of an issuance of 880,000 Common Shares, (iv) the sale by us of 2,280,400 Common Shares in a private placement at an offering price of $2.50 per share, after deducting underwriting discounts and commissions, and (v) the issuance of 869,963 Common Shares to the ESG Trust and (vi) receipt by us of the net proceeds of this offering, after deduction of the underwriting discounts and commissions and the estimated offering expenses payable by us, our pro forma, as adjusted net tangible book value as of September 30, 2021 would have been $19,567,899, or $0.68 per Common Share. The pro forma, as adjusted net tangible book value per Common Share immediately after the offering is calculated by dividing the pro forma, as adjusted net tangible book value of $19,567,899 by 19,567,899 Common Shares (which is the pro forma, as adjusted Common Shares outstanding as of September 30, 2021). The difference between the initial public offering price per Common Share and the pro forma, as adjusted net tangible book value per Common Share represents an immediate increase in net tangible book value of $4.32 per Common Share to our existing shareholders, and an immediate dilution in net tangible book value of $4.32 per Common Share to purchasers of Common Shares in this offering.
The following table illustrates this dilution to purchasers in this offering on a per Common Share basis (in thousands):
|
|
Assumed initial public offering price per Common Share
|
|
|
|
$
|
5.00
|
|
|
|
|
|
|
|
Net tangible book value per Common Share before this offering (as of September 30,
2021)
|
|
|
|
$
|
(1.89)
|
|
|
|
|
|
|
|
Increase in net tangible book value per Common Share attributable to existing shareholders due to the issuance of Common Shares after September 30, 2021
|
|
|
|
$
|
(0.42)
|
|
|
|
|
|
|
|
Pro forma net tangible book value per Common Share before this offering (as of September 30, 2021)
|
|
|
|
$
|
(0.07)
|
|
|
|
|
|
|
|
Increase in net tangible book value per Common Share attributable to purchasers in this offering
|
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
Pro forma, as adjusted net tangible book value per Common Share immediately after this offering
|
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
Dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in
this offering
|
|
|
|
$
|
4.32
|
|
|
|
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma, as adjusted net tangible book value per Common Share immediately after this offering by $3,680,000, and the dilution in pro forma, as adjusted net tangible book value per Common Share to
purchasers in this offering by $0.87, assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions payable by us.
We may also increase or decrease the number of Common Shares we are selling in this offering. An increase (decrease) of 1,000,000 in the number of Common Shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma, as adjusted net tangible book value per Common Share immediately after this offering by $4,600,000, and the dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in this offering by ($0.13), assuming the assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the underwriting discounts and commissions payable by us.
The table and information above assume no exercise by the underwriters of their option to purchase additional Common Shares in this offering. If the underwriters exercise in full their option to purchase up to 600,000 additional Common Shares from us, the pro forma, as adjusted net tangible book value per Common Share immediately after this offering would be $0.77 per Common Share, and the dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in this offering would be $4.23 per Common Share, in each case assuming an assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of September 30, 2021, on an adjusted pro forma basis as described above, the number of Common Shares acquired or to be acquired, and the total consideration and the average price per Common Share (i) paid to us by existing shareholders and (ii) to be paid by new investors purchasing Common Shares in this offering at an assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus), before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
|
|
|
|
Common Shares
|
|
|
Total Consideration
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Weighted
Average
Price Per
Share
|
|
|
Existing shareholders
|
|
|
|
|
24,567,128
|
|
|
|
|
|
86.00%
|
|
|
|
|
$
|
31,733,188
|
|
|
|
|
|
64.34%
|
|
|
|
|
$
|
1.29
|
|
|
|
Purchasers in this offering
|
|
|
|
|
4,000,000
|
|
|
|
|
|
14.00%
|
|
|
|
|
$
|
20,000,000
|
|
|
|
|
|
38.66%
|
|
|
|
|
$
|
5.00
|
|
|
|
Total
|
|
|
|
|
28,567,128
|
|
|
|
|
|
%
|
|
|
|
|
$
|
51,733,188
|
|
|
|
|
|
|
|
|
|
|
$
|
1.81
|
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $5.00 per Common Share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the total consideration paid by purchasers in this offering and the weighted average price per share paid by all shareholders by $3,680,000 and $0.14 per share, respectively, and in the case of an increase, would increase the percentage of total consideration paid by purchasers in this offering by 4.40%, and in the case of a decrease, would decrease the percentage of total consideration paid by purchasers in this offering by 5.14%, assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions payable by us.
Similarly, an increase (decrease) of 1,000,000 in the number of Common Shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by purchasers in this offering and the weighted average price per share paid by all shareholders by $4,600,000 and $0.18 per share, respectively, and in the case of an increase, would increase the percentage of total consideration paid by purchasers in this offering by 5.41%, and in the case of a decrease, would decrease the percentage of total consideration paid by purchasers in this offering by 6.56%, assuming the assumed initial public offering price of $5 per Common Share remains the same, and after deducting the underwriting discounts and commissions payable by us.
The table and information above assume no exercise by the underwriters of their option to purchase additional Common Shares in this offering. If the underwriters exercise in full their option to purchase up
to 600,000 additional Common Shares from us, the number of Common Shares underlying the Common Shares held by purchasers in this offering would be increased to 4,600,000 Common Shares, or 42.02% of the total number of Common Shares outstanding immediately after this offering, and the percentage of Common Shares held by our existing shareholders would be reduced to 57.98% of the total number of Common Shares outstanding immediately after this offering.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section of this prospectus entitled “Business”, and our financial statements, pro forma combined financial statements and related notes thereto, included elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a cannabis cultivation, manufacturing and distribution company whose mission is to provide premium quality medical cannabis products to patients worldwide. We are an early stage, emerging growth company headquartered in London, the United Kingdom. We have a limited operating history and minimal revenues to date.
Akanda was incorporated in July 2021 in connection with Halo’s plan to reorganize its medical cannabis market focused international business assets. On September 29, 2021, we entered into a share purchase agreement with Halo, pursuant to which we acquired such assets and as a result, Cannahealth, Bophelo Holdings, Canmart and Bophelo became our wholly-owned subsidiaries as of the closing of the transaction on November 3, 2021. Please see a discussion of the Acquisition and the diagram summarizes our legal entity structure following the closing of the Acquisition and the Halo Transfer under “Prospectus Summary — Our History and Relationship with Halo.”
Akanda, Cannahealth and Bophelo Holdings are holding companies which had no trading related operational activities to date, other than commercial activities which are solely related to their function as group and intermediate holding companies respectively.
Bophelo commenced operations including establishing sites and first phase construction and starting site preparation activities in 2018. Bophelo’s cultivation facility in the Kingdom of Lesotho is licensed to cultivate cannabis over an initial 5 hectare canopy area, with conditional approval from local authorities to extend its cultivation area up to 200 hectares in total. At present, the company is cultivating cannabis over a 0.3 hectare area and is in the process of expanding it by a further 1.5 to 2 hectares. During 2019 and 2020, Bophelo did not generate any revenue from a commercial harvest, although it completed a number of successful harvests for non-commercial purposes. Bophelo conducted its first sale of high-grade flower to a local buyer in March 2021 and has entered into distribution agreements with European based distributors. As we continue to build out and upgrade our facilities to meet EU standards, we aim to commence exporting medical cannabis biomass to Europe in 2022. From 2023 and beyond, we plan to expand our product offering to include cannabis oils and extracts, and ultimately, to produce consumer branded cannabis products for discerning patients.
Canmart commenced importing and distributing CBPMs in 2020 and has generated a small amount of revenue (less than $25,000) since its inception resulting from the sale of CBPMs to patients in the United Kingdom. Under the current controlled drugs regulatory regime, Canmart is only able to supply to dispensing pharmacists, clinics and other wholesale distributors. However, Canmart’s intention is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies.
As the closing of the Acquisition occurred in November 2021, set forth below is a discussion of the financial condition and operating results of each of Akanda, Cannahealth, Bophelo Holdings, Bophelo and Canmart for their respective historical reporting periods, on a stand-alone basis.
Akanda Corp.
Akanda was formed in Ontario, Canada on July 16, 2021 as a holding company. The discussion below regarding Akanda’s historical financial condition and operation results is limited to the reporting period since its inception to a recent practical date.
Results of Operations
Reporting Period from July 16, 2021 (inception) through August 31, 2021
The following table sets forth key components of Akanda’s results of operations for the reporting period from July 16, 2021 (inception) through August 31, 2021.
|
|
|
|
July 16, 2021
(Inception) to
August 31,
2021
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Legal fees
|
|
|
|
$
|
31,898
|
|
|
|
Total operating expenses
|
|
|
|
|
31,898
|
|
|
|
Loss from operations
|
|
|
|
|
(31,898)
|
|
|
|
Net and comprehensive loss
|
|
|
|
$
|
(31,898)
|
|
|
As a holding company, Akanda had no operations to date. During the period ended August 31, 2021, it had incurred legal expenses of $31,898.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital and capital expenditures. Historically, we funded our liquidity requirements primarily through cash on hand which is from the issuance of shares. We did not have, during the reporting period, and we do not currently have any contractual obligations for ongoing capital expenditures.
The following table summarizes our cash flows from operating, investing and financing activities:
|
|
|
|
Period Ended
August 31,
|
|
|
|
|
|
|
|
|
2021
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
|
$
|
4,263
|
|
|
|
Not Applicable
|
|
|
Cash used in investing activities
|
|
|
|
$
|
—
|
|
|
|
Not Applicable
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
250,001
|
|
|
|
Not Applicable
|
|
Cash Flows from Financing Activities
Share Capital and Seed Financing
During the period from July 16, 2021 (inception) through August 31, 2021, Akanda issued a total of share capital of $250,001. Shortly after the formation of Akanda on July 16, 2021, Akanda issued a total of 5,626,805 Common Shares at a price of $0.0000001 each to Louisa Mojela (1,875,602 Common Shares), Tejinder Virk (1,875,602 Common Shares) and Raj Beri (includes 937,801 Common Shares held of record by ERB Investment Holdings, LLC and 937,801 Common Shares held of record by S&G Holdings, Ltd. Both ERB Investment Holdings, LLC and S&G Holdings, Ltd. are wholly owned and controlled by Raj Beri).
Short Term Loan
During the period from July 16, 2021 (inception) through August 31, 2021, Akanda received a loan from Halo in the amount of $4,263 to pay certain legal expenses. This loan is repayable on demand and bears no interest.
Subsequent Events
In November 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of
$2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
In November 2021, the Company completed the initial closing of a private placement to accredited investors of 2,126,400 Common Shares, at a purchase price of $2.50 per share, for approximately $5,316,000 in gross proceeds and on January 17, 2022, the Company completed a second closing to accredited investors of 154,000 Common Shares at a purchase price of $2.50 per share, for approximately $385,000 (the “Private Placement”). An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
Boustead Securities, LLC received under the Private Placement: (a) a commission equal to 7% of the gross proceeds and (b) a non-accountable expense allowance equal to 1% of the gross proceeds. The issuances of the above Common Shares were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. The sale and issuance of Common Shares to investors outside the United States under the Private Placement was also in reliance upon Regulation S promulgated under the Securities Act.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Akanda’s audited financial statements from July 16, 2021 (inception) through August 31, 2021 included in this prospectus.
Off-Balance Sheet Arrangements
We did not have, during the reporting period, and we do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Reporting Period from July 16, 2021 (inception) through September 30, 2021
The following table sets forth key components of Akanda’s results of operations for the reporting period from July 16, 2021 (inception) through September 30, 2021.
|
|
|
|
July 16, 2021 (Inception) to
September 30, 2021
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Accounting and audit fees
|
|
|
|
$
|
16,822
|
|
|
|
Consultant fees
|
|
|
|
|
32,904
|
|
|
|
Directors’ remuneration
|
|
|
|
|
12,275
|
|
|
|
Legal fees
|
|
|
|
|
39,474
|
|
|
|
Total operating expenses
|
|
|
|
|
101,475
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
Foreign exchange gains
|
|
|
|
$
|
5,296
|
|
|
|
Total other income
|
|
|
|
|
5,296
|
|
|
|
Net loss
|
|
|
|
|
(96,179)
|
|
|
|
Other comprehensive loss
|
|
|
|
|
(102)
|
|
|
|
Net and comprehensive loss
|
|
|
|
$
|
(96,281)
|
|
|
As a holding company, Akanda had not had any trading related operations to date, other than transactions incurred in relation to its function as a holding company for group entities. During the period ended September 30, 2021, it had incurred legal expenses of $39,474 as a result of corporate activity and transaction related legal fees in respect of the acquisition of Cannahealth Limited which was concluded on or around November 3, 2021.
Akanda incurred consulting fees of $32,904 which related to advisory fees paid to our underwriters in connection with the private placement and the offering.
Directors remuneration costs of $12,275 was incurred in relation to non-executive director fee accruals which commenced with effect from September 1, 2021.
The Company also incurred accounting and audit fees of $16,822 during the period ending September 30, 2021 in relation to the preparation and of the Company’s audited financial statements.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital and capital expenditures. Historically, we funded our liquidity requirements primarily through cash on hand which is from the issuance of shares. We did not have, during the reporting period, and we do not currently have any contractual obligations for ongoing capital expenditures.
The following table summarizes our cash flows from operating, investing and financing activities for the period ended September 30, 2021:
|
|
|
|
Period Ended
September 30,
|
|
|
|
|
|
|
|
|
2021
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
|
$
|
(9,420)
|
|
|
|
Not Applicable
|
|
|
Cash used in investing activities
|
|
|
|
$
|
—
|
|
|
|
Not Applicable
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
254,227
|
|
|
|
Not Applicable
|
|
Cash Flows from Operating Activities
Operating expenses
During the period from July 16, 2021 (inception) through September 30, 2021, Akanda’s working capital investment decreased by $92,055 as a result of an increase in accounts payable relating to accrued legal, consulting and audit fees. After taking this net working capital movement into consideration, the Company’s net use of cash to fund operating activities, after considering the effects of foreign exchange movements recorded in profit and loss, was $9,420.
Cash Flows from Financing Activities
Share Capital and Seed Financing
During the period from July 16, 2021 (inception) through September 30, 2021, Akanda issued a total of share capital of $250,001. Shortly after the formation of Akanda on July 16, 2021, Akanda issued a total of 5,626,805 Common Shares at a price of $0.0000001 each to Louisa Mojela (1,875,602 Common Shares), Tejinder Virk (1,875,602 Common Shares) and Raj Beri (includes 937,801 Common Shares held of record by ERB Investment Holdings, LLC and 937,801 Common Shares held of record by S&G Holdings, Ltd. Both ERB Investment Holdings, LLC and S&G Holdings, Ltd. are wholly owned and controlled by Raj Beri). On August 26, 2021, the Company sold 468,900 Common Shares to an accredited investor at a subscription price of $0.53 and received $250,000 in gross proceeds in a private placement in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder. Boustead Securities, LLC served as the placement agent for the Seed Financing and waived any commission for this transaction.
Short Term Loan
During the period from July 16, 2021 (inception) through September 30, 2021, Akanda received a loan from Halo in the amount of $4,226 to pay certain legal expenses. This loan is repayable on demand and bears no interest.
Subsequent Events
In November 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of $2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
In November 2021, the Company completed an initial first closing of a private placement to accredited investors of 2,126,400 Common Shares, at a purchase price of $2.50 per share, for approximately $5,316,000 in gross proceeds and on January 17, 2022, the Company completed a second closing to accredited investors of 154,000 Common Shares at a purchase price of $2.50 per share, for approximately $385,000 (the “Private Placement”). An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness (Pty) Ltd, Canmart Ltd., Bophelo Holdings Ltd. and Cannahealth Ltd. The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science & Wellness (Pty) became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. In accordance with the terms of the Purchase Agreement, Halo sold 100% of the issued and outstanding shares of Cannahealth Ltd to the Company in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of USD $13,129,212.
In conjunction with the Transaction, Akanda entered into a secured convertible debenture agreement with Halo on or around November 3, 2021. The debenture agreement has a principal amount of USD 6,559,294 and bears interest at a rate of 1% per annum. The amount due to Halo pursuant to the debenture agreement, comprising the principal amount and accrued interest payable respectively, ranks as a senior obligation of the Company in preference to other creditors. The debt is secured by way of a pledge of the Company’s shareholding in Cannahealth Ltd as well as by a general security interest granted to Halo in the assets of the Company, with the exception of any ownership interest or securities indirectly owned by the Company in Bophelo Bio Science & Wellness (Pty) Ltd. The debt is subject to automatic conversion into common shares of the Company upon the occurrence of a triggering event, which includes an initial public offering of the Company’s securities or an amalgamation, merger or takeover of the Company by a third party, and is repayable by November 2, 2022. In addition to automatic conversion in terms of the triggering event, the debenture is convertible into common shares of the Company at its own election. In the event of the debenture being converted to common shares of the Company as a result of a triggering event or at election of the Company, the conversion price shall be the current market price of the Company at the time of the occurrence of the triggering event, or in the case where no triggering event has taken place, then at the price of the last private placement of the Company where more than USD $1,000,000 has been raised.
Cannahealth Limited
Cannahealth was formed on July 1, 2020 in Malta and was intended to be a holding company. The discussion below regarding Cannahealth’s historical financial condition and operation results is limited to the period since its inception to December 31, 2020, and the nine months ended September 30, 2021.
Results of Operations
Reporting Period from July 1, 2020 (inception) through December 31, 2020
The following table sets forth key components of Cannahealth’s results of operations for the reporting period from July 1, 2020 (inception) through December 31, 2020.
|
|
|
|
Note
|
|
|
July 1, 2020
(Inception) to
December 31,
2020
|
|
|
Net sales
|
|
|
|
|
|
|
$
|
—
|
|
|
|
Net and Comprehensive loss
|
|
|
|
|
|
|
$
|
—
|
|
|
As a holding company, Cannahealth had no operations to date.
Liquidity and Capital Resources
Cannahealth’s principal liquidity requirements are for working capital. Historically, Cannahealth funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
|
|
|
|
July 1, 2020
(Inception) to
December 31,
2020
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
|
$
|
—
|
|
|
|
|
|
Not Applicable
|
|
|
|
Cash used in investing activities
|
|
|
|
$
|
—
|
|
|
|
|
|
Not Applicable
|
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
1,477
|
|
|
|
|
|
Not Applicable
|
|
|
Cash Flows from Financing Activities
Share issuance
On July 1, 2020, Cannahealth issued 1,200 shares for $1,477.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Cannahealth’s audited financial statements from July 1, 2020 (inception) through December 31, 2020 included in this prospectus.
Off-Balance Sheet Arrangements
Cannahealth did not have, during the reporting period, and does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Reporting Period from July 1, 2020 (inception) through September 30, 2020 and the Nine Months ended September 30, 2021
The following table sets forth key components of Cannahealth’s results of operations for the reporting period from July 1, 2020 (inception) through September 30, 2020, and the nine months ended September 30, 2021.
|
|
|
|
January 1, 2021 to
September 30, 2021
|
|
|
July 1, 2020 (Inception) to
September 30, 2020
|
|
|
Net sales
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
|
|
|
(81)
|
|
|
|
|
|
—
|
|
|
|
Net and comprehensive loss
|
|
|
|
$
|
(81)
|
|
|
|
|
|
—
|
|
|
As an intermediate holding company, Cannahealth has not undertaken any trading related operating activities since its inception on July 1, 2020, other than activities related to its function as an intermediate holding company. For the nine months ended September 30, 2021, Cannahealth incurred foreign exchange translation losses of $81 on translation of its Euro denominated cash holding at September 30, 2021.
Liquidity and Capital Resources
Cannahealth’s principal liquidity requirements are for working capital. Historically, Cannahealth funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
The following table summarizes our cash flows from operating, investing and financing activities:
|
|
|
|
January 1, 2021 to
September 30,
|
|
|
July 1, 2020
(Inception) to
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
$—
|
|
|
|
$
|
—
|
|
|
|
|
|
Nil
|
|
|
|
Cash used in investing activities
|
|
|
$—
|
|
|
|
$
|
—
|
|
|
|
|
|
Nil
|
|
|
|
Cash provided by financing activities
|
|
|
$ —
|
|
|
|
$
|
1,477
|
|
|
|
|
$
|
(1,477)
|
|
|
Cash Flows from Financing Activities
Share issuance
On July 1, 2020, Cannahealth issued 1,200 shares for proceeds of $1,477. Cannahealth has not undertaken any other financing activities since July 1, 2020.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Cannahealth’s audited financial statements from July 1, 2020 (inception) through December 31, 2020 included in this prospectus.
Off-Balance Sheet Arrangements
Cannahealth did not have, during the reporting period, and does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Bophelo Holdings Ltd.
Bophelo Holdings was formed on August 4, 2021 in the United Kingdom as a holding company. The discussion below regarding Bophelo Holdings’ historical financial condition and operation results is limited to the period since its inception to August 31, 2020.
Results of Operations
Reporting Period from August 4, 2021 (inception) through August 31, 2021
The following table sets forth key components of our results of operations for the reporting period from August 4, 2021 (inception) through August 31, 2021.
|
|
|
|
Note
|
|
|
August 4, 2021
(Inception) to
August 31,
2021
|
|
|
Net sales
|
|
|
|
|
|
|
$
|
—
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
$
|
—
|
|
|
As a holding company, Bophelo Holdings had no operations to date.
Liquidity and Capital Resources
Bophelo Holdings’ principal liquidity requirements are for working capital. Historically, Bophelo Holdings funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
|
|
|
|
Period Ended
August 31,
|
|
|
|
|
|
|
|
|
2021
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
|
$
|
—
|
|
|
|
Not Applicable
|
|
|
Cash used in investing activities
|
|
|
|
$
|
—
|
|
|
|
Not Applicable
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
138
|
|
|
|
Not Applicable
|
|
Cash Flows from Financing Activities
Share issuance
On August 4, 2021, Bophelo Holdings issued 100 shares for $138.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Bophelo Holdings’ audited financial statements from August 4, 2021 (inception) through August 31, 2021 and the unaudited condensed financial statements from August 4, 2021 (inception) through September 30, 2021 included in this prospectus.
Off-Balance Sheet Arrangements
Bophelo Holdings did not have, during the reporting period, and it does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Reporting Period from August 4, 2021 (inception) through September 30, 2021
The following table sets forth key components of our results of operations for the reporting period from August 4, 2021 (inception) through September 30, 2021.
|
|
|
|
August 4, 2021
(Inception) to
September 30, 2021
|
|
|
Net sales
|
|
|
|
$
|
—
|
|
|
|
Foreign exchange translation through other comprehensive loss
|
|
|
|
|
(3)
|
|
|
|
Net and Comprehensive loss
|
|
|
|
$
|
(3)
|
|
|
As a holding company, Bophelo Holdings had no operations to date. From inception (August 4, 2021) through to the period ending September 30, 2021, Bophelo Holdings incurred an exchange loss of $3 on translation of its cash balance of $135 from Great British Pounds to US Dollars at September 30, 2021.
The following table summarizes our cash flows from operating, investing and financing activities:
Liquidity and Capital Resources
Bophelo Holdings’ principal liquidity requirements are for working capital. Historically, Bophelo Holdings funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
|
|
|
|
Period Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
Change
|
|
|
Cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$
|
—
|
|
|
|
|
|
NotApplicable
|
|
|
|
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$
|
—
|
|
|
|
|
|
NotApplicable
|
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
138
|
|
|
|
|
|
NotApplicable
|
|
|
Cash Flows from Financing Activities
Share issuance
On August 4, 2021, Bophelo Holdings issued 100 shares for $138. There have not been any further financing activities or cash transactions since that date through to the period ending September 30, 2021.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Bophelo Holdings’ audited financial statements from August 4, 2021 (inception) through August 31, 2021 and the unaudited condensed financial statements from August 4, 2021 (inception) through September 30, 2021 included in this prospectus.
Off-Balance Sheet Arrangements
Bophelo Holdings did not have, during the reporting period, and it does not currently have any off- balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Bophelo Bio Science & Wellness Pty Ltd
Bophelo was formed in the Kingdom of Lesotho on July 5, 2018 and commenced operations in 2018.
Results of Operations
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019 and the Nine Months Ended September 30, 2021 and 30 September, 2020
The following table sets forth key components of Bophelo’s results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 and the nine months ended September 30, 2021 and September 30, 2020.
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2020
|
|
|
Year ended
December 31, 2019
|
|
|
Sales
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Cost of sales
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Gross profit
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Amortization and depreciation
|
|
|
|
|
231,427
|
|
|
|
|
|
173,971
|
|
|
|
|
|
248,743
|
|
|
|
|
|
198,824
|
|
|
|
Consulting and professional fees
|
|
|
|
|
504,866
|
|
|
|
|
|
454,721
|
|
|
|
|
|
701,985
|
|
|
|
|
|
365,641
|
|
|
|
Biological Assets costs
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
58,429
|
|
|
|
|
|
—
|
|
|
|
Short term accommodation expense
|
|
|
|
|
—
|
|
|
|
|
|
31,912
|
|
|
|
|
|
45,482
|
|
|
|
|
|
26,269
|
|
|
|
Office expenses
|
|
|
|
|
33,216
|
|
|
|
|
|
14,171
|
|
|
|
|
|
26,874
|
|
|
|
|
|
13,116
|
|
|
|
Personnel expenses
|
|
|
|
|
955,032
|
|
|
|
|
|
223,345
|
|
|
|
|
|
374,900
|
|
|
|
|
|
100,256
|
|
|
|
Travel expenses
|
|
|
|
|
57,063
|
|
|
|
|
|
4,789
|
|
|
|
|
|
5,154
|
|
|
|
|
|
30,582
|
|
|
|
General & Administration expenses
|
|
|
|
|
1,317,292
|
|
|
|
|
|
163,654
|
|
|
|
|
|
201,768
|
|
|
|
|
|
166,515
|
|
|
|
Loss from operations
|
|
|
|
|
(3,098,896)
|
|
|
|
|
|
(1,066,563)
|
|
|
|
|
|
(1,663,334)
|
|
|
|
|
|
(901,203)
|
|
|
|
Interest income
|
|
|
|
|
25,782
|
|
|
|
|
|
9,529
|
|
|
|
|
|
10,187
|
|
|
|
|
|
399
|
|
|
|
Interest expenses
|
|
|
|
|
(393,186)
|
|
|
|
|
|
(487,069)
|
|
|
|
|
|
(645,162)
|
|
|
|
|
|
(493,807)
|
|
|
|
Net loss before income tax
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(1,544,103)
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Income tax expense
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2020
|
|
|
Year ended
December 31, 2019
|
|
|
Net Loss for the year
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(1,544,103)
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
83,016
|
|
|
|
|
|
604,902
|
|
|
|
|
|
150,742
|
|
|
|
|
|
(42,565)
|
|
|
|
Total comprehensive loss for the year
|
|
|
|
|
(3,383,284)
|
|
|
|
|
|
(939,201)
|
|
|
|
|
|
(2,147,568)
|
|
|
|
|
|
(1,437,176)
|
|
|
|
Basic and diluted loss per ordinary share
|
|
|
|
|
(16)
|
|
|
|
|
|
(6.95)
|
|
|
|
|
|
(9.66)
|
|
|
|
|
|
(33.26)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
222,212
|
|
|
|
|
|
222,212
|
|
|
|
|
|
222,212
|
|
|
|
|
|
43,206
|
|
|
|
|
Revenue
During the years ended December 31, 2020 and 2019, and through to the nine months ended September 30, 2021, Bophelo has not generated any revenue from its operations as it has been in a start-up phase since its inception in 2018 and has focused on developing its cultivation site in the Kingdom of Lesotho and cultivating cannabis for the purpose of optimizing its strain selection and cultivation practices, rather than for commercial purposes. Additionally, Bophelo has not yet completed a full cannabis harvest cycle under GACP accredited conditions. At present, Bophelo expects its first completed harvest under GACP accredited conditions to take place in March/April 2022. GACP accreditation is an important requirement to improve the prospects of Bophelo having the ability to find a commercial buyer for its harvested product.
Net Loss and Total Comprehensive Loss
For the years ended December 31, 2020 and 2019, Bophelo incurred a net loss of $2,298,310 and $1,394,611, respectively, and a comprehensive loss of $2,147,568 and $1,437,176, respectively, which consisted primarily of consulting and professional fee expenses of $701,985 and $365,641, respectively, personnel expenses of $374,900 and $100,256, respectively, and general and administrative expenses of $201,768 and $166,515, respectively. The increase in net loss was due primarily to additional operating expenses being incurred to set up the business in Lesotho prior to the launch of commercial sales, which we expect to occur in 2022. For the nine months ended September 30 2021, Bophelo incurred a net loss of $3,666,300 and a comprehensive loss of $3,383,284 compared to a net loss and comprehensive loss of $1,544,103 and $939,201. The increase in losses compared to the years ended December 31, 2020 and 2019 is due to increased expenses relating to an uptake in operational and cultivating activities during the none months ended September 30, 2021, mainly as result of the build out of the shade cloth cultivation facility and other site ramp up and build out activities.
Amortization and Depreciation
Amortization and depreciation expenses increased from $198,824 for the year ended December 31, 2019 to $248,743 for the year ended December 31, 2020. The increase in the amortization and depreciation expenses recorded during the year was due to depreciation charges on additional items of property, plant and equipment that were acquired and brought into use during 2020. Additionally, a full 12 month’s depreciation on Bophelo’s right-of-use lease asset was recognized during 2020 compared to the prior year in which its right-of-use asset commenced in April 2019 upon the inception of the lease arrangement. For the nine months ended September 30, 2021, amortization and depreciation charges amounted to $231,427 ($173,971 in 2020) as a result of additional amortization and depreciation on intangible assets (the Company’s cannabis operating license) and property, plant and equipment that was in place at January 1, 2021 as well due to additional depreciation on new additions to property, plant and equipment that took place during the nine months ended September 30, 2021.
Consulting and Professional Fees
The consulting and professional fees incurred increased from $365,641 in the year ended December 31, 2019 to $701,985 for the year ended December 31, 2020. This increase in consulting and professional fees
resulted from the increased operations relating to the set-up of the business in the Kingdom of Lesotho, as well as the corporate actions undertaken in connection with the sale of Bophelo to Halo pursuant to a purchase and sale agreement, which was closed in 2020 (the “Merger”). Furthermore, in 2020, Bophelo incurred professional fees in relation to the procurement of its GACP certification, which it obtained in August 2021. During the nine months ended September 30, 2021, Bophelo incurred a further $504,866 ($454,721 in 2020) in consulting and professional fees, primarily due to an increase in consulting fees related to the management and administration of Bophelo’s business and operations in the Kingdom of Lesotho as a result of increased operational activity during the nine month period ending September 30, 2021.
Biological Assets Costs
Biological assets costs of $58,429 were recorded for the year ended December 31, 2020 compared to an amount of $ nil in the prior year. These costs related to the write-down in the fair value of biological assets (cannabis plants that were still being cultivated and were yet to be harvested at December 31, 2020). The aforementioned fair value adjustment had the effect of writing the fair value of Bophelo’s biological assets to $ nil as these plants had been cultivated prior to Bophelo receiving its GACP certification, and in such circumstances, the fair value of these biological assets could not be measured reliably due to the lack of an observed active market for cannabis biomass produced outside of the GACP conditions. For the nine months ended September 30, 2021, Bophelo did not incur any expenses relating to biological assets. Due to the cyclical harvest season, Bophelo did not have any biological assets at September 30, 2021.
General and Administration Expenses
Bophelo incurred general and administration expenses of $201,768 and $166,515 for the years ended December 31, 2020 and December 31, 2019 respectively. These costs consisted mainly of a broad range of site related operational expenses such as utilities, fuel costs, import duties, security expenses, repairs and maintenance and consumables. These costs increased slightly compared to the prior period mainly due to increased activity on site as the ramp up of the facility continues. Bophelo incurred further general and administration expenses of $1,317,292 and $163,654 for the nine months ended September 30, 2021 and September 30, 2020 respectively. The year-on-year increase is mainly due to increased operational expenditure, most notably consumables costs (which increased from $59,860 in 2020 to $630,152 in 2021), resulting from the uplift in site activity and the increased planting and harvesting activity of noncommercial cannabis crops as well as due to increased infrastructure build out.
Personnel Expenses
Bophelo incurred personnel expenses of $374,900 for the year ended December 31, 2020 compared to $100,256 for the year ended December 31, 2019. The increase in personnel expenses was due to increased operational staff for Bophelo’s cultivation operations in the Kingdom of Lesotho. Additional staff were hired due to a ramp-up of cultivational activities as well as site build-out activities. Furthermore, Halo seconded several senior cultivation staff members to Bophelo in order to assist with the set-up of operations. For the nine months ended September 30, 2021. Bophelo experienced a significant increase in personnel expenses amounting to $955,032 for the nine month period, compared with $374,900 and $100,256 for the years ended December 31, 2020 and 2019 respectively. Personnel expenses significantly increased to $955,032 ($223,345 in 2020) during the past nine months primarily due to a large number of casual waged workers being hired to assist with the build out of Bophelo’s new shade cloth cultivation areas, as well to assist with other site build out activities relating to general infrastructure needed on the site.
Interest Expense
Bophelo incurred interest expense of $645,162 for the year ended December 31, 2020 compared to interest expense of $493,807 for the year ended December 31, 2019. The increase in interest expense was primarily due to the interest expense unwind relating to the lease liability that was recognized on inception of the lease of Bophelo’s premises in T’sakohlo in April 2019. Interest expense implicit in the lease were compounded by the fact that Bophelo did not make lease payments under the lease until after the year ended December 31, 2020. Additionally, interest expense increased due to the cumulative effect of increased borrowings, most notably as a result of the interest bearing loan received from Louisa Mojela in the latter
half of 2019. Bophelo incurred a further $393,186 in interest expense during the nine months ended September 30, 2021 compared to $487,069 for the comparative period ending September 30, 2020. As was seen in the years ending December 31, 2020 and 2019, this interest expenses was incurred in relation to the interest bearing loan received from Louisa Mojela and interest expense relating to the unwind of the long term lease liability related to the lease of Bophelo’s premises in the Kingdom of Lesotho. The decrease compared to the prior period was due to the diminishing balance of the lease liability on a year-on-year basis.
Interest income
Interest income for the year ended December 31, 2020 was $10,187 compared to $399 for the year ended December 31, 2019. This increase was related to interest received during the 2020 year as a result of Bophelo experiencing increased average cash balances throughout the year. Similarly, interest income increased to $25,782 for the nine months ended September 30, 2021 compared to the none months ending September 30, 2020 which saw interest income of $9,529. Again, the increase was due to higher average cash balances being experienced throughout the current period compared to the prior year.
Foreign Currency Translation
The foreign exchange gain/(loss) is recognized on the translation of the financial statements from Lesotho Loti to United States Dollar. The Lesotho Loti is the functional currency of Bophelo while the United States Dollar is its reporting currency. The exchange gains and losses have not been incurred on any transactions or balances held by Bophelo in a different currency. Furthermore, due to foreign currency rates between the Loti and the US Dollar stabilizing during the nine months ended September 30, 2021, the effect of foreign currency translation movements decreased compared to the prior year
Liquidity and Capital Resources
Bophelo’ principal liquidity requirements are for working capital and capital expenditures. Historically, Bophelo funded its liquidity requirements primarily through cash on hand, and debt financing, including from officers and shareholders. As of December 31, 2020, Bophelo had $10,120 of cash and cash equivalents, with $818,447 as of December 31, 2019. As of September 30, 2021 and September 30, 2020, Bophelo had cash and cash equivalent balances of $480,444 and $69,379 respectively.
The following table summarizes our cash flows from operating, investing and financing activities:
|
|
|
|
Year Ended
December 31,
2020
|
|
|
Year Ended
December 31,
2019
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
|
$
|
(1,353,959)
|
|
|
|
|
$
|
(660,007)
|
|
|
|
|
$
|
(693,952)
|
|
|
|
Cash used in investing activities
|
|
|
|
$
|
(432,203)
|
|
|
|
|
$
|
(677,145)
|
|
|
|
|
$
|
(244,942)
|
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
1,032,008
|
|
|
|
|
$
|
2,116,312
|
|
|
|
|
$
|
(1,084,304)
|
|
|
|
|
|
|
Nine Months Ended
September 30,
2021
|
|
|
Nine Months Ended
September 30,
2021
|
|
|
Change
|
|
|
Cash used in operating activities
|
|
|
|
$
|
(2,774,139)
|
|
|
|
|
$
|
(690,371)
|
|
|
|
|
$
|
(2,083,768)
|
|
|
|
Cash used in investing activities
|
|
|
|
$
|
(554,858)
|
|
|
|
|
$
|
(381,159)
|
|
|
|
|
$
|
(173,699)
|
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
4,070,078
|
|
|
|
|
$
|
239,864
|
|
|
|
|
$
|
3,830,214
|
|
|
Cash Flow Used in Operating Activities
For the year ended December 31, 2020, net cash flows used in operating activities amounted to $1,353,959 compared to $660,007 used during the year ended December 31, 2019, respectively, primarily due to increased operating expenditure related to the establishment and running of the business. For the nine months ended September 30, 2021 and September 30, 2020, Bophelo used an additional $2,083,768 in cash to fund operating activities compared to the prior period. This was due to increased operation expenditure linked to increased site activity.
Cash Flows Used in Investing Activities
During the year ended December 31, 2020, Bophelo used $432,203 in investing activities related to the leasing of a right of use asset and foreign exchange variances on Bophelo’s property, plant and equipment and intangible assets. During the year ended December 31, 2019, Bophelo used $677,145 in investing activities relating to the purchase of property, plant and equipment and foreign exchange variances on Bophelo’s property, plant and equipment and intangible assets. For the nine months ended September 30, 2021 and September 30, 2020, Bophelo used an additional $173,699 compared to the prior period in cash to fund investment activities compared to the prior period. This was due to increased investment in property, plant and equipment linked to increased site expansion and build out.
Cash Flows from Financing Activities
During the year ended December 31, 2020, Bophelo had cash flow provided by financing activities of $1,032,008 compared to cash flow provided by financing activities of $2,116,312 in 2019, representing a decrease of $1,084,304 in the amount of cash raised from financing activities on a year-on year basis. This decrease was primarily the result of Bophelo, during the year ended December 31, 2019, having taken out a long-term lease on land and buildings and an increase in loans and borrowings received by Bophelo. For the nine months ended September 30, 2021 and September 30, 2020, Bophelo received an additional $3,830,213 compared to the prior period in cash as a result of increased borrowings from its then parent company, Halo Collective Inc. The increase in borrowings was necessary to fund operating expenditure and site build out activities.
Outstanding Affiliate Loans
As of December 31, 2020, Bophelo had a total outstanding loan balance of $1,552,487 with Louis Mojela, Bophelo’s Executive Chairman and director. This included (1) an outstanding balance of $1,350,813 (L19,978,524) under the Mojela Bridge Financing Facility; (2) a loan of $190,444 (L2,816,667), which does not bear interest and has no fixed terms of repayment; and (3) a loan of $11,230 (L166,092) which related to unpaid interest accrued on a loan that had its capital amount (but not interest) repaid during the year ended December 31, 2020. The capital value of the aforementioned loan that was repaid was $135,226 (L1,999,993).
As of September 30, 2021, Bophelo had a total outstanding loan balance of $1,741,017 (L26,689,791) with Louis Mojela, Bophelo’s Executive Chairman and director. This included (1) an outstanding balance of $1,490,101 (L22,843,248) under the Mojela Bridge Financing Facility; (2) a loan of $183,736 (L2,816,673), which does not bear interest and has no fixed terms of repayment; and (3) a loan of $12,139 (L186,091) which related to unpaid interest accrued on a loan that had its capital amount (but not interest) repaid during the year ended December 31, 2020. The capital value of the aforementioned loan that was repaid was $135,226 (L2,073,015). See a discussion of the Mojela Bridge Financing Facility under “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
As of December 31, 2020, Bophelo had a total outstanding loan balance of $4,688,226 with Halo, which assumed certain former shareholders’ loans following the Merger. The loans from Halo do not have a fixed repayment date and are interest free. As of September 30, 2021, Bophelo had a total outstanding loan balance of $8,862,425 with Halo, which increased compared to the prior year due additional borrowings necessary to fund Bophelo’s operations and build out. The loans from Halo do not have a fixed repayment date and are interest free. As part of the Halo transaction and the internal reorganization, these loans were acquired from Halo by Akanda and its subsidiaries on or around November 3, 2021 and Akanda simultaneously entered into a debenture agreement with Halo. See a discussion of the secured convertible debenture issued by Akanda to Halo in exchange for setting off all Bophelo’s outstanding indebtedness to Halo under “Prospectus Summary — Our History and Relationship with Halo — Issuance of Secured Convertible Debenture to Halo” for additional information regarding the terms of the debenture including those relating to a conversion of the debenture into our Common Shares upon certain conditions.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with international financial reporting
standards, or IFRS. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We believe our most critical accounting policies and estimates relate to the following:
•
Revenue Recognition
•
Foreign Currency Translation
•
Lease Accounting
•
Financial Instruments
Revenue Recognition
We recognize revenue in accordance with International Financial Reporting Standards (“IFRS”) 15 “Revenue from Contracts with Customers”.
In accordance with IFRS 15, revenue is recognized upon the satisfaction of performance obligations. Performance obligations are satisfied at the point at which control of the promised goods or services are transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive for those goods and services.
The Company has a single revenue stream which relates to the sale of medical cannabis flower and biomass. Revenue from the sale of medical cannabis flower and biomass is recognized once the performance obligation has been satisfied; which is upon delivery to the customer.
Foreign Currency Translation
The functional currency is determined using the currency of the primary economic environment in which that entity operates. The functional, as determined by our management, is the Lesotho Loti.
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
Our presentation currency is the US dollar. For presentation purposes, all amounts are translated from the Pound functional currency to the US dollar presentation currency for each period using the exchange rate at the end of each reporting period for the statement of financial position. Revenues and expenses are translated on the basis of average exchange rates during the year.
Exchange gains and losses arising from translation to our presentation currency are recorded as exchange differences on translation to reporting currency, which is included in other comprehensive income (loss).
Lease Accounting
We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease, if the lease term reflects us exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
Financial Instruments
(a) Classification
Bophelo classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. Bophelo determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by Bophelo’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition, Bophelo can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if Bophelo has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and
losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Off-Balance Sheet Arrangements
Bophelo did not have, during 2019 and 2020, and it currently does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Disclosure of Contractual Arrangements
On December 31, 2020, Bophelo was committed to minimum lease payments as follows:
|
Contractual Obligation
|
|
|
Less than
One Year
|
|
|
1 – 5 Years
|
|
|
Over 5 Years
|
|
|
Land and buildings
|
|
|
|
$
|
283,976
|
|
|
|
|
$
|
1,135,903
|
|
|
|
|
$
|
3,762,677
|
|
|
On September 30, 2021, Bophelo was committed to minimum lease payments as follows:
|
Contractual Obligation
|
|
|
Less than
One Year
|
|
|
1 – 5 Years
|
|
|
Over 5 Years
|
|
|
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$
|
45,662
|
|
|
|
|
$
|
1,369,863
|
|
|
|
|
$
|
3,150,685
|
|
|
The amounts above are undiscounted and include the total amounts due, including the interest component.
Canmart Ltd.
Canmart was formed in the United Kingdom on December 27, 2018 and commenced operations in 2020.
Results of Operations
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019 and the Nine Months Ended September 30, 2021and 30 September, 2020
The following table sets forth key components of our results of operations for the year ended December 31, 2020 as compared with the year ended December 31, 2019, and the nine months ended September 30, 2021 compared with the nine months ended December 31, 2020.
|
Presented in $
|
|
|
Note
|
|
|
Nine Months Ended
September 30,
2021
|
|
|
Nine Months Ended
September 30,
2020
|
|
|
Year Ended
December 31,
2020
|
|
|
Year Ended
December 31,
2019
|
|
|
Sales
|
|
|
|
|
17,359
|
|
|
|
|
|
1,788
|
|
|
|
|
|
2,062
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
(11,469)
|
|
|
|
|
|
(1,531)
|
|
|
|
|
|
(1,809)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Presented in $
|
|
|
Note
|
|
|
Nine Months Ended
September 30,
2021
|
|
|
Nine Months Ended
September 30,
2020
|
|
|
Year Ended
December 31,
2020
|
|
|
Year Ended
December 31,
2019
|
|
|
Gross Profit
|
|
|
|
|
5,890
|
|
|
|
|
|
257
|
|
|
|
|
|
253
|
|
|
|
|
|
—
|
|
|
|
|
|
|
General & administrative expenses
|
|
|
|
|
(93,650)
|
|
|
|
|
|
(514)
|
|
|
|
|
|
(1,101)
|
|
|
|
|
|
(32)
|
|
|
|
|
|
|
License costs
|
|
|
|
|
(1,267)
|
|
|
|
|
|
(894)
|
|
|
|
|
|
(1,491)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Salaries and wages
|
|
|
|
|
(339,556)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Consulting and professional fees
|
|
|
|
|
(565,614)
|
|
|
|
|
|
—
|
|
|
|
|
|
(31)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Loss from operating activities
|
|
|
|
|
(994,197)
|
|
|
|
|
|
(1,151)
|
|
|
|
|
|
(2,623)
|
|
|
|
|
|
(32)
|
|
|
|
|
|
|
Finance income
|
|
|
|
|
50
|
|
|
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
2
|
|
|
|
|
Finance expenses
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Foreign exchange through profit and loss
|
|
|
|
|
35,911
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Other income
|
|
|
|
|
54
|
|
|
|
|
|
136
|
|
|
|
|
|
108
|
|
|
|
|
|
—
|
|
|
|
|
Net Profit / (Loss)
|
|
|
|
|
(958,182)
|
|
|
|
|
|
(1,014)
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
(30)
|
|
|
|
|
|
|
Exchange differences on foreign
currency translation
|
|
|
|
|
5,678
|
|
|
|
|
|
(22)
|
|
|
|
|
|
(116)
|
|
|
|
|
|
(1)
|
|
|
|
|
Comprehensive Profit / (Loss)
|
|
|
|
|
(952,504)
|
|
|
|
|
|
(1,036)
|
|
|
|
|
|
(2,377)
|
|
|
|
|
|
(31)
|
|
|
|
|
|
|
Basic and dilutive loss per ordinary share
|
|
|
|
|
(476,252)
|
|
|
|
|
|
(518.20)
|
|
|
|
|
|
(1,189)
|
|
|
|
|
|
(15.50)
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
2
|
|
|
|
|
|
2
|
|
|
|
|
|
2
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
Sales
Canmart has access to use a 30,000 square foot logistics warehouse in SE England. Canmart has obtained the necessary licenses to import CBPMs to supply the patients in the U.K. domestic market. Revenue for the year ended December 31, 2020 was $2,062 compared to $ nil for the year ended December 31, 2019. This increase was the result of the commencement of sales relating to the import and supply of CBPMs which occurred during the year ended December 31, 2020 compared to the prior comparative year ended December 31, 2019, during which no sales activity took place. During the nine months ended September 30, 2021, Canmart achieved sales of $17,359 compared to the comparative period for the nine months ending September 30, 2020 sales of $1,788. The year-on-year increase is a result of Canmart focusing on ramping up its operations by securing CBPM products from international suppliers in Canada, importing these products and applying additional efforts on expanding sales of these imported products to patients, through dispensing clinics and physicians. Canmart sold, during the current period, a variety of different CBPM product types, including cannabis oil and cannabis flower for medical use.
Cost of Sales
Cost of sales for the year ended December 31, 2020 was $1,809 as compared to $nil for the year ended December 31, 2019. The increase in cost of sales was directly attributable to the commencement of sales activity during the year ended December 31, 2020, and the increase represents the associated cost of the CBPMs imported by Canmart and supplied to patients. Cost of sales for the nine months ended September 30, 2021 increased to $11,469 from $1,531 in the prior period. The increase is essentially commensurate with increased purchases and sales of CBPMs in the current period due to the fact that Canmart only commenced meaningful sales activity in the nine months ended September 30, 2021 compared to the low level of sales in the previous period.
Gross profit
Gross profit increased to $253 from $nil, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was due to Canmart commencing trading and having relevant sales and cost of sales during 2020 opposed to 2019 where no trading occurred.
For the nine months ended September 30, 2021, gross profit increased to $5,890 from $257 in the prior period ending September 30, 2021. This increase was due to Canmart upscaling its trading activities, purchasing products from Canadian suppliers that carry higher margin potential (such as cannabis flower) and increasing the volume of units sold compared to the prior period.
Operating Expenses
Operating expenses for the year ended December 31, 2020 were $2,623 compared to $32 for the year ended December 31, 2019. The increase in operating expenses in 2020 was primarily due to an increase related to trading in 2020 resulting in increases in general operating expenses, namely accounting fees, advertising, bank charges, license fees and sundry expenses.
Operating expenses for the nine months ended September 30, 2021 and September 30, 2020 were $1,000,087 compared to $1,408 for the nine months ended September 31, 2020 . The increase in operating expenses in the current period was primarily due to the hiring of executives and management in June and July 2021, including Akanda’s executive team who are employed by Canmart (comprising $339,556 for the nine months ended 30 September 2021). Additionally, Canmart experienced a significant increase in professional fees ($565,614 for the nine months ended September 30, 2021 compared to $nil for the nine months ended September 30, 2020) as a result of increased corporate activity around completion of the internal reorganization undertaken by Halo as a precursor to the Akanda / Halo transaction, as well as due to the engagement of various professional advisors in relation to Akanda group’s plans for an initial public offering and listing. Furthermore, general and administrative expenses increased from $514 to $93,650 year-on-year for the periods ending September 30, 2021 and September 30, 2020 respectively. This increase was due to travel expenses and sundry office expenses.
Other income
Total other income for the year ended December 31, 2020 was $109 compared to $2 for the year ended December 31, 2019. This increase was primarily due to related to carriage invoicing and credit turnover receipt from Santander Bank pursuant to the commencement of trading activities in the year ended December 31, 2020. No such activities took place in the year ended December 31, 2019. Total other income for the nine months ended September 30, 2021 was $36,015 compared to $137 for the nine months ended September 30, 2020. This increase was primarily due to the effect of foreign exchange translation gains of $35,911 ($nil for the nine months ended September 30, 2021) which were booked through profit and loss.
Liquidity and Capital Resources
Canmart’s principal liquidity requirements are for working capital and capital expenditures. Historically, Canmart funded its liquidity requirements primarily through cash on hand and debt financing, including from officers and shareholders. As of December 31, 2020, Canmart had $1,907 of cash and cash equivalents, with $1,116 as of December 31, 2019. As of September 30, 2021, Canmart had $227,856 of cash and cash equivalents, with a balance of $1,907 as of December 31, 2020.
The following table summarizes our cash flows from operating, investing and financing activities:
|
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash provided by operating activities
|
|
|
|
$
|
1,491
|
|
|
|
|
$
|
17,677
|
|
|
|
|
$
|
(16,186)
|
|
|
|
Cash used in investing activities
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(15,625)
|
|
|
|
|
$
|
(15,625)
|
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
—
|
|
|
|
|
$
|
2
|
|
|
|
|
$
|
(2)
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
Cash used by operating activities
|
|
|
|
$
|
(785,048)
|
|
|
|
|
$
|
(2,862)
|
|
|
|
|
$
|
(782,186)
|
|
|
|
|
Cash used in investing activities
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(14,779)
|
|
|
|
|
$
|
(14,799)
|
|
|
|
|
Cash provided by financing activities
|
|
|
|
$
|
969,282
|
|
|
|
|
$
|
18,140
|
|
|
|
|
$
|
951,142
|
|
|
|
Cash Flow Used by Operating Activities
For the year ended December 31, 2020, net cash flows provided by operating activities was $1,491 compared to $17,677 net cash flows provided by operating activities during the year ended December 31, 2019, respectively, primarily due to a year-on-year reduction in the movement of related party payables, as well as a general improvement in the Company’s working capital position.
For the nine months ended September 30, 2021, net cash flows used by operating activities was $785,048 compared to $2,862 in the comparative period, representing an increase of $782,186 on a year-on-year basis. Cash used by operating activities increased as a result of cash payments to fund operating costs such as salary expenses, professional fees, travel costs and office expenses, all of which were not incurred in the prior year due to the significant ramp up in administrative and corporate activity in the current year.
Cash Flows Used in Investing Activities
During the year ended December 31, 2020, Canmart used $nil of cash in investing activities compared to the prior period which saw Canmart use $15,625 of cash for the acquisition of a suite of cannabis licenses.
During the nine months ended September 30, 2021, Canmart did not utilize any cash to fund investing activities compared to the prior period which saw Canmart use $14,779 of cash for the acquisition of a suite of cannabis licenses.
Cash Flows from Financing Activities
During the year ended December 31, 2020 cash flow provided by financing activities was $nil compared to cash flow provided by financing activities of $2 in 2019. The year-on-year decrease in cash provided by financing activities is due to the fact that Canmart issued $2 worth of share capital in the prior period and no issuances of share capital took place during the current period.
During the nine months ended September 30, 2021, Canmart increased its cash flow provided by financing activities from $18,140 in the comparative period to $969,282 by September 30, 2021. The increase in cash provided by funding activities year-on-year was due to increased borrowings from Canmart’s shareholder (via intercompany loan account) in order to fund the significant increase in operating expenses that took place during the current year.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with international financial reporting standards, or IFRS. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We believe our most critical accounting policies and estimates relate to the following:
•
Revenue Recognition
•
Foreign Currency Translation
•
Lease Accounting
•
Financial Instruments
Revenue Recognition
Our revenue is primarily derived through providing genetic diagnostic tests to customers. We recognize revenue in accordance with International Financial Reporting Standards (“IFRS”) 15 “Revenue from Contracts with Customers”.
In accordance with IFRS 15, revenue is recognized upon the satisfaction of performance obligations. Performance obligations are satisfied at the point at which control of the promised goods or services are transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive for those goods and services. The Company has a single revenue stream which relates to the sale of medical cannabis products. Revenue from the sale of medical cannabis products is recognized once the performance obligation has been satisfied; which is upon delivery to the customer.
Foreign Currency Translation
The functional currency is determined using the currency of the primary economic environment in which that entity operates. The functional, as determined by our management, is the British Pound (GBP).
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
Our presentation currency is the US dollar. For presentation purposes, all amounts are translated from the Pound functional currency to the US dollar presentation currency for each period using the exchange rate at the end of each reporting period for the statement of financial position. Revenues and expenses are translated on the basis of average exchange rates during the year.
Exchange gains and losses arising from translation to our presentation currency are recorded as exchange differences on translation to reporting currency, which is included in other comprehensive income (loss).
Lease Accounting
We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease, if the lease term reflects us exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
Financial Instruments
(a) Classification
Canmart classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. Canmart determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by Canmart’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition Canmart can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if Canmart has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Off-Balance Sheet Arrangements
Canmart did not have, during the years ended December 31, 2019 and 2020, as well as the nine months ended September 31, 2021 and 2020 respectively, and does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Plan of Operations
The continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of Common Shares offered for sale in this offering, we believe that we will have sufficient cash resources to fund its plan of operations for the next 24 months. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use proceeds from the offering to carry out our near term and longer-term goals.
For the next 12 to 24 months, we plan to:
•
Expand our hoop-house and shade cloth cultivation operations in the Kingdom of Lesotho by a further 1.5 to 2 hectares (estimated cost of $200,000);
•
Construct a 1 hectare forced air greenhouse and a post-harvest drying facility (total combined estimated cost of $5.0 million);
•
Obtain EU GMP certification for the post-harvest drying facility (estimated cost of $100,000);
•
Rapidly expand our CBPM distribution capabilities in the United Kingdom (estimated cost of $13 million);
•
Successfully cultivate and harvest cannabis biomass at Bophelo;
•
Conclude Bophelo’s first exports of cannabis biomass to Germany or other markets.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
Trend Information
Because we are still in the startup phase and have only recently commenced operations, we are unable to identify any recent trends in revenue or expenses. Thus, we are unable to identify any known trends, uncertainties, demands, commitments or events involving our business that are reasonably likely to have a material effect on our revenues, income from operations, profitability, liquidity or capital resources, or that would cause the reported financial information in this prospectus to not be indicative of future operating results or financial condition.
Novel Coronavirus (“COVID-19”)
Our operations could be materially and adversely affected by the effects of the widespread global outbreak of contagious disease and other unforeseen events, including the recent outbreak of respiratory illness caused by COVID-19 and the related economic repercussions. We cannot accurately predict the impact COVID-19 will have on our operations and the ability of others to meet their obligations with us, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect our operations and ability to finance its operations.
The impact of COVID-19 on Canmart has largely been experienced in terms of temporary local lockdowns which has affected employees’ ability to travel, especially between Canmart’s operations in the United Kingdom and the operations of its fellow subsidiary, Bophelo Bio Science and Wellness (Pty) Ltd in the Kingdom of Lesotho.
We have implemented a number of measures in response to the risks posed by COVID-19, including implementing temperature screening protocols, limiting access to site, ensuring that all staff wear masks, implement social distancing and make use of sanitizers.
Going Concern
The Company is in the preliminary stages of its planned operations and has not yet determined whether its processes and business plans are economically viable. The continued operations of the Company are dependent upon the ability of the Company to obtain sufficient financing to carry out its business plans, the existence of future profitable production, or alternatively, upon the Company’s ability to dispose of its assets on an advantageous basis, all of which are uncertain.
The Company’s financial statements have been prepared on a going concern basis, which assumes that the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company will need to raise additional capital in the near term to fund its ongoing operations and business activities. There can be no assurance that this offering will conclude or that other financings will be available on terms acceptable to the Company or at all. As a result of these circumstances, there are material uncertainties that cast significant doubt as to the appropriateness of the going concern presumption.
The business of cannabis growth and distribution and development of cannabis-derived products involves a high degree of risk, and there can be no assurance that current business development programs will result in profitable operations. The Company’s continued existence is dependent upon the acquisition of assets, preservation of its interest in the underlying assets, acquisition of various licenses, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company’s ability to dispose of its assets and operations on an advantageous basis.
The Company’s financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and classifications in the statement of financial position that may be necessary if the Company were unable to continue as a going concern, and these adjustments could be material.
Emerging Growth Company Status
We are an “emerging growth company”, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to SEC reporting companies that are not emerging growth companies. For so long as we remain an emerging growth company, we will not be required to, among other things:
•
present more than two years of audited financial statements and two years of related management’s discussion and analysis of financial condition and results of operations disclosure in our registration statement of which this prospectus forms a part;
•
have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and
•
disclose certain executive compensation related items.
We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year during which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which means the market value of our common shares that are held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
BUSINESS
Our History
Akanda was incorporated in the Province of Ontario, Canada on July 16, 2021 in connection with the plan of Halo to reorganize its medical cannabis market focused international business assets. In September 2021, we entered into a share purchase agreement with Halo, a publicly-traded, vertically integrated multinational cannabis company (NEO: HALO) (OTCQX: HCANF) (Germany: A9KN). Pursuant to this agreement, we acquired all the issued and outstanding equity interests of Cannahealth from Halo. At the closing of the Acquisition on November 3, 2021, Cannahealth owned all the issued and outstanding equity interests of Canmart and Bophelo Holdings, which owned all the issued and outstanding equity interests of Bophelo. As a result of the Acquisition, both Bophelo and Canmart became our indirect wholly-owned subsidiaries. As consideration for this Acquisition, we issued 13,129,212 Common Shares to Halo at a price of $1.00 per share, resulting in Halo owning approximately 68.3% of all our outstanding Common Shares at the closing of the Acquisition.
On November 12, 2021, Halo transferred 2,100,000 Common Shares to an unaffiliated party, 1306077B.C. LTD. (the “Halo Transferee”), which resulted in Halo owning 49.6% of our issued and outstanding Common Shares (the “Halo Transfer”). The following diagram summarizes our legal entity structure following the closing of the Acquisition and the Halo Transfer. Assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus is sold in this offering, Halo will own approximately 43.2% of our issued and outstanding Common Shares at the closing of this offering.
Our Business
We are a cannabis cultivation, manufacturing and distribution company whose mission is to provide premium quality medical cannabis products to patients worldwide. We are an early stage, emerging growth
company headquartered in London, the United Kingdom. We have a limited operating history and minimal revenues to date. Following the completion of the Acquisition, Canmart and Bophelo became our indirect wholly-owned subsidiaries. We expect to expand their local operations and develop sales channels of our medicinal-grade cannabis products and cannabis based medical and wellness products in international markets and in particular, in Africa and Europe.
Bophelo Bio Science and Wellness (Pty) Ltd
Our indirect wholly-owned subsidiary Bophelo, a Lesotho company, is focused on the cultivation of cannabis, the production of medical cannabis products including dried flower, oils, and other concentrates and the supply of such medical cannabis products to wholesalers in international markets. Its operations are based in the Kingdom of Lesotho in the Mafeteng Region of Southern Africa. Bophelo holds an operational license issued in the Kingdom of Lesotho for the production and export of medicinal cannabis products. On July 27, 2018, the Ministry of Health in the Kingdom of Lesotho issued a prohibited drug operator license to Bophelo. This license allows for activities including cultivating, manufacturing, supplying, holding, importing, exporting and transporting cannabis and cannabis resin. This license will remain effective for 8 years, with an option for further renewal.
Bophelo commenced operations including establishing sites and first phase construction and starting site preparation activities in 2018. Bophelo’s cultivation facility in the Kingdom of Lesotho is licensed to cultivate cannabis over an initial 5 hectare canopy area, with conditional approval from local authorities to extend its cultivation area up to 200 hectares in total. At present, the company is cultivating cannabis in hoop houses over a 0.3 hectare area and is in the process of expanding it by a further 1.5 to 2 hectares by constructing a separate shade cloth cultivation area. We obtained a GACP certification for our cultivation facility in 2021. During 2019 and 2020, Bophelo did not generate any revenue from a commercial harvest, although it completed a number of successful harvests for non-commercial purposes. These non-commercial harvests were conducted with the objective of optimizing strain selection and understanding local growing conditions so that further harvests can be optimized. Bophelo conducted its first sale of high-grade flower in a small amount to a local buyer in March 2021. It has entered into distribution agreements with European based distributors. See a discussion of these agreements under “— Business Partnerships” below.
Bophelo currently only produces and sells cannabis biomass. We aim to commence exporting medical cannabis biomass to Europe in 2022. From 2023 and beyond, we plan to expand our product offering to include cannabis oils and extracts, and ultimately, to produce consumer branded cannabis products for discerning patients.
Seasonality of Bophelo’s Cannabis Harvest
Through its operators’ license in the Kingdom of Lesotho, Bophelo is able to cultivate cannabis on or up to 50,000 square meters (5 hectares) of greenhouses (indoor). Since obtaining its license, Bophelo has undertaken several cultivation cycles at the company’s premises in the Kingdom of Lesotho with a view to optimizing strain selection and cultivation methodologies. All expenditures incurred to date in relation to this undertaking have been expensed in the company’s financial statements. Depending on the manner of cultivation undertaken by the company (outdoor, greenhouse or indoor methods), Bophelo may experience seasonality in its cannabis harvests. Typically, the cannabis cultivation season in the Kingdom of Lesotho would begin (subject to weather conditions which may be unpredictable) in September of each year and end in May of the following year.
Canmart Ltd
Our indirect wholly-owned subsidiary Canmart, a company incorporated under the laws of England and Wales, is a licensed importer and distributor of CBPMs in the United Kingdom. Canmart holds a Controlled Drug License issued by the Home Office to possess and supply CBPMs in the United Kingdom. This license is due to expire on February 3, 2022 and needs to be reapplied for on a yearly basis. Canmart is required to apply for an import license issued by the Home Office for every specific shipment of CBPMs and Canmart has thus far successfully been granted such import licenses. Canmart holds both a
Manufacturer’s Specials License for importation of CBPMs and a Wholesale Distribution Authorization from the Medicines and Healthcare Products Regulatory Agency.
Canmart commenced importing and distributing CBPMs in 2020. Under the current controlled drugs regulatory regime, Canmart is only able to supply to dispensing pharmacists, clinics and other wholesale distributors. However, Canmart’s intention is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies. Canmart’s strategy is to grow the medical cannabis market by identifying patients with specific conditions and needs and providing easy to access education and consultations to patients about medical benefits of CBPMs based on observational clinical studies from international studies. We believe this direct sales model can enable Canmart to expand its market share effectively and efficiently.
Cannahealth Limited
Our direct wholly-owned subsidiary Cannahealth, a Republic of Malta company, is a holding company of all the ownership interests in Canmart and Bophelo Holdings. Cannahealth does not engage in any operations.
Bophelo Holdings Ltd.
Our indirect wholly-owned subsidiary Bophelo Holdings, a company incorporated under the laws of England and Wales, is a holding company of all the ownership interests in Bophelo. Bophelo Holdings does not engage in any operations.
Growth Plans and Strategic Focus
We are targeting what we believe to be the lucrative international medical cannabis market, which is estimated to be worth approximately $47 billion by 2027, according to Emergen Research. We believe there has been a growing demand for medical cannabis around the world as a result of the increased legalization of cannabis for medical purposes as well as the rise in cannabis-related medical research activities.
Our goal is to become a market leader in the cultivation, processing and supply of medicinal-grade cannabis products and cannabis based medical and wellness products for international markets. Our primary strategies to achieve our goals include:
•
Expanding our production capacity. In the near term, our primary strategy is to expand our production capacity as quickly as possible at Bophelo. We plan to take advantage of favorable cultivation conditions in the Kingdom of Lesotho to achieve economies of scale in our production of premium quality cannabis products, within the confines of market forces such as customer demand and pricing, as well as regulatory hurdles that may impede our ability to access foreign markets or which may slow overall market growth.
•
Expanding our geographic footprint. While we currently import and sell cannabis-based products for medicinal use (“CBPMs”) sourced from third parties to dispensing pharmacists, clinics and other wholesale distributors in the United Kingdom, our plan is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies in the United Kingdom. Medical cannabis is currently scheduled as a “Schedule 2” unlicensed medicine and, as such, can only be prescribed by or under the care of a specialist medical practitioner. Furthermore, regulatory authorities in the United Kingdom require cannabis dispensing clinics to obtain a license from the Care Quality Commission (“CQC”). The CQC regulates clinics and conducts frequent audits and inspections to ensure compliance with license terms. Given the regulatory environment in the United Kingdom, we intend to achieve our plan to establish direct sales channels to patients by acquiring established clinics and pharmacies that are dispensing medical cannabis products in the United Kingdom, however, this strategy is dependent on identifying potential targets, negotiating acceptable purchase price and other conditions based on revenues, number of patients and size of the local market, and complying with any regulatory and licensing requirements. To that end, we recently entered into a non-binding letter of intent to acquire 100% of the issued and outstanding ordinary shares of Cellen Limited, a United Kingdom based provider of pain-focused clinical services for GBP £10 million (USD $13.361 million) in common shares of the Company. We are also working
towards expanding sales of cannabis products produced by Bophelo to international markets, subject to regulatory conditions in such countries.
•
Pursuing accretive acquisitions. We believe that our deal-making capabilities and experience will allow us to successfully identify, consummate and integrate acquisitions.
•
Strong Partnership with Local Communities. We are committed to empowering women and vulnerable persons in local communities where Bophelo operates. We believe our efforts will enable us to build strong partnerships with the communities in which we operate, enhance the reputation of our brands and benefit our long-term growth.
We anticipate undertaking the following activities in the next 12 to 36 months in an effort to further grow Bophelo and Canmart’s business:
Operations of Bophelo
•
Building out an additional 1.5 to 2 hectare shade cloth cultivation area and constructing a 1 hectare forced air greenhouses which are expected to be completed by 2022.
•
Planning and constructing an EU GMP certified post harvest drying facility with a view to commence operating this facility in 2022.
•
Planning and constructing an EU GMP certified extraction facility with a view to commence operating this facility in 2023 or 2024.
Operations of Canmart
•
Continuing to develop our business plan to secure sales to patients while establishing or even acquiring distribution channels in the U.K. domestic market.
Agreements with Cellen Limited
On October 1, 2021, we entered into a memorandum of understanding with Cellen Limited (“Cellen”). Cellen is a medical cannabis supplier to Project Twenty21, a large-scale medical cannabis observational study in the United Kingdom. In addition, Cellen also owns and operates digital pain clinic: Leva Clinic, which is licensed and regulated by the Care Quality Commission (‘CQC’) in the United Kingdom. The purposes of the memorandum of understanding is to establish a formal working relationship to optimize medical cannabis supply chain activities across Cellen and the Company’s business interests, to consistently increase supply and choice for patients in the United Kingdom.
On October 5, 2021, we entered into a non-binding letter of intent to acquire 100% of the issued and outstanding ordinary shares of Cellen for GBP £10 million (USD $13.361 million) through the issuance of our common shares. The transaction is subject to completion of due diligence, negotiation of definitive agreements, completion of financial audits by Cellen, approval of the board and shareholders of Cellen and any necessary regulatory and third party approvals.
On December 1, 2021, we entered into a bridge loan facility with Cellen whereby we agreed to extend a line of credit of USD $500,000 to Cellen , secured by all of the assets of Cellen. Amounts drawn down will be subject to interest of five percent per annum compounded monthly. To date, Cellen has borrowed approximately $136,600 under the facility. All amounts borrowed under the facility shall be due no later than December 31, 2022. The Company shall have the option to convert any amounts borrowed under the facility into ordinary shares or preference shares of Cellen at a valuation of Cellen as determined by an independent firm of chartered accountants as may be selected by the Company.
Our Competitive Strengths
We believe that the following competitive strengths can contribute to our success and differentiate us from our competitors:
•
Lesotho Cultivation Advantage. Through the cultivation operations of our indirect wholly-owned subsidiary Bophelo, our past harvests have shown that we have the ability to cultivate high yielding
strains of cannabis for medical purposes, with certain strains historically cultivated reflecting cannabinoid concentrations in excess of 20%. Conditions at Bophelo’s site of operations near T’sakholo in the Mafeteng District of the Kingdom of Lesotho are conducive for the cultivation of medical-grade cannabis including suitable environmental conditions, abundant supply of semi-skilled and unskilled labor, quality road and air infrastructure network and favorable tax treatments.
•
Significant Potential to Scale Up Production. Bophelo is one of the largest licensed landholders engaging in cannabis cultivation in the Kingdom of Lesotho. Bophelo is licensed to cultivate cannabis over an initial 5 hectare area under greenhouse or indoor conditions, with conditional government approval to expand our cultivation footprint up to 200 hectares. Such approval for expansion may be granted by the Ministry of Health on the main condition that Bophelo has fully utilized all of the first 5 hectares of its licensed cultivation area. This gives us the potential ability to significantly scale up production once the company has met this requirement of the Ministry of Health. Bophelo has leased a 200-hectare land package in an emerging Special Economic Zone in the Kingdom of Lesotho which is intended to be dedicated to the cannabis cultivation and related operations.
•
Strong Partnership with Local Communities. Bophelo has worked and expects to continue to work with Mophuthi Matsoso Development Trust, a Lesotho non-profit organization (the “MMD Trust”), to provide for the construction of a learning center, a place of worship, feeding programs and other public good initiatives for the local community of T’sakholo. We believe a commitment to such initiatives and building a strong working relationship with the local African communities can promote goodwill towards our local operations and brands and benefit our long-term business growth. The MMD Trust is controlled by our Executive Chairman and Bophelo leases its premises on which it operates from the MMD Trust pursuant to a long-term lease agreement between the MMD Trust and Bophelo. As such, a potential conflict of interest may arise regarding the ongoing administration of the lease and any future negotiations around the lease terms.
•
Experienced Management Team. Our management is experienced and has an extensive knowledge of the international cannabis industry as well as local conditions in Europe, the United Kingdom, and the Kingdom of Lesotho.
Competition
Southern Africa
Our main competitors in Southern Africa are other preeminent entities that have been granted licenses from countries in Southern Africa (including Lesotho, South Africa, Zimbabwe and others) such as Medigrow, Spectrum Cannabis, Bedrocan and Verve Dynamics. While an increasing number of companies are entering the cultivation area resulting in an increased supply of similar cannabis products to ours, we expect that growth in the global demand for medicinal-grade cannabis products is so strong that the total demand is likely to exceed the total supply for the foreseeable future. Furthermore, Bophelo has a number of competitive advantages including ability for scalability of production, low-cost input environment, its strong relationship with technical partners and local community and experienced management team, which we believe enable Bophelo to compete effectively with other international producers.
United Kingdom
The United Kingdom’s CBPM market is a highly regulated and restricted operational environment. CBPMs is supplied as a “special’s medication” with no marketing authorization for medical claims. Canmart has identified an opportunity to grow its business in the expanding CBPM sector by establishing direct sales channels to patients. Our primary competition is from three established suppliers including The Lyphe Group, the pioneer in this sector which operates The Medical Cannabis Clinics, Grow Pharma and IPS Pharma which are established specials formulators and have moved to supplying medical cannabis through their associated clinics. Canmart is establishing sales channels to communicate and market directly to patients as an innovative and disruptive sales model in this field. Canmart’s strategy is to expand its customer base and market size by identifying patients with specific conditions and needs and providing easy-to-access education and consultations to patients about medical benefits of CBPMs based on observational clinical studies from international studies.
Business Partnerships
In December 2019, Bophelo entered into a seed supply relationship with OG DNA Genetics Inc. (“DNA Genetics”), a recognized creator of high-quality cannabis seeds. Bophelo has since then purchased seeds of strains of medical cannabis from DNA Genetics on a purchase order basis. In addition to this arrangement with DNA Genetics, Bophelo sources seeds from other top suppliers of cannabis genetics based in Europe. These seeds are shipped directly from European seed banks to Bophelo’s operations in the Kingdom of Lesotho. Although DNA Genetics has been a primary seed supplier of the Company, the Company does not depend exclusively on any seeds sourced from DNA Genetics.
In August 2020, Bophelo entered into an off-take agreement with Medcan Ltd. (“Medcan”), which received preliminary approval from Malta Enterprise, a Maltese government agency, to carry out the importation and production of cannabis for medicinal purposes primarily into the European market. The term of the agreement is for a period commencing on August 3, 2020 and ends on the earlier of (i) the date on which Medcan has purchased 10,000 kilograms of biomass from Bophelo or (ii) August 3, 2027. The agreement specifies initial deliveries of up to 10,000 kilograms of cannabis biomass. Bophelo will procure the transport of the biomass by a licensed cannabis transport operator and deliver the biomass to Medcan in containers, comply with the applicable Agricultural Practice Standards, or as otherwise agreed to by the parties. All the biomass is subject to Medcan’s inspection and acceptance or rejection at Bophelo’s facility in Lesotho. Pursuant to the agreement, Medcan will pay Bophelo prevailing market rates, calculated on the basis of a price per gram, based on the delivery weight. The price will be determined on the basis that Medcan shall seek to sell the batch at the highest value achievable in the market. Biomass has not yet been supplied to Medcan pursuant to the off-take agreement as Medcan has not yet secured the all of the necessary licenses and/or permits required from Maltese and/or European Union regulators to enable it to import biomass from Bophelo. It is not, at the present time, known when these licenses and/or permits may be secured by Medcan.
In September 2021, Bophelo also entered into a service, refinement and distribution agreement with Cantourage GmbH (“Cantourage”), a German based processor and distributor of cannabis biomass. The term of the agreement is from September 15, 2021 to September 15, 2026 and may be extended for additional periods of one year unless terminated earlier by the parties. Under the agreement, Bophelo shall deliver to Cantourage cannabis products which shall be further refined for distribution by Cantourage. The specific amount to be delivered shall be determined from time to time by the parties. Bophelo has not sold any products under these distribution agreements and expects to commence marketing and exporting its products to the German and broader EU market in 2022. Bophelo is currently cultivating its first pilot harvest of cannabis biomass for Cantourage in terms of the aforementioned agreement. Bophelo currently expects this harvest to be completed by February or March 2022. It is not, at this time, known if the forthcoming harvest will, in part or in full, meet the specifications prescribed by Cantourage in terms of the aforementioned agreement.
Description of Property
Bophelo has entered into a sublease agreement dated 2018 with the MMD Trust, which is controlled by our Executive Chairman, Louisa Mojela, for the lease of its facilities at T’sakholo in the Kingdom of Lesotho. The sublease is for a land area of 68,834 square meters. The term of the lease is for a 20 year period, with an option to renew for two 30-year terms. Pursuant to the sublease agreement, Bophelo will pay LSL 350,000 (approximately $25,000) per month, with an annual rate increase of 10% on a compound basis. This sublease agreement may only be terminated by: (i) the expiration of its term; (ii) the surrender of the sublease; or (iii) its termination pursuant to the provisions of the Land Act 2010. Additionally, in the case that either party commits a breach of this agreement and fails to remedy such breach within 14 days after receiving written notice from the other party requiring the breaching party to remedy such breach, then the non-breaching party may terminate this agreement, or to claim specific performance of all of the breaching party’s obligations then due for performance. Bophelo has a right of first refusal to purchase any of the properties and/or any portion thereof on the same terms offered to any third party. The MMD Trust is controlled by Louisa Mojela, our Executive Chairman and director, and Granny Seape, a non-executive director of Bophelo.
Canmart currently has access to use 30,000 square foot warehouse in Somerset, United Kingdom, which is owned by D&D Investments Limited which is owned by certain directors of Canmart. Canmart does not pay any rent for the use of the warehouse and the owner may demand the vacation of the warehouse by Canmart at any time. Canmart expects to enter into a lease agreement with the owner with specified lease terms and to pay rent under the lease.
Human Capital Resources
As of September 30, 2021, we had a total of 107 employees. Approximately 102 of our employees work at our site in the Kingdom of Lesotho and approximately 5 of our employees work in the United Kingdom.
REGULATION
Regulatory Framework in the United Kingdom
CBD Regulation — Overview
Cannabis, cannabis resin, cannabinol and other cannabinol derivatives (among others) are listed as Class B controlled drugs under Schedule 2, of the Misuse of Drugs Act 1971, or the MDA, based on a harms assessment. They are also listed under Schedule 1 to the Misuse of Drugs Regulations 2001, or the MDR, together with other chemical constituents such as the cannabinoid THC (defined below). As such, it is unlawful to cultivate, possess, supply, produce, import or export these controlled drugs except under license. The Hemp (Third Country Imports) Regulations 2002 also require, except in specified circumstances, that hemp from non-EU countries be imported under a license and, in the case of hemp seeds other than for sowing, under an authorization.
CBD is one of the main chemical compounds found in the cannabis plant, together with THC. CBD, as an isolated substance (i.e. containing no THC) is not a controlled drug under the MDA/MDR. Unlike CBD, THC is the main “psychoactive” component of cannabis and is a controlled drug.
A CBD product containing THC (in any amount), or any other controlled cannabinoid under the regulations cannot be practically prescribed, administered or supplied to the public unless it is an ‘exempt product’ or a cannabis based product for medicinal use in humans, or CBPM. CBPMs are subject to further regulation and licensing given the medicinal purpose for which they are marketed and prescribed.
The U.K. Home Office (specifically, the Drugs & Firearms Licensing Unit, or DFLU) prescribes two separate licensing regimes relating to cannabis cultivation, according to whether the varieties are high THC (above 0.2% THC content) or low THC (below 0.2% THC content). A license is required to cover both cultivation and possession.
The sale of CBD products (i.e. the “finished products” following extraction and processing of CBD into products) is subject to additional regulations and licensing regimes — see below CBD Extraction for General Commercial Purposes and CBD Extraction for Medicinal Purposes for a more detailed discussion.
Controlled Drugs License
Companies wishing to possess, supply, produce/manufacture, import or export ‘controlled drugs’ can only lawfully do so under Controlled Drugs Licenses issued by the Home Office. Licenses are issued for specific drugs, entities and locations and cannot be transferred to other drugs, entities or locations.
Applications for a controlled drug license are submitted online and prospective licensees are advised that it can take up to 16 weeks for the Home Office to review and ensure that various security and record- keeping requirements have been met. Where an enhanced DBS check has been obtained within the last three years for all persons named on the application, such checks do not need to be repeated. The DFLU may also conduct site visits, where needed. The term of the license is one year from the date of issuance and further applications are required to be submitted for each license to be renewed.
Companies wishing to import ‘controlled drugs’ will need to apply to the Home Office for a separate import license for each shipment.
Canmart holds a Controlled Drug Licenses issued by the Home Office to possess and supply CBPMs in the United Kingdom. This license expires on February 3, 2022. Canmart is required to apply for import licenses from the Home Office for each individual shipment and has, as of 2021 when shipping of CBPMs to Canmart commenced, been successful in applying for those import licenses as required.
CBD Extraction for General Commercial (Retail) Purposes
CBD products such as CBD oil are becoming increasingly prevalent in the U.K. retail market. Where a CBD product contains a controlled drug (in any quantity) such as THC, the product needs to satisfy the requirements for an ‘exempt product’ under the MDR to be lawfully available to the public.
In general, an exempt product is a product containing a controlled drug that is: (a) not designed to be administered to a human being or animal, (b) not packaged in such a way that it can be recovered by readily applicable means, and (c) does not contain more than 1 mg (per container) of the controlled drug. All three prongs are required to be established, including significant testing by an independent and licensing U.K. company and the provision of comprehensive and independently verifiable research and information. Notably, the 0.2% THC threshold for the cultivation of industrial hemp does not apply to CBD finished products, Rather, only 1 mg of THC (per container) is permissible in any given product that is placed on the U.K. market.
CBD Extraction for Medicinal Purposes (Medical Cannabis)
CBPMs are preparations or products that: (a) contain cannabis or other cannabinol derivatives, (b) are produced for medicinal use in humans, and (c) are a medicinal product, substance or preparation for use as an ingredient in a medicinal product. A CBD preparation or product containing controlled cannabinoids (e.g., THC) which meets the three prongs of this definition may be classed as a CBPM.
Companies wishing to possess, supply and or import/export CBPMs will require a controlled drug license in addition to a high-THC cannabis cultivation license if they are involved in production/manufacturing, which are both issued by the Home Office, unless an exemption applies to that licensing requirement.
In addition, the regulation of CBPMs in the United Kingdom is undertaken by the Medicines and Healthcare Products Regulatory Agency, or MHRA. The MHRA is responsible for ensuring all medicines and medical devices in the United Kingdom are safe and appropriate in accordance with the Human Medicines Regulations 2012 (SI 2012/1916), or HMR. Under the HMR, CBPMs can only be manufactured and assembled in accordance with the specifications of a doctor listed on the General Medical Council Specialist Register and must meet a ‘special’ clinical need of the individual patient.
The manufacturer, assembler or importer/exporter of a CBPM must also hold a Manufacturer’s “Specials” License, which is granted by the Licensing Authority (specifically, the U.K. Ministers designated under the HMR) for all medicinal products for human use. The manufacturing, storage and/or assembly site and its operations will be inspected for compliance with the European Union’s “good manufacturing practice” and the conditions of the license. These require that the manufacture, storage and/or assembly is carried out under the supervision of appropriately qualified staff, including a named quality controller and production manager, who are acceptable to the Licensing Authority. License applications are submitted online to the MHRA and take approximately 90 business days to process.
The distributer of a CBPM must also hold a Distribution Authorization issued by the Licensing Authority. All distributers of medicinal products for human use must have a similar license.
Canmart holds both a Manufacturer’s Specials License for importation of CBPMs and a Wholesale Distribution Authorization.
CBD Sales and “Novel Food” Status
In the United Kingdom, the sale of CBD products falls under the regulatory purview of the U.K. Food Standards Agency, or the FSA. The FSA, in turn, follows the guidance and regulations set by the European Union, specifically the European Food Standards Agency, the EFSA, and the European Commission, or the EC, respectively.
In November 2015, the European Parliament and the Council of the European Union adopted a new regulation on novel food, Regulation (EU) 2015/2283, or the Novel Food Regulation, with the intent of making the novel food authorization process more efficient while ensuring high standards of food safety for consumers. The Novel Food Regulation came into force on January 1, 2018.
The Novel Food Regulation provides that a food is “novel” if it has not been used for human consumption to a significant degree within the European Union before May 15, 1997. The regulations further provide that a food stuff will be authorized only if it can be demonstrated that the product is safe, properly labeled so as to not mislead consumers and is not nutritionally disadvantageous.
On January 15, 2019, the EC updated the European Union’s Novel Foods Catalogue, specifically, the entries relating to cannabis sativa and cannabinoids, to include other cannabinoids extracts used in food and food supplements and hemp-derived products in food.
While the Novel Foods Catalogue is non-exhaustive and carries no legal effect, it is frequently updated and amended with input from Member States and is used as reference by authorities in EU countries to aid enforcement of the Novel Food Regulation.
A novel food can only be sold in the European Union once it has successfully gone through the authorization process (involving a safety risk assessment) and an implementing act is published authorizing the addition of the novel food to the Novel Foods Catalogue. This process can take up to 18 months from receipt of the initial application. The United Kingdom has adopted the EU Novel Foods regime as retained EU law and the FSA has confirmed it will follow the EFSA. Therefore products new to market will require novel food authorization from the FSA prior to being made available and marketing. There is also a currently a regime in place to allow for products that were already on the market prior to early 2020 to apply for retroactive novel food authorization.
Proceeds of Crime Act or POCA
POCA addresses money-laundering offences in the United Kingdom. Under POCA, a person or entity commits a principal money laundering offence if they:
(a)
conceal, disguise, convert or transfer criminal property;
(b)
enter into or become concerned in an arrangement which he knows or suspects facilitates the acquisition, retention use of control of criminal property by or on behalf of another person; or
(c)
acquire criminal property.
Property is criminal property if it constitutes a person’s benefit from criminal conduct and the alleged offender knows or suspects that it constitutes such a benefit.
Criminal conduct is conduct that constitutes an offence in any part of the United Kingdom or in the case of overseas conduct would constitute an offence in any part of the United Kingdom if it occurred there. This is relevant for U.K. companies that operate in the medicinal cannabis industry as they may have relationships with medicinal or recreational cannabis companies that operate legally in non-U.K. jurisdictions, however whose activities would be caught by POCA, and for U.K based investors who are investing in cannabis-related investments.
There are defenses available to the money laundering offences, principally making an authorized disclosure prior to the offence being committed and gaining appropriate consent from the National Crime Agency (“NCA”) to receive the criminal property in question, and receiving the property for adequate consideration, as in the case of a contract.
Canmart will take into consideration any potential POCA applications when dealing with non-U.K. companies and will act accordingly to ensure compliance with POCA.
Regulatory Framework in the Kingdom of Lesotho
The Drugs of Abuse Act, 2008 (the “Drugs of Abuse Act”) is the principal legislation which regulates the pharmaceutical sector in the Kingdom of Lesotho. The Drugs of Abuse Act aims to ensure that certain drugs are available in the Kingdom of Lesotho which would be used for medical, scientific and related purposes. The Drugs of Abuse Act also aims to prevent the abuse of drugs, to prevent diversion from lawful trade of controlled chemicals, equipment and materials for the use in unlawful manufacture of such drugs. Furthermore, the Drugs of Abuse Act also establishes the Lesotho Narcotics Bureau.
Cannabis, cannabis plants and cannabis resin are specifically defined in the Drugs of Abuse Act and as such, the cultivation, manufacturing, preparation, supply, and transit thereof is restricted. As such, the Drugs of Abuse Act, pursuant to section 9 thereof, allows the cultivation, manufacturing, acquisition, administration if the person is an operator as defined in the Drugs of Abuse Act. Therefore, an operator, is
defined as any person who carries on a business of manufacture acquisition or supply of a drug of abuse. Cannabis is defined as a drug of abuse.
Operators are therefore allowed to apply for a license that permits operators to cultivate, manufacture, import, export, transport and process cannabis for medicinal purposes. The recreational use of cannabis is still illegal, and it carries criminal sanctions.
These operators’ licenses are, generally valid for 12 months, renewable every year.
In order for an operator to import, export or transport cannabis, the operator must apply for a permit for such imports, exports and transport of cannabis. These permits apply to cannabis plants, cannabis seed, cannabis and cannabis resin.
The current legislative framework does not differentiate between cannabis containing THC or CBC, as the current definition deals with the collective description of cannabis.
During 2018 and 2019, the Government of Lesotho published regulations, The Drugs of Abuse (Cannabis) Regulations (“the Drugs of Abuse Regulations”). The 2019 Drugs of Abuse Regulations repealed and replaced the 2018 Drugs of Abuse Regulations.
The purpose of the Drugs of Abuse Regulations is to track, control, manage and regulate the cannabis industry. It is also the purpose of the Drugs of Abuse Regulations to set the criteria for the license application process, qualifications for operators and to set up structures and methods for the tracking of cannabis, from seed to sale.
The Lesotho Narcotics Bureau is tasked with assessing license applications, renewals and providing the operators with advice and assistance as regards the laws and regulations governing the conduct of a drugs of abuse business as well as the role of the International Narcotics Control Board.
The Drugs of Abuse Regulations also deals with the requirements for and set the standard for qualifications to be engaged in a cannabis business. It contains provisions dealing with the standards for security, premises, manufacturing practices, cultivation practices, record keeping, seed-to-sale requirements and testing of cannabis.
Labelling and packaging as well as waste management is provided for in the Drugs of Abuse Regulations as it also deals with the transportation, importation and exportation of cannabis.
Operators can apply for licenses which allows indoor or outdoor cultivation; however, outdoor cultivation is restricted to cannabis strains that have a THC content below 1% and that it is used for produce CBD isolate, only feminized seeds are used, the male plants must be destroyed and cannabis seed is obtained from a registered seed supplier.
Failure to comply with the Drugs of Abuse Act and the Drugs of Abuse Regulations constitute a criminal offence and when convicted, it can lead to 5 years of imprisonment of a fine of not less than R20 000.00 (ZAR) (approximately, U.S.$1,333) or both, or in the case of a company, a fine of not less than R100 000.00 (ZAR) (approximately, U.S.$6,667).
Bophelo is currently the holder of an operators’ license (“the Operators’ License”) as issued in terms of the Drugs of Abuse Act, 2008 pursuant to section 12 thereof.
The Operators’ License is issued under number 18/8/18/18 and is granted for a ten-year period, renewable every 12 months. The Operator’s License is valid until September 26, 2028 and in terms of the Operators’ License, Bophelo is licensed to cultivate, manufacture, supply for distribution, store, export, import and transit into and out of Lesotho cannabis for medicinal purposes and for scientific and any other lawful use.
Furthermore, the Operators’ License also allow Bophelo to cultivate cannabis on or up to 50,000 square meters (5 hectares) of greenhouses (indoor).
MANAGEMENT
Our Executive Officers and Directors
The following table sets forth the names, ages and positions of the individuals who we anticipate will serve as our executive officers and members of our Board of Directors at the time of the offering.
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Name
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Position
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|
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Age
|
|
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Louisa Mojela
|
|
|
Executive Chairman and Director
|
|
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65
|
|
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Tejinder Virk
|
|
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Chief Executive Officer and Director
|
|
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40
|
|
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Aslihan Akkar-Schenkl
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President
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|
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43
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|
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Trevor Scott
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|
|
Chief Financial Officer
|
|
|
42
|
|
|
Philip van den Berg(1)
|
|
|
Director
|
|
|
63
|
|
|
Charles Kié(2)
|
|
|
Director
|
|
|
58
|
|
|
Gila Jones(2)
|
|
|
Director Nominee
|
|
|
40
|
|
|
Gugu Dingaan(2)
|
|
|
Director Nominee
|
|
|
46
|
|
(1)
Mr. van den Berg is a director and Chief Financial Officer and an appointee of Halo, which is expected to own approximately 43.2% of our outstanding Common Shares upon the consummation of this offering.
(2)
Independent Director.
Other than Mr. van den Berg, who is an appointee of Halo pursuant to the Investor Rights Agreement, there is no arrangement or understanding with any shareholder, supplier, customer or any other person pursuant to which any of our directors or executive officers was selected to serve as a director or executive officer of the Company.
Biographical Information
The following is a summary of certain biographical information concerning our executive officers, directors, and director nominees.
Louisa Mojela has served as the Executive Chairman and a director of Akanda since July 2021, and has served as the Executive Chairman and a director of Bophelo since June 2018. In addition, Ms. Mojela served as Chairman of the board of directors of Halo from July 2020 to July 2021. Ms. Mojela is one of Southern Africa’s most influential and successful business leaders. Ms. Mojela is the Group Chief Executive Officer of Wiphold (Women Investment Portfolio Holdings), one of the largest African-based ESG funds to empower black African women, which she co-founded in 1994. She has led capital raises and held directorships at companies such as Sasol Mining (a subsidiary of Sasol Holdings listed on the New York Exchange), Distell, Ixia Coal, South African Airways, Ericsson SA, Adcorp, and Sun International, amongst others. In addition to her business dealings, Ms. Mojela is focused on various social development initiatives in the Kingdom of Lesotho in line with the Sustainable Development Goals of the Government of Lesotho. She has received numerous accolades for her leadership. Among these, in 2000 she was selected as one of 40 women for the “Leading Women Entrepreneur of the World”; in 2015 she was named one of three “Business Women of the Year — Southern Africa” at the All Africa Business Leaders Awards in partnership with CNBC Africa; and in 2016, she won the European Business Assembly’s “Best Manager of the Year” award at an event held in Switzerland. Ms. Mojela received a Bachelor of Commerce from the National University of Lesotho and also completed the Executive Leadership Program at Wharton School of Business at the University of Pennsylvania. We believe Ms. Mojela’s expertise and accomplished track record as one of South Africa’s most accomplished leaders in business qualifies her to serve as our director.
Tejinder Virk, has served as Akanda’s Chief Executive Officer and director since July 2021. Prior to Akanda, Mr. Virk served as the President and Managing Director (Europe) of Khiron Life Sciences (TSX-V: KHRN) (OTC: KHRNF) (“Khiron”) from October 2019 to June 2021, where he was responsible for
establishing Khiron’s medical and consumer packaged goods business in the region. Prior to Khiron, Mr. Virk was Managing Director (Europe) for Canopy Growth Corporation (NASDAQ: CGC) (TSE: WEED) (“Canopy”) from January 2019 to September 2019, where he was responsible for driving the multinational expansion of Canopy’s European operations. Working with top research doctors in the United Kingdom, Spain, and Germany, he has overseen the launch of multiple medical cannabis products in Europe, including flower for inhalation and oils. Prior to Canopy, Mr. Virk served as the Managing Director of BMO Financial Group (NYSE: BMO) Investment Banking group from June 2004 to December 2018. In that role, Mr. Virk gained extensive cannabis sector M&A experience and has transacted on numerous IPOs and follow-on capital raises for global cannabis companies, including Canopy and Tilray (NASDAQ: TLRY). Mr. Virk received a Bachelor of Applied Science (BASc) in Systems Design Engineering with an Option in Management Sciences from the University of Waterloo in 2004. We believe Mr. Virk’s extensive experience in the cannabis and corporate finance industry qualifies him to serve as our director.
Dr. Aslihan Akkar-Schenkl has served as Akanda’s President since October 2021. Prior to joining Akanda, from March 2020 to September 2021, Dr. Akkar-Schenkl served as the Managing Director of Northern Green Global GmbH, a company providing cannabinoid medicines to global markets. Prior to this position, from October 2018 to February 2020, Dr. Akkar-Schenkl acted as the Responsible Person of Drapalin Pharmaceuticals GmbH. Within her responsibility she audited diverse medical cannabis producers at locations including Canada, Kingdom of Lesotho and parts of Europe. Before joining Drapalin Pharmaceuticals, she took diverse roles in the German pharmaceutical industry, starting in R&D at PARI Pharma GmbH with focus on inhalation therapies. From October 2007 until October 2017, she also worked in the IP field at Munich-based Patent Law firms with focus on FTO-Analysis, acting before the European Patent Office and German Patent Court. Dr. Akkar-Schenkl is a registered Pharmacist in Germany, European Patent Attorney, German Patent Attorney and holds a Ph.D. Degree in Pharmaceutical Technology (Disputation December 2004). She is author and co-author of over 30 scientific publications and articles.
Trevor Scott has served as Akanda’s Chief Financial Officer since July 2021. Trevor was involved in the formation of Bophelo in July 2018 and has served as its Chief Financial Officer since its inception. Additionally, Mr. Scott has served as the Chief Executive Officer of Bearingway Limited, an accounting and consulting firm, since January 2008 and as the Chief Financial Officer of Stallion Security (Pty) Ltd., a security company based in Johannesburg, South Africa, since April 2017. Prior to that, Mr. Scott served as the Chief Financial Officer and financial director of Uranium One Africa Ltd., a mining company that focuses on gold and uranium mining operations, from September 2014 to January 2017, and as a director of Mokwele Inc. since January 2004. Mr. Scott is a chartered accountant by profession, and has experience with regards to fundraising, accounting, investor relations, internal controls and mergers and acquisition related matters. Mr. Scott received his bachelor’s degree in Accounting at Wits University in 2000.
Philip van den Berg has served as a director of Akanda since July 2021. Mr. van den Berg has served as a director and Chief Financial Officer of Halo since July 2018. Prior to Halo, Mr. van den Berg has served as the Chief Financial Officer of Namaste Technologies Inc. from October 2016 to June 2018 and as the Chief Financial Officer of Golden Leaf Holdings from October 2015 to March 2016. Mr. van den Berg has an extensive 30-year career in finance, principally in the equities divisions at Goldman Sachs and Deutsche Morgan Grenfell in London, as well as on the buy-side as co-founder of both Olympus Capital Management, one of the first European hedge funds and Taler Asset Management, a wealth management company based in Gibraltar. Mr. van den Berg earned a Master’s degree in Economics from the University of Amsterdam in 1987. We believe Mr. van den Berg’s wealth of experience in finance and business operations qualifies him to serve as our director.
Charles Kié has served as a director of Akanda since August 2021 and is expected to serve as our lead independent director upon consummation of this offering. In addition, Mr. Kié served as a director of Halo from October 2020 to July 2021. Mr. Kié has served as the co-founder and Chief Executive Officer of New African Capital Partners and SBNA since October 2018 and March 2021, respectively. Mr. Kié has also served as the Managing Partner of Genesis Capital since September 2018. From January 2016 to September 2018, Mr. Kié was the Chief Executive Officer of Ecobank Nigeria, the largest affiliate of the Ecobank Group, where he led its turnaround. Throughout his career, Mr. Kié pioneered milestone transactions on the capital markets, in infrastructure finance and trade finance in West and Central Africa, and as such, brings a wealth of financial and operational expertise to Akanda. Mr. Kié also currently serves as a non-executive
board member at Empower Families for Innovative Philanthropy (ERFIP) — Edmond de Rothschild Foundations — Switzerland. Mr. Kié is a graduate of the Harvard Business School Advanced Management Program in 2011. He holds an MBA from New York University (Stern), HEC Paris and London School of Economics, as well as post-graduate degree in Corporate Restructuring from the University of Clermont Ferrand. He received his bachelor’s degree from Ecole Supérieure de Commerce d’Abidjan in 1987. We believe Mr. Kié’s wealth of experience and financial and operational expertise qualifies him to serve as our director.
Gila Jones has been nominated by our Board of Directors, subject to shareholder approval (which we anticipate prior to the closing of this offering) to serve as a non-executive director of Akanda. Ms. Jones is currently the Chief Operating Officer (2019 to present) at Westbrook Global Inc., a media company founded by Will and Jada Pinkett-Smith to develop, sell, produce, and market premium content for global streamers and studios. Prior to her appointment at Westbrook Global Inc., Ms. Jones was the Chief Operating Officer of beauty retailer Violet Grey, a position she held between 2018 and 2019. As the Chief Operating Officer of Violet Grey, she oversaw finance, retail, supply chain, and human resources functions. Between 2012 and 2018, Ms. Jones served as general counsel of fashion brand James Perse in a multifaceted role leading all legal and compliance matters (including corporate transactions, contracting, litigation and government inquiries, labor and employment, data privacy, and intellectual property) and human resources. She also oversaw the company’s global real estate and expansion strategy, spanning owned and operated stores in the U.S. and Mexico, domestic shop-in-shops, and international retail and wholesale licenses in the United Kingdom, Japan, Australia, and Canada. Ms. Jones is on the board of Beignet Box, a privately held quick service seller of beignet and coffee, and RootsRex, a real estate start-up seeking to create ownership opportunities for renters of its portfolio properties. Ms. Jones is a graduate of the New York University School of Law (J.D) as well as Harvard University (A.B). Given her operational knowledge across several business sectors, her legal expertise and her track record as an advisor to start-up companies, Ms. Jones is well placed to bring her valuable knowledge and experience to Akanda’s board of directors.
Gugu Dingaan has been nominated by our Board of Directors, subject to shareholder approval (which we anticipate prior to the closing of this offering) to serve as a non-executive director of Akanda. Ms. Dingaan is currently employed as an investment executive by Wipcapital (Pty) Ltd, which forms part of the WIPHOLD group. Ms. Dingaan has held this position since 2004. Ms. Dingaan’s role as an investment executive at Wipcapital (Pty) Ltd entails developing WIPHOLD’s strategy and managing and growing its investor portfolio, including the ongoing management of relationships with various investee companies and providing them with strategic direction. Ms. Dingaan has over 17 years of experience serving as a non-executive director, and a member of the audit and risk, nominating, remuneration, ethics and investment committees for a number of listed and unlisted companies. Ms. Dingaan has served as a director of the Distell Group (JSE: DGH) since 2005 and chairs their social and ethics committee and is also a member of their audit and risk committee, remuneration and nomination committee and investment committee. In addition, Ms. Dingaan has served as a director of Sasfin Bank Limited (JSE: SFN) since 2017 and is a member of their social and ethics committee and is a standing invitee to the meetings of their audit and risk committee, remuneration and nomination committee and investment committee. Since 2010, Ms. Dingaan also has served on the board of Sasol Mining (Pty) Ltd, a subsidiary of Sasol Ltd (NYSE: SSL and JSE: SOL) and has chaired the board of Ixia Coal (Pty) Ltd. From 2010 to 2019, Ms. Dingaan served as a director of SA Corporate Real Estate Ltd (JSE: SAC) and chaired its audit and risk committee, as well as its remuneration committee, in addition to serving as a member of its investment committee. Ms. Dingaan has also served as a director of ABB SA (Pty) Ltd between 2010 and 2019 and chaired its audit and risk committee. Ms. Dingaan also served as a director of Adcorp Group Limited (JSE: ADR) and served on its social and ethics committee and its investment committee. Following her appointment in 2004, Ms. Dingaan also serves as a director of Landis & Gyr (Pty) Ltd and chairs its social and ethics committee and is a member of its risk and finance committee. Ms. Dingaan is a chartered account by profession and holds a Bachelor of Commerce degree and a Post Graduate Diploma in Accounting from the University of Natal. M. Dingaan is also a graduate of the University of Stellenbosch’s Executive Development Programme and INSEAD’s Advanced Management Programme. Ms. Dingaan brings a wealth of knowledge and experience with regard to corporate governance practices and their role in a listed public company environment.
Family Relationships
There are no familial relationships among any of our directors, director nominees, or executive officers.
Involvement in Certain Legal Proceedings
To our knowledge, none of our directors, director nominees, or executive officers have, during the past ten years:
•
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
•
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he or she was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
•
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his or her involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
•
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
•
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
•
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
The Company is not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe will have a material adverse effect on our business, financial condition or operating results.
Composition of our Board of Directors
Our business and affairs are managed under the direction of our Board of Directors. Contemporaneously with this offering, we anticipate that our Board of Directors will be composed of seven directors. When considering whether directors have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board of Directors to effectively satisfy its oversight responsibilities in light of our business and structure, the Board of Directors focuses primarily on each person’s background and experience as reflected in the information discussed in the directors’ respective biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.
Corporate Governance Practices
We are a “foreign private issuer” under the federal securities laws of the United States and the NASDAQ listing standards. Under the federal securities laws of the United States, foreign private issuers are subject to different disclosure requirements than U.S.-domiciled registrants. We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate governance requirements of the Sarbanes-Oxley Act, the rules adopted by the SEC and the Nasdaq listing standards.
Under the SEC rules and the Nasdaq listing standards, a foreign private issuer is subject to less stringent corporate governance requirements. Subject to certain exceptions, the SEC and the Nasdaq permit
a foreign private issuer to follow its home country practice in lieu of their respective rules and listing standards. Following our home country governance practices, as opposed to the requirements that would otherwise apply to a company listed on Nasdaq, may provide less protection than is accorded to investors under the Nasdaq Rules applicable to U.S. domestic issuers.
In particular, as a foreign private issuer, in accordance with and pursuant to the authority contained in Nasdaq Listing Rule 5615(a)(3), we may follow certain Canadian law and corporate practice in lieu of certain corporate governance provisions set out under the Nasdaq Rule 5600 Series, the requirement in Listing Rule 5250(b)(3) to disclose third party director and nominee compensation, and the requirement in Listing Rule 5250(d) to distribute annual and interim reports. Of particular note, the following rules under the Nasdaq Listing Rule 5600 Series may differ from Canadian law requirements:
•
Nasdaq Listing Rule 5605(b)(1) requires that at least a majority of the Company’s Board of Directors shall be independent directors, and Nasdaq Listing Rule 5605(b)(2) requires that independent directors regularly meet in executive session, where only independent directors are present. We expect to have four independent directors at the time of listing. Our independent directors will meet regularly with other members of the Board and meet in executive session at least two (2) times per year.
•
Nasdaq Listing Rule 5620(c) sets out a quorum requirement of at least 33-1/3% of the outstanding shares with respect to meetings of shareholders. In accordance with Canadian law and generally accepted business practices, our bylaws (the “Bylaws”) provide that a quorum is met when holders of not less than 10% of the shares entitled to vote at the meeting of shareholders are present in person or represented by proxy. The quorum requirement provided in our Bylaws is consistent with applicable Canadian laws and corporate practices.
•
Nasdaq Listing Rule 5605(c)(2)(A) requires that the Company shall have an audit and risk committee composed entirely of not less than three directors, each of whom must be independent. At the time of listing, our audit and risk committee will be comprised of three directors, and each member of the audit and risk committee will meet the independence requirements of Nasdaq Listing Rule 5605(a)(2) and Rule 10A-3(b)(1) under the Exchange Act.
•
Nasdaq Listing Rule 5605(d)(2)(A) requires, among other things, that the Company’s compensation and human resources committee include at least two members, each of whom is an independent director as defined under Nasdaq Listing Rule 5605(a)(2). At the time of listing, our compensation and human resources committee will be comprised of three directors, and each member of the compensation and human resources committee will meet the independence requirements of Nasdaq Listing Rule 5605(a)(2).
•
Nasdaq Listing Rule 5605(e) requires that the nominations committee include solely independent directors. At the time of listing, our nominating and ESG committee will be comprised of three directors, and each member of the nominating and ESG committee will meet the independence requirements of Nasdaq Listing Rule 5605(a)(2).
Board Practices
Board Leadership Structure and Risk Oversight
Our Board of Directors oversees our business and considers the risks associated with our business strategy and decisions. Our Board of Directors currently implements its risk oversight function as a whole. Each of the Board committees also provides risk oversight in respect of its areas of concentration and report material risks to the Board for further consideration.
Terms of Office
Each of our officers holds office until his or her successor is appointed. Directors are elected to serve until the close of the next annual meeting of shareholders or until their successors have been elected or appointed.
Director Independence
We use the definition of “independence” under applicable Nasdaq Listing Rules to make determinations regarding director independence. Under such definitions, the Company’s Board of Directors has affirmatively determined that each of Charles Kié. Gila Jones and Gugu Dingaan is independent. We intend to appoint one additional independent director prior to the listing.
Board Committees
Audit and Risk Committee
On August 6, 2021, our Board of Directors established an audit and risk committee that operates under a written charter as approved by our Board of Directors.
Our audit and risk committee is responsible for, among other things:
•
appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm;
•
discussing with our independent registered public accounting firm their independence from management;
•
reviewing, with our independent registered public accounting firm, the scope and results of their audit;
•
approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
•
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm any financial statements that we file with the SEC;
•
overseeing our financial and accounting controls and compliance with legal and regulatory requirements;
•
reviewing our policies on risk assessment and risk management;
•
reviewing related person transactions; and
•
establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters.
Our audit and risk committee will be composed of three independent directors including Charles Kié, who will serve as chair of the committee. Charles Kie qualifies as an “audit committee financial expert” as such term has been defined in Item 407(d)(5) of Regulation S-K. Our Board of Directors has affirmatively determined that Charles Kié meets the definition of “independent director” for purposes of serving on the audit and risk committee under the Nasdaq rules, the independence standards under Rule 10A-3 of the Exchange Act and will appoint two additional members meeting the same independence standards to the committee prior to the listing.
Following this offering, both our independent registered public accounting firm and management personnel will periodically meet privately with our audit and risk committee.
Nominating and ESG Committee
On August 6, 2021, our Board of Directors established a nominating and ESG committee that operates under a written charter as approved by our Board of Directors.
Our nominating and ESG committee is responsible for, among other things:
•
identifying individuals qualified to become members of our Board of Directors consistent with criteria approved by our Board of Directors;
•
overseeing succession planning for our executive officers;
•
periodically reviewing our Board of Directors’ leadership structure and recommending any proposed changes to our Board of Directors;
•
overseeing an annual evaluation of the effectiveness of our Board of Directors and its committees;
•
developing and recommending to our Board of Directors a set of corporate governance guidelines;
•
developing and recommending to our Board of Directors our ESG initiatives and programs.
Our nominating and ESG committee will be composed of three independent directors including Charles Kié, who will as chair of the committee. Our Board of Directors has affirmatively determined that Charles Kié meets the definition of “independent director” for purposes of serving on the nominating and ESG committee under the Nasdaq rules and will appoint two additional members meeting the same independence standards to the committee prior to the listing.
Compensation & Human Resources Committee
On August 6, 2021, our Board of Directors established a compensation & human resources committee that operates under a written charter as approved by our Board of Directors.
Our compensation & human resources committee is responsible for, among other things:
•
determining and recommending to the Board of Directors for approval, the corporate goals and objectives, evaluating the performance and reviewing and approving the compensation of our executive officers;
•
reviewing or making recommendations to our Board of Directors regarding our incentive compensation and equity-based plans, policies and programs;
•
reviewing all employment agreement and severance arrangements for our executive officers;
•
reviewing and making recommendations to our Board of Directors regarding the compensation of our directors; and
•
retaining and overseeing any compensation consultants.
Our compensation & human resources committee will be composed of three independent directors including Charles Kié, who will serve as chair of the committee. Our Board of Directors has affirmatively determined that Charles Kié meets the definition of “independent director” for purposes of serving on the compensation & human resources committee under the Nasdaq rules and will appoint two additional members meeting the same independence standards to the committee prior to the listing.
Code of Ethics
Our Board of Directors has adopted a written code of ethics and business conduct, which is a “code of ethics” as defined in section 406(c) of the Sarbanes-Oxley Act that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and other of our agents. The code of ethics will be made publicly available on the Company’s website at and is filed as Exhibit 14.1 hereto.
Whistleblower Policy
The Company has adopted a Whistleblower Policy which is filed as Exhibit 14.2 hereto.
Related Party Transactions Policy
The Company has adopted a Related Party Transactions Policy which is filed as Exhibit 14.3 hereto.
Nominations to the Board of Directors
We do not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. Our Board of Directors believes that, given the stage of our
development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. The Board of Directors, with the help of its nominating and ESG committee, will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.
Stockholder Communications
We do not have a formal policy regarding stockholder communications with our Board of Directors. A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our Chief Financial Officer, at Akanda Corp., 1a, 1b Learoyd Road New Romney TN28 8XU, United Kingdom.
MANAGEMENT COMPENSATION
Compensation of our Executive Officers and Directors
The following table sets forth information concerning the compensation of our executive officers and members of our Board of Directors for 2021.
|
|
|
|
Salary
($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards
($)
|
|
|
Non-equity
incentive plan
compensation
($)
|
|
|
Change in
pension value
and
nonqualified
deferred
compensation
earnings
|
|
|
All other
compensation
($)
|
|
|
Total
($)
|
|
|
Louisa Mojela (Executive
Chairman)
|
|
|
|
|
270,000
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
270,000
|
|
|
|
Tejinder Virk (Chief Executive Officer)
|
|
|
|
|
337,500
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
9,798
|
|
|
|
|
|
347,298
|
|
|
|
Charles Kié* (Lead Independent Director*)
|
|
|
|
|
77,590
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
77,590
|
|
|
|
Philip Van Den Berg (Non Executive Director)
|
|
|
|
|
25,000
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
25,000
|
|
|
|
Trevor Scott* (Chief Financial Officer)
|
|
|
|
|
231,099
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
231,099
|
|
|
|
Dr. Aslihan Akkar-Schenkl (President)
|
|
|
|
|
59,508
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
5,079
|
|
|
|
|
|
64,587
|
|
|
|
Total
|
|
|
|
|
1,000,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.877
|
|
|
|
|
|
1,015,574
|
|
|
*
includes compensation paid by Bophelo Bio Science and Wellness (Pty) Ltd from January 1, 2021 to June 30, 2021.
Director Compensation
We currently have four directors who were elected to our Board of Directors in July and August 2021. We currently do not pay our directors who are executive officers additional compensation. We expect to compensate our non-executive directors for their director services. which will be settled partly in cash and partly in equity awards. Total non-executive director compensation will be as follows:
•
an annual retainer of $75,000 ($100,000 for the lead independent director);
•
an initial equity award equal to the value of $100,000;
•
an additional $5,000 per annum for any non-executive director serving on a board committee ($6,000 if serving as chair of a board committee other than the audit and risk committee and $10,000 if serving as chair of the audit and risk committee).
Executive Employment Agreements, Arrangements or Plans
The following describes the respective employment agreements entered into and currently in place between the Company and its executive officers.
Employment Agreement by and among Canmart, Halo and Tejinder Virk, dated June 2, 2021
Title. Mr. Virk initially served as Chief Executive Officer of Canmart and was appointed the Chief Executive Officer of Akanda in July 2021.
Term. Mr. Virk’s employment commenced on June 2, 2021 and shall continue until terminated by either party giving the other not less than six months prior written notice, provided that the employer can only give notice after 18 months following the commencement date.
Basic Salary. Mr. Virk will be paid an annual salary of £500,000, or US$670,645 subject to applicable deductions as required by law including for tax and national insurance.
Incentive Payments & Bonuses. Mr. Virk is entitled to receive (i) an incentive payment of £250,000 (US$335,323), which shall be paid in the subsequent month following the listing of Akanda’s share capital upon a recognized stock exchange including Nasdaq, and (ii) an incentive payment of £250,000 (US$335,323), which shall be paid in the month following receipt by the employer of an equity financing (excluding any equity shares issued on conversion of any convertible securities or any equity securities issued to Halo, Inc.) with an aggregate subscription price of not less than £10,000,000. In addition, Mr. Virk is entitled to participate in the employer’s bonus scheme with an annual bonus opportunity of: (A) up to 100% of his annual salary on meeting achievable KPIs as determined by the board; and (B) an additional bonus opportunity based on achievable stretch targets which is to be determined by the board.
Mr. Virk is expected to be granted an option to purchase Common Shares under the Plan, which is subject to monthly vesting over a three year period, with a one year vesting cliff, and customary good leaver, intermediate leaver and bad leaver conditions.
In the event that there is a change of control of the employer after the date falling 12 months after the date of the grant of the equity interest and before the end of the three year vesting period, and Mr. Virk remains an employee at that time, the vesting of the equity interest will automatically be accelerated immediately prior to such change of control.
Halo will guarantee that, if the employer under the agreement does not comply with its obligations to pay any amount due to Mr. Virk, Halo shall pay the guaranteed amount to Mr. Virk on demand.
Employment Agreement by and between Akanda Corp. and Dr. Aslihan Akkar-Schenkl, dated September 28, 2021
Title. Dr. Akkar-Schenkl was appointed the President of Akanda Corp. on October 1, 2021.
Term. Dr. Akkar-Schenkl’s employment commenced on October 1, 2021 and shall continue until terminated by either party giving the other not less than two weeks prior written notice during the first six months of the employment and afterwards, not less than three months prior written notice to the end of the quarter.
Basic Salary. Dr. Akkar-Schenkl will be paid an annual salary of €154,000, or $178,578.40 subject to applicable deductions as required by law including for tax and national insurance.
Incentive Payments & Bonuses. Dr. Akkar-Schenkl is entitled to receive a fixed annual bonus of €46,000 every 12 months in January of each year, with each 12 month measurement period commencing on January 1 and ending on December 31 of each year.
Service Agreement by and between Canmart, Akanda Corp. and Louisa Mojela, dated January 24, 2022
Title. Ms. Mojela was appointed the Executive Chairperson of Akanda Corp.
Term. Ms. Mojela’s employment commenced on July 1, 2021 and shall continue until terminated by either party giving the other not less than six months prior written notice, provided that the employer can only give notice after 18 months following the commencement date.
Basic Salary. Ms. Mojela will be paid an annual salary of £400,000 subject to applicable deductions as required by any local laws including for tax and social security.
Deferred Compensation. Further to Ms. Mojela's annual salary, Ms. Mojela shall be entitled to a further amount of £100,000 per annum in deferred compensation; which shall be settled in arrears on the six-month anniversary of the commencement date.
Incentive payments & Bonuses. Ms. Mojela is entitled to receive (i) an incentive payment of £200,000, which shall be paid in the subsequent month following the listing of Akanda’s share capital upon a recognized stock exchange including Nasdaq, and (ii) an incentive payment of £200,000, which shall be paid in the subsequent month following the listing of Akanda’s share capital upon a recognized stock exchange including Nasdaq, with an aggregate subscription price of not less than £10,000,000. In addition, Ms. Mojela is entitled to participate in Canmart’s bonus scheme with an annual bonus opportunity of (A) up to 100% of her annual salary based on meeting achievable KPIs as determined by the board using its reasonable discretion on or around the beginning of each financial year; and (B) an additional bonus opportunity based on achievable stretch targets which is to be determined by the board using its reasonable discretion.
Service Agreement by and between Canmart, Akanda Corp. and Trevor Scott, dated January 24, 2022
Title. Mr. Scott was appointed the Chief Financial Officer of Akanda Corp.
Term. Mr. Scott’s employment commenced on July 1, 2021 and shall continue until terminated by either party giving the other not less than six months prior written notice, provided that the employer can only give notice after 18 months following the commencement date.
Basic Salary. Mr. Scott will be paid an annual salary of £250,000 subject to applicable deductions as required by any local laws including for tax and social security.
Incentive payments & Bonuses. Mr. Scott is entitled to receive an incentive payment of £150,000, which shall be paid in the subsequent month following the listing of Akanda’s share capital upon a recognized stock exchange including Nasdaq. In addition, Mr. Scott is entitled to participate in Canmart’s bonus scheme with an annual bonus opportunity of (A) up to 100% of his annual salary based on meeting achievable KPIs as determined by the board using its reasonable discretion on or around the beginning of each financial year; and (B) an additional bonus opportunity based on achievable stretch targets which is to be determined by the board using its reasonable discretion.
Shares. Mr. Scott shall be granted, through an employee share ownership plan or otherwise, an award of an equity interest in Akanda of approximately 500,000 Common Shares. The equity interest will be subject to monthly vesting over a three year period, with a one year vesting cliff, and will be subject to customary good leaver, intermediate leaver and bad leaver conditions.
Stock Option Plan
The Company has a stock option plan (the “Plan”) whereby it may grant options for the purchase of Common Shares, or Restricted Share Units, to any director, consultant, employee or officer of the Company or its subsidiaries. The aggregate number of shares that may be issuable pursuant to options granted under the Plan will not exceed 20% of the issued Common Shares of the Company. The options are non-transferable and non-assignable and may be granted for a term not exceeding 5 years. The exercise price of the options will be determined by our Board of Directors at the time of grant, but in the event that such shares are traded on any stock exchange, may not be less than the closing price of such shares on such stock exchange on the trading date immediately precedent the date of grant, subject to all applicable regulatory requirements.
PRINCIPAL SHAREHOLDERS
The following table sets forth information about the beneficial ownership of our Common Shares as of January 27, 2022 by:
•
each of our executive officers, directors, and director nominees;
•
all of our executive officers, directors, and director nominees as a group; and
•
each person or entity (or group of affiliated persons or entities) known by us to be the beneficial owner of 5% or more of our Common Shares.
To our knowledge, each shareholder named in the table has sole voting and investment power with respect to all of our Common Shares shown as “beneficially owned” (as determined by the rules of the SEC) by such shareholder, subject to applicable community property laws and except as otherwise set forth in the footnotes to the table. The SEC has defined “beneficial” ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power.
Percentages beneficial ownership (as determined in accordance with Rule 13d-3 under the Exchange Act) are based on 22,385,317 Common Shares outstanding as of January 27, 2022. The column titled “Common Shares Beneficially Owned Immediately After this Offering” further is based on the 4,000,000 Common Shares that we are selling in this offering and an additional 1,311,848 Common Shares issuable upon conversion of the debenture described in footnote (6) to the table. The percentages assume no exercise by the underwriters of their option to purchase additional Common Shares from us in this offering.
Common Shares which may be acquired upon conversion of convertible securities or exercise of stock options or warrants which are currently exercisable or convertible or which become exercisable or convertible within 60 days after the date indicated in the table are deemed beneficially owned by the holder thereof.
Except as noted in the footnotes to the table below, the address for all of the shareholders in the table below is c/o Akanda, 1a, 1b Learoyd Road New Romney TN28 8XU, United Kingdom.
|
Name of Beneficial Owner
|
|
|
Common Shares
Beneficially Owned
Immediately Prior to this
Offering(1)
|
|
|
Common Shares
Beneficially Owned
Immediately After this
Offering(1)
|
|
|
|
Shares
|
|
|
Percentage
|
|
|
Shares
|
|
|
Percentage
|
|
|
Executive Officers, Directors, and Director Nominees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louisa Mojela, Executive Chairman and Director
|
|
|
|
|
2,855,602
|
|
|
|
|
|
12.8%
|
|
|
|
|
|
2,855,602
|
|
|
|
|
|
10.0%
|
|
|
|
Tejinder Virk, Chief Executive Officer and Director
|
|
|
|
|
1,875,602
|
|
|
|
|
|
8.4%
|
|
|
|
|
|
1,875,602
|
|
|
|
|
|
6.6%
|
|
|
|
Dr. Aslihan Akkar-Schenkl, President
|
|
|
|
|
—
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
*
|
|
|
|
Trevor Scott, Chief Financial Officer
|
|
|
|
|
40,000
|
|
|
|
|
|
*
|
|
|
|
|
|
40,000
|
|
|
|
|
|
*
|
|
|
|
Philip van den Berg, Director(2)
|
|
|
|
|
—
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
*
|
|
|
|
Charles Kié, Director
|
|
|
|
|
29,200
|
|
|
|
|
|
*
|
|
|
|
|
|
29,200
|
|
|
|
|
|
*
|
|
|
|
Gila Jones, Director Nominee
|
|
|
|
|
20,000
|
|
|
|
|
|
*
|
|
|
|
|
|
20,000
|
|
|
|
|
|
*
|
|
|
|
Gugu Dingaan, Director Nominee
|
|
|
|
|
4,000
|
|
|
|
|
|
*
|
|
|
|
|
|
4,000
|
|
|
|
|
|
*
|
|
|
|
All executive officers, directors, and director nominees as a
group
|
|
|
|
|
4,824,404
|
|
|
|
|
|
21.6%
|
|
|
|
|
|
4,824,404
|
|
|
|
|
|
16.9%
|
|
|
|
5% or more Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Halo Collective Inc.(3)
|
|
|
|
|
11,029,212
|
|
|
|
|
|
49.3%
|
|
|
|
|
|
12,341,060(6)
|
|
|
|
|
|
43.2%(6)
|
|
|
|
1306077 B.C. LTD.(4)
|
|
|
|
|
2,100,000
|
|
|
|
|
|
9.4%
|
|
|
|
|
|
2,100,000
|
|
|
|
|
|
7.4%
|
|
|
|
Raj Beri(5)
|
|
|
|
|
1,875,602
|
|
|
|
|
|
8.4%
|
|
|
|
|
|
1,875,602
|
|
|
|
|
|
6.6%
|
|
|
*
Represents less than 1% of the number of Common Shares outstanding.
(1)
Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. A person is
deemed to be the beneficial owner of any Common Shares if that person has or shares voting power or investment power with respect to those shares or has the right to acquire beneficial ownership at any time within 60 days.
(2)
Philip van den Berg is a director and Chief Financial Officer of Halo, but does not have voting or dispositive power over the Common Shares held of record and beneficially owned by Halo.
(3)
Halo’s business address is 504 - 100 Park Royal West Vancouver, BC V7T 1A2. Kiran Sidhu is the Chief Executive Officer of Halo, and in such capacity has voting and investment control over the Common Shares held by Halo. Mr. Sidhu disclaims beneficial ownership of the Common Shares held by Halo.
(4)
1306077 B.C. LTD. (“1306077”)’s business address is 885 W. Georgia St. #2200, Vancouver, BC V6C 3E8. David Jenkins is the director of 1306077, and in such capacity has voting and investment control over the Common Shares held by 1306077.
(5)
Includes 937,801 Common Shares held of record by ERB Investment Holdings, LLC and 937,801 Common Shares held of record by S&G Holdings, Ltd. Both ERB Investment Holdings, LLC and S&G Holdings, Ltd. are wholly owned and controlled by Raj Beri.
(6)
Includes 1,311,848 Common Shares which are expected to be issued to Halo upon the conversion of the Debenture at a conversion price of $5.00 per Common Share upon the consummation of this offering pursuant to the terms of the Debenture, assuming an initial public offering price of $5.00 per Common Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
For additional information about our principal shareholders, please see “Certain Relationships and Related Party Transactions.”
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements discussed under “Management Compensation” above, the following includes a description of those transactions with related parties to which we are a party and which we are required to disclose pursuant to the disclosure rules of the SEC. Specifically, the following includes summaries of transactions or agreements, during our last three fiscal years, to which we have been a party, in which the amount involved in the transaction exceeded $120,000, and in which any of our directors, director nominees, executive officers or beneficial owners of more than 5% of our capital stock, affiliates of our directors, director nominees, executive officers and holders of more than 5% of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Management Compensation” and “Principal Shareholders.”
Transactions with Related Parties
Our transactions with Principal Shareholder
At the closing of the Acquisition on November 3, 2021, as consideration for this Acquisition, we issued 13,129,212 Common Shares to Halo at a price of $1.00 per share, resulting in Halo owning approximately 68.3% of all our outstanding Common Shares. In connection with the closing of the Acquisition, we also entered into the Investor Rights Agreement with Halo. See “Prospectus Summary — Our History and Relationship with Halo — Acquisition of Subsidiaries from Halo” and “— Halo Investor Rights Agreement” for additional information regarding the Acquisition and the Investor Rights Agreement.
Historically, Halo has advanced loans to Bophelo and Canmart to fund its operations and capital expenditures. Pursuant to the internal reorganization undertaken by Halo as a precursor to the Acquisition, Bophelo Holdings acquired the equity and claims held by Halo against Bophelo Bio Science for a nominal $1 consideration and Cannahealth acquired the equity and claims held by Halo against Canmart for a nominal $1 consideration. In connection with the Acquisition and in respect of the aforementioned claims effectively being transferred from Halo to entities that have now been acquired by Akanda Corp., we issued, at the closing of the Acquisition, a secured convertible debenture to Halo in the principal amount of $6,559,294 in exchange for setting off all outstanding indebtedness owed by Bophelo to Halo. See “Prospectus Summary — Our History and Relationship with Halo — Issuance of Secured Convertible Debenture to Halo” for additional information regarding the terms of the debenture including its conversion terms. Furthermore, see the condensed unaudited financial statements of both Bophelo and Canmart for the nine months ended September 30, 2021 for further details of balances that were owing to Halo at September 30, 2021.
Halo has provided guarantee to our employment agreement with our Chief Executive Officer. See “Management Compensation — Employment Agreements, Arrangements or Plans” for additional information regarding this guarantee.
Our transactions with Our Executive Chairman
Bophelo has entered into a sublease agreement with the MMD Trust, which is controlled by Louisa Mojela, our Executive Chairman and director, and Granny Seape, a non-executive director of Bophelo. Please see “Business — Our Business — Description of Property” for additional information. Bophelo did not commence paying the rent for the leased premises until after 2020 and an interest was accrued on the unpaid rent. As of September 30, 2021, Bophelo owed a total amount of $189,811 to the MMD Trust for unpaid rent and interest.
Pursuant to the Loan Agreement dated November 18, 2019, Bophelo entered into a bridge loan facility agreement with Ms. Mojela, for a principal amount up to $1.1 million, with an interest rate of 1.5% per month, to fund the company’s general corporate and working capital requirements (the “Mojela Bridge Financing Facility”). This facility requires a redemption premium of 100% of the principal amount borrowed. This redemption premium will become payable upon successful raising of $18 million or, such other amount agreed by the parties, by October 31, 2022 or, if Ms. Mojela elects to convert the unpaid and outstanding portion of the loan into share capital of Bophelo or its direct and/or indirect holding company.
The outstanding loan was repayable in 2021 and is secured by a mortgage over the company’s property. In November 2021, the Company settled Bophelo’s indebtedness to Ms. Mojela, including the redemption premium of $1,100,000, in the aggregate amount of $2,200,000 under the Mojela Bridge Financing Facility by issuing 880,000 Common Shares to her at a price of $2.50 per share.
In September 2020, Bophelo entered into a loan agreement with Ms. Mojela in which Bophelo could borrow up to ZAR 2,000,000 ($135,226). The interest rate is the prevailing bank interest rate in South Africa and Bophelo shall repay each loan borrowed under this facility in full within 30 days of the payment being received by Bophelo, including the interest for the period of the loan. All outstanding principal amount under this loan agreement was repaid in 2020 with the exception of accrued and unpaid interest at the time of settlement in the total amount of $11,230, which has continued to accrue interest at the rate under the loan agreement. The outstanding balance under the loan agreement as of September 30, 2021 was $12,139.
In addition, as of September 30, 2021, Bophelo owed an additional amount of $183,736 to Ms. Mojela, which loan does not bear interest and has no fixed terms of repayment.
On January 24, 2022, Akanda and Canmart entered into a service agreement with Ms. Mojela. See “Management Compensation — Employment Agreements, Arrangements or Plans regarding this agreement.
Transactions with Canmart Directors
Canmart makes use of warehouse space owned by an entity known as D&D Investments Ltd. This entity is owned and controlled by two of the Canmart’s directors, namely David Dean and Darran Quinn. Canmart does not currently pay rent in relation to the use of this property and no signed lease agreement is in place, however Canmart plans to enter into a formal lease arrangement within the next 12 months.
Review, Approval and Ratification of Related Party Transactions
The Company has adopted a Related Party Transactions Policy for the review and approval of related party transactions.
Our Related Party Transactions Policy is administrated by our audit and risk committee and provides that, in determining whether or not to recommend the initial approval or ratification of a related party transaction, the relevant facts and circumstances available shall be considered, including, among other factors it deems appropriate, whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF INCORPORATION
The following is a summary of the material terms of our share capital and our articles of incorporation. Because it is a summary, this discussion should be read together with our articles of incorporation and the applicable share handling regulations.
General
The Company’s Articles of Incorporation, as amended by our Articles of Amendment (“Articles”), provide that our authorized capital consists of an unlimited number of Common Shares, which do not have any special rights or restrictions, and an unlimited number of preferred shares (“Preferred Shares”), issuable in series, as a class.
As of the date of this prospectus, the Company has 25,567,128 Common Shares issued and outstanding and no Preferred Shares outstanding.
Rights, Preferences and Restrictions Attaching to Our Common Shares
The Articles provide the following rights, privileges, restrictions and conditions attaching to our Common Shares:
•
to vote at meetings of shareholders, except meetings at which only holders of a specified class of shares other than the Common Shares are entitled to vote;
•
subject to the prior rights of the holders of the Preferred Shares, to share equally in the remaining property of our Company on liquidation, dissolution or winding-up of our Company; and
•
subject to the prior rights of the holders of the Preferred Shares, the Common Shares are entitled to receive dividends if, as, and when declared by the Board of Directors.
The holders of Common Shares are entitled to receive notice of and to attend all annual and special meetings of our shareholders and to one vote in respect of each Common Share held at the record date for each such meeting, except a meeting of holders of a particular class of shares other than Common Shares who are entitled to vote separately as a class at such meeting. Subject to the prior rights of the holders of the Preferred Shares, the holders of Common Shares are entitled, at the discretion of our Board of Directors, to receive out of any or all of our profits or surplus properly available for the payment of dividends, any dividend declared by our Board of Directors and payable by the Company on the Common Shares. The holders of the Common Shares will participate in any distribution of the assets of the Company upon liquidation, dissolution or winding-up or other distribution of the assets of the Company, subject to the prior rights of the holder of the Preferred Shares.
Pre-emptive Rights
Our Common Shares do not contain any pre-emptive purchase rights to any of our securities.
Shareholder Meetings
The Business Corporations Act (Ontario) provides that: (i) a general meeting of shareholders shall be held at such place in or outside Ontario as the directors determine or, in the absence of such a determination, at the place where the registered office of our Company is located; (ii) directors must call an annual meeting of shareholders not later than 18 months after the date of incorporation and no later than 15 months after the last preceding annual meeting; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at meetings of shareholders, the directors may fix in advance a date as the record date for that determination, provided that such date shall not precede by more than 60 days or by less than 30 days, the date on which the meeting is to be held; (iv) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition; and (v) upon the application of a director or shareholder entitled to vote at the meeting, the Superior Court of Justice may order a meeting to be called, held and conducted in a manner that the Court directs.
The Company’s Bylaws provide that a quorum is met when at least two persons holding or representing by proxy not less than 10% of the shares entitled to vote at the meeting of shareholders are present in person or represented by proxy.
The holders of our Common Shares are entitled to attend and vote at all meetings of the shareholders of the Company, except a meeting of holders of a particular class of shares other than the Common shares who are entitled to vote separately as a class at such meeting.
Fully Paid and Non-assessable
All outstanding Common Shares are, and the Common Shares to be outstanding upon completion of this offering will be, duly authorized, validly issued, fully paid and non-assessable.
Resale Restrictions
Our Articles do not impose restrictions on the transfer of Common Shares by a shareholder.
Purchasers under this offering should consult with their own professional advisers with respect to restrictions on the transferability of the securities offered hereunder.
Preferred Shares
The Preferred Shares may at any time and from time to time be issued in one or more series. The Board of Directors will, by resolution, from time to time, before the issue thereof, fix the designation, rights, privileges, restrictions and conditions attaching to the Preferred Shares of each series.
Penny Stock Regulation
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As our Common Shares immediately following this offering may be subject to such penny stock rules, purchasers in this offering will in all likelihood find it more difficult to sell their Common Shares in the secondary market.
Limitations on Liability and Indemnification of Officers and Directors
In accordance with the Business Corporations Act (Ontario) and pursuant to the Bylaws of the Company, subject to certain conditions, the Company shall indemnify a director or officer, a former director or officer, or another individual who acts or acted at the Company’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Company or other entity. The Company shall not indemnify an individual unless the individual:
•
acted honestly and in good faith with a view to the best interests of the Company or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the Company’s request; and
•
in the case of a criminal or administration action or proceeding enforced by a monetary penalty, had reasonable grounds to believe the conduct was lawful.
An individual referred to above is entitled to an indemnity from the Company in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defense of any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual’s association with the Company or other entity as described above, if the individual seeking an indemnity:
•
acted honestly and in good faith with a view to the best interests of the Company or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the Company’s request;
•
in the case of a criminal or administration action or proceeding enforced by a monetary penalty, had reasonable grounds to believe the conduct was lawful; and
•
was not judged by a court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Shares is Continental Stock Transfer & Trust Company.
Listing
We have applied to list our Common Shares on the Nasdaq Capital Market under the symbol “AKAN”. We cannot guarantee that we will be successful in listing our common shares on Nasdaq; however, we will not complete this offering unless we are so listed.
SECURITIES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Common Shares. Future sales of substantial amounts of our Common Shares in the public market or the perception that such sales might occur could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our Common Shares in the public market after the restrictions lapse. This may adversely affect the prevailing market price of our Common Shares and our ability to raise equity capital in the future.
After completion of this offering, we will have 28,576,128 Common Shares issued and outstanding (or 29,167,128 shares if the underwriters’ option to purchase additional shares is exercised in full), including 1,311,848 Common Shares we will issue to Halo upon conversion of the Debenture in connection with this offering.
All of the Common Shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless the shares are purchased by our “affiliates” as that term is defined in Rule 144 and except certain shares that will be subject to the lock-up period described below after completion of this offering. Any shares owned by our affiliates may not be resold except in compliance with Rule 144 volume limitations, manner of sale and notice requirements, pursuant to another applicable exemption from registration or pursuant to an effective registration statement.
All of the shares held by our directors, officers and certain holders of at least 1% of our outstanding securities to be subject to a 365 day lock-up restriction described under “Underwriting” on page 106. Certain other holders of at least 5% of our outstanding securities are subject to lock-up periods as discussed below. Accordingly, there will be a corresponding increase in the number of shares that become eligible for sale after the various lock-up periods expire. As a result of these agreements, subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
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beginning on the date of this prospectus, all of the shares sold in this offering will be immediately available for sale in the public market (except as described above);
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subject to certain lock-up periods applicable to certain of our holders of at least 5% of our outstanding securities as discussed below, beginning 365 days from the date on which the trading of our Common Shares on Nasdaq commences, at the expiration of all the lock-up periods for our officers, directors and holders of at least 1% of our outstanding securities, 21,149,218 additional shares will become eligible for sale in the public market, all of which shares will be held by affiliates and subject to the volume and other restrictions of Rule 144 and Rule 701 as described below.
Company Lock-Up
The Company will not for a period of up to 365 days from the date on which the trading of the Common Shares on Nasdaq commences: (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, the Common Shares, or modify the terms of existing securities, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Shares.
Lock-Up Agreements
Officers, Directors, and 1% Holders
Pursuant to certain “lock-up” agreements, we, our executive officers, directors and certain holders of at least 1% of outstanding Common Shares and securities exercisable for or convertible into our Common Shares outstanding immediately upon the closing of this offering, have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of
any Common Shares or securities convertible into or exchangeable or exercisable for any Common Shares, whether currently owned or subsequently acquired, without the prior written consent of the Representative, for a period of 365 days from the date on which the trading of our Common Shares on Nasdaq commences.
Halo
Under the Debenture and the Investor Rights Agreement, Halo agreed to enter into a lock-up agreement with us and the Representative, pursuant to which Halo shall not offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any of our securities for a period of 270 days from the date on which the trading of our Common Shares on Nasdaq commences (the “Lock-Up Trigger Date”), subject to customary carve-outs. The lock-up agreement will permit that up to 50% of our securities held by Halo may be sold or transferred from the 271st day through the 365th day following the Lock-Up Trigger Date, and the remaining 50% of such securities may be sold or transferred without the lock-up restrictions beginning on the 366th day following the Lock-Up Trigger Date. The lock-up restrictions shall not prohibit Halo from selling or transferring such number of our Common Shares to comply with the Ownership Limitation.
Private Placement
Investors in the Private Placement have entered into lock-up agreements, pursuant to which such investors shall not sell, transfer or otherwise dispose of their Common Shares for the period beginning on the date of the closing of the Private Placement until the 180th day after the date on which the trading of our Common Shares on Nasdaq commences (the “Private Placement Trigger Date”). Between the 181st and 270th day after the Private Placement Trigger Date, such investors shall not sell, transfer or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. Between the 271st and 365th day after the Private Placement Trigger Date, such investors shall not to sell, transfer or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. After the 365th day after the Private Placement Trigger Date, such investors will be entitled to sell their remaining Common Shares without restriction.
Notwithstanding the above, commencing 90 days after the Private Placement Trigger Date, if the Company’s Common Share price is at least 50% higher than the Common Share price in this offering, and the Common Shares trade at least 100,000 shares daily, both for ten consecutive trading days, such investors may sell one-third of their shares subject to a maximum sale on any trading day of 3% of the daily volume; and if the Company’s Common Share price is at least 100% higher than the Common Share price in this offering and the Common Shares trade at least 100,000 shares daily, both for ten consecutive trading days, such investors may sell up to an additional one-third of their shares subject to a maximum sale on any trading day of 3% of the daily volume; and if the Company Common Share price is at least 150% higher than the Common Share price in this offering and the Common Shares trade at least 100,000 shares daily, both for ten consecutive trading days, such investors may sell an additional one-third constituting a maximum total of all of their shares subject to a maximum sale on any trading day of 3% of the daily volume.
Halo Transferee
The Halo Transferee has entered into a lock-up agreement, pursuant to which the Halo Transferee shall not sell, transfer or otherwise dispose of their Common Shares for the period beginning on the date of the closing of the Halo Transfer until the 210th day after the date on which the trading of our Common Shares on Nasdaq commences (the “Halo Transfer Trigger Date”). Between the 211th and 285th day after the Halo Transfer Trigger Date, the Halo Transferee shall not sell, transfer, or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. Between the 286th and 360th day after the Halo Transfer Trigger Date, the Halo Transferee shall not sell, transfer, or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. After the 360th day after the Halo Transfer Trigger Date, the Halo Transferee will be entitled to sell their remaining Common Shares without restriction.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes
of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
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1% of the number of shares of our Common Shares then outstanding, which will equal approximately shares immediately after this offering; or
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the average weekly trading volume of our Common Shares during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our Common Shares pursuant to a written compensatory plan or contract and who is not deemed to have been our affiliate during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits our affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701 and are subject to the lock-up agreements described above.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL MATTERS RELATING TO SHARE TRANSFER RESTRICTIONS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN LEGAL ADVISOR REGARDING THE PARTICULAR SECURITIES LAWS AND TRANSFER RESTRICTION CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR COMMON SHARES OR THE COMMON SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
CERTAIN TAX CONSIDERATIONS
The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our Common Shares, including the Common Shares in this offering. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any local, state, foreign (including Canada, the United Kingdom and the Kingdom of Lesotho), or other taxing jurisdiction.
Certain Material Canadian Federal Income Tax Considerations
In the opinion of Dentons Canada LLP, Canadian counsel to the Company, the following summary describes the principal Canadian federal income tax considerations pursuant to the Income Tax Act (Canada) and the regulations thereunder (the “Tax Act”) generally applicable to the acquisition, holding and disposition of the Common Shares by a holder who acquires, as beneficial owner, the Common Shares pursuant to the offering and who, for purposes of the Tax Act and at all relevant times, holds the Common Shares as capital property, deals at arm’s length with the Company and each underwriter and is not affiliated with the Company or any underwriter (a “Holder”). Generally, the Common Shares will be considered to be capital property to a Holder provided the Holder does not acquire or hold the Common Shares in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
This summary does not apply to a Holder (i) that is a “financial institution” for the purposes of the mark-to-market rules contained in the Tax Act; (ii) that is a “specified financial institution” as defined in the Tax Act; (iii), an interest in which would be, or for whom a Common Share would be, a “tax shelter investment” as defined in the Tax Act; (iv) that has made a functional currency reporting election under the Tax Act to report in a currency other than the Canadian currency; (v) that has or will enter into a “derivative forward agreement”, a “synthetic disposition arrangement” or a “dividend rental arrangement”, each as defined under the Tax Act, with respect to the Common Shares. Such Holders should consult their own tax advisors with respect to an investment in the Common Shares or (vi) that carries on, or is deemed to carry on, an insurance business in Canada and elsewhere. Such Holders should consult their own tax advisors with respect to an investment in the Common Shares.
Additional considerations, not discussed herein, may be applicable to a Holder that is a corporation resident in Canada, and that is or becomes, or does not deal at arm’s length for purposes of the Tax Act with a corporation resident in Canada that is or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of the Common Shares, controlled by a non-resident person or group of non-resident persons not dealing with each other at arm’s length for purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Holders should consult their own tax advisors with respect to the possible application of these rules.
In addition, this summary does not address the deductibility of interest by a Holder who has borrowed money or otherwise incurred debt in connection with the acquisition of the Common Shares.
This summary is based upon the provisions of the Tax Act in force as of the date hereof, all specific proposals to amend the Tax Act that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (“CRA”) made publicly available prior to the date hereof. This summary assumes the Proposed Amendments will be enacted in the form proposed, however, no assurance can be given that the Proposed Amendments will be enacted in the form proposed, if at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Proposed Amendments, does not take into account or anticipate any changes in law or the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial action or decision, nor does it take into account provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.
Subject to certain exceptions that are not discussed in this summary, for the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares, including dividends, must be determined in Canadian dollars using the relevant exchange rate determined in accordance with the Tax Act.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder or prospective holder of the Common Shares, and no representations with respect to the income tax consequences to any holder or prospective holder are made. Consequently, holders and prospective holders of the Common Shares should consult their own tax advisors for advice with respect to the tax consequences to them of acquiring the Common Shares, having regard to their particular circumstances.
Holders Resident in Canada
This portion of the summary applies to a Holder who, at all relevant times, for purposes of the Tax Act and any applicable income tax treaty or convention, is or is deemed to be resident in Canada (a “Resident Holder”).
Certain Resident Holders who might not otherwise be considered to hold their Common Shares as capital property may, in certain circumstances, be entitled to have the Common Shares, and all other “Canadian securities” (as defined in the Tax Act) owned by such Resident Holders in the taxation year of the election and any subsequent taxation year, treated as capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act. Resident Holders should consult their own tax advisors regarding the availability or advisability of this election.
Dividends on the Common Shares
Dividends received or deemed to be received on the Common Shares by a Resident Holder who is an individual (other than certain trusts) will generally be included in the individual’s income and will be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received from taxable Canadian corporations, including the enhanced dividend tax credit rules applicable to any dividends designated by the Company as “eligible dividends” in accordance with the Tax Act. There may be limitations on the ability of the Company to designate dividends as “eligible dividends.”
In the case of a Resident Holder that is a corporation, the amount of any such taxable dividend that is included in its income for a taxation year will generally also be deductible in computing its taxable income for that taxation year. In certain circumstances, a dividend received or deemed to be received by a Resident Holder that is a corporation may be deemed to be proceeds of disposition or a capital gain pursuant to subsection 55(2) of the Tax Act. Resident Holders that are corporations should consult their own tax advisors having regard to their own particular circumstances.
A Resident Holder that is a “private corporation” or a “subject corporation”, each as defined in the Tax Act will generally be liable to pay a refundable tax under Part IV of the Tax Act on dividends received or deemed to be received on the Common Shares to the extent such dividends are deductible in computing its taxable income for the taxation year. Such additional tax may be refundable in certain circumstances.
Dispositions of Common Shares
Upon a disposition (or a deemed disposition) of a Common Share, a Resident Holder generally will realize a capital gain (or a capital loss) equal to the amount, if any, by which the proceeds of disposition of such Common Share, net of any reasonable costs of disposition, are greater (or are less) than the adjusted cost base of such Common Share to the Resident Holder.
The adjusted cost base to a Resident Holder of Common Shares acquired hereunder will be determined by averaging the cost of such Common Shares to the Resident Holder with the adjusted cost base of all other Common Shares, if any, held by the Resident Holder as capital property immediately before the acquisition.
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain (a “taxable capital gain”) realized by a Resident Holder in a taxation year must be included in the Resident Holder’s income for the year and one-half of any capital loss (an “allowable capital loss”) realized by a Resident Holder in a taxation year must be deducted from taxable capital gains realized by the Resident Holder in that year. Allowable capital losses in excess of taxable capital gains realized in a taxation year generally may be carried back and deducted in any of the three
preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the circumstances described in the Tax Act.
The amount of any capital loss realized by a Resident Holder that is a corporation on the disposition of a Common Share may be reduced by the amount of dividends received or deemed to be received by it on such Common Share, to the extent and under the circumstances described in the Tax Act. Similar rules may apply where a Common Share is owned by a partnership or trust of which a corporation, trust or partnership is a member or beneficiary. Resident Holders to whom these rules may be relevant should consult their own tax advisors.
Aggregate Investment Income
A Resident Holder that is, throughout the relevant taxation year, a “Canadian-controlled private corporation”, as defined in the Tax Act, may be liable to pay a refundable tax on its “aggregate investment income”, which is defined in the Tax Act to include an amount in respect of taxable capital gains and dividends or deemed dividends that are not deductible in computing such corporation’s income.
Alternative Minimum Tax
Capital gains realized and dividends received or deemed to be received by an individual (including certain trusts) may give rise to liability for alternative minimum tax as calculated under the detailed rules set out in the Tax Act. Resident Holders who are individuals should consult their own tax advisors in this regard.
Holders Not Resident in Canada
This portion of the summary applies to a Holder who, at all relevant times, for purposes of the Tax Act and any applicable income tax treaty or convention (i) is neither resident nor deemed to be resident in Canada, and (ii) does not, and is not deemed to, use or hold the Common Shares in a business carried on in Canada (a “Non-Resident Holder”). In addition, this portion of the summary does not apply to an insurer who carries on an insurance business in Canada and elsewhere or an “authorized foreign bank” (as defined in the Tax Act) and such Non-Resident Holders should consult their own tax advisors.
Dividends on the Common Shares
Any dividends paid or credited, or deemed to be paid or credited, on the Common Shares, as the case may be, to a Non-Resident Holder will generally be subject to Canadian withholding tax at the rate of 25% of the gross amount of the dividend, subject to any reduction in the rate of withholding to which that Non-Resident Holder may be entitled under an applicable income tax treaty or convention. For instance, where the Non-Resident Holder is a resident of the United States that is entitled to applicable benefits under the Canada-United States Income Tax Convention (1980), as amended, and is the beneficial owner of the dividends, the rate of Canadian withholding tax applicable to dividends is generally reduced to 15%. The rate of withholding tax is generally further reduced to 5% if the beneficial owner of such dividend is a company that owns, directly or indirectly, at least 10% of the voting stock of the Company. Non-Resident Holders should consult their own tax advisors to determine their entitlement to relief under an applicable income tax treaty or convention.
Disposition of the Common Shares
A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized by such Non-Resident Holder on a disposition of a Common Share unless such share constitutes “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is not entitled to relief under an applicable income tax treaty or convention.
Generally, the Common Shares will not constitute “taxable Canadian property” of a Non-Resident Holder at any particular time provided that the Common Shares are then listed on a “designated stock exchange” for the purposes of the Tax Act (which currently includes the Nasdaq), unless at any time during
the 60-month period immediately preceding such time: (i) at least 25% or more of the issued shares of any class or series of the capital stock of the Company were owned by or belonged to any combination of (x) the Non-Resident Holder, (y) persons with whom the Non-Resident Holder did not deal at arm’s length (for the purposes of the Tax Act), and (z) partnerships in which the Non-Resident Holder or a person described in (y) holds a membership interest directly or indirectly through one or more partnerships; and (ii) more than 50% of the fair market value of such shares was derived directly or indirectly from one, or any combination of, real or immovable property situated in Canada, Canadian resource property (as defined in the Tax Act), timber resource property (as defined in the Tax Act) or options in respect of, interests in or for civil law rights in, any such property (whether or not such property exists). Notwithstanding the foregoing, the Common Shares may also be deemed to be “taxable Canadian property” in certain circumstances.
In cases where a Non-Resident Holder disposes (or is deemed to have disposed) of a Common Share that is “taxable Canadian property” to that Non-Resident Holder, and the Non-Resident Holder is not entitled to an exemption under an applicable income tax treaty or convention, the consequences described above under the headings “Holders Resident in Canada — Dispositions of Common Shares” and “Taxation of Capital Gains and Capital Losses” will generally be applicable to such disposition. Non-Resident Holders for whom a Common Share is, or may be, “taxable Canadian property” should consult their own tax advisors.
Certain Material U.S. Federal Income Tax Considerations
The following discussion is a general summary of certain material U.S. federal income tax considerations with respect to the ownership and disposition of shares of our Common Shares. This summary is based on current U.S. federal income tax laws (including provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder and administrative rulings and court decisions, all in effect as of the date hereof), all of which are subject to change at any time, possibly with retroactive effect.
For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of one or more of our Common Shares that is for U.S. federal income tax purposes one of the following:
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an individual citizen or resident of the United States, including individuals treated as residents of the United States solely for tax purposes;
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a corporation created or organized in or under the laws of the United States or any political subdivision thereof;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source, or;
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a trust if (1) a court within the United States can exercise primary supervision over it, and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.
This discussion applies only to a U.S. Holder that holds Common Shares as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). Unless otherwise provided, this summary does not discuss reporting requirements. In addition, this discussion does not address any tax consequences other than U.S. federal income tax consequences, such as U.S. state and local tax consequences, U.S. estate and gift tax consequences, and non-U.S. tax consequences, and does not describe all of the U.S. federal income tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the net investment income tax, and tax consequences to holders that are subject to special provisions under the Code, including, but not limited to, holders that:
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are tax exempt organizations, qualified retirement plans, individual retirement accounts, or other tax deferred accounts;
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are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies;
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are brokers or dealers in securities or currencies or holders that are traders in securities that elect to apply a mark-to-market accounting method;
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have a “functional currency” for U.S. federal income tax purposes that is not the U.S. dollar;
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own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position;
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acquire Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services;
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are partnerships or other pass-through entities for U.S. federal income tax purposes (or investors in such partnerships and entities);
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are required to accelerate the recognition of any item of gross income with respect to the Common Shares as a result of such income being recognized on an applicable financial statement;
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own or will own (directly, indirectly, or constructively) 10% or more of our total combined voting power or value;
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are controlled foreign corporations;
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are passive foreign investment companies;
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hold the Common Shares in connection with trade or business conducted outside of the United States or in connection with a permanent establishment or other fixed place of business outside of the United States; or
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are former U.S. citizens or former long-term residents of the United States.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of our securities, the tax treatment of a person treated as a partner for U.S. federal income tax purposes generally will depend on the status of the partner and the activities of the partnership. Persons that for U.S. federal income tax purposes are treated as a partner in a partnership holding shares of our securities should consult their tax advisors.
We have not sought, and do not expect to seek, a ruling from the United States Internal Revenue Service (the “IRS”), as to any United States federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.
Except as otherwise noted, this summary assumes that the Company (nor any of its subsidiaries) is not a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. A non-U.S. entity’s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company (or any of its subsidiaries) were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders.
All prospective investors should consult with their own tax advisors regarding the U.S. federal, state, local, non-U.S. income and other tax considerations of acquiring, holding and disposing of the Common Shares.
WE RECOMMEND THAT PROSPECTIVE HOLDERS OF OUR COMMON SHARES CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY FEDERAL, STATE, LOCAL, NON-U.S. INCOME AND OTHER TAX LAWS) OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES.
U.S. Holders
Taxation of Distributions to U.S. Holders
Subject to the PFIC rules discussed below, a U.S. Holder generally will be required to include in gross income, in accordance with such U.S. Holder’s method of accounting for United States federal income tax purposes, as dividends the amount of any distribution of cash or other property (other than certain distributions of the Company’s shares or rights to acquire the Company’s shares) paid on the Company’s
Common Shares to the extent the distribution is paid out of the Company’s current or accumulated earnings and profits (as determined under United States federal income tax principles). Distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its Common Shares (but not below zero) and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such Common Shares (the treatment of which is described under “— Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares to U.S. Holders” below). Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, we expect that distributions, if issued, will generally be reported to U.S. Holders as dividends.
Dividends paid by us will be taxable to a corporate U.S. Holder at regular rates and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. With respect to individuals and other non-corporate U.S. Holders, dividends generally will be taxed at the lower applicable long-term capital gains rate (see “— Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares to U.S. Holders” below) applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) our Common Shares on which the dividends are paid are readily tradable on an established securities market in the United States or the Company is eligible for the benefits of the U.S.-Canada income tax treaty (the “Treaty”), (2) we are not a PFIC (nor treated as such with respect to a U.S. Holder) at the time the dividend was paid or in the previous year, and (3) certain other requirements are met. U.S. Holders should consult their tax advisors regarding the availability of such lower rate for any dividends paid with respect to our Common Shares.
For U.S. foreign tax credit purposes, dividends paid on our Common Shares generally will be treated as foreign source income and generally will constitute passive category income. The amount of a dividend will include any amounts withheld by us in respect of Canadian income taxes. Subject to applicable limitations, some of which vary depending upon the U.S. Holder’s particular circumstances, Canadian income taxes withheld from dividends on the Common Shares, at a rate not exceeding any reduced rate pursuant to the Treaty, will be creditable against the U.S. Holder’s U.S. federal income tax liability. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including any Canadian income taxes, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisers regarding the creditability or deductibility of foreign taxes in their particular circumstances.
The amount of any dividend paid in Canadian dollars will equal the U.S. dollar value of the Canadian dollars received, calculated by reference to the exchange rate in effect on the date the dividend is received by you, in the case of Common Shares, regardless of whether the Canadian dollars are converted into U.S. dollars. If the Canadian dollars received as a dividend are converted into U.S. dollars on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the Canadian dollars received as a dividend are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Canadian dollar will be treated as U.S. source ordinary income or loss.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares to U.S. Holders
Subject to the PFIC rules discussed below, a U.S. Holder generally will recognize capital gain or loss on the sale or other taxable disposition of our Common Shares. The amount of gain or loss recognized by a U.S. Holder on a sale or other taxable disposition generally will be equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. Holder’s adjusted tax basis in its Common Shares so disposed of. A U.S. Holder’s adjusted tax basis in its Common Shares generally will equal the U.S. Holder’s acquisition cost reduced by any prior distributions treated as a return of capital.
Any capital gain or loss recognized generally will be long-term capital gain or loss if the U.S. Holder’s holding period for such Common Shares exceeds one year. Long-term capital gain realized by a non-corporate U.S. Holder may be taxed at rates of taxation lower than the rates applicable to ordinary income and
short-term capital gains, while short-term capital gains are subject to U.S. federal income tax at the rates applicable to ordinary income. The deductibility of capital losses is subject to various limitations.
Any gain or loss recognized by a U.S. Holder will generally be U.S. source gain or loss for foreign tax credit purposes. Consequently, a U.S. Holder may not be able to use the foreign tax credit arising from any non-U.S. tax imposed on the disposition of the Common Shares unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from non-U.S. sources.
Passive Foreign Investment Company (“PFIC”) Rules
A non-U.S. corporation will be classified as a PFIC for United States federal income tax purposes if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income or (ii) at least 50% of its assets in a taxable year (ordinarily determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes, among other things, dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of assets giving rise to passive income.
Although our PFIC status is determined annually, an initial determination that our Company is a PFIC generally will apply for subsequent years to a U.S. Holder who held Company Shares while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our Common Shares and the U.S. Holder did not make either a timely mark-to-market election or a qualified electing fund (“QEF”) election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) Common Shares, as described below, such U.S. Holder generally will be subject to special rules with respect to (i) any gain recognized by the U.S. Holder on the sale or other disposition of its Common Shares (which may include gain realized by reason of transfers of Common Shares that would otherwise qualify as nonrecognition transactions for United States federal income tax purposes) and (ii) any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Common Shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the Common Shares). Under these special tax rules:
•
the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Common Shares;
•
the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income;
•
the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder without regard to the U.S. Holder’s other items of income and loss for such year; and
•
an additional amount equal to the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder with respect to the tax attributable to each such other taxable year of the U.S. Holder.
In general, if we are determined to be a PFIC, a U.S. Holder may be able to avoid application of the PFIC tax consequences described above in respect to our Common Shares by making a timely and valid QEF election (if eligible to do so) to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge. There is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided. We, therefore, have not determined whether, if we were to be classified as a PFIC
for a taxable year, we will provide information necessary for a U.S. Holder to make a QEF election which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs. Accordingly, U.S. Holders should assume that they will not be able to make a QEF election with respect to the Common Shares.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) Common Shares in us and for which we are determined to be a PFIC, such U.S. Holder generally will not be subject to the PFIC rules described above in respect to its Common Shares. Instead, in general, the U.S. Holder will include as ordinary income in each taxable year the excess, if any, of the fair market value of Common Shares at the end of its taxable year over its adjusted basis in its Common Shares. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. The U.S. Holder also generally will recognize an ordinary loss in respect of the excess, if any, of its adjusted basis in its Common Shares over the fair market value of its Common Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its Common Shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of its Common Shares will be treated as ordinary income.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. If made, a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the Common Shares ceased to qualify as “marketable stock” for purposes of the PFIC rules or the IRS consented to the revocation of the election. U.S. Holders are urged to consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our Common Shares under their particular circumstances.
If we are or become a PFIC and, at any time, have a non-U.S. subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC. There can be no assurance that we will have timely knowledge of the status of any such lower-tier PFIC. In addition, we may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance we will be able to cause the lower-tier PFIC to provide such required information. A mark-to-market election generally would not be available with respect to such lower-tier PFIC. U.S. Holders are urged to consult their tax advisors regarding the tax issues raised by lower-tier PFICs.
A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder, may have to file an IRS Form 8621, or any successor form, (whether or not a QEF or mark-to-market election is made) and such other information as may be required by the U.S. Treasury Department. Failure to do so, if required, will extend the statute of limitations until such required information is furnished to the IRS (potentially including with respect to items that do not relate to a U.S. Holder’s investment in Common Shares).
The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our Common Shares should consult their own tax advisors concerning the application of the PFIC rules to our Common Shares under their particular circumstances.
Information Reporting and Backup Withholding
Payments of dividends or sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient, or (ii) in the case of backup withholding, the U.S. Holder provides a correct U.S. taxpayer identification number and certifies that it is not subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules in their particular circumstances and the availability of and procedures for obtaining an exemption from backup withholding.
Reporting Obligations for Certain Owners of Foreign Financial Assets
Certain U.S. Holders may be required to file an IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) to report a transfer of property (including cash) to us. Substantial penalties may be imposed on a U.S. Holder that fails to comply with this reporting requirement, and the period of limitations on assessment and collection of United States federal income taxes will be extended in the event of a failure to comply. Furthermore, certain U.S. Holders who are individuals and certain entities will be required to report information with respect to such U.S. Holder’s investment in “specified foreign financial assets” on IRS Form 8938 (Statement of Specified Foreign Financial Assets), subject to certain exceptions. Specified foreign financial assets generally include any financial account maintained with a non-U.S. financial institution and should also include the Common Shares if they are not held in an account maintained with a U.S. financial institution. Persons who are required to report specified foreign financial assets and fail to do so may be subject to substantial penalties, and the period of limitations on assessment and collection of United States federal income taxes may be extended in the event of a failure to comply. Potential investors are urged to consult their tax advisors regarding the foreign financial asset and other reporting obligations and their application to an investment in our Common Shares.
The discussion of reporting obligations set forth above is not intended to constitute an exhaustive description of all reporting obligations that may apply to a U.S. Holder. A failure to satisfy certain reporting obligations may result in an extension of the period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting obligation. Penalties for failure to comply with these reporting obligations are substantial. U.S. Holders should consult with their own tax advisors regarding their reporting obligations under these rules, including the requirement to file an IRS Form 8938.
Non-U.S. Holders
This section applies to you if you are a “Non-U.S. Holder.” As used herein, the term “Non-U.S. Holder” means a beneficial owner of our Common Shares that is for United States federal income tax purposes that is not a U.S. Holder, as defined above.
Taxation of Distributions to Non-U.S. Holders
A Non-U.S. Holder of our Common Shares will generally not be subject to U.S. federal income or withholding tax on dividends received on our Common Shares, unless such income is effectively connected with the conduct by the holder of a U.S. trade or business.
Any distribution not constituting a dividend will be treated as first reducing the adjusted basis in the Non-U.S. Holder’s shares of our Common Shares and, to the extent it exceeds the adjusted basis in the Non-U.S. Holder’s shares of our Common Shares, as gain from the sale or exchange of such shares. Any such gain will be subject to the treatment described below under “— Gain on Sale or Other Disposition of our Common Shares to Non-U.S. Holders”.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares to Non-U.S. Holders
A Non-U.S. Holder of our Common Shares will not be subject to U.S. federal income or withholding tax on gain realized on the sale or other taxable disposition of our Common Shares of Common Shares, unless: such gain is effectively connected with the conduct by the holder of a U.S. trade or business; or in the case of gain realized by an individual holder, the holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.
UNDERWRITING
We expect to enter an underwriting agreement with Boustead Securities, LLC (who we refer to as the Representative), as representative of the underwriters named in this prospectus, with respect to the Common Shares in this offering. Under the terms and subject to the conditions contained in the underwriting agreement, the Representative will agree to purchase from us on a firm commitment basis the respective number of Common Shares at the public price less the underwriting discounts set forth on the cover page of this prospectus, and each of the underwriters has severally agreed to purchase, and we have agreed to sell to the underwriters, the number of Common Shares listed next to its name in the following table.
|
Underwriters
|
|
|
Number of Shares
|
|
|
Boustead Securities, LLC
|
|
|
|
|
4,000,000
|
|
|
|
Total
|
|
|
|
|
4,000,000
|
|
|
The Common Shares sold by the underwriters to the public will initially be offered at the initial public offering price range set forth on the cover page of this prospectus. Any Common Shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $0.175 per share. If all of the shares are not sold at the initial offering price, the Representative may change the offering price and the other selling terms. The Representative has advised us that the underwriters do not intend to make sales to discretionary accounts.
If the underwriters sell more Common Shares than the total number set forth in the table above, we have granted to the Representative an option, exercisable for 45 days from the date of this prospectus, to purchase up to 600,000 additional Common Shares at the public offering price less the underwriting discount, constituting 15% of the total number of Common Shares to be offered in this offering (excluding shares subject to this option). The Representative may exercise this option solely for the purpose of covering over-allotments in connection with this offering. This offering is being conducted on a firm commitment basis. Any Common Shares issued or sold under the option will be issued and sold on the same terms and conditions as the other Common Shares that are the subject of this offering.
In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
•
Short sales involve secondary market sales by an underwriter of a greater number of shares than they are required to purchase in the offering.
•
“Covered” short sales are sales of shares in an amount up to the number of shares represented by the over-allotment option.
•
“Naked” short sales are sales of shares in an amount in excess of the number of shares represented by the over-allotment option.
•
Covering transactions involve purchases of shares either pursuant to the over-allotment option or in the open market after the distribution has been completed in order to cover short positions.
•
To close a naked short position, an underwriter must purchase shares in the open market after the distribution has been completed. A naked short position is more likely to be created if an underwriter is concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
•
To close a covered short position, an underwriter must purchase shares in the open market after the distribution has been completed or must exercise the over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.
•
Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum.
Purchases to cover short positions and stabilizing purchases, as well as other purchases by an underwriter for its own account, may have the effect of preventing or retarding a decline in the market price of the Common Shares. They may also cause the price of the Common Shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
Discounts and Expenses
The following table shows the underwriting discounts payable to the underwriters by us in connection with this offering (assuming both the exercise and non-exercise of the over-allotment option that we have granted to the Representative), based on the assumed initial public offering price of $5.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus:
|
|
|
|
Per Share
|
|
|
Total Without
Exercise of
Over-Allotment
Option
|
|
|
Total With
Exercise of
Over-Allotment
Option
|
|
|
Public offering price
|
|
|
|
$
|
5.00
|
|
|
|
|
$
|
20,000,000
|
|
|
|
|
$
|
23,000,000
|
|
|
|
Underwriting discounts (7%)(1)
|
|
|
|
$
|
0.35
|
|
|
|
|
$
|
1,400,000
|
|
|
|
|
$
|
1,610,000
|
|
|
|
Non-accountable expense allowance
|
|
|
|
$
|
0.50
|
|
|
|
|
$
|
200,000
|
|
|
|
|
$
|
230,000
|
|
|
|
Proceeds, before expenses, to us
|
|
|
|
$
|
4.15
|
|
|
|
|
$
|
18,400,000
|
|
|
|
|
$
|
21,390,000
|
|
|
(1)
Does not include (i) the warrant to purchase Common Shares equal to 7% of the number of shares sold in the offering, or (ii) amounts representing reimbursement of certain out-of-pocket expenses, as described below.
We have agreed to issue warrants to the Representative to purchase a number of Common Shares equal to 7% of the total number of shares sold in this offering at an exercise price equal to 125% of the public offering price of the shares sold in this offering. The Representative’s warrants will have a cashless exercise provision and will terminate on the fifth anniversary of the effective date of the registration statement of which this prospectus is a part. The Representative’s warrants are not exercisable or convertible for more than five years from the commencement of sales of the public offering. The Representative’s warrants also provide for customary anti-dilution provisions and immediate “piggyback” registration rights with respect to the registration of the Common Shares underlying the Representative’s warrants for a period of seven years from the effective date of the registration statement of which this prospectus forms a part. We have registered the Representative’s warrants and the shares underlying the Representative’s warrants in this offering.
The Representative’s warrant and the underlying shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e)(1). In accordance with FINRA Rule 5110(e)(1), neither the Representative’s warrant nor any of our Common Shares issued upon exercise of the Representative’s warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the effective date of the registration statement pursuant to which the Representative’s warrant is being issued, subject to certain exceptions. The Representative’s warrant to be received by the Representative and related persons in connection with this offering: (i) fully comply with lock-up restrictions pursuant to FINRA Rule 5110(e)(1); and (ii) fully comply with transfer restrictions pursuant to FINRA Rule 5110(e)(2).
We have agreed to pay the Representative the reasonable out-of-pocket expenses incurred by the Representative in connection with this offering up to $255,000, consisting of up to $125,000 relating to reasonable fees of Representative’s legal counsel. The Representative’s out-of-pocket expenses include but are not limited to: (i) road show and travel expenses up to $50,000, (ii) reasonable fees of Representative's legal counsel up to $125,000, (iii) the cost of background check on our officers, directors and major shareholders up to $5,000, and (iv) due diligence expenses up to $75,000. Any out-of-pocket expenses above $5,000 are to be pre-approved by the Company. As of the date of this prospectus, we have not paid the Representative
advances of for its anticipated out-of-pocket costs. Any such advance payments will be returned to us to the extent such out-of-pocket expenses are not actually incurred in accordance with FINRA Rule 5110(g)(4)(A). We have also agreed to pay the Representative a non-accountable expense allowance equal to 1% of the gross proceeds received at the closing of this offering.
Determination of Offering Price
In determining the initial public offering price, we and the Representative have considered a number of factors, including:
•
the information set forth in this prospectus and otherwise available to the Representative;
•
our prospects and the history and prospects for the industry in which we compete;
•
an assessment of our management;
•
our prospects for future revenue and earnings;
•
the general condition of the securities markets at the time of this offering;
•
the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and
•
other factors deemed relevant by the Representative and us.
The estimated initial public offering price set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the Representative can assure investors that an active trading market will develop for our Common Shares, or that the shares will trade in the public market at or above the initial public offering price.
We have agreed to indemnify the Representative and the other underwriters against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments that the Representative and the other underwriters may be required to make for these liabilities.
Right of First Refusal
We have agreed to provide the Representative the right of first refusal for twelve (12) months following the consummation of this offering or the termination or expiration of the engagement with the Representative to act as financial advisor or to act as joint financial advisor on or at least equal economic terms on any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of our equity or our assets (collectively, “Future Services”); provided, however, that the Representative shall not be entitled to have such right of first refusal if this offering is not consummated. In the event that we engage the Representative to provide such Future Services, the Representative will be compensated consistent with the engagement agreement with the Representative, unless we mutually agree otherwise. To the extent we are approached by a third party to lead any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of our equity or assets, the Representative will be notified of the transaction and be granted the right to participate in such transaction under any syndicate formed by such third party.
No Sales of Similar Securities
We have agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our Common Shares or other securities convertible into or exercisable or exchangeable for Common Shares at a price per share that is less the price per Common Share in this offering, or modify the terms of any existing securities, whether in conjunction with another broker-dealer or on the Company’s own volition, for a period of twelve months following date on which the Common Shares are trading on the Nasdaq Capital Market, without the prior written consent of the Representative.
Company Lock-Up
The Company will not for a period of up to 365 days from the date on which the trading of the Common Shares on Nasdaq commences: (i) offer, pledge, announce the intention to sell, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, the Common Shares, or modify the terms of existing securities, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Shares.
Lock-Up Agreements
Officers, Directors, and 1% Holders
Our directors, executive officers and certain beneficial holders of 1% or more of our outstanding Common Shares have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any Common Shares for a period of up to 365 days from the date on which the trading of our Common Shares on Nasdaq commences.
Halo
Under the Debenture and the Investor Rights Agreement, Halo agreed to enter into a lock-up agreement with us and the Representative, pursuant to which Halo shall not offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any of our securities for a period of 270 days from the date on which the trading of our Common Shares on Nasdaq commences (the “Lock-Up Trigger Date”), subject to customary carve-outs. The lock-up agreement will permit that up to 50% of our securities held by Halo may be sold or transferred from the 271st day through the 365th day following the Lock-Up Trigger Date, and the remaining 50% of such securities may be sold or transferred without the lock-up restrictions beginning on the 366th day following the Lock-Up Trigger Date. The lock-up restrictions shall not prohibit Halo from selling or transferring such number of our Common Shares to comply with the Ownership Limitation.
Private Placement
Investors in the Private Placement have entered into lock-up agreements, pursuant to which such investors shall not sell, transfer or otherwise dispose of their Common Shares for the period beginning on the date of the closing of the Private Placement until the 180th day after the date on which the trading of our Common Shares on Nasdaq commences (the “Private Placement Trigger Date”). Between the 181st and 270th day after the Private Placement Trigger Date, such investors shall not sell, transfer or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. Between the 271st and 365th day after the Private Placement Trigger Date, such investors shall not to sell, transfer or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. After the 365th day after the Private Placement Trigger Date, such investors will be entitled to sell their remaining Common Shares er without restriction.
Notwithstanding the above, commencing 90 days after the Private Placement Trigger Date, if the Company’s Common Share price is at least 50% higher than the Common Share price in this offering, and the Common Shares trade at least 100,000 shares daily, both for ten consecutive trading days, such investors may sell one-third of their shares subject to a maximum sale on any trading day of 3% of the daily volume; and if the Company’s Common Share price is at least 100% higher than the Common Share price in this offering and the Common Shares trade at least 100,000 shares daily, both for ten consecutive trading days, such investors may sell up to an additional one-third of their shares subject to a maximum sale on any trading day of 3% of the daily volume; and if the Company Common Share price is at least 150% higher than the Common Share price in this offering and the Common Shares trade at least 100,000 shares daily, both for ten consecutive trading days, such investors may sell an additional one-third constituting a maximum total of all of their shares subject to a maximum sale on any trading day of 3% of the daily volume.
Halo Transferee
The Halo Transferee has entered into a lock-up agreement, pursuant to which the Halo Transferee shall not sell, transfer or otherwise dispose of their Common Shares for the period beginning on the date of the closing of the Halo transfer until the 210th day after the date on which the trading of our Common Shares on
Nasdaq commences (the “Halo Transfer Trigger Date”). Between the 211th and 285th day after the Halo Transfer Trigger Date, the Halo Transferee shall not sell, transfer, or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. Between the 286th and 360th day after the Halo Transfer Trigger Date, the Halo Transferee shall not sell, transfer, or otherwise dispose of more than one-third of their Common Shares, subject to a maximum sale on any trading day of 3% of the daily volume. After the 360th day after the Halo Transfer Trigger Date, the Halo Transferee will be entitled to sell their remaining Common Shares without restriction.
Notwithstanding the above, the underwriters of this offering may engage in stabilization activities as described above. The Representative may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the Representative will consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.
Electronic Offer, Sale and Distribution of Common Shares
A prospectus in electronic format may be made available on the websites maintained by the Representative. In addition, Common Shares may be sold by the Representative to securities dealers who resell Common Shares to online brokerage account holders. Other than the prospectus in electronic format, the information on the Representative’s website and any information contained in any other website maintained by the Representative is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the Representative in its capacity as Representative and should not be relied upon by investors.
Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the Common Shares, or the possession, circulation or distribution of this prospectus or any other material relating to us or the Common Shares, where action for that purpose is required. Accordingly, the Common Shares may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the Common Shares may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful. In particular, the Common Shares have not been qualified for distribution by prospectus in Canada and may not be offered or sold in Canada during the course of their distribution hereunder except pursuant to a Canadian prospectus or prospectus exemption.
EXPENSES RELATED TO THE OFFERING
The following table sets forth the costs and expenses, other than the underwriting discounts and commissions and expenses, payable in connection with this offering. All amounts shown are estimates and subject to future contingencies, except the SEC registration fee, the Financial Industry Regulatory Authority filing fee, and the Nasdaq Capital Market entry and listing fee.
|
Description
|
|
|
Amount
|
|
|
U.S. Securities and Exchange Commission registration fee
|
|
|
|
$
|
2,782.39
|
|
|
|
Financial Industry Regulatory Authority filing fee
|
|
|
|
$
|
3,268.62
|
|
|
|
Nasdaq Capital Market entry and listing fee
|
|
|
|
$
|
75,000
|
|
|
|
Accounting and Audit fees and expenses
|
|
|
|
$
|
160,500
|
|
|
|
Legal fees and expenses
|
|
|
|
$
|
250,000
|
|
|
|
Printing expenses
|
|
|
|
$
|
15,000
|
|
|
|
Miscellaneous
|
|
|
|
$
|
50,000
|
|
|
|
Total
|
|
|
|
$
|
556,551.01
|
|
|
LEGAL MATTERS
We are being represented by Rimon, P.C., with respect to certain legal matters as to United States federal securities and state securities law. The underwriters are being represented by Bevilacqua PLLC, with respect to certain legal matters as to United States federal securities and state securities law. The validity of the Common Shares offered in this offering and certain legal matters as to Canadian law will be passed upon for us by Dentons Canada LLP, and certain legal matters as to U.K. law, Malta law and Lesotho law will be passed upon for us by Dentons & Co, Corrieri Cilia and Kleingeld & Mayet, respectively.
EXPERTS
BF Borgers CPA PC (“BF Borgers”), an independent registered public accounting firm, has audited our financial statements as set forth in their report thereon. We have included such consolidated financial statements in this prospectus in reliance on the report of such firm given on their authority as experts in accounting and auditing. BF Borgers is independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB on auditor independence. BF Borgers’ headquarters are located at 5400 W Cedar Ave, Lakewood, CO 80226.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a corporation organized under the laws of the Province of Ontario, Canada. Most of our directors and executive officers reside in the United Kingdom and the Kingdom of Lesotho, and significantly all of our assets and the assets of such persons are located outside of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon these persons or us, or to enforce against them or us judgments obtained in U.S. courts, whether or not predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States. There is doubt as to the enforceability in foreign jurisdictions, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely on the federal securities laws of the United States or the securities laws of any state of the United States.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form F-1 under the Securities Act relating to the securities we are offering to sell. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. Some items included in the registration statement have been omitted from this prospectus in accordance with the rules and regulations of the SEC. For further with respect to us and our securities, we refer you to the registration statement, including all amendments, supplements, exhibits, and schedules thereto. Statements contained in this prospectus regarding the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see a copy of such contract or document that has been filed. Each statement in this prospectus relating to a contract or document that is filed as an exhibit to the registration statement is qualified in all respects by reference to the full text of such contract or document filed as an exhibit to the registration statement.
You may access and read the registration statement and this prospectus, including the related exhibits and schedules, and any document we file with the SEC at the SEC’s Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are available to the public without charge through the SEC’s website at http://www.sec.gov.
Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, that are applicable to “foreign private issuers,” and under those requirements will file reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a “foreign private issuer,” we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders will be exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act with respect to their purchases and sales of common shares. Furthermore, as a “foreign private issuer,” we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, we will not be required under the Exchange Act to file annual or other reports and financial statements with the SEC as frequently or as promptly as U.S. companies that have securities registered under the Exchange Act. As such, we will file with the SEC, within 120 days after the end of each fiscal year, or such other applicable time as required by the SEC, an annual report on
Form 20-F containing financial statements audited by an independent registered public accounting firm. We also intend to furnish to the SEC under cover of Form 6-K certain other material information. Our corporate website is www.akandacorp.com. After the consummation of this offering, you may go to our website to access our periodic reports and other information that we file with the SEC as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this prospectus. We have included our website address in this prospectus solely for informational purposes.
INDEX TO FINANCIAL STATEMENTS
AKANDA CORP.
|
|
|
|
Page
|
|
|
AKANDA CORP.
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
F-7
|
|
|
|
|
|
|
|
|
F-8
|
|
|
|
|
|
|
|
|
F-9
|
|
|
|
|
|
|
|
|
F-10
|
|
|
|
CANNAHEALTH LTD.
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
|
|
|
|
|
|
|
|
|
F-18
|
|
|
|
|
|
|
|
|
F-19
|
|
|
|
|
|
|
|
|
F-20
|
|
|
|
|
|
|
|
|
F-21
|
|
|
|
BOPHELO HOLDINGS LTD
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
|
|
|
|
|
|
|
|
|
F-28
|
|
|
|
|
|
|
|
|
F-29
|
|
|
|
|
|
|
|
|
F-30
|
|
|
|
|
|
|
|
|
F-31
|
|
|
|
BOPHELO BIO SCIENCE AND WELLNESS (PTY) LTD
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
|
|
|
|
|
|
|
|
|
F-38
|
|
|
|
|
|
|
|
|
F-39
|
|
|
|
|
|
|
|
|
F-40
|
|
|
|
|
|
|
|
|
F-41
|
|
|
|
|
|
|
Page
|
|
|
CANMART LTD
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
|
|
|
|
|
|
|
|
|
F-58
|
|
|
|
|
|
|
|
|
F-59
|
|
|
|
|
|
|
|
|
F-60
|
|
|
|
|
|
|
|
|
F-61
|
|
|
|
Audited Financial Statements of Akanda Corp. (Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
|
|
|
|
|
|
|
|
|
F-79
|
|
|
|
|
|
|
|
|
F-80
|
|
|
|
|
|
|
|
|
F-81
|
|
|
|
|
|
|
|
|
F-82
|
|
|
|
|
|
|
|
|
F-83
|
|
|
|
Audited Financial Statements of Cannahealth Limited (Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
|
|
|
|
|
|
|
|
|
F-91
|
|
|
|
|
|
|
|
|
F-92
|
|
|
|
|
|
|
|
|
F-93
|
|
|
|
|
|
|
|
|
F-94
|
|
|
|
|
|
|
|
|
F-95
|
|
|
|
Audited Financial Statements of Bophelo Holdings Ltd (Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-101
|
|
|
|
|
|
|
|
|
F-102
|
|
|
|
|
|
|
|
|
F-103
|
|
|
|
|
|
|
|
|
F-104
|
|
|
|
|
|
|
|
|
F-105
|
|
|
|
|
|
|
|
|
F-106
|
|
|
|
Audited Financial Statements of Bophelo Bioscience and Wellness (PTY) Ltd. for the Fiscal Years Ended December 31, 2020 and 2019 (Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-112
|
|
|
|
|
|
|
|
|
F-113
|
|
|
|
|
|
|
|
|
F-114
|
|
|
|
|
|
|
|
|
F-115
|
|
|
|
|
|
|
|
|
F-116
|
|
|
|
|
|
|
|
|
F-117
|
|
|
|
|
|
|
Page
|
|
|
Audited Financial Statements of Canmart Ltd for the Fiscal Years Ended December 31, 2020 and 2019
(Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-137
|
|
|
|
|
|
|
|
|
F-138
|
|
|
|
|
|
|
|
|
F-139
|
|
|
|
|
|
|
|
|
F-140
|
|
|
|
|
|
|
|
|
F-141
|
|
|
|
|
|
|
|
|
F-142
|
|
|
|
|
|
|
Page
|
|
|
Unaudited Pro Forma Consolidated Financial Statements of Akanda Corp. as at December 31, 2020 (Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-152
|
|
|
|
|
|
|
|
|
F-153
|
|
|
|
|
|
|
|
|
F-155
|
|
|
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
AKANDA CORP.
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
F-7
|
|
|
|
|
|
|
|
|
F-8
|
|
|
|
|
|
|
|
|
F-9
|
|
|
|
|
|
|
|
|
F-10
|
|
|
Akanda Corp.
Condensed Statements of Financial Position
|
|
|
|
Note
|
|
|
September 30,
2021
(Unaudited)
|
|
|
August 31,
2021
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, held in trust
|
|
|
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
|
|
250,001
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
|
|
250,001
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
|
|
250,001
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
$
|
92,055
|
|
|
|
|
|
27,635
|
|
|
|
Loan from shareholder
|
|
|
|
|
|
|
|
|
|
|
4,226
|
|
|
|
|
|
4,263
|
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
96,281
|
|
|
|
|
|
31,898
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
96,281
|
|
|
|
|
|
31,898
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
5
|
|
|
|
|
$
|
250,001
|
|
|
|
|
|
250,001
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
(96,179)
|
|
|
|
|
|
(31,898)
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(102)
|
|
|
|
|
|
—
|
|
|
|
Total Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
$
|
153,720
|
|
|
|
|
|
218,103
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
|
|
250,001
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Akanda Corp.
Condensed Statement of Operations
(Unaudited)
|
|
|
|
July 16, 2021 (Inception)
to September 30, 2021
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Accounting and audit fees
|
|
|
|
$
|
16,822
|
|
|
|
Consultant fees
|
|
|
|
|
32,904
|
|
|
|
Directors’ remuneration
|
|
|
|
|
12,275
|
|
|
|
Legal fees
|
|
|
|
|
39,474
|
|
|
|
Total operating expenses
|
|
|
|
|
101,475
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
Foreign exchange gains
|
|
|
|
$
|
5,296
|
|
|
|
Total other income
|
|
|
|
|
5,296
|
|
|
|
Net loss
|
|
|
|
|
(96,179)
|
|
|
|
Other comprehensive loss
|
|
|
|
|
(102)
|
|
|
|
Net and comprehensive loss
|
|
|
|
$
|
(96,281)
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Akanda Corp.
Condensed Statement of Changes in Shareholders’ Equity
(Unaudited)
|
|
|
|
Note
|
|
|
Share
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Shareholders’
Equity
|
|
|
Inception, July 16, 2021
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Share issuance
|
|
|
|
|
5
|
|
|
|
|
|
250,001
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
250,001
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
|
(31,898)
|
|
|
|
Balance, August 31, 2021
|
|
|
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
|
$
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
$
|
218,103
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(64,281)
|
|
|
|
|
|
(102)
|
|
|
|
|
|
(64,383)
|
|
|
|
Balance, September 30, 2021
|
|
|
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
|
$
|
(96,179)
|
|
|
|
|
|
(102)
|
|
|
|
|
$
|
153,720
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Akanda Corp.
Condensed Statement of Cash Flows
(Unaudited)
|
|
|
|
Note
|
|
|
July 16, 2021
(Inception) to
September 30, 2021
|
|
|
Cash flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
$
|
(96,179)
|
|
|
|
Foreign exchange movements through profit and loss
|
|
|
|
|
|
|
|
(5,296)
|
|
|
|
Increase in accounts payable
|
|
|
|
|
|
|
|
92,055
|
|
|
|
Cash used in operating activities
|
|
|
|
|
|
|
$
|
(9,420)
|
|
|
|
Cash flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from share issuances
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
Loan received from shareholder
|
|
|
|
|
|
|
|
4,226
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
|
|
$
|
254,227
|
|
|
|
Effect of foreign exchange translation
|
|
|
|
|
|
|
|
5,194
|
|
|
|
Change in cash during the period
|
|
|
|
|
|
|
$
|
250,001
|
|
|
|
Cash at beginning of period
|
|
|
|
|
|
|
|
—
|
|
|
|
Cash at end of period
|
|
|
|
|
|
|
$
|
250,001
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Akanda Corp.
Notes to the Unaudited Condensed Financial Statements
July 16, 2021 (Inception) to September 30, 2021
NOTE 1. Nature of Operations and Going Concern
Akanda Corp. (the “Company”) is domiciled in Canada. The Company’s registered office is 77 King Street West, Suite 400, Toronto-Dominion Centre, Toronto Canada, Ontario, M5K0A1.
The Company’s main business is intended to be the ultimate parent company (refer below, and to Note 2 and Note 9 below) that will hold the equity investments, directly or indirectly, in Cannahealth Ltd., Canmart Ltd., Bophelo Holdings Ltd and Bophelo Bio Science and Wellness (Pty) Ltd.
In September 2021, the Company entered into a share purchase agreement with Halo Collective Inc. (“Halo”) to acquire shares of Cannahealth Ltd. in Malta, Canmart Ltd. in the UK, Bophelo Holdings in the UK and Bophelo Bio Science & Wellness Pty Ltd. in Lesotho. The share purchase agreement became unconditional on or about November 3, 2021 and the Company acquired the shares in the aforementioned entities from Halo. In consideration of this acquisition, Halo was issued 13,129,212 common shares in the Company.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of Preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
The Company’s board of directors approved these financial statements on January 16, 2022. The financial statements are presented in US dollars and all financial amounts, other than per-share amounts, are rounded to the nearest dollar. The functional currency of the Company is the US dollar.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 9, the Company shall be the ultimate parent company of the businesses referred to in Note 9. The financial forecast for the Akanda group for the next 18 months indicates that it will generate revenue through cultivation and sale of dried cannabis flower and/or cannabis biomass as well as through the sale and distribution of third party cannabis based medicinal products. Additionally, the group has recently closed a private placement and has raised approximately USD 5.6 million to fund the capital expenditure, operating expenses and the working capital requirements of the Company (and the group).
These are unaudited condensed financial statements which should be read in conjunction with the most recent audited financial statements.
NOTE 3. Use of Judgements and Estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Akanda Corp.
Notes to the Unaudited Condensed Financial Statements
July 16, 2021 (Inception) to September 30, 2021
NOTE 3. Use of Judgements and Estimates (continued)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant Accounting Policies
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Cash
Cash consists of cash held in a trust account held by the Company’s attorneys and other short-term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as at September 30, 2021 and August 31, 2021.
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12 — Income Taxes.
Financial Instruments
(a) Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and
Akanda Corp.
Notes to the Unaudited Condensed Financial Statements
July 16, 2021 (Inception) to September 30, 2021
NOTE 4. Significant Accounting Policies (continued)
losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Related parties
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged as defined by IFRS for SMEs.
NOTE 5. Share Capital
Authorized
Common shares
The Company has an unlimited number of authorized common shares with no par value.
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
Issued
As at September 30, 2021, the company has 6,095,706 common shares in issue at no par value.
|
|
|
|
Number of
common shares
|
|
|
Share capital
2021
|
|
|
Inception at July 16, 2021
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Shares issued to founders
|
|
|
|
|
5,626,806
|
|
|
|
|
|
1
|
|
|
|
Shares issued- August 26, 2021
|
|
|
|
|
468,900
|
|
|
|
|
|
250,000
|
|
|
|
Issued and outstanding at September 30, 2021
|
|
|
|
|
6,095,706
|
|
|
|
|
$
|
250,001
|
|
|
NOTE 6. Related Party Transactions
Accounts payable from Canmart Ltd
During the period from July 16, 2021 (inception) to September 30, 2021, the Company received working capital from Canmart Ltd in the amount of CAD 3,360 (USD 2,643), which is outstanding and
Akanda Corp.
Notes to the Unaudited Condensed Financial Statements
July 16, 2021 (Inception) to September 30, 2021
NOTE 6. Related Party Transactions (continued)
payable as of September 30, 2021(at August 31, 2021 CAD nil (USD nil)). This working capital is repayable on demand and bears no interest.
Loan from Shareholder
During the period from July 16, 2021 (inception) to September 30, 2021, the Company received a loan from a shareholder in the amount of CAD 5,374 (USD 4,226), which is outstanding and payable as of September 30, 2021 (at August 31, 2021 CAD 5,374 (USD 4,263)) . This loan is repayable on demand and bears no interest.
Key Management Compensation
The Company’s directors and other members of senior management, being the Executive Chairman, CEO and CFO, have the authority and responsibility for planning, directing and controlling the activities of the Company.
To date, Akanda Corp has not remunerated senior management as these executives are remunerated directly by Canmart Ltd in respective of services rendered as employees of the group.
NOTE 7. Financial Instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference
Akanda Corp.
Notes to the Unaudited Condensed Financial Statements
July 16, 2021 (Inception) to September 30, 2021
NOTE 7. Financial Instruments (continued)
between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At September 30, 2021 and August 31, 2021, the Company’s financial instruments include cash, accounts payable, and loan from shareholder.
NOTE 8. Capital Management
As of September 30, 2021, the Company’s capital is composed of shareholders’ equity. The Company’s primary objectives, when managing its capital, are to maintain adequate levels of funding to support the operations of the Company and to maintain corporate and administrative functions.
The Company defines capital as cash and equity, consisting of shareholders’ equity. The capital structure of the Company is managed to provide sufficient funding operating activities. Funds are primarily secured through equity capital raised by way of the Company’s shareholders. There can be no assurances that the Company will be able to continue raising equity capital in this manner. The Company invests all capital that is surplus to its immediate needs in short-term, liquid and highly rated financial instruments, such as cash, which are all held with major financial institutions.
There were no changes to the Company’s approach to capital management during the period from July 16, 2021 (inception) to September 30, 2021.
NOTE 9. Subsequent Events
Entering into of Sale and Purchase Agreement and Debenture Agreement with Halo Collective Inc.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness (Pty) Ltd, Canmart Ltd., Bophelo Holdings Ltd. and Cannahealth Ltd. The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science & Wellness (Pty) became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. In accordance with the terms of the Purchase Agreement, Halo sold 100% of the issued and outstanding shares of Cannahealth Ltd to the Company in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of USD $13,129,212.
In conjunction with the Transaction, Akanda entered into a secured convertible debenture agreement with Halo on or around November 3, 2021. The debenture agreement has a principal amount of USD 6,559,294 and bears interest at a rate of 1% per annum. The amount due to Halo pursuant to the debenture agreement, comprising the principal amount and accrued interest payable respectively, ranks as a senior obligation of the Company in preference to other creditors. The debt is secured by way of a pledge of the Company’s shareholding in Cannahealth Ltd as well as by a general security interest granted to Halo in the assets of the Company, with the exception of any ownership interest or securities indirectly owned by the Company in Bophelo Bio Science & Wellness (Pty) Ltd. The debt is subject to automatic conversion into common shares of the Company upon the occurrence of a triggering event, which includes an initial public offering of the Company’s securities or an amalgamation, merger or takeover of the Company by a third party, and is repayable by November 2, 2022. In addition to automatic conversion in terms of the triggering event, the debenture is convertible into common shares of the Company at its own election. In the event
Akanda Corp.
Notes to the Unaudited Condensed Financial Statements
July 16, 2021 (Inception) to September 30, 2021
NOTE 9. Subsequent Events (continued)
of the debenture being converted to common shares of the Company as a result of a triggering event or at election of the Company, the conversion price shall be the current market price of the Company at the time of the occurrence of the triggering event, or in the case where no triggering event has taken place, then at the price of the last private placement of the Company where more than USD $1,000,000 has been raised.
Investor Rights Agreement
In conjunction with the closing of the Transaction, the Company has entered into an investor rights agreement with Halo which will see Halo acquire certain investor rights, which most notably include the ability to appoint no more than one director to the board of directors of the Company.
Private Placement
Subsequent to Akanda Corp.’s reporting period end of September 30, 2021, Akanda Corp. completed an initial first closing of a private placement fund raising process which saw Akanda Corp. raise approximately USD $5.3 million exchange for issuing 2,126,000 common shares at a price of US$ 2.50 per share. This fund raising process is ongoing and is expected to close by January 31, 2022. Subsequent to the initial first closing, The Company undertook a final closing of the private placement fund raising process on January 14, 2022 and pursuant to this will issue a further 154,000 common shares to subscribers at a price of US$ 2.50 per share. An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
Conversion of subsidiary debt
On November 10, 2021, and following the successful closing of the Transaction with Halo, the board of directors passed a resolution approving the settlement of a USD $2.2 million bridge loan facility due and payable by Bophelo Bio Science & Wellness (Pty) Ltd to the Company’s Executive Chairman, LM Mojela. In terms of the settlement, Akanda Corp. will issue 880,000 common shares to LM Mojela on behalf of Bophelo Bioscience & Wellness (Pty) Ltd.
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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Page
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|
CANNAHEALTH LTD.
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
|
|
|
|
|
|
|
|
|
F-18
|
|
|
|
|
|
|
|
|
F-19
|
|
|
|
|
|
|
|
|
F-20
|
|
|
|
|
|
|
|
|
F-21
|
|
|
Cannahealth Ltd.
Condensed Statements of Financial Position
|
|
|
|
Note
|
|
|
September 30, 2021
(Unaudited)
|
|
|
December 31, 2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cash, held in trust
|
|
|
|
|
|
|
|
|
|
$
|
1,396
|
|
|
|
|
|
1,477
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
1,396
|
|
|
|
|
|
1,477
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
5
|
|
|
|
|
$
|
1,477
|
|
|
|
|
|
1,477
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Accumulated comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(81)
|
|
|
|
|
|
|
|
|
|
Total Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
|
1,396
|
|
|
|
|
|
1,477
|
|
|
|
Total Liabilities and Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
$
|
1,396
|
|
|
|
|
|
1,477
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Cannahealth Ltd.
Condensed Statements of Operations
(Unaudited)
|
|
|
|
January 1, 2021 to
September 30, 2021
|
|
|
July 1, 2020
(Inception) to
September 30, 2020
|
|
|
Net sales
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
|
|
|
(81)
|
|
|
|
|
|
—
|
|
|
|
Net and comprehensive loss
|
|
|
|
$
|
(81)
|
|
|
|
|
|
—
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Cannahealth Ltd.
Condensed Statements of Changes in Shareholders’ Equity
(Unaudited)
|
|
|
|
Note
|
|
|
Share
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Comprehensive
Loss
|
|
|
Total
Shareholder’s
Equity
|
|
|
Inception, July 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance at inception
|
|
|
|
|
5
|
|
|
|
|
$
|
1,477
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
1,477
|
|
|
|
Balance, September 30 , 2020
|
|
|
|
|
|
|
|
|
|
$
|
1,477
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
1,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2021
|
|
|
|
|
|
|
|
|
|
$
|
1,477
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
1,477
|
|
|
|
Effect of foreign exchange translation
|
|
|
|
|
5
|
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(81)
|
|
|
|
|
|
(81)
|
|
|
|
Balance, September 30, 2021
|
|
|
|
|
|
|
|
|
|
$
|
1,477
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(81)
|
|
|
|
|
|
1,396
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Cannahealth Ltd.
Condensed Statements of Cash Flows
(Unaudited)
|
|
|
|
January 1, 2021 to
September 30, 2021
|
|
|
July 1, 2020
(Inception) to
September 30, 2020
|
|
|
Cash Flows from Operating Activities
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
Proceeds from share issue
|
|
|
|
$
|
—
|
|
|
|
|
|
1,477
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
$
|
—
|
|
|
|
|
|
1,477
|
|
|
|
Net change in cash
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
Cash at beginning of period
|
|
|
|
$
|
1,477
|
|
|
|
|
|
—
|
|
|
|
Foreign currency translation movement
|
|
|
|
$
|
(81)
|
|
|
|
|
|
—
|
|
|
|
Cash at end of period
|
|
|
|
$
|
1,396
|
|
|
|
|
|
1,477
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Cannahealth Ltd.
Notes to the Unaudited Condensed Financial Statements
January 1, 2021 to September 30, 2021
NOTE 1. Reporting Entity
Cannahealth Ltd. (the “Company”) is domiciled in Malta. The Company’s registered office is at Level 4, The Penthouse Suite 2, Ewropa Business Centre, Triq Dun Karm Birkirkara, Malta. The Company was formed on July 1, 2020 to carry on business as a general commercial company.
The Company’s main business is intended to be the entity within the Akanda Corp. group (Refer to Note 2 and Note 7 below) that will hold the equity investments in Bophelo Holdings Ltd., Canmart Ltd. directly and Bophelo Bio Science & Wellness Pty Ltd. indirectly. The Company is the subject of a share purchase agreement between Halo Collective Inc. and Akanda Corp which has resulted, on or around November 3,2021, in the Company to become a wholly owned subsidiary of Akanda Corp.
To date, the Company has not commenced any operations. The continuing operations of the Company are dependent upon its ability to generate profitable operations in the future, and to continue to secure additional financing.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on January 26, 2022.
These financial statements are presented in US Dollars. The functional currency of the Company is Euro.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 7, the Company became a wholly owned subsidiary of Akanda Corp (“Akanda”). The financial forecast for the Akanda group for the next 18 months indicates that it will generate revenue through cultivation and sale of dried cannabis flower and/or cannabis biomass as well as through the sale and distribution of third party cannabis based medicinal products. Additionally, the group is engaged in a private placement and is expected to raise between USD 5 million and USD 6 million to fund the capital expenditure and working capital requirements of the Company (and the group).
These financial statements are unaudited and condensed and should be read in conjunction with the latest audited financial statements.
NOTE 3. Use of judgement and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Cannahealth Ltd.
Notes to the Unaudited Condensed Financial Statements
January 1, 2021 to September 30, 2021
NOTE 3. Use of judgement and estimates (continued)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
Cash
Cash includes cash held in trust and other short term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents at September 30, 2021 and December 31, 2020.
Financial Instruments
(a) Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Cannahealth Ltd.
Notes to the Unaudited Condensed Financial Statements
January 1, 2021 to September 30, 2021
NOTE 4. Significant accounting policies (continued)
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price
NOTE 5. Capital
Authorized
The Company has authorized share capital of 1,200 ordinary shares at a par value of EUR 1 each and there are no preference shares in issue.
Issued
The Company has 1,200 issued shares at EUR 1 each for total proceeds of $1,477 (EUR 1,200).
|
|
|
|
Number of
ordinary shares
|
|
|
Share capital
2021
|
|
|
Inception at July 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance at inception
|
|
|
|
|
1,200
|
|
|
|
|
$
|
1,477
|
|
|
|
Issued and outstanding at September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
1,477
|
|
|
|
Issued and outstanding at January 1, 2021
|
|
|
|
|
|
|
|
|
|
|
1,477
|
|
|
|
Issued and outstanding at September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
1,477
|
|
|
Ordinary shares
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
Cannahealth Ltd.
Notes to the Unaudited Condensed Financial Statements
January 1, 2021 to September 30, 2021
NOTE 6. Financial Instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At September 30, 2021 and December 31, 2020 the Company’s financial instruments included cash.
NOTE 7. Subsequent Events
Acquisition of the Company by Akanda Corp.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Ltd, Canmart Ltd., Bophelo Holdings Ltd. and Cannahealth Ltd. The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science & Wellness became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. In accordance with the terms of the Purchase Agreement, Halo sold 100% of the issued and outstanding shares of Cannahealth Ltd to the Company in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of USD $13,129,212.
Cannahealth Ltd.
Notes to the Unaudited Condensed Financial Statements
January 1, 2021 to September 30, 2021
NOTE 7. Subsequent Events (continued)
In conjunction with the Transaction, Akanda entered into a secured convertible debenture agreement with Halo on or around November 2, 2021. The debenture agreement has a principal amount of USD 6,559,294 and bears interest at a rate of 1% per annum. The amount due to Halo pursuant to the debenture agreement, comprising the principal amount and accrued interest payable respectively, ranks as a senior obligation of the Company in preference to other creditors. The debt is secured by way of a pledge of the Company’s shareholding in Cannahealth Ltd as well as by a general security interest granted to Halo in the assets of the Company, with the exception of any ownership interest or securities owned in Bophelo Bio Science & Wellness Ltd. The debt subject to automatic conversion into common shares of the Company upon the occurrence of a triggering event, which includes an initial public offering of the Company’s securities or an amalgamation, merger or takeover of the Company by a third party. is repayable by November 2, 2022. In addition to automatic conversion in terms of the triggering event, the debenture is convertible into common shares of the Company at its own election. In the event of the debenture being converted to common shares of the Company as a result of a triggering event or at election of the Company, the conversion price shall be the current market price of the Company at the time of the occurrence of the triggering event, or in the case where no triggering event has taken place, then at the price of the last private placement of the Company where more than USD $1,000,000 has been raised.
Private Placement
Subsequent to Akanda Corp’s reporting period end of September 30, 2021, Akanda Corp. completed an initial first closing of a private placement fund raising process which saw Akanda Corp. raise approximately USD $5.3 million in exchange for issuing 2,126,000 common shares at a price of US$ 2.50 per share. Subsequent to the initial first closing, the Company undertook a final closing of the private placement fund raising process on January 14, 2022 and pursuant to will issue a further 154,000 common shares to subscribers at a price of US$ 2.50 per share. An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
Changes to the Board of Directors
On November 3, 2021, TW Scott and T Virk were appointed as directors of the Company and K Sidhu and A Met resigned as directors of the Company.
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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|
|
Page
|
|
|
BOPHELO HOLDINGS LTD
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
|
|
|
|
|
|
|
|
|
F-28
|
|
|
|
|
|
|
|
|
F-29
|
|
|
|
|
|
|
|
|
F-30
|
|
|
|
|
|
|
|
|
F-31
|
|
|
Bophelo Holdings Ltd
Condensed Statements of Financial position
|
|
|
|
Note
|
|
|
September 30, 2021
(Unaudited)
|
|
|
August 31, 2021
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
|
|
|
138
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
|
|
|
138
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
5
|
|
|
|
|
$
|
138
|
|
|
|
|
|
138
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
|
|
|
|
—
|
|
|
|
Total Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
|
|
|
138
|
|
|
|
Total Liabilities and Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
|
|
|
138
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Holdings Ltd
Condensed Statement of Operations
(Unaudited)
|
|
|
|
August 4, 2021
(Inception) to
September 30, 2021
|
|
|
Net sales
|
|
|
|
$
|
—
|
|
|
|
Foreign exchange translation through other comprehensive loss
|
|
|
|
|
(3)
|
|
|
|
Net and Comprehensive loss
|
|
|
|
$
|
(3)
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Holdings Ltd
Condensed Statements of Changes in Shareholder’s Equity
(Unaudited)
|
|
|
|
Note
|
|
|
Share
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated other
comprehensive loss
|
|
|
Total
Shareholder’s
Equity
|
|
|
|
|
Inception, August 4, 2021
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
Share issuance at inception
|
|
|
|
|
5
|
|
|
|
|
|
138
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
138
|
|
|
|
|
|
Balance, August 31, 2021
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
138
|
|
|
|
|
|
Effect of foreign exchange
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(3)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(3)
|
|
|
|
|
|
135
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Holdings Ltd
Condensed Statement of Cash Flows
(Unaudited)
|
|
|
|
August 4, 2021
(Inception) to
September 30, 2021
|
|
|
Cash Flows from Operating Activities
|
|
|
|
$
|
|
|
|
|
Cash flows from Financing Activities
|
|
|
|
|
—
|
|
|
|
Proceeds from share issue
|
|
|
|
|
138
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
138
|
|
|
|
Effect of foreign exchange
|
|
|
|
|
(3)
|
|
|
|
Net change in cash
|
|
|
|
|
135
|
|
|
|
Cash at beginning of period
|
|
|
|
|
—
|
|
|
|
Cash at end of period
|
|
|
|
$
|
135
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Holdings Ltd
Notes to the Unaudited Condensed Financial Statements
August 4, 2021 (Inception) to September 30, 2021
NOTE 1. Reporting Entity
Bophelo Holdings Ltd (the “Company”) is domiciled in England. The Company’s registered office is at 49 Greek Street London W1D4EG. The Company was formed on August 4, 2021, to carry on business as a general commercial company.
The Company’s main business is intended to be the entity within the Akanda Corp. group (Refer to Note 2 and Note 8 below) that will hold the equity investment in Bophelo Bio Science and Wellness (Pty) Ltd, a cannabis cultivation company incorporated in Lesotho. The Company is a wholly owned subsidiary of Cannahealth Ltd, which was acquired on or around November 3, 2021 by Akanda Corp. pursuant to the successful closing of a share purchase agreement with Halo Collective Inc. (“Halo”).
To date, the Company has not commenced any operations. The continuing operations of the Company are dependent upon its ability to generate profitable operations in the future, and to continue to secure additional financing.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on January 26, 2022.
These financial statements are presented in US Dollars. The functional currency of the Company is Great British Pounds.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 8, the Company shall become, directly or indirectly, a wholly owned subsidiary of Akanda Corp. (“Akanda”). The financial forecast for the Akanda group for the next 18 months indicates that it will make significant revenue through production & sale of dried cannabis flowers through a hoop house, shade cloth & greenhouse grow as well as sale of cannabis based medicinal products. Until such time that the group becomes cash flow positive, any shortfall would be funded by the shareholders of Akanda. Additionally, the group is engaged in a Pre IPO financing process and is expected to raise USD 5 million to fund the capital expenditure and working capital requirements of the Company (and the group).
These financial statements are both unaudited and condensed and should be read in conjunction with the most recent audited financial statements.
NOTE 3. Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Bophelo Holdings Ltd
Notes to the Unaudited Condensed Financial Statements
August 4, 2021 (Inception) to September 30, 2021
NOTE 3. Use of judgements and estimates (continued)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
Cash
Cash include cash on hand and other short term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as at September 30, 2021 and August 31, 2021.
Financial Instruments
(a) Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost.
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other
Bophelo Holdings Ltd
Notes to the Unaudited Condensed Financial Statements
August 4, 2021 (Inception) to September 30, 2021
NOTE 4. Significant accounting policies (continued)
net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price.
Related parties
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged as defined by IFRS for SMEs.
NOTE 5. Capital
Authorised shares
The company has an authorised share capital of 100 ordinary shares with a par value of 1 Pound each.
Issued Shares
|
|
|
|
Number of
ordinary shares
|
|
|
Share capital
2021
|
|
|
Inception at August 4, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance at inception
|
|
|
|
|
100
|
|
|
|
|
$
|
138
|
|
|
|
Issued and outstanding at August 31, 2021
|
|
|
|
|
100
|
|
|
|
|
$
|
138
|
|
|
|
Less: Effect of foreign exchange
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
|
|
Issued and outstanding at September 30, 2021
|
|
|
|
|
100
|
|
|
|
|
$
|
135
|
|
|
Ordinary shares
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
Bophelo Holdings Ltd
Notes to the Unaudited Condensed Financial Statements
August 4, 2021 (Inception) to September 30, 2021
NOTE 5. Capital (continued)
On August 4, 2021, the Company issued share capital of USD $138 consisting of 100 ordinary shares with a par value of 1 Pound, each.
NOTE 6. Capital Management
As of September 30, 2021 the Company’s capital is composed of shareholder’s equity. The Company’s primary objectives, when managing its capital, are to maintain adequate levels of funding to support the operations of the Company and to maintain corporate and administrative functions.
The Company defines capital as cash and equity, consisting of shareholder’s equity. The capital structure of the Company is managed to provide sufficient funding operating activities. Funds are primarily secured through equity capital raised by way of the Company’s shareholder. There can be no assurances that the Company will be able to continue raising equity capital in this manner. The Company invests all capital that is surplus to its immediate needs in short-term, liquid and highly rated financial instruments, such as cash, which are all held with major financial institutions.
There were no changes to the Company’s approach to capital management during the period from August 4, 2021 (inception) to September 30, 2021.
NOTE 7. Financial Instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
Bophelo Holdings Ltd
Notes to the Unaudited Condensed Financial Statements
August 4, 2021 (Inception) to September 30, 2021
NOTE 7. Financial Instruments (continued)
At September 30, 2021 and August 31, 2021, the Company’s financial instruments include cash.
NOTE 8. Subsequent Events
Acquisition of the Company by Akanda Corp.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness (Pty) Ltd, Canmart Ltd., Bophelo Holdings Ltd. and Cannahealth Ltd. The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science & Wellness (Pty) became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. As part of the internal reorganization, the Company acquired, on November 3, 2021, 100% of the issued and outstanding share capital of Bophelo Bio Science & Wellness (Pty) Ltd from Halo, as well as the outstanding intercompany loan claims (with an carrying amount of USD $5,313,781) by Halo against Bophelo Bio Science & Wellness (Pty) Ltd.
The total purchase consideration paid by the Company for the equity and claims in Bophelo Bio Science & Wellness (Pty) Ltd was USD $1.
Private Placement
Subsequent to Bophelo Holdings Ltd’s reporting period end of September 30, 2021, the Company’s ultimate parent company, Akanda Corp., completed an initial first closing of a private placement fund raising process which saw Akanda Corp. raise approximately USD $5.3 million in exchange for issuing 2,126,000 common shares at a price of US$ 2.50 per share. Subsequent to the initial first closing, The Company undertook a final closing of the private placement fund raising process on January 14, 2022 and pursuant to this will issue a further 154,000 common shares to subscribers at a price of US$ 2.50 per share. An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
BOPHELO BIO SCIENCE AND WELLNESS (PTY) LTD
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
|
|
|
|
|
|
|
|
|
F-38
|
|
|
|
|
|
|
|
|
F-39
|
|
|
|
|
|
|
|
|
F-40
|
|
|
|
|
|
|
|
|
F-41
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Condensed Statements of Financial Position
|
|
|
|
Note
|
|
|
$
|
|
|
September 30,
2021
(Unaudited)
|
|
|
December 31,
2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,444
|
|
|
|
|
|
10,120
|
|
|
|
Prepayments
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
108,659
|
|
|
|
|
|
113,485
|
|
|
|
Shareholders’ loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
7
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589,109
|
|
|
|
|
|
123,612
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
1,515,188
|
|
|
|
|
|
742,887
|
|
|
|
Capital work in progress
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
487,875
|
|
|
|
|
|
883,145
|
|
|
|
Right-of-use asset
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
2,035,074
|
|
|
|
|
|
2,199,779
|
|
|
|
Intangible assets
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
264,188
|
|
|
|
|
|
304,260
|
|
|
|
Total Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,302,325
|
|
|
|
|
|
4,130,071
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,891,434
|
|
|
|
|
|
4,253,683
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
245,600
|
|
|
|
|
|
182,878
|
|
|
|
Loans and borrowings
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
10,603,444
|
|
|
|
|
|
2,263,605
|
|
|
|
Lease liability
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
45,662
|
|
|
|
|
|
283,976
|
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,894,706
|
|
|
|
|
|
2,730,459
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liability
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
2,432,073
|
|
|
|
|
|
2,598,176
|
|
|
|
Loans and borrowings
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
3,977,108
|
|
|
|
Total Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,432,073
|
|
|
|
|
|
6,575,284
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,326,779
|
|
|
|
|
|
9,305,743
|
|
|
|
Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
156
|
|
|
|
Reserves
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
7
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,626,701)
|
|
|
|
|
|
(5,160,401)
|
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,193
|
|
|
|
|
|
108,177
|
|
|
|
Total Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,435,345)
|
|
|
|
|
|
(5,052,061)
|
|
|
|
Total Liabilities and Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,891,434
|
|
|
|
|
|
4,253,683
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd,
Condensed Statements of Operations
(Unaudited)
For the Nine Months Ended September 30
|
|
|
|
$
|
|
|
2021
(Unaudited)
|
|
|
2020
(Unaudited)
|
|
|
Sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Cost of sales (excluding amortization and depreciation)
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
|
|
|
|
|
231,427
|
|
|
|
|
|
173,971
|
|
|
|
Consulting and professional fees
|
|
|
|
|
|
|
|
504,866
|
|
|
|
|
|
454,721
|
|
|
|
General & Administration expenses
|
|
|
|
|
|
|
|
1,317,292
|
|
|
|
|
|
163,654
|
|
|
|
Office expenses
|
|
|
|
|
|
|
|
33,216
|
|
|
|
|
|
14,171
|
|
|
|
Personnel expenses
|
|
|
|
|
|
|
|
955,032
|
|
|
|
|
|
223,345
|
|
|
|
Short term accommodation expense
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
31,912
|
|
|
|
Travel expenses
|
|
|
|
|
|
|
|
57,063
|
|
|
|
|
|
4,789
|
|
|
|
Total Operating expenses
|
|
|
|
|
|
|
|
(3,098,896)
|
|
|
|
|
|
(1,066,563)
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
|
(3,098,896)
|
|
|
|
|
|
(1,066,563)
|
|
|
|
Other Income / (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
25,782
|
|
|
|
|
|
9,529
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
(393,186)
|
|
|
|
|
|
(487,069)
|
|
|
|
Total Other Income / Expense
|
|
|
|
|
|
|
|
(367,404)
|
|
|
|
|
|
(477,540)
|
|
|
|
Loss before tax
|
|
|
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(1,544,103)
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(1,544,103)
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
83,016
|
|
|
|
|
|
604,902
|
|
|
|
Total comprehensive loss for the year
|
|
|
|
|
|
|
|
(3,383,284)
|
|
|
|
|
|
(939,201)
|
|
|
|
Basic and diluted loss per ordinary share
|
|
|
|
|
|
|
|
(16)
|
|
|
|
|
|
(6.95)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
222,212
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Condensed Statements of Changes in Shareholders’ Deficit
(Unaudited)
|
|
|
|
$
|
|
|
Number of
Shares
|
|
|
Share
Capital
|
|
|
Reserves
|
|
|
Accumulated
Deficit
|
|
|
Accumulated other
comprehensive
income
|
|
|
Total
Shareholders’
Deficit
|
|
|
Balance, January 1, 2020
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
(2,862,091)
|
|
|
|
|
|
(42,565)
|
|
|
|
|
|
(2,904,493)
|
|
|
|
Effect of foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,902
|
|
|
|
|
|
604,902
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,544,103)
|
|
|
|
|
|
|
|
|
|
|
|
(1,544,103)
|
|
|
|
Balance, September 30, 2020
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
(4,406,194)
|
|
|
|
|
|
562,337
|
|
|
|
|
|
(3,843,694)
|
|
|
|
Balance, January 1, 2021
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
(5,160,401)
|
|
|
|
|
|
108,177
|
|
|
|
|
|
(5,052,061)
|
|
|
|
Effect of foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,016
|
|
|
|
|
|
83,016
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
|
|
|
|
|
|
(3,466,300)
|
|
|
|
Balance September 30, 2021
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
(8,626,701)
|
|
|
|
|
|
191,193
|
|
|
|
|
|
(8,435,345)
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Condensed Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30
|
|
|
|
$
|
|
|
2021
(Unaudited)
|
|
|
2020
(Unaudited)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(1,544,103)
|
|
|
|
Non-cash items included in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
231,427
|
|
|
|
|
|
173,971
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
393,186
|
|
|
|
|
|
487,069
|
|
|
|
Write off of property, plant and equipment
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments
|
|
|
|
|
|
|
|
4,826
|
|
|
|
|
|
(98,457)
|
|
|
|
Trade and other payables
|
|
|
|
|
|
|
|
62,723
|
|
|
|
|
|
291,149
|
|
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
|
(2,774,139)
|
|
|
|
|
|
(690,371)
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to capital WIP
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(146,866)
|
|
|
|
Additions to property, plant and equipment
|
|
|
|
|
|
|
|
(554,858)
|
|
|
|
|
|
(241,208)
|
|
|
|
Proceeds from advances received
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
6,916
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
(554,858)
|
|
|
|
|
|
(381,159)
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of lease liability
|
|
|
|
|
|
|
|
(404,417)
|
|
|
|
|
|
—
|
|
|
|
Loans received
|
|
|
|
|
|
|
|
4,474,495
|
|
|
|
|
|
239,864
|
|
|
|
Net cash provided by financing activities:
|
|
|
|
|
|
|
|
4,070,078
|
|
|
|
|
|
239,864
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
|
741,081
|
|
|
|
|
|
(831,665)
|
|
|
|
Effects of currency translation on cash
|
|
|
|
|
|
|
|
(270,758)
|
|
|
|
|
|
82,597
|
|
|
|
Cash at beginning of period
|
|
|
|
|
|
|
|
10,120
|
|
|
|
|
|
818,447
|
|
|
|
Cash at end of period
|
|
|
|
|
|
|
|
480,443
|
|
|
|
|
|
69,379
|
|
|
|
Supplemental cash flow disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Tax paid
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 1. Nature of operations
Bophelo Bio Science and Wellness (Pty) Ltd (the “Company”) is domiciled in Lesotho. The Company’s registered office is at Ha Mojela, Ts’akholo, Mafeteng, Lesotho. The Company was formed, on the 5th of July 2018, to pursue the business of growing, manufacturing, and distributing pharmaceutical and medicinal botanical products.
The Company was party to an internal reorganization undertaken by its former parent company, Halo Collective, Inc. (“Halo”). The internal reorganization was completed on or around 3 November 2021 (refer to Note 2 and Note 17); which saw the Company become an indirect wholly owned subsidiary of Akanda Corp. (“Akanda”).
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on January 26, 2022.
These financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value. These financial statements are presented in United States dollars. The Company’s functional currency is the Lesotho Loti. The fiscal year end is December 31.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
These financial statements are both unaudited and condensed and should be read in conjunction with the most recent audited financial statements.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to evaluate and complete a business combination. At September 30, 2021, the Company has an accumulated deficit of $8,626,701 including a net loss for the period ended September 30, 2021 of $3,466,300. The going concern basis presumes that funds will be available to finance future operations and that the realization of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction described in Note 17, the Company became a wholly owned subsidiary of Akanda Corp (“Akanda”). The financial forecast for the Akanda group for the next 18 months indicates that it will generate revenue through cultivation and sale of dried cannabis flower and/or cannabis biomass as well as through the sale and distribution of third party cannabis based medicinal products. Additionally, the group is engaged in a private placement and has raised between USD 5 million and USD 6 million to fund the capital
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 2. Basis of preparation and going concern (continued)
expenditure and working capital requirements of the Company (and the group). Details of the Akanda transaction are contained in Note 17.
NOTE 3. Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities, the measurement of right of use assets and lease liabilities, and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Foreign currency
Transactions in foreign currencies are translated from the respective functional currency of the Company to the reporting currency using the exchange rates at transaction date. Receivables, payables and other monetary assets and liabilities, as well as equity and share capital denominated in foreign currencies are re-translated to the reporting currency using the exchange rates at the balance sheet date. Resulting foreign currency differences are recognized in the income statement, except for foreign currency differences arising on re-translation of Fair Value through Other Comprehensive Income (FVOCI) investments and financial liabilities designated as a hedge of a net investment, which are recognized in other comprehensive income. Resulting foreign currency differences that arise due to the translation of share capital and share premium are recognized in other comprehensive income.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
Property, plant and equipment
The Company estimates the useful lives of the property, plant and equipment based on the period over which the assets are available for use. These estimates are reviewed periodically and any changes in the estimates are accounted for prospectively.
The property, plant and equipment are recorded at cost less depreciation on a straight-line basis. The estimated useful lives of the assets are as below:
|
|
Plant and equipment
|
|
|
10 years
|
|
|
|
Leasehold improvements
|
|
|
20 years
|
|
|
|
Motor vehicles
|
|
|
4 years
|
|
|
|
Computers
|
|
|
3 years
|
|
|
|
Furniture and fixtures
|
|
|
6 years
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 4. Significant accounting policies (continued)
Intangible assets
The Company has a cannabis operator’s license which is valid for 10 years and is subject to a renewal at the end of the 10 years. The license is automatically renewed annually on payment of necessary fees as well as submission of operational documents to the Ministry of Health.
Intangible assets are recorded at cost less amortization and impairment losses, if any. Intangible assets are amortized on a straight-line basis for the validity of the license, which is 10 years.
Biological Assets
Biological assets are measured at their fair value less costs to sell (“FVLCS”) in the Statement of Financial Position. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest. All direct and indirect costs of biological assets are capitalized as they are incurred. Under IFRS 13 Fair Value Measurement, fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The measurement of the fair value of the asset must take into the condition of the asset as well as any restrictions on the sale of the asset. When applying IFRS 13 Fair Value Measurement to non-financial assets, in this case the biological asset and produce, the fair value takes into account a market participant’s ability to use that asset in its highest and best use. The highest and best use takes into account the use of the asset that is physically possible, legally permissible and financially feasible, either, in combination with other assets or on a standalone basis.
Biological assets and produce held by the Company is planned to be used in four possible ways:
•
Sale to the export market;
•
Sale to the local market;
•
Repurposed for use in research and development; and
•
Written off for being obsolete.
Cash
Cash includes cash on hand and other short term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as of September 30, 2021, and 2020.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement exists, and if the Company has the right to direct the use of the asset. At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative standalone prices.
As a lessee, the Company recognizes a right-of-use asset and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 4. Significant accounting policies (continued)
The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:
a)
fixed payments, including in-substance fixed payments, less any lease incentives receivable;
b)
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
c)
amounts expected to be payable under a residual value guarantee;
d)
exercise prices of purchase options if the Company is reasonably certain to exercise that option; and
e)
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in the estimate or assessment of the expected amount payable under a residual value guarantee, purchase, extension or termination option.
Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit or loss.
Revenue
In accordance with IFRS 15, the Company recognizes revenue, excluding interest and dividend income and other such income from financial instruments recognized in accordance with IFRS 9, upon transfer of promised goods or services to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services based on the following five step approach:
Step 1: Identify the contracts with customers;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company typically satisfies its performance obligations upon completion of sale. The Company primarily acts as principal in contracts with its customers. The Company does not have material obligations for returns, refunds and other similar obligations, nor warranties and related obligations.
Revenue is recognized at the amount of the transaction price that is allocated to the performance obligation. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 4. Significant accounting policies (continued)
The Company does not have any revenue streams at the moment as it has not made any commercial sales to date. The Company does expect to have a single revenue stream in the future which will relate to the sale of cannabis biomass. This revenue stream which will be assessed as one performance obligation. Revenue from biomass and cannabis flower sales will be recognized once the performance obligation has been satisfied, which would be upon the customer taking the delivery of the bulk biomass and/or cannabis flower. The transaction price for each product and service will be determined based on the respective invoice.
The Company exercises judgments in determining the amount of the costs incurred to obtain or fulfill a contract with a customer, which includes, but is not limited to (a) the likelihood of obtaining the contract, (b) the estimate of the profitability of the contract, and (c) the credit risk of the customer. An impairment loss will be recognized in profit or loss to the extent that the carrying amount of the asset exceeds (a) the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates, less (b) the costs that relate directly to providing those goods or services and that have not been recognized as expenses.
Earnings (loss) per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of ordinary shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company.
Income tax
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
•
temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
•
taxable temporary differences arising on the initial recognition of goodwill.
The amount of deferred tax provided is based on the expected manner of recovery or settlement of the carrying amount of assets and liabilities, using tax rates (substantively) enacted, at year-end. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously. Current and deferred
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 4. Significant accounting policies (continued)
tax are recognized in the income statement, except when it relates to a business combination or for items directly recognized in equity or other comprehensive income.
Foreign Currency Translation
The functional and reporting currency of the Company is the Lesotho Loti and United States Dollars respectively. Transactions denominated in foreign currencies are translated using the exchange rate in effect on the transaction date or at an average rate. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the statement of financial position date. Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in profit and loss
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
The share capital of the Company is translated to the spot rate at the end of the financial year.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price.
NOTE 5. Property, plant and equipment
|
|
|
|
$
|
|
|
Plant and
equipment
|
|
|
Leasehold
improvement
|
|
|
Motor
vehicles
|
|
|
Computers
|
|
|
Furniture
and
Fixtures
|
|
|
Total
|
|
|
Cost at January 1, 2020
|
|
|
|
|
|
|
|
449,044
|
|
|
|
|
|
304,770
|
|
|
|
|
|
38,427
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
792,241
|
|
|
|
Additions
|
|
|
|
|
|
|
|
172,369
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
172,369
|
|
|
|
Write-offs
|
|
|
|
|
|
|
|
(23,748)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(23,748)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(11,304)
|
|
|
|
|
|
(11,333)
|
|
|
|
|
|
(1,429)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(24,066)
|
|
|
|
Cost at December 31, 2020
|
|
|
|
|
|
|
|
586,361
|
|
|
|
|
|
293,437
|
|
|
|
|
|
36,998
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
916,796
|
|
|
|
Additions
|
|
|
|
|
|
|
|
32,418
|
|
|
|
|
|
822,928
|
|
|
|
|
|
87,044
|
|
|
|
|
|
4,213
|
|
|
|
|
|
4,437
|
|
|
|
|
|
879,954
|
|
|
|
Cost at September 30, 2021
|
|
|
|
|
|
|
|
618,779
|
|
|
|
|
|
1,116,365
|
|
|
|
|
|
50,046
|
|
|
|
|
|
4,213
|
|
|
|
|
|
4,437
|
|
|
|
|
|
1,793,750
|
|
|
|
Accumulated Depreciation at January 1, 2020
|
|
|
|
|
|
|
|
(67,113)
|
|
|
|
|
|
(22,489)
|
|
|
|
|
|
(4,803)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(94,405)
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 5. Property, plant and equipment (continued)
|
|
|
|
$
|
|
|
Plant and
equipment
|
|
|
Leasehold
improvement
|
|
|
Motor
vehicles
|
|
|
Computers
|
|
|
Furniture
and
Fixtures
|
|
|
Total
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(60,212)
|
|
|
|
|
|
(14,950)
|
|
|
|
|
|
(9,425)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(84,587)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
3,615
|
|
|
|
|
|
1,114
|
|
|
|
|
|
354
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
5,083
|
|
|
|
Accumulated Depreciation at December 31, 2020
|
|
|
|
|
|
|
|
(123,710)
|
|
|
|
|
|
(36,325)
|
|
|
|
|
|
(13,874)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(173,909)
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(48,297)
|
|
|
|
|
|
(55,434)
|
|
|
|
|
|
(8,335)
|
|
|
|
|
|
(412)
|
|
|
|
|
|
(287)
|
|
|
|
|
|
(112,765)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
5,208
|
|
|
|
|
|
9,257
|
|
|
|
|
|
636
|
|
|
|
|
|
7
|
|
|
|
|
|
5
|
|
|
|
|
|
15,113
|
|
|
|
Accumulated Depreciation at September 30, 2021
|
|
|
|
|
|
|
|
(166,799)
|
|
|
|
|
|
(82,502)
|
|
|
|
|
|
(21,573)
|
|
|
|
|
|
(405)
|
|
|
|
|
|
(282)
|
|
|
|
|
|
(278,562)
|
|
|
|
Carrying value at January 1, 2020
|
|
|
|
|
|
|
|
381,931
|
|
|
|
|
|
282,281
|
|
|
|
|
|
33,624
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
697,836
|
|
|
|
Additions
|
|
|
|
|
|
|
|
172,369
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
172,369
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
(23,748)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(23,748)
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(60,212)
|
|
|
|
|
|
(14,950)
|
|
|
|
|
|
(9,425)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(84,587)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(7,689)
|
|
|
|
|
|
(10,219)
|
|
|
|
|
|
(1,075)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(18,983)
|
|
|
|
Carrying value at December 31, 2020
|
|
|
|
|
|
|
|
462,651
|
|
|
|
|
|
257,112
|
|
|
|
|
|
23,124
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
742,887
|
|
|
|
Additions
|
|
|
|
|
|
|
|
32,418
|
|
|
|
|
|
822,928
|
|
|
|
|
|
87,044
|
|
|
|
|
|
4,213
|
|
|
|
|
|
4,437
|
|
|
|
|
|
879,954
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(48,297)
|
|
|
|
|
|
(55,434)
|
|
|
|
|
|
(8,335)
|
|
|
|
|
|
(412)
|
|
|
|
|
|
(287)
|
|
|
|
|
|
(112,765)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
5,208
|
|
|
|
|
|
9,257
|
|
|
|
|
|
636
|
|
|
|
|
|
7
|
|
|
|
|
|
5
|
|
|
|
|
|
15,113
|
|
|
|
Carrying value at September 30, 2021
|
|
|
|
|
|
|
|
451,981
|
|
|
|
|
|
1,026,862
|
|
|
|
|
|
28,473
|
|
|
|
|
|
3,808
|
|
|
|
|
|
4,064
|
|
|
|
|
|
1,515,188
|
|
|
|
|
NOTE 6. Intangible asset
|
|
|
|
$
|
|
|
Licenses
|
|
|
Total
|
|
|
Cost at January 1, 2020
|
|
|
|
|
|
|
|
421,348
|
|
|
|
|
|
421,348
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(15,668)
|
|
|
|
|
|
(15,668)
|
|
|
|
Cost at December 31, 2020
|
|
|
|
|
|
|
|
405,680
|
|
|
|
|
|
405,680
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(14,291)
|
|
|
|
|
|
(14,291)
|
|
|
|
Cost at September 30, 2021
|
|
|
|
|
|
|
|
391,389
|
|
|
|
|
|
391,389
|
|
|
|
Accumulated amortization at January 1, 2020
|
|
|
|
|
|
|
|
(63,202)
|
|
|
|
|
|
(63,202)
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(41,337)
|
|
|
|
|
|
(41,337)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
3,119
|
|
|
|
|
|
3,119
|
|
|
|
Accumulated amortization at December 31, 2020
|
|
|
|
|
|
|
|
(101,420)
|
|
|
|
|
|
(101,420)
|
|
|
|
Accumulated amortization at December 31, 2020
|
|
|
|
|
|
|
|
(101,420)
|
|
|
|
|
|
(101,420)
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(29,880)
|
|
|
|
|
|
(29,880)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
4,908
|
|
|
|
|
|
4,908
|
|
|
|
Accumulated amortization at December 31, 2020
|
|
|
|
|
|
|
|
(127,202)
|
|
|
|
|
|
(127,202)
|
|
|
|
Carrying value at January 1, 2020
|
|
|
|
|
|
|
|
358,146
|
|
|
|
|
|
358,146
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(41,337)
|
|
|
|
|
|
(41,337)
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 6. Intangible asset (continued)
|
|
|
|
$
|
|
|
Licenses
|
|
|
Total
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
(12,549)
|
|
|
|
|
|
(12,549)
|
|
|
|
Carrying value at December 31, 2020
|
|
|
|
|
|
|
|
304,260
|
|
|
|
|
|
304,260
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(29,880)
|
|
|
|
|
|
(29,880)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
(9,383)
|
|
|
|
|
|
(9,383)
|
|
|
|
Carrying value at September 30, 2021
|
|
|
|
|
|
|
|
264,188
|
|
|
|
|
|
264,188
|
|
|
|
|
NOTE 7. Right of use asset
The Company leases land upon which it’s operating premised are located from the Mophuthi Matsoso Development Trust.
|
|
|
|
$
|
|
|
Land Lease
|
|
|
Total
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2020
|
|
|
|
|
|
|
|
|
|
|
2,503,827
|
|
|
|
|
|
2,503,827
|
|
|
|
Additions during the year
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Balance as at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
2,503,827
|
|
|
|
|
|
2,503,827
|
|
|
|
Additions during the year
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
foreign exchange movement
|
|
|
|
|
(178,028)
|
|
|
|
|
|
(178,028)
|
|
|
|
|
Balance as at September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
2,325,799
|
|
|
|
|
|
2,503,827
|
|
|
|
Accumulated Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2020
|
|
|
|
|
|
|
|
|
|
|
93,893
|
|
|
|
|
|
93,893
|
|
|
|
Charge for the year
|
|
|
|
|
|
|
|
|
|
|
122,820
|
|
|
|
|
|
122,820
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
|
|
|
87,335
|
|
|
|
|
|
87,335
|
|
|
|
Balance as at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
304,048
|
|
|
|
|
|
304,048
|
|
|
|
Charge for the year
|
|
|
|
|
|
|
|
|
|
|
88,781
|
|
|
|
|
|
88,781
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
|
|
|
(102,044)
|
|
|
|
|
|
(102,044)
|
|
|
|
Balance as at September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
(290,725)
|
|
|
|
|
|
(290,725)
|
|
|
|
Net Book Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
2,199,779
|
|
|
|
|
|
2,199,779
|
|
|
|
At September 31, 2021
|
|
|
|
|
|
|
|
|
|
|
2,035,074
|
|
|
|
|
|
2,035,074
|
|
|
The carrying amount of the right-of-use asset is depreciated on a straight-line basis over the remaining term of the lease, which at September 30, 2021, was around 17 years.
NOTE 8. Prepayments
|
|
|
|
$
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
108,659
|
|
|
|
|
|
113,485
|
|
|
|
|
|
|
|
|
|
|
|
108,659
|
|
|
|
|
|
113,485
|
|
|
NOTE 9. Capital work in progress
|
|
|
|
$
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Capital work in progress
|
|
|
|
|
|
|
|
487,875
|
|
|
|
|
|
883,145
|
|
|
|
|
|
|
|
|
|
|
|
487,875
|
|
|
|
|
|
883,145
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 9. Capital work in progress (continued)
As at September 30, 2021 the Company’s Capital work in progress relate to the partial green house.
NOTE 10. Loans and borrowings
The loans described below have been granted to the Company to fulfill its capital and operational requirements. The terms of the loans are described below:
a.
Louisa Mojela’s loan as at September 30, 2021 of $1,741,017 (2020: $1,552,487) includes the following loans:
•
Bridge Loan of US$ 1 million — The loan is a bridge financing facility received from L Mojela to fund capital expenditure and working capital of the Company. The loan carries a redemption premium of 100% of the capital amount borrowed. This redemption premium is triggered and becomes payable upon the successful raising of capital of not less than $18m. This capital raise must happen prior to 31 October 2020 for the Lender to qualify for the redemption premium. This loan is repayable within 18 months from the date of first drawdown (which was on or around 1 December 2019), alternatively, the repayment of the loan plus the redemption premium is payable on the successful raising of capital of not less than USD 18m.The loan carries interest at a rate of 1.5% per month applicable from the first draw down date. In the event that the redemption premium is triggered and payable, all interest accrued on the loan is cancelled and only the capital plus the redemption premium is payable. At balance sheet date, the capital raising of $18m contemplated by the loan agreement had not taken place and therefore interest is applicable on the loan under the terms described above. The loan agreement was amended in May 2020 to cater for a further additional borrowing (on the same terms and conditions described above) to the amount of US$100,000. This resulted in a cumulative amount borrowed of US$1.1million (capital amount of the loan). The loan is secured by a first notarial bond/mortgage over the Company’s property.
The security is shared with Middleton and both the Middleton and L Mojela entered into an intercreditor agreement to this effect. The balance on this loan as at September 30, 2021 is $1,490,101 (2020: $1,350,813).
•
Loan 2 — This is a short-term loan facility provided by L Mojela to the Company of approximately US$135,226 in capital value lent. This loan was provided in the financial year ending December 31,2020. The purpose of this loan was to assist the Company in funding working capital deficits. This loan was unsecured, repayable within 30 days of receiving the payment and carried interest at the rate linked to the prime lending rate in the Republic of South Africa. The capital balance of this loan was repaid in full before the end of the financial year December 31, 2020. The interest balance on this loan remains unpaid and outstanding as at September 30, 2021 with a value of US$ 12,139 (2020: $11,230)
•
Loan 3 — This loan is also a short-term facility provided by L Mojela to the Company to fund its day-to-day operating costs. The loan received was to the extent of US$190,444 in the financial year ending December 31, 2020. This loan does not have a fixed repayment date, is unsecured and is interest free. As at December 31, 2020 the loan balance on this facility was US$183,736 (2020: $190,444).
b.
Halo Collective Inc’s loan as at September 30, 2021 of $8,862,425 (2020: $4,688,226) does not have a fixed repayment date and is interest free. This loan account balance includes the loans acquired pursuant to the Purchase and Sale agreement between Halo and the shareholders of the Company as well as the funds provided to the Company in order to manage their day-to-day expenses. In addition to the principal amount of loans acquired by Halo upon the completion of
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 10. Loans and borrowings (continued)
its acquisition of the Company, Halo also acquired the accrued interest thereon at the date of acquisition. These accrued interest balances are now owed to Halo and therefore have been included in Halo loan balance. The accrued interest portion of the loans acquired by Halo amounted to USD 59,756 as at December 31, 2020. This accrued interest balance is interest free and does not have a fixed repayment date. The Company intends to settle the accrued interest owing to Halo within 12 months of the date of these unaudited condensed financial statements.
A continuity of the Company’s loans payables is as follows:
|
|
|
|
$
|
|
|
Louisa
Mojela
|
|
|
Granny
Seape
|
|
|
1942
Capital
|
|
|
Seedy
Lette
|
|
|
GMG/
Middleton
|
|
|
Halo
Collective Inc.
|
|
|
Total
|
|
|
Value at January 1, 2020
|
|
|
|
|
|
|
|
2,191,396
|
|
|
|
|
|
300,477
|
|
|
|
|
|
1,285,146
|
|
|
|
|
|
240,251
|
|
|
|
|
|
1,049,322
|
|
|
|
|
|
(6,916)
|
|
|
|
|
|
5,059,674
|
|
|
|
Loans issued
|
|
|
|
|
|
|
|
438,420
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
731,375
|
|
|
|
|
|
1,169,796
|
|
|
|
Loans carried off
|
|
|
|
|
|
|
|
(1,147,260)
|
|
|
|
|
|
(307,337)
|
|
|
|
|
|
(1,314,361)
|
|
|
|
|
|
(245,712)
|
|
|
|
|
|
(1,030,158)
|
|
|
|
|
|
4,044,828
|
|
|
|
|
|
—
|
|
|
|
Loans repaid
|
|
|
|
|
|
|
|
(137,788)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(137,788)
|
|
|
|
Interest on loans
|
|
|
|
|
|
|
|
278,901
|
|
|
|
|
|
12,656
|
|
|
|
|
|
54,190
|
|
|
|
|
|
10,130
|
|
|
|
|
|
753
|
|
|
|
|
|
—
|
|
|
|
|
|
356,631
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(71,182)
|
|
|
|
|
|
(5,796)
|
|
|
|
|
|
(24,974)
|
|
|
|
|
|
(4,669)
|
|
|
|
|
|
(19,917)
|
|
|
|
|
|
(81,061)
|
|
|
|
|
|
(207,598)
|
|
|
|
Value at December 31, 2020
|
|
|
|
|
|
|
|
1,552,487
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
4,688,226
|
|
|
|
|
|
6,240,714
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
1,552,487
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
711,118
|
|
|
|
|
|
2,263,605
|
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
3,977,108
|
|
|
|
|
|
3,977,108
|
|
|
|
Value at December 31,
2020
|
|
|
|
|
|
|
|
1,552,487
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
4,688,226
|
|
|
|
|
|
6,240,714
|
|
|
|
Loans issued
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
4,474,495
|
|
|
|
|
|
4,474,495
|
|
|
|
Loans carried off
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Loans repaid
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Interest on loans
|
|
|
|
|
|
|
|
190,220
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
190,221
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(1,690)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(300,296)
|
|
|
|
|
|
(301,986)
|
|
|
|
Value at September 30, 2021
|
|
|
|
|
|
|
|
1,741,017
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
8,862,425
|
|
|
|
|
|
10,603,444
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
1,741,017
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
8,862,425
|
|
|
|
|
|
10,603,444
|
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Value at September 30, 2021
|
|
|
|
|
|
|
|
1,741,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,862,425
|
|
|
|
|
|
10,603,444
|
|
|
NOTE 11. Finance lease liability
The Company’s lease liability consists of lease on the land in which it operates. The present value of future lease payments was measured using an incremental borrowing rate of 10.25% per annum as at April 1,2019
|
|
|
|
$
|
|
|
Land
Lease
|
|
|
Total
|
|
|
Balance as at January 1, 2020
|
|
|
|
|
|
|
|
2,408,074
|
|
|
|
|
|
2,408,074
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
284,950
|
|
|
|
|
|
284,950
|
|
|
|
Lease payments during the year
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 11. Finance lease liability (continued)
|
|
|
|
$
|
|
|
Land
Lease
|
|
|
Total
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
(105,816)
|
|
|
|
|
|
(105,816)
|
|
|
|
|
|
|
|
|
|
|
|
2,882,152
|
|
|
|
|
|
2,882,152
|
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
(283,976)
|
|
|
|
|
|
(283,976)
|
|
|
|
As at December 31, 2020
|
|
|
|
|
|
|
|
2,598,176
|
|
|
|
|
|
2,598,176
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
202,965
|
|
|
|
|
|
202,965
|
|
|
|
Lease payments during the year
|
|
|
|
|
|
|
|
(511,686)
|
|
|
|
|
|
(511,686)
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
(95,426)
|
|
|
|
|
|
(95,426)
|
|
|
|
|
|
|
|
|
|
|
|
2,477,735
|
|
|
|
|
|
2,477,735
|
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
(45,662)
|
|
|
|
|
|
(46,517)
|
|
|
|
As at September 30, 2021
|
|
|
|
|
|
|
|
2,432,073
|
|
|
|
|
|
2,432,073
|
|
|
|
|
As at September 31, 2021 the Company’s minimum lease payments are as follows:
|
|
|
|
$
|
|
|
September 31,
2021
|
|
|
Amounts payable within 1 year
|
|
|
|
|
|
|
|
45,662
|
|
|
|
Amounts payable between 1 and 5 years
|
|
|
|
|
|
|
|
1,369,863
|
|
|
|
Amounts payable after 5 years
|
|
|
|
|
|
|
|
3,150,685
|
|
|
|
Total payments
|
|
|
|
|
|
|
|
4,566,210
|
|
|
|
Interest on lease agreement
|
|
|
|
|
|
|
|
2,088,475
|
|
|
|
|
|
|
|
|
|
|
|
2,432,073
|
|
|
NOTE 12. Trade and other payables
|
|
|
|
$
|
|
|
September 31,
2021
|
|
|
December 31,
2020
|
|
|
Trade payables
|
|
|
|
|
|
|
|
99,158
|
|
|
|
|
|
107,839
|
|
|
|
Directors’ remuneration payable
|
|
|
|
|
|
|
|
75,693
|
|
|
|
|
|
48,584
|
|
|
|
Consulting fees payable
|
|
|
|
|
|
|
|
61,561
|
|
|
|
|
|
—
|
|
|
|
LRA Duties
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
—
|
|
|
|
Accrued payroll taxes
|
|
|
|
|
|
|
|
9,175
|
|
|
|
|
|
26,455
|
|
|
|
|
|
|
|
|
|
|
|
245,600
|
|
|
|
|
|
182,878
|
|
|
NOTE 13. Capital
Authorized Share Capital
The Company has 10 million ordinary shares of par value of $0.0007 (1 Lisente or 0.01 Loti) each.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 13. Capital (continued)
Issued Share Capital
|
|
|
|
$
|
|
|
Number of
shares
|
|
|
Par value
|
|
|
Share
capital
|
|
|
Reserves
|
|
|
Total
|
|
|
Balance at December 31, 2020
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
0.0007
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
163
|
|
|
|
Issued and outstanding as at September 30 2021
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
0.0007
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
163
|
|
|
Ordinary shares
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
At the time of the formation of the Company, 100 ordinary shares were issued to its founders, L Mojela & G Seape. During the 2019, L Mojela and G Seape exchanged these shares for shares in Boiketlo Biomed Pty Ltd.(“Boiketlo”) , which resulted in Boiketlo holding 100% of the 100 shares comprising the Company’s issued share capital at the time. Following this, the Company changed the par value per share of its authorized share capital to 0.01 Loti (US$0.0007) each, from its initial par value of 1 Loti (US$0.07) each. Subsequently, during 2019, Middleton Gardens Ltd. (“Middleton”) subscribed for 122,212 ordinary shares at a par value of 0.01 Loti (US$0.0007) each and Boiketlo subscribed for a further 99,900 ordinary shares at the same par value per share. Pursuant to the Sale and Purchase Agreement entered into on November 27, 2019, Halo Collective Inc. (“Halo”) acquired all of the outstanding and issued ordinary shares held by Middleton and Boiketlo and consequently became the 100% shareholder of the Company holding all 222,212 ordinary shares in issue.
NOTE 14. Financial instruments and risk management
Financial instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 14. Financial instruments and risk management (continued)
liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At September 30, 2021, the Company’s financial instruments include cash, loans and borrowings, and trade and other payables.
Capital management
The Company’s primary objective is to ensure that it maintains sufficient capital to support the initial and ongoing development of the business infrastructure. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities. In maintaining or adjusting the capital structure, the Company will request further funding from the shareholders and other related parties.
Financial risk management
The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Company has exposure to the following risks arising from financial instruments:
•
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers and investments in debt securities. The Company is yet to be exposed to credit risk as revenue has yet to be generated.
•
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s objective when managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company is currently not generating revenue and is therefore at risk of not obtaining the required cash flow from the Company’s lenders in order to incur and settle the necessary capital and operational expenses.
•
Market risk is the risk that changes in market prices — e.g., foreign exchange rates, interest rates and equity prices — will affect the Company’s income or the value of its holdings of financial
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 14. Financial instruments and risk management (continued)
instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company’s primary sale market will be outside of Lesotho and will therefore be subject risks related to foreign exchange rates. This will be compounded as the Rand, on which the Loti is pegged, is considered to be volatile in terms of the foreign exchange market.
Currency risk
The Company is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables and payables are denominated and the respective functional currency of the Company. The functional currency of the Company is the Lesotho Loti. The currencies in which these transactions are primarily denominated are Lesotho Loti, Euro, United States dollar, British pound sterling and Canadian dollar.
NOTE 15. Segmented Information
The Company operates primarily in a single operating segment, being the cultivation of medicinal cannabis. All of the Company’s Non-Current Assets are based in Lesotho. Once the Company starts generating revenue, its customers would be primarily located in Europe.
NOTE 16. Income Taxes
The provision for income taxes differs from the amount that would have resulted in applying the statutory tax rate as follows:
|
|
|
|
$
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(2,298,310)
|
|
|
|
Statutory income tax rate
|
|
|
|
|
|
|
|
25%
|
|
|
|
|
|
25%
|
|
|
|
Expected tax recovery at statutory income tax rates
|
|
|
|
|
|
|
|
(866,575)
|
|
|
|
|
|
(574,578)
|
|
|
|
Change in deferred tax assets not recognized
|
|
|
|
|
|
|
|
866,575
|
|
|
|
|
|
574,578)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—)
|
|
|
Temporary differences that give rise to the following deferred tax assets and liabilities at are:
|
|
|
|
$
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carried forward
|
|
|
|
|
|
|
|
8,626,701
|
|
|
|
|
|
5,160,401)
|
|
|
|
Deferred tax assets not recognized
|
|
|
|
|
|
|
|
(8,626,701)
|
|
|
|
|
|
(5,160,401)
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—)
|
|
|
As at September 30, 2021, the Company has approximately $8,626,701 $ (2020 — $5,160,401) of non-capital losses in Lesotho that may be used to offset future taxable income. These losses may be carried forward on an indefinite basis and do not expire. The Company has not recognized the deferred tax assets due to the uncertainty around utilizing all of the losses carry-forwards.
Tax attributes are subject to review, and potential adjustment, by tax authorities.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Condensed Unaudited Financial Statements
For the Nine Months Ended September 30, 2021
NOTE 17. Subsequent Events
Acquisition of the Company by Akanda Corp.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its equity holding in Cannahealth Limited (the “Transaction”). The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science and Wellness (Pty) Ltd became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. As part of this internal reorganization, Bophelo Holdings Ltd acquired the claims held by Halo against the Company, as well 100% of the issued share capital of the Company from Halo. Bophelo Holdings Ltd, is in turn, a wholly owned subsidiary of Cannahealth Limited. Following the completion of the internal reorganization and the successful closing of the Transaction, Akanda Corp. became the ultimate parent company of Bophelo Bio Science and Wellness (Pty) Ltd.
Private Placement
Subsequent to Akanda Corp’s reporting period end of September 30, 2021, Akanda Corp. completed an initial first closing of a private placement fund raising process which saw Akanda Corp. raise approximately USD $5.3 million in exchange for issuing 2,126,000 common shares at a price of US$ 2.50 per share. Subsequent to the initial first closing, the Company undertook a final closing of the private placement fund raising process on January 14, 2022 and pursuant to will issue a further 154,000 common shares to subscribers at a price of US$ 2.50 per share. An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
Changes to the Board of Directors
On November 3, 2021, A Met and P Van Den Berg resigned as directors of the Company.
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
CANMART LTD
|
|
|
|
|
|
|
|
|
Unaudited Condensed Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
|
|
|
|
|
|
|
|
|
F-58
|
|
|
|
|
|
|
|
|
F-59
|
|
|
|
|
|
|
|
|
F-60
|
|
|
|
|
|
|
|
|
F-61
|
|
|
Canmart Ltd
Condensed Statements of Financial Position
|
Presented in US Dollars
|
|
|
Note
|
|
|
$
|
|
|
September 30,
2021
(Unaudited)
|
|
|
December 31,
2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,856
|
|
|
|
|
|
1,907
|
|
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,597
|
|
|
|
|
|
611
|
|
|
|
Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,142
|
|
|
|
|
|
—
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,595
|
|
|
|
|
|
2,518
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
17,022
|
|
|
|
|
|
17,146
|
|
|
|
Total Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,022
|
|
|
|
|
|
17,146
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362,617
|
|
|
|
|
|
19,664
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
327,198
|
|
|
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,198
|
|
|
|
|
|
1,024
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
969,282
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
969,282
|
|
|
|
|
|
—
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,296,480
|
|
|
|
|
|
1,024
|
|
|
|
Shareholder’s Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
3
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(960,473)
|
|
|
|
|
|
(2,291)
|
|
|
|
Other reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,046
|
|
|
|
|
|
21,046
|
|
|
|
Accumulated other comprehensive income/ (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,561
|
|
|
|
|
|
(117)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(933,863)
|
|
|
|
|
|
18,640
|
|
|
|
Total Liabilities and Shareholder’s Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362,617
|
|
|
|
|
|
19,664
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
CANMART LTD
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended September 30
|
Presented in US Dollars
|
|
|
Note
|
|
|
2021
|
|
|
2020
|
|
|
Sales
|
|
|
|
|
|
|
|
17,359
|
|
|
|
|
|
1,788
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
(11,469)
|
|
|
|
|
|
(1,531)
|
|
|
|
|
|
|
|
|
|
|
|
5,890
|
|
|
|
|
|
257
|
|
|
|
Consulting and professional fees
|
|
|
|
|
|
|
|
565,614
|
|
|
|
|
|
—
|
|
|
|
License costs
|
|
|
|
|
|
|
|
1,267
|
|
|
|
|
|
894
|
|
|
|
Salaries and wages
|
|
|
|
|
|
|
|
339,556
|
|
|
|
|
|
—
|
|
|
|
General & administrative expenses
|
|
|
|
|
|
|
|
93,650
|
|
|
|
|
|
514
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
|
1,000,087
|
|
|
|
|
|
1,408
|
|
|
|
Loss from Operations
|
|
|
|
|
|
|
|
(994,197)
|
|
|
|
|
|
(1,151)
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
1
|
|
|
|
Foreign exchange through profit and loss
|
|
|
|
|
|
|
|
35,911
|
|
|
|
|
|
—
|
|
|
|
Other income
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
136
|
|
|
|
Total Other Income (Expense)
|
|
|
|
|
|
|
|
36,015
|
|
|
|
|
|
137
|
|
|
|
Net loss before income tax
|
|
|
|
|
|
|
|
(958,182)
|
|
|
|
|
|
(1,014)
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Net Loss for the Year
|
|
|
|
|
|
|
|
(958,182)
|
|
|
|
|
|
(1,014)
|
|
|
|
Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on foreign currency translation
|
|
|
|
|
|
|
|
5,678
|
|
|
|
|
|
(22)
|
|
|
|
Net and Comprehensive Loss
|
|
|
|
|
|
|
|
(952,504)
|
|
|
|
|
|
(1,036)
|
|
|
|
Basic and dilutive loss per ordinary share
|
|
|
|
|
|
|
|
(476,252)
|
|
|
|
|
|
(518.20)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
2
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
CANMART LTD
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY FOR THE NINE MONTHS ENDED SEPTEMB ER 30,2021 AND 2020.
(Unaudited)
|
Presented in US Dollars
|
|
|
$
|
|
|
Number
of Shares
|
|
|
Share
Capital
|
|
|
Accumulated
other
comprehensive
income/(loss)
|
|
|
Accumulated
Deficit
|
|
|
Other
Reserves
|
|
|
Total
Equity
(Deficit)
|
|
|
Balance, January 1, 2020
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
(1)
|
|
|
|
|
|
(30)
|
|
|
|
|
|
—
|
|
|
|
|
|
(28)
|
|
|
|
Issue of shares
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Currency translation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(21)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(21)
|
|
|
|
Contribution to reserves by owners
of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,140
|
|
|
|
|
|
18,140
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,014)
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,014)
|
|
|
|
Balance, September 30, 2020
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
(22)
|
|
|
|
|
|
(1,044)
|
|
|
|
|
|
18,140
|
|
|
|
|
|
17,077
|
|
|
|
Balance, January 1, 2021
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
(117)
|
|
|
|
|
|
(2,291)
|
|
|
|
|
|
21,046
|
|
|
|
|
|
18,641
|
|
|
|
Effect of foreign currency translation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
5,678
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
5,678
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(958,182)
|
|
|
|
|
|
|
|
|
|
|
|
(958,182)
|
|
|
|
Balance, September 30, 2021
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
5,561
|
|
|
|
|
|
(960,473)
|
|
|
|
|
|
21,046
|
|
|
|
|
|
(933,863)
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
CANMART LTD
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
|
Presented in US Dollars
|
|
|
Note
|
|
|
$
|
|
|
January 1, 2020 to
September 30, 2021
|
|
|
January 1, 2020 to
September 30, 2020
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(958,182)
|
|
|
|
|
|
(1,014)
|
|
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Foreign exchange through profit and loss
|
|
|
|
|
|
|
|
|
|
|
(35,911)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in inventory
|
|
|
|
|
|
|
|
|
|
|
(11,986)
|
|
|
|
|
|
—
|
|
|
|
Increase in trade and other payables
|
|
|
|
|
|
|
|
|
|
|
326,173
|
|
|
|
|
|
303
|
|
|
|
Increase in trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
(105,142)
|
|
|
|
|
|
(2,151)
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
(785,048)
|
|
|
|
|
|
(2,862)
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for acquisition of cannabis licenses
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(14,779)
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(14,779)
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional contributions to owners’ capital
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
18,140
|
|
|
|
Proceeds from shareholder’s loan
|
|
|
|
|
|
|
|
|
|
|
969,282
|
|
|
|
|
|
—
|
|
|
|
Net cash provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
969,282
|
|
|
|
|
|
18,140
|
|
|
|
Effects of foreign exchange translation on cash
|
|
|
|
|
|
|
|
|
|
|
41,715
|
|
|
|
|
|
(1,163)
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
|
|
|
|
225,949
|
|
|
|
|
|
(664)
|
|
|
|
Cash at beginning of year
|
|
|
|
|
|
|
|
|
|
|
1,907
|
|
|
|
|
|
1,116
|
|
|
|
Cash at end of year
|
|
|
|
|
|
|
|
|
|
|
227,856
|
|
|
|
|
|
452
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Taxes paid
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to reserves by shareholders due to waiver of balance due to related party
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 1. Nature of Operations
Canmart Ltd (the “Company”) is domiciled in United Kingdom was incorporated on December 27, 2018. The Company’s registered office is at Units 1a/1b Learoyd Road, New Romney, Kent, England. The Company was formed to establish the business of warehousing and storage facilities for land transport activities.
The Company’s main business is the production and sale of cannabis-based products for medicinal use. The Company is part of a business restructuring agreement in which it will indirectly become part of Akanda Corp., a newly incorporated Company in Canada (Refer to Note 2 and Note 11 below).
On October 1, 2020 the former owners of Canmart Ltd, David Dean and Darran Quinn, entered into a Sale and Purchase Agreement with Halo Collective Inc. (“Halo”) in terms of which Halo would acquire the entire outstanding and issued share capital of the Company (amounting to 2 ordinary shares) from the former owners of the Company. On October 30, 2020, Halo and the former owners of the Company entered into an amendment agreement relating to the Sale and Purchase agreement dated October 1, 2020, in terms of which the original agreement was amended to update the purchase consideration payable to the former owners of the Company by Halo to an amount of 135,416,666 common shares of Halo. The acquisition of the Company by Halo closed on November 10, 2020.
On November 3, 2021, Cannahealth Ltd acquired 100% of the issued and outstanding share capital of Canmart Ltd from Halo, together with the outstanding intercompany loan claims held by Halo against Canmart Ltd, pursuant to an internal reorganization undertaken by Halo. Following the completion of the internal reorganization, the Company became a wholly owned subsidiary of Cannahealth Ltd, which was in turn acquired on or around November 3, 2021 by Akanda Corp. pursuant to the successful closing of a share purchase agreement with Halo Collective Inc. (“Halo”).
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards. (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on January 28, 2022. .
These financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value. These financial statements are presented in United States dollars. The fiscal year end is December 31. The Company’s functional currency is Great British Pounds.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
These financial statements are both unaudited and condensed and should be read in conjunction with the most recent audited financial statements.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 2. Basis of preparation and going concern (continued)
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 9, the Company shall be the ultimate parent company of the businesses referred to in Note 9. The financial forecast for the Akanda group for the next 18 months indicates that it will generate make significant revenue through the cultivation and production & sale of dried cannabis flower and/or cannabis biomass through a hoop house, shade cloth & greenhouse grow as well as through the sale and distribution of third party of cannabis based medicinal products. Until such time that the group becomes cash flow positive, any shortfall would be funded by the shareholders of Akanda. Additionally, the group is engaged in a private placement process and is expected to raise between USD 5 million and USD 6 million to fund the capital expenditure and working capital requirements of the Company (and the group).
NOTE 3. Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
An allowance is made for all debts which the company considers unlikely to recover. The allowance is recognized through profit and loss.
The estimates used to determine the useful life of the intangible assets are determined by considering the relevant market related information and the term granted in respect of licences.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Foreign currency and foreign translation
Transactions in foreign currencies are translated from the respective functional currencies to the reporting currency of the Company using the exchange rates at transaction date. Receivables, payables and other monetary assets and liabilities denominated in foreign currencies are re-translated to the reporting currency using the exchange rates at the balance sheet date. Resulting foreign currency differences are recognized in the income statement, except for foreign currency differences arising on re-translation of Fair Value through Other Comprehensive Income (FVOCI) investments and financial liabilities designated as a hedge of a net investment, which are recognized in other comprehensive income.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
The functional and reporting currency of the Company is the Great British Pounds and United States dollar respectively. Transactions denominated in foreign currencies are translated using the exchange rate in effect on the transaction date or at an average rate. Monetary assets and liabilities denominated in foreign
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 4. Significant accounting policies (continued)
currencies are translated at the rate of exchange in effect at the statement of financial position date. Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in profit and loss in both the years ended September 30, 2020 and 2021.
Intangible assets
The Company has cannabis distribution licenses which have been assessed as having an indefinite useful life. As such, these licenses are not amortized but their recoverable amounts are tested annually for impairment. The intangible assets are recorded at cost less impairment losses, if any. The Company capitalizes the initial license application cost as the cost of intangible assets while the annual license renewal fees are expensed in the year during which they occur.
Cash
Cash includes cash on hand and other short-term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as of September 30, 2021 and December 31, 2020.
Revenue
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control over a good or service to a customer. In accordance with IFRS 15, the Company recognizes revenue, excluding interest and dividend income and other such income from financial instruments recognized in accordance with IFRS 9, upon transfer of promised goods or services to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services based on the following five step approach:
Step 1: Identify the contracts with customers;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company typically satisfies its performance obligations upon completion of sale. The Company primarily acts as principal in contracts with its customers. The Company does not have material obligations for returns, refunds and other similar obligations, nor warranties and related obligations.
Revenue is recognized at the amount of the transaction price that is allocated to the performance obligation. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.
The company has a single revenue stream currently that relates to the sale of cannabis-based products for medicinal use. This revenue stream is assessed as one performance obligation. Revenue from cannabis based medicinal product sales is recognized once the performance obligation has been satisfied, which would be upon the customer taking the delivery of the product. The transaction price for each product and service will be determined based on the respective invoice.
The Company exercises judgments in determining the amount of the costs incurred to obtain or fulfil a contract with a customer, which includes, but is not limited to (a) the likelihood of obtaining the contract, (b) the estimate of the profitability of the contract, and (c) the credit risk of the customer. An impairment loss
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 4. Significant accounting policies (continued)
will be recognized in profit or loss to the extent that the carrying amount of the asset exceeds (a) the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates, less (b) the costs that relate directly to providing those goods or services and that have not been recognized as expenses.
Earnings (loss) per share
The calculation of earnings per share (EPS) for the period ended September 30, 2020 and 2021 is based on the profit /loss attributable to the shareholder of the Company (net profit (loss)) and the weighted average number of shares outstanding (basic and diluted) during the period ended September 30, 2020 and 2021. The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
Income tax
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
•
temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
•
taxable temporary differences arising on the initial recognition of goodwill.
The amount of deferred tax provided is based on the expected manner of recovery or settlement of the carrying amount of assets and liabilities, using tax rates (substantively) enacted, at year-end. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously. Current and deferred tax are recognized in the income statement, except when it relates to a business combination or for items directly recognized in equity or other comprehensive income.
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 4. Significant accounting policies (continued)
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk. When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price.
NOTE 5. Intangible Assets
|
|
|
|
$
|
|
|
Licences
|
|
|
Total
|
|
|
Cost at January 1, 2020
|
|
|
|
|
|
|
|
16,563
|
|
|
|
|
|
16,563
|
|
|
|
Amortisation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
583
|
|
|
|
Cost at December 31, 2020
|
|
|
|
|
|
|
|
17,146
|
|
|
|
|
|
17,146
|
|
|
|
Accumulated amortisation at December 31, 2020
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Carrying value at December 31, 2020
|
|
|
|
|
|
|
|
17,146
|
|
|
|
|
|
17,146
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
(124)
|
|
|
|
|
|
(124)
|
|
|
|
Amortisation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Cost at September 30, 2021
|
|
|
|
|
|
|
|
17,022
|
|
|
|
|
|
17,022
|
|
|
|
Accumulated amortisation at December 31,2020
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Carrying value at September 30,2021
|
|
|
|
|
|
|
|
17,022
|
|
|
|
|
|
17,022
|
|
|
The licences held by the Company have been issued by the Medicines & Healthcare Products Regulatory Agency in the United Kingdom. The licences allow the Company to hold and distribute a controlled drug as determined by the Medicines & Healthcare Products Regulatory Agency. The detailed terms of the licenses are described below:
Controlled Drug License
The Controlled Drug License held by the Company was issued to the Company by the Home Office on February 4, 2020 with an expiry date of February 3, 2021. This license was successfully renewed further with a new expiry date of February 3, 2022. This license (license ref no. 846476) allows the Company to import, store and export controlled drugs, namely schedule 2 drugs, into and from the United Kingdom. The Company pays an annual license renewal fee to renew the license annually which renewal is subject to enhanced to disclosure and barring the undertaking by the Home Office within 3 years of the time of the first disclosures made to the Home Office by the Company when it applied for the license. The cost of acquiring this license is approximately US$4,795 (GBP 3,655). The license is considered to have an indefinite useful life as its renewal is only subject to the payment of an annual renewal fee and occasional Home Office disclosure checks. As such, the license is not subject to amortization.
Manufacturer’s Specials License
The Company also holds a Manufacturer’s Specials License (issued by Medicine and Health Regulatory Agency) with license number MS50996. The license was issued on August 5, 2019, which allows it to import
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 5. Intangible Assets (continued)
and store non authorised pharmaceuticals/ unlicensed medicinal products, otherwise known as specials. The License does not have an expiry date but under the terms of the license, fees are payable to the Medicine and Health Regulatory Agency for inspection and other fees. The costs attributable to this license is approximately US$9,598 (GBP 6,971). The license is considered to have an indefinite useful life as it does not have an expiry date and its only ongoing obligation to the license holder is the payment of an annual license fee and inspection costs. As such, the license is not subject to amortization.
Wholesale Distribution Authorization License
The Wholesale Distribution Authorization License (issued by Medicine and Health Regulatory Agency) with license number 50996 and allows the Company to distribute by way of wholesale, medical cannabis products and to store such products at its approved premises. The license was granted on August 2, 2019 and it does not have an expiry date. The license will remain in force from the date of issue unless cancelled, suspended, revoked, varied or relinquished by the Company. The cost of the license was approximately US$2,624 (GBP 2,000). The license is considered to have an indefinite useful life as it does not have an expiry date. As such the license is not subject to amortization.
NOTE 6. Trade and other receivables
|
|
|
|
$
|
|
|
September, 30 2021
|
|
|
December, 31 2020
|
|
|
Trade receivables
|
|
|
|
|
|
|
|
12,366
|
|
|
|
|
|
523
|
|
|
|
Allowance for bad debts
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(523)
|
|
|
|
VAT receivable
|
|
|
|
|
|
|
|
11,531
|
|
|
|
|
|
—
|
|
|
|
PAYE receivables
|
|
|
|
|
|
|
|
81,245
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
105,142
|
|
|
|
|
|
—
|
|
|
NOTE 7. Share capital
Issued
Ordinary shares
On inception, the Company issued share capital of US$3 (Great British Pounds 2) consisting of two ordinary shares with a par value of US$1.5(Great British Pounds 1) per share. The Company received the proceeds of these share issues during 2019.
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
NOTE 8. Financial instruments and risk management
Financial instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 8. Financial instruments and risk management (continued)
(FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At September 30, 2021 and December 31, 2020, the Company’s financial instruments include cash, trade receivables, trade and other payables and shareholder loan.
Financial risk management
The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Company has exposure to the following risks arising from financial instruments:
•
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investments in debt securities.
•
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s objective when managing liquidity is to ensure, as far as possible, that it will have
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 8. Financial instruments and risk management (continued)
sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
•
Market risk is the risk that changes in market prices — e.g., foreign exchange rates, interest rates and equity prices — will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Currency risk
The Company is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables and payables are denominated and the respective functional currency of the Company. The functional currency of the Company is the United States dollar. The currencies in which these transactions are primarily denominated are Euro, United States dollar, British pound sterling and Canadian dollar.
Capital Management
The Company’s primary objective is to ensure that it maintains sufficient capital to support the initial and ongoing development of the business infrastructure. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities. In maintaining or adjusting the capital structure, the Company will request further funding from the shareholders and other related parties.
NOTE 9. Income Tax
The provision for income taxes differs from the amount that would have resulted in applying the combined federal statutory tax rate as follows:
|
|
|
|
$
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Net loss for the period
|
|
|
|
|
|
|
|
(958,182)
|
|
|
|
|
|
(2,261)
|
|
|
|
Statutory income tax rate
|
|
|
|
|
|
|
|
18%
|
|
|
|
|
|
18%
|
|
|
|
Expected tax recovery at statutory income tax rates
|
|
|
|
|
|
|
|
(172,472)
|
|
|
|
|
|
(407)
|
|
|
|
Change in deferred tax assets not recognized
|
|
|
|
|
|
|
|
172,472
|
|
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
—)
|
|
|
|
|
|
—)
|
|
|
Temporary differences that give rise to the following deferred tax assets and liabilities at are:
|
|
|
|
$
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carried forward
|
|
|
|
|
|
|
|
960,473)
|
|
|
|
|
|
2,291)
|
|
|
|
Deferred tax assets not recognized
|
|
|
|
|
|
|
|
(960,473)
|
|
|
|
|
|
(2,291)
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
—)
|
|
|
|
|
|
—)
|
|
|
As at September 30, 2021, the Company has approximately $960,473 (December 31, 2020 — $2,291) of non-capital losses in the United Kingdom that may be used to offset future taxable income. These losses may be carried forward on an indefinite basis and do not expire. The Company has not recognized the deferred tax assets due to the uncertainty around utilizing all of the losses carry-forwards.
Canmart Ltd
Notes to the Unaudited Condensed Financial Statements
For the nine months ended September 30, 2020 and 2021
NOTE 10. Related Party Transactions
Related party balances
As at September 30, 2021, $969,282 (2020:$Nil) was due to a related party that pertained to the loan provided by the company’s shareholder, Halo Collective Inc. (“Halo”). This loan is interest free and unsecured.
Use of Warehouse premises
The Company makes use of warehouse space owned by an entity known as D&D Investments Ltd. This entity is owned and controlled by two of the Company’s directors, namely David Dean and Darran Quinn. The Company does not pay rental for the time being in relation to the use of this property and no signed lease agreement is in place.
NOTE 11. Subsequent Events
Entering into of Sale and Purchase Agreement with Halo Collective Inc.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness (Pty) Ltd, Canmart Ltd., Bophelo Holdings Ltd. and Cannahealth Ltd. The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed. On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale/purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Pty Ltd, Canmart Ltd., Bophelo Holdings Ltd. And Cannahealth Ltd.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science & Wellness (Pty) became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. In accordance with the terms of the Purchase Agreement, Halo sold 100% of the issued and outstanding shares of Cannahealth Ltd to the Company in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of USD $13,129,212. On November 3, 2021, Cannahealth Ltd acquired, for a total purchase consideration of USD $1, 100% of the issued and outstanding share capital of Canmart Ltd from Halo, together with the outstanding intercompany loan claims (with a carrying amount of USD $1,226,679) held by Halo against Canmart Ltd, pursuant to an internal reorganization undertaken by Halo. Following the completion of the internal reorganization, the Company became a wholly owned subsidiary of Cannahealth Ltd, which was in turn acquired on or around November 3, 2021 by Akanda Corp. pursuant to the successful closing of a share purchase agreement with Halo Collective Inc. (“Halo”).
Private Placement
Subsequent to Akanda Corp’s reporting period end of September 30, 2021, Akanda Corp. completed an initial first closing of a private placement fund raising process which saw Akanda Corp. raise approximately USD $5.3 million in exchange for issuing 2,126,000 common shares at a price of US$ 2.50 per share. Subsequent to the initial first closing, the Company undertook a final closing of the private placement fund raising process on January 14, 2022 and pursuant to will issue a further 154,000 common shares to subscribers at a price of US$ 2.50 per share. An additional and final closing of the offering took place on January 26, 2022 for a further subscription of 4,000 common shares and $19,982 in gross proceeds.
Changes to the board of directors
On November 3, 2021, the board of directors passed a resolution appoint T Virk, T Scott and V Iyer as directors of the Company, while K Sidhu and P Van Den Berg were removed as directors of the Company with immediate effect.
AKANDA CORP.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to the following transactions:
i.
The acquisition of Bophelo Bio Science and Wellness (Pty) Ltd (“Bophelo Bio Science”), Canmart Limited (“Canmart”), Bophelo Holdings Limited (“Bophelo Holdings”), and Cannahealth Limited (“Cannahealth”) by Akanda Corp. (the “Company”) pursuant to a Sale and Purchase Agreement dated September 28, 2021. Pursuant to the Sale and Purchase Agreement, the Company will acquire all of the outstanding ordinary shares of Cannahealth from its shareholder Halo Co. Inc. (“Halo”) in exchange for 13,129,212 common shares of the Company issued to Halo. The conditions precedent to the Sale and Purchase Agreement were fulfilled after the end of reporting period presented ending September 30, 2021.
ii.
The settlement of a bridge loan of $2,200,000 by way of an issue of 880,000 common shares of the Company at a price of $2.50 each;
iii.
The issue of 2,280,400 common shares of the Company at a price of $2.50 each pursuant to a private placement capital raise;
iv.
The issue of 4,000,000 common shares of the Company at a price of $5.00 pursuant to the Company’s Initial Public Offering.
v.
The settlement of a Debenture owing to Halo with a total outstanding debt of $6,559,254 through an issue of 1,311,851 common shares of the Company at a price of $5.00 each.
These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
AKANDA CORP.
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of September 30, 2021
|
|
|
|
|
|
|
Akanda
Corp.
|
|
|
Cannahealth
|
|
|
Bophelo
Holdings
|
|
|
Canmart
|
|
|
Bophelo
Bio Science
|
|
|
Total
|
|
|
Proforma
Adjustments
|
|
|
Notes
|
|
|
Proforma
As Adjusted
|
|
|
|
|
|
$
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,396
|
|
|
|
|
|
135
|
|
|
|
|
|
227,856
|
|
|
|
|
|
480,444
|
|
|
|
|
|
959,832
|
|
|
|
|
|
23,644,920
|
|
|
|
4(a,c&d)
|
|
|
|
|
24,604,752
|
|
|
|
Trade and other
receivables
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
105,142
|
|
|
|
|
|
—
|
|
|
|
|
|
105,142
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
105,142
|
|
|
|
Prepayments
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
108,659
|
|
|
|
|
|
108,659
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
108,659
|
|
|
|
Inventory
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
12,597
|
|
|
|
|
|
—
|
|
|
|
|
|
12,597
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
12,597
|
|
|
|
Loan to shareholder
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
6
|
|
|
|
|
|
6
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
6
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,396
|
|
|
|
|
|
135
|
|
|
|
|
|
345,595
|
|
|
|
|
|
589,109
|
|
|
|
|
|
1,186,236
|
|
|
|
|
|
23,644,920
|
|
|
|
|
|
|
|
|
24,831,156
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,515,188
|
|
|
|
|
|
1,515,188
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1,515,188
|
|
|
|
Capital work in progress
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
487,875
|
|
|
|
|
|
487,875
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
487,875
|
|
|
|
Right-of-use asset
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,035,074
|
|
|
|
|
|
2,035,074
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,035,074
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
17,022
|
|
|
|
|
|
264,188
|
|
|
|
|
|
281,210
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
281,210
|
|
|
|
Total Non-Current Assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
17,022
|
|
|
|
|
|
4,302,325
|
|
|
|
|
|
4,319,347
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
4,319,347
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,396
|
|
|
|
|
|
135
|
|
|
|
|
|
362,617
|
|
|
|
|
|
4,891,434
|
|
|
|
|
|
5,505,583
|
|
|
|
|
|
23,644,920
|
|
|
|
|
|
|
|
|
29,150,503
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
|
|
|
92,055
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
327,198
|
|
|
|
|
|
245,600
|
|
|
|
|
|
664,853
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
664,853
|
|
|
|
Loans and borrowings
|
|
|
|
|
|
|
|
4,226
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
10,603,444
|
|
|
|
|
|
10,603,444
|
|
|
|
|
|
(8,009,785)
|
|
|
|
4(b&e)
|
|
|
|
|
2,593,659
|
|
|
|
Lease liability
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
45,662
|
|
|
|
|
|
45,662
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
45,662
|
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
|
96,281
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
327,198
|
|
|
|
|
|
10,894,706
|
|
|
|
|
|
11,313,959
|
|
|
|
|
|
(8,009,785)-
|
|
|
|
|
|
|
|
|
3,304,174
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liability
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,432,073
|
|
|
|
|
|
2,432,073
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,432,073
|
|
|
|
Loans and borrowings
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
969,282
|
|
|
|
|
|
—
|
|
|
|
|
|
973,508
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
973,508
|
|
|
|
Total Non-Current
Liabilities
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
969,282
|
|
|
|
|
|
2,432,073
|
|
|
|
|
|
3,405,581
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
3,405,581
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
96,281
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,296,480
|
|
|
|
|
|
13,326,779
|
|
|
|
|
|
14,719,540
|
|
|
|
|
|
(8,009,785)
|
|
|
|
|
|
|
|
|
6,709,755
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
3
|
|
|
|
|
|
156
|
|
|
|
|
|
251,775
|
|
|
|
|
|
45,531,612
|
|
|
|
4(a,bc,d&e)
|
|
|
|
|
45,783,387
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
21,046
|
|
|
|
|
|
7
|
|
|
|
|
|
21,053
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
21,053
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
(96,179)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(960,473)
|
|
|
|
|
|
(8,626,701)
|
|
|
|
|
|
(9,683,353)
|
|
|
|
|
|
(749,469)
|
|
|
|
|
|
|
|
|
(10,432,822)
|
|
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
(102)
|
|
|
|
|
|
(81)
|
|
|
|
|
|
(3)
|
|
|
|
|
|
5,561
|
|
|
|
|
|
191,193
|
|
|
|
|
|
196,568
|
|
|
|
|
|
(13,127,438)
|
|
|
|
4(a)
|
|
|
|
|
(12,930,870))
|
|
|
|
Total Shareholders’ equity
|
|
|
|
|
|
|
|
153,720
|
|
|
|
|
|
1,396
|
|
|
|
|
|
135
|
|
|
|
|
|
(933,863)
|
|
|
|
|
|
(8,435,345)
|
|
|
|
|
|
(9,213,957)
|
|
|
|
|
|
31,654,705
|
|
|
|
|
|
|
|
|
22,440,748
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,396
|
|
|
|
|
|
135
|
|
|
|
|
|
362,617
|
|
|
|
|
|
4,891,434
|
|
|
|
|
|
5,505,583
|
|
|
|
|
|
23,644,920
|
|
|
|
|
|
|
|
|
29,150,503
|
|
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
AKANDA CORP.
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
Akanda
Corp.
|
|
|
Cannahealth
|
|
|
Bophelo
Holdings
|
|
|
Canmart
|
|
|
Bophelo
Bio Science
|
|
|
Total
|
|
|
Proforma
Adjustments
|
|
|
Notes
|
|
|
Proforma
As Adjusted
|
|
|
|
|
|
$
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
30 September
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
17,359
|
|
|
|
|
|
—
|
|
|
|
|
|
17,359
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
17,359
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(11,469)
|
|
|
|
|
|
—
|
|
|
|
|
|
(11,469)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(11,469)
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
5,890
|
|
|
|
|
|
—
|
|
|
|
|
|
5,890
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
5,890
|
|
|
|
Accounting & Audit
|
|
|
|
|
|
|
|
16,822
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
16,822
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
16,822
|
|
|
|
Amortisation and
depreciation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
231,427
|
|
|
|
|
|
231,427
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
231,427
|
|
|
|
Consulting and professional
fees
|
|
|
|
|
|
|
|
32,904
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
565,614
|
|
|
|
|
|
504,866
|
|
|
|
|
|
1,103,384
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1,103,384
|
|
|
|
General & administrative
expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
93,650
|
|
|
|
|
|
1,317,292
|
|
|
|
|
|
1,410,942
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1,410,942
|
|
|
|
Legal fees
|
|
|
|
|
|
|
|
39,474
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
39,474
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
39,474
|
|
|
|
License costs
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,267
|
|
|
|
|
|
—
|
|
|
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,267
|
|
|
|
Office expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
33,216
|
|
|
|
|
|
33,216
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
33,216
|
|
|
|
Personnel expenses
|
|
|
|
|
|
|
|
12,275
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
339,556
|
|
|
|
|
|
955,032
|
|
|
|
|
|
1,306,863
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1,306,863
|
|
|
|
Travel expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
57,063
|
|
|
|
|
|
57,063
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
57,063
|
|
|
|
Loss from Operations
|
|
|
|
|
|
|
|
(101,475)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(994,917)
|
|
|
|
|
|
(3,098,896)
|
|
|
|
|
|
(4,194,568)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(4,194,568)
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
50
|
|
|
|
|
|
25,782
|
|
|
|
|
|
25,832
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
25,832
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(393,186)
|
|
|
|
|
|
(393,186)
|
|
|
|
|
|
(749,469)
|
|
|
|
4(b)
|
|
|
|
|
(1,142,655)
|
|
|
|
Foreign exchange gain
|
|
|
|
|
|
|
|
5,296
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
35,911
|
|
|
|
|
|
—
|
|
|
|
|
|
41,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,207
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
—
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
Net loss from operations
|
|
|
|
|
|
|
|
(96,179)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(958,182)
|
|
|
|
|
|
(3,466,300)
|
|
|
|
|
|
(4,520,661)
|
|
|
|
|
|
(749,469)
|
|
|
|
|
|
|
|
|
(5,270,130)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
(102)
|
|
|
|
|
|
(81)
|
|
|
|
|
|
(3)
|
|
|
|
|
|
5,678
|
|
|
|
|
|
83,016
|
|
|
|
|
|
88,508
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
88,508
|
|
|
|
Net and comprehensive loss
|
|
|
|
|
|
|
|
(96,281)
|
|
|
|
|
|
(81)
|
|
|
|
|
|
(3)
|
|
|
|
|
|
(952,504)
|
|
|
|
|
|
(3,383,284)
|
|
|
|
|
|
(4,432,153)
|
|
|
|
|
|
(749,469)
|
|
|
|
|
|
|
|
|
(5,181,622)
|
|
|
|
Basic and dilutive loss per ordinary
share
|
|
|
|
|
|
|
|
(0.02)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(476,252)
|
|
|
|
|
|
(15.23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.18)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
6,095,706
|
|
|
|
|
|
1,200
|
|
|
|
|
|
100
|
|
|
|
|
|
2
|
|
|
|
|
|
222,212
|
|
|
|
|
|
|
|
|
|
|
|
21,817,577
|
|
|
|
4(a,b,c,d&e)
|
|
|
|
|
28,136,797
|
|
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
AKANDA CORP.
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
Akanda
Corp.
|
|
|
Cannahealth
|
|
|
Bophelo
Holdings
|
|
|
Canmart
|
|
|
Bophelo Bio
Science
|
|
|
Total
|
|
|
Proforma
Adjustments
|
|
|
Notes
|
|
|
Proforma
As Adjusted
|
|
|
|
|
|
$
|
|
|
N/A
|
|
|
30 September
2020
|
|
|
N/A
|
|
|
30 September
2020
|
|
|
30 September
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1,788
|
|
|
|
|
|
—
|
|
|
|
|
|
1,788
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1,788
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,531)
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,531)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,531)
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
—
|
|
|
|
|
|
257
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
257
|
|
|
|
Amortization and depreciation
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(173,971)
|
|
|
|
|
|
(173,971
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(173,971)
|
|
|
|
Consulting and professional
fees
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(454,721)
|
|
|
|
|
|
(454,721
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(454,721)
|
|
|
|
General & Administration
expenses
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,408)
|
|
|
|
|
|
(163,654)
|
|
|
|
|
|
(165,062
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(163,654)
|
|
|
|
Office expenses
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,171)
|
|
|
|
|
|
(14,171
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(14,171)
|
|
|
|
Personnel expenses
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223,345)
|
|
|
|
|
|
(223,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223,345)
|
|
|
|
Short term accommodation
expense
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,912)
|
|
|
|
|
|
(31,912
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(31,912)
|
|
|
|
Travel expenses
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,789)
|
|
|
|
|
|
(4,789
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(4,789)
|
|
|
|
Loss from Operations
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,151)
|
|
|
|
|
|
(1,066,563))
|
|
|
|
|
|
(1,067,714)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,067,714)
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
9,529
|
|
|
|
|
|
9,530
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
9,530
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(487,069)
|
|
|
|
|
|
(487,069)
|
|
|
|
|
|
(749,469)
|
|
|
|
4(b)
|
|
|
|
|
(1,236,538)
|
|
|
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
—
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
Net loss from operations
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,014)
|
|
|
|
|
|
(1,544,103)
|
|
|
|
|
|
(1,545,117)
|
|
|
|
|
|
(749,469)
|
|
|
|
|
|
|
|
|
(2,294,586)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(22)
|
|
|
|
|
|
604,902
|
|
|
|
|
|
604,880
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
604,880
|
|
|
|
Net and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,036)
|
|
|
|
|
|
(939,201)
|
|
|
|
|
|
(940,237)
|
|
|
|
|
|
(749,469)
|
|
|
|
|
|
|
|
|
(1,689,706)
|
|
|
|
Basic and dilutive loss per ordinary share
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(518.20)
|
|
|
|
|
|
(6.95)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
222,212
|
|
|
|
|
|
|
|
|
|
|
|
21,817,677
|
|
|
|
4(a,b,c,d&e)
|
|
|
|
|
28,136,797
|
|
|
AKANDA CORP.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
Akanda Corp. (the “Company”) was incorporated in July 2021 and on September 28, 2021, the Company entered into a Sale and Purchase Agreement (the “Agreement”) with Halo Collective Inc. (“Halo”), pursuant to which the Company acquired all of the outstanding ordinary shares of Cannahealth Limited (“Cannahealth”) from Halo in exchange for 13,129,212 common shares of the Company. The Agreement became unconditional on or around November 3, 2021. Upon completion of the acquisition, the Company entered into a Debenture Agreement (the “Debenture”) with Halo with a principal debt of $6,559,254 which will be converted to equity upon completion of an Initial Public Offering and listing of the Company.
Cannahealth is the holding company of Canmart Limited (“Canmart”) and Bophelo Holding Limited (“Bophelo Holdings”), which in turn, is the holding company of Bophelo Bio Science and Wellness (Pty) Ltd (“Bophelo Bio Science”). Following the completion of the Agreement, Akanda directly and indirectly owns 100% of the issued share capital of Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science.
The Company has issued 2,280,400 common shares of the Company at a price of $2.50 each pursuant to a private placement capital raise, and will further issue of 4,000,000 common shares of the Company at a price of $5.00 each pursuant to its Initial Public Offering. The Company has also issued 880,000 common shares at a price of $2.50 each to settle a bridge loan facility, and will issue 1,311,851 common shares at a price of $5.00 each to settle the principal amount owing in terms of the Debenture.
NOTE 1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial statements are based on the Company’s historical financial statements as well as those of Bophelo Bio Science, Canmart, Bophelo Holdings and Cannahealth. These historical consolidated financial statements have been adjusted to give effect to the acquisition of the above-mentioned companies and the shares issued as part of the acquisition, as well as to give effect to the issue of the Company’s common shares pursuant to the pre-initial public offering capital raise and the Initial Public Offering itself. The unaudited pro forma combined statements of operations for the reporting periods ended September 30, 2021 and the reporting periods ended December 31, 2020 give effect to the above-mentioned companies acquisition as if it had occurred on January 1, 2020. The unaudited proforma combined statements of financial position as of September 30, 2021 and December 31, 2020 give effect to the above-mentioned companies acquisition as if it had occurred on September 30,2021. The Company, and its subsidiaries, will have a fiscal year end of December 31.
For accounting purposes, the Company has considered the accounting guidance provided by the relevant IASB agendas and determined that the merger of Akanda Corporation and Bophelo Bio Science, Canmart, Bophelo Holdings, and Cannahealth should be treated as a combination of companies under common control and the pooling of interests’ method applied. As such, the assets and liabilities of Bophelo Bio, Canmart, Bophelo Holdings, and Cannahealth have been presented at their historical carrying values.
Historical financial information has been adjusted in the pro forma balance sheet to pro forma events that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the Company’s results of operations. The pro forma adjustments presented in the pro forma combined balance sheet and statement of operations are described in Note 4 — Pro Forma Adjustments.
The unaudited pro forma condensed combined financial information is for illustrative purposes only. These companies may have performed differently had they actually been combined for the periods presented. You should not rely on the pro forma combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined companies will experience after the acquisition.
NOTE 2. ACCOUNTING PERIODS PRESENTED
Certain pro forma adjustments were made to conform Bophelo Bio, Canmart, Bophelo Holdings, and Cannahealth accounting policies to the Company’s accounting policies as noted below.
The unaudited pro forma condensed combined statement of financial position as of September 30, 2021 is presented as if the acquisition had occurred on September 30, 2021 and combines the unaudited condensed statements of financial position of Akanda Corporation, Bophelo Bio Science, Canmart, Bophelo Holdings, and Cannahealth at September 30, 2021.
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2021 has been prepared by combining the unaudited condensed statements of operations of Akanda Corporation, Bophelo Bio Science, Canmart, Bophelo Holdings, and Cannahealth for the nine months ended September 30, 2021.
NOTE 3. PRELIMINARY PURCHASE PRICE ALLOCATION
On September 28 2021, the Company entered into a Sale and Purchase Agreement (the “Agreement”) with Halo Collective Inc. (“Halo”), pursuant to which the Company acquired all of the outstanding ordinary shares of Cannahealth Limited (“Cannahealth”) from Halo in exchange for 13,129,212 common shares of the Company. The Agreement became unconditional after the end of the reporting period ending September 30, 2021. The unaudited pro forma condensed combined financial statements include various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science. For accounting purposes, the Company has determined that the acquisition of Cannahealth, Canmart, Bophelo Holdings and Bio Science is a common control business combination. As such, the assets and liabilities of Cannahealth, Canmart, Bophelo Holdings and Bio Science have been presented at their historical carrying values. Accordingly, pro forma adjustments are preliminary and have been made solely for illustrative purposes.
NOTE 4. PRO FORMA ADJUSTMENTS
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
a)
Pursuant to the Agreement, 13,129,212 of the Company’s common shares were issued in lieu of payment for the shares acquired in Cannahealth, Canmart, Bophelo Holdings, and Bophelo Bio Science. The value of the common shares issued by the Company amounts to $13,129,212. A journal was processed to:
i.
Recognise the increase in the Company’s share capital and the accompanying investment in subsidiaries in the Company’s statement of financial position;
ii.
Accounting for the consolidation of Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science in accordance with the pooling of interests’ method of consolidation, thereby eliminating share capital in the acquired entities (Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science) and recognising the difference between the net asset value of the acquired entities and the purchase consideration, namely the 13,129,212 common shares issued by the Company, directly in equity.
b)
In connection with amounts owing to LM Mojela in terms of a bridge loan facility, the Company issued 880,000 common shares at $2.50 each to settle amounts owing under the bridge loan facility. At September 30, 2021, the bridge loan had accrued interest to the amount of $350,351. Settlement of the bridge loan by way of an issue of common shares reduces accrued inters of $350,351 to $nil but attracts a redemption premium of $1,100,000.
c)
In connection with the Company’s private placement capital raise, the Company issued 2,280,400 common shares at $2.50 each to raise total gross proceeds under the private placement of $5,701,000. In connection with its fundraising efforts, the Company has engaged Boustead Securities Limited (“Boustead”) as its lead underwriter. In accordance with the Company’s agreed-upon terms of engagement with Boustead, a cash fee of 7% of the gross cash proceeds of the capital raise, as well as a 1% non-accountable expense fee is payable to Boustead. Furthermore, Boustead is entitled to receive 7% of the number of shares issued in the form of warrants with a strike price of $2.50.
d)
In connection with the Company’s Initial Public Offering capital raise, the Company will issue 4,000,000 common shares at $5.00 each to raise total proceeds under the Initial Public Offering of $20,000,000. In connection with its fundraising efforts, the Company has engaged Boustead Securities Limited (“Boustead”) as its lead underwriter. In accordance with the Company’s agreed-upon terms of engagement with Boustead, a cash fee of 7% of the gross cash proceeds of the capital raise, as well as a 1% non-accountable expense fee is payable to Boustead. Furthermore, Boustead is entitled to receive 7% of the number of shares issued in the form of warrants with a strike price of $5.00 being the estimated price under the Offering.
e)
In connection with amounts owing to Halo in terms of the Debenture, and to settle the principal debt owing under the Debenture, the Company will issue 1,311,851 common shares at a price of $5.00 each upon the completion of an Initial Public Offering and listing of the Company.
INDEX TO FINANCIAL STATEMENTS
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AKANDA CORP.
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Financial Statements:
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Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Akanda Corp.
Opinion on the Financial Statements
We have audited the accompanying statement of financial position of Akanda Corp. (the “Company”) as of August 31, 2021, the related statement of operations, stockholders’ equity (deficit), and cash flows for the period from July 16, 2021 (inception) through to August 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021, and the results of its operations and its cash flows for the period from July 16, 2021 (inception) through to August 31, 2021, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
Served as Auditor since 2021
Lakewood, CO
November 18, 2021
Akanda Corp.
Statement of Financial Position
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Note
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August 31,
2021
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ASSETS
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Current Assets
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Cash, held in trust
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$
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250,001
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Total Current Assets
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250,001
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Total Assets
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$
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250,001
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LIABILITIES AND SHAREHOLDERS’ DEFICIT
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Current Liabilities
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Accounts payable
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$
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27,635
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Loan from shareholder
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4,263
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Total Liabilities
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31,898
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Shareholders’ Equity
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Share capital
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5
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$
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250,001
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Accumulated deficit
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(31,898)
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Total Shareholders’ Equity
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218,103
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Total Liabilities and Shareholders’ Equity
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$
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250,001
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The accompanying notes are an integral part of these financial statements.
Akanda Corp.
Statement of Operations
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July 16, 2021
(Inception) to
August 31, 2021
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Operating expenses:
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Legal fees
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$
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31,898
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Total operating expenses
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31,898
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Net and comprehensive loss
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$
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(31,898)
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The accompanying notes are an integral part of these financial statements.
Akanda Corp.
Statement of Changes in Shareholders’ Equity
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Note
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Share
Capital
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Accumulated
Deficit
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Total
Shareholders’
Equity
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Inception, July 16, 2021
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$
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—
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$
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—
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$
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—
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Share issuance
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5
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250,001
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—
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250,001
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Net loss
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—
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(31,898)
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(31,898)
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Balance, August 31, 2021
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$
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250,001
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$
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(31,898)
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$
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218,103
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The accompanying notes are an integral part of these financial statements.
Akanda Corp.
Statement of Cash Flows
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Note
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July 16, 2021
(Inception) to
August 31, 2021
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Cash flows from Operating Activities
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Net income
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$
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(31,898)
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Increase in accounts payable
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27,635
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Cash used in operating activities
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$
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(4,263)
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Cash flows from Financing Activities
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Proceeds from share issuances
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$
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250,001
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Loan received from shareholder
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4,263
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Cash flows provided by financing activities
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$
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254,264
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Change in cash during the period
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$
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250,001
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Cash at beginning of period
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—
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Cash at end of period
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$
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250,001
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The accompanying notes are an integral part of these financial statements.
Akanda Corp.
Notes to the Financials Statements
July 16, 2021 (Inception) to August 31, 2021
NOTE 1. Nature of Operations and Going Concern
Akanda Corp. (the “Company”) is domiciled in Canada. The Company’s registered office is 77 King Street West, Suite 400, Toronto-Dominion Centre, Toronto Canada, Ontario, M5K0A1.
The Company’s main business is intended to be the ultimate parent company (Refer to Note 2 and Note 9 below) that will hold the equity investments, directly or indirectly, in Cannahealth Limited, Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science and Wellness Pty Ltd.
In September 2021, the Company will be subject to a business restructuring agreement in which the company will acquire shares of Cannahealth Limited in Malta, Canmart Ltd in the UK, Bophelo Holdings in the UK and Bophelo Bio Science and Wellness (Pty) Ltd in Lesotho from a Canadian listed Cannabis company called Halo Collective Inc. In consideration of this acquisition, Halo will be issued shares in the Company.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of Preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
The Company’s board of directors approved these financial statements on October 14, 2021. The financial statements are presented in US dollars and all financial amounts, other than per-share amounts, are rounded to the nearest dollar. The functional currency of the Company is the US dollar.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 9, the Company shall be the ultimate parent company of the businesses referred to in Note 9. The financial forecast for the Akanda group for the next 18 months indicates that it will make significant revenue through production & sale of dried cannabis flowers through a hoop house, shade cloth & greenhouse grow as well as sale of cannabis based medicinal products. Until such time that the group becomes cash flow positive, any shortfall would be funded by the shareholders of Akanda. Additionally, the group is engaged in a Pre IPO financing process and is expected to raise USD 5 million to fund the capital expenditure and working capital requirements of the Company (and the group).
NOTE 3. Use of Judgements and Estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and
Akanda Corp.
Notes to the Financials Statements
July 16, 2021 (Inception) to August 31, 2021
NOTE 3. Use of Judgements and Estimates (continued)
liabilities and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant Accounting Policies
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Cash
Cash consists of cash held within trust account held by an attorney (share capital raised) and other short-term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as of August 31, 2021.
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
Financial Instruments
(a) Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Akanda Corp.
Notes to the Financials Statements
July 16, 2021 (Inception) to August 31, 2021
NOTE 4. Significant Accounting Policies (continued)
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Related parties
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged as defined by IFRS for SMEs.
NOTE 5. Share Capital
Authorized
Common shares
The Company has authorized shares of an unlimited number with no par value.
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
Issued
The company has 6,095,706 issued shares at no par value.
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Number of
common
shares
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Share capital
2021
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Inception at July 16, 2021
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—
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—
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Shares issued to founders
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5,626,806
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1
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Shares issued- August 26, 2021
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468,900
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250,000
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Issued and outstanding at August 31, 2021
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6,095,706
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$
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250,001
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NOTE 6. Related Party Transactions
Loan from Shareholder
During the period from July 16, 2021 (inception) to August 31, 2021, the Company received a loan from a shareholder in the amount of $4,263, which is outstanding and payable as of August 31, 2021. This loan is repayable on demand and bears no interest.
Key Management Compensation
The Company’s directors and other members of key management, being the Executive Chairman, CEO and CFO who have the authority and responsibility for planning, directing and controlling the activities of the Company.
Akanda Corp.
Notes to the Financials Statements
July 16, 2021 (Inception) to August 31, 2021
NOTE 6. Related Party Transactions (continued)
To date Akanda Corp has not remunerated the Executive Chairman, the CEO or the CFO within Akanda Corp., these executives are remunerated within a group related entity for their relevant duties.
NOTE 7. Financial Instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
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the contractual rights to the cash flows from the financial asset expire; or
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it transfers the rights to receive the contractual cash flows in a transaction in which either:
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substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At August 31, 2021, the Company’s financial instruments include cash, accounts payable, and loan from shareholder
NOTE 8. Capital Management
As of August 31, 2021, the Company’s capital is composed of shareholders’ equity. The Company’s primary objectives, when managing its capital, are to maintain adequate levels of funding to support the operations of the Company and to maintain corporate and administrative functions.
The Company defines capital as cash and equity, consisting of shareholders’ equity. The capital structure of the Company is managed to provide sufficient funding operating activities. Funds are primarily secured through equity capital raised by way of the Company’s shareholders. There can be no assurances that the Company will be able to continue raising equity capital in this manner. The Company invests all
Akanda Corp.
Notes to the Financials Statements
July 16, 2021 (Inception) to August 31, 2021
NOTE 8. Capital Management (continued)
capital that is surplus to its immediate needs in short-term, liquid and highly rated financial instruments, such as cash, which are all held with major financial institutions.
There were no changes to the Company’s approach to capital management during the period from July 16, 2021 (inception) to August 31, 2021.
NOTE 9. Employee Share Ownership Plan
On August 6, 2021, the board of directors approved a Stock Option Plan (“ESOP”). In terms of the ESOP, employees, officers, directors and consultants of the Company (and its subsidiaries) are eligible to receive awards in the form of stock options and or restricted share unit awards. The aggregate number of shares reserved for issuance pursuant to awards granted under the ESOP shall not exceed 20% of the Company’s total issued and outstanding Common Shares from time to time.
NOTE 10. Subsequent Events
Appointment of Officer to Company
With effect from October 1, 2021, the Company appointed Dr. Asli Akkar-Schenkl as President of the Company.
Entering into of Sale and Purchase Agreement with Halo Collective Inc.
On September 29, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale/purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Pty Ltd, Canmart Ltd, Bophelo Holdings Ltd and Cannahealth Limited.
Prior to the completion of the Transaction, Halo intends to complete an internal reorganization, pursuant to which Halo’s international assets in the UK, Malta and Lesotho, namely Canmart Ltd, Cannahealth Limited and Bophelo Bio Science and Wellness (Pty) Ltd will become, directly or indirectly, wholly owned subsidiaries of Akanda Corp. In accordance with the terms of the Purchase Agreement, Halo will then sell 100% of the issued and outstanding shares of Cannahealth to the Company in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of US$13,129,212. On November 3, 2021, Akanda Corp. completed the acquisition of Cannahealth Limited. Accordingly, the company issued 13,129,212 common shares to Halo in lieu of the acquisition. Contemporaneously with the closing of the Purchase Agreement, the company entered into an investor rights agreement with Halo, which will provide Halo with certain investor rights as a shareholder of the company, including certain information rights and the rights to appoint a director to the board of Akanda. The company also issued a debenture to Halo in terms of which the company is indebted to Halo to the amount of approximately $6.6 million, in lieu of the acquisition of the loan claims in Bophelo Bio Science and Canmart that were previously held by Halo prior to the completion of the internal reorganization. The debenture is secured by way of a general security over the assets of the Company, as well as by a pledge of the 1,200 shares held by the Company in Cannahealth Limited. The debenture bears interest at a rate of 1% per annum and is repayable on or before November 2, 2021. The debenture (including accrued interest thereon) is convertible, at the Company’s election, into common shares of the Company, and the debenture (including accrued interest thereon) will automatically convert into common shares of the Company upon the successful completion of an Initial Public Offering.
Private Placement
Subsequent to Akanda’s reporting period end of August 31, 2021, Akanda sold an aggregate of 2,126,400 Common Shares at an initial closing of a private placement to accredited investors at a purchase
Akanda Corp.
Notes to the Financials Statements
July 16, 2021 (Inception) to August 31, 2021
NOTE 10. Subsequent Events (continued)
price of $2.50 per share and received approximately $5,316,000 in gross proceeds. Additional closings of the offering may be held until November 29, 2021, subject to Akanda’s option to extend for additional 60 days, to raise up to a maximum aggregate amount of $10,000,000.
Settlement of subsidiary bridge loan
On November 10, 2021, Akanda approved the settlement of an outstanding bridge loan payable by Bophelo to Louisa Mojela. In terms of the settlement, Akanda issued 880,000 Common Shares at a price of $2.50 per share to Ms. Mojela to settle a total amount outstanding under the bridge loan facility of $2.2 million, inclusive of an applicable $1.1 million redemption premium under the loan agreement. In exchange for Akanda settling the loan payable to Ms. Mojela on behalf of Bophelo, the Company recorded a corresponding inter-company loan account claim against Bophelo.
INDEX TO FINANCIAL STATEMENTS
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CANNAHEALTH LIMITED
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Financial Statements:
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Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Cannahealth Limited
Opinion on the Financial Statements
We have audited the accompanying statement of financial position of Cannahealth Limited (the “Company”) as of December 31, 2020, the related statement of operations, stockholders’ equity (deficit), and cash flows for the period from July 1, 2020 (inception) through to December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period from July 1, 2020 (inception) through to December 31, 2020, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
Served as Auditor since 2021
Lakewood, CO
November 18, 2021
Cannahealth LIMITED
Statement of Financial Position
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Note
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December 31,
2020
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ASSETS
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Current assets
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Cash, held in trust
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$
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1,477
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Total Assets
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$
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1,477
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LIABILITIES AND SHAREHOLDER’S EQUITY
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Shareholder’s Equity
|
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|
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Share capital
|
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5
|
|
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$
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1,477
|
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Accumulated deficit
|
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—
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Total Shareholder’s Equity
|
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1,477
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Total Liabilities and Shareholder’s Equity
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$
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1,477
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The accompanying notes are an integral part of these financial statements.
Cannahealth LIMITED
Statement of Operations
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July 1, 2020
(Inception) to
December 31, 2020
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Net sales
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$
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—
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Net and comprehensive loss
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$
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—
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The accompanying notes are an integral part of these financial statements.
Cannahealth LIMITED
Statement of Changes in Shareholders’ Equity
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Note
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Share
Capital
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Accumulated
Deficit
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Total
Shareholder’s
Equity
|
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Inception, July 1, 2020
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$
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—
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|
|
$
|
—
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|
|
|
|
$
|
—
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|
|
|
Share issuance at inception
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5
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|
|
|
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1,477
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|
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—
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|
|
|
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1,477
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Balance, December 31, 2020
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$
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1,477
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|
|
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$
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—
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|
|
|
|
$
|
1,477
|
|
|
The accompanying notes are an integral part of these financial statements.
Cannahealth LIMITED
Statement of Cash Flows
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July 1, 2020
(Inception) to
December 31, 2020
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Cash Flows from Operating Activities
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$
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—
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Cash Flows from Financing Activities
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Proceeds from share issue
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1,477
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Cash flows provided by financing activities
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1,477
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Net change in cash
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$
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1,477
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Cash at beginning of period
|
|
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—
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Cash at end of period
|
|
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$
|
1,477
|
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|
The accompanying notes are an integral part of these financial statements.
CANNAHEALTH LIMITED
Notes to the Financial Statements
July 1, 2020 (Inception) to December 31, 2020
NOTE 1. Reporting Entity
Cannahealth Limited (the “Company”) is domiciled in Malta. The Company’s registered office is at Level 4, The Penthouse Suite 2, Ewropa Business Centre, Triq Dun Karm Birkirkara, Malta. The Company was formed on July 1, 2020 to carry on business as a general commercial company.
The Company’s main business is intended to be the entity within the Akanda Corp. group (Refer to Note 2 and Note 8 below) that will hold the equity investment in Bophelo Holdings Ltd, Canmart Ltd directly and Bophelo Bio Science and Wellness (Pty) Ltd indirectly. The Company is part of a business restructuring agreement in which it will directly become part of Akanda Corp., a newly incorporated Company in Canada.
To date, the Company has not commenced any operations. The continuing operations of the Company are dependent upon its ability to generate profitable operations in the future, and to continue to secure additional financing.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on October 14, 2021.
These financial statements are presented in US Dollars. The functional currency of the Company is Euro.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 8, the Company shall directly become a wholly owned subsidiary of Akanda Corp (“Akanda”). The financial forecast for the Akanda group for the next 18 months indicates that it will make significant revenue through production & sale of dried cannabis flowers through a hoop house, shade cloth & greenhouse grow as well as sale of cannabis based medicinal products. Until such time that the group becomes cash flow positive, any shortfall would be funded by the shareholders of Akanda. Additionally, the group is engaged in a Pre IPO financing process and is expected to raise USD 5 million to fund the capital expenditure and working capital requirements of the Company (and the group).
NOTE 3. Use of judgement and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
CANNAHEALTH LIMITED
Notes to the Financial Statements
July 1, 2020 (Inception) to December 31, 2020
NOTE 3. Use of judgement and estimates (continued)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
Cash
Cash includes cash held in trust and other short term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents at December 31, 2020.
Financial Instruments
(a)
Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
(b)
Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
CANNAHEALTH LIMITED
Notes to the Financial Statements
July 1, 2020 (Inception) to December 31, 2020
NOTE 4. Significant accounting policies (continued)
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price
NOTE 5. Capital
Authorized
Ordinary shares
The Company has authorized share capital of 1,200 ordinary shares at a par value of EUR 1 each and there are no preference shares.
Issued
The Company has 1,200 issued shares at EUR 1 each for total proceeds of $1,477 (EUR 1,200).
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Number of
ordinary
shares
|
|
|
Share capital
2020
|
|
|
Inception at July 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance at inception
|
|
|
|
|
1,200
|
|
|
|
|
$
|
1,477
|
|
|
|
Issued and outstanding at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
1,477
|
|
|
CANNAHEALTH LIMITED
Notes to the Financial Statements
July 1, 2020 (Inception) to December 31, 2020
NOTE 5. Capital (continued)
Ordinary shares
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
NOTE 6. Capital Management
As of December 31, 2020 the Company’s capital is composed of shareholder’s equity. The Company’s primary objectives, when managing its capital, are to maintain adequate levels of funding to support the operations of the Company and to maintain corporate and administrative functions.
The Company defines capital as cash and equity, consisting of shareholder’s equity. The capital structure of the Company is managed to provide sufficient funding operating activities. Funds are primarily secured through equity capital raised by way of the Company’s shareholders. There can be no assurances that the Company will be able to continue raising equity capital in this manner. The Company invests all capital that is surplus to its immediate needs in short-term, liquid and highly rated financial instruments, such as cash, which are all held with major financial institutions.
There were no changes to the Company’s approach to capital management during the period from July 1, 2020 (inception) to December 31, 2020.
NOTE 7. Financial Instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based
CANNAHEALTH LIMITED
Notes to the Financial Statements
July 1, 2020 (Inception) to December 31, 2020
NOTE 7. Financial Instruments (continued)
on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At December 31, 2020 the Company’s financial instruments included cash.
NOTE 8. Subsequent Events
Entering into of Sale and Purchase Agreement with Halo Collective Inc.
On September 29, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale/purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Pty Ltd, Canmart Ltd, Bophelo Holdings Ltd and Cannahealth Limited.
Prior to the completion of the Transaction, Halo intends to complete an internal reorganization, pursuant to which Halo’s international assets in the UK, Malta & Lesotho namely Canmart Ltd, Cannahealth Limited and Bophelo Bio Science and Wellness (Pty) Ltd will become, directly or indirectly, wholly owned subsidiaries of Akanda Corp. In accordance with the terms of the Purchase Agreement, Halo will then sell 100% of the issued and outstanding shares of Cannahealth to Akanda in exchange for 13,129,212 common shares in the capital of the Akanda (“Akanda Shares”), representing aggregate consideration of US$13,129,212. On or around November 3, 2021, the sale and purchase Agreement became unconditional and Akanda completed the acquisition of Cannahealth Limited. Accordingly, Akanda issued 13,129,212 common shares to Halo in lieu of the acquisition. Contemporaneously with the closing of the Sale and Purchase Agreement, Akanda entered into an investor rights agreement with Halo, which will see Halo gaining certain investor rights as a shareholder of Akanda, including certain information rights and the rights to appoint a director to the board of Akanda. Akanda also entered into a debenture agreement with Halo in terms of which Akanda is indebted to Halo to the amount of approximately $6.6m, in lieu of the acquisition of the loan claims in Bophelo Bio Science and Canmart that were previously held by Halo prior to the completion of the internal reorganization. The debenture is secured by way of a general security over the assets of Akanda, as well as by a pledge of the 1,200 shares held by Akanda in Cannahealth Limited. The debenture bears interest at a rate of 1% per annum and is repayable on or before November 2, 2021. The debenture (including accrued interest thereon) is convertible, at Akanda’s election, into common shares of Akanda, and the debenture (including accrued interest thereon) will automatically convert into common shares of Akanda upon the successful completion of an Initial Public Offering.
INDEX TO FINANCIAL STATEMENTS
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Page
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BOPHELO HOLDINGS LTD
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Financial Statements:
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|
|
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Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Bophelo Holdings Ltd.
Opinion on the Financial Statements
We have audited the accompanying statement of financial position of Bophelo Holdings Ltd. (the “Company”) as of August 31, 2021, the related statement of operations, stockholders’ equity (deficit), and cash flows for the period from August 4, 2021 (inception) through to August 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021, and the results of its operations and its cash flows for the period from August 4, 2021 (inception) through to August 31, 2021 in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
Served as Auditor since 2021
Lakewood, CO
November 18, 2021
Bophelo Holdings Ltd
Statement of Financial position
|
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|
|
Note
|
|
|
August 31,
2021
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
5
|
|
|
|
|
$
|
138
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
Total Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
|
Total Liabilities and Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Holdings Ltd
Statement of Operations
|
|
|
|
August 4, 2021
(Inception) to
August 31, 2021
|
|
|
Net sales
|
|
|
|
$
|
—
|
|
|
|
Net and Comprehensive loss
|
|
|
|
$
|
—
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Holdings Ltd
Statement of Changes in Shareholder’s Equity
|
|
|
|
Note
|
|
|
Share
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Shareholder’s
Equity
|
|
|
Inception, August 4, 2021
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Share issuance at inception
|
|
|
|
|
5
|
|
|
|
|
|
138
|
|
|
|
|
|
—
|
|
|
|
|
|
138
|
|
|
|
Balance, August 31, 2021
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
138
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Holdings Ltd
Statement of Cash Flows
|
|
|
|
August 4, 2021
(Inception) to
August 31, 2021
|
|
|
Cash Flows from Operating Activities
|
|
|
|
$
|
—
|
|
|
|
Cash flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from share issue
|
|
|
|
|
138
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
138
|
|
|
|
Net change in cash
|
|
|
|
|
138
|
|
|
|
Cash at beginning of period
|
|
|
|
|
—
|
|
|
|
Cash at end of period
|
|
|
|
$
|
138
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Holdings Ltd
Notes to the Financials Statements
August 4, 2021 (Inception) to August 31, 2021
NOTE 1. Reporting Entity
Bophelo Holdings Ltd (the “Company”) is domiciled in England. The Company’s registered office is at 49 Greek Street London W1D4EG. The Company was formed on August 4, 2021, to carry on business as a general commercial company.
The Company’s main business is intended to be the entity within the Akanda Corp. group (Refer to Note 2 and Note 8 below) that will hold the equity investment in Bophelo Bio Science and Wellness (Pty) Ltd, a cannabis cultivation company incorporated in Lesotho. The Company is part of a business restructuring agreement in which it will indirectly become part of Akanda Corp., a newly incorporated Company in Canada.
To date, the Company has not commenced any operations. The continuing operations of the Company are dependent upon its ability to generate profitable operations in the future, and to continue to secure additional financing.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on October 14, 2021.
These financial statements are presented in US Dollars. The functional currency of the Company is Great British Pounds.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 8, the Company shall become, directly or indirectly, a wholly owned subsidiary of Akanda Corp. (“Akanda”). The financial forecast for the Akanda group for the next 18 months indicates that it will make significant revenue through production & sale of dried cannabis flowers through a hoop house, shade cloth & greenhouse grow as well as sale of cannabis based medicinal products. Until such time that the group becomes cash flow positive, any shortfall would be funded by the shareholders of Akanda. Additionally, the group is engaged in a Pre IPO financing process and is expected to raise USD 5 million to fund the capital expenditure and working capital requirements of the Company (and the group).
NOTE 3. Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Bophelo Holdings Ltd
Notes to the Financials Statements
August 4, 2021 (Inception) to August 31, 2021
NOTE 3. Use of judgements and estimates (continued)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
Cash
Cash include cash on hand and other short term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as of August 31, 2021.
Financial Instruments
(a) Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
(b) Measurement
Financial assets and liabilities at amortized cost.
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Bophelo Holdings Ltd
Notes to the Financials Statements
August 4, 2021 (Inception) to August 31, 2021
NOTE 4. Significant accounting policies (continued)
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price.
Related parties
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged as defined by IFRS for SMEs.
NOTE 5. Capital
Authorised shares
The company has 100 authorised shares with a par value of 1 Pound each.
Issued Shares
|
|
|
|
Number of
ordinary
shares
|
|
|
Share capital
2021
|
|
|
Inception at August 4, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance at inception
|
|
|
|
|
100
|
|
|
|
|
$
|
138
|
|
|
|
Issued and outstanding at August 31, 2021
|
|
|
|
|
100
|
|
|
|
|
$
|
138
|
|
|
Ordinary shares
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
Bophelo Holdings Ltd
Notes to the Financials Statements
August 4, 2021 (Inception) to August 31, 2021
NOTE 5. Capital (continued)
On August 4, 2021, the Company issued share capital of USD $138 consisting of a hundred shares with a nominal value of USD $1, each.
NOTE 6. Capital Management
As of August 31, 2021 the Company’s capital is composed of shareholder’s equity. The Company’s primary objectives, when managing its capital, are to maintain adequate levels of funding to support the operations of the Company and to maintain corporate and administrative functions.
The Company defines capital as cash and equity, consisting of shareholder’s equity. The capital structure of the Company is managed to provide sufficient funding operating activities. Funds are primarily secured through equity capital raised by way of the Company’s shareholder. There can be no assurances that the Company will be able to continue raising equity capital in this manner. The Company invests all capital that is surplus to its immediate needs in short-term, liquid and highly rated financial instruments, such as cash, which are all held with major financial institutions.
There were no changes to the Company’s approach to capital management during the period from August 4, 2021 (inception) to August 31, 2021.
NOTE 7. Financial Instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference
Bophelo Holdings Ltd
Notes to the Financials Statements
August 4, 2021 (Inception) to August 31, 2021
NOTE 7. Financial Instruments (continued)
between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At August 31, 2021, the Company’s financial instruments include cash.
NOTE 8. Subsequent Events
Entering into of Sale and Purchase Agreement with Halo Collective Inc.
On September 29, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale/purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Pty Ltd, Canmart Ltd, Bophelo Holdings Ltd and Cannahealth Limited.
Prior to the completion of the Transaction, Halo intends to complete an internal reorganization, pursuant to which Halo’s international assets in the UK, Malta & Lesotho namely Canmart Ltd, Cannahealth Limited and Bophelo Bio Science and Wellness (Pty) Ltd will become, directly or indirectly, wholly owned subsidiaries of Akanda Corp. In accordance with the terms of the Purchase Agreement, Halo will then sell 100% of the issued and outstanding shares of Cannahealth to Akanda in exchange for 13,129,212 common shares in the capital of the Akanda (“Akanda Shares”), representing aggregate consideration of US$13,129,212. On or around November 3, 2021,the sale and purchase Agreement became unconditional and Akanda completed the acquisition of Cannahealth Limited. Accordingly, Akanda issued 13,129,212 common shares to Halo in lieu of the acquisition. Contemporaneously with the closing of the Sale and Purchase Agreement, Akanda entered into an investor rights agreement with Halo, which will see Halo gaining certain investor rights as a shareholder of Akanda, including certain information rights and the rights to appoint a director to the board of Akanda. Akanda also entered into a debenture agreement with Halo in terms of which Akanda is indebted to Halo to the amount of approximately $6.6m, in lieu of the acquisition of the loan claims in Bophelo Bio Science and Canmart that were previously held by Halo prior to the completion of the internal reorganization. The debenture is secured by way of a general security over the assets of Akanda, as well as by a pledge of the 1,200 shares held by Akanda in Cannahealth Limited. The debenture bears interest at a rate of 1% per annum and is repayable on or before November 2, 2021. The debenture (including accrued interest thereon) is convertible, at Akanda’s election, into common shares of Akanda, and the debenture (including accrued interest thereon) will automatically convert into common shares of Akanda upon the successful completion of an Initial Public Offering.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
BOPHELO BIO SCIENCE AND WELLNESS (PTY) LTD
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Bophelo Bio Science and Wellness (Pty) Ltd.
Opinion on the Financial Statements
We have audited the accompanying statements of financial position of Bophelo Bio Science and Wellness (Pty) Ltd. (the “Company”), as of December 31, 2020 and 2019, the related statements of comprehensive loss, changes in shareholders’ equity (deficit) and cash flows for the years then ended, and related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
Served as Auditor since 2021
Lakewood, CO
November 18, 2021
Bophelo Bio Science and Wellness (Pty) Ltd
Statements of Financial Position
|
|
|
|
Note
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,120
|
|
|
|
|
|
818,447
|
|
|
|
Prepayments
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
113,485
|
|
|
|
|
|
310
|
|
|
|
Shareholders’ loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
156
|
|
|
|
Loans and borrowings
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
6,916
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,612
|
|
|
|
|
|
825,829
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
742,887
|
|
|
|
|
|
697,836
|
|
|
|
Capital work in progress
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
883,145
|
|
|
|
|
|
616,377
|
|
|
|
Right-of-use asset
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
2,199,779
|
|
|
|
|
|
2,409,933
|
|
|
|
Intangible assets
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
304,260
|
|
|
|
|
|
358,146
|
|
|
|
Total Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,130,071
|
|
|
|
|
|
4,082,292
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,253,683
|
|
|
|
|
|
4,908,121
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
182,878
|
|
|
|
|
|
43,006
|
|
|
|
Loans and borrowings
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
2,263,605
|
|
|
|
|
|
—
|
|
|
|
Lease liability
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
283,976
|
|
|
|
|
|
294,944
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,730,459
|
|
|
|
|
|
337,950
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liability
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
2,598,176
|
|
|
|
|
|
2,408,074
|
|
|
|
Loans and borrowings
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
3,977,108
|
|
|
|
|
|
5,066,590
|
|
|
|
Total Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,575,284
|
|
|
|
|
|
7,474,664
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,305,743
|
|
|
|
|
|
7,812,614
|
|
|
|
Shareholder’s Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
156
|
|
|
|
Reserves
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
7
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,160,401)
|
|
|
|
|
|
(2,862,091)
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,177
|
|
|
|
|
|
(42,565)
|
|
|
|
Total shareholder’s deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,052,061)
|
|
|
|
|
|
(2,904,493)
|
|
|
|
Total Liabilities and Shareholder’s Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,253,683
|
|
|
|
|
|
4,908,121
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Statements of Operations
For the Years Ended December 31
|
|
|
|
$
|
|
|
2020
|
|
|
2019
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
|
|
|
|
|
|
|
|
248,743
|
|
|
|
|
|
198,824
|
|
|
|
Consulting and professional fees
|
|
|
|
|
|
|
|
|
|
|
701,985
|
|
|
|
|
|
365,641
|
|
|
|
Biological Assets costs
|
|
|
|
|
|
|
|
|
|
|
58,429
|
|
|
|
|
|
—
|
|
|
|
Short term accommodation expense
|
|
|
|
|
|
|
|
|
|
|
45,482
|
|
|
|
|
|
26,269
|
|
|
|
Office expenses
|
|
|
|
|
|
|
|
|
|
|
26,874
|
|
|
|
|
|
13,116
|
|
|
|
Personnel expenses
|
|
|
|
|
|
|
|
|
|
|
374,900
|
|
|
|
|
|
100,256
|
|
|
|
Travel expenses
|
|
|
|
|
|
|
|
|
|
|
5,154
|
|
|
|
|
|
30,582
|
|
|
|
General & Administration expenses
|
|
|
|
|
|
|
|
|
|
|
201,768
|
|
|
|
|
|
166,515
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
|
|
|
|
(1,663,334)
|
|
|
|
|
|
(901,203)
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
10,187
|
|
|
|
|
|
399
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
(645,162)
|
|
|
|
|
|
(493,807)
|
|
|
|
Net loss before income tax
|
|
|
|
|
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
150,742
|
|
|
|
|
|
(42,565)
|
|
|
|
Total comprehensive loss for the year
|
|
|
|
|
|
|
|
|
|
|
(2,147,568)
|
|
|
|
|
|
(1,437,176)
|
|
|
|
Basic and diluted loss per ordinary share
|
|
|
|
|
|
|
|
|
|
|
(9.66)
|
|
|
|
|
|
(33.26)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
43,206
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Statement of Changes in Shareholders’ Deficit
|
|
|
|
$
|
|
|
Number
of
Shares
|
|
|
Share
Capital
|
|
|
Reserves
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Total
Shareholders’
Deficit
|
|
|
Balance, January 1, 2019
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
7
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,467,480)
|
|
|
|
|
|
|
|
|
|
|
|
(1,467,473)
|
|
|
|
Effect of change in par value per share
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(7)
|
|
|
|
|
|
7
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Share issuance
|
|
|
|
|
|
|
|
|
|
|
222,112
|
|
|
|
|
|
156
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
156
|
|
|
|
Effect of foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(42,565)
|
|
|
|
|
|
(42,565)
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1,394,611)
|
|
|
|
|
|
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Balance, December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
(2,862,091)
|
|
|
|
|
|
(42,565)
|
|
|
|
|
|
(2,904,493)
|
|
|
|
Effect of foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
150,742
|
|
|
|
|
|
150,742
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
|
|
|
|
|
|
(2,298,310)
|
|
|
|
Balance, December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
(5,160,401)
|
|
|
|
|
|
108,177
|
|
|
|
|
|
(5,052,061)
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Statement of Cash Flows
For the Years Ended December 31
|
|
|
|
$
|
|
|
2020
|
|
|
2019
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Non-cash items included in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
248,743
|
|
|
|
|
|
198,824
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
645,162
|
|
|
|
|
|
493,807
|
|
|
|
Write off of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
23,748
|
|
|
|
|
|
—
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments
|
|
|
|
|
|
|
|
|
|
|
(113,175)
|
|
|
|
|
|
(310)
|
|
|
|
Trade and other payables
|
|
|
|
|
|
|
|
|
|
|
139,873
|
|
|
|
|
|
42,283
|
|
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
(1,353,959)
|
|
|
|
|
|
(660,007)
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to capital WIP
|
|
|
|
|
|
|
|
|
|
|
(266,768)
|
|
|
|
|
|
(616,377)
|
|
|
|
Additions to property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(172,369)
|
|
|
|
|
|
(53,920)
|
|
|
|
Proceeds from advances issued
|
|
|
|
|
|
|
|
|
|
|
6,934
|
|
|
|
|
|
(6,848)
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(432,203)
|
|
|
|
|
|
(677,145)
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans received
|
|
|
|
|
|
|
|
|
|
|
1,169,796
|
|
|
|
|
|
2,116,312
|
|
|
|
Loans repaid
|
|
|
|
|
|
|
|
|
|
|
(137,788)
|
|
|
|
|
|
—
|
|
|
|
Net cash provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
1,032,008
|
|
|
|
|
|
2,116,312
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
|
|
|
|
(754,155)
|
|
|
|
|
|
779,160
|
|
|
|
Effects of currency translation on cash
|
|
|
|
|
|
|
|
|
|
|
(54,172)
|
|
|
|
|
|
15,143
|
|
|
|
Cash at beginning of year
|
|
|
|
|
|
|
|
|
|
|
818,447
|
|
|
|
|
|
24,144
|
|
|
|
Cash at end of year
|
|
|
|
|
|
|
|
|
|
|
10,120
|
|
|
|
|
|
818,447
|
|
|
|
Supplemental cash flow disclosure Interest paid
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Tax paid
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
The accompanying notes are an integral part of these financial statements.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 1. Nature of operations
Bophelo Bio Science and Wellness (Pty) Ltd (the “Company”) is domiciled in Lesotho. The Company’s registered office is at Ha Mojela, Ts’akholo, Mafeteng, Lesotho. The Company was formed, on the 5th of July 2018, to establish the business of growing, manufacture, and distribution of pharmaceutical and medicinal botanical products.
The Company is part of a business restructuring agreement in which it will indirectly become part of Akanda Corp., a newly incorporated Company in Canada (refer to Note 2 and Note 20).
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on October 14, 2021.
These financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value. These financial statements are presented in United States dollars. The Company’s functional currency is the Lesotho Loti. The fiscal year end is December 31.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to evaluate and complete a business combination. At December 31, 2020, the Company has an accumulated deficit of $5,160,401 including a net loss for the year ended December 31, 2020 of $2,298,310. The going concern basis presumes that funds will be available to finance future operations and that the realization of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
The Company will continue to operate in the foreseeable future as a going concern. The financial forecast for the Company for the next 18 months indicates that it will earn revenue through production & sale of dried cannabis flowers through a hoop house, shade cloth & partial greenhouse grow. Until such time that the Company becomes cash flow positive, any shortfall would be funded by the shareholders of the Company. Additionally, the Company is part of its parent Company’s internal reorganization pursuant to which the Company will directly or indirectly become the subsidiary of a newly incorporated Canadian Company, Akanda Corp (“Akanda”). Akanda is currently engaged in a Pre IPO financing round and is expected to raise USD 5 million to fund the Company’s capital expenditures and working capital requirements. Further to that, Akanda is in the process of listing on Nasdaq which will bring in more business opportunities in the foreseeable future. Details of the Akanda transaction are contained in Note 20.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 3. Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities, the measurement of right of use assets and lease liabilities, and assessment of the Company’s ability to continue as a going concern.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Foreign currency
Transactions in foreign currencies are translated from the respective functional currency of the Company to the reporting currency using the exchange rates at transaction date. Receivables, payables and other monetary assets and liabilities, as well as equity and share capital denominated in foreign currencies are re-translated to the reporting currency using the exchange rates at the balance sheet date. Resulting foreign currency differences are recognized in the income statement, except for foreign currency differences arising on re-translation of Fair Value through Other Comprehensive Income (FVOCI) investments and financial liabilities designated as a hedge of a net investment, which are recognized in other comprehensive income. Resulting foreign currency differences that arise due to the translation of share capital and share premium are recognized in other comprehensive income.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
Property, plant and equipment
The Company estimates the useful lives of the property, plant and equipment based on the period over which the assets are available for use. These estimates are reviewed periodically and any changes in the estimates are accounted for prospectively.
The property, plant and equipment are recorded at cost less depreciation on a straight-line basis. The estimated useful lives of the assets are as below:
|
|
Plant and equipment
|
|
|
10 years
|
|
|
|
Leasehold improvements
|
|
|
20 years
|
|
|
|
Motor vehicles
|
|
|
4 years
|
|
Intangible assets
The Company has one license which is valid for 10 years and is subject to a renewal at the end of the 10 years. The license is automatically renewed annually on payment of necessary fees as well as submission of operational documents to the Ministry of Health.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
The Intangible assets are recorded at cost less amortization and impairment losses, if any. The Intangible assets are amortized on a straight-line basis for the validity of the license which is 10 years.
Biological Assets
Biological assets are measured at their fair value less costs to sell (“FVLCS”) in the Statement of Financial Position. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest. All direct and indirect costs of biological assets are capitalized as they are incurred.
Under IFRS 13 Fair Value Measurement, fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The measurement of the fair value of the asset must take into the condition of the asset as well as any restrictions on the sale of the asset. When applying IFRS 13 Fair Value Measurement to non-financial assets, in this case the biological asset and produce, the fair value takes into account a market participant’s ability to use that asset in its highest and best use. The highest and best use takes into account the use of the asset that is physically possible, legally permissible and financially feasible, either, in combination with other assets or on a standalone basis.
Biological assets and produce held by the Company is planned to be used in 4 ways:
•
Sale to the export market;
•
Sale to the local market;
•
Repurposed for use in research and development; and
•
Written off for being obsolete.
For the year ended December 31, 2020, the Company expensed costs related to its biological assets in the amount of $58,429 (2019 — Nil) as the costs were incurred in relation to research and development activities.
Cash
Cash includes cash on hand and other short term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as of December 31, 2019, and 2020.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement exists, and if the Company has the right to direct the use of the asset. At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative standalone prices.
As a lessee, the Company recognizes a right-of-use asset and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:
a)
fixed payments, including in-substance fixed payments, less any lease incentives receivable;
b)
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
c)
amounts expected to be payable under a residual value guarantee;
d)
exercise prices of purchase options if the Company is reasonably certain to exercise that option; and
e)
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in the estimate or assessment of the expected amount payable under a residual value guarantee, purchase, extension or termination option.
Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit or loss.
Revenue
In accordance with IFRS 15, the Company recognizes revenue, excluding interest and dividend income and other such income from financial instruments recognized in accordance with IFRS 9, upon transfer of promised goods or services to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services based on the following five step approach:
Step 1: Identify the contracts with customers;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company typically satisfies its performance obligations upon completion of sale. The Company primarily acts as principal in contracts with its customers. The Company does not have material obligations for returns, refunds and other similar obligations, nor warranties and related obligations.
Revenue is recognized at the amount of the transaction price that is allocated to the performance obligation. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
The Company does not have any revenue streams at the moment as it has not made any commercial sales to date. The Company does expect to have a single revenue stream in the future which will relate to the sale of cannabis biomass. This revenue stream which will be assessed as one performance obligation. Revenue from biomass cannabis sales will be recognized once the performance obligation has been satisfied, which would be upon the customer taking the delivery of the bulk biomass. The transaction price for each product and service will be determined based on the respective invoice.
The Company exercises judgments in determining the amount of the costs incurred to obtain or fulfill a contract with a customer, which includes, but is not limited to (a) the likelihood of obtaining the contract, (b) the estimate of the profitability of the contract, and (c) the credit risk of the customer. An impairment loss will be recognized in profit or loss to the extent that the carrying amount of the asset exceeds (a) the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates, less (b) the costs that relate directly to providing those goods or services and that have not been recognized as expenses.
Earnings (loss) per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of ordinary shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company.
Income tax
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
•
temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
•
taxable temporary differences arising on the initial recognition of goodwill.
The amount of deferred tax provided is based on the expected manner of recovery or settlement of the carrying amount of assets and liabilities, using tax rates (substantively) enacted, at year-end. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously. Current and deferred
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
tax are recognized in the income statement, except when it relates to a business combination or for items directly recognized in equity or other comprehensive income.
Foreign Currency Translation
The functional and reporting currency of the Company is the Lesotho Loti and United States Dollars respectively. Transactions denominated in foreign currencies are translated using the exchange rate in effect on the transaction date or at an average rate. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the statement of financial position date. Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in profit and loss
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
The share capital of the Company is translated to the spot rate at the end of the financial year.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 5. Property, plant and equipment
|
|
|
|
$
|
|
|
Plant and
equipment
|
|
|
Leasehold
improvement
|
|
|
Motor
vehicles
|
|
|
Total
|
|
|
Cost at January 1, 2019
|
|
|
|
|
|
|
|
438,432
|
|
|
|
|
|
286,482
|
|
|
|
|
|
—
|
|
|
|
|
|
724,914
|
|
|
|
Additions
|
|
|
|
|
|
|
|
1,911
|
|
|
|
|
|
13,419
|
|
|
|
|
|
38,590
|
|
|
|
|
|
53,920
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
8,701
|
|
|
|
|
|
4,869
|
|
|
|
|
|
(163)
|
|
|
|
|
|
13,407
|
|
|
|
Cost at December 31, 2019
|
|
|
|
|
|
|
|
449,044
|
|
|
|
|
|
304,770
|
|
|
|
|
|
38,427
|
|
|
|
|
|
792,241
|
|
|
|
Additions
|
|
|
|
|
|
|
|
172,369
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
172,369
|
|
|
|
Write-offs
|
|
|
|
|
|
|
|
(23,748)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(23,748)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(11,304)
|
|
|
|
|
|
(11,333)
|
|
|
|
|
|
(1,429)
|
|
|
|
|
|
(24,066)
|
|
|
|
Cost at December 31, 2020
|
|
|
|
|
|
|
|
586,361
|
|
|
|
|
|
293,437
|
|
|
|
|
|
36,998
|
|
|
|
|
|
916,796
|
|
|
|
Accumulated depreciation at January 1, 2019
|
|
|
|
|
|
|
|
(21,922)
|
|
|
|
|
|
(7,162)
|
|
|
|
|
|
—
|
|
|
|
|
|
(29,084)
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(44,325)
|
|
|
|
|
|
(15,038)
|
|
|
|
|
|
(4,757)
|
|
|
|
|
|
(64,120)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(866)
|
|
|
|
|
|
(289)
|
|
|
|
|
|
(46)
|
|
|
|
|
|
(1,201)
|
|
|
|
Accumulated Depreciation at December 31, 2019
|
|
|
|
|
|
|
|
(67,113)
|
|
|
|
|
|
(22,489)
|
|
|
|
|
|
(4,803)
|
|
|
|
|
|
(94,405)
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(60,212)
|
|
|
|
|
|
(14,950)
|
|
|
|
|
|
(9,425)
|
|
|
|
|
|
(84,587)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
3,615
|
|
|
|
|
|
1,114
|
|
|
|
|
|
354
|
|
|
|
|
|
5,083
|
|
|
|
Accumulated Depreciation at December 31, 2020
|
|
|
|
|
|
|
|
(123,710)
|
|
|
|
|
|
(36,325)
|
|
|
|
|
|
(13,874)
|
|
|
|
|
|
(173,909)
|
|
|
|
Carrying value at January 1, 2019
|
|
|
|
|
|
|
|
416,510
|
|
|
|
|
|
279,320
|
|
|
|
|
|
—
|
|
|
|
|
|
695,830
|
|
|
|
Additions
|
|
|
|
|
|
|
|
1,911
|
|
|
|
|
|
13,419
|
|
|
|
|
|
38,590
|
|
|
|
|
|
53,920
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(44,325)
|
|
|
|
|
|
(15,038)
|
|
|
|
|
|
(4,757)
|
|
|
|
|
|
(64,120)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
7,835
|
|
|
|
|
|
4,580
|
|
|
|
|
|
(209)
|
|
|
|
|
|
12,206
|
|
|
|
Carrying value at December 31, 2019
|
|
|
|
|
|
|
|
381,931
|
|
|
|
|
|
282,281
|
|
|
|
|
|
33,624
|
|
|
|
|
|
697,836
|
|
|
|
Additions
|
|
|
|
|
|
|
|
172,369
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
172,369
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
(23,748)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(23,748)
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(60,212)
|
|
|
|
|
|
(14,950)
|
|
|
|
|
|
(9,425)
|
|
|
|
|
|
(84,587)
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(7,689)
|
|
|
|
|
|
(10,219)
|
|
|
|
|
|
(1,075)
|
|
|
|
|
|
(18,983)
|
|
|
|
Carrying value at December 31, 2020
|
|
|
|
|
|
|
|
462,651
|
|
|
|
|
|
257,112
|
|
|
|
|
|
23,124
|
|
|
|
|
|
742,887
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 6. Intangible asset
|
|
|
|
$
|
|
|
Licenses
|
|
|
Total
|
|
|
Cost at January 1, 2019
|
|
|
|
|
|
|
|
413,223
|
|
|
|
|
|
413,223
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
8,125
|
|
|
|
|
|
8,125
|
|
|
|
Cost at December 31, 2019
|
|
|
|
|
|
|
|
421,348
|
|
|
|
|
|
421,348
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(15,668)
|
|
|
|
|
|
(15,668)
|
|
|
|
Cost at December 31, 2020
|
|
|
|
|
|
|
|
405,680
|
|
|
|
|
|
405,680
|
|
|
|
Accumulated amortization at January 1, 2019
|
|
|
|
|
|
|
|
(20,661)
|
|
|
|
|
|
(20,661)
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(41,725)
|
|
|
|
|
|
(41,725)
|
|
|
|
Foreign exchange movement
|
|
|
|
|
|
|
|
(816)
|
|
|
|
|
|
(816)
|
|
|
|
Accumulated amortization at December 31, 2019
|
|
|
|
|
|
|
|
(63,202)
|
|
|
|
|
|
(63,202)
|
|
|
|
Accumulated amortization at December 31, 2019
|
|
|
|
|
|
|
|
(63,202)
|
|
|
|
|
|
(63,202)
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(41,337)
|
|
|
|
|
|
(41,337)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
3,119
|
|
|
|
|
|
3,119
|
|
|
|
Accumulated amortization at December 31, 2020
|
|
|
|
|
|
|
|
(101,420)
|
|
|
|
|
|
(101,420)
|
|
|
|
Carrying value at January 1, 2019
|
|
|
|
|
|
|
|
392,562
|
|
|
|
|
|
392,562
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(41,725)
|
|
|
|
|
|
(41,725)
|
|
|
|
Foreign exchange movement
|
|
|
|
|
|
|
|
7,309
|
|
|
|
|
|
7,309
|
|
|
|
Carrying value at December 31, 2019
|
|
|
|
|
|
|
|
358,146
|
|
|
|
|
|
358,146
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
(41,337)
|
|
|
|
|
|
(41,337)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
(12,549)
|
|
|
|
|
|
(12,549)
|
|
|
|
Carrying value at December 31, 2020
|
|
|
|
|
|
|
|
304,260
|
|
|
|
|
|
304,260
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 7. Right of use asset
The Company leases the land from Mophuthi Matsoso Development Trust.
|
|
|
|
$
|
|
|
Land Lease
|
|
|
Total
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2019
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Additions during the year
|
|
|
|
|
|
|
|
2,503,827
|
|
|
|
|
|
2,503,827
|
|
|
|
Balance as at December 31, 2019
|
|
|
|
|
|
|
|
2,503,827
|
|
|
|
|
|
2,503,827
|
|
|
|
Additions during the year
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Balance as at December 31, 2020
|
|
|
|
|
|
|
|
2,503,827
|
|
|
|
|
|
2,503,827
|
|
|
|
Accumulated Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2019
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Charge for the year
|
|
|
|
|
|
|
|
92,979
|
|
|
|
|
|
92,979
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
914
|
|
|
|
|
|
914
|
|
|
|
Balance as at December 31, 2019
|
|
|
|
|
|
|
|
93,893
|
|
|
|
|
|
93,893
|
|
|
|
Charge for the year
|
|
|
|
|
|
|
|
122,820
|
|
|
|
|
|
122,820
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
87,335
|
|
|
|
|
|
87,335
|
|
|
|
Balance as at December 31, 2020
|
|
|
|
|
|
|
|
304,048
|
|
|
|
|
|
304,048
|
|
|
|
Net Book Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
|
2,409,934
|
|
|
|
|
|
2,409,934
|
|
|
|
At December 31, 2020
|
|
|
|
|
|
|
|
2,199,779
|
|
|
|
|
|
2,199,779
|
|
|
The carrying amount of the right-of-use asset is depreciated on a straight-line basis over the remaining term of the lease, which at December 31, 2020, was around 18 years.
NOTE 8. Prepayments
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
113,485
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
113,485
|
|
|
|
|
|
310
|
|
|
As at December 31, 2020 the Company’s prepaid expenses pertain to initial deposit paid to a supplier for the construction of a perimeter fence on site as well as the insurance. As at December 31, 2019 the Company’s prepaid expenses pertain to a small prepaid amount on the lease.
NOTE 9. Capital work in progress
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Capital work in progress
|
|
|
|
|
|
|
|
883,145
|
|
|
|
|
|
616,377
|
|
|
|
|
|
|
|
|
|
|
|
883,145
|
|
|
|
|
|
616,377
|
|
|
As at December 31, 2020 and 2019 the Company’s Capital work in progress relate to the ongoing civil, gravelling, storm drainage work on site.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 10. Loans and borrowings
The loans described below have been granted to the Company to fulfill its capital and operational requirements. The terms of the loans are described below:
a.
Louisa Mojela’s loan as at December 31, 2020 of $1,552,487 (2019: $2,191,396) includes the following loans:
•
Bridge Loan of US$1 million — The loan is a bridge financing facility received from L Mojela to fund capital expenditure and working capital of the Company. The loan carries a redemption premium of 100% of the capital amount borrowed. This redemption premium is triggered and becomes payable upon the successful raising of capital of not less than $18 million. This capital raise must happen prior to October 31, 2020 for the Lender to qualify for the redemption premium. This loan is repayable within 18 months from the date of first drawdown (which was on or around December 1, 2019), alternatively, the repayment of the loan plus the redemption premium is payable on the successful raising of capital of not less than USD 18 million. The loan carries interest at a rate of 1.5% per month applicable from the first draw down date. In the event that the redemption premium is triggered and payable, all interest accrued on the loan is cancelled and only the capital plus the redemption premium is payable. At balance sheet date, the capital raising of $18 million contemplated by the loan agreement had not taken place and therefore interest is applicable on the loan under the terms described above. The loan agreement was amended in May 2020 to cater for a further additional borrowing (on the same terms and conditions described above) to the amount of US$100,000. This resulted in a cumulative amount borrowed of US$1.1 million (capital amount of the loan). The loan is secured by a first notarial bond/mortgage over the Company’s property. The security is shared with Middleton and both the Middleton and L Mojela entered into an intercreditor agreement to this effect. The balance on this loan as at December 31, 2020 is $1,350,813 (2019: $1,069,760)
•
Loan 2 — This loan was entered into with L Mojela for a capital sum of US$945,809 in the financial year 2018. The purpose of this loan was to fund the acquisition of the Company’s license to operate as a prohibited drug operator under section 12 of the Drugs of Abuse Act, 2008 as well as to fund the day-to-day operating costs of the Company. This loan is unsecured and repayable by December 31, 2021. It carries an interest rate linked to the prime lending rate in the Republic of South Africa. The balance on this loan as at December 31, 2020 is $Nil (2019: $1,121,636). This loan was acquired by Halo Collective Inc. (“Halo”) pursuant to a Purchase and Sale agreement between Halo and the shareholders of the Company. This loan now forms part of the Halo intercompany loan account balance referred to in the continuity schedule below.
•
Loan 3 — This is a short-term loan facility provided by L Mojela to the Company of approximately US$135,226 in capital value lent. This loan was provided in the financial year ending December 31,2020. The purpose of this loan was to assist the Company in funding working capital deficits. This loan was unsecured, repayable within 30 days of receiving the payment and carried interest at the rate linked to the prime lending rate in the Republic of South Africa. The capital balance of this loan was repaid in full before the end of the financial year December 31, 2020. The interest balance on this loan remains unpaid and outstanding as at December 31, 2020 with a value of US$ 11,230 (2019: $Nil)
•
Loan 4 — This loan is also a short-term facility provided by L Mojela to the Company to fund its day-to-day operating costs. The loan received was to the extent of US$190,444 in the financial year ending December 31, 2020. This loan does not have a fixed repayment date, is unsecured and is interest free. As at December 31, 2020 the loan balance on this facility was US$190,444 (2019: $Nil).
b.
Granny Seape’s loan as at December 31, 2020 of $Nil (2019: $300,477) was entered into with the Company for a capital sum of US$255,337 in the financial year ending December 31, 2018. The
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 10. Loans and borrowings (continued)
purpose of this loan was to fund the acquisition of the Company’s license to operate as a prohibited drug operator under section 12 of the Drugs of Abuse Act, 2008 as well as to fund the day-to-day operating costs of the Company. This loan is unsecured and repayable by December 31, 2021. It carries an interest rate linked to the prime lending rate in the Republic of South Africa. This loan was acquired by Halo Collective Inc. (“Halo”) pursuant to a Purchase and Sale agreement between Halo and the shareholders of the Company. This loan now forms part of the Halo intercompany loan account balance referred to in the continuity schedule below.
c.
1942 Capital’s loan as at December 31, 2020 of $Nil (2019: $1,285,146) was entered into with the Company for a capital sum of US$1,083,686 in the financial year 2018. The purpose of this loan was to fund the acquisition of the Company’s license to operate as a prohibited drug operator under section 12 of the Drugs of Abuse Act, 2008 as well as to fund the day-to-day operating costs of the Company. This loan is unsecured and repayable by December 31,2021. It carries an interest rate linked to the prime lending rate in the Republic of South Africa. This loan was acquired by Halo Collective Inc. (“Halo”) pursuant to a Purchase and Sale agreement between Halo and the shareholders of the Company. This loan now forms part of the Halo intercompany loan account balance referred to in the continuity schedule below.
d.
Seedy Lette’s loan as at December 31, 2020 of $Nil (2019: $240,251) was entered into with the Company for a capital sum of US$202,589 in the financial year 2018. The purpose of this loan was to fund the acquisition of the Company’s license to operate as a prohibited drug operator under section 12 of the Drugs of Abuse Act, 2008 as well as to fund the day-to-day operating costs of the Company. This loan is unsecured and repayable by December 31,2021. It carries an interest rate linked to the prime lending rate in the Republic of South Africa. This loan was acquired by Halo Collective Inc. (“Halo”) pursuant to a Purchase and Sale agreement between Halo and the shareholders of the Company. This loan now forms part of the Halo intercompany loan account balance referred to in the continuity schedule below.
e.
Middleton Gardens Ltd. loan as at December 31, 2020 of $Nil (2019: $1,049,322). The loan is a bridge financing facility received from Middleton Gardens to fund capital expenditure and working capital of the Company to the extent of a capital amount of US$ 1 million. This loan is repayable within 15 months from the date of first drawdown (which was on or around 1 March 2019), alternatively, the repayment of the loan is payable on the successful raising of capital of not less than US$ 18 million. A redemption premium of 100% is triggered and payable by the Company to Middleton Gardens (“Middleton”) should the successful capital raise take place before December 31, 2019. In the absence of the redemption premium being triggered, this loan carries interest at the rate of 1.5% per month. This loan is secured by a notarial/mortgage bond over the Company’s movable and immovable property. This security is shared with L Mojela as referenced in Note 10a above. This loan was acquired by Halo Collective Inc. (“Halo”) pursuant to a Purchase and Sale agreement between Halo and the shareholders of the Company. This loan now forms part of the Halo intercompany loan account balance referred to in the continuity schedule below. Furthermore, the redemption premium on the US$1million loan mentioned above was deemed to be triggered by mutual arrangement between the Company, Middleton and Halo. Halo settled this redemption premium through the issue of Halo shares following the closing of the Purchase and Sale agreement. Accordingly, no interest accrued on the US$1million loan mentioned above.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 10. Loans and borrowings (continued)
The Company entered into another loan agreement with Middleton for the borrowing of a further US$100,000 in May 2020. With regard to this loan of US$ 100,000, interest was accrued at the rate of 1.5% per month and the capital value of this loan along with the interest was acquired by Halo. This loan too forms part of the Halo intercompany loan account balance.
f.
Halo Collective Inc’s loan as at December 31, 2020 of $4,688,226 (2019: receivable of $6,916) does not have a fixed repayment date and is interest free. This loan account balance includes the following loans acquired pursuant to the Purchase and Sale agreement between Halo and the shareholders of the Company.
•
L Mojela — US$ 1,147,260
•
G Seape — US$ 307,337
•
1942 Capital — US$ 1,314,361
•
Seedy Lette — US$ 245,712
•
Middleton Gardens — US$ 1,030,158
The total of the above loans acquired and reflected in the Halo loan account balance is US$ 4,044,828. The remaining portion of this loan amounting to US$ 711,118 pertains to the short-term funding provided by Halo to cover the day-to-day expenses of the Company. There is no fixed repayment date on this loan, is unsecured as well as interest free.
A continuity of the Company’s loans payables is as follows:
|
|
|
|
$
|
|
|
Louisa
Mojela
|
|
|
Granny
Seape
|
|
|
1942
Capital
|
|
|
Seedy
Lette
|
|
|
GMG/
Middleton
|
|
|
Halo
Collective Inc.
|
|
|
Total
|
|
|
Value at January 1, 2019
|
|
|
|
|
|
|
|
994,506
|
|
|
|
|
|
232,276
|
|
|
|
|
|
1,139,483
|
|
|
|
|
|
213,020
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,579,284
|
|
|
|
Loans issued
|
|
|
|
|
|
|
|
1,043,690
|
|
|
|
|
|
34,771
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,037,852
|
|
|
|
|
|
(6,848)
|
|
|
|
|
|
2,109,464
|
|
|
|
Interest on loans
|
|
|
|
|
|
|
|
122,183
|
|
|
|
|
|
28,243
|
|
|
|
|
|
122,057
|
|
|
|
|
|
22,818
|
|
|
|
|
|
1,254
|
|
|
|
|
|
—
|
|
|
|
|
|
296,555
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
31,017
|
|
|
|
|
|
5,187
|
|
|
|
|
|
23,606
|
|
|
|
|
|
4,413
|
|
|
|
|
|
10,216
|
|
|
|
|
|
(68)
|
|
|
|
|
|
74,371
|
|
|
|
Value at December 31,
2019
|
|
|
|
|
|
|
|
2,191,396
|
|
|
|
|
|
300,477
|
|
|
|
|
|
1,285,146
|
|
|
|
|
|
240,251
|
|
|
|
|
|
1,049,322
|
|
|
|
|
|
(6,916)
|
|
|
|
|
|
5,059,674
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(6,916)
|
|
|
|
|
|
(6,916)
|
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
2,191,396
|
|
|
|
|
|
300,477
|
|
|
|
|
|
1,285,146
|
|
|
|
|
|
240,251
|
|
|
|
|
|
1,049,322
|
|
|
|
|
|
—
|
|
|
|
|
|
5,066,590
|
|
|
|
Value at December 31,
2019
|
|
|
|
|
|
|
|
2,191,396
|
|
|
|
|
|
300,477
|
|
|
|
|
|
1,285,146
|
|
|
|
|
|
240,251
|
|
|
|
|
|
1,049,322
|
|
|
|
|
|
(6,916)
|
|
|
|
|
|
5,059,674
|
|
|
|
Loans issued
|
|
|
|
|
|
|
|
438,420
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
731,375
|
|
|
|
|
|
1,169,796
|
|
|
|
Loans carried off
|
|
|
|
|
|
|
|
(1,147,260)
|
|
|
|
|
|
(307,337)
|
|
|
|
|
|
(1,314,361)
|
|
|
|
|
|
(245,712)
|
|
|
|
|
|
(1,030,158)
|
|
|
|
|
|
4,044,828
|
|
|
|
|
|
—
|
|
|
|
Loans repaid
|
|
|
|
|
|
|
|
(137,788)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(137,788)
|
|
|
|
Interest on loans
|
|
|
|
|
|
|
|
278,901
|
|
|
|
|
|
12,656
|
|
|
|
|
|
54,190
|
|
|
|
|
|
10,130
|
|
|
|
|
|
753
|
|
|
|
|
|
—
|
|
|
|
|
|
356,631
|
|
|
|
Foreign exchange movements
|
|
|
|
|
|
|
|
(71,182)
|
|
|
|
|
|
(5,796)
|
|
|
|
|
|
(24,974)
|
|
|
|
|
|
(4,669)
|
|
|
|
|
|
(19,917)
|
|
|
|
|
|
(81,061)
|
|
|
|
|
|
(207,598)
|
|
|
|
Value at December 31,
2020
|
|
|
|
|
|
|
|
1,552,487
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
4,688,226
|
|
|
|
|
|
6,240,714
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
1,552,487
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
711,118
|
|
|
|
|
|
2,263,605
|
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
3,977,108
|
|
|
|
|
|
3,977,108
|
|
|
|
Value at December 31,
2020
|
|
|
|
|
|
|
|
1,552,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,688,226
|
|
|
|
|
|
6,240,714
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 11. Finance lease liability
The Company’s lease liability consists of lease on the land in which it operates. The present value of future lease payments was measured using an incremental borrowing rate of 10.25% per annum as at April 1, 2019
|
|
|
|
$
|
|
|
Land Lease
|
|
|
Total
|
|
|
Balance as at January 1, 2019
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Liability – Initial adoption of IFRS 16
|
|
|
|
|
|
|
|
2,503,827
|
|
|
|
|
|
2,503,827
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
197,252
|
|
|
|
|
|
197,252
|
|
|
|
Lease payments during the year
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
1,939
|
|
|
|
|
|
1,939
|
|
|
|
|
|
|
|
|
|
|
|
2,703,018
|
|
|
|
|
|
2,703,018
|
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
(294,944)
|
|
|
|
|
|
(294,944)
|
|
|
|
Balance as at December 31, 2019
|
|
|
|
|
|
|
|
2,408,074
|
|
|
|
|
|
2,408,074
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
284,950
|
|
|
|
|
|
284,950
|
|
|
|
Lease payments during the year
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Effects of Currency Translation
|
|
|
|
|
|
|
|
(105,816)
|
|
|
|
|
|
(105,816)
|
|
|
|
|
|
|
|
|
|
|
|
2,882,152
|
|
|
|
|
|
2,882,152
|
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
(283,976)
|
|
|
|
|
|
(283,976)
|
|
|
|
As at December 31, 2020
|
|
|
|
|
|
|
|
2,598,176
|
|
|
|
|
|
2,598,176
|
|
|
As at December 31, 2020 the Company’s minimum lease payments are as follows:
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
Amounts payable within 1 year
|
|
|
|
|
|
|
|
283,976
|
|
|
|
Amounts payable between 1 and 5 years
|
|
|
|
|
|
|
|
1,135,903
|
|
|
|
Amounts payable after 5 years
|
|
|
|
|
|
|
|
3,762,677
|
|
|
|
Total payments
|
|
|
|
|
|
|
|
5,182,556
|
|
|
|
Interest on lease agreement
|
|
|
|
|
|
|
|
(2,300,404)
|
|
|
|
|
|
|
|
|
|
|
|
2,882,152
|
|
|
NOTE 12. Trade and other payables
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Trade payables
|
|
|
|
|
|
|
|
107,839
|
|
|
|
|
|
31,784
|
|
|
|
Directors’ remuneration payable
|
|
|
|
|
|
|
|
48,584
|
|
|
|
|
|
10,533
|
|
|
|
Accrued payroll taxes
|
|
|
|
|
|
|
|
26,455
|
|
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
182,878
|
|
|
|
|
|
43,006
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 13. Capital
Authorized Share Capital
The Company has 10 million ordinary shares of par value of $0.0007 (1 Lisente or 0.01 Loti) each.
Issued Share Capital
|
|
|
|
$
|
|
|
Number of
shares
|
|
|
Par value
|
|
|
Share
capital
|
|
|
Share
premium
|
|
|
Total
|
|
|
Balance at December 31, 2018
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
0.07
|
|
|
|
|
|
7
|
|
|
|
|
|
—
|
|
|
|
|
|
7
|
|
|
|
Change in par value from 1 Loti to 1 Lisente per share
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(7)
|
|
|
|
|
|
7
|
|
|
|
|
|
—
|
|
|
|
Additional shares issued
|
|
|
|
|
|
|
|
222,112
|
|
|
|
|
|
0.0007
|
|
|
|
|
|
156
|
|
|
|
|
|
—
|
|
|
|
|
|
156
|
|
|
|
Issued and outstanding as at December 31, 2019 and 2020
|
|
|
|
|
|
|
|
222,212
|
|
|
|
|
|
0.0007
|
|
|
|
|
|
156
|
|
|
|
|
|
7
|
|
|
|
|
|
163
|
|
|
Ordinary shares
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
At the time of the formation of the Company, 100 ordinary shares were issued to its founders L Mojela & G Seape. During the 2019, L Mojela and G Seape exchanged these shares for shares in Boiketlo Biomed Pty Ltd.(“Boiketlo”) , which resulted in Boiketlo holding 100% of the 100 shares comprising the Company’s issued share capital at the time. Following this, the Company changed the par value per share of its authorized share capital to 0.01 Loti (US$0.0007) each, from its initial par value of 1 Loti (US$0.07) each. Subsequently, during 2019, Middleton Gardens Ltd. (“Middleton”) subscribed for 122,212 ordinary shares at a par value of 0.01 Loti (US$0.0007) each and Boiketlo subscribed for a further 99,900 ordinary shares at the same par value per share. Pursuant to the Sale and Purchase Agreement entered into on November 27, 2019, Halo Collective Inc. (“Halo”) acquired all of the outstanding and issued ordinary shares held by Middleton and Boiketlo and consequently became the 100% shareholder of the Company holding all 222,212 ordinary shares in issue.
NOTE 14. Biological assets
Farm work in progress
During the 2020 year, the Company had incurred costs which were capitalized against a biological asset as the cost to grow the plants. At December 31, 2020 the Company did not hold the required licenses to be able to sell and distribute the harvested plants. The amount of US$58,429 incurred and capitalized against the biological asset have therefore been expensed through a fair value adjustment.
NOTE 15: Related Party Transactions
Related Party Transactions
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of members of the Company’s Board of Directors and corporate officers. The Company has entered into a few non-arm’s length transactions as below:
•
Short term accommodation leased from L Mojela for the purpose of housing expatriate staff
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 15: Related Party Transactions (continued)
•
Leasing of office space from a Company controlled by G Seape
•
Procurement of fuel from L Mojela for the purposes of operating the Company vehicle on site. In the financial year ending December 31, 2020, the Company procured and paid for its own fuel.
•
Consulting services undertaken from Seedy Lette in the financial year ending December 31, 2019 relating to various government liaison activities.
•
Professional services undertaken by L Mojela as an executive of the Company over and above the director’s remuneration.
Related Party Transactions
•
The Company has leased the land from Mophuthi Matsoso Development Trust (“Mophuthi Trust”), the details are disclosed under Note 11.
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Directors Remuneration
|
|
|
|
|
116,448
|
|
|
|
|
|
10,431
|
|
|
|
Director Professional fees
|
|
|
|
|
121,467
|
|
|
|
|
|
121,970
|
|
|
|
Key Management Remuneration
|
|
|
|
|
268,326
|
|
|
|
|
|
161,134
|
|
|
|
Short term accommodation expense
|
|
|
|
|
45,482
|
|
|
|
|
|
26,269
|
|
|
|
Office expenses for office space
|
|
|
|
|
2,377
|
|
|
|
|
|
9,388
|
|
|
|
Fuel expenses
|
|
|
|
|
—
|
|
|
|
|
|
4,172
|
|
|
|
Consulting fees to Seedy Lette
|
|
|
|
|
—
|
|
|
|
|
|
10,931
|
|
|
|
|
|
|
|
|
554,100
|
|
|
|
|
|
344,295
|
|
|
The Directors remuneration is included in the Personnel expenses and the Key management remuneration is included in the Professional and Consulting fees in the Statement of operations.
Related Party Balances
As at December 31, 2020, the entire balance of the Loans & Borrowings (Note 10) was owing to the shareholders and other related parties. As at December 31, 2019 included in the Loans & Borrowings were an amount of $3,781,445 owing to the shareholders and other related parties. During the year ended December 31, 2020 further loans were issued to the value of $1,169,796 (2019 $2,116,312) and the amount of loans taken over amounted to $4,044,828 (2019 $-). During the year ended December 31, 2020 the loans incurred interest to the value of $356,631 (2019 $296,555).
As at December 31, 2020, the amounts presented in the Lease liability (Note 11) pertained to the amount owing to Mophuthi Trust, a Trust controlled by L Mojela & G Seape to the extent of $2,882,152. As at December 31, 2019, the amount (Note 11) was $2,703,018.
NOTE 16. Financial instruments and risk management
Financial instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 16. Financial instruments and risk management (continued)
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At December 31, 2020, the Company’s financial instruments include cash, loans and borrowings, and trade and other payables.
Capital management
The Company’s primary objective is to ensure that it maintains sufficient capital to support the initial and ongoing development of the business infrastructure. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities. In maintaining or adjusting the capital structure, the Company will request further funding from the shareholders and other related parties.
Financial risk management
The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 16. Financial instruments and risk management (continued)
The Company has exposure to the following risks arising from financial instruments:
•
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investments in debt securities. The Company is yet to be exposed to credit risk as revenue has yet to be generated.
•
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s objective when managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company is currently not generating revenue and is therefore at risk of not obtaining the required cash flow from the Company’s lenders in order to incur and settle the necessary capital and operational expenses. At the end of the year ended December 31, 2020 the Company had cash balances available amounting to $10,120 (2019 $818,447) and a shortfall of $2,720,339 (2019 $Nil) to settle current liabilities of $2,730,459 (2019 — $337,950).
•
Market risk is the risk that changes in market prices — e.g., foreign exchange rates, interest rates and equity prices — will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company’s primary sale market will be outside of Lesotho and will therefore be subject risks related to foreign exchange rates. This will be compounded as the Rand, on which the Loti is pegged, is considered to be volatile in terms of the foreign exchange market.
Currency risk
The Company is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables and payables are denominated and the respective functional currency of the Company. The functional currency of the Company is the Lesotho Loti. The currencies in which these transactions are primarily denominated are Lesotho Loti, Euro, United States dollar, British pound sterling and Canadian dollar.
NOTE 17. Segmented Information
The Company operates primarily in a single operating segment, being the cultivation of medicinal cannabis. All of the Company’s Non-Current Assets are based in Lesotho. Once the Company starts generating revenue, its customers would be primarily located in Europe.
NOTE 18. Income Taxes
The provision for income taxes differs from the amount that would have resulted in applying the statutory tax rate as follows:
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
Statutory income tax rate
|
|
|
|
|
|
|
|
25%
|
|
|
|
|
|
25%
|
|
|
|
Expected tax recovery at statutory income tax rates
|
|
|
|
|
|
|
|
(574,578)
|
|
|
|
|
|
(348,653)
|
|
|
|
Change in deferred tax assets not recognized
|
|
|
|
|
|
|
|
574,578
|
|
|
|
|
|
348,653
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 18. Income Taxes (continued)
Temporary differences that give rise to the following deferred tax assets and liabilities at are:
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carried forward
|
|
|
|
|
|
|
|
5,160,401
|
|
|
|
|
|
2,862,091
|
|
|
|
Deferred tax assets not recognized
|
|
|
|
|
|
|
|
(5,160,401)
|
|
|
|
|
|
(2,862,091)
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
As at December 31, 2020, the Company has approximately $5,160,401 (2019 — $2,862,091) of non-capital losses in Lesotho that may be used to offset future taxable income. These losses may be carried forward on an indefinite basis and do not expire. The Company has not recognized the deferred tax assets due to the uncertainty around utilizing all of the losses carry-forwards.
Tax attributes are subject to review, and potential adjustment, by tax authorities.
NOTE 19. Subsequent Events
Entering into of Sale and Purchase Agreement with Halo Collective Inc.
On September 29, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale/purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Pty Ltd, Canmart Ltd, Bophelo Holdings Ltd and Cannahealth Limited.
Prior to the completion of the Transaction, Halo intends to complete an internal reorganization, pursuant to which Halo’s international assets in the UK, Malta & Lesotho namely Canmart Ltd, Cannahealth Limited and Bophelo Bio Science and Wellness (Pty) Ltd will become, directly or indirectly, wholly owned subsidiaries of Akanda Corp. In accordance with the terms of the Purchase Agreement, Halo will then sell 100% of the issued and outstanding shares of Cannahealth to Akanda in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of US$13,129,212. On or around November 3, 2021, the sale and purchase Agreement became unconditional and Akanda completed the acquisition of Cannahealth Limited. Accordingly, Akanda issued 13,129,212 common shares to Halo in lieu of the acquisition. Contemporaneously with the closing of the Sale and Purchase Agreement, Akanda entered into an investor rights agreement with Halo, which will see Halo gaining certain investor rights as a shareholder of Akanda, including certain information rights and the rights to appoint a director to the board of Akanda. Akanda also entered into a debenture agreement with Halo in terms of which Akanda is indebted to Halo to the amount of approximately $6.6m, in lieu of the acquisition of the loan claims in Bophelo Bio Science and Canmart that were previously held by Halo prior to the completion of the internal reorganization. The debenture is secured by way of a general security over the assets of the Akanda, as well as by a pledge of the 1,200 shares held by the Akanda in Cannahealth Limited. The debenture bears interest at a rate of 1% per annum and is repayable on or before November 2, 2021. The debenture (including accrued interest thereon) is convertible, at the Akanda’s election, into common shares of Akanda, and the debenture (including accrued interest thereon) will automatically convert into common shares of the Akanda upon the successful completion of an Initial Public Offering.
Settlement of bridge loan
On November 10, Akanda Corp. approved the settlement of an outstanding bridge loan payable by Bophelo Bio Science and Wellness (Pty) Ltd to Louisa Mojela. In terms of the settlement, Akanda will
Bophelo Bio Science and Wellness (Pty) Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 19. Subsequent Events (continued)
issue 880,000 common shares at a price of $2.50 per share to Louisa Mojela in order to settle a total amount outstanding under the bridge loan facility of $2.2 million, inclusive of an applicable $1.1m redemption premium under the loan agreement. In exchange for the Company settling the loan payable to Louisa Mojela on behalf of Bophelo Bio Science and Wellness (Pty) Ltd, the Company shall have a corresponding inter-company loan account claim against Bophelo Bio Science and Wellness (Pty) Ltd.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
CANMART LTD
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Canmart Ltd
Opinion on the Financial Statements
We have audited the accompanying statements of financial position of Canmart Ltd (the “Company”), as of December 31, 2020 and 2019, the related statements of comprehensive loss, changes in shareholders’ equity (deficit) and cash flows for the years then ended, and related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
Served as Auditor since 2021
Lakewood, CO
November 18, 2021
Canmart Ltd
Statements of Financial Position
|
Presented in US Dollars
|
|
|
Note
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,907
|
|
|
|
|
|
1,116
|
|
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611
|
|
|
|
|
|
—
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,518
|
|
|
|
|
|
1,116
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
17,146
|
|
|
|
|
|
16,563
|
|
|
|
Total Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,146
|
|
|
|
|
|
16,563
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,664
|
|
|
|
|
|
17,679
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
1,024
|
|
|
|
|
|
—
|
|
|
|
Due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
17,707
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024
|
|
|
|
|
|
17,707
|
|
|
|
Shareholder’s Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
3
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,291)
|
|
|
|
|
|
(30)
|
|
|
|
Other reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,046
|
|
|
|
|
|
—
|
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117)
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,640
|
|
|
|
|
|
(28)
|
|
|
|
Total Liabilities and Shareholder’s Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,664
|
|
|
|
|
|
17,679
|
|
|
The accompanying notes are an integral part of these financial statements.
Canmart Ltd
Statement of Operations
For the Years Ended December 31
|
Presented in US Dollars
|
|
|
Note
|
|
|
$
|
|
|
2020
|
|
|
2019
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,062
|
|
|
|
|
|
—
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,809)
|
|
|
|
|
|
—
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
|
|
|
—
|
|
|
|
Consulting and professional fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
—
|
|
|
|
License costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491
|
|
|
|
|
|
—
|
|
|
|
General & administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101
|
|
|
|
|
|
32
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,623)
|
|
|
|
|
|
(32)
|
|
|
|
Loss from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,370)
|
|
|
|
|
|
(32)
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
2
|
|
|
|
Finance expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
—
|
|
|
|
Total Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
2
|
|
|
|
Net loss before income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
(30)
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Net Loss for the Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
(30)
|
|
|
|
Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116)
|
|
|
|
|
|
(1)
|
|
|
|
Total Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,377)
|
|
|
|
|
|
(31)
|
|
|
|
Basic and dilutive loss per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,188.50)
|
|
|
|
|
|
(15.50)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
2
|
|
|
The accompanying notes are an integral part of these financial statements.
Canmart Ltd
Statement of Changes in Shareholder’s Equity
|
Presented in US Dollars
|
|
|
$
|
|
|
Number
of
Shares
|
|
|
Share
Capital
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Accumulated
Deficit
|
|
|
Other
Reserves
|
|
|
Total
Equity
(Deficit)
|
|
|
Balance, December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
3
|
|
|
|
Issue of shares
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(30)
|
|
|
|
|
|
—
|
|
|
|
|
|
(30)
|
|
|
|
Balance, December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
(1)
|
|
|
|
|
|
(30)
|
|
|
|
|
|
—
|
|
|
|
|
|
(28)
|
|
|
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(116)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(116)
|
|
|
|
Contribution to reserves by owners of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,046
|
|
|
|
|
|
21,046
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
|
|
|
|
|
|
(2,261)
|
|
|
|
Balance, December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
(117)
|
|
|
|
|
|
(2,291)
|
|
|
|
|
|
21,046
|
|
|
|
|
|
18,640
|
|
|
The accompanying notes are an integral part of these financial statements.
Canmart Ltd
Statement of Cash Flows
|
Presented in US Dollars
|
|
|
Note
|
|
|
$
|
|
|
January 1, 2020 to
December 31, 2020
|
|
|
January 1, 2019 to
December 31, 2019
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
(30)
|
|
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(611)
|
|
|
|
|
|
—
|
|
|
|
Increase in trade and other payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024
|
|
|
|
|
|
—
|
|
|
|
Increase in due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,339
|
|
|
|
|
|
17,707
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491
|
|
|
|
|
|
17,677
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for acquisition of cannabis licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(15,625)
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(15,625)
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from share subscriptions receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
2
|
|
|
|
Net cash provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
2
|
|
|
|
Effects of foreign exchange translation on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(700)
|
|
|
|
|
|
(938)
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
791
|
|
|
|
|
|
1,116
|
|
|
|
Cash at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116
|
|
|
|
|
|
—
|
|
|
|
Cash at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,907
|
|
|
|
|
|
1,116
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Taxes paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to reserves by shareholders due to waiver of balance due to related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,046
|
|
|
|
|
|
—
|
|
|
The accompanying notes are an integral part of these financial statements.
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 1. Nature of Operations
Canmart Ltd (the “Company”) is domiciled in United Kingdom was incorporated on December 27, 2018. The Company’s registered office is at Units 1a/1b Learoyd Road, New Romney, Kent, England. The Company was formed to establish the business of warehousing and storage facilities for land transport activities.
The Company’s main business is the production and sale of cannabis-based products for medicinal use. The Company is part of a business restructuring agreement in which it will indirectly become part of Akanda Corp., a newly incorporated Company in Canada (Refer to Note 2 and Note 11 below).
On October 1, 2020 the former owners of Canmart Ltd, David Dean and Darran Quinn, entered into a Sale and Purchase Agreement with Halo Collective Inc. (“Halo”) in terms of which Halo would acquire the entire outstanding and issued share capital of the Company (amounting to 2 ordinary shares) from the former owners of the Company. On October 30, 2020, Halo and the former owners of the Company entered into an amendment agreement relating to the Sale and Purchase agreement dated October 1, 2020, in terms of which the original agreement was amended to update the purchase consideration payable to the former owners of the Company by Halo to an amount of 135,416,666 common shares of Halo. The acquisition of the Company by Halo closed on November 10, 2020.
During March 2020, the World Health Organization declared Covid-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
NOTE 2. Basis of preparation and going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards. (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
They were authorized for issue by the Company’s board of directors on October 14, 2021
These financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value. These financial statements are presented in United States dollars. The fiscal year end is December 31. The Company’s functional currency is Great British Pounds.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
Going concern
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
The Company will continue to operate in the foreseeable future as a going concern. Subsequent to the transaction envisaged in Note 11, the Company shall become, directly or indirectly, a wholly owned subsidiary of Akanda Corp (“Akanda”). The financial forecast for the Akanda group for the next 18 months indicates that it will make significant revenue through production & sale of dried cannabis flowers through a hoop house, shade cloth & greenhouse grow as well as sale of cannabis based medicinal products. Until such time that the group becomes cash flow positive, any shortfall would be funded by the shareholders of Akanda.
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 2. Basis of preparation and going concern (continued)
Additionally, the group is engaged in a Pre IPO financing process and is expected to raise USD 5 million to fund the capital expenditure and working capital requirements of the Company (and the group).
NOTE 3. Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Areas requiring a significant degree of estimation and judgment include fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities and assessment of the Company’s ability to continue as a going concern.
An allowance is made for all debts which the company considers unlikely to recover. The allowance is recognized through profit and loss.
The estimates used to determine the useful life of the intangible assets are determined by considering the relevant market related information and the term granted in respect of licences.
NOTE 4. Significant accounting policies
General
The accounting policies described in these financial statements have been applied consistently to all periods presented in these financial statements.
Foreign currency and foreign translation
Transactions in foreign currencies are translated from the respective functional currencies to the reporting currency of the Company using the exchange rates at transaction date. Receivables, payables and other monetary assets and liabilities denominated in foreign currencies are re-translated to the reporting currency using the exchange rates at the balance sheet date. Resulting foreign currency differences are recognized in the income statement, except for foreign currency differences arising on re-translation of Fair Value through Other Comprehensive Income (FVOCI) investments and financial liabilities designated as a hedge of a net investment, which are recognized in other comprehensive income.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency at the exchange rate at transaction date.
The functional and reporting currency of the Company is the Great British Pounds and United States dollar respectively. Transactions denominated in foreign currencies are translated using the exchange rate in effect on the transaction date or at an average rate. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the statement of financial position date.
Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in profit and loss in both the years ended December 31, 2019 and 2020.
Intangible assets
The Company has cannabis distribution licenses which have been assessed as having an indefinite useful life. As such, these licenses are not amortized but their recoverable amounts are tested annually for
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
impairment. The intangible assets are recorded at cost less impairment losses, if any. The Company capitalizes the initial license application cost as the cost of intangible assets while the annual license renewal fees are expensed in the year during which they occur.
Cash
Cash includes cash on hand and other short-term highly liquid investments with original maturities of three months or less, which are classified as cash equivalents. The Company did not hold any cash equivalents as of December 31, 2020.
Revenue
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control over a good or service to a customer. In accordance with IFRS 15, the Company recognizes revenue, excluding interest and dividend income and other such income from financial instruments recognized in accordance with IFRS 9, upon transfer of promised goods or services to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services based on the following five step approach:
Step 1: Identify the contracts with customers;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company typically satisfies its performance obligations upon completion of sale. The Company primarily acts as principal in contracts with its customers. The Company does not have material obligations for returns, refunds and other similar obligations, nor warranties and related obligations.
Revenue is recognized at the amount of the transaction price that is allocated to the performance obligation. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.
The company has a single revenue stream currently that relates to the sale of cannabis-based products for medicinal use. This revenue stream is assessed as one performance obligation. Revenue from cannabis based medicinal product sales is recognized once the performance obligation has been satisfied, which would be upon the customer taking the delivery of the product. The transaction price for each product and service will be determined based on the respective invoice.
The Company exercises judgments in determining the amount of the costs incurred to obtain or fulfil a contract with a customer, which includes, but is not limited to (a) the likelihood of obtaining the contract, (b) the estimate of the profitability of the contract, and (c) the credit risk of the customer. An impairment loss will be recognized in profit or loss to the extent that the carrying amount of the asset exceeds (a) the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates, less (b) the costs that relate directly to providing those goods or services and that have not been recognized as expenses.
Earnings (loss) per share
The calculation of earnings per share (EPS) for the period ended December 31, 2019 and 2020 is based on the profit /loss attributable to the shareholder of the Company (net profit (loss)) and the weighted average
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
number of shares outstanding (basic and diluted) during the period ended December 31, 2019 and 2020. The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
Income tax
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
•
temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
•
taxable temporary differences arising on the initial recognition of goodwill.
The amount of deferred tax provided is based on the expected manner of recovery or settlement of the carrying amount of assets and liabilities, using tax rates (substantively) enacted, at year-end. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously. Current and deferred tax are recognized in the income statement, except when it relates to a business combination or for items directly recognized in equity or other comprehensive income.
Share capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 4. Significant accounting policies (continued)
take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Company measures assets and long positions at a bid price and liabilities and short positions at an ask price.
NOTE 5. Intangible Assets
|
|
|
|
$
|
|
|
Licences
|
|
|
Total
|
|
|
Cost at December 31, 2018
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Additions
|
|
|
|
|
|
|
|
15,625
|
|
|
|
|
|
15,625
|
|
|
|
Amortisation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
938
|
|
|
|
|
|
938
|
|
|
|
Cost at December 31, 2019
|
|
|
|
|
|
|
|
16,563
|
|
|
|
|
|
16,563
|
|
|
|
Accumulated amortisation at December 31,2019
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Carrying value at December 31,2019
|
|
|
|
|
|
|
|
16,563
|
|
|
|
|
|
16,563
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
583
|
|
|
|
Amortisation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Cost at December 31, 2020
|
|
|
|
|
|
|
|
17,146
|
|
|
|
|
|
17,146
|
|
|
|
Accumulated amortisation at December 31,2020
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Carrying value at December 31,2020
|
|
|
|
|
|
|
|
17,146
|
|
|
|
|
|
17,146
|
|
|
The licenses held by the Company have been issued by the Medicines & Healthcare Products Regulatory Agency in the United Kingdom. The licenses allow the Company to hold and distribute a controlled drug as determined by the Medicines & Healthcare Products Regulatory Agency. The detailed terms of the licenses are described below:
Controlled Drug License
The Controlled Drug License held by the Company was issued to the Company by the Home Office on February 4, 2020 with an expiry date of February 3, 2021. This license was successfully renewed further with a new expiry date of February 3, 2022. This license (license ref no. 846476) allows the Company to import, store and export controlled drugs, namely schedule 2 drugs, into and from the United Kingdom. The Company pays an annual license renewal fee to renew the license annually which renewal is subject to enhanced to disclosure and barring the undertaking by the Home Office within 3 years of the time of the first disclosures made to the Home Office by the Company when it applied for the license. The cost of acquiring this license is approximately US$4,795 (GBP 3,655). The license is considered to have an indefinite useful life as its renewal is only subject to the payment of an annual renewal fee and occasional Home Office disclosure checks. As such, the license is not subject to amortization.
Manufacturer’s Specials License
The Company also holds a Manufacturer’s Specials License (issued by Medicine and Health Regulatory Agency) with license number MS50996. The license was issued on August 5, 2019, which allows it to import and store non authorised pharmaceuticals/ unlicensed medicinal products, otherwise known as specials. The License does not have an expiry date but under the terms of the license, fees are payable to the Medicine
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 5. Intangible Assets (continued)
and Health Regulatory Agency for inspection and other fees. The costs attributable to this license is approximately US$9,598 (GBP 6,971). The license is considered to have an indefinite useful life as it does not have an expiry date and its only ongoing obligation to the license holder is the payment of an annual license fee and inspection costs. As such, the license is not subject to amortization.
Wholesale Distribution Authorization License
The Wholesale Distribution Authorization License (issued by Medicine and Health Regulatory Agency) with license number 50996 and allows the Company to distribute by way of wholesale, medical cannabis products and to store such products at its approved premises. The license was granted on August 2, 2019 and it does not have an expiry date. The license will remain in force from the date of issue unless cancelled, suspended, revoked, varied or relinquished by the Company. The cost of the license was approximately US$2,624 (GBP 2,000). The license is considered to have an indefinite useful life as it does not have an expiry date. As such the license is not subject to amortization.
NOTE 6. Trade and other receivables
|
|
|
|
$
|
|
|
December, 31
2020
|
|
|
December, 31
2019
|
|
|
Trade receivables
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
—
|
|
|
|
Allowance for bad debts
|
|
|
|
|
|
|
|
(523)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
NOTE 7. Share capital
Issued
Ordinary shares
On inception, the Company issued share capital of US$3 (Great British Pounds 2) consisting of two ordinary shares with a par value of US$1.5(Great British Pounds 1) per share. The Company received the proceeds of these share issues during 2019.
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company’s shares held by the Company are suspended until those shares are reissued.
NOTE 8. Financial instruments and risk management
Financial instruments
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at Fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 8. Financial instruments and risk management (continued)
The Company derecognizes a financial asset when:
•
the contractual rights to the cash flows from the financial asset expire; or
•
it transfers the rights to receive the contractual cash flows in a transaction in which either:
•
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•
the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset
Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
At December 31, 2019 and 2020, the Company’s financial instruments include cash, trade and other payables and balances due to related parties.
Financial risk management
The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Company has exposure to the following risks arising from financial instruments:
•
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investments in debt securities.
•
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s objective when managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 8. Financial instruments and risk management (continued)
•
Market risk is the risk that changes in market prices — e.g., foreign exchange rates, interest rates and equity prices — will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Currency risk
The Company is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables and payables are denominated and the respective functional currency of the Company. The functional currency of the Company is the United States dollar. The currencies in which these transactions are primarily denominated are Euro, United States dollar, British pound sterling and Canadian dollar.
Capital Management
The Company’s primary objective is to ensure that it maintains sufficient capital to support the initial and ongoing development of the business infrastructure. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities. In maintaining or adjusting the capital structure, the Company will request further funding from the shareholders and other related parties.
NOTE 9. Income Tax
The provision for income taxes differs from the amount that would have resulted in applying the combined federal statutory tax rate as follows:
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
(30)
|
|
|
|
Statutory income tax rate
|
|
|
|
|
|
|
|
18%
|
|
|
|
|
|
19%
|
|
|
|
Expected tax recovery at statutory income tax rates
|
|
|
|
|
|
|
|
(407)
|
|
|
|
|
|
(6)
|
|
|
|
Change in deferred tax assets not recognized
|
|
|
|
|
|
|
|
407
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Temporary differences that give rise to the following deferred tax assets and liabilities at are:
|
|
|
|
$
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carried forward
|
|
|
|
|
|
|
|
2,291
|
|
|
|
|
|
30
|
|
|
|
Deferred tax assets not recognized
|
|
|
|
|
|
|
|
(2,291)
|
|
|
|
|
|
(30)
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
As at December 31, 2020, the Company has approximately $2,408 (2019 — $31) of non-capital losses in the United Kingdom that may be used to offset future taxable income. These losses may be carried forward on an indefinite basis and do not expire. The Company has not recognized the deferred tax assets due to the uncertainty around utilizing all of the losses carry-forwards.
Canmart Ltd
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2020
NOTE 10. Related Party Transactions
Related party balances
As at December 31, 2020, $Nil (2019: $17,707) was due to related parties that pertained to the loans provided by the Company’s directors, Darran Quinn and David Dean to the Company. During 2020, the Company’s directors advanced an additional $3,339 and a total balance of $21,046 was waived by the Company’s directors (David Dean and Darren Quinn) which resulted in other reserves to the extent of $21,046.
Until Halo completed the acquisition of the Company on November 20, 2020 and became the 100% shareholder of the Company at that time, the Directors, Darran Quinn and David Dean were also the holders of the entire issued share capital of the Company (with each individual holding one share each at a par value of $1.5 each (GBP 1 each).
Use of Warehouse premises
The Company makes use of warehouse space owned by an entity known as D&D Investments Ltd. This entity is owned and controlled by two of the Company’s directors, namely David Dean and Darran Quinn. The Company does not pay rental for the time being in relation to the use of this property and no signed lease agreement is in place.
NOTE 11. Subsequent Events
Entering into of Sale and Purchase Agreement with Halo Collective Inc.
On September 29, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale/purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness Pty Ltd, Canmart Ltd, Bophelo Holdings Ltd and Cannahealth Limited.
Prior to the completion of the Transaction, Halo intends to complete an internal reorganization, pursuant to which Halo’s international assets in the UK, Malta & Lesotho namely Canmart Ltd, Cannahealth Limited and Bophelo Bio Science and Wellness (Pty) Ltd will become, directly or indirectly, wholly owned subsidiaries of Akanda Corp. In accordance with the terms of the Purchase Agreement, Halo will then sell 100% of the issued and outstanding shares of Cannahealth to Akanda in exchange for 13,129,212 common shares in the capital of the Akanda (“Akanda Shares”), representing aggregate consideration of US$13,129,212. On or around November 3, 2021, the sale and purchase Agreement became unconditional and Akanda completed the acquisition of Cannahealth Limited. Accordingly, Akanda issued 13,129,212 common shares to Halo in lieu of the acquisition. Contemporaneously with the closing of the Sale and Purchase Agreement, Akanda entered into an investor rights agreement with Halo, which will see Halo gaining certain investor rights as a shareholder of Akanda, including certain information rights and the rights to appoint a director to the board of Akanda. Akanda also entered into a debenture agreement with Halo in terms of which Akanda is indebted to Halo to the amount of approximately $6.6m, in lieu of the acquisition of the loan claims in Bophelo Bio Science and Canmart that were previously held by Halo prior to the completion of the internal reorganization. The debenture is secured by way of a general security over the assets of Akanda, as well as by a pledge of the 1,200 shares held by Akanda in Cannahealth Limited. The debenture bears interest at a rate of 1% per annum and is repayable on or before November 2, 2021. The debenture (including accrued interest thereon) is convertible, at Akanda’s election, into common shares of Akanda, and the debenture (including accrued interest thereon) will automatically convert into common shares of Akanda upon the successful completion of an Initial Public Offering.
AKANDA CORP.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to the following transactions:
i.
The acquisition of Bophelo Bio Science and Wellness (Pty) Ltd (“Bophelo Bio Science”), Canmart Ltd (“Canmart”), Bophelo Holdings Ltd (“Bophelo Holdings”), and Cannahealth Limited (“Cannahealth”) by Akanda Corp. (the “Company”) pursuant to a Sale Purchase Agreement dated September 29, 2021. Pursuant to the Sale Purchase Agreement, the Company will acquire all of the outstanding ordinary shares of Cannahealth from its shareholder Halo Collective Inc. (“Halo”) in exchange for 13,129,212 common shares of the Company issued to Halo.
ii.
The issue of 2,000,000 common shares of the Company at a price of $2.50 each pursuant to a pre-Initial Public Offering capital raise;
iii.
The issue of 4,000,000 common shares of the Company at a price of $5.00 pursuant to the Company’s Initial Public Offering.
These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
AKANDA CORP.
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of December 31, 2020
|
|
|
|
$
|
|
|
Akanda Corp.
|
|
|
Cannahealth
|
|
|
Bophelo
Holdings
|
|
|
Canmart
|
|
|
Bophelo
Bio Science
|
|
|
Total
|
|
|
Proforma
Adjustments
|
|
|
Notes
|
|
|
Proforma
As Adjusted
|
|
|
|
|
|
|
|
|
31 August 2021
|
|
|
31 December 2020
|
|
|
31 August 2021
|
|
|
31 December 2020
|
|
|
31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
1,907
|
|
|
|
|
|
10,120
|
|
|
|
|
|
263,643
|
|
|
|
|
|
23,644,920
|
|
|
|
4(a,b &c)
|
|
|
|
|
23,908,563
|
|
|
|
Prepayments
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
113,485
|
|
|
|
|
|
113,845
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
113,485
|
|
|
|
Inventory
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
611
|
|
|
|
|
|
—
|
|
|
|
|
|
611
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
611
|
|
|
|
Loan to shareholder
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
7
|
|
|
|
|
|
7
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
7
|
|
|
|
Total Current
Assets
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
2,518
|
|
|
|
|
|
123,612
|
|
|
|
|
|
377,746
|
|
|
|
|
|
23,644,920
|
|
|
|
|
|
|
|
|
24,022,666
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
742,887
|
|
|
|
|
|
742,887
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
742,887
|
|
|
|
Capital work in progress
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
883,145
|
|
|
|
|
|
883,145
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
883,145
|
|
|
|
Right-of-use
asset
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,199,779
|
|
|
|
|
|
2,199,779
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,199,779
|
|
|
|
Intangible
assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
17,146
|
|
|
|
|
|
304,260
|
|
|
|
|
|
321,406
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
321,406
|
|
|
|
Total Non-Current
Assets
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
17,146
|
|
|
|
|
|
4,130,071
|
|
|
|
|
|
4,147,217
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
4,147,217
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
19,664
|
|
|
|
|
|
4,253,683
|
|
|
|
|
|
4,524,963
|
|
|
|
|
|
23,644,920
|
|
|
|
|
|
|
|
|
28,169,883
|
|
|
|
LIABILITIES AND
SHAREHOLDER’S
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
|
|
|
27,635
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,024
|
|
|
|
|
|
182,878
|
|
|
|
|
|
211,537
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
211,537
|
|
|
|
Loans and borrowings
|
|
|
|
|
|
|
|
4,263
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,263,605
|
|
|
|
|
|
2,267,868
|
|
|
|
|
|
(1,350,813)
|
|
|
|
|
|
|
|
|
917,055
|
|
|
|
Lease liability
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
283,976
|
|
|
|
|
|
283,976
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
283,976
|
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
|
31,898
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,024
|
|
|
|
|
|
2,730,459
|
|
|
|
|
|
2,763,381
|
|
|
|
|
|
(1,350,813
|
|
|
|
|
|
|
|
|
1,412,568
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liability
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
3,977,108
|
|
|
|
|
|
3,977,108
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
3,977,108
|
|
|
|
Loans and borrowings
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,598,176
|
|
|
|
|
|
2,598,176
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,598,176
|
|
|
|
Total Non-Current Liabilities
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
6,575,284
|
|
|
|
|
|
6,575,284
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
6,575,284
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
31,898
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,024
|
|
|
|
|
|
9,305,743
|
|
|
|
|
|
9,338,665
|
|
|
|
|
|
(1,350,813)
|
|
|
|
|
|
|
|
|
7,987,852
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
3
|
|
|
|
|
|
156
|
|
|
|
|
|
251,775
|
|
|
|
|
|
38,972,358
|
|
|
|
4(a,b &c)
|
|
|
|
|
39,224,133
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,046
|
|
|
|
|
|
7
|
|
|
|
|
|
21,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,053
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,291)
|
|
|
|
|
|
(5,073,780)
|
|
|
|
|
|
5,194,590
|
|
|
|
|
|
(849,187)
|
|
|
|
|
|
|
|
|
(6,043,777)
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(118)
|
|
|
|
|
|
108,178
|
|
|
|
|
|
108,060
|
|
|
|
|
|
(13,127,438)
|
|
|
|
4(a)
|
|
|
|
|
(13,019,378)
|
|
|
|
Total Shareholders’ equity
|
|
|
|
|
|
|
|
218,103
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
18,640
|
|
|
|
|
|
(5,073630)
|
|
|
|
|
|
4,813,702
|
|
|
|
|
|
24,995,733
|
|
|
|
|
|
|
|
|
20,182,031
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
250,001
|
|
|
|
|
|
1,477
|
|
|
|
|
|
138
|
|
|
|
|
|
19,664
|
|
|
|
|
|
4,253,676
|
|
|
|
|
|
4,524,963
|
|
|
|
|
|
23,644,920
|
|
|
|
|
|
|
|
|
28,169,883
|
|
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
AKANDA CORP.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2020
|
|
|
|
$
|
|
|
Akanda Corp.
|
|
|
Cannahealth
|
|
|
Bophelo
Holdings
|
|
|
Canmart
|
|
|
Bophelo
Bio Science
|
|
|
Total
|
|
|
Proforma
Adjustments
|
|
|
Notes
|
|
|
Proforma As
Adjusted
|
|
|
|
|
|
|
|
|
31 August 2021
|
|
|
31 December 2020
|
|
|
31 August 2021
|
|
|
31 December 2020
|
|
|
31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2,062
|
|
|
|
|
|
—
|
|
|
|
|
|
2,062
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,062
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,809)
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,809)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,809)
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
253
|
|
|
|
|
|
—
|
|
|
|
|
|
253
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
253
|
|
|
|
Amortisation and
depreciation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(248,743)
|
|
|
|
|
|
(248,743)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(248,873)
|
|
|
|
Consulting and professional fees
|
|
|
|
|
|
|
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(31)
|
|
|
|
|
|
(701,985)
|
|
|
|
|
|
(733,914)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(702,016)
|
|
|
|
Fair value adjustment
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(58,429)
|
|
|
|
|
|
(58,429)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(58,429)
|
|
|
|
Lease costs
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(45,482)
|
|
|
|
|
|
(45,482)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(45,482)
|
|
|
|
Office
expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(26,874)
|
|
|
|
|
|
(26,874)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(26,874)
|
|
|
|
Personnel expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(374,900)
|
|
|
|
|
|
(374,900)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(374,900)
|
|
|
|
Travel
expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(5,154)
|
|
|
|
|
|
(5,154)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(5,154)
|
|
|
|
General &
administrative
expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,592)
|
|
|
|
|
|
(201,768)
|
|
|
|
|
|
(248,743)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(204,360)
|
|
|
|
Loss from Operations
|
|
|
|
|
|
|
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,370)
|
|
|
|
|
|
(1,663,335)
|
|
|
|
|
|
(1,697,603)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1,697,603)
|
|
|
|
Finance income
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1
|
|
|
|
|
|
10,187
|
|
|
|
|
|
10,188
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
10,188
|
|
|
|
Finance
expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(645,162)
|
|
|
|
|
|
(645,162)
|
|
|
|
|
|
(849,187)
|
|
|
|
4(d)
|
|
|
|
|
(1,494,349)
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
—
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
Net loss from operations
|
|
|
|
|
|
|
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,261)
|
|
|
|
|
|
(2,298,310)
|
|
|
|
|
|
(2,332,469)
|
|
|
|
|
|
(849,187)
|
|
|
|
|
|
|
|
|
(3,181,656)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(116)
|
|
|
|
|
|
150,742
|
|
|
|
|
|
150,626
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
150,626
|
|
|
|
Net and comprehensive loss
|
|
|
|
|
|
|
|
(31,898)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,377)
|
|
|
|
|
|
(2,147,568)
|
|
|
|
|
|
(2,181,843)
|
|
|
|
|
|
(849,187)
|
|
|
|
|
|
|
|
|
(3,031,030)
|
|
|
|
Basic and dilutive
loss per ordinary
share
|
|
|
|
|
|
|
|
(0.01)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,189)
|
|
|
|
|
|
(9.66)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(0.11)
|
|
|
|
Weighted average number of ordinary shares outstanding
|
|
|
|
|
|
|
|
6,095,705
|
|
|
|
|
|
1,200
|
|
|
|
|
|
100
|
|
|
|
|
|
2
|
|
|
|
|
|
222,212
|
|
|
|
|
|
|
|
|
|
|
|
20,505,726
|
|
|
|
4(a,b,c&d)
|
|
|
|
|
26,824,945
|
|
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
AKANDA CORP.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2019
|
|
|
|
$
|
|
|
Akanda
Corp.
|
|
|
Cannahealth
|
|
|
Bophelo
Holdings
|
|
|
Canmart
|
|
|
Bophelo
Bio Science
|
|
|
Total
|
|
|
Proforma
Adjustments
|
|
|
Notes
|
|
|
Proforma
As Adjusted
|
|
|
|
|
|
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
31 December 2019
|
|
|
31 December 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
Amortisation and depreciation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(198,824)
|
|
|
|
|
|
(198,824)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(198,824)
|
|
|
|
Consulting and professional fees
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(365,641)
|
|
|
|
|
|
(365,641)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(365,641)
|
|
|
|
Biological Assets costs
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
Short term accommodation
expense
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(26,269)
|
|
|
|
|
|
(26,269)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(26,269)
|
|
|
|
Office expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(13,116)
|
|
|
|
|
|
(13,116)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(13,116)
|
|
|
|
Personnel expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(100,256)
|
|
|
|
|
|
(100,256)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(100,256)
|
|
|
|
Travel expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(30,582)
|
|
|
|
|
|
(30,582)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(30,582)
|
|
|
|
General & Administration
expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(32)
|
|
|
|
|
|
(166,515)
|
|
|
|
|
|
(166,547)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(166,547)
|
|
|
|
Loss from Operations
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(32)
|
|
|
|
|
|
(901,203)
|
|
|
|
|
|
(901,235)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(901,235)
|
|
|
|
Finance income
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2
|
|
|
|
|
|
399
|
|
|
|
|
|
401
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
401
|
|
|
|
Finance expenses
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(493,807)
|
|
|
|
|
|
(493,807)
|
|
|
|
|
|
(1,100,000)
|
|
|
|
4(d)
|
|
|
|
|
(1,593,807)
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(30)
|
|
|
|
|
|
(1,394,611)
|
|
|
|
|
|
(1,394,641)
|
|
|
|
|
|
(1,100,000
|
|
|
|
|
|
|
|
|
(2,494,641)
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1)
|
|
|
|
|
|
(42,565)
|
|
|
|
|
|
(42,566)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(42,566)
|
|
|
|
Net and comprehensive loss
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(31)
|
|
|
|
|
|
(1,437,176)
|
|
|
|
|
|
(1,437,207)
|
|
|
|
|
|
(1,100,000
|
|
|
|
|
|
|
|
|
(2,537,207)
|
|
|
|
Basic and dilutive loss per ordinary share
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(15.50)
|
|
|
|
|
|
(33.26)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(0.12)
|
|
|
|
Weighted average number of ordinary
shares outstanding
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2
|
|
|
|
|
|
43,206
|
|
|
|
|
|
|
|
|
|
|
|
20,686,032
|
|
|
|
4(a,b,c&d)
|
|
|
|
|
20,729,240
|
|
|
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
AKANDA CORP.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
Akanda Corp. (the “Company”) was incorporated in July 2021 and on September 29, 2021, the Company entered into a Share Purchase Agreement (the “Agreement”) with Halo Collective Inc. (“Halo”), pursuant to which the Company will acquire all of the outstanding ordinary shares of Cannahealth Limited (“Cannahealth”) from Halo in exchange for 13,129,212 common shares of the Company.
Cannahealth is the holding company of Canmart Limited (“Canmart”) and Bophelo Holding Limited (“Bophelo Holdings”), which in turn, is the holding company of Bophelo Bio Science and Wellness (Pty) Ltd (“Bophelo Bio Science”). Following the completion of the Agreement, Akanda will directly and indirectly own 100% of the issued share capital of Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science.
The Company will also ii. issue of 2,000,000 common shares of the Company at a price of $2.50 each pursuant to a pre-Initial Public Offering capital raise, and a further issue of 4,000,000 common shares of the Company at a price of $5.00 each pursuant to its Initial Public Offering.
NOTE 1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial statements are based on the Company’s historical financial statements as well as those of Bophelo Bio Science, Canmart, Bophelo Holdings and Cannahealth. These historical consolidated financial statements have been adjusted to give effect to the acquisition of the above-mentioned companies and the shares issued as part of the acquisition, as well as to give effect to the issue of the Company’s common shares pursuant to the pre-initial public offering capital raise and the Initial Public Offering itself. The unaudited pro forma combined statements of operations for the reporting periods ended August 31, 2021 and the reporting periods ended December 31, 2020 give effect to the above-mentioned companies acquisition as if it had occurred on January 1, 2020 (and on January 1, 2019 for the unaudited pro forma condensed statement of operations for the year ended 31 December, 2019). The unaudited proforma combined statements of financial position as of August 31, 2021 and December 31, 2020 give effect to the above-mentioned companies acquisition as if it had occurred on December 31, 2020. The Company, including all of its subsidiaries, have a fiscal year end of December 31 following the combination of the companies under common control.
For accounting purposes, the Company has considered the accounting guidance provided by the relevant IASB agendas and determined that the merger of Akanda Corporation and Bophelo Bio, Canmart, Bophelo Holdings, and Cannahealth should be treated as a combination of companies under common control and the pooling of interests’ method applied. As such, the assets and liabilities of Bophelo Bio, Canmart, Bophelo Holdings, and Cannahealth have been presented at their historical carrying values.
Historical financial information has been adjusted in the pro forma balance sheet to pro forma events that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the Company’s results of operations. The pro forma adjustments presented in the pro forma combined balance sheet and statement of operations are described in Note 4 — Pro Forma Adjustments.
The unaudited pro forma condensed combined financial information is for illustrative purposes only. These companies may have performed differently had they actually been combined for the periods presented. You should not rely on the pro forma combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined companies will experience after the acquisition.
NOTE 2. ACCOUNTING PERIODS PRESENTED
Certain pro forma adjustments were made to conform Bophelo Bio, Canmart, Bophelo Holdings, and Cannahealth accounting policies to the Company’s accounting policies as noted below.
AKANDA CORP.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
NOTE 2. ACCOUNTING PERIODS PRESENTED (continued)
The unaudited pro forma condensed combined balance sheet as of December 31, 2020 is presented as if the acquisition had occurred on December 31, 2020 and combines the balance sheet of the Company at August 31, 2021, the historical balance sheet of Bophelo Holdings at August 31, 2021, and the historical balance sheet of Bophelo Bio, Canmart, and Cannahealth at December 31, 2020.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 has been prepared by combining the Company’s historical consolidated statement of operations for the period ended August 31, 2021, with the historical statement of operations of Bophelo Holdings at August 31, 2021,and with the historical statement of operations of Bophelo Bio Science, Canmart, and Cannahealth for the year ended December 31, 2020.
NOTE 3. PRELIMINARY PURCHASE PRICE ALLOCATION
On September 29, 2021, the Company entered into a Share Purchase Agreement (the “Agreement”) with Halo Collective Inc. (“Halo”), pursuant to which the Company will acquire all of the outstanding ordinary shares of Cannahealth Limited (“Cannahealth”) from Halo in exchange for 13,129,212 common shares of the Company. The unaudited pro forma condensed combined financial statements include various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science. For accounting purposes, the Company has determined that the acquisition of Cannahealth, Canmart, Bophelo Holdings and Bio Science is a common control business combination. As such, the assets and liabilities of Cannahealth, Canmart, Bophelo Holdings and Bio Science have been presented at their historical carrying values. Accordingly, pro forma adjustments are preliminary and have been made solely for illustrative purposes.
NOTE 4. PRO FORMA ADJUSTMENTS
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
a)
Pursuant to the Agreement, 13,129,212 of the Company’s common shares will be issued in lieu of payment for the shares acquired in Cannahealth, Canmart, Bophelo Holdings, and Bophelo Bio Science. The value of the common shares to be issued by the Company amounts to $13,129,212. A journal was processed to:
i.
Recognise the increase in the Company’s share capital and the accompanying investment in subsidiaries in the Company’s statement of financial position;
ii.
Accounting for the consolidation of Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science in accordance with the pooling of interests’ method of consolidation, thereby eliminating share capital in the acquired entities (Cannahealth, Canmart, Bophelo Holdings and Bophelo Bio Science) and recognising the difference between the net asset value of the acquired entities and the purchase consideration, namely the 13,129,212 common shares issued by the Company, directly in equity.
b)
In connection with the Company’s private placement capital raise initiated in August 2021, the Company, following the initial closing of the private placement on November 12, 2021 will issue 2,126,400 common shares to subscribing investors at a price of $2.50 each to raise total proceeds under the private placement of $5,316,000. In connection with its fundraising efforts, the Company has engaged Boustead Securities, LLC (“Boustead”) as its lead underwriter. In accordance with the Company’s agreed-upon terms of engagement with Boustead, a cash fee of 7% of the gross cash proceeds of the capital raise is payable to Boustead and a non-accountable expense allowance
AKANDA CORP.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
NOTE 4. PRO FORMA ADJUSTMENTS (continued)
equal to 1% of such gross proceeds. Boustead waived any right to receive placement agent warrants in connection with the private placement.
c)
In connection with the Company’s Initial Public Offering capital raise, the Company will issue 4,000,000 common shares at $5.00 each to raise total proceeds under the Initial Public Offering of $20,000,000. In connection with its fundraising efforts, the Company has engaged Boustead as its lead underwriter. In accordance with the Company’s agreed-upon terms of engagement with Boustead, a cash fee of 7% of the gross cash proceeds of the capital raise is payable to Boustead and a non-accountable expense allowance equal to 1% of such gross proceeds. Furthermore, Boustead is entitled to receive 7% of the number of shares issued in the form of warrants with a strike price equal to the price per share paid by investor in the Initial Public Offering.
d)
The settlement of a $2.2 million loan due to LM Mojela through an issue of 880,00 common shares in Company at a price of $2.50 each. The settlement of the loan by way of an issue of equity attracts a redemption premium of 100% on the principal amount of the loan ($1.1 million). In the event that the redemption premium is triggered, then all accrued interest on the loan is no longer due and payable. At December 31, 2020, accrued interest on the loan amounted to $250,813.
Akanda Corp.
4,000,000 Common Shares
PROSPECTUS
Boustead Securities, LLC
, 2022
Until and including , 2022 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers.
In accordance with the Business Corporations Act (Ontario) and pursuant to the bylaws of the Company (the “Bylaws”), subject to certain conditions, the Company shall, to the maximum extent permitted by law, indemnify a director or officer, a former director or officer, or another individual who acts or acted at the Company’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Company or other entity. We shall advance monies to a director, officer or other individual for costs, charges and expenses reasonably incurred in connection with such a proceeding; provided that such individual shall repay the moneys if the individual does not fulfill the conditions described below or is not successful on the merits in their defense of the action or proceeding. Indemnification is prohibited unless the individual:
•
Acted honestly and in good faith with a view to our best interests;
•
In the case of a criminal or administration action or proceeding enforced by a monetary penalty, had reasonable grounds to believe the conduct was lawful; and
•
Was not judged by a court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done.
We also entered into indemnification agreements with each of our executive officers and directors. The indemnification agreements provide the indemnitees with contractual rights to indemnification, and expense advancement and reimbursement, to the fullest extent permitted under Ontario law.
Item 7. Recent Sales of Unregistered Securities.
Since the incorporation of the Company, we have issued and sold the securities described below without registering the securities under the Securities Act.
•
On July 16, 2021, the Company sold an aggregate of 5,626,806 Common Shares at a purchase price of $0.0000001 per share to certain founding shareholders including (i) 1,875,602 shares to Tejinder Virk, our Chief Executive Officer, (ii) 1,875,602 shares to Louisa Mojela, our Executive Chairman, (iii) 937,801 shares to ERB Investment Holdings, LLC, and (iv) 937,801 shares to S&G Holdings, Ltd. Both ERB Investment Holdings, LLC and S&G Holdings, Ltd. are owned and controlled by Raj Beri.
•
On August 26, 2021, the Company sold 468,900 Common Shares to an accredited investor pursuant to a subscription agreement for common shares, at a subscription price of $0.53 and received $250,000 in gross proceeds.
•
On November 3, 2021, the Company closed the Acquisition, pursuant to which the Company issued an aggregate of 13,179,212 Common Shares to Halo at a per share price of $1.00.
•
On November 3, 2021, the Company issued the Debenture in the principal amount of $6,559,294 to Halo in exchange for setting off all outstanding indebtedness owed by Bophelo to Halo. See “Prospectus Summary — Our History and Relationship with Halo — Issuance of Secured Convertible Debenture to Halo” for additional information regarding the terms of the debenture including its conversion terms.
•
On November 10, 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of $2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
On November 12, 2021, the Company sold an aggregate of 2,126,400 Common Shares at the initial closing of a private placement to accredited investors at a purchase price of $2.50 per share for gross
proceeds of $5,316,000 and on January 17 and 26, 2022, the Company completed additional closings to accredited investors of 162,000 Common Shares at a purchase price of $2.50 per share, for approximately $405,000. Louisa Mojela, our Executive Chairman, was one of the investors at the initial closing and purchased 100,000 Common Shares at the same purchase price.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering except that Boustead Securities, LLC served as the placement agent for the Seed Financing and the Private Placement. Boustead Securities, LLC waived commission for the Seed Financing and received under the Private Placement: (a) a commission equal to 7% of the gross proceeds and (b) a non-accountable expense allowance equal to 1% of the gross proceeds. The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, as transactions by an issuer not involving any public offering.
Item 8. Exhibits and Financial Statements Schedule
(10)
The following exhibits are filed as part of this Registration Statement and are numbered in accordance with Item 601 of Regulation S-K:
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Exhibit
Number
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Description
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14.1
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14.2
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14.3
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21.1
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23.1
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23.2
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24.1
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99.1
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99.2
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99.3
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99.4
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99.5
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Consent of Gugu Dingaan
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107
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*
To be filed by Amendment
§
Indicates a management contract or compensatory plan
(b) Financial Statements Schedules
See our Financial Statements starting on page F-1. All other schedules have been omitted because they are not required, are not applicable or the information is otherwise set forth in the financial statements and related notes thereto.
(c) Filing Fee
A table furnishing the calculation of filing fees paid for the securities being registered hereby is set forth in Exhibit 107 to this Registration Statement in the manner required by Item 601(b)(107) of Regulation S-K.
Item 9. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1)
That, for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A under the Securities Act and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2)
That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of London, the United Kingdom on January 31, 2022.
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Date: January 31, 2022
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Akanda Corp.
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By:
/s/ Tejinder Virk
Name: Tejinder Virk
Title: Chief Executive Officer and Director
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KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Tejinder Virk and Trevor Scott, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution, for her or him and in her or his name, place and stead, in any and all capacities, to sign any and all amendments to this Form F-1 offering statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and ratifying and confirming all that said attorney-in-fact and agent or her or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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/s/ Tejinder Virk
Name: Tejinder Virk
Title: Chief Executive Officer and Director
(Principal Executive Officer)
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Date: January 31, 2022
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/s/ Trevor Scott
Name: Trevor Scott
Title: Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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Date: January 31, 2022
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/s/ Louisa Mojela
Name: Louisa Mojela
Title: Executive Chairman and Director
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Date: January 31, 2022
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/s/ Philip van den Berg
Name: Philip van den Berg
Title: Director
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Date: January 31, 2022
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/s/ Charles Kié
Name: Charles Kié
Title: Director
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Date: January 31, 2022
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Signature of Authorized U.S. Representative of Registrant
Pursuant to the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Akanda Corp., has signed this registration statement in the city of Newark, State of Delaware, on January 31, 2022.
Authorized U.S. Representative
By:
/s/ Donald J. Puglisi
Name: Donald J. Puglisi
Title: Managing Director
Exhibit 1.1
AKANDA
CORP.
UNDERWRITING
AGREEMENT
[__________], 2022
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
Attn: Keith Moore, Chief Executive Officer
Attn: Daniel J. McClory, Managing Director
Ladies and Gentlemen:
This underwriting agreement
(this “Agreement”) constitutes the agreement between Akanda Corp., a company incorporated in the Province of
Ontario (the “Company”), on the one hand, and Boustead Securities, LLC (the “Representative”),
for itself as underwriter and as representative of the several underwriters listed on Schedule I hereto (the “Underwriters”),
on the other hand, pursuant to which the Underwriters shall serve as the underwriters for the Company in connection with the proposed
offering (the “Offering”) by the Company of its Offered Securities (as defined below).
The Company proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters an aggregate of [*] authorized but unissued common shares
(the “Firm Shares”), without par value, of the Company (such shares generally, the “Common Shares”),
and to grant the Representative the option to purchase an aggregate of up to [*] additional Common Shares (the “Option Shares”)
as may be necessary to cover over-allotments made in connection with the Offering. The Firm Shares and Option Shares are collectively
referred to as the “Offered Securities.” The Offered Securities and the Representative’s Warrant (as defined
below) and the Warrant Shares (as defined below) are collectively referred to herein as the “Securities.”
The Company hereby confirms
its agreement with the Representative as follows:
Section 1.
Fees and Expenses; Survival and Other Activities.
(a) Underwriting
Discount; Representative’s Warrants; Expenses.
(i) Underwriting
Discount. The Underwriters shall be entitled to receive an underwriting discount equal to 7% of the gross proceeds from the sale
of the Offered Securities on a Closing Date, as defined in Section 3(c) herein, which will be paid to and allocated by the
Representative among the Underwriters or selling syndicate and soliciting dealers.
(ii) Non-Accountable
Expense Allowance. The Underwriters shall be entitled to receive a non-accountable expense allowance equal to 1% of the gross proceeds
from the sale of the Offered Securities on a Closing Date, which will be paid to and allocated by the Representative among the Underwriters.
(iii) Representative’s
Warrants. The Company hereby agrees to issue to the Representative (and/or its permitted designees) on a Closing Date, a warrant
or warrants, as applicable (in the form attached as Exhibit A hereto, the “Representative’s Warrant”)
to purchase the number of Common Shares equal to seven percent (7%) of the number of Firm shares and Option Shares, if any, issued in
the Offering (“Warrant Shares”).
The Representative’s
Warrants will be exercisable for a term of five (5) years from the effective date (the “Effective Date”) of the
Registration Statement (as defined below) at an initial exercise price equal to 125% of the price per share paid by investors in the
Offering. The Representative’s Warrants shall include a “cashless” exercise feature, and shall contain provisions for
registration rights for the Representative’s Warrants and the underlying Common Shares, as set forth in the Representative’s
Warrants. The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against
transferring the Representative’s Warrants and the Warrant Shares during the one hundred eighty (180) days after the Effective
Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s
Warrants, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result
in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to
anyone other than the circumstances listed under FINRA Rule 5110(e)(2). Delivery of the Representative’s Warrants shall be
made on a Closing Date and shall be issued in the name or names and in such authorized denominations as the Representative may request.
(iv) Expenses.
Whether or not the transactions contemplated by this Agreement and the Registration Statement are consummated or this Agreement is terminated,
the Company hereby agrees to pay all costs and expenses incident to the Offering, including the following:
A. all
expenses in connection with the preparation, printing, formatting for EDGAR and filing of the Registration Statement, and any and all
amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers;
B. all
fees and expenses in connection with filings with FINRA’s Public Offering System;
C. all
fees, disbursements and expenses of the Company’s counsel and accountants in connection with the registration of the Offered Securities
under the Securities Act of 1933, as amended (the “Securities Act”) and the Offering;
D. all
reasonable expenses in connection with the qualifications of the Offered Securities for offering and sale under state or blue sky laws,
when applicable;
E. all
fees and expenses in connection with listing the Offered Securities on the Nasdaq Stock Market (“Nasdaq”), including
DTC eligibility;
F. all
reasonable travel expenses of the Company’s officers, directors and employees and any other expense of the Company incurred in
connection with attending or hosting meetings with prospective purchasers of the Offered Securities;
G. any
stock transfer taxes incurred in connection with this Agreement or the Offering;
H. the
cost and charges of any transfer agent or registrar for the Offered Securities; and
I. Underwriters’
accountable out-of-pocket expenses in the aggregate amount of $255,000, including Underwriters’ counsel’s fees of up to $75,000
($25,000 of which have been advanced by the Company to the Underwriter). In addition, the Company has advanced to the Underwriter approximately
$72,000 for other expenses related to the Offering. Any such advances shall be applied against the aggregate out-of-pocket accountable
expense allowance, which is capped at $255,000, and any unused portion of the advances will be returned to the Company to the extent
not actually incurred.
In the event that this Agreement
is terminated pursuant to Section 9 hereof, or subsequent to a Material Adverse Effect (as defined in Section 2(g)), the Company
will pay all documented out-of-pocket and unreimbursed expenses of the Underwriters (including fees and disbursements of Underwriters’
counsel) incurred in connection herewith which shall be limited to expenses which are actually incurred as allowed under FINRA Rule 5110
and in any event, the aggregate amount of such expenses to be paid or reimbursed by the Company directly or indirectly to or on behalf
of the Underwriters shall not exceed $75,000.
(b) Survival
and Other Activities. Notwithstanding anything to the contrary contained herein, the Company’s obligation to pay fees actually
earned and payable and to reimburse expenses actually incurred and reimbursable pursuant to Section 1 hereof and which are permitted
to be reimbursed under FINRA Rule 5110(g)(5)(A), will survive any expiration or termination of this Agreement. Nothing in this Agreement
shall be construed to limit the ability of the Underwriters or their Affiliates to pursue, investigate, analyze, invest in, or engage
in investment banking, financial advisory or any other business relationship with Persons (as defined below) other than the Company.
As used herein (i) “Persons” means an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other
entity of any kind and (ii) “Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under
the Securities Act.
Section 2.
Representations, Warranties and Covenants of the Company. The Company hereby represents, warrants and covenants to the Underwriters,
as of the date hereof, and as of the Closing Date, except as set out in the Registration Statement as follows:
(a) Securities
Law Filings. The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration
statement on Form F-1 (Registration File No. [*]) under the Securities Act and the rules and regulations of the Commission
(the “Rules and Regulations”) promulgated thereunder and under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). At the time of the Effective Date, the Registration Statement and amendments met the requirements
of Form F-1 under the Securities Act. The Company will file with the Commission pursuant to Rules 430A and 424(b) under
the Securities Act, a final prospectus included in such registration statement relating to the Offering and the underwriting thereof
and has advised the Representative of all further information (financial and other) with respect to the Company required to be set forth
therein. Such registration statement, including the exhibits thereto, as amended at the date of this Agreement, is hereinafter called
the “Registration Statement”; such prospectus in the form in which it appears in the Registration Statement as amended
at the date of this Agreement is hereinafter called the “Prospectus.” If the Company has filed or files an
abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration
Statement”), then any reference herein to the term Registration Statement shall include such Rule 462 Registration Statement.
Any preliminary prospectus included in the Registration Statement or filed with the Commission under the Securities Act is hereinafter
called a “Preliminary Prospectus.” All references in this Agreement to financial statements and schedules and other
information that is “contained,” “included,” “described,” “referenced,” “set forth”
or “stated” in the Registration Statement, any Preliminary Prospectus or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and schedules and other information that is or is deemed to
be incorporated by reference in the Registration Statement, any Preliminary Prospectus or the Prospectus, as the case may be. The Registration
Statement has been declared effective on the date hereof. The Company shall, prior to the Closing Date, file with the Commission a Form 8-A
providing for the registration under the Exchange Act of the Common Shares.
(b) Assurances.
The Registration Statement (and any further documents to be filed with the Commission) contains all exhibits and schedules as required
by the Securities Act. Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective,
at all other subsequent times until the Closing Date, complied in all material respects with the Securities Act and the applicable Rules and
Regulations and did not and, as amended or supplemented, if applicable, will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (provided, however, that the preceding representations and warranties contained
in this sentence shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in
writing to the Company by the Representative expressly for use therein, which information shall consist solely of (i) the names
of the Underwriters appearing in the Prospectus, (ii) the statement regarding delivery of the Common Shares set forth on the cover
page of the Prospectus, (iii) the securities dealer discount referred to in the second paragraph of the section of the Prospectus
captioned “Underwriting”, (iv) the information set forth in the fourth paragraph of the section of the Prospectus captioned
“Underwriting” and (v) the table showing the number of securities to be purchased by each Underwriter (the “Underwriter
Information”). Each Preliminary Prospectus, as of its date, complies in all material respects with the Securities Act and the
applicable Rules and Regulations. The Prospectus, as of its date, complies in all material respects with the Securities Act and
the applicable Rules and Regulations. As of its date, each Preliminary Prospectus and the Prospectus did not and will not contain
as of the date thereof any untrue statement of a material fact or omit to state a s fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading (provided, however, that the preceding representations
and warranties contained in this sentence shall not apply to any Underwriter Information). All post-effective amendments to the Registration
Statement reflecting facts or events arising after the date thereof which represent, individually or in the aggregate, a fundamental
change in the information set forth therein have been so filed with the Commission. There are no documents required to be filed with
the Commission in connection with the transaction contemplated hereby that (x) have not been filed as required pursuant to the Securities
Act or (y) will not be filed within the requisite time period. The Company is eligible to use “free writing prospectuses”
in connection with the Offering pursuant to Rules 164 and 433 under the Securities Act. Any free writing prospectus that the Company
is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance
with the requirements of the Securities Act and the applicable Rules and Regulations. Each such free writing prospectus that the
Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf
of or used by the Company complies or will comply in all material respects with the requirements of the Securities Act and the applicable
Rules and Regulations. The Company has not and will not, without the prior consent of the Representative, prepare, use or refer
to, any free writing prospectus. Each such free writing prospectus shall be deemed to be included as part of the Registration Statement
for purposes of this Agreement.
(c) Offering
Materials. The Company has delivered, or will as promptly as practicable deliver, to the Underwriters complete conformed copies of
the Registration Statement and of each consent and certificate of experts, as applicable, filed as a part thereof, and conformed copies
of the Registration Statement (without exhibits), any Preliminary Prospectus, any free writing prospectus and the Prospectus, as amended
or supplemented, in such quantities and at such places as the Underwriters reasonably request. Neither the Company nor any of its directors
and officers has distributed and none of them will distribute, prior to the Closing Date, any offering material in connection with the
offering and sale of the Offered Securities other than the Prospectus, the Registration Statement, and any free writing prospectus authorized
in advance by the Representative.
(d) Subsidiaries.
All of the direct and indirect subsidiaries of the Company (the “Subsidiaries”) are described in the Registration
Statement to the extent required by the Rules and Regulations. The Company owns, directly or indirectly, all of its capital stock
or other equity interests of each Subsidiary free and clear of any liens, charges, security interests, encumbrances, rights of first
refusal, preemptive rights or other restrictions (collectively, “Liens”) except as disclosed in the Registration Statement
or the Prospectus, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive or similar rights to subscribe for or purchase securities.
(e) Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing
and in good standing (where applicable) under the laws of the jurisdiction of its incorporation or organization, with the requisite power
and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or material default of any of the provisions of its respective certificate or articles of incorporation, bylaws
or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be,
could not reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of this
Agreement, the Representative’s Warrant or any other agreement or instrument entered into between the Company and the Underwriters
(“Transaction Documents”), (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement or the Offering
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and to the knowledge of the Company, no action, claim,
suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition),
whether commenced or threatened (“Proceeding”) has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(f) Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and the Offering and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and each of the other Transaction Documents and the consummation
by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further
action is required by the Company, the Company’s Board of Directors (the “Board of Directors”) or the Company’s
shareholders in connection therewith other than in connection with the Required Approvals (as defined below). This Agreement and each
other Transaction Document to which it is a party has been duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
(g) No
Conflicts. The execution, delivery and performance by the Company of this Agreement, the other Transaction Documents to which it
is a party and the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s memorandum and articles of association, certificate or articles of incorporation, bylaws or other organizational
or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or
give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding
to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected,
or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such conflict, default or violation could not reasonably be expected to result
in a Material Adverse Effect.
(h) Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of this Agreement, the other Transaction Documents to which it
is a party and the transactions contemplated hereby where the failure to obtain any such consent, waiver, authorization or order of,
give any notice to, or make any filing or registration would not, singularly or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect, other than: (i) the filing with the Commission of the final Prospectus as required by Rule 424
under the Securities Act, (ii) application to the Nasdaq for the listing of the Offered Securities for trading thereon in the time
and manner required thereby and (iii) such filings as are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).
(i) Issuance
of the Securities. The Offered Securities are duly authorized and, when issued and paid for in accordance with this Agreement, the
other Transaction Documents to which it is a party, and the terms of the Offering as described in the Prospectus, will be duly and validly
issued, fully paid and non-assessable, and free and clear of all Liens. The Representative’s Warrant has been duly authorized for
issuance, and the Warrant Shares, when issued, paid for and delivered upon due exercise of the Representative’s Warrant,
will be duly authorized and validly issued, fully paid and nonassessable, free and clear of all Liens. The Company has sufficient authorized
Common Shares for the issuance of the maximum number of Securities issuable pursuant to the Offering as described in the Prospectus.
(j) Capitalization.
The capitalization of the Company is as set forth in the Registration Statement and the Prospectus. The Company has not issued any Common
Shares since [*], 2021, other than (i) [*], (ii) pursuant to the Company’s equity incentive plans as described in the
Registration Statement and the Prospectus (the “Company Incentive Plans”), and (iii) the issuance of Common Shares
to employees, directors or consultants pursuant to the Company Incentive Plans and pursuant to the conversion and/or exercise of any
securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire Common Shares at any time, including,
without limitation, any debt, preferred shares, right, option, warrant or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares (“Ordinary Share Equivalents”)
as described in the Registration Statement and the Prospectus. No Person has any right of first refusal, preemptive right or right of
participation, or any similar right to participate in the transactions contemplated by this Agreement. Except as a result of the purchase
and sale of the Offered Securities or as disclosed in the Registration Statement and the Prospectus, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Common Shares or
the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional Common Shares or Common Share Equivalents or capital stock of any Subsidiary. Except as disclosed
in the Registration statement or the Prospectus, the issuance and sale of the Offered Securities will not obligate the Company or any
Subsidiary to issue Common Shares or other securities to any Person (other than the Underwriters) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. Except as disclosed
in the Registration statement or the Prospectus, there are no securities of the Company or any Subsidiary that have any anti-dilution
rights (other than adjustments for stock splits, recapitalizations, and the like) to the exercise or conversion price, have any exchange
rights, or reset rights. Except as set forth in the Registration Statement, and the Prospectus, there are no outstanding securities or
instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such
Subsidiary. The Company does not have any share appreciation rights or “phantom stock” plans or agreements or any similar
plan or agreement relating to rights in Common Shares. All of the outstanding Common Shares are duly authorized, validly issued, fully
paid and non-assessable, have been issued in compliance in all material respects with all applicable securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further
approval or authorization of any shareholder, the Board of Directors or others is required for the issuance and sale of the Offered Securities.
Except as disclosed in the Registration statement or the Prospectus, there are no shareholders agreements, voting agreements or other
similar agreements with respect to the Common Shares or other securities of the Company to which the Company is a party or, to the knowledge
of the Company, between or among any of the Company’s shareholders.
(k) Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within
the Registration Statement, except as specifically disclosed in the Registration Statement and the Prospectus, (i) there has been
no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to International Financial Reporting Standards as issued by the International Accounting Standards Board
(“IFRS”), or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any Common Shares and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock option plans, if any. The Company does not have pending
before the Commission any request for confidential treatment of information. Except for the issuance of the Offered Securities contemplated
by the Prospectus or as disclosed in the Registration Statement, any Preliminary Prospectus or the Prospectus, no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company
or its Subsidiaries or their respective business, prospects (as such prospects are described in the Prospectus), properties, operations,
assets or financial condition that would be required to be disclosed by the Company under the Securities Act, the Exchange Act or the
Rules and Regulations as of the date of this Agreement that has not been so disclosed under the Securities Act, the Exchange
Act or the Rules and Regulations.
(l) Financial
Statements. The financial statements of the Company, together with the related notes and schedules, included in the Registration
Statement, any Preliminary Prospectus and the Prospectus comply in all material respects with the applicable requirements of the Securities
Act and the Exchange Act and the Rules and Regulations, and fairly present, in all material respects, the financial condition
of the Company as of the dates indicated and the results of operations and changes in cash flows for the periods therein specified in
conformity with IFRS consistently applied throughout the periods involved. No other financial statements or schedules are required under
the Securities Act, the Exchange Act, or the Rules and Regulations to be included in the Registration Statement, any Preliminary
Prospectus and the Prospectus. The pro forma financial statements included in the Registration Statement, any Preliminary Prospectus
and the Prospectus include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to
the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the
pro forma adjustments reflect the proper application of those adjustments to the historical financial statements amounts in the pro forma
financial statements included in the Registration Statement, any Preliminary Prospectus and the Prospectus. The pro forma financial statements
included in the Registration Statement, any Preliminary Prospectus and the Prospectus comply as to form in all material respects with
the application requirements of Regulation S-X under the Exchange Act. No other pro forma financial information or schedules are required
under the Securities Act, the Exchange Act, or the rules and regulations thereunder to be included in the Registration Statement,
any Preliminary Prospectus and the Prospectus.
(m) Litigation.
Except as disclosed in the Registration Statement, any Preliminary Prospectus or the Prospectus, there is no action, suit, proceeding
or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary, any of their
respective properties or any of the Company’s officers or directors before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely
affects or challenges the legality, validity or enforceability of this Agreement or any of the Transaction Documents or the Offering
or the Securities or (ii) could, if there were an unfavorable decision, reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has within the last 10 years been the subject of any
Action involving an order, judgment, decree, or finding of violation of or liability under federal or state securities laws or a claim
of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation
by the Commission involving the Company or any current or former director or officer of the Company.
(n) Labor
Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected
to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement
or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any
of the foregoing matters. The Company and its Subsidiaries are in compliance with all applicable laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could
not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(o) Compliance.
Except as set forth in the Registration Statement, any Preliminary Prospectus or the Prospectus , neither the Company nor any Subsidiary:
(i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of
a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or
has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety
and employment and labor matters, except in each case as could not reasonably be expected to result in a Material Adverse Effect.
(p) Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Prospectus, except
where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(q) Regulatory
Matters. The tests conducted by or on behalf of or sponsored by the Company or its Subsidiaries that are described or referred to
in the Registration Statement, any Preliminary Prospectus and the Prospectus were and, if still pending, are being conducted in accordance
in all material respects with all statutes, laws, rules and regulations, as applicable. Neither the Company nor its Subsidiaries
has received any notices or other correspondence from any foreign, federal, state or local governmental or regulatory authority with
respect to any ongoing tests requiring the termination or suspension of such tests. Except as would not be reasonably expected to result
in a Material Adverse Effect, neither the Company nor any of its Subsidiaries has failed to file with any foreign, federal, state or
local governmental or the applicable regulatory authorities any filing, declaration, listing, registration, report or submission that
is required to be so filed. All such filings were in material compliance with applicable laws when filed and no deficiencies have been
asserted by any applicable regulatory authority with respect to any such filings, declarations, listings, registrations, reports or submissions.
(a) Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good
and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens disclosed in the Registration Statement, any Preliminary Prospectus and
the Prospectus, Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed
to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment
of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries
are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance except
for any breach that could not reasonably be expected to result in a Material Adverse Effect.
(b) Patents
and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and
similar rights necessary or required for use in connection with their respective businesses as described in the Registration Statement
or the Prospectus and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the
Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or be abandoned, within two (2) years
from the date of this Agreement, except where such action would not reasonably be expected to have a Material Adverse Effect. Except
as disclosed in the Registration Statement or the Prospectus, neither the Company nor any Subsidiary has received, since the date of
the latest audited financial statements included within the Registration Statement and the Prospectus, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would
not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company
and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect. The Company has no knowledge that it lacks or will be unable to obtain any rights or licenses to use all Intellectual Property
Rights that are necessary to conduct its business.
(c) Transactions
With Affiliates and Employees. Except as set forth in the Registration Statement, any Preliminary Prospectus and the Prospectus,
none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently
a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company,
any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner,
in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock
option plan of the Company.
(d) No
Undisclosed Contracts. There is no contract or document required by the Securities Act or by the Rules and Regulations to be
described in the Registration Statement or in the Prospectus or to be filed as an exhibit to the Registration Statement which is not
so described or filed therein as required. All descriptions of any such contracts or documents contained in the Registration Statement,
any Preliminary Prospectus and in the Prospectus are accurate and complete descriptions of such documents in all material respects. Other
than as described in the Registration Statement and the Prospectus, no such contract has been suspended or terminated for convenience
or default by the Company or any Subsidiary party thereto or any of the other parties thereto, and neither the Company nor any of its
Subsidiaries has received notice, and the Company has no knowledge, of any such pending or threatened suspension or termination, except
for suspensions or terminations that are not reasonably likely to result in a Material Adverse Effect.
(e) No
Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its Subsidiaries on
the one hand, and the directors, officers, shareholders (or analogous interest holders), customers or suppliers of the Company or any
of its Subsidiaries on the other hand, which is required to be described in or filed as an exhibit to the Registration Statement or the
Prospectus and which is not so described or filed.
(f) Continued
Business. No supplier, customer, distributor or sales agent of the Company or any Subsidiary has notified the Company or
any Subsidiary that it intends to discontinue or decrease the rate of business done with the Company or any Subsidiary,
except where such discontinuation or decrease has not resulted in and could not reasonably be expected to result in a Material Adverse
Effect.
(g) Sarbanes-Oxley;
Accounting and Disclosure Controls. Except as disclosed in the Registration Statement and in the Prospectus, the Company is in compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company as of the
date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of
the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and to maintain
asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization,
and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
(h) Certain
Fees, FINRA Affiliation. Except as set forth herein and in the Registration Statement and the Prospectus, no brokerage or finder’s
fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. Except as
set forth in the Registration Statement, and the Prospectus, to the Company’s knowledge, there are no other arrangements, agreements
or understandings of the Company or, to the Company’s knowledge, any of its stockholders that may affect the Underwriters’
compensation, as determined by FINRA. Except as already disclosed to the Representative, Company has not made any direct or indirect
payments (in cash, securities or otherwise) to (i) any person, as a finder’s fee, investing fee or otherwise, in consideration
of such person raising capital for the Company or introducing to the Company persons who provided capital to the Company, (ii) any
FINRA member, or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member within
the 12-month period prior to the date on which the Registration Statement was filed with the Commission (the “Filing Date”)
or thereafter. To the Company’s knowledge, no (i) officer or director of the Company or its subsidiaries, (ii) owner
of 10% or more of the Company’s unregistered securities or that of its subsidiaries or (iii) owner of any amount of the Company’s
unregistered securities acquired within the 180-day period prior to the Filing Date, has any direct or indirect affiliation or association
with any FINRA member. The Company will advise the Representative if it becomes aware that any officer, director or stockholder of the
Company or its Subsidiaries is or becomes an affiliate or associated person of a FINRA member participating in the Offering.
(i) Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Offered Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
(j) Registration
Rights. No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the
Company.
(k) Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company
of the proceeds from the sale of the Offered Securities hereunder, the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, are sufficient
to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in
respect of its debt). Except as set forth in the Registration Statement and the Prospectus, the Company has no knowledge of any facts
or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The Registration Statement and the Prospectus sets forth as of the date
provided therein under the “Capitalization” section all outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of
business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance
with IFRS. Except as set forth in the Registration Statement and the Prospectus, neither the Company nor any Subsidiary is in default
with respect to any Indebtedness.
(l) Tax
Status. Except for matters that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary (i) has made or filed all income and franchise tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company or of any Subsidiary know of no basis for any such claim.
(m) Auditors.
BF Borgers CPA PC (the “Auditor”) is the Company’s independent registered public accounting firm. To
the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange
Act and (ii) has expressed its opinion with respect to the financial statements of the Company and its subsidiaries for the periods
filed with the Registration Statement or the Prospectus.
(n) Office
of Foreign Assets Control. Neither the Company nor any of its Subsidiaries, nor, to the knowledge of the Company, any director
or officer of the Company or any Subsidiary, or any employee, representative, agent or affiliate of the Company or any of its Subsidiaries
or any other person acting on behalf of the Company or any of its Subsidiaries is currently subject to any U.S. sanctions administered
by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”), and the Company will not directly
or indirectly use the proceeds of the offering of the Securities contemplated hereby, or lend, contribute or otherwise make available
such proceeds to any person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions
administered by OFAC.
(o) Insurance.
The Company and each of its Subsidiaries carries, or is covered by, insurance in such amounts and covering such risks as, in the Company’s
reasonable belief, is adequate for the conduct of its business and the value of its properties.
(p) Company
Not Ineligible Issuer. (i) At the time of filing the Registration Statement relating to the Offered Securities and (ii) as
of the date of the execution and delivery of this Agreement (with such date being used as the determination date for purposes of this
clause (ii)), the Company met all the requirements set forth in General Instruction I of Form F-1.
(q) Emerging
Growth Company. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier,
the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters
Communications) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of
the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any
oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(r) Forward-Looking
Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act) contained in either the Registration Statement, any Preliminary Prospectus or the Prospectus has been made or reaffirmed
without a reasonable basis or has been disclosed other than in good faith.
(s) Statistical
or Market-Related Data. Any statistical, industry-related and market-related data included or incorporated by reference in the Registration
Statement, any Preliminary Prospectus or the Prospectus, are based on or derived from sources that the Company reasonably and in good
faith believes to be reliable and accurate, and such data agree with the sources from which they are derived.
(t) Listing
and Maintenance Requirements. The Securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Securities under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements. The Offered Securities are currently eligible for electronic transfer through the
Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository
Trust Company (or such other established clearing corporation) in connection with such electronic transfer. The issuance and sale of
the Securities hereunder does not contravene the rules and regulations of Nasdaq.
(u) Foreign
Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company,
has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related
to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees
or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated
in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.
(v) Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Offered Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases
of, any of the Offered Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Underwriters in
connection with the Offering.
(w) Testing
the Waters Communications. The Company (a) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters
Communications with the consent of the Representative with entities that are qualified institutional buyers within the meaning of Rule 144A
under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and
(b) has not authorized anyone other than the Underwriters to engage in Testing-the-Waters Communications. The Company reconfirms
that the Underwriters have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not
distributed any Written Testing-the-Waters Communications.
(x) Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable
financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable
money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”),
and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company
or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(y) Certificates.
Any certificate signed by an officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to the Underwriters as to the matters set forth therein.
(z) Reliance.
The Company acknowledges that the Underwriters will rely upon the accuracy and truthfulness of the foregoing representations and warranties
and hereby consents to such reliance.
Section 3.
Delivery and Payment.
(a) On
the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth,
the Company agrees to issue and sell the Firm Shares to the Underwriters, and the Underwriters agree to purchase the Firm Shares. The
purchase price for each Firm Share shall be $[*] per share (the “Per Share Price”).
(b) The
Company hereby grants to the Representative the option to purchase some or all of the Option Shares, and, upon the basis of the warranties
and representations and subject to the terms and conditions herein set forth, the Underwriters shall have the right to purchase all or
any portion of the Option Shares at the Per Share Price as may be necessary to cover over-allotments made in connection with the transactions
contemplated hereby. This option may be exercised by the Representative at any time (but not more than once) on or before the forty-fifth
(45th) day following the date of the Prospectus, by written notice to the Company (the “Option Notice”).
The Option Notice shall set forth the aggregate number of Option Shares as to which the option is being exercised, and the date and time
when the Option Shares are to be delivered (such date and time being herein referred to as the “Option Closing Date”);
provided, however, that the Option Closing Date shall not be earlier than the Closing Date (as defined below) nor earlier than
the first business day after the date on which the option shall have been exercised nor later than the fifth business day after the date
on which the option shall have been exercised unless the Company and the Representative otherwise agree. Payment of the purchase
price for and delivery of the Option Shares shall be made at the Option Closing Date in the same manner and at the same office as the
payment for the Firm Shares as set forth in subparagraph (c) below.
(c) The
Firm Shares will be delivered by the Company to the Representative against payment of the purchase price therefor by wire transfer of
same day funds payable to the order of the Company’s offices, or such other location as may be mutually acceptable, at a mutually
agreeable time, on the second (or if the Firm Shares are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act,
after 4:30 p.m. Eastern Time, the third) full business day following the date hereof, or at such other time and date as the Representative
and the Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, or, in the case of the Option Shares, at such
date and time set forth in the Option Notice. The time and date of delivery of the Firm Shares or the Option Shares, as applicable, is
referred to herein as the “Closing Date.” If the Representative so elects, delivery of the Firm Shares and Option
Shares may be made by credit through full fast transfer to the account at The Depository Trust Company designated by the Representative.
Section 4.
Covenants and Agreements of the Company. The Company further covenants and agrees with the Underwriters as follows:
(a) Registration
Statement Matters. The Registration Statement and any amendments thereto have been declared effective, and if Rule 430A is used
or the filing of the Prospectus is otherwise required under Rule 424(b), the Company will file the Prospectus (properly completed
if Rule 430A has been used) pursuant to Rule 424(b) within the prescribed time period and will provide evidence satisfactory
to the Representative of such timely filing. The Company will advise the Representative promptly after they receive notice thereof of
the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement or amendment to the Prospectus
has been filed and will furnish the Representative with copies thereof. The Company will file promptly all reports and any definitive
proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 14 or 15(d) of
the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with
the Offering. The Company will advise the Representative promptly after it receives notice thereof (i) of any request by the Commission
to amend the Registration Statement or to amend or supplement the Prospectus or for additional information, and (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto
or any order preventing or suspending the use of the Prospectus or any amendment or supplement thereto or any post-effective amendment
to the Registration Statement, of the suspension of the qualification of the Offered Securities for offering or sale in any jurisdiction,
of the institution or threatened institution of any proceeding for any such purpose, or of any request by the Commission for the amending
or supplementing of the Registration Statement, any Preliminary Prospectus or the Prospectus or for additional information. The Company
shall use its commercially reasonable efforts to prevent the issuance of any such stop order or prevention or suspension of such use.
If the Commission shall enter any such stop order or order or notice of prevention or suspension at any time, the Company will use its
commercially reasonable efforts to obtain the lifting of such order at the earliest possible moment, or will file a new registration
statement and use commercially reasonable efforts to have such new registration statement declared effective as soon as practicable.
Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A, 430B and 430C, as applicable, under
the Securities Act, including with respect to the timely filing of documents thereunder, and will use commercially reasonable efforts
to confirm that any filings made by the Company under such Rule 424(b) are received in a timely manner by the Commission.
(b) Blue
Sky Compliance. The Company will cooperate with the Representative in endeavoring to qualify the Offered Securities for sale under
the securities laws of such jurisdictions (United States and foreign) as the Representative may reasonably request and will make such
applications, file such documents, and furnish such information as may be reasonably required for that purpose; provided the
Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction
where it is not now so qualified or required to file such a consent; and provided further that the Company shall not
be required to produce any new disclosure document other than the Prospectus. The Company will, from time to time, prepare and file such
statements, reports and other documents as are or may be required to continue such qualifications in effect for so long a period as the
Representative may reasonably request for distribution of the Offered Securities. The Company will advise the Representative promptly
of the suspension of the qualification or registration of (or any such exemption relating to) the Offered Securities for offering, sale
or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the Company shall use its commercially reasonable efforts to obtain
the withdrawal thereof at the earliest possible moment.
(c) Amendments
and Supplements to the Prospectus and Other Matters. The Company will comply with the Securities Act and the Exchange Act, and the
rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Offered Securities
as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered in
connection with the distribution of Offered Securities contemplated by the Prospectus (the “Prospectus Delivery Period”),
any event shall occur as a result of which, in the judgment of the Company or in the opinion of the Representative or counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, as the case may be, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company will promptly prepare and file with the Commission, and furnish at its own expense
to the Underwriters and to any dealers, an appropriate amendment to the Registration Statement or supplement to the Registration Statement,
any Preliminary Prospectus or the Prospectus that is necessary in order to make the statements in the Prospectus as so amended or supplemented,
in the light of the circumstances under which they were made, as the case may be, not misleading, or so that the Registration Statement,
any Preliminary Prospectus or the Prospectus, as so amended or supplemented, will comply with law. Before amending the Registration Statement
or supplementing the Prospectus in connection with the Offering, the Company will furnish the Representative with a copy of such proposed
amendment or supplement and will not file any such amendment or supplement to which the Representative reasonably objects; the Representative
and its counsel shall have a reasonable amount of time to review and return any comments to the Company.
(d) Copies
of any Amendments and Supplements to the Prospectus. The Company will furnish the Underwriter, without charge, during the period
beginning on the date hereof and ending on the final Closing Date of the Offering, as many copies of the Prospectus and any amendments
and supplements thereto as the Representative may reasonably request.
(e) Free
Writing Prospectus. The Company covenants that it has not and will not, unless it has obtained or will obtain the prior consent of
the Representative, make any offer relating to the Offered Securities that would constitute a “free writing prospectus” (as
defined in Rule 405 of the Securities Act) required to be filed by the Company with the Commission or retained by the Company under
Rule 433 of the Securities Act. In the event that the Representative expressly consents in writing to any such free writing prospectus
(a “Permitted Free Writing Prospectus”), the Company covenants that it shall (i) treat each Permitted Free Writing
Prospectus as a Company Free Writing Prospectus, and (ii) comply with the requirements of Rule 164 and 433 of the Securities
Act applicable to such Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record
keeping.
(f) Registration.
The Company shall use commercially reasonable efforts to maintain the effectiveness of the Registration Statement and a current Prospectus
relating thereto for as long as the Securities remain outstanding. During any period when the Company fails to have maintained an effective
Registration Statement or a current Prospectus relating thereto and a holder of a Representative’s Warrant desires to exercise
such warrants and, in the opinion of counsel to the holder, Rule 144 is not available as an exemption from registration for the
resale of the Warrant Shares, the Company shall promptly file a registration statement registering the resale of the Warrant Shares and
use commercially reasonable efforts to have it declared effective by the Commission within ninety (90) days.
(g) Transfer
Agent. The Company will maintain, at its expense, a registrar and transfer agent for its Common Shares for so long as the Common
Shares are publicly-traded.
(h) Earnings
Statement. As soon as practicable and in accordance with applicable requirements under the Securities Act, but in any event not later
than 18 months after the last Closing Date, the Company will make generally available to its security holders and to the Representative
an earnings statement, covering a period of at least 12 consecutive months beginning after the last Closing Date, that satisfies the
provisions of Section 11(a) and Rule 158 under the Securities Act.
(i) Periodic
Reporting Obligations. During the Prospectus Delivery Period, the Company will duly file, on a timely basis, with the Commission
all reports and documents required to be filed under the Exchange Act within the time periods and in the manner required by the Exchange
Act.
(j) No
Manipulation of Price. The Company has not taken and will not take, directly or indirectly, any action designed to cause or result
in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities
of the Company.
(k) Company
Lock-Up.
(i) The
Company will not, without the prior written consent of the Representative, from the date of execution of this Agreement and continuing
for a period of 12 months from the date on which the trading of the Common Shares the Nasdaq commences (the “Lock-Up Period”):
(i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
or file with the Commission a registration statement under the Securities Act relating to, Common Shares or Ordinary Share Equivalents,
or modify the terms of any existing securities, or (ii) enter into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Common Shares or any Ordinary Share Equivalents, whether any such transaction described
in clause (i) or (ii) above is to be settled by delivery of Common Shares or any Ordinary Share Equivalents, in cash or otherwise,
except to the Underwriters pursuant to this Agreement. The Company agrees not to accelerate the vesting of any option or warrant or the
lapse of any repurchase right prior to the expiration of the Lock-Up Period.
(ii) The
restrictions contained in Section 4(k)(i) hereof shall not apply to: (A) the Offered Securities, (B) any Common Shares
previously issued under Company Incentive Plans as described as outstanding in the Registration Statement and the Prospectus, (C) any
options and other awards granted under a Company Incentive Plan or Common Shares issued pursuant to an employee stock purchase plan,
in each case, as described in the Registration Statement and the Prospectus, and (D) Common Shares or other securities issued in
connection with a transaction with an unaffiliated third party that includes a bona fide commercial relationship (including joint ventures,
marketing or distribution arrangements, collaboration agreements or intellectual property license agreements) or any acquisition of assets
or acquisition of not less than a majority or controlling portion of the equity of another entity; provided that (x) the aggregate
number of Common Shares issued pursuant to clause (D) shall not exceed five percent (5%) of the total number of outstanding Common
Shares immediately following the issuance and sale of the Offered Securities pursuant to this Agreement and (y) the recipient of
any such Common Shares or other securities issued or granted pursuant to clauses (B), (C) and (D) during the Lock-Up Period
shall enter into an agreement substantially in the form of Exhibit A hereto.
(l) Acknowledgment.
The Company acknowledges that any advice given by any of the Underwriters to the Company is solely for the benefit and use of the Board
of Directors of the Company and may not be used, reproduced, disseminated, quoted or referred to, without such Underwriter’s prior
written consent.
Section 5.
Conditions of the Obligations of the Underwriters. The obligations of the Underwriters hereunder shall be subject to the accuracy
of the representations and warranties on the part of the Company set forth in Section 2 hereof, in each case as of the date hereof
and as of the Closing Date as though then made, to the timely performance by each of the Company of its covenants and other obligations
hereunder on and as of such dates, and to each of the following additional conditions:
(a) Accountants’
Comfort Letter. On the date hereof, the Representative shall have received, and the Company shall have caused to be delivered to
the Representative, a letter from the Auditor addressed to the Representative, dated as of the date hereof, in form and substance satisfactory
to the Representative. The letter shall not disclose any change in the condition (financial or other), earnings, operations, business
or prospects of the Company from that set forth in the Prospectus, which, in the Representative’s sole judgment, is material and
adverse and that makes it, in the Representative’s sole judgment, impracticable or inadvisable to proceed with the Offering of
the Offered Securities as contemplated by the Prospectus.
(b) Bring-down
Comfort Letter. On the Closing Date, the Representative shall have received from the Auditor a letter dated as of such Closing Date,
in form and substance satisfactory to the Representative, to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to such Closing Date.
(c) Compliance
with Registration Requirements; No Stop Order; No Objection from FINRA. The Registration Statement shall have become effective and
all necessary regulatory and listing approvals shall have been received not later than 5:30 P.M., New York City time, on the date of
this Agreement, or at such later time and date as shall have been consented to in writing by the Representative. The Prospectus (in accordance
with Rule 424(b)) and any Permitted Free Writing Prospectus shall have been duly filed with the Commission in a timely fashion in
accordance with the terms thereof. At or prior to the Closing Date and the actual time of the Closing, no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated
or threatened by the Commission; no order preventing or suspending the use of the Prospectus shall have been issued and no proceeding
for that purpose shall have been initiated or threatened by the Commission; no order having the effect of ceasing or suspending the distribution
of the Offered Securities or any other securities of the Company shall have been issued by any securities commission, securities regulatory
authority or stock exchange and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, contemplated by any securities commission, securities regulatory authority or stock exchange; all requests for additional
information on the part of the Commission shall have been complied with; and the FINRA shall have raised no objections to the fairness
and reasonableness of the placement terms and arrangements.
(d) Corporate
Proceedings. All corporate proceedings and other legal matters in connection with this Agreement, the Registration Statement and
the Prospectus, and the registration, sale and delivery of the Offered Securities, shall have been completed or resolved in a manner
reasonably satisfactory to the Underwriters’ counsel.
(e) No
Material Adverse Effect. Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, in the Underwriter’s
sole judgment after consultation with the Company, there shall not have occurred any Material Adverse Effect.
(f) Opinion
of Counsel for the Company. The Representative shall have received on the Closing Date the favorable opinion and negative assurances
statement of Rimon, P.C., counsel to the Company, dated as of such Closing Date, including, without limitation, a customary negative
assurance letter, addressed to the Representative in customary form reasonably satisfactory to the Representative. The Underwriters and
Rimon, P.C., shall be entitled to rely on the opinion of each of the Company’s Republic of Malta, United Kingdom, Kingdom of Lesotho,
and Canadian counsel filed as Exhibit 5.1 to the Registration Statement, as to the due incorporation, validity of the Securities
and due authorization, execution and delivery of the Agreement.
(g) Opinion
of Canadian Counsel for the Company. The Representative shall have received on the Closing Date the favorable opinion of Dentons
Canada LLP, Canadian counsel to the Company, dated as of such Closing Date, including, without limitation, a customary negative
assurance letter, addressed to the Representative in customary form reasonably satisfactory to the Representative.
(h) Opinions
of Other Counsels for the Company’s Subsidiaries. The Representative shall have received on the Closing Date the favorable
opinions of each of [*], the Company’s Republic of Malta counsel,1
Dentons & Co., the Company’s United Kingdom counsel, and Kleingeld & Mayet, the Company’s
Kingdom of Lesotho counsel, dated as of such Closing Date, for the Company’s subsidiaries, including, without limitation, a customary
negative assurance letter, addressed to the Representative in customary form reasonably satisfactory to the Representative.
(i) Officers’
Certificate. The Representative shall have received on the Closing Date a certificate of the Company, dated as of such Closing Date,
signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and the Representative shall be
satisfied that, the signers of such certificate have reviewed the Registration Statement and the Prospectus, and this Agreement and to
the further effect that:
(i) The
representations and warranties of the Company in this Agreement are true and correct, as if made on and as of such Closing Date, and
the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior
to such Closing Date;
(ii) No
stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus has been issued and no proceedings
for that purpose have been instituted or are pending or, to the Company’s knowledge, threatened under the Securities Act; no order
having the effect of ceasing or suspending the distribution of the Offered Securities or any other securities of the Company has been
issued by any securities commission, securities regulatory authority or stock exchange in the United States and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the Company, contemplated by any securities commission, securities
regulatory authority or stock exchange in the United States;
(iii) Subsequent
to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been: (a) any
Material Adverse Effect; (b) any transaction that is material to the Company and the Subsidiaries taken as a whole, except transactions
entered into in the ordinary course of business; (c) any obligation, direct or contingent, that is material to the Company and the
Subsidiaries taken as a whole, incurred by the Company or any Subsidiary, except obligations incurred in the ordinary course of business;
(d) any material change in the capital stock (except changes thereto resulting from the exercise of outstanding options or warrants
or conversion of outstanding indebtedness into Common Shares) or outstanding indebtedness of the Company or any Subsidiary (except for
the conversion of such indebtedness into Common Shares); (e) any dividend or distribution of any kind declared, paid or made on
Common Shares; or (f) any loss or damage (whether or not insured) to the property of the Company or any Subsidiary which has been
sustained or will have been sustained which has a Material Adverse Effect.
(j) Secretary’s
Certificate. As of the Closing Date the Representative shall have received a certificate of the Company signed by the Secretary of
the Company, dated the Closing Date, certifying: (i) that each of the Company’s articles of incorporation and bylaws attached
to such certificate is true and complete, has not been modified and is in full force and effect; (ii) that each of the Subsidiaries
articles of incorporation and bylaws or charter documents attached to such certificate is true and complete, has not been modified and
is in full force and effect; (iii) that the resolutions of the Company’s Board of Directors relating to the Offering attached
to such certificate are in full force and effect and have not been modified; and (iv) the good standing of the Company and each
of the Subsidiaries, but only to the extent good standing is a concept applicable in the jurisdiction of formation of a Subsidiary. The
documents referred to in such certificate shall be attached to such certificate.
1 To confirm who is the Malta counsel that has worked for
the Malta entity.
(i) Additional
Documents. On or before the Closing Date, the Representative and counsel for the Underwriters shall have received such customary
information and documents as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the
Offered Securities as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the Representative by notice to the Company at any time on
or prior to the Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 6
(Payment of Expenses), Section 7 (Indemnification and Contribution) and Section 8 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
(j) Subsequent
to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been any change in
the capital stock or long-term debt of the Company (other than as described in the Registration Statement, any Preliminary Prospectus
or the Prospectus) or any change or development involving a change, whether or not arising from transactions in the ordinary course of
business, in the business, condition (financial or otherwise), results of operations, shareholders’ equity, properties or prospects
of the Company, taken as a whole, including but not limited to the occurrence of any fire, flood, storm, explosion, accident, act of
war or terrorism or other calamity, the effect of which, in any such case described above, is, in the sole judgment of the Representative,
so material and adverse as to make it impracticable or inadvisable to proceed with the sale of Offered Securities or Offering as contemplated
hereby.
(k) Subsequent
to the execution and delivery of this Agreement and up to a Closing Date, there shall not have occurred any of the following: (i) trading
in securities generally on the Nasdaq or any of the New York Stock Exchange, the NYSE American, or any tier of the markets operated by
OTC Markets Group, Inc. shall not have commenced, (ii) a banking moratorium shall have been declared by federal or state authorities
or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, (iii) the
United States shall have become engaged in hostilities in which it is not currently engaged, the subject of an act of terrorism, there
shall have been an escalation in hostilities involving the United States, or there shall have been a declaration of a national emergency
or war by the United States, or (iv) there shall have occurred any other calamity or crisis or any actual or prospective change
in general economic, political or financial conditions in the United States or elsewhere, if the effect of any such event in clause (ii) or
(iv) makes it, in the sole judgment of the Representative, impracticable or inadvisable to proceed with the sale or delivery of
the Offered Securities on the terms and in the manner contemplated by the Prospectus.
(l) The
Representative shall have received a lock-up agreement from each person or entity set forth on Schedule A (each, a “Lock-Up
Party”), duly executed by the applicable Lock-Up Party, in each case substantially in the form attached as Schedule
B.
(m) No
action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state
or foreign governmental or regulatory authority that would, as of the Closing Date, prevent the issuance or sale of the Offered Securities;
and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date, prevent
the issuance or sale of the Offered Securities or materially and adversely affect or potentially materially and adversely affect the
business or operations of the Company.
If any of the conditions
specified in this Section 5 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to the Representative or to Underwriters’ counsel pursuant to this Section 5
shall not be reasonably satisfactory in form and substance to the Representative and to Underwriters’ counsel, all obligations
of the Underwriters hereunder may be cancelled by the Representative at, or at any time prior to, the consummation of the Offering. Notice
of such cancellation shall be given to the Company in writing.
Section 6.
Payment of Company Expenses. The Company agrees to pay all costs, fees and expenses incurred by the Company in connection
with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including, without limitation:
(i) all expenses incident to the issuance, delivery and qualification of the Offered Securities (including all printing and engraving
costs); (ii) all fees and expenses of the registrar and transfer agent of the Offered Securities; (iii) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale of the Offered Securities; (iv) all fees and expenses of
the Company’s counsel, independent public or certified public accountants and other advisors; (v) all costs and expenses incurred
in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), the Prospectus, and all amendments and supplements thereto, and this Agreement;
(vi) all filing fees, reasonable attorneys’ fees and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Offered Securities
for offer and sale under the state securities or blue sky laws or the securities laws of any other country, and, if reasonably requested
by the Representative, preparing and printing a “Blue Sky Survey,” an “International Blue Sky Survey” or other
memorandum, and any supplements thereto, advising any of the Representative of such qualifications, registrations and exemptions; (vii) if
applicable, the filing fees incident to the review and approval by the FINRA of the Underwriters’ participation in the offering
and distribution of the Offered Securities; (viii) the fees and expenses associated with including the Offered Securities on the
Nasdaq; and (ix) all costs and expenses incident to the travel and accommodation of the Company’s employees on the “roadshow,”
as described in Section 1(a)(iv) of this Agreement.
Section 7.
Indemnification and Contribution.
(a) The
Company agrees to indemnify, defend and hold harmless the Underwriters, their respective affiliates, directors and officers and employees,
and each person, if any, who controls the Underwriters within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (each an “Underwriter Indemnified Party”), from and against any losses, claims, damages or liabilities
(including in settlement of any litigation if such settlement is effected with the prior written consent of the Company) arising out
of (i) an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the
information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A
and 430B of the Securities Act Regulations, or arise out of or are based upon the omission from the Registration Statement, or alleged
omission to state therein, a material fact required to be stated therein or necessary to make the statements therein not misleading;
or (ii) an untrue statement or alleged untrue statement of a material fact contained in the Prospectus, or any amendment or supplement
thereto, or in any other materials used in connection with the Offering, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and will reimburse such Underwriter Indemnified Party for any legal or other expenses reasonably
incurred by it in connection with evaluating, investigating or defending against such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action
arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or, in reliance upon and in conformity with the Underwriter Information.
The indemnification obligations under this Section 7(a) are not exclusive and will be in addition to any liability
which the Company might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity
to each Underwriter Indemnified Party.
(b) The
Underwriters will indemnify, defend and hold harmless the Company, its affiliates, directors, officers and employees, and each person,
if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each
a “Company Indemnified Party”), from and against any losses, claims, damages or liabilities to which such Company
Indemnified Party may become subject, under the Securities Act or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Representative), insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with the Underwriter
Information, and will reimburse such Company Indemnified Party for any legal or other expenses reasonably incurred by it in connection
with defending against any such loss, claim, damage, liability or action. The indemnification obligations under this Section 7(b) are
not exclusive and will be in addition to any liability which the Underwriters might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to each Company Indemnified Party.
(c) Promptly
after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof, but the failure to notify the indemnifying party shall not relieve the indemnifying party
from any liability that it may have to any indemnified party except to the extent such indemnifying party has been materially prejudiced
by such failure. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of the indemnifying party’s election so to assume
the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, that if (i) the
indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available to the indemnifying party, (ii) a conflict or potential conflict
exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iii) the
indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the action, the indemnified party shall have the right to employ
a single counsel to represent it in any claim in respect of which indemnity may be sought under subsection (a) or (b) of this
Section 7, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the indemnified party as incurred.
(d) The
indemnifying party under this Section 7 shall not be liable for any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending
or threatened action, suit or proceeding in respect of which any indemnified party is a party or could be named and indemnity was or
would be sought hereunder by such indemnified party, unless such settlement, compromise or consent (i) includes an unconditional
release of such indemnified party from all liability for claims that are the subject matter of such action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Notwithstanding
the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel pursuant to Section 7(c), such indemnifying party agrees that it shall be liable for any settlement
effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed such indemnified party in accordance with
such request prior to the date of such settlement.
(e) If
the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection
(a) or (b) above, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from
the offering and sale of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total
net proceeds from the Offering (before deducting expenses) received by the Company bear to the total cash fees received by the Underwriters.
The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters
and the parties’ relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement
or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection
(e) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this subsection
(e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence
of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending against any action or claim that is the subject of this subsection (e). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(f) For
purposes of this Agreement, the Representative confirms, and the Company acknowledges, that there is no information concerning the Underwriters
furnished in writing to the Company by the Underwriters specifically for preparation of or inclusion in the Registration Statement, any
Preliminary Prospectus or the Prospectus other than the Underwriter Information.
Section 8.
Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and
other statements of the Company or any person controlling the Company, of its officers, and of the Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriters,
the Company, or any of its or their respective affiliates, officers or directors or any controlling person, as the case may be, and will
survive delivery of and payment for the Offered Securities sold hereunder and any termination of this Agreement. A successor to the Underwriters,
or to the Company, its directors or officers or any person controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Agreement.
Section 9. Termination.
(a) This
Agreement shall become effective upon the mutual execution of this Agreement by the Company and the Representative. The Representative
shall have the right to terminate this Agreement by giving written notice to the Company at any time prior to the Closing Date if: (i) any
domestic or international event or act or occurrence has materially disrupted, or in the reasonable opinion of the Representative will
in the immediate future materially disrupt, the market for the Company’s securities or securities in general; or (ii) trading
on Nasdaq has been rejected by Nasdaq or made subject to material limitations, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices for securities have been required, on the Nasdaq or by order of the Commission, FINRA or any other governmental
authority having jurisdiction; or (iii) a banking moratorium has been declared by any state or federal authority or any material
disruption in commercial banking or securities settlement or clearance services has occurred; or (iv) (A) there has occurred
any outbreak or escalation of hostilities or acts of terrorism involving the United States, Canada, Malta, the United Kingdom or the
Kingdom of Lesotho or there is a declaration of a national emergency or war by the United States, Canada, Malta, the United Kingdom or
the Kingdom of Lesotho or (B) there has been any other calamity or crisis or any change in political, financial or economic conditions,
if the effect of any such event in (A) or (B), in the reasonable judgment of the Representative, is so material and adverse that
such event makes it impracticable or inadvisable to proceed with the Offering, sale and delivery of the Securities on the terms and in
the manner contemplated by the Prospectus.
(b) Any
notice of termination pursuant to this Section 9 shall be in writing.
(c) If
this Agreement shall be terminated pursuant to any of the provisions hereof, or if the sale of the Securities provided for herein is
not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will,
subject to demand by the Representative, reimburse the Underwriters for only the reasonable fees and expenses of their counsel actually
incurred by the Underwriters in connection herewith as allowed under FINRA Rule 5110, less any amounts previously paid by the Company,
subject to the cap on expenses set forth in Section 1(a)(iv) hereof. To the extent that the Underwriters’ out-of-pocket
expenses are less than the sums already advanced by the Company to the Underwriter (“Advances”), the Underwriters
will return to the Company that portion of the Advances not offset by actual expenses.
Section 10.
Right of First Refusal. The Company hereby grants the Representative a right of first refusal (“Right
of First Refusal”) for one (1) year from the date of consummation of the Offering or the termination or expiration of
the Company’s engagement of the Representative, to act as underwriter, placement agent or financial advisor (or to act as joint
underwriter, placement agent or financial advisor on at least equal economic terms) in connection with any public or private financings
in the United States (debt or equity, and including self-underwritten offerings), merger, business combination, recapitalization or sale
of some or all of the equity or assets of the Company or any of its Subsidiaries out of the ordinary course of business (collectively,
“Future Services”); provided, however, that the Representative shall not be entitled to have such Right of
First Refusal if no Offering is consummated. The Company shall notify the Representative in writing of its intention to pursue an activity
that would enable the Representative to exercise its Right of First Refusal to provide Future Services. In the event the Company notifies
the Representative of its intention to pursue an activity that would enable the Representative to exercise its Right of First Refusal
to provide Future Services, the Representative shall notify the Company of its election to provide such Future Services, including notification
of the compensation and other terms to which the Representative claims to be entitled, within thirty (30) days of written notice by the
Company. In the event the Company engages the Representative to provide such Future Services, the Representative will be compensated
consistent with Section 2 of that certain engagement letter between the Company and the Representative, dated September 8,
2020 (as amended, the “Engagement Letter”), unless mutually agreed otherwise by the Company and the Representative.
To the extent the Company is approached by a third party (“Third Party Advisor”) to lead any public or private financing
(debt or equity), merger, business combination, recapitalization or sale of some or all of the equity or assets of the Company, Boustead
will be notified of the transaction and be granted the right to participate in such transaction under any syndicate formed by the Third
Party Advisor.
Section 11.
Notices. All communications hereunder shall be in writing and shall be mailed, hand delivered, delivered by reputable overnight
courier (i.e., Federal Express) or delivered by facsimile or e-mail transmission to the parties hereto as follows:
If to the Representative, then to:
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
Attn: Keith Moore
Email: keith@boustead1828.com
With a copy (which shall
not constitute notice) to:
Bevilacqua PLLC
1050 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
Attn: Louis A. Bevilacqua, Esq.
Email: lou@bevilacquapllc.com
If to the Company:
Akanda Corp.
1a, 1b Learoyd Road
New
Romney TN28 8XU, United Kingdom Attn: Tejinder Virk
Email:
tej@akandacorp.com
With copies (which shall not constitute notice) to:
Rimon, P.C.
423 Washington Street, Suite 600
San Francisco, CA 94111
Attn: Mark C. Lee
Email: mark.c.lee@rimonlaw.com
Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, Ontario M5K 0A1 Canada
Attn: Eric Foster
Email: eric.foster@dentons.com
Any party hereto may change
the address for receipt of communications by giving written notice to the others.
Section 12.
Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, and to the benefit of the
employees, officers and directors and controlling persons referred to in Section 7 hereof, and to their respective successors, and
personal assigns, and no other person will have any right or obligation hereunder.
Section 13.
Partial Unenforceability. The invalidity or unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and
only such minor changes) as are necessary to make it valid and enforceable.
Section 14.
Governing Law; Venue; Agent for Service; Waiver of Jury Trial. This Agreement shall be deemed to have been made and delivered
in New York and both this Agreement and the transactions contemplated hereby shall be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of New York, without regard to the conflict of laws principles thereof.
Each of the Underwriters and the Company: (i) agrees that any legal suit, action or proceeding arising out of or relating to this
Agreement and/or the transactions contemplated hereby shall be instituted exclusively in New York Supreme Court, County of New York,
or in the United States District Court for the Southern District of New York, (ii) waives any objection which it may now or hereafter
have to the venue of any such suit, action or proceeding, and (iii) irrevocably consents to the jurisdiction of the New York Supreme
Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding.
Each of the Underwriters and the Company further agrees to accept and acknowledge service of any and all process which may be served
in any such suit, action or proceeding in the New York Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York and agrees that service of process upon the Company mailed by certified mail to the Company’s
address shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding, and service
of process upon an Underwriter mailed by certified mail to such Underwriter’s address shall be deemed in every respect effective
service process upon such Underwriter, in any such suit, action or proceeding. The Company hereby appoints C T Corporation System, as
its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising
out of or based upon the Transaction Documents or the transactions contemplated herein which may be instituted in any court referred
to above. The Company hereby represents and warrants that the Authorized Agent (i) is validly existing and can lawfully accept such
services of process and (ii) has accepted such appointment and has agreed to act as said agent for service of process, and the Company
agrees to take any and all action, including the filing of any and all documents that may be necessary to continue such appointment in
full force and effect as aforesaid. The Company hereby authorizes and directs the Authorized Agent to accept such service. Service of
process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Company. If the Authorized
Agent shall cease to act as agent for service of process, the Company shall appoint, without unreasonable delay, another such agent in
the United States, and notify the Representative of such appointment. This paragraph shall survive any termination of this Agreement,
in whole or in part. The Company agrees that a final judgment in any such action, proceeding or counterclaim brought in any such court
shall be conclusive and binding upon the Company and may be enforced in any other courts to the jurisdiction of which the Company is
or may be subject, by suit upon such judgment. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE AND AGREES NOT TO REQUEST
A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Section 15.
General Provisions.
(a) This
Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings and negotiations solely with respect to the subject matters hereof. Notwithstanding anything to the contrary
set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of the Engagement Letter shall
remain in full force and effect. This Agreement may be executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same instrument. Such counterparts may be executed and delivered
by electronic means, which shall not impair such execution or delivery. This Agreement may not be amended or modified unless in writing
and signed by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each
party whom the condition is meant to benefit. Section headings herein are for the convenience of the parties only and shall not
affect the construction or interpretation of this Agreement.
(b) The
Company acknowledges and agrees that in connection with the Offering of the Securities: (i) the Underwriters have acted at arm’s
length, is not an agent of, and owes no fiduciary duties to the Company or any other person, (ii) the Underwriters owe the Company
only those duties and obligations set forth in this Agreement and (iii) the Underwriters may have interests that differ from those
of the Company. The Company waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising
from an alleged breach of fiduciary duty in connection with the offering of the Offered Securities.
[The remainder of this page has been intentionally
left blank.]
If the foregoing is in accordance
with your understanding of our agreement, please sign below whereupon this instrument, along with all counterparts hereof, shall become
a binding agreement in accordance with its terms.
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Very truly yours,
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AKANDA CORP.
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By:
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Name: Tejinder Virk
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Title: Chief Executive Officer
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The foregoing Underwriting Agreement is hereby
confirmed and agreed to of the date first above written.
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BOUSTEAD SECURITIES, LLC, in
its
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own capacity and as representative
of the Underwriters
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By:
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Name: Keith Moore
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Title: Chief Executive Officer
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Schedule I
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Name
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Number
of Firm
Shares to be
Purchased
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Number
of Option
Shares to be
Purchased
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Boustead Securities, LLC
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[*]
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Total
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Schedule A
Lock-up Parties
Schedule B
Form of Lock-up Agreement
[_____________], 2021
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
Re: Proposed Public Offering by Akanda Corp.
Ladies and Gentlemen:
The undersigned, a stockholder
of Akanda Corp., a Canadian company (the “Company”), understands that Boustead Securities, LLC (the “Representative”)
will act as the representative of the underwriters in carrying out an offering (the “Offering”) of the Company’s
common shares (the “Securities”). In recognition of the benefit that the Offering will confer upon the undersigned,
and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with
the Representative that, without the prior written consent of the Representative, during a period of up to 365 days from the date on
which the trading of the Securities on the Nasdaq Stock Exchange commences (the “Lock-Up Period”), the undersigned
will not, without the prior written consent of the Representative, directly or indirectly (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any securities of the Company (collectively, the “Lock-Up Securities”), whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or
file, or cause to be filed, any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of the Lock-Up Securities or such other securities, in cash or otherwise.
The Representative may in
its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration
of the Lock-Up Period. When determining whether or not to release shares from the lock-up agreements, the Representative will consider,
among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release is being
requested and market conditions at the time.
Notwithstanding the foregoing,
and subject to the conditions below, the undersigned may transfer the Lock-Up Securities without the prior written consent of the Representative
as follows, provided that (1) the Representative receives a signed lock-up agreement for the balance of the Lock-Up Period from
each donee, trustee or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) such
transfers are not required to be reported in any public report or filing with the Securities and Exchange Commission, or otherwise and
(4) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfers:
(i) as
a bona fide gift or gifts (including but not limited to charitable gifts); or
(ii) to
any member of the immediate family of the undersigned or to a trust or other entity for the direct or indirect benefit of, or
wholly-owned by, the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, “immediate
family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); or
(iii) if the undersigned
is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership,
limited liability company, trust or other business entity that is a direct or indirect affiliate (as defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) of the undersigned or (2) distributions of Common Shares or any security convertible
into or exercisable for Common Shares to limited partners, limited liability company members or stockholders of the undersigned; or
(iv) if the undersigned
is a trust, transfers to the beneficiary of such trust; or
(v) by will, other testamentary
document or intestate succession; or
(vi) by operation of law
pursuant to a qualified domestic order or in connection with a divorce settlement.; or
(vii) pursuant to a trading
plan established pursuant to Rule 10b5-1 of the Exchange Act.
Furthermore,
no provision in this letter shall be deemed to restrict or prohibit (1) transactions relating to Securities purchased in the Offering
or acquired in open market transactions after the completion of Offering; and (2) the exercise or exchange by the undersigned of
any option or warrant to acquire any Common Shares or options to purchase Common Shares, in each case for cash or on a “cashless”
or “net exercise” basis, pursuant to any share option, share bonus or other share plan or arrangement; provided, however,
that the underlying Common Shares shall continue to be subject to the restrictions on transfer set forth in this letter.
The undersigned further agrees
that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the
Lock-Up Period, it will give notice thereof to the Representative and will not consummate such transaction or take any such action unless
it has received written confirmation from the Company that the Lock-Up Period has expired.
The undersigned understands
that, if the Offering shall terminate or be terminated prior to payment for and delivery of the Securities, the undersigned shall be
released from all obligations set forth herein.
The undersigned also agrees
and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of
the Lock-Up Securities except in compliance with the foregoing restrictions.
The undersigned, whether
or not participating in the Offering, understands that the Representative is proceeding with the Offering in reliance upon this lock-up
agreement.
This lock-up agreement shall
be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles
thereof.
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Very truly yours,
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(Name - Please Print)
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(Signature)
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[Signature Page to Lock-Up Agreement]
Exhibit A
Form of Representative’s Warrant
Exhibit 2.1
EXECUTION VERSION
Certain portions of this exhibit have been redacted in accordance
with Item 601(a)(6) of Regulation S-K. This information is not material and disclosure of such information would constitute an unwarranted
invasion of personal privacy. “[*]” indicates that information has been redacted.
SHARE PURCHASE AGREEMENT
THIS AGREEMENT is dated effective September
29, 2021.
AKANDA CORP.
(the "Purchaser")
- and -
HALO COLLECTIVE INC.
(the "Vendor")
RECITALS:
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A.
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the Vendor is the registered and beneficial owner of all of the issued and outstanding shares (the "Shares")
in the capital of Cannahealth Limited ("Cannahealth"), a limited liability company incorporated and existing under the
laws of Malta;
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B.
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the Vendor is the parent company of each of: (i) Bophelo Holdings Ltd. ("Holdco"), a
limited liability company incorporated and existing under the laws of the United Kingdom, (ii) Bophelo Bioscience & Wellness (pty)
Ltd. ("Bophelo"), a limited liability company incorporated and existing under the laws of the Kingdom of Lesotho: and
(iii) Canmart Ltd ("Canmart" and together with Cannahealth, Holdco and Bophelo, the "Corporations" and
each a "Corporation"), a limited liability company incorporated and existing under the laws of the United Kingdom;
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C.
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Holdco acquired its interest in Bophelo pursuant to a share purchase agreement, made among the Vendor,
Louisa Maliako Mojela, Moira Granny Seape, Boiketlo Biomed (Pty) Ltd., GMG Financial Services Ltd., 1942
Capital Partners (Pty) Ltd. and Seedy Lette, dated November 27, 2019 and its interest in Canmart pursuant to a share purchase agreement,
made among the Vendor, David Keith Dean and Darran William Quinn, dated October 1, 2020 (collectively, the "Pre-existing Purchase
Agreements");
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D.
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the Vendor and each of the Corporations intend to undertake a re-organization such that, among other things,
Cannahealth shall become the sole registered and beneficial owner of Holdco and Canmart and Holdco shall become the sole registered and
beneficial owner of Bophelo (the "Reorganization");
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E.
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Canmart carries on the business of a licensed importer and distributor of cannabis-based products for
medicinal use in the United Kingdom (the "Canmart Business") and Bophelo carries on the business of cultivating and producing
bulk cannabis, as authorized by the Ministry of Health of Lesotho, intended for export (the "Bophelo Business" and together
with the Canmart Business, the "Business"); and
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F.
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the Purchaser wishes to purchase the Shares from the Vendor and the Vendor wishes to sell the Shares to
the Purchaser upon the terms and conditions of this Agreement.
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NOW THEREFORE, the parties agree as follows:
Article 1
INTERPRETATION
In
this share purchase agreement ("Agreement") the following shall apply:
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(a)
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Taxes: In this Agreement, "Tax" or "Taxes" means all federal,
provincial, territorial, county, municipal, local or foreign taxes, duties, imposts, levies, assessments, tariffs and other charges imposed,
assessed or collected by a Governmental Authority (as defined herein) including, (i) any gross income, net income, gross receipts, business,
royalty, capital, capital gains, goods and services, value added, severance, stamp, franchise, occupation, premium, capital stock, sales
and use, real property, land transfer, personal property, ad valorem, transfer, licence, profits, windfall profits, environmental, payroll,
employment, employer health, pension plan, anti-dumping, countervail, excise tax; (ii) all withholdings on amounts paid to or by the relevant
person; (iii) all employment insurance premiums, and pension plan contributions or premiums; (iv) any fine, penalty, interest, or addition
to tax, (v) any tax imposed, assessed, or collected or payable pursuant to any Tax-sharing agreement or any other contract relating to
the sharing or payment of any such Tax, levy, assessment, tariff, duty, deficiency, or fee; and (vi) any liability for any of the foregoing
as a transferee, successor, guarantor, or by contract or by operation of law.
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(b)
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Currency: Unless otherwise specified, all dollar amounts in this Agreement, including the
symbol "$", refer to Canadian currency.
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(c)
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Headings: The division of this Agreement into Articles, Sections and other subdivisions
and the inclusion of headings are provided for convenience only and do not affect the construction or interpretation of this Agreement.
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(d)
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Including: In this Agreement, the words "include" or "including" mean
"include (or including), without limitation," and the words following "include" or "including" are not to
be considered an exhaustive list, unless expressly stated otherwise (e.g. including only).
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(e)
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Performance on Holidays: If any act is required by the terms of this Agreement to be performed
on a day which is not a Business Day, the act will be valid if performed on the next succeeding Business Day. In this Agreement "Business
Day" means any day other than Saturday, Sunday or a statutory holiday in Ontario.
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(f)
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References to Persons: Unless the context otherwise requires, any reference in this Agreement
to a "person" includes any partnership, firm, trust, corporation, government entity, authority, or department, or other entity
and their successors and permitted assigns.
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(g)
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Statutory References: Unless otherwise specified, any reference in this Agreement to a statute
includes all rules and regulations made under it and all applicable guidelines, bulletins or policies made in connection with it and which
are legally binding, in each case as it or they may have been, or may from time to time be, amended or re-enacted.
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(h)
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Time: Time is of the essence of this Agreement, and no extension or variation of this Agreement
will operate as a waiver of this provision.
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(i)
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Time Periods: Unless otherwise specified, a period of days will be deemed to begin on the
first day after the event which began the period and to end at 5:00 p.m. (Toronto Time) on the last day of the period. If a period of
time is to expire on any day that is not a Business Day, the period will be deemed to expire at 5:00 p.m. (Toronto Time) on the next succeeding
Business Day.
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(j)
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Knowledge: in this Agreement, any reference to "knowledge" of the Vendor means
the actual knowledge of Kiran Sidhu or Philip van den Berg and the knowledge that they would have had, had they made due and reasonable
enquiry into the relevant matter.
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Article 2
PURCHASE AND SALE OF PURCHASED INTEREST
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2.1
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Agreement to Purchase and Sell
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Subject to the terms and conditions
of this Agreement, as of the Closing Time, the Vendor shall sell, transfer, convey and assign to the Purchaser and the Purchaser shall
purchase and acquire from the Vendor, all of the Shares.
The consideration payable by the Purchaser
to the Vendor for the Shares (the "Purchase Price") will be US$13,129,212. The Purchase Price will be paid by way of
issuance to the Vendor on the Closing Date of 13,129,212 common shares in the capital of the Purchaser (the "Consideration Shares")
at a price per share of US$1.00, as fully paid and non-assessable common shares, free and clear of all encumbrances.
The Vendor shall be entitled to make
an income tax election with the Purchaser pursuant to subsection 85(1) of the Income Tax Act (Canada) (“Tax Act”)
and the analogous provisions of provincial income tax legislation to defer tax on the transfer of the Shares by the Vendor to the
Purchaser in consideration for the Consideration Shares by providing two (2) signed copies of the necessary election forms to the Purchaser
within ninety (90) days following the date of this Agreement, duly completed with the details of the Shares transferred and the applicable
agreed amounts for the purposes of such elections. Thereafter, subject to the election forms complying with the provisions of the Tax
Act (or applicable provincial income tax legislation), the forms will be signed by the Purchaser and returned to the Vendor within ninety
(90) days after the receipt thereof by the Purchaser for filing with the Canada Revenue Agency (or the applicable provincial Governmental
Entity). The Purchaser will not be responsible for the proper completion of any election form and, except for the obligation of the Purchaser
to so sign and return duly completed election forms which are received by the Purchaser within ninety (90) days of the Closing Date, the
Purchaser will not be responsible for any Taxes resulting from the failure by the Vendor to properly complete or file the election forms
in the form and manner and within the time prescribed by the Tax Act (and any applicable provisions of provincial income tax legislation).
In its sole discretion, the Purchaser may choose to sign and return an election form received by it more than ninety (90) days following the Closing Date but
has no obligation to do so.
Article 3
REPRESENTATIONS
AND WARRANTIES
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3.1
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Representations and Warranties of the Vendor
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The Vendor represents
and warrants to the Purchaser as follows:
Authorization, Non-Contravention,
etc.
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(a)
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the Vendor is a corporation formed and existing under the laws of Ontario;
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(b)
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the Vendor has the corporate power to enter into and perform its obligations under this Agreement;
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(c)
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the execution and delivery of, and performance by the Vendor of this Agreement and the sale of the Shares
has been, or will at Closing be, duly authorized by all necessary action on behalf of the Vendor;
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(d)
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this Agreement has been duly and validly executed by the Vendor and constitutes a legal, valid and binding
agreement of the Vendor, enforceable against it in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights and subject to general principles of equity;
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(e)
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the execution, delivery and performance by the Vendor of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate, conflict with or result in the breach of any provision of the constating documents
of the Vendor; (ii) conflict with or result in a violation or breach of any law or order applicable to the Vendor or the Corporations
or any of their respective assets, properties or businesses, including the Business; (iii) conflict with, result in any breach of, constitute
a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, or give to others any rights
of termination, amendment, acceleration, suspension, revocation or cancellation of, any contract to which the Vendor or any of the Corporations
is a party or the Vendor or any of the Corporations is bound or by which any of the Vendor's or any of the Corporations' properties or
assets are subject; (iv) result in the creation of any lien or other encumbrance on any of the Vendor's or any of the Corporations' properties
or assets; or (v) conflict with or result in a breach of any of the terms or requirements of, or give any Governmental Authority (as defined
below) the right to revoke, withdraw, suspend, cancel, terminate or modify, any permit, licence or authorization that is held by or on
behalf of the Vendor or any of the Corporations;
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(f)
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except as disclosed in the disclosure schedule attached hereto as Schedule "A" (the "Disclosure
Schedule"), no consent, approval, order or authorization of, or registration or declaration with, any applicable court, tribunal
or government (federal, provincial, state, local or foreign) or any political subdivision thereof in Canada, the United Kingdom, the Kingdom
of Lesotho, Malta, the United States or any other country, including any ministry, department, commission, board, bureau, agency or other
regulatory, administrative or governmental authority
(including stock exchanges) or instrumentality thereof (each, a "Governmental Authority") with jurisdiction over the
Vendor or any of the Corporations is required to be obtained by the Vendor in connection with the execution and delivery of this Agreement
or the consummation by the Vendor of the disposition of the Shares, except for those consents, orders, authorizations, declarations, registrations
or approvals which have been obtained by the Vendor as of the date hereof or those consents, orders, authorizations, declarations, registrations
or approvals that, if not obtained, would not prevent or materially delay the consummation of the disposition of the Shares or otherwise
prevent the Vendor from performing its obligations under this Agreement;
|
|
|
(g)
|
all information with respect to the Corporations contained in the Vendor's prospectuses, annual reports,
annual and interim Financial Statements, annual information forms, management's discussion and analysis of financial condition and results
of operations, information circulars, material change reports, listing statements, press releases and all other information or documents
required to be filed or furnished by the Vendor under applicable Canadian securities laws (the "Disclosure Record"),
as of their respective filing dates, did not contain any misrepresentation (within the meaning of the Securities Act (Ontario)) other
than any misrepresentation that was corrected and superseded by a subsequent document comprising the Disclosure Record;
|
Financial Statements
|
|
(h)
|
complete copies of the audited annual financial statements of each of the Corporations for the years ended
December 31, 2020 and 2019 and their unaudited interim financial statements for the three and six months ended June 30, 2021 and 2020,
and, in each case, the related statements of income and retained earnings, stockholders' equity and cash flow for the years then ended
(the "Financial Statements") have been delivered to the Purchaser. The Financial Statements have been prepared in accordance
with IFRS applied on a consistent basis throughout the periods involved. The Financial Statements are based on the books and records of
the Corporations, and fairly present the financial condition of the Corporations as of the respective dates they were prepared and the
results of the operations of the Corporations for the periods indicated;
|
|
|
(i)
|
except as disclosed in the Disclosure Schedule, no Corporation has any liabilities, except:
|
|
|
(i)
|
those which are adequately reflected or reserved against in the Financial Statements as of the applicable date thereof, or
|
|
|
(ii)
|
those which have been incurred in the ordinary course of business consistent with past practice since the date of the most recent
Financial Statements and which are not, individually or in the aggregate, material in amount;
|
|
|
(j)
|
since the date of the most recent Financial Statements, the business of the Corporations, including in
particular the Business, has been conducted in the ordinary course, consistent with past practice and there has not been with respect
to any Corporation any material adverse event;
|
Corporation, Capital, Shares
|
|
(k)
|
Cannahealth is a corporation validly existing and in good standing under the laws of Malta;
|
|
|
(l)
|
Holdco is a corporation validly existing and in good standing under the laws of England and Wales;
|
|
|
(m)
|
Canmart is a corporation validly existing and in good standing under the laws of England and Wales;
|
|
|
(n)
|
Bophelo is a corporation validly existing and in good standing under the laws of the Kingdom of Lesotho;
|
|
|
(o)
|
prior to the implementation of the Reorganization, each of the Corporations is a wholly owned subsidiary
of the Vendor and Holdco is a wholly owned subsidiary of Cannahealth and, on completion of the Reorganization, Cannahealth is a wholly
owned subsidiary of the Vendor, Holdco and Canmart are each a wholly owned subsidiary of Cannahealth, Bophelo is a wholly owned subsidiary
of Holdco, and neither Canmart nor Bophelo have any subsidiaries;
|
|
|
(p)
|
prior to the implementation of the Reorganization, except for Cannahealth, which owns all of the issued
and outstanding shares in the capital of Holdco, none of the Corporations own any securities of (or other interest in) any other person
and, on completion of the Reorganization, other than shares of Holdco and Canmart, Cannahealth does not own any securities of (or other
interest in) any other person, and other than Bophelo, Holdco does not own any securities of (or other interest in) any other person,
and neither Canmart nor Bophelo own any securities of (or other interest in) any other person;
|
|
|
(q)
|
the authorized and issued capital of each of the Corporations, both as at the date of this Agreement and as of the Closing Date after
taking account of the Reorganization respectively, is set forth in the Disclosure Schedule and the Shares represent all of the issued
and outstanding shares of Cannahealth;
|
|
|
(r)
|
the Vendor beneficially owns the Shares with good and valid title and has the full power and authority
to sell the Shares to the Purchaser;
|
|
|
(s)
|
the Shares are, or will at Closing be, free and clear of all liens, charges and encumbrances, other than
those restrictions on transfer of the Shares, if any, stated in the memorandum of association of Cannahealth;
|
|
|
(t)
|
the execution and delivery by the Vendor of this Agreement and the performance by the Vendor of its obligations
hereunder will not result in (i) the breach or violation of any terms or conditions of: (1) the constating documents or by-laws of the
Vendor or any of the Corporations; (2) any applicable law, regulation or order, or (3) any contract to which the Vendor or any of the
Corporations is a party or by which any of the property or assets of the Vendor or any of the Corporations may be affected, or (ii) the
creation of any lien, charge or encumbrance on any of the Shares or the property or assets of any of the Corporations;
|
|
|
(u)
|
no person (other than the Purchaser under this Agreement) has any written or oral agreement, option, right
or privilege capable of becoming an agreement or option to acquire any of the Shares or to cause
to be issued any unissued securities of any of the Corporations;
|
Conduct, Material
Contracts
|
|
(v)
|
neither Cannahealth nor Holdco carry on any activity or business, other than holding shares of Holdco
and Canmart (in the case of Cannahealth) and holding shares of Bophelo (in the case of Holdco);
|
|
|
(w)
|
Canmart has conducted and is conducting the Canmart Business and operates and maintains the properties
and assets used in the Canmart Business in compliance with all applicable laws, rules and regulations, except as would otherwise not have
a material adverse effect on the Canmart Business;
|
|
|
(x)
|
Bophelo has conducted and is conducting the Bophelo Business and operates and maintains the properties
and assets used in the Bophelo Business in compliance with all applicable laws, rules and regulations, except as would otherwise not have
a material adverse effect on the Bophelo Business;
|
|
|
(y)
|
neither Canmart, nor Bophelo, or any respective subsidiary thereof, have received any written or oral
notice from a governmental body that alleges that it is not in compliance with any material legal requirement, and nor has any such entity
been subject to any material adverse inspection, finding, investigation, penalty assessment, suspension, revocation, audit or other compliance
or enforcement action. (A) Such entities have not received any written or oral notice from any governmental body having jurisdiction over
its operations, activities, locations, or facilities, of (I) any material deficiencies or violations of, or (II) any material remedial
or corrective actions required in connection with, any company permit or license or their renewal, and (B) no action is being or, to the
knowledge of the Vendor, has been threatened or contemplated which (I) could reasonably be expected to result in the issuance of any notice
referenced in the preceding clause (A) or (II) could prevent or materially impair the Canmart Business or Bophelo Business;
|
|
|
(z)
|
Canmart has the corporate power to own or lease its property and to carry on the Canmart Business as now
being conducted by it and is registered, licensed or otherwise qualified in all the jurisdictions where it owns or leases that property
and carries on the Canmart Business;
|
|
|
(aa)
|
Bophelo has the corporate power to own or lease its property and to carry on the Bophelo Business as now
being conducted by it and is registered, licensed or otherwise qualified in all the jurisdictions where it owns or leases that property
and carries on the Bophelo Business;
|
|
|
(bb)
|
none of the Corporations is in default of any of its obligations under any material contract to which
it is party (each a "Material Contract") and, to the knowledge of the Vendor, each other party to each Material Contract
is not in default of its respective obligations under each such Material Contract;
|
|
|
(cc)
|
each of the Corporations holds all applicable licenses, permits, orders and related approvals authorizing
it to conduct its business, in particular the Business, as applicable, including to: (i) import and distribute cannabis-based products
into the United Kingdom for medicinal use; and (ii) cultivate and produce bulk cannabis for export from the Kingdom of the Lesotho (each
a "Regulatory License"). Each Regulatory License is in full force and effect in all material respects and has not been
revoked, suspended, cancelled, rescinded, terminated, modified and has not expired. There are no pending or, to the Vendor's knowledge,
threatened actions by or before any Governmental Authority to revoke, suspend, cancel, rescind, terminate and/or materially adversely
modify any Regulatory License. The Disclosure Schedule contains a complete and accurate list of all Regulatory Licenses, and true and
correct copies of all of such Regulatory Licenses have been made available to the Purchaser;
|
|
|
(dd)
|
all finished goods inventories, supplies and spare parts inventories owned by any of the Corporations,
wherever located (the "Inventory"), whether or not reflected in the most recent Financial Statements, consist of a quality
and quantity usable and salable in the ordinary course of business, except for obsolete, damaged, defective or slow-moving or other items
required to be removed from inventory under applicable law, each of which have been written off or written down to fair market value or
for which adequate reserves have been established. All Inventory is owned by the Corporations free and clear of all liens and encumbrances,
and no Inventory is held on a consignment basis;
|
Litigation
|
|
(ee)
|
there are no actions, suits, hearings, arbitrations, audits, charges, orders (draft or otherwise), judgments,
injunctions, decrees, awards, writs, proceedings (public or private) or investigations that have been brought by or against any Governmental
Authority or any other person (collectively, "Proceedings") pending or, to the knowledge of the Vendor, threatened, against
or affecting the Shares or any of the Corporations or that seek to prevent, enjoin, alter or delay the transactions provided for by this
Agreement;
|
Insurance
|
|
(ff)
|
Each of the Corporations maintain insurance policies of the type and in the amounts customarily carried
by prudent persons conducting a business similar to the Business and are sufficient for compliance with all Laws and Contracts to which
the Corporations (or any of them) are a party or by which they are bound.
|
|
|
(gg)
|
All insurance policies are in full force and effect. The Closing of the Transaction will not cause a modification,
reduction or cancellation of any such insurance policy. The Corporation is not in default with respect to any of the provisions contained
in any such insurance policies and has not failed to give any notice or pay any premium or present any claim under any such insurance
policy in a timely manner. The Vendors have no reason to believe that any of the insurance policies will not be renewed by the insurer
upon the scheduled expiry of the policy. There has been no significant change in relationship between any of the Corporations and their
insurers, the premiums or availability of coverage, in the two (2) years preceding the date hereof. No Corporation has received notice
from any of the insurers regarding cancellation of its insurance policies or denying any claims. There
are no circumstances under which the Corporations would be required to or, in order to maintain its coverage, give any notice to the insurers
under any such insurance policies which has not been given. No Corporation has experienced claims in excess of the current coverage of
its insurance. There will be no retrospective insurance premiums or charges or any other similar adjustment on or with respect to any
of the insurance policies for any period or occurrence from the date of this Agreement until the Closing Time.
|
Indebtedness &
Liabilities
|
|
(hh)
|
except as disclosed in the Disclosure Schedule, no Corporation is indebted to any person and no Corporation
is a party to, bound by, nor subject to any debt instrument or any agreement, contract or commitment to create, assume or issue any debt
instrument or incur any indebtedness;
|
|
|
(ii)
|
no Corporation has given nor agreed to give, nor is it a party to or bound by or subject to any guarantee
or other financial assistance to any person;
|
Assets, Property,
Books and Records
|
|
(jj)
|
the assets owned, licensed or leased by each Corporation constitute all of the property and assets necessary
to carry on such Corporation's business (including the Business) as currently carried on, are free of material defects and include all
proprietary rights, Intellectual Property Rights and other property and assets, tangible and intangible, used in connection with the such
business;
|
|
|
(kk)
|
without limiting the foregoing, on acquisition of the shares of each of Bophelo and Canmart pursuant to
the Pre-existing Purchase Agreements, the Vendor acquired good and valid title to, and has the full power and authority to transfer, such
shares to Cannahealth pursuant to the Reorganisation and Cannahealth holds such shares free and clear of all liens, charges and encumbrances;
|
|
|
(ll)
|
all material tangible assets used in the Business are in good operating condition and in a state of good
repair and maintenance, except only for reasonable wear and tear;
|
|
|
(mm)
|
except as disclosed in the Disclosure Schedule, no Corporation is a party
to any real property lease;
|
|
|
(nn)
|
except as disclosed in the Disclosure Schedule, none of the Corporations owns any real property;
|
|
|
(oo)
|
the accounts receivables of the Business, together with any security or collateral therefor, arose from
bona fide transactions in the ordinary course of the Business and are valid, enforceable and fully collectible accounts and are
not subject to any defence, set-off or counterclaim;
|
|
|
(pp)
|
the books and records of the Corporations (collectively, the "Books and Records") have,
in all material respects, been duly maintained in accordance with all applicable legal requirements and contain full and accurate records
of all material matters relating to the Corporations and the Business;
|
|
|
(qq)
|
the Disclosure Schedule contains a true and complete list of all deposit and disbursement accounts maintained
by each of the Corporations with any bank, brokerage house or other financial institution, including for each such account the name and
address of the financial institution, the nature of the account, the account number, and the name of the account holder, the names of
each person with authority to draw on such account or to have access to such account, or to change the persons authorized to draw on the
account. All such accounts, credit lines, safe deposit boxes and vaults are maintained by each of the Corporations for normal business
purposes and no such proxy, power of attorney or other like instrument is irrevocable;
|
Intellectual Property
|
|
(rr)
|
no Corporation has during the 2 years preceding the date of this Agreement been a party to any Proceedings,
nor to the knowledge of the Vendor, are any Proceedings threatened as to which there is a reasonable possibility of a determination adverse
to any Corporation, involving a claim of infringement by any person of any patent, patent application and invention, trademark, tradename,
trademark or tradename registration or application, copyright or copyright registration or application for copyright registration, and
each licence or licensing agreement, for any of the foregoing, relating to the Business or held by any Corporation (the "Intellectual
Property Rights"). No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the applicable Corporation or restricting the licensing thereof by such Corporation to any person. The
Vendor does not have any knowledge that would cause such person to believe that the use of the Intellectual Property Rights or the conduct
of the Business conflicts with, infringes upon or violates any patent, patent licence, patent application, trademark, tradename, trademark
or tradename registration, copyright, copyright registration, service mark, brand mark or brand name or any pending application relating
thereto, or any trade secret, know-how, programs or processes, or any similar rights, of any person;
|
|
|
(ss)
|
Canmart either owns the entire right, title and interest in, to and under, or has acquired a licence to
use, any and all patents, trademarks, tradenames, brand names and copyrights that are material to the conduct of the Canmart Business
in the manner that the Canmart Business has been conducted prior to the date of this Agreement;
|
|
|
(tt)
|
Bophelo either owns the entire right, title and interest in, to and under, or has acquired a licence to
use, any and all patents, trademarks, tradenames, brand names and copyrights that are material to the conduct of the Bophelo Business
in the manner that the Bophelo Business has been conducted prior to the date of this Agreement;
|
Employees
|
|
(uu)
|
all salaries, wages, commissions and other compensation and benefits payable to each employee of the Corporations
have been accrued and paid by the Corporations when due for all periods through the Closing Date. Except as set forth in the Disclosure
Schedule, to the Vendor's knowledge, no current executive, key employee or group of employees has given notice of termination of employment
or otherwise disclosed plans to terminate employment with any Corporation within the next 12 months;
|
|
|
(vv)
|
each applicable Corporation has complied and is currently complying, in respect of its employees, with
all applicable laws respecting employment and employment practices and the protection of the health and safety of employees;
|
|
|
(ww)
|
there is no trade union or association certified by competent authority or recognized by any Corporation
as bargaining agent for its employees, and no Corporation is a party to or bound by any collective agreement with any labour union or
association of employees and, to the Vendor's knowledge, no such certification process with any labour union or association of employees
is presently contemplated by any such employees;
|
|
|
(xx)
|
except as disclosed in the Disclosure Schedule, no Corporation has any outstanding contracts or agreements
with any of its officers, directors, agents or employees, other than contracts of employment which have been entered into in the ordinary
course;
|
Tax Matters
|
|
(yy)
|
each Corporation has paid all Taxes due and payable by it, including all Taxes shown on its Tax Returns
as being due and payable, and all Taxes payable under any assessment or reassessment;
|
|
|
(zz)
|
each Corporation has prepared and filed all Tax Returns on time and in the prescribed manner with all
appropriate Governmental Authorities which were required to be filed on or prior to the Closing Date. Each such Tax Return was correct
and complete in all material respects and each Corporation has made complete and accurate disclosure in all material respects in its Tax
Returns and in all materials accompanying those Tax Returns, except in respect of a particular Tax Return to the extent that it may have
been modified in a subsequent Tax Return, as applicable;
|
|
|
(aaa)
|
the Vendor is not a "non-resident" of Canada for the purpose of Section 116 of the Income
Tax Act (Canada);
|
|
|
(bbb)
|
there are no assessments or reassessments of Taxes that have been issued and are outstanding and no Corporation
is negotiating any assessment or reassessment with any Governmental Authority;
|
|
|
(ccc)
|
the Vendor is not aware of any liabilities of any Corporation for Taxes or any grounds for an action,
suit, investigation, arbitration proceeding or other Proceedings, assessments, reassessment or requests for information outstanding or
threatened against any Corporation with respect to Taxes, including aggressive treatment of income expenses, credits or other claims for
deduction under any Tax Return;
|
|
|
(ddd)
|
no Taxes shall accrue in respect of, or become payable by, or require the accelerated payment by, the
Purchaser or relating to the Business, following the Closing as a result of the Reorganization (provided for clarity that the Vendor makes
no representation under this Section 3.1(ddd) with respect to any Taxes that accrue, become payable or which payment is accelerated, to
the extent such accrual, payment or acceleration was not caused or adversely impacted by the Reorganization);
|
Sanctions and
Ethical Conduct
|
|
(eee)
|
Vendor does not engage (and has not engaged) in activities which are in violation of any country- or list-
based economic and trade sanctions administered and enforced by Canada, the Office of Foreign Assets Control of the US Department of the
Treasury, the US Department of State or other Governmental Authority in any jurisdiction in which the Business is conducted (a "Sanctions
Authority") or is engaged, directly or indirectly, in any activity which is prohibited under Sanctions, including without limitation:
(i) any direct or indirect dealings involving or benefitting: (A) a person or entity that is listed on, or owned or controlled by, or
acting on behalf of a person or entity listed on any list administered by a Sanctions Authority or otherwise the target of Sanctions;
(B) a person or entity that, is owned or controlled by, or acting for or on behalf of, or providing assistance, support or services of
any kind to, or otherwise associated with any person or entity in (A); (ii) making or receiving any contribution of funds, goods or services
to or for the benefit of any person or entity described in (A) or (B); (iii) any dealing in, or otherwise engaging in any transaction
relating to any property or interests in, property subject to prohibitions under Sanctions; and (iv) any transaction that evades, avoids
or attempts to violate any of the prohibitions set forth in the Sanctions or has such a purpose. For the purpose of this Agreement, "Sanctions"
means economic or financial sanctions pursuant to all applicable laws regarding sanctions and export controls of the Sanctions Authority,
specifically the United Nations Act, Special Economic Measures Act, Export and Import Permits Act, Freezing Assets of Foreign Corrupt
Officials Act, Defense Production Act, Proceeds of Crime (Money Laundering) Terrorist Financing Act, Anti-Terrorism Act and any other
similar statute or regulation that is enacted in any jurisdiction in which the Business is conducted;
|
|
|
(fff)
|
the Vendor has not, directly or indirectly, in relation to the Business: (i) offered or given anything
of value to any official or employee of any foreign government department or agency or instrumentality or government-owned entity, to
any foreign political party or party official or political candidate or to any official or employee of a public international organization,
or to anyone else acting in an official capacity (collectively, "Foreign Official"), in order to obtain, retain or direct
business by: (A) influencing any act or decision of such Foreign Official in his official capacity; (B) inducing such Foreign Official
to do or omit to do any act in violation of the lawful duty of such Foreign Official; (C) securing any improper advantage; or (D) inducing
such Foreign Official to use his influence with a foreign government or instrumentality to affect or influence any act or decision of
such government or instrumentality; (ii) to cause the Vendor to violate the US Foreign Corrupt Practices Act of 1977; or (iii) to cause
the Vendor to violate any other anti-corruption law applicable to the Vendor;
|
Consideration Shares
|
|
(ggg)
|
the Vendor understands that the Consideration Shares are being offered and issued pursuant to an exemption
from prospectus requirements of Canadian securities laws, and, as a consequence of acquiring the Consideration Shares pursuant to such
exemptions, certain protections, rights and remedies provided by the applicable Canadian securities laws, including statutory rights of
rescission or damages, will not be available to the Vendor. The Vendor acknowledges that Purchaser will rely on the Vendor's representations,
warranties and certifications set forth below for purposes of confirming the availability of any exemption from such registration and
prospectus requirements. The Vendor has not received
a document purporting to describe the business and affairs of the Purchaser that has been prepared primarily for delivery to and review
by prospective investors so as to assist those investors to make an investment decision in respect of Purchaser under the terms of this
Agreement. The Vendor has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and
risks of an investment in the Consideration Shares, and is able to, and agrees to, bear the economic risk of loss of its value of the
Consideration Shares. The Vendor acknowledges that it is eligible to acquire the Consideration Shares pursuant to the exemption from the
prospectus requirements of Canadian securities laws found in s. 2.12 Asset Acquisitions of National Instrument 45-106 - Prospectus Exemptions
of the Canadian Securities Administrators. The Vendor acknowledges that the certificates representing the Consideration Shares, or ownership
statements issued under a direct registration system or other electronic book-based or book entry system, will bear the following legends
in accordance with Canadian securities laws:
|
"UNLESS PERMITTED UNDER SECURITIES
LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE LATER OF
(I) [INSERT DISTRIBUTION DATE], AND (II) THE DATE THAT THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY.";
|
|
(hhh)
|
the Vendor acknowledges that (i) it has been provided with the opportunity to consult its own legal advisors with respect to the Consideration
Shares issuable to it pursuant to this Agreement, and (ii) it is aware that no public market exists for the Consideration Shares and it
may not be able to resell the Consideration Shares; and
|
|
|
(iii)
|
the Vendor will execute and deliver within the applicable time periods all documentation as may be required
by Canadian securities laws to permit the issuance of the Consideration Shares on the terms set forth herein and, if required by Canadian
securities laws, will execute, deliver and file or assist Purchaser in obtaining and filing such reports, undertakings and other documents
relating to the issuance of such Consideration Shares as may be required by any Canadian securities laws, securities regulator, stock
exchange or other regulatory authority, which includes, without limitation, determining the eligibility of the Vendor to acquire the Consideration
Shares under Canadian securities laws, preparing and registering certificates (if any) representing the Consideration Shares, and completing
regulatory filings required by the applicable securities commissions. Accordingly, the Vendor consents to the collection, use and disclosure
of certain personal information to Canadian securities regulatory authorities (including the Ontario Securities Commission (the "OSC"))
and the Purchaser's advisors solely for and expressly limited to the purposes of meeting legal, regulatory, self-regulatory, security
and audit requirements (including any applicable tax, securities, money laundering or antiterrorism legislation rules or regulations)
in accordance with applicable Canadian securities law. The Vendor hereby acknowledges that it has been notified by the Purchaser: (i)
of the requirement to deliver to the OSC the full name, address and telephone number of the party to whom the Consideration Shares are
issued, the number of securities issued and the date of distribution; (ii) that this information is being collected indirectly by the
OSC under the authority granted to it in Canadian securities legislation; (iii) that this information is being collected for the purposes
of the administration and enforcement of the securities legislation of Ontario; and (iv) that the Administrative Support Clerk of the
OSC can be contacted at Ontario Securities Commission, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, or at (416)
593-3684, and can answer any questions about the OSC's indirect collection of this information.
|
|
|
3.2
|
Representations and Warranties of the Purchaser
|
The Purchaser represents
and warrants to the Vendor as follows:
|
|
|
Authorization,
Non-Contravention, etc.
|
|
|
|
|
|
|
(a)
|
the Purchaser is a corporation validly existing and in good standing under the laws of Ontario;
|
|
|
(b)
|
the Purchaser has the corporate power to enter into and perform its obligations under this Agreement;
|
|
|
(c)
|
the execution and delivery of, and performance by the Purchaser of this Agreement and the purchase of
the Shares has been duly authorized by all necessary corporate action on behalf of the Purchaser;
|
|
|
(d)
|
this Agreement has been duly and validly executed by the Purchaser and constitutes a legal, valid and
binding agreement of the Purchaser, enforceable against it in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' rights and subject to general principles of equity;
|
|
|
(e)
|
the Purchaser does not currently carry on any business other than as contemplated (expressly or implicitly)
hereby and such business activities as are related thereto;
|
|
|
(f)
|
no consent, approval, order or authorization of, or registration or declaration with, any applicable Governmental
Authority with jurisdiction over the Purchaser is required to be obtained by the Purchaser in connection with the execution and delivery
of this Agreement or the consummation by the Purchaser of the acquisition of the Shares, except for those consents, orders, authorizations,
declarations, registrations or approvals which have been obtained by the Purchaser as of the date hereof or those consents, orders, authorizations,
declarations, registrations or approvals that, if not obtained, would not prevent or materially delay the consummation of the acquisition
of the Shares or otherwise prevent the Purchaser from performing its obligations under this Agreement;
|
|
|
(g)
|
the authorized and issued capital of the Purchaser is set forth in Schedule "B";
|
|
|
(h)
|
there are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any shares of the Purchaser
other than those issued (or issuable) pursuant to: (i) the Company’s equity stock option plan; and (ii) those warrants (and underlying
shares) to be granted to Boustead Securities Limited in connection with their acting as agents of the Company;
|
|
|
(i)
|
the Consideration Shares, when issued, shall issued as fully paid and non assessable common shares of
the Purchaser;
|
|
|
(j)
|
the Consideration Shares are free and clear of all liens, charges and encumbrances, other than those restrictions
on transfer of the Consideration Shares, if any, stated in the articles of the Purchaser; and
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|
|
(k)
|
no person (other than the Vendor under this Agreement) has any written or oral agreement, option, right
or privilege capable of becoming an agreement or option to acquire any of the Consideration Shares or to be caused to be issued any unissued
securities of the Purchaser.
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|
|
(a)
|
The representations and warranties of the Vendor shall survive the Closing for twelve (12) months from
the Closing Date and, notwithstanding such Closing or any investigation made by or on behalf of the Purchaser, shall continue in full
force and effect for the benefit of the Purchaser during such period; provided that, any claim which is based upon or relates to the representations
and warranties made in Sections 3.1(k) through 3.1(u) and 3.1(cc) or which is based upon intentional misrepresentation or fraud by the
Vendor may be made or brought by the Purchaser at any time for the maximum period permitted by law.
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|
|
(b)
|
The representations and warranties of the Purchaser shall survive the Closing for twelve (12) months from
the Closing Date and, notwithstanding such Closing or any investigation made by or on behalf of the Vendor, shall continue in full force
and effect for the benefit of the Vendor during such period; any claim which is based upon or relates to the representations and warranties
made in Sections 3.2(g) through 3.2(k) or which is based upon intentional misrepresentation or fraud by the Purchaser may be made or brought
by the Vendor at any time for the maximum period permitted by law.
|
In the event the Purchaser
(including any director or officer thereof), prior to Closing, is aware of breach of a representation or warranty of the Vendor under
this Agreement and nonetheless proceeds with Closing, then such representation or warranty will be deemed to be deleted from this Agreement
and the Purchaser shall not be entitled to bring or assert any claim against the Vendor in respect of such breach.
Article
4
FLOW-THROUGH REPRESENTATIONS AND WARRANTIES
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|
4.1
|
Flow-through Representations and Warranties
|
To the extent necessary
to allow the Purchaser to pursue claims against the original vendors under the Pre-existing Purchase Agreements, and without incurring
any liability itself, Vendor adopts those representations and warranties made to it under the Pre-existing Purchase Agreements, and makes
each such representation and warranty to the Purchaser (the "Pre-existing Reps and Warranties"), as though it was the
party first making such representations and warranties and as though the Purchaser was the in the place of the Vendor under such agreements,
mutatis mutandis.
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|
4.2
|
Subrogation and Limitation
|
|
|
(a)
|
In the event of any breach of any of the Pre-existing Reps and Warranties that entitles the Vendor to
claim damages against, or indemnification from, the person or entity originally making such representations and warranties under the Pre-existing
Purchase Agreements, the Purchaser shall be subrogated to, and the Vendor
shall assign to the Purchaser, all of the Vendor's rights in respect of any such claim or indemnification. If the Vendor is unable to
assign such rights to the Purchaser, then instead of assigning such rights to the Purchaser, the Vendor shall allow the Purchaser to bring
a suit in the name of the Vendor, at the Purchaser’s sole cost and expense; provided that, the Purchaser shall indemnify the Vendor
for any losses, damages, costs and expenses (including legal expenses on a solicitor-client full indemnity basis) that the Vendor may,
directly or indirectly, suffer or incur as result of or in connection with the Purchaser bringing any such suit. The Vendor shall execute
all papers required and take all steps reasonable, necessary or advisable to secure and further such subrogation and assignment, at Purchaser’s
sole cost and expense. In no event shall the Vendor waive any rights that could adversely affect any such subrogation or assignment. Any
amounts recovered by the Purchaser whether directly or in connection with the exercise of such subrogation or assignment shall be applied
to compensate the Purchaser for any loss suffered by it as a result of the breach of the Pre-existing Reps and Warranties and for any
costs or expenses incurred in connection with such recovery; provided that, any amount received by the Purchaser in excess of the amount
of any such loss, costs and expenses, shall be for the account of the Vendor and shall, upon receipt, be held by the Purchaser in trust
for the Vendor and forthwith paid over to the Vendor or as the Vendor my direct in writing.
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|
|
(b)
|
Notwithstanding the foregoing, the Purchaser agrees and acknowledges that the rights granted to it under
Section 4.2(a) shall be the sole and exclusive remedy available to the Purchaser in respect of a breach of the Pre-existing Reps and Warranties
and the Purchaser shall not otherwise be entitled to other forms of recovery including through claims of indemnity, compensation, offset,
contribution or otherwise, except to the extent such losses to the Purchaser were based upon or arose out of fraud by the Vendor. The
foregoing sentence in this Section 4.2(b) shall not limit the right of the Purchaser to bring a direct action against the Vendor in connection
with the enforcement of the terms of this Agreement, including with respect to any representations or warranties contained herein (with
the exclusion of the Pre-existing Reps and Warranties).
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Article
5
CONDITION PRECEDENT; INTERIM PERIOD
|
|
(a)
|
The obligations of the Purchaser to complete the purchase of the Shares is subject to:
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|
|
(i)
|
the Vendor delivering to the Purchaser, copies of all regulatory approvals required to be obtained by
the Vendor to complete the within transaction; and
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|
|
(ii)
|
the Purchaser receiving, addressed to it, opinion(s) of duty qualified legal counsel in each relevant
jurisdiction, in form acceptable to the Purchaser, acting reasonably, confirming that each of the respective Corporations:
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|
|
(A)
|
has been incorporated and existing under the applicable laws of their respective jurisdictions of incorporation;
|
|
|
(B)
|
has corporate capacity and power to own and lease their properties and assets and to conduct their business
as currently being conducted;
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|
|
(C)
|
as to the authorized and issued share capital of such Corporation and to the ownership thereof; and
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|
|
(D)
|
is current with all corporate filings required to be made under their respective jurisdictions of incorporation
and all other jurisdictions in which they exist or carry on any material business, and has all necessary licences, leases, permits, authorizations
and other approvals necessary for the conduct of the Business as currently conducted, as applicable, and for the consummation of the transactions
contemplated by this Agreement; and
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|
|
(iii)
|
the Vendor having completed the Reorganization, in a manner satisfactory to the Purchaser, acting reasonably,
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(collectively, the
"Purchaser Conditions").
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|
(b)
|
The obligations of the Vendor to complete the sale of the Shares is subject to:
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|
|
(i)
|
the Vendor having been provided with executed subscription agreements or other evidence satisfactory to
the Vendor, acting reasonably, in respect of bona fide subscriptions for shares in the capital of the Purchaser for aggregate gross proceeds
of not less than US$5,000,000 (or such lesser amount as may be determined by the Vendor); and
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|
|
(ii)
|
completion of the Reorganization,
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(collectively, the
"Vendor Conditions", and together with the Purchaser Conditions, the "Conditions Precedent").
|
|
(c)
|
If, the Conditions Precedent have not been satisfied on or before December 31, 2021 (the "Condition
Date"), then, in the event that a Purchaser Condition has not been met, at the election of the Purchaser and in the event that
the Vendor Condition has not been met, at the election of the Vendor, this Agreement shall terminate and the parties shall have no further
obligation to each other hereunder.
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|
|
(d)
|
Notwithstanding the foregoing, if, the Conditions Precedent have not been satisfied on or before the Condition
Date, then, in the event that a Purchaser Condition has not been met, the Vendor, and in the event that the Vendor Condition has not been
met, the Purchaser, shall be entitled to extend the Condition Date, in so far as it relates to the Purchaser Conditions or the Vendor
Conditions, as applicable, by up to 30 days or such other period determined by them, acting reasonably, for the sole purpose of fulfilling
the applicable condition, by providing written notice of such extension to the other party.
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Article 6
COVENANTS
|
|
6.1
|
Conduct of Business During the Interim Period
|
From
the date of this Agreement up to the Closing Date, the Vendor covenants to the Purchaser that it will cause each Corporation to carry-on
its business in the ordinary course, consistent with past practice and use its commercially reasonable efforts to preserve its assets
and the existing contracts and goodwill of its customers, suppliers, vendors, service providers, personnel and others having business
relations with it; provided that, in the event any Corporation desires to engage in any activity outside the ordinary course of its business
for a bona fide reason, the Vendor shall obtain the Purchaser's
prior written approval prior to any such Corporation engaging in any such activity, such approval not to be unreasonably withheld or
delayed.
6.2
Notice of Certain Events
From
the date of this Agreement up to the Closing Date, the Vendor covenants to the Purchaser that it will promptly notify the Purchaser in
writing of:
|
|
(a)
|
any events, circumstances, facts or occurrences which would result in a breach of a representation, warranty
or covenant of the Vendor, or which would have the effect of making any representation or warranty of the Vendor untrue in any material
respect, or would be reasonably likely to result in a material adverse effect as to any of the Corporations; and
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|
|
(b)
|
(i) the commencement or threat of any investigation, action or legal Proceedings by or before any Governmental
Authority with respect to any Corporation, the Vendor, this Agreement or any of the other transactions contemplated by this Agreement
and shall keep the Purchaser informed as to the status of any such investigation, action or legal Proceedings; and (ii) any communication
to or from any Governmental Authority regarding any such investigation, threat or Proceedings and this Agreement or any of the other transactions
contemplated by this Agreement.
|
|
|
(a)
|
The parties hereto will: (i) promptly make and effect all registrations, filings and submissions required
to be made or effected by them under applicable law with respect to this Agreement and the transactions contemplated under this Agreement;
and (ii) use commercially reasonable efforts to cause to be taken on a timely basis, all other actions necessary or appropriate for the
purpose of consummating and effectuating the transactions contemplated by this Agreement, including the obtaining of all necessary consents,
approvals or waivers from third parties. Each party will reasonably cooperate in efforts to obtain such consents, waivers and approvals.
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|
|
(b)
|
The Vendor shall use commercially reasonable efforts to (i) promptly
provide all information requested by any Governmental Authority in connection with this Agreement or any of the other transactions contemplated
by this Agreement, and (ii) promptly take all actions and steps necessary to obtain any acknowledgement to be obtained or clearance or
approval required to be obtained from such Governmental Authority in connection with the transactions contemplated by this Agreement,
if any.
|
6.4
Further Assurances.
Subject
to the terms and conditions hereof, each of the parties hereto shall use commercially reasonable efforts (without further consideration
being payable) to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to
consummate and give effect to the transactions contemplated by this Agreement as soon as possible.
6.5
Post-Closing Covenants
The
Parties agree that, within 30 days of Bophelo issuing a new share certificate in connection with the Reorganization, the Vendor, the Purchaser
and Bophelo shall work together to procure a non-resident endorsement of the
share certificate from the Central Bank of Lesotho and shall use all commercially reasonable efforts to obtain the same in a prompt and
timely manner.
Article 7
CLOSING
ARRANGEMENTS
|
|
7.1
|
Date, Place and Time of Closing
|
The closing of the
sale and purchase of the Shares ("Closing") will take place at 12:00 p.m. (Toronto Time) (the "Closing Time")
on the date that is two (2) Business Days following satisfaction or waiver of all Conditions Precedent (the "Closing Date"),
electronically through the offices of Dentons Canada LLP and the offices of Aird & Berlis LLP, or in such other manner, and on such
other date and time, as may be agreed upon in writing by the parties.
|
|
7.2
|
Deliveries at Closing
|
At the Closing Time:
|
|
(a)
|
the Purchaser shall issue the Consideration Shares to the Vendor and provide the Vendor with a copy of
the share certificate representing the Consideration Shares and a copy of the securities' register of the Purchaser evidencing such issuance;
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|
|
(b)
|
the Vendor shall deliver to the Purchaser share certificates representing the Shares, duly endorsed in
blank for transfer, or accompanied by irrevocable security transfer powers of attorney duly executed in blank;
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|
|
(c)
|
the Vendor shall deliver to the Purchaser the following (if applicable, in form and substance satisfactory
to the Purchaser, acting reasonably):
|
|
|
(i)
|
certified copies of the resolutions of the board of directors of the Vendor authorizing entering into
and completion of the transactions contemplated by this Agreement;
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|
|
(ii)
|
certified copies of the resolutions of the board of directors of Cannahealth authorizing transfer of the
Shares to the Purchaser;
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|
|
(iii)
|
a certificate of status (or equivalent) with respect to the Vendor and each Corporation, issued by the
appropriate Governmental Authority in their respective jurisdictions of incorporation;
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|
|
(iv)
|
resignation of each director, officer, and employee (as applicable) of each of the Corporations, except
to the extent such person is a director, officer, and employee of the Purchaser as of the date hereof;
|
|
|
(v)
|
a release by the Vendor in favour of each of the Corporations for any and all claims that the Vendor may
have against any of the Corporations;
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|
|
(vi)
|
the minute book for each of the Corporations;
|
|
|
(vii)
|
an executed copy of the investor rights agreement, substantially in the form attached hereto as Schedule
"C" (the "Investor Rights Agreement");
|
|
|
(viii)
|
such other documents as may reasonably be requested by the Purchaser in order to complete the transactions
contemplated herein.
|
|
|
(d)
|
the Purchaser shall deliver to the Vendor the following (if applicable, in form and substance satisfactory
to the Vendor, acting reasonably):
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|
|
(i)
|
certified copies of the resolutions of the board of directors of the Purchaser authorizing the entering
into and completion of the transactions contemplated by this Agreement, including issuance of the Consideration Shares;
|
|
|
(ii)
|
a certificate of status, compliance, good standing or like certificate with respect to the Purchaser,
issued by the appropriate Governmental Authority in its jurisdiction of incorporation;
|
|
|
(iii)
|
a release by each of the Corporations in favour of the Vendor for any and all claims that any of the Corporations
may have against the Vendor as at the Closing Date;
|
|
|
(iv)
|
an executed copy of the Investor Rights Agreement; and
|
|
|
(v)
|
such other documents as may reasonably be requested by the Vendor in order to complete the transactions
contemplated hereon.
|
Article 8
TAX MATTERS
|
|
(a)
|
The Vendor shall, at its cost, cause the Corporations to prepare and file in a timely fashion all Tax
Returns required under any applicable Tax legislation (the "Tax Returns") to be filed by the Corporations for (i) any
period ending on or before the Closing Date (including as a consequence of the Closing) and for which Tax Returns have not been filed
as of that date; and (ii) any period beginning prior to the Closing Date and ending after the Closing Date (collectively, the "Stub
Period Returns").
|
|
|
(b)
|
The Vendor and the Purchaser shall co-operate fully in good faith with each other and make available
to each other in a timely fashion any information in their respective possession and that is reasonably required for the preparation and
filing of the Stub Period Returns, and shall preserve that information in their respective possession until the expiration of any applicable
limitation period under any applicable Tax legislation. The Vendor shall provide to the Purchaser (and its tax advisors) for its review
and approval a copy of the Stub Period Returns and Tax Returns 30 days prior to filing and the Purchaser will have the opportunity to
fully comment on those Stub Period Returns prior to filing.
|
|
|
(c)
|
From and after the Closing Date, the Purchaser shall cause the Corporations to retain, until the expiration
of any applicable limitation period under any applicable Tax legislation, all Books and Records relating to any period ending on or before
the Closing Date (including as a consequence of Closing) and that are reasonably required for the purpose of the preparation and filing
of the Stub Period Returns. So long as such Books and Records are retained by the Corporations, the Vendor may inspect the same for the
purpose of the preparation and filing of the Stub Period Returns.
|
|
|
(d)
|
After Closing, the Purchaser shall cause the Corporations to co-operate in a reasonable manner with the
Vendor and its representatives for the purposes of the preparation of the Vendor's accounts and the Tax Returns and in providing any information
in the possession of the Corporations and that is reasonably required for those purposes. Without limiting the generality of the foregoing,
the Purchaser shall, upon reasonable notice, cause the Corporations to provide the Vendor and its representatives reasonable access to
those Books and Records in the possession of the Corporations that are reasonably required for the preparation of the Vendor's accounts
and the Tax Returns together with the assistance of those employees of the Corporations that the Vendor may reasonably request.
|
Article 9
MISCELLANEOUS
Any notice, direction
or other communication (each a "Notice") regarding the matters contemplated by this Agreement must be in writing and
must be delivered personally, sent by registered mail or courier, or transmitted electronically, as follows:
|
|
(a)
|
in the case of the Vendor, at:
|
Halo Collective Inc.
504 - 100 Park Royal
West Vancouver, BC V7T 1A2
Attention: Kiranjit
Sidhu
E-mail: [*]
with a copy to:
Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1
Attention: Eric
Foster
E-mail: eric.foster@dentons.com
|
|
(b)
|
in the case of the Purchaser, at
|
Akanda Corp.
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1
Attention: Tej Virk
Email [*]
with a copy to:
Aird & Berlis LLP
181 Bay Street, Suite
1800, Brookfield Place
Toronto, ON M5J 2T9
Attention: Sherri
Altshuler
Email: saltshuler@airdberlis.com
A Notice is deemed
to be delivered and received (i) if delivered personally, on the date of delivery if delivered prior to 5:00 p.m. (recipient's time) on
a Business Day and otherwise on the next Business Day; (ii) if sent by same-day courier, on the date of delivery if delivered prior to
5:00 p.m. (recipient's time) on a Business Day and otherwise on the next Business Day; (iii) if sent by overnight courier, on the next
Business Day; (iv) if sent by registered mail, on the third Business Day after mailing, or (v) if transmitted electronically, on the date
of transmission if received prior to 5:00 p.m. (recipient's time) on a Business Day and otherwise on the next Business Day. A party may
change its Notice address from time to time by Notice given in accordance with the foregoing provisions.
Each party shall from
time to time, before or after the Closing Time, execute, acknowledge and deliver or cause to be executed, acknowledged and delivered all
further acts, documents and instruments as may be reasonably necessary or desirable in order to give full effect to this Agreement or
any provision of it.
Unless otherwise specified,
each party shall be responsible for all costs and expenses (including the fees and disbursements of legal counsel, bankers, investment
bankers, accountants, brokers and other advisors) incurred by it in connection with this Agreement and the transactions contemplated by
it.
Any waiver of any
of the provisions of this Agreement will be binding only if it is in writing and signed by the party to be bound by it, and only in the
specific instance and for the specific purpose for which it has been given. The failure or delay of any party in exercising any right
under this Agreement will not operate as a waiver of that right. No single or partial exercise of any right will preclude any other or
further exercise of that right or the exercise of any other right, and no waiver of any of the provisions of this Agreement will constitute
a waiver of any other provision (whether or not similar).
Unless otherwise specified,
the rights and remedies of a party under this Agreement are cumulative and in addition to and without prejudice to any other rights or
remedies available to that party at law, in equity or otherwise, and unless otherwise specified, no single or partial exercise by a party
of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that party may be entitled.
The Vendor and the
Purchaser shall cooperate with the other in releasing information concerning this Agreement and the transactions contemplated herein,
and shall furnish to and discuss with the other drafts of all press and other releases prior to publication. No press release or other
public announcement concerning the proposed transactions contemplated by this Agreement will be made by any party hereto without the prior
consent of the other party, such consent not to be unreasonably withheld, delayed or conditioned; provided that nothing contained herein
shall prevent any party hereto at any time from furnishing any information to any Governmental Authority or to the public if so required
by applicable law.
If any provision of
this Agreement or its application to any party or circumstance is determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, it will be ineffective only to the extent of its illegality, invalidity or unenforceability without affecting the validity
or the enforceability of the remaining provisions of this Agreement and without affecting its application to other parties or circumstances.
|
|
9.8
|
Successors and Assignment
|
This Agreement will
enure to the benefit of and be binding upon the parties and their respective successors but neither this Agreement nor any of the rights
or obligations under this Agreement is assignable or transferable by either the Purchaser or the Vendor without the prior written consent
of the other party.
This Agreement constitutes
the entire agreement between the parties with respect to the transactions contemplated by this Agreement. There are no representations,
warranties, terms, conditions, covenants or other understandings, express or implied, collateral, statutory or otherwise, between the
parties, except as expressly stated in this Agreement.
|
|
9.10
|
No Contra Proferentem
|
Unless otherwise expressly
defined in this Agreement, the words used in this Agreement bear their natural meaning. The parties have had equal opportunity to take
legal advice and the contra proferentem rule does not apply to the interpretation of this Agreement.
|
|
9.11
|
Governing Law; Attornment
|
This Agreement will
be construed, interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable
therein. Each party irrevocably attorns and submits to the exclusive jurisdiction of the courts of Ontario.
|
|
9.12
|
Counterparts and Delivery by Facsimile
|
This Agreement may
be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute but one
and the same instrument. This Agreement will become effective when duly executed and delivered by each party. Counterpart signature pages
to this Agreement may be delivered by electronic delivery (i.e., by email of a PDF signature page) and each such counterpart signature
page will constitute an original for all purposes.
[Remainder of this page intentionally left blank.
Signature page follows.]
IN AGREEMENT WITH ITS TERMS, the parties have executed this
Agreement.
|
|
HALO COLLECTIVE INC.
|
|
|
|
|
|
|
|
|
|
|
Per:
|
/s/ Kiranjit Sidhu
|
|
|
Name: Kiranjit Sidhu
|
|
|
Title: Chief Executive Officer
|
|
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|
|
|
|
AKANDA CORP.
|
|
|
|
|
|
|
|
|
|
|
Per:
|
/s/ Tej Virk
|
|
|
Name: Tej Virk
|
|
|
Title: Chief Executive Officer
|
Schedule "A"
Vendor Disclosure Schedule
Agreement
Paragraph
Reference
|
Disclosure Item
|
|
3.1(f)
|
An endorsement by the Central Bank of Lesotho of the share certificates held by any non-resident subsidiary of Cannahealth in relation to a shareholding in Bophelo Bio Science and Wellness (Pty) Ltd is required.
|
|
3.1(i)
|
None.
|
|
3.1(q)
|
Share Capital
|
|
|
|
|
|
|
Corporation
|
Pre-Reorganization
|
Post-Reorganization
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized Share Capital
|
Authorized Share Capital
|
|
|
|
|
|
|
|
|
|
|
|
Bophelo
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
Canmart
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
Cannahealth
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
Holdco
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued Share Capital
|
Issued Share Capital
|
|
|
|
|
|
|
|
|
|
|
|
Bophelo
|
[*] shares
|
[*] shares
|
|
|
|
|
Canmart
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
Cannahealth
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
Holdco
|
[*] ordinary shares
|
[*] ordinary shares
|
|
|
|
|
|
3.1(cc)
|
Regulatory Licenses
Bophelo holds an operator’s license issued by the Ministry of
Health in the Kingdom of Lesotho in terms of the Drugs of Abuse Act and its Regulations thereto.
Canmart holds the following licenses issued by UK regulatory authorities:
§
Manufacturer’s “Specials” Licence
§
Wholesale Distribution Authorisation (Human)
§
Controlled Drugs Licence
|
|
3.1(hh)
|
Indebtedness and Liabilities
Bophelo is party to a bridge financing arrangement with LM Mojela.
Debt under the bridge financing arrangement will be settled through the issuance of 880,000 common shares of Akanda Corp.
|
|
3.1(mm)
|
Real Property Leases
Bophelo has entered into a lease agreement with the MMD Trust for
the lease of its facilities at T’sakholo in the Kingdom of Lesotho. The lease is for a land area of approximately 200 hectares and
for a 20 year period, with an option to renew for another 30-year term. Pursuant to the lease agreement, Bophelo will pay LSL 350,000
per month (approximately USD $25,000 per month) for the leased area utilized. The MMD Trust is controlled by Louisa Mojela, our Executive
Chairman, and Granny Seape, a non-executive director of Bophelo.
Canmart has entered into a lease agreement with DND Investments
Limited for the lease of 30,000 square foot warehouse in Somerset, United Kingdom. The lease period commenced on the date that Canmart
fulfills the first 100 prescriptions for its clients for medical cannabis products (as certified by Canmart’s accountants or auditors)
and terminates on 19 September 2024. Canmart has not yet fulfilled the first 100 prescriptions as contemplated in the lease agreement,
and as such is not paying any rental fees. Pursuant to the lease agreement, Canmart will pay GBP 21,000 per annum once the lease payment
arrangement described above is fulfilled and commences.
|
|
3.1(nn)
|
Owned Real Property
Nil
|
|
3.1(qq)
|
List of Deposit Accounts
Bophelo
Bophelo holds the following accounts:
Current Account (number [*]) held with [*] (address – [*]). Authorised
signatories are [*] & [*].
Business Cheque Account (number [*]) held with [*] (address: [*]).
Authorised signatories are [*] & [*].
Canmart
Canmart holds the following bank account:
Business Account (number [*]). held with [*] (address [*]). Authorised
signatories are [*].
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|
3.1(uu)
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Employees
Approximately [*] in arrear salary and directors fees are owing to
Bophelo employees and directors.
No current executive, key employee or group of employees has given
notice of termination of employment or otherwise disclosed plans to terminate employment with any Corporation within the next 12 months.
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3.1(xx)
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Contracts with officers, directors, agents and employees
Canmart is yet to conclude employment agreements with:
§
LM Mojela
§
T Scott
§
V Iyer
|
Schedule "B"
Purchaser Disclosure Schedule
Nil.
Schedule "C"
Investor Rights Agreement
Please see attached.
Exhibit 3.1
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Request ID: 026453832
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Province of Ontario
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Date Report Produced: 2021/07/16
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Demande n°:
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Province de l’Ontario
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Document produit le:
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Transaction ID: 079982715
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Ministry of Government Services
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Time Report Produced: 15:43:52
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Transaction n°:
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Ministère des Services gouvernementaux
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Imprimé à:
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Category ID: CT
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Catégorie:
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Certificate of Incorporation
Certificat de constitution
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This is to certify that
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Ceci certifie que
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AKANDA CORP .
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Ontario Corporation No.
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Numéro
matricule de la personne morale en Ontario
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002854618
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is a corporation incorporated,
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est une société constituée aux termes
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|
under the laws of the Province of Ontario.
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des lois de la province de l’Ontario.
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These articles of incorporation
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Les présents statuts constitutifs
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are effective on
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entrent en vigueur le
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JULY 16 JUILLET, 2021
Director/Directeur
Business Corporations Act/Loi sur les sociétés
par actions
Page: 1
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Ontario Corporation Number
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Request ID / Demande n°
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Numéro de la compagnie en Ontario
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26453832
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2854618
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FORM
1
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FORMULE
NUMÉRO 1
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BUSINESS
CORPORATIONS ACT
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/
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LOI
SUR LES SOCIÉTÉS PAR ACTIONS
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ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
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1.
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The name of the corporation is:
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Dénomination sociale de la compagnie:
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AKANDA CORP.
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2.
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The address of the registered office is:
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Adresse du siège social:
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77 KING STREET WEST
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Suite 400
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TORONTO-DOMINION CENTRE
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(Street & Number, or R.R. Number & if Multi-Office
Building give Room No.)
(Rue et numéro,
ou numéro de la R.R. et, s’il s’agit
édifice à bureau, numéro du bureau)
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TORONTO
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ONTARIO
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CANADA
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M5K 0A1
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(Name of Municipality or Post Office)
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(Postal Code/ Code postal)
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(Nom de la municipalité ou du bureau de poste)
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3.
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Number (or minimum and maximum number) of directors is:
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Nombre (ou nombres minimal et maximal)
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Minimum 1
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d’administrateurs:
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Maxium 10
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4.
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The first director(s) is/are:
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Premier(s) administrateur(s):
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First name, initials and surname
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Resident CanadianState Yes or No
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Prénom, initiales et nom de famille
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Résident Canadien Oui/Non
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Address for service, giving Street & No.
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Domicile élu, y compris la rue et le
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or R.R. No., Municipality and Postal Code
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numéro, le numéro de la R.R., ou le nom
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de la municipalité et le code postal
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*
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PHILIP
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NO
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VAN DEN BERG
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77 KING STREET WEST Suite 400
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TORONTO-DOMINION CENTRE
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TORONTO ONTARIO
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CANADA M5K 0A1
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Page: 2
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Ontario Corporation Number
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Request ID / Demande n°
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Numéro de la compagnie en Ontario
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26453832
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2854618
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5.
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Restrictions, if any, on business the corporation may carry on or on powers the corporation may exercise.
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Limites, s’il
y a lieu, imposées aux activités commerciales ou aux pouvoirs de la compagnie.
None.
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6.
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The classes and any maximum number of shares that the corporation is authorized to issue:
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Catégories et
nombre maximal, s’il y a lieu, d’actions
que la compagnie est autorisée à émettre:
The Corporation is authorized to issue an unlimited number
of preferred shares, issuable in series and an unlimited number of Common shares.
Page: 3
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Ontario Corporation Number
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Request ID / Demande n°
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Numéro de la compagnie en Ontario
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26453832
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2854618
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7.
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Rights, privileges, restrictions and conditions (if any) attaching to each class of shares and directors
authority with respect to any class of shares which may be issued in series: Droits, privilèges, restrictions et conditions,
s’il y a lieu, rattachés à chaque catégorie d’actions
et pouvoirs des administrateurs relatifs à chaque catégorie d’actions que peut
être émise en série:
|
The rights, privileges, restrictions and conditions attaching
to the preferred shares, issuable in series, as a class, are as follows:
1. The
preferred shares may at any time and from time to time be issued in one or more series, each series to consist of such number of shares
as may, before the issue thereof, be determined by resolution of the board of directors of the Corporation.
2. The
board of directors of the Corporation shall, subject as hereinafter provided, by resolution duly passed before the issue of the preferred
shares of each series, fix the designation, rights, privileges, restrictions and conditions to be attached to the preferred shares of
such series.
3. With
respect to payment of dividends and priority in the distribution of assets in the event of the liquidation, dissolution or winding-up
of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders
for the purpose of winding-up its affairs, the preferred shares of each series shall be entitled to preference over the Common shares
of the Corporation and over any other shares ranking junior to the preferred shares; and the preferred shares of each series may also
be given such other preferences over the Common shares and any other shares ranking junior to the preferred shares as may be determined
as to the respective series authorized to be issued.
4. The preferred
shares of each series shall rank on a parity with the preferred shares of every other series with respect to priority in payment of dividends
and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the assets of the Corporation among its shareholders for the
purpose of winding-up its affairs.
The rights, privileges, restrictions and conditions attaching
to the Common shares, as a class, are as follows:
Subject to the prior rights of the holders of the preferred
shares of the Corporation, the board of directors of the Corporation may declare and cause to be paid dividends to the holders of the
Common shares from any assets at the time properly applicable to the payment of dividends.
Page: 4
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Ontario Corporation Number
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Request ID / Demande n°
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Numéro de la compagnie en Ontario
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26453832
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2854618
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7.
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Rights, privileges, restrictions and conditions (if any) attaching to each class of shares and directors
authority with respect to any class of shares which may be issued in series: Droits, privilèges, restrictions et conditions,
s’il y a lieu, rattaches à chaque catégorie d’actions
et pouvoirs des administrateurs relatifs à chaque catégorie d’actions que peut
être émise en série:
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|
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2.
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Liquidation, Dissolution or Winding-Up
|
In the event of the liquidation, dissolution or winding-up
of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, subject
to the prior rights of the holders of the preferred shares of the Corporation, the holders of the Common shares shall be entitled to receive
the remaining assets of the Corporation.
The holders of the Common shares shall be entitled to receive
notice of and to attend any meeting of the shareholders of the Corporation, and shall be entitled to one vote in respect of each Common
share held at such meetings, except a meeting of holders of a particular class of shares other than the Common shares who are entitled
to vote separately as a class at such meeting.
Page: 5
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Ontario Corporation Number
|
|
Request ID / Demande n°
|
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Numéro de la compagnie en Ontario
|
|
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|
|
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26453832
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2854618
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8.
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The issue, transfer or ownership of shares is/is not restricted and the restrictions (if any) are
as follows:
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L’émission,
le transfert ou la propriété d’actions est/n’est
pas restreinte. Les restrictions, s’il y a lieu, sont les suivantes:
Shares of the Corporation
may not be transferred unless the restrictions on the transfer of securities of the Corporation contained in section 9 of the articles
of the Corporation entitled “Other provisions, if any” are
complied with.
Page: 6
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Ontario Corporation Number
|
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Request ID / Demande n°
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Numéro de la compagnie en Ontario
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26453832
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2854618
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9.
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Other provisions, (if any, are):
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Autres dispositions,
s’il y a lieu:
Securities of the Corporation, other than non-convertible
debt securities, shall not be transferred without either:
(a) the
approval of the directors of the Corporation, expressed by a resolution passed at a meeting of the directors or by an instrument or instruments
in writing signed by a majority of the directors; or
(b) the
approval of the holders of at least a majority of the shares of the Corporation entitling the holders thereof to vote in all circumstances
(other than a separate class vote of the holders of another class of shares of the Corporation) outstanding at the time, expressed by
a resolution passed at a meeting of the holders of those shares or by an instrument or instruments in writing signed by the holders of
a majority of those shares.
Page: 7
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Ontario Corporation Number
|
|
Request ID / Demande n°
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Numéro de la compagnie en Ontario
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26453832
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2854618
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10.
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The names and addresses of the incorporators are
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Nom et adresse des fondateurs
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First name, initials and last name
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Prénom, initiale et nom de
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|
or corporate name
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famille ou dénomination sociale
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Full address for service
or address of registered office or of principal place of business giving street & No. or R.R. No., municipality and postal code Domicile
élu, adresse du siège social au adresse de l’établissement principal,
y compris la rue et le numéro, le numéro de la R.R., le nom de la municipalité et le code postal
77 KING STREET WEST Suite 400
TORONTO-DOMINION CENTRE
TORONTO ONTARIO
CANADA M5K 0A1
|
DocuSign Envelope ID: 8E513145-1 E8F-485E-9AEB-A94F00F1 E5F4
Form 3
Business
Corporations
Act
Formule 3
Loi sur /es
societes par
actions
For Ministry Use Only
A l'usage exclusif du ministere
Ontario Corporation Number
Numero de la societe en Ontario
f'\1-,, Ministry of Government t'f,? 3.ndConsumerServ1ces
1, Ontario
CER'l'ftFIC/..\ TE
This is to certify that 111ese
articles are effective on
Ministere des Services
gouvernementaux P.t des
Services aux consommateurs
C.ERTRIFRCAT
Cec, certifie que 1es presents
statuts entrent en v1gueur le
AUGUST· 3 0 AO0t 2021 , .. ; ................ ~;;;;7t;;;i.;;)J,'''''''@'·''
.Jirecror I Oirectnce
Business Coroorations 1-\ct 11 .• 01 sur 1 es sociAtes oar actions
2854618
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1.
2,
3,
The name of the corporation is: (Set out in BLOCK CAPITAL LETTERS)
Denomination sociale actuelle de la societe (ecrire en LETTRES MAJUSCULES SEULEMENT):
A K A N D A C 0 R p
The name of the corporation is changed to (if applicable ): (Set out in BLOCK CAPITAL LETTERS)
Nouvelle denomination sociale de la societe (s'il ya lieu) (ecrire en LETTRES MAJUSCULES SEULEMENT):
C-------
Date of Incorporation/amalgamation:
Date de la constitution ou de la fusion :
2021/07/16
(Year, Month, Day)
(annee, mois, jour)
4. Complete only if there is a change In the number of directors or the minimum/ maximum number of directors.
5,
II faut remplir cette partie seulement si le nombre d'administrateurs ou si le nombre minimal ou maximal
d'administrateurs a change.
Number of directors is/are:
Nombre d'administrateurs :
Number
Nombre
or
OU
minimum and maximum number of directors is/are:
nombres minimum et maximum d'administrateurs :
minimum and maKiln!Jm.
minimum et maximum
The articles of the corporation are amended as follows:
Les statuts de la societe son! modifies de la fa9on suivante :
See page 1 A attached.
07119 (2011/05) © Queen's Printer for Ontario, 2011 / © lmprimeur de la Reine pour !'Ontario, 2011 Page 1 of/de 2
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DocuSign Envelope ID: 8E513145-1 E8F-485E-9AEB-A94F00F1 E5F4
SCHEDULE "A"
TO ARTICLES OF AMENDMENT
The Articles of the Corporation are amended as follows:
1. to remove the restriction on the transfer of shares set out in paragraph 8 of the articles of the
Corporation by deleting the following provision in its entirety:
"Shares of the Corporation may not be transferred unless the restrictions on the transfer
of securities of the Corporation contained in section 9 of the articles of the Corporation
entitled "Other provisions if any" are complied with."
and to substitute therefore the following words:
"No Restrictions."
2. to remove from paragraph 9 of the articles of the Corporation the following provisions in their
entirety:
"Securities of the Corporation, other than non-convertible debt securities, shall not
be transferred without either:
(a)
(b)
the approval of the directors of the Corporation, expressed by a resolution
passed at a meeting of the directors or by an instrument or instruments in
writing signed by a majority of the directors; or
the approval of the holders of at least a majority of the shares of the
Corporation entitling the holders thereof to vote in all circumstances (other than
a separate class vote of the holders of another class of shares of the
Corporation) outstanding at the time, expressed by a resolution passed at a
meeting of the holders of those shares or by an instrument or instruments in
writing signed by the holders of a majority of those shares."
and to substitute therefore the following words:
"None."
NA TDOCS\57364938\V-1
1A
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|
|
DocuSign Envelope ID: 8E513145-1 E8F-485E-9AEB-A94F00F1 E5F4
07119 (2011/05)
6. The amendment has been duly authorized as required by sections 168 and 170 (as applicable) of the Business
Corporations Act.
La modification a ete d0ment autorisee conformement aux articles 168 et 170 (selon le cas) de la Loi sur /es
societes par actions.
7. The resolution authorizing the amendment was approved by the shareholders/directors (as applicable) of the
-corporation on
Les actionnaires ou les adminlstrateurs (selon le cas) de la societe ont approuve la resolution autorisant la
modification le
2021/08/30
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in duplicate.
Les presents statuts sont signes en double exemplaire.
AKANDA CORP.
(Print name of corporation from Article 1 on page 1)
(Veuillez ecrir le nom de la societe de !'article un a la page une ).
By/
Par:
(Signature)
(Signature)
Director
(Description of Office)
(Fonction)
Page 2 of/de 2
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Exhibit 3.3
|
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|
AKANDA CORP.
|
|
BY-LAW NO. 1
|
|
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|
TABLE OF CONTENTS
|
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ARTICLE 1 INTERPRETATION
|
1
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|
|
1.1
|
Interpretation
|
1
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|
|
1.2
|
Conflicts with the Act
|
1
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|
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|
ARTICLE 2 BUSINESS OF THE CORPORATION
|
2
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2.1
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Registered Office
|
2
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2.2
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Seal
|
2
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2.3
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Financial Year
|
2
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2.4
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Banking Arrangements
|
2
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2.5
|
Execution of Contracts, Documents and Instruments in Writing by the Corporation
|
2
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2.6
|
Execution of Documents in Counterparts or by Facsimile Signature
|
2
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|
2.7
|
Divisions
|
3
|
|
|
2.8
|
Voting Rights in Other Bodies Corporate
|
3
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ARTICLE 3 BORROWING
|
3
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|
|
3.1
|
Borrowing
|
3
|
|
|
3.2
|
Delegation of Borrowing Powers
|
3
|
|
|
|
|
|
|
ARTICLE 4 DIRECTORS
|
4
|
|
|
4.1
|
Powers and Duties of Directors
|
4
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|
|
4.2
|
Number of Directors
|
4
|
|
|
4.3
|
Qualifications
|
4
|
|
|
4.4
|
Election and Term
|
4
|
|
|
4.5
|
Ceasing to Hold Office
|
5
|
|
|
4.6
|
Removal of Directors
|
5
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|
|
4.7
|
Vacancies
|
5
|
|
|
4.8
|
Remuneration of Directors
|
5
|
|
|
|
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ARTICLE 5 MEETINGS OF DIRECTORS
|
6
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|
|
5.1
|
Transaction of Business
|
6
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|
|
5.2
|
Quorum
|
6
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|
5.3
|
Place of Meetings
|
6
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|
|
5.4
|
Participation in Meeting by Electronic Means
|
6
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|
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5.5
|
Calling of Meetings
|
6
|
|
|
5.6
|
Notice of Meetings
|
6
|
|
|
5.7
|
Waiver of Notice
|
6
|
|
|
5.8
|
Omission of Notice
|
7
|
|
|
5.9
|
Voting at Meetings
|
7
|
|
|
5.10
|
Chair and Secretary
|
7
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|
|
5.11
|
Adjournment
|
7
|
|
|
5.12
|
Conflicts of Interest
|
7
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|
|
5.13
|
Written Resolution In Lieu of Meeting
|
8
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|
- ii -
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ARTICLE 6 COMMITTEES OF THE BOARD
|
8
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|
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6.1
|
Committees of Directors
|
8
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|
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6.2
|
Transaction of Business
|
8
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6.3
|
Meetings by Electronic Means
|
8
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6.4
|
Procedures
|
8
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|
|
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ARTICLE 7 OFFICERS
|
8
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|
|
7.1
|
Designation and Appointment
|
8
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|
|
7.2
|
Powers and Duties of Officers
|
8
|
|
|
7.3
|
Term of Office
|
9
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|
|
7.4
|
Vacancies
|
9
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|
|
7.5
|
Remuneration
|
9
|
|
|
7.6
|
Conflicts of Interest
|
9
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|
|
7.7
|
Agents and Attorneys
|
9
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|
|
7.8
|
Divisional Officers
|
9
|
|
|
|
|
|
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ARTICLE 8 PROTECTION OF DIRECTORS AND OFFICERS
|
10
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|
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8.1
|
Indemnity
|
10
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|
|
8.2
|
Insurance
|
10
|
|
|
|
|
|
|
ARTICLE 9 MEETINGS OF SHAREHOLDERS
|
10
|
|
|
9.1
|
Annual Meetings
|
10
|
|
|
9.2
|
Special Meetings
|
10
|
|
|
9.3
|
Place of Meetings
|
10
|
|
|
9.4
|
Quorum
|
11
|
|
|
9.5
|
Written Resolution in Lieu of Meeting
|
11
|
|
|
9.6
|
Meetings Held by Electronic Means
|
11
|
|
|
9.7
|
Notice of Meetings
|
11
|
|
|
9.8
|
Waiver of Notice
|
11
|
|
|
9.9
|
Record Date for Notice
|
11
|
|
|
9.10
|
List of Shareholders Entitled to Receive Notice
|
12
|
|
|
9.11
|
Shareholders Entitled to Vote
|
12
|
|
|
9.12
|
Persons Entitled to Attend
|
12
|
|
|
9.13
|
Omission of Notice
|
12
|
|
|
9.14
|
Chair, Secretary and Scrutineers
|
12
|
|
|
9.15
|
Proxies and Representatives
|
13
|
|
|
9.16
|
Voting at Meetings
|
13
|
|
|
9.17
|
Joint Shareholders
|
14
|
|
|
9.18
|
Adjournment
|
14
|
|
|
9.19
|
One Shareholder
|
14
|
|
|
|
|
|
|
ARTICLE 10 SECURITIES
|
14
|
|
|
10.1
|
Issuance
|
14
|
|
|
10.2
|
Commissions
|
14
|
|
|
10.3
|
Lien on Shares
|
14
|
|
|
10.4
|
Securities Register
|
15
|
|
|
10.5
|
Register of Transfers
|
15
|
|
|
10.6
|
Registrar and Transfer Agent
|
15
|
|
|
10.7
|
Effect of Registration
|
15
|
|
|
10.8
|
Certificated and Uncertificated Securities
|
15
|
|
- iii -
|
|
|
|
|
|
|
|
10.9
|
Replacement of Certificates
|
16
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10.10
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Joint Holders of Securities
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16
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ARTICLE 11 DIVIDENDS
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16
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11.1
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Dividends
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16
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11.2
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Record Date for Dividends
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16
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11.3
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Dividend Cheques
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16
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ARTICLE 12 NOTICES
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17
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12.1
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Method of Giving Notices
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17
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12.2
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Sending Notices by Electronic Means
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17
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12.3
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Notice to Joint Shareholders
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17
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12.4
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Persons Entitled by Death or Operation of Law
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17
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12.5
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Undelivered Notices
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17
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12.6
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Waiver of Notice
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18
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ARTICLE 13 ENACTMENT, AMENDMENT AND REPEAL OF BY-LAWS
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18
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13.1
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Approval and Confirmation
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18
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13.2
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Effective Date
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18
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AKANDA CORP.
(the “Corporation”)
BY-LAW NO. 1
A by-law relating generally to the transaction of the business and
affairs of the Corporation.
ARTICLE 1
INTERPRETATION
In this by-law:
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(a)
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“Act” means the Business Corporations
Act (Ontario), R.S.O. 1990, c. B.16, and the regulations made thereunder, each as amended or re-enacted from time to time;
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(b)
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“board” means the board of directors of
the Corporation;
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(c)
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“by-law” means any by-law of the Corporation
in effect from time to time;
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(d)
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“meeting of shareholders” means an annual
or special meeting of shareholders of the Corporation;
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(e)
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“STA” means the Securities Transfer Act,
2006 (Ontario), S.O. 2006, c. 8, as amended or re-enacted from time to time;
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(f)
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unless otherwise specified, all words and expressions contained in this by-law and that are defined
in the Act have the meanings given to them in the Act;
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(g)
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any reference to gender includes all genders and words importing the singular number include the plural
and vice versa; and
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(h)
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the inclusion of headings and a table of contents are provided for convenience only and do not affect
the construction or interpretation of this by-law.
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1.2
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Unanimous Shareholder Agreement
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If any provision in this by-law (or any other by-law) conflicts with
any provision in a unanimous shareholder agreement, the provision in the unanimous shareholder agreement will govern to the extent permitted
by the Act.
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1.3
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Conflicts with the Act
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If any provision in this by-law (or any other by-law) contravenes any
provision in the Act, the provision in the Act will govern.
ARTICLE 2
BUSINESS OF THE CORPORATION
The Corporation shall at all times have a registered office in Ontario.
Unless changed in accordance with the Act, the registered office will be at the location specified in the articles.
The Corporation need not have a corporate seal, but any corporate seal
adopted for the Corporation must be approved and may be changed by the board.
The financial year of the Corporation will be as determined by the
board from time to time.
Banking transactions will be made with
the bank(s) or other financial institution(s) approved by the board from time to time, and banking transactions will be made on the Corporation’s
behalf by the director(s), officer(s) or other person(s) designated, directed or authorized by the board from time to time and to the
extent so designated, directed or authorized.
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2.5
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Execution of Contracts, Documents and Instruments in Writing by the Corporation
|
Contracts, documents or instruments in writing requiring the signature
of the Corporation may be signed on behalf of the Corporation by any one officer or director of the Corporation. In addition, the board
may from time to time authorize any officer or officers of the Corporation, any director or directors of the Corporation, or any other
person or persons, either to sign contracts, documents and instruments in writing generally or to sign specific contracts, documents or
instruments in writing and the manner in which those contracts, documents or instruments in writing may or will be signed.
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2.6
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Execution of Documents in Counterparts or by Facsimile Signature
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Except as otherwise required by law:
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(a)
|
any articles, notice, resolution, requisition, statement or other document required or permitted to
be executed by more than one person for the purposes of the Act may be executed in several documents of like form each of which is executed
by one or more of those persons, and those documents, when duly executed by all persons required or permitted, as the case may be, to
do so, will be deemed to constitute one document for the purposes of the Act;
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(b)
|
the Corporation may accept delivery of any executed document, which is required or permitted to be
executed by one or more persons for the purposes of the Act, by facsimile or by electronic transmission; and
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(c)
|
any document required or permitted to be executed by one or more persons for the purposes of the Act
may be executed by means of electronic signature, and the Corporation may accept delivery of any document so executed.
|
The board may from time to time cause the business and operations of
the Corporation or any part thereof to be divided into one or more divisions, further divide those divisions into sub-units, or consolidate
the business and operations of divisions or sub-units.
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2.8
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Voting Rights in Other Bodies Corporate
|
Shares or other securities carrying voting rights of any body corporate
or other entity held by the Corporation may be voted at any and all meetings of the holders of those shares or other securities in the
manner and by the person(s) approved by the board from time to time. Persons authorized under paragraph 2.5 may also, for and on behalf
of the Corporation and without the necessity of a resolution or other action by the board, execute and deliver proxies to vote any of
those shares or other securities or arrange for the issue of security certificates or other evidence of the right to vote those shares
or other securities.
ARTICLE 3
BORROWING
Without limiting the powers of the board as provided in the Act, unless
the articles, by-laws or any unanimous shareholder agreement otherwise provide, the board may from time to time on behalf of the Corporation,
without authorization of the shareholders:
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(a)
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borrow money upon the credit of the Corporation;
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(b)
|
issue, reissue, sell or pledge debt obligations of the Corporation;
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(c)
|
give a guarantee on behalf of the Corporation to secure performance of an obligation of any person;
and
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(d)
|
mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the
Corporation, owned or subsequently acquired, to secure any obligation of the Corporation.
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3.2
|
Delegation of Borrowing Powers
|
Unless the articles, by-laws or any unanimous shareholder agreement
otherwise provide, the board may by resolution delegate any or all of the powers referred to in paragraph 3.1 to a director, a committee
of the board or an officer of the Corporation.
ARTICLE 4
DIRECTORS
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|
4.1
|
Powers and Duties of Directors
|
Subject to any unanimous shareholder agreement, the directors shall
manage or supervise the management of the business and affairs of the Corporation. Every director of the Corporation in exercising his
or her powers and discharging his or her duties to the Corporation shall act honestly and in good faith with a view to the best interests
of the Corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Every director of the Corporation shall comply with the Act, the articles, the by-laws and any unanimous shareholder agreement.
If the articles set out a fixed number of directors, the number of
directors of the Corporation and the number of directors to be elected at an annual meeting of shareholders must be the number of directors
set out in the articles. Where a minimum and maximum number of directors is provided for in the articles, the number of directors of the
Corporation and the number of directors to be elected at an annual meeting of the shareholders must be that number as is determined from
time to time by special resolution or, if a special resolution empowers the board to determine the number, by resolution of the board.
Where no such resolution has been passed, the number of directors of the Corporation must be the number of directors named in the articles.
The board must consist of at least one individual, but if the Corporation is an offering corporation, the board must consist of not fewer
than three individuals.
If the Corporation is an offering corporation, at least one-third of
the directors shall not be officers or employees of the Corporation or of any affiliate of the Corporation. No person may be a director
if that person (i) is less than eighteen years of age, (ii) has been found under the Substitute Decisions Act, 1992 (Ontario) or
under the Mental Health Act (Ontario) to be incapable of managing property or has been found to be incapable by a court in Canada
or elsewhere, (iii) is not an individual, or (iv) has the status of bankrupt. Unless the articles otherwise provide, a director is not
required to hold shares issued by the Corporation.
Subject to the Act, the shareholders of the Corporation shall elect,
at the first meeting of shareholders and at each succeeding annual meeting at which an election of directors is required, directors to
hold office for a term expiring not later than the close of the third annual meeting of shareholders following the election. A director
not elected for an expressly stated term ceases to hold office at the close of the first annual meeting of shareholders following his
or her election. A director who ceases to hold office upon the expiry of his or her term but who remains qualified to serve as a director
is eligible for re-election. If directors are not elected at a meeting of shareholders at which an election of directors is required,
the incumbent directors continue in office until their successors are elected.
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|
4.5
|
Ceasing to Hold Office
|
A director ceases to hold office at the earliest of (i) his or her
death, (ii) his or her removal from office by the shareholders of the Corporation in accordance with paragraph 4.6, (iii) his or her becoming
disqualified for election as a director, (iv) his or her resignation, which resignation is effective when his or her written resignation
is sent to the Corporation or, if a later time is specified in the resignation, at the later time, (v) the expiry of his or her term,
if he or she is elected for an expressly stated term, or (vi) the close of the first annual meeting of shareholders following his or her
election, if he or she is not elected for an expressly stated term.
Subject to the Act, the shareholders of the Corporation may by ordinary
resolution at a meeting of shareholders remove any director or directors from office, and the vacancy or vacancies created by the removal
of a director may be filled at that meeting, failing which the vacancy or vacancies may be filled by the board in accordance with the
Act.
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|
4.7.1
|
Subject to the Act, a quorum of directors may fill a vacancy among the directors, except a vacancy
resulting from: (i) an increase in the number of directors otherwise than in accordance with paragraph 4.7.2, or in the maximum number
of directors, as the case may be, or (ii) a failure to elect the number of directors required to be elected at any meeting of shareholders.
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|
|
4.7.2
|
Where a minimum and maximum number of directors is provided for in the articles, if a special resolution
passed under paragraph 4.2 empowers the board to determine the number of directors, the directors may not, between meetings of shareholders,
appoint an additional director if, after that appointment, the total number of directors would be greater than one and one-third times
the number of directors required to have been elected at the last annual meeting of shareholders.
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|
|
4.7.3
|
If there is not a quorum of directors, or if there has been a failure to elect the number of directors
required by the articles or paragraph 4.2, the directors then in office shall forthwith call a special meeting of shareholders to fill
the vacancy and, if they fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder.
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|
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4.7.4
|
A director appointed or elected to fill a vacancy holds office for the unexpired term of the director’s
predecessor.
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4.8
|
Remuneration of Directors
|
Subject to the articles and any unanimous shareholder agreement, the
board may fix the remuneration of the directors of the Corporation.
ARTICLE 5
MEETINGS OF DIRECTORS
|
|
5.1
|
Transaction of Business
|
The powers of the board may be exercised at a meeting at which a quorum
is present or by a resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the board. Where
the Corporation has only one director, that director may constitute a meeting.
Subject to the articles, a majority of the number of directors determined
in accordance with paragraph 4.2 constitutes a quorum for the transaction of business at any meeting of the board and, notwithstanding
any vacancies on the board, a quorum of directors may exercise all the powers of the board. Where the Corporation has fewer than three
directors, all directors must be present at any meeting of the board to constitute a quorum.
Meetings of the board may be held at any place within or outside Ontario
and it is not necessary in any financial year of the Corporation for a majority of the meetings of the board to be held at a place within
Canada.
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|
5.4
|
Participation in Meeting by Electronic Means
|
If all the directors of the Corporation present at or participating
in the meeting consent, a meeting of the board may be held by means of telephone, electronic or other communication facilities that permit
all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and a director participating
in that meeting by those means is deemed to be present at that meeting.
Meetings of the board may be called at any time by the Chair of the
board (if any), the President (if the President is a director), a Vice-President who is a director, or any two directors.
Subject to paragraph 5.7, notice of the time and place of any meeting
of the board must be sent to every director not less than 48 hours before the time when the meeting is to be held, but notice of an adjourned
meeting need not be given if the time and place of the adjourned meeting is announced at the original meeting. A notice of a meeting of
the board need not specify the purpose of or the business to be transacted at the meeting unless the Act requires that purpose or business
or the general nature of the business to be specified. Provided a quorum of directors is present, each newly elected board may without
notice hold its first meeting immediately following the meeting of shareholders at which that board is elected.
A director may in any manner and at any time waive notice of a meeting
of the board. Attendance of a director at a meeting of the board is a waiver of notice of the meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of
any business on the grounds that the meeting is not lawfully called.
The accidental omission to give notice of any meeting of the board
or any irregularity in the notice of any meeting or the non-receipt of any notice by any director will not invalidate any resolution passed
or any proceeding taken at that meeting.
Questions arising at any meeting of the board will be decided by a
majority of the votes cast on the question. In case of an equality of votes the chair of the meeting will not be entitled to a second
or casting vote.
The Chair of the board (if any) will, when present, preside as chair
at meetings of the board. If the Chair of the board is absent or unable or unwilling to preside as chair, the Vice-Chair of the board
(if any) will, when present, preside as chair for that meeting. If the Vice-Chair of the board is absent or unable or unwilling to preside
as chair, the President (if the President is a director) will, when present, preside as chair for that meeting. If none of these officers
is present or able or willing to preside as chair, the directors present shall choose one from among them to preside as chair for that
meeting. The Secretary of the Corporation (if any) will, when present, act as secretary at meetings of the board. If the Secretary is
absent or unable or unwilling to act as secretary, the chair of the meeting shall appoint a person who need not be a director to act as
secretary for that meeting.
The chair of a meeting of the board may, with the consent of the meeting,
adjourn the meeting to a fixed time and place. If there is a quorum at the adjourned meeting, the meeting will be considered duly constituted
and the board may deliberate and transact business in accordance with the procedures established at the original meeting. The directors
constituting a quorum at the original meeting need not constitute the quorum at the adjourned meeting. If there is no quorum at the adjourned
meeting, the meeting will be deemed to have ended at the original meeting at which the chair declared the adjournment.
|
|
5.12
|
Conflicts of Interest
|
A director of the Corporation who is a party to, or who is a director
or an officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract
or transaction with the Corporation shall disclose to the Corporation the nature and extent of that interest at the time and in the manner
provided by the Act. No such director shall attend any part of a meeting of the board during which the contract or transaction is discussed
or vote on any resolution to approve the contract or transaction except in accordance with the Act. If no quorum exists for the purpose
of voting on a resolution to approve a contract or transaction only because a director is not permitted to be present at the meeting,
the remaining directors will be deemed to constitute a quorum for the purposes of voting on the resolution.
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|
5.13
|
Written Resolution In Lieu of Meeting
|
A resolution in writing, signed by all the directors entitled to vote
on that resolution at a meeting of the board, is as valid as if it had been passed at a meeting of the board.
ARTICLE 6
COMMITTEES OF THE BOARD
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|
6.1
|
Committees of Directors
|
Subject to the articles, the board may appoint from their number a
managing director or one or more committees of directors, however designated, and delegate to the managing director or those committees
any powers of the board except those that pertain to matters that, under the Act, a managing director or committee of the board has no
authority to exercise.
|
|
6.2
|
Transaction of Business
|
The powers of a committee of the board may be exercised at a meeting
at which a quorum is present or by a resolution in writing signed by all the directors entitled to vote on that resolution at a meeting
of the committee. Meetings of committees of the board may be held at any place within or outside Ontario.
|
|
6.3
|
Meetings by Electronic Means
|
The provisions of paragraph 5.4 apply to meetings of committees of
the board.
Unless otherwise determined by the board, each committee of the board
has the power to fix its quorum at not less than a majority of its members, to elect its chair and to regulate its procedure.
ARTICLE 7
OFFICERS
|
|
7.1
|
Designation and Appointment
|
Subject to the articles and any unanimous shareholder agreement, the
board may designate the offices of the Corporation, appoint officers, specify their duties and, subject to the Act, delegate to them powers
to manage the business and affairs of the Corporation. Subject to the articles and any unanimous shareholder agreement, a director may
be appointed to any office of the Corporation and two or more offices of the Corporation may be held by the same person.
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|
7.2
|
Powers and Duties of Officers
|
Every officer of the Corporation shall:
|
|
(a)
|
perform all powers and duties incident to his or her respective office and such other powers and duties
respectively as may from time to time be assigned to him or her by the board;
|
|
|
(b)
|
in exercising his or her powers and discharging his or her duties to the Corporation, act
honestly and in good faith with a view to the best interests of the Corporation and exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances; and
|
|
|
(c)
|
comply with the Act, the articles, the by-laws and any unanimous shareholder agreement.
|
An officer ceases to hold office at
the earliest of (i) his or her death, (ii) his or her removal from office by the board, (iii) his or her ceasing to be a director if being
a director is a necessary qualification of that officer’s appointment, (iv) his or her resignation,
which resignation is effective when his or her written resignation is sent to the Corporation or, if a later time is specified in that
resignation, at the later time, (v) the appointment of his or her successor, or (vi) the close of the first meeting following his or her
appointment at which the board annually appoints the officers of the Corporation.
If the office of any officer of the Corporation becomes vacant for
any reason, the board may appoint a person to fill that vacancy.
Subject to the articles and any unanimous shareholder agreement, the
board may fix the remuneration of the officers of the Corporation.
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|
7.6
|
Conflicts of Interest
|
An officer of the Corporation who is a party to, or who is a director
or an officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract
or transaction with the Corporation, shall disclose to the Corporation the nature and extent of that interest at the time and in the manner
provided by the Act.
Subject to the Act, the Corporation may from time to time appoint agents
or attorneys for the Corporation in or outside Canada, with such powers (including the power to sub-delegate) as may be thought fit.
Where the business and operations of the Corporation or any part thereof
are divided into one or more divisions or sub-units, the board may designate and appoint divisional officers to those divisions or sub-units
and determine their powers and duties.
ARTICLE 8
PROTECTION OF DIRECTORS AND OFFICERS
|
|
8.1.1
|
Subject to the Act, the Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation or another individual who acts or acted at the Corporation’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Corporation or other entity.
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|
|
8.1.2
|
The Corporation shall not indemnify an individual under paragraph 8.1.1 unless the individual:
|
|
|
(i)
|
acted honestly and in good faith with a view to the best interests of the Corporation or, as the case
may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity
at the Corporation’s request; and
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|
|
(ii)
|
in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty,
had reasonable grounds for believing that the individual’s conduct was lawful.
|
|
|
8.1.3
|
The Corporation shall also indemnify an individual referred to in paragraph 8.1.1 in such other circumstances
as the Act permits or requires. Nothing in this by-law limits the right of any individual entitled to indemnity to claim indemnity apart
from the provisions of this by-law.
|
The Corporation may purchase and maintain
insurance for the benefit of an individual referred to in paragraph 8.1.1 against any liability incurred by that individual, (i) in the
individual’s capacity as a director or officer of the Corporation, or (ii) in the individual’s
capacity as a director or officer, or a similar capacity, of another entity, if the individual acts or acted in that capacity at the Corporation’s
request.
ARTICLE 9
MEETINGS OF SHAREHOLDERS
Subject to the Act, the board shall call an annual meeting of shareholders
not later than eighteen months after the Corporation comes into existence and subsequently not later than fifteen months after holding
the last preceding annual meeting, for the purpose of placing before the annual meeting the financial statements, reports and any further
information required by the Act to be placed before the annual meeting, electing directors, appointing an auditor and transacting any
other business that may be properly brought before the meeting.
Subject to the Act, the board may at any time call a special meeting
of shareholders, and a special meeting of shareholders may be held in conjunction with an annual meeting of shareholders.
Subject to the articles and any unanimous
shareholder agreement, a meeting of shareholders will be held at such place in or outside Ontario as the board determines or, in the
absence of such a determination, at the place where the registered office of the Corporation is located. A meeting of shareholders
held under paragraph 9.6 will be deemed to be held at the place where the registered office of the Corporation is located.
Subject to the Act and the articles, a quorum at any meeting of shareholders
will be two persons present in person and holding or representing by proxy not less than 10% of the votes attached to all shares entitled
to be voted at the meeting. If the Corporation has only one shareholder, or only one holder of any class or series of shares, the shareholder
present in person or by proxy constitutes a meeting. No business may be transacted at any meeting of shareholders unless a quorum is present
at the time of the transaction of the business.
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|
9.5
|
Written Resolution in Lieu of Meeting
|
Subject to the Act, a resolution in writing signed by all the shareholders
of the Corporation or their attorney authorized in writing entitled to vote on that resolution at a meeting of shareholders is as valid
as if it had been passed at a meeting of shareholders.
|
|
9.6
|
Meetings Held by Electronic Means
|
Subject to the articles, a meeting of shareholders may be held by telephonic
or electronic means and a shareholder of the Corporation who, through those means, votes at the meeting or establishes a communications
link to the meeting will be deemed for the purposes of the Act to be present at the meeting.
Subject to paragraph 9.8, notice of the time and place of any meeting
of shareholders must be sent to each shareholder of the Corporation entitled to vote at the meeting, to each director and to the auditor
of the Corporation as follows: if the Corporation is an offering corporation, not less than twenty-one days or, if the Corporation is
not an offering corporation, not less than ten days, but, in either case, not more than fifty days, before the meeting. Notice of a meeting
of shareholders at which special business (as defined in the Act) is to be transacted must state, or be accompanied by a statement of,
the nature of that business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and the text of any special
resolution or by-law to be submitted to the meeting.
A shareholder of the Corporation and any other person entitled to attend
a meeting of shareholders may in any manner and at any time waive notice of a meeting of shareholders, and attendance of any such person
at a meeting of shareholders is a waiver of notice of the meeting, except where that person attends a meeting for the express purpose
of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
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|
9.9
|
Record Date for Notice
|
For the purpose of determining shareholders entitled to receive notice
of a meeting of shareholders, the board may fix in advance, as the record date for that determination, a date that is not less than 30
days and not more than 60 days before the date of the meeting or that is within such other period as may be prescribed by the Act.
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|
9.10
|
List of Shareholders Entitled to Receive Notice
|
|
|
9.10.1
|
For every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to
receive notice of the meeting, arranged in alphabetical order and showing the number of shares held by each shareholder.
|
|
|
9.10.2
|
If a record date is fixed under paragraph 9.9, the shareholders listed will be those whose names are
set out in the securities register of the Corporation at the close of business on that record date and the list must be prepared not later
than ten days after that record date.
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|
|
9.10.3
|
If no record date is fixed, the shareholders listed will be those whose names are set out in the securities
register of the Corporation at the close of business on the day immediately preceding the day on which notice of the meeting is given
and the list must be prepared on that date. However, where no notice of the meeting is given, the shareholders listed will be those whose
names are set out in the securities register of the Corporation on the day on which the meeting is held and the list must be prepared
on that date.
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|
|
9.10.4
|
The list of shareholders must be made available for examination by any shareholder of the Corporation
during usual business hours at the registered office of the Corporation or at the place where its central securities register is maintained
and at the meeting of shareholders for which the list was prepared.
|
|
|
9.11
|
Shareholders Entitled to Vote
|
A shareholder of the Corporation whose
name appears on a list prepared under paragraph 9.10 is entitled to vote the shares shown opposite the shareholder’s
name at the meeting of shareholders to which the list relates.
|
|
9.12
|
Persons Entitled to Attend
|
The only persons entitled to attend a meeting of shareholders are those
entitled to vote at that meeting, the directors and the auditor of the Corporation and others who, although not entitled to vote, are
entitled or required under the Act, the articles or the by-laws to be present at the meeting. Any other person may be admitted only with
the consent of the chair of the meeting.
The accidental omission to give notice of any meeting of shareholders
or any irregularity in the notice of any meeting or the non-receipt of any notice by any shareholder or director or the auditor of the
Corporation will not invalidate any resolution passed or any proceeding taken at that meeting.
|
|
9.14
|
Chair, Secretary and Scrutineers
|
|
|
9.14.1
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Subject to the Act, the articles and any unanimous shareholder agreement, the Chair of the board (if any) will, when present, preside as chair at meetings of shareholders. If the Chair of the board is absent or unable or unwilling to preside as chair, the Vice-Chair of the board (if any) will, when present, preside as chair for that meeting. If the Vice-Chair of the board is absent or unable or unwilling to preside as chair, the President will, when present, preside as chair for that meeting. Subject to the Act, the articles and any unanimous shareholder agreement, if none of these officers is present within 15 minutes after the time appointed for holding the meeting, or if none of these officers is able or willing to preside as chair, the persons present and entitled to vote at the meeting shall choose a director present at the meeting to be the chair for that meeting, and if no director is present or if all the directors present decline to take the chair, then the persons present and entitled to vote shall choose one of their number to be the chair for that meeting.
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9.14.2
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The Secretary of the Corporation (if any) will, when present, act as secretary at meetings of shareholders,
but if the Secretary is not present at a meeting, the chair of the meeting shall appoint a person who need not be a shareholder to act
as secretary at that meeting.
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9.14.3
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One or more scrutineers, who need not be shareholders of the Corporation, may be appointed by ordinary
resolution or by the chair of the meeting.
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9.15
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Proxies and Representatives
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Every shareholder entitled to vote
at a meeting of shareholders may by means of a proxy appoint a proxyholder or one or more alternate proxyholders, who need not be shareholders,
as the shareholder’s nominee to attend and act at the meeting in the manner, to the extent
and with the authority conferred by the proxy. Subject to the Act, a proxy must be signed (i) in writing or by electronic signature by
the shareholder or an attorney who is authorized by a document that is signed in writing or by electronic signature or, (ii) if the shareholder
is a body corporate, by an officer or attorney of the body corporate duly authorized. If the Corporation is an offering corporation, a
proxy appointing a proxyholder ceases to be valid one year from its date. A form of proxy must comply with the regulations under the Act.
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9.16.1
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Voting at a meeting of shareholders will be by show of hands, except where a ballot is demanded by
a shareholder or proxyholder entitled to vote at the meeting or applicable law requires a ballot to be taken on a particular matter. A
shareholder or proxyholder may demand a ballot either before or after any vote by show of hands. A demand for a ballot may be withdrawn.
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9.16.2
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On a show of hands, every person who is present and entitled to vote at the meeting will have one
vote. Subject to the Act, if a ballot is taken on a question, every person who is present and entitled to vote at the meeting will, unless
the articles otherwise provide, have one vote for each share which that person is entitled to vote at the meeting on the question.
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9.16.3
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If at any meeting a ballot is demanded on the election of a chair or on the question of adjournment,
it will be taken immediately without adjournment. If at any meeting a ballot is demanded or required on any other question, including
the election of directors, the vote will be taken by ballot in the manner and at the time (at once, later in the meeting or after adjournment)
as the chair of the meeting directs. The result of a ballot on a question will be the decision of the shareholders on that question.
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9.16.4
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Unless a ballot is demanded, an entry in the minutes of a meeting of shareholders to the effect that the chair declared a motion to
be carried is admissible in evidence as proof of the fact, in the absence of evidence to the contrary, without proof of the number or
proportion of the votes recorded in favour of or against the motion.
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9.16.5
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Subject to the Act, the articles and any unanimous shareholder agreement, every question at any meeting
of shareholders will be determined by a majority of the votes cast on the question. In case of an equality of votes, either on a show
of hands or on a ballot, the chair of the meeting will not be entitled to a second or casting vote.
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Where two or more persons hold shares jointly, one of those holders
present at a meeting of shareholders may in the absence of the others vote the shares, but if two or more of those persons are present,
in person or by proxy, they shall vote as one on the shares jointly held by them.
The chair of a meeting of shareholders may, with the consent of the
meeting, adjourn the meeting to a fixed time and place. If a meeting is adjourned for less than 30 days, it is not necessary to give notice
of the adjourned meeting other than by announcement at the earliest meeting that is adjourned. Subject to the Act, if a meeting is adjourned
by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting must be given as for an original meeting.
If a meeting is adjourned and no notice is required, any business that may have been brought before or dealt with at the original meeting
in accordance with the notice calling that meeting may be brought before or dealt with at the adjourned meeting. Any adjourned meeting
will be duly constituted if held in accordance with the terms of the adjournment and a quorum is present at that meeting. The persons
constituting a quorum at the original meeting need not constitute the quorum at the adjourned meeting. If there is no quorum at the adjourned
meeting, the original meeting will be deemed to have ended immediately after its adjournment.
If the Corporation has only one shareholder, or only one holder of
any class or series of shares, the shareholder present in person or by proxy constitutes a meeting.
ARTICLE 10
SECURITIES
Subject to the Act, the articles and any unanimous shareholder agreement,
shares in the capital of the Corporation may be issued at such time and to such persons and for such consideration as the board may determine.
No share may be issued until the consideration for the share is fully paid as provided for in the Act.
The board may authorize the Corporation
to pay a reasonable commission to any person in consideration of the person’s purchasing
or agreeing to purchase shares of the Corporation from the Corporation or from any other person, or procuring or agreeing to procure purchasers
for any such shares.
The
Corporation has a lien on shares registered in the name of a shareholder or the shareholder’s
legal representative for a debt of that shareholder to the Corporation, but not on any class or series of shares listed and
posted for trading on a stock exchange in or outside Canada. Subject to the articles and any unanimous shareholder agreement, the
Corporation may enforce the lien by selling the shares affected by it or by any other means permitted by law.
The Corporation shall prepare and maintain at its registered office,
or at any other place in Ontario designated by the board, a securities register in which it records the securities issued by it in registered
form, showing with respect to each class or series of securities the information required by the Act. Branch registers, if any, may be
kept at such offices of the Corporation or other places, either within or outside Ontario, designated by the board.
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10.5
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Register of Transfers
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The Corporation shall cause to be kept, at its registered office or
at any other place in Ontario designated by the board, a register of transfers in which all transfers of securities issued by the Corporation
in registered form and the date and other particulars of each transfer as required by the Act will be set out. Branch registers of transfers,
if any, may be kept at such offices of the Corporation or other places, either within or outside Ontario, designated by the board.
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10.6
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Registrar and Transfer Agent
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For each class of securities and warrants issued by it, the Corporation
may appoint, (i) a trustee, transfer agent or other agent to keep the securities register and the register of transfers and one or more
persons or agents to keep branch registers; and (ii) a registrar, trustee or agent to maintain a record of issued security certificates
and warrants, and, subject to the Act, one person may be appointed for the purposes of both clauses (i) and (ii) in respect of all securities
and warrants of the Corporation or any class or classes thereof.
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10.7
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Effect of Registration
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Subject to the Act, the Corporation may treat the registered owner
of a security as the person exclusively entitled to vote, to receive notices, to receive any interest, dividend or other payments in respect
of the security, and otherwise to exercise all the rights and powers of a holder of the security.
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10.8
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Certificated and Uncertificated Securities
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A security issued by the Corporation
may be represented by a security certificate or may be an uncertificated security. Unless otherwise provided by the articles, the board
may provide by resolution that any or all classes and series of the Corporation’s shares
or other securities will be uncertificated securities, but no such resolution will apply to securities represented by a certificate until
that certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of an uncertificated security,
the Corporation shall send to the registered owner of the uncertificated security a written notice containing the information required
to be stated on a share certificate in accordance with the Act. The Corporation may charge a fee, not exceeding the amount prescribed
by the Act, for a security certificate issued in respect of a transfer. Security certificates issued by the Corporation will be in such
form as the board may from time to time approve and must be signed by at least one of the following persons:
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(a)
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a director or officer of the Corporation;
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(b)
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a registrar, transfer agent or branch transfer agent of the Corporation, or an individual on their
behalf; and
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(c)
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a trustee who certifies it in accordance with a trust indenture.
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10.9
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Replacement of Certificates
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Subject to the Act and the STA, the Corporation shall issue a new security
certificate in lieu of a security certificate claimed by its owner to have been lost, destroyed or wrongfully taken, on payment of a fee,
not exceeding any amount prescribed by the Act, on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title
as the board may from time to time prescribe, whether generally or in any particular case, and upon satisfaction of any other reasonable
requirements determined by the board. However, the Corporation will not be required to issue a new security certificate in lieu of a security
certificate that has been lost, apparently destroyed or wrongfully taken if (i) the owner fails to give notice to the Corporation of that
fact within a reasonable time after the owner has notice of it; and (ii) the Corporation registers a transfer of the security before receiving
a notice of the loss, apparent destruction or wrongful taking of the security certificate.
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10.10
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Joint Holders of Securities
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If the Corporation issues a security certificate in respect of securities,
it will not be required to issue more than one security certificate in respect of securities held jointly by several persons, and delivery
to one of several joint holders is sufficient delivery to all. Where a security of the Corporation is issued to several persons as joint
holders, upon satisfactory proof of the death of one joint holder, the Corporation may treat the surviving joint holders as owner of the
security.
ARTICLE 11
DIVIDENDS
Subject to the Act, the articles and any unanimous shareholder agreement,
the board may from time to time declare and the Corporation may pay dividends to the shareholders according to their respective rights
and interests in the Corporation. Dividends may be paid in money or property or by issuing fully paid shares of the Corporation or options
or rights to acquire fully paid shares of the Corporation.
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11.2
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Record Date for Dividends
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For the purpose of determining shareholders entitled to receive payment
of a dividend, the board may fix in advance, as the record date for that determination, a date that is not more than 50 days before the
date for the payment of the dividend. If no record date is so fixed, the record date for the determination of shareholders entitled to
receive payment of a dividend will be at the close of business on the day on which the resolution relating to that dividend is passed
by the board.
A dividend payable
in cash may be paid by cheque to the order of each registered holder of shares of the class or series in respect of which it has been
declared and mailed by prepaid ordinary mail to that registered holder at the holder’s recorded
address, unless that holder otherwise directs. In the case of joint holders, the cheque will, unless such joint holders otherwise
direct, be made payable to the order of all of those joint holders and mailed to them at their recorded address.
ARTICLE 12
NOTICES
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12.1
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Method of Giving Notices
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12.1.1
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Any notice or document required by the Act, the articles or the by-laws to be sent to a shareholder
or director may be sent by prepaid mail, delivered personally or, subject to paragraph 12.2, sent by electronic means, as follows:
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(i)
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to a shareholder at the shareholder’s latest address
as shown in the records of the Corporation or its transfer agent; and
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(ii)
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to a director at the director’s latest address as shown
in the records of the Corporation or in the most recent notice filed under the Corporations Information Act (Ontario), whichever
is the more current.
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12.1.2
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A notice or document sent by prepaid mail to a shareholder in accordance with clause 12.1.1(i) or
to a director in accordance with clause 12.1.1(ii) is deemed to be received by the addressee on the fifth day after mailing.
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12.2
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Sending Notices by Electronic Means
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A notice or document required or permitted to be sent by the Act to
a shareholder or director of the Corporation may be sent by electronic means in accordance with the Electronic Commerce Act, 2000 (Ontario)
or as otherwise permitted by law.
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12.3
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Notice to Joint Shareholders
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If two or more persons are registered as joint holders of any share
of the Corporation, any notice may be addressed to all of those joint holders, but notice addressed to one of them will be sufficient
notice to all of them.
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12.4
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Persons Entitled by Death or Operation of Law
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Subject to the Act, every person who
by operation of law, transfer, death of a shareholder or any other means becomes entitled to any securities of the Corporation will be
bound by every notice in respect of those securities that, prior to that person’s name and
address being entered in the records of the Corporation, has been duly given to the registered holder of those securities.
If any notice or document sent to a
shareholder under clause 12.1.1(i) is returned on three consecutive occasions because the shareholder cannot be found, the Corporation
is not required to send any further notices or documents to the shareholder until the shareholder informs the Corporation in writing of
the shareholder’s new address.
Where a notice or document is required to be sent, the notice may be
waived or the time for the sending of the notice or document may be waived or abridged at any time with the consent in writing of the
person entitled thereto, which consent may be sent by electronic means in accordance with the Electronic Commerce Act, 2000 (Ontario)
or as otherwise permitted by law.
ARTICLE 13
ENACTMENT, AMENDMENT AND REPEAL OF BY-LAWS
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13.1
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Approval and Confirmation
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Unless the articles, by-laws or any unanimous shareholder agreement
otherwise provide, the board may, by resolution, make, amend or repeal any by-laws. Where the board so makes, amends or repeals a by-law,
the board shall submit the by-law, amendment or repeal to the shareholders at the next meeting of shareholders, and the shareholders may
by ordinary resolution confirm, reject or amend that by-law, amendment or repeal.
Subject to this Article 13, any by-law, amendment or repeal of a by-law
is effective from the date of the resolution of the board and remains in force until it is confirmed, confirmed as amended or rejected
by the shareholders at the next meeting of shareholders. If a by-law, amendment or repeal is rejected by the shareholders, or if the board
does not submit it to the shareholders as required by the Act, the by-law, amendment or repeal ceases to be effective on the date of that
rejection or on the date of the meeting of shareholders at which it should have been submitted, as the case may be, and no subsequent
resolution of the board to make, amend or repeal a by-law having substantially the same purpose or effect is effective until it is confirmed
or confirmed as amended by the shareholders.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT
BLANK]
MADE by the board on the 16th day of July, 2021.
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DocuSigned by:
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DocuSigned by:
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/s/ Philip Van
Den Berg
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/s/
Tej Virk
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Name:
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Philip van den Berg
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Name:
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Tej Virk
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Title:
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Director
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Title:
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Chief Executive
Officer
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Exhibit 4.1
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT
(this “Agreement”), is made as of November 3, 2021 (the “Effective Date”), by and among AKANDA CORP.,
an Ontario corporation (the “Company”), and HALO COLLECTIVE INC., an Ontario corporation, as further identified on
Schedule A hereto (the “Investor”).
RECITALS
WHEREAS, the Company
and Investor have to entered into that certain Share Purchase Agreement between Company and Investor dated September 29, 2021(the “Share
Purchase Agreement”), which contemplates the sale of all of the shares of Cannahealth Limited, a wholly owned subsidiary of
Investor, to Company, upon the terms and conditions of the Share Purchase Agreement, resulting in Investor owning 13,129,212 Common Shares.
WHEREAS, in connection
with the entering into of the Share Purchase Agreement , the Investor and the Company hereby agree that this Agreement shall govern the
rights of the Investor, to receive certain information from the Company, to nominate an Investor Director, to exercise Board of Directors
observer rights, and shall govern certain other matters as set forth in this Agreement;
NOW, THEREFORE, the
parties hereby agree as follows:
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1.
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Definitions. For purposes of this Agreement:
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1.1
“Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls,
is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, officer,
director or trustee of such Person, or any venture capital fund or other investment fund now or hereafter existing that is controlled
by one (1) or more general partners, managing members or investment adviser of, or shares the same management company or investment adviser
with, such Person.
1.2
“AGM” means the Company’s annual general meeting.
1.3
“Articles of Incorporation” means the Company’s Articles of Incorporation, as amended and/or restated
from time to time.
1.4
“Board of Directors” means the board of directors of the Company.
1.5
“Common Shares” means the Company’s common shares, no par value.
1.6 “Damages”
means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act,
the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof)
arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any
registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or
any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation
promulgated under the Securities Act, the Exchange Act, or any state securities law.
INVESTOR RIGHTS AGREEMENT
1.7
“Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for
(in each case, directly or indirectly), Common Shares, including options and warrants.
1.8
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
1.9
“FOIA Party” means a Person that, in the reasonable determination of the Board of Directors, may be subject
to, and thereby required to disclose non-public information furnished by or relating to the Company under, the Freedom of Information
Act, 5 U.S.C. 552 (“FOIA”), any state public records access law, any state or other jurisdiction’s laws similar
in intent or effect to FOIA, or any other similar statutory or regulatory requirement.
1.10
“Form F-1” means such form under the Securities Act as in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC, as it relates to the Company, a corporation foreign to the United States.
1.11
“Form F-3” means such form under the Securities Act as in effect on the date hereof or any registration form
under the Securities Act subsequently adopted by the SEC that permits forward incorporation of substantial information by reference to
other documents filed by the Company with the SEC, as it relates to the Company, a corporation foreign to the United States.
1.12
“GAAP” means generally accepted accounting principles in the United States as in effect from time to time.
1.13
“Holder” means Investor.
1.14
“IFRS” means the international financial reporting standards, commonly called IFRS, the accounting standard
in Canada as in effect from time to time.
1.15
“Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, life
partner or similar statutorily-recognized domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships of a natural person referred to herein.
1.16
“Investor Director” means an individual nominated to the Board of Directors by Investor.
1.17
“IPO” means the Company’s first underwritten public offering of its Common Shares under the Securities
Act.
1.18 “New
Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights,
options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible
or exchangeable into or exercisable for such equity securities.
INVESTOR RIGHTS AGREEMENT
1.19
“Person” means any individual, corporation, partnership, trust, limited liability company, association or other
entity.
1.20
“SEC” means the Securities and Exchange Commission.
1.21
“SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.
1.22
“SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.
1.23
“Securities” means (i) any Common Shares, or any Common Shares issued or issuable (directly or indirectly) upon
conversion and/or exercise of any other securities of the Company, acquired by a Holder of even date or after the date hereof, and (ii)
any Common Shares issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a
dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clause (i) above;
excluding in all cases, however, any Securities sold by a Person in a transaction in which the applicable rights under this Agreement
are not assigned pursuant to Section 5.1.
1.24
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
2.1
Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule
or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form F-3, the Company shall:
(a)
make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all
times after the effective date of the registration statement filed by the Company for the IPO;
(b)
use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c) furnish
to any Holder, so long as the Holder owns any Securities, forthwith upon request (i) to the extent accurate, a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the
effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any
time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may
be resold pursuant to Form F-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities
without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or
pursuant to Form F-3 (at any time after the Company so qualifies to use such form).
INVESTOR RIGHTS AGREEMENT
2.2
“Lock-Up” Agreement. The Holders agree hereby not to, and agree to execute and deliver a lock-up agreement with
the underwriter(s) of the IPO restricting its right to, (a) offer, pledge, sell, contract to sell, sell any options or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly
or indirectly, any securities of the Company, or (b) enter into any swap or other arrangement or any transaction that transfers, in whole
or in part, directly or indirectly, to another any of the economic consequences of ownership of such securities during the period of up
to 270 days from the date on which the trading of the Securities on the Nasdaq Stock Exchange commences (the “Lock-Up Trigger
Date”), in each case, excluding transfers pursuant to any carve-outs in the applicable lock-up agreement. The terms of such
lock-up agreements shall be negotiated among the Investor, the Company and the underwriters in the IPO and shall include customary carve-outs
from the restrictions on transfer set forth therein and shall permit that up to 50% of such securities may be transferred or sold from
the 271st day through the 365th day following the Lock-Up Trigger Date; the remaining 50% of such securities will
be entitled to be transferred without such lock-up restrictions beginning on the 366th day following the Lock-Up Trigger Date.
Any such transfers remain subject to rules of the Securities and Exchange Commission applicable to securities held by Affiliates, provided
that the Company agrees to cooperate with Investor to facilitate the transfer of Securities by Investor following the expiration of the
lock-up restrictions as set forth herein, including with respect to the removal of restrictive legends from the Securities applicable
to Affiliates, if Investor furnishes to the Company an opinion of counsel reasonably satisfactory to the Company that Investor is not
an “affiliate” of the Company under the Securities Act. Notwithstanding the foregoing, nothing in this Section 2.2
shall prohibit the sale by the Investor of such number of Common Shares as is required in order for the Investor to comply with its covenants
relating to control of the Company, found in that secured convertible debenture, dated the date here of, issued by the Company and acknowledged
and agreed to by the Investor, evidencing indebtedness in the principal amount of USD$6,559,294.
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3.
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Information, Board Nominee and Observer Rights.
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3.1
Delivery of Financial Statements. Upon written request by Investor, the Company shall deliver the following to Investor:
(a)
as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company (i) a balance
sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts
as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Section
3.1(d)) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications
of funds for such year, and (iii) a statement of stockholders’ equity as of the end of such year;
INVESTOR RIGHTS AGREEMENT
(b)
as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the
Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’
equity as of the end of such fiscal quarter, all prepared in accordance with IFRS or GAAP (except that such financial statements may (i)
be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with IFRS or
GAAP);
(c)
as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company,
a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for
shares of capital stock outstanding at the end of the period, the Common Shares issuable upon conversion or exercise of any outstanding
securities convertible or exercisable for Common Shares and the exchange ratio or exercise price applicable thereto, and the number of
shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit
Investor to calculate its percentage equity ownership in the Company, and certified by the chief financial officer or chief executive
officer of the Company as being true, complete, and correct;
(d)
as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months
and, promptly after prepared, any other budgets or revised budgets prepared by the Company (such budget and business plan that is approved
by the Board of Directors is collectively referred to herein as the “Budget”); and
(e)
with respect to the financial statements called for in Section 3.1(a) and Section 3.1(b), an instrument executed
by the chief financial officer and chief executive officer of the Company certifying that such financial statements were prepared in accordance
with IFRS or GAAP consistently applied with prior practice for earlier periods (except as otherwise set forth in Section 3.1(b) or
as disclosed otherwise) and fairly present, in all material respects, the financial condition of the Company and its financial performance
for the periods specified therein; and
(f)
such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Investor
may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Section
3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information
(unless covered by an enforceable confidentiality agreement, in a form acceptable to the Company); or (ii) the disclosure of which would
adversely affect the attorney-client privilege between the Company and its counsel.
If, for any period, the Company
has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements
delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such
consolidated subsidiaries.
INVESTOR RIGHTS AGREEMENT
Notwithstanding anything
else in this Section 3.1 to the contrary, the Company shall have no obligation to provide any information requested pursuant
to this Section 3.1 during (i) any period in which the Company has a public filing obligation to provide substantially
similar information or (ii) the period starting with the date thirty (30) days before the Company’s good-faith estimate of the
date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such
registration statement and related offering; provided that the Company’s covenants under this Section 3.1 shall
be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such
registration statement to become effective.
3.2
Inspection. The Company shall permit Investor, at Investor’s expense, to visit and inspect the Company’s properties;
examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal
business hours of the Company as may be reasonably requested by the Investor; provided, however, that the Company shall
not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably and in good faith considers
to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the
Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
3.3
Director Nominee Rights. Upon written notice of Investor, so long as Investor holds at least ten percent (10%) of the shares
of Common Shares (subject to appropriate adjustment for any stock splits, stock dividends, combinations, recapitalizations and the like),
Investor shall have the right, but not the obligation, to nominate an Investor Director to the Board of Directors of the Company at any
election of the Board of Directors of the Company, at an AGM or otherwise, or within sixty (60) days of Investor’s notice to fill
any vacancy. Any vacancies created by the resignation, removal or death of an Investor Director shall be filled by nomination of Investor,
pursuant to the provisions of this Section 3.3.
3.4
Failure to Nominate an Investor Director. In the absence of any new nomination from the Investor as specified in Section
3.3 above, any Investor Director previously nominated by Investor and then serving shall be automatically re-nominated if willing
to serve unless such individual has been removed by the Board of Directors, and otherwise such seat shall remain vacant until otherwise
filled as provided in Section 3.4.
3.5
No Liability for Election of Nominated Directors. Investor, nor any Affiliate of any the same, shall have any liability
as a result of nominating an individual for election as a director for any act or omission by such Investor Director in his or her capacity
as a director of the Company, nor shall Investor or any Investor Affiliate have any liability as a result of voting for any such designee
in accordance with the provisions of this Agreement.
INVESTOR RIGHTS AGREEMENT
3.6 Observer
Rights. Upon written notice of Investor, so long as Investor holds at least ten percent (10%) of the shares of the then issued
and outstanding Common Shares (subject to appropriate adjustment for any stock splits, stock dividends, combinations,
recapitalizations and the like) and the Investor Director is not a then-current member of the Board of Directors, the Company shall
invite a representative of Investor to attend all meetings of the Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its
directors at the same time and in the same manner as provided to such directors; provided, however, that such
representative shall agree to hold in confidence all information so provided; and provided further, that the Company reserves
the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such
information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel
or result in disclosure of trade secrets or a conflict of interest, or if such Investor or its representative is a competitor of the
Company.
3.7
Termination of Information, Board Nominee and Observer Rights. The covenants set forth in Sections 3.1, 3.2,
4.3 and 4.6 shall terminate upon the date on which the Investor no longer holds any Securities or if the Investor receives
information, nominee and observer rights from the acquiring company or other successor to the Company substantially similar to those set
forth in Section 4.
3.8
Confidentiality. Investor agrees that it will keep confidential and will not disclose, divulge, or use for any purpose (other
than to monitor or make decisions with respect to its investment in the Company) any confidential information obtained from the Company
pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such
confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section
3.8 by such Investor), (b) is or has been independently developed or conceived by such Investor without use of the Company’s
confidential information, or (c) is or has been made known or disclosed to such Investor by a third party without a breach of any obligation
of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential
information (i) to its attorneys, accountants, consultants, and other professionals to the extent reasonably necessary to obtain their
services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Securities from such Investor,
if such prospective purchaser agrees to be bound by the provisions of this Section 3.8; (iii) to any existing or prospective Affiliate,
partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such
Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information;
or (iv) as may otherwise be required by law, regulation, rule, court order or subpoena, provided that such Investor promptly notifies
the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
4.1
Insurance. The Company shall obtain, within ninety (90) days of the effective date of this Agreement, from financially sound
and reputable insurers, Directors and Officers liability insurance and term “key person” insurance, each in an amount and
on terms and conditions satisfactory to the Board of Directors, and will use commercially reasonable efforts to cause such insurance policies
to be maintained until such time as the Board of Directors determines that such insurance should be discontinued. The key person policy
shall name the Company as loss payee, and neither policy shall be cancelable by the Company without prior approval by the Board of Directors.
INVESTOR RIGHTS AGREEMENT
4.2 Board
Matters. The Company shall reimburse the nonemployee directors for all reasonable out-of-pocket travel expenses incurred
(consistent with the Company’s travel policy) in connection with attending meetings of the Board of Directors, if so approved
by the Board of Directors. The Company shall cause to be established, as soon as practicable after such request, and will maintain,
an audit and compensation committee, each of which shall consist solely of non-management directors. Each non-employee director
shall be entitled in such person’s discretion to be a member of all the audit and compensation committees of the Board of
Directors.
4.3
Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other
Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper
provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification
of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Company’s
Bylaws, the Articles of Incorporation, or elsewhere, as the case may be.
4.4
Indemnification Matters. The Company hereby acknowledges that one (1) or more of the Investor Directors nominated to serve
on the Board of Directors by one Investor may have certain rights to indemnification, advancement of expenses and/or insurance provided
by the Investor (collectively, the “Investor Indemnitors”). The Company hereby agrees (a) that it is the indemnitor
of first resort (i.e., its obligations to any such Investor Director are primary and any obligation of the Investor Indemnitors
to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Investor Director are secondary),
(b) that it shall be required to advance the full amount of expenses incurred by such Investor Director and shall be liable for the full
amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Investor Director to the
extent legally permitted and as required by the Articles of Incorporation or Bylaws of the Company (or any agreement between the Company
and such Investor Director), without regard to any rights such Investor Director may have against the Investor Indemnitors, and, (c) that
it irrevocably waives, relinquishes and releases the Investor Indemnitors from any and all claims against the Investor Indemnitors for
contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment
by the Investor Indemnitors on behalf of any such Investor Director with respect to any claim for which such Investor Director has sought
indemnification from the Company shall affect the foregoing and the Investor Indemnitors shall have a right of contribution and/or be
subrogated to the extent of such advancement or payment to all of the rights of recovery of such Investor Director against the Company.
The Investor Directors and the Investor Indemnitors are intended third-party beneficiaries of this Section 4.4 and shall have the
right, power and authority to enforce the provisions of this Section 4.4 as though they were a party to this Agreement.
INVESTOR RIGHTS AGREEMENT
4.5 FCPA.
The Company covenants that it shall not (and shall not permit any of its subsidiaries or Affiliates or any of its or their
respective directors, officers, managers, employees, independent contractors, representatives or agents to) promise, authorize or
make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any
Non-U.S. Official (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the
“FCPA”)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or
anti-corruption law. The Company further covenants that it shall (and shall cause each of its subsidiaries and Affiliates to) cease
all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or Affiliates, or
any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of
the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further covenants that it
shall (and shall cause each of its subsidiaries and Affiliates to) maintain systems of internal controls (including, but not limited
to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any
other applicable anti-bribery or anti-corruption law. Upon request, the Company agrees to provide responsive information and/or
certifications concerning its compliance with applicable anti-corruption laws. The Company shall promptly notify each Investor if
the Company becomes aware of any enforcement. The Company shall, and shall cause any direct or indirect subsidiary or entity
controlled by it, whether now in existence or formed in the future, to comply with the FCPA. The Company shall use its best efforts
to cause any direct or indirect subsidiary, whether now in existence or formed in the future, to comply in all material respects
with all applicable laws.
4.6
Cybersecurity. The Company shall use commercially reasonable efforts to (a) identify and restrict access (including through
physical and/or technical controls) to the Company’s confidential business information and trade secrets and any information about
identified or identifiable natural persons maintained by or on behalf of the Company (collectively, “Protected Data”)
to those individuals who have a need to access it and (b) implement reasonable physical, technical and administrative safeguards (“Cybersecurity
Solutions”) designed to protect the confidentiality, integrity and availability of its technology and systems (including servers,
laptops, desktops, cloud, containers, virtual environments and data centers) and all Protected Data. The Company shall use commercially
reasonable efforts to ensure that the Cybersecurity Solutions (x) are up-to-date and include industry-standard protections (e.g.,
antivirus, endpoint detection and response and threat hunting), (y) to the extent determined necessary by the Company or the Board of
Directors, are backed by a breach prevention warranty from the vendor certifying the effectiveness of such solutions, and (z) require
the vendors to notify the Company of any security incidents posing a risk to the Company’s information (regardless of whether information
was actually compromised). The Company shall evaluate on a periodic basis at least annually whether such safeguards should be updated
to maintain a level of security appropriate to the risk posed to Company systems and Protected Data. The Company shall educate its employees
about the proper use and storage of Protected Data, including periodic training as determined reasonably necessary by the Company or the
Board of Directors.
INVESTOR RIGHTS AGREEMENT
5.1 Successors
and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee
of Securities for no monetary consideration that (i) is an Affiliate of a Holder; or (ii) is a Holder’s Immediate Family
Member or trust for the benefit of an individual Holder or one (1) or more of such Holder’s Immediate Family Members; provided, however,
that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such
transferee and the Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written
instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the
provisions of Section 2.2. For the purposes of determining the number of shares of Securities held by a transferee, the
holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member;
or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated
together and with those of the transferring Holder; provided further that all transferees who would not qualify individually
for assignment of rights shall, as a condition to the applicable transfer, establish a single attorney-in-fact for the purpose of
exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement
inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and
permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly
provided herein.
5.2
Governing Law. This Agreement shall be governed by the internal laws of the Province of Ontario, without regard to conflict
of law principles that would result in the application of any law other than the laws of the Province of Ontario.
5.3
Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Counterparts may be delivered via electronic mail (including pdf
or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method
and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
5.4
Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered
in construing or interpreting this Agreement.
5.5
Notices.
(a)
All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively
given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail
during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business
day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one
(1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day
delivery, with written verification of receipt. All communications shall be sent to the Investor at its addresses as set forth on Schedule
A, or (as to the Company) to the principal office of the Company and to the attention of the Chief Executive Officer, or in any case
to such email address or address as subsequently modified by written notice given in accordance with this Section 5.5. If notice
is given to the Company, a copy (which copy shall not constitute notice) shall also be sent to the Company’s legal counsel (Greenberg
Traurig LLP) and if notice is given to Investor, a copy (which copy shall not constitute notice) shall also be given to Dentons Canada
LLP.
INVESTOR RIGHTS AGREEMENT
5.6 Amendments
and Waivers. Any term of this Agreement may be amended, modified or terminated and the observance of any term of this Agreement
may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written
consent of the Company and Investor; provided that any provision hereof may be waived by any waiving party on such
party’s own behalf, without the consent of any other party. No waivers of or exceptions to any term, condition, or provision
of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such
term, condition, or provision.
5.7
Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this
Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and
enforceable to the maximum extent permitted by law.
5.8
Aggregation of Stock; Apportionment. All shares of Securities held or acquired by Affiliates shall be aggregated together
for the purpose of determining the availability of any rights under this Agreement and such Affiliated Persons may apportion such rights
as among themselves in any manner they deem appropriate.
5.9
Entire Agreement. This Agreement (including any Schedules hereto) constitutes the full and entire understanding and agreement
among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof
existing between the parties is expressly canceled.
5.10
Dispute Resolution. The parties hereto irrevocably attorn and submit to the jurisdiction of the courts of the Province of
Ontario, sitting in the City of Toronto, with respect to any dispute for the purpose of any suit, action or other proceeding arising out
of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement
except in the courts of the Province of Ontario, sitting in the City of Toronto, and (c) hereby waive, and agree not to assert, by way
of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction
of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court.
INVESTOR RIGHTS AGREEMENT
WAIVER OF JURY TRIAL: EACH
PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER
TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH
PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
Each party will bear its own
costs in respect of any disputes arising under this Agreement. The prevailing party shall be entitled to reasonable attorney’s fees,
costs, and necessary disbursements in addition to any other relief to which such party may be entitled. Each of the parties to this Agreement
consents to personal jurisdiction for any equitable action sought in any court of the Province of Ontario, sitting in the City of Toronto
having subject matter jurisdiction.
5.11
Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement,
upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching
or non-defaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar
breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party,
shall be cumulative and not alternative.
[Signature page follows]
INVESTOR RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties
have executed this Investor Rights Agreement as of the date first written above.
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COMPANY:
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AKANDA CORP.
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By:
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/s/ Tejinder Virk
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Name:
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Tejinder Virk
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Title:
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Chief Executive Officer
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INVESTOR:
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HALO COLLECTIVE INC.
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By:
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/s/ Kiran Sidhu
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Name:
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Kiran Sidhu
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Title:
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Chief Executive Officer
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INVESTOR RIGHTS AGREEMENT
SCHEDULE A
Investor
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Name and Address
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HALO COLLECTIVE INC.
Attn: Kiran Sidhu
504 - 100 Park Royal
West Vancouver, BC V7T 1A2
Phone: 1-541-816-5410
Email: kiran@haloco.com
Copy to:
DENTONS CANADA LLP
Attn: Eric Foster
77 King Street West, Suite 400
Toronto-Dominion Centre Toronto, ON M5K 0A1
Phone: 1-416-558-3531
Email: eric.foster@dentons.com
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SCHEDULE A: INVESTOR RIGHTS AGREEMENT
Exhibit 4.2
Certain portions of this exhibit have been redacted
in accordance with Item 601(a)(6) of Regulation S-K. This information is not material and disclosure of such information would constitute
an unwarranted invasion of personal privacy. “[*]” indicates that information has been redacted.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION,
THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR (4) MONTHS AND ONE (1) DAY AFTER THE LATER OF: (I)
November 3, 2021 AND (II) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY.
AKANDA CORP.
SECURED CONVERTIBLE DEBENTURE
CONVERTIBLE DEBENTURE
CERTIFICATE NUMBER: CD-2021-10
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PRINCIPAL AMOUNT: $6,559,294 (USD)
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AKANDA CORP., a corporation incorporated
under the laws of the Province of Ontario (the “Borrower”), for value received, hereby acknowledges itself indebted
and promises to pay to or to the order of HALO COLLECTIVE INC. (hereinafter referred to as the “Lender” or the “Debentureholder”),
the principal amount of $6,559,294 (the “Principal Amount”) in lawful money of the United States of America in the
manner hereinafter provided at the foregoing address of the Lender, or at such other place or places as the Lender may designate by notice
in writing to the Borrower, on November 2, 2022, or such other date as the Principal Amount may become due and payable (the “Maturity
Date”) or upon a Triggering Event (as defined herein), and to pay interest to the Lender on the Principal Amount outstanding
from time to time owing hereunder to the date of payment as hereinafter provided, both before and after maturity or demand, default and
judgment.
Subject to automatic conversion upon the occurrence
of a Triggering Event, the Borrower has the right, from time to time and at any time prior to 5:00 p.m. (Eastern Standard Time) on the
Business Day (as defined herein) immediately preceding the Maturity Date at a price, with respect to the Principal Amount, equal to the
Conversion Price (as defined herein), subject to adjustment in certain events, together with any accrued and unpaid interest owing thereon
to the date of conversion, to convert such amount into Common Shares.
Unless (i) the Borrower exercises the Conversion
Rights attached to this Debenture or (ii) a Triggering Event occurs, the Principal Amount owing, or the portion of the Principal Amount
which has yet to be converted, together with any accrued and unpaid interest owing thereon and all other amounts now or hereafter payable
hereunder (collectively, the “Obligations”) shall be due and payable on the Maturity Date in accordance with the terms
hereof. This Debenture is issued subject to the terms and conditions appended hereto as Schedule A. The Borrower may satisfy the Obligations
hereunder by converting, into Common Shares, all of the Principal Amount outstanding, subject to adjustment in certain events, together
with any accrued and unpaid interest owing thereon under this Debenture at the Conversion Price on the Maturity Date.
IN WITNESS WHEREOF, the Borrower has caused
this Debenture to be executed by a duly authorized officer.
DATED for reference this 3rd day of November,
2021.
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AKANDA CORP.
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Per:
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/s/ Tejinder Virk
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Tej Virk, Chief Executive Officer
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Acknowledged and Agreed to by:
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HALO COLLECTIVE INC.
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/s/ Kiran Sidhu
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Kiranjit Sidhu, Chief Executive Officer
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(See terms and conditions attached hereto)
Schedule A –
Terms and Conditions for Secured Convertible Debenture
Article
1 – Interpretation
Section 1.1 Definitions
In this Debenture, the following
terms shall have the following meanings:
(1)
“Affiliate”
means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common
control with such Person, including, without limitation, any partner, managing member, officer, director or trustee of such Person, or
any venture capital fund or investment fund now or hereafter existing that is controlled by one (1) or more general partners, managing
members investment adviser of, or shares the same management company or investment adviser with, such Person;
(2)
“Business Day”
means a day other than a Saturday, Sunday or other day on which commercial banks in Toronto, Ontario are authorized by law to close;
(3)
“Canadian Securities
Laws” means the Securities Act (Ontario) and the securities laws of any
other province or territory of Canada, if applicable, and the rules, regulations and policies of any Canadian securities regulatory authority
administering such securities laws, as the same shall be in effect from time to time;
(4)
“Change of Control”
means:
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(a)
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any transaction (whether by purchase, Merger or otherwise) whereby a Person or Persons acting jointly
or in concert directly or indirectly acquires the right to cast, at a general meeting of shareholders of the Borrower, more than 50% of
the votes attached to the issued and outstanding Common Shares that may be ordinarily cast at a general meeting;
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(b)
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the Borrower’s amalgamation, consolidation or Merger with or into any other Person, any Merger of
another Person into the Borrower, unless the holders of voting securities of the Borrower immediately prior to such amalgamation, consolidation
or Merger hold securities representing 50% or more of the voting control or direction in the Borrower or the successor entity upon completion
of the amalgamation, consolidation or Merger; or
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(c)
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any conveyance, transfer, sale lease or other disposition of all or substantially all of the Borrower’s
and the Borrower’s subsidiaries’ assets and properties, taken as a whole, to another arm’s length Person;
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(5)
“Common Shares”
means the common shares in the capital of the Borrower or the common shares of the continuing corporation or other resulting issuer formed
as a result of a Merger;
(6)
“Conversion Price”
means, subject to adjustment in certain events or the requirements of any applicable securities law or Exchange, the Current Market Price
at the time of a Triggering Event (currently expected to be $5.00) or if no Triggering Event occurs then the price of the last private
placement of the Borrower where it raises more than $1,000,000 USD prior to the conversion by the Borrower;
(7)
“Conversion Right”
means the right attached to this Debenture which permits the Borrower to convert the Principal Amount outstanding under this Debenture,
or any portion thereof, into Common Shares in accordance with the provisions of Article 4;
(8)
“Current Market Price”
has the meaning attributed thereto in Section 4.3(2);
(9)
“Debenture”
means this secured convertible debenture;
(10)
“Event of Default”
has the meaning attributed thereto in Section 8.1;
(11)
“Exchange”
means the NYSE, NASDAQ, the Canadian Securities Exchange, the NEO Exchange, the TSX, the TSX Venture Exchange or if the Common Shares
are not listed on either of those exchanges, then such other stock exchange on which the Common Shares are listed and where a majority
of the trading volume occurs;
(12)
“Free Trading Securities” means securities that are not subject to any restrictions on trading (other than in
respect of resales by control persons or any escrow requirements of an applicable stock exchange);
(13)
“Issue Date” has the meaning attributed thereto in Section 4.2;
(14)
“Lien”
means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement
or capital lease, upon or with respect to any property of such Person;
(15)
“Lock Up Trigger Date”
has the meaning attributed thereto in Section 4.1;
(16)
“Maturity Date”
means November 2, 2022;
(17)
“Merger”
means any transaction (whether by way of consolidation, amalgamation, merger, transfer, sale or lease) whereby all or substantially all
of the Borrower’s assets would become the property of any other Person, or, in the case of any such consolidation, amalgamation
or merger, of the continuing corporation or other entity resulting therefrom;
(18)
“Non-Control Covenant”
has the meaning attributed thereto in Section 7.2(2);
(19)
“Person”
means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government
or agency or political subdivision thereof;
(20)
“Secured Debt”
means, with respect to any Person, any obligation of such Person for borrowed money that is secured in any manner by any Lien on any real
or personal property of such Person;
(21)
“Subsidiary”
means any Person, any corporation or other business entity in which such Person or one or more of its Subsidiaries owns, directly or indirectly,
sufficient equity or voting interests to enable it or them (as a group) to elect a majority of the directors (or Persons performing similar
functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries;
(22)
“Taxes”
means any present or future income and other taxes, levies, rates, royalties, deductions, withholdings, assessments, fees, dues, duties,
imposts and other charges of any nature whatsoever, together with any interest and penalties, additions to tax and other additional amounts,
levied, assessed or imposed by any governmental authority;
(23)
“Trading Day” means
a day on which the Exchange is open for trading (or if the Common Shares are not then listed on the Exchange, such other recognized stock
exchange or quotation system on which the Common Shares may trade or be quoted);
(24)
“Triggering Event”
means the occurrence of any of the following that may occur during the Triggering Event Period:
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(a)
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an initial public offering of the Borrower’s securities or the qualification of a non-offering prospectus by the Borrower
resulting, in either case, in the Borrower’s securities being listed for trading on a stock exchange and the Borrower becoming a
“reporting issuer” (as that term or its equivalent is defined in applicable securities legislation) in any jurisdiction of
Canada (or the equivalent in any other jurisdiction including the United States);
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(b)
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an amalgamation, arrangement, Merger, reverse takeover, reorganization or other similar transaction of
the Borrower with or into any other person (provided that the other person is not an affiliate of the Borrower) whereby all of the issued
and outstanding Common Shares are sold, transferred or exchanged for securities that are not subject to any restrictions on trading (other
than in respect of resales by control persons or any escrow requirements of an applicable stock exchange) (the “Free Trading
Securities”), or which results in all of the Common Shares (or the securities of a successor issuer) being listed on a stock
exchange and not being not subject to any restricted period or hold period under applicable securities laws in Canada or any other jurisdiction
(other than in respect of resales by control persons or any escrow requirements of an applicable stock exchange);
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(c)
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a sale or conveyance of all or substantially all of the property and assets of the Borrower to any arm’s
length third party for consideration consisting of Free Trading Securities and the subsequent distribution of all of such consideration
to all of the holders of Common Shares, on a pro rata basis;
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(d)
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the sale or exchange of all or substantially all of shares of the Borrower for Free Trading Securities;
or
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(e)
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any combination of the events or circumstances described in subsections (a), (b), (c) or (d) above, such that all of the Common
Shares shall be subject to one or more of (a), (b), (c) or (d) above. However, a Triggering Event conversion may only occur with respect
to such number of Common Shares that would result in the Lender owing less than 50% of the issued and outstanding Common Shares; and
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(25)
“Triggering Event Period” means six (6) months from the date hereof.
Section 1.2 Headings
The inclusion of headings
in this Debenture is for convenience of reference only and shall not affect the construction or interpretation hereof.
Section 1.3 Currency
Unless otherwise indicated,
all amounts in this Debenture are stated and shall be paid in the currency of the United States of America.
Section 1.4 Number, Gender
and Persons
Unless the context otherwise
requires, words importing the singular in number only shall include the plural and vice versa, words importing the use of gender shall
include the masculine, feminine and neuter genders and words importing Persons shall include individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities.
Section 1.5 Severability
If any provision of this Debenture
is determined by a Court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such determination shall not
impair or affect the validity, legality or enforceability of the remaining provisions hereof, and each such provision shall be interpreted
in such a manner as to render them valid, legal and enforceable to the greatest extent permitted by applicable law. Each provision of
this Debenture is declared to be separate, severable and distinct.
Section 1.6 Entire Agreement
This Debenture, including
any schedules attached hereto, constitutes the entire agreement between the Borrower and the Lender relating to the subject matter hereof,
and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements, understandings, conditions
or collateral agreements, whether oral or written, express or implied, with respect to the subject matter hereof.
Article
2 – Payment of Principal, Interest AND OTHER CONSIDERATIONS
Section 2.1 Repayment of
Principal
Subject to the terms and conditions
hereof, the Principal Amount outstanding on this Debenture, together with any accrued and unpaid interest owing thereon shall be repaid
by the Borrower to the Lender on the Maturity Date. Subject to applicable regulatory approval, the Borrower shall satisfy its obligation
to repay the Principal Amount outstanding under the Debenture upon a Triggering Event during the Triggering Event Period or at the election
of Lender subsequent to the Triggering Event Period by issuing fully paid and non-assessable Common Shares at the Conversion Price.
Section 2.2 Interest Payable
Interest on the Principal
Amount outstanding under this Debenture shall be at the rate of 1.00% per annum, calculated on a compounding basis, accrued and paid at
the earlier of the Issue Date upon a Triggering Event or the Maturity Date. The Borrower shall satisfy its obligation to repay interest
on the Principal Amount by issuing fully paid and non-assessable Common Shares at the applicable Conversion Price.
Section 2.3 Rank
This Debenture will constitute
direct secured obligations of the Borrower. There is no other debt that ranks ahead of this Debenture without the express written consent
of the Lender.
Article
3 – Purchase
Section 3.1 Purchases for
Cancellation
The Borrower will have the
right at any time and from time to time to purchase the Debentures and any accrued interest without any prepayment penalty.
Article
4 – Conversion
Section 4.1 Conversion
Right
(1)
Upon and subject to the terms and conditions hereinafter set forth (including, but not limited to, automatic conversion in the
event of a Triggering Event as described in Section 4.1(3) below) and subject to the requirements of any applicable securities law or
Exchange, the Borrower shall have the right (the “Conversion Right”), but not the obligation, at any time, and from
time to time, up to and including the Business Day immediately preceding the Maturity Date to notify the Lender that it wishes to exchange
or convert, for no additional consideration, all or any part of the Principal Amount of this Debenture (the “Converted Debenture
Amount”) into Common Shares at the Conversion Price in effect on the Issue Date. If the Borrower is electing to convert all
or a portion of the Principal Amount, then the applicable amount of accrued and unpaid interest on the Principal Amount being converted
must be paid by the Borrower up to, but excluding, the applicable date of conversion in accordance with Section 2.2. A conversion of principal
and interest hereunder into Common Shares may only occur in such amount as to ensure that the Lender does not own more than 50% of the
issued and outstanding Common Shares.
(2)
The Conversion Right shall extend only to the maximum number of whole Common Shares into which the Principal Amount of this Debenture
or any part thereof may be converted in accordance with this Section 4.1. Fractional interests in Common Shares shall be adjusted in the
manner provided in Section 4.4.
(3)
Upon the occurrence of a Triggering Event that occurs prior to the end of the Triggering Event Period, the Principal Amount of
this Debenture plus unpaid and accrued interest shall be converted into Common Shares at a price equal the Conversion Price
(4) The
Lender agrees hereby not to, and agrees to execute and deliver a lock-up agreement restricting its right to, (a) offer, pledge,
sell, contract to sell, sell any options or contract to purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any securities of the Borrower, or (b) enter
into any swap or other arrangement or any transaction that transfers, in whole or in part, directly or indirectly, to another any of
the economic consequences of ownership of such securities during the period of 270 days from the date on which the trading of the
Common Shares on the Nasdaq Stock Exchange commences (the “Lock-Up Trigger Date”), in each case, excluding
transfers pursuant to any carve-outs in the applicable lock-up agreement. The terms of such lock-up agreement shall be negotiated
among the Lender, the Borrower and the Boustead Securities, LLC and shall include customary carve-outs from the restrictions on
transfer set forth therein and shall permit that up to 50% of such securities may be transferred or sold from the 271st
day through the 365th day following the Lock-Up Trigger Date; the remaining 50% of such securities will be entitled to be
transferred without such lock-up restrictions beginning on the 366th day following the Lock-Up Trigger Date. Any such
transfers remain subject to rules of the Securities and Exchange Commission applicable to securities of the Borrower held by
Affiliates, provided that the Borrower agrees to cooperate with the Lender to facilitate the transfer of such securities by Lender
following the expiration of the lock-up restrictions as set forth herein, including with respect to the removal of restrictive
legends from such securities applicable to Affiliates, if Lender furnishes to the Borrower an opinion of counsel reasonably
satisfactory to the Borrower that Lender is not an “affiliate” of the Borrower under the Securities Act of 1933.
Notwithstanding the foregoing, nothing in this Section 4.1(4) shall prohibit the sale or transfer by the Lender of such number of
Common Shares held by the Lender as is required in order for the Lender to comply with its covenants set forth in Section 7.2.
Section 4.2 Conversion
Procedure
The Conversion Right may be
exercised by the Borrower by completing and signing the notice of conversion (the “Conversion Notice”) attached hereto
as Schedule B, and delivering the Conversion Notice and this Debenture to the Lender. The Conversion Notice shall provide that the Conversion
Right is being exercised, shall specify the Converted Debenture Amount and shall set out the date (the “Issue Date”)
on which Common Shares are to be issued upon the exercise of the Conversion Right (such date to be no earlier than five (5) Business Days
and no later than ten (10) Business Days after the day on which the Conversion Notice is issued, subject in each case to applicable securities
law, including Canadian Securities Laws or the requirements of any Exchange.
The conversion shall be deemed to have been affected immediately prior to the close of business on the Issue Date and the Common Shares
issuable upon conversion shall be deemed to be issued as fully paid and non-assessable at such time. Within ten (10) Business Days after
the Issue Date, a certificate for the required number of Common Shares shall be issued to the Lender. If less than all of the Principal
Amount of this Debenture is the subject of the Conversion Right, then within ten (10) Business Days after the Issue Date, the Borrower
shall deliver to the Lender a replacement Debenture in the form hereof in the Principal Amount of the unconverted principal balance hereof,
and this Debenture shall be cancelled. If the Conversion Right is being exercised in respect of the entire Principal Amount of this Debenture,
this Debenture shall be cancelled. With the Conversion Notice, the Lender shall provide the Borrower with its written calculation of the
amount of accrued and unpaid interest on the Principal Amount which is the subject of the Conversion Right pursuant to the Conversion
Notice, up to the date of that Conversion Notice and a per diem amount thereon.
Section 4.3 Adjustment
of Conversion Price
The Conversion Price in effect
at any date shall be subject to adjustment from time to time as follows:
(1)
If and whenever at any time prior to the Maturity Date, the Borrower shall:
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(a)
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subdivide or re-divide the outstanding Common Shares into a greater number of Common Shares;
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(b)
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reduce, combine or consolidate the outstanding Common Shares into a smaller number of Common Shares;
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(c)
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issue Common Shares (or securities convertible into or exchangeable for Common Shares) to the holders
of all or substantially all of the outstanding Common Shares by way of stock dividend; or
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(d)
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make a distribution on its outstanding Common Shares payable in Common Shares or securities exchangeable
for or convertible into Common Shares,
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the Conversion Price in effect on the
effective date of such subdivision, redivision, reduction, combination or consolidation or on the record date for such issue of
Common Shares (or securities convertible into or exchangeable for Common Shares) by way of a stock dividend or other distribution,
as the case may be, shall, in the case of the events referred to in Sections 4.3(1)(a), (c) and (d) above, be decreased in
proportion to the increase in the number of outstanding Common Shares resulting from such subdivision, redivision or dividend
(including, in the case where securities convertible into or exchangeable for Common Shares are issued, the number of Common Shares
that would have been outstanding had such securities been converted into or exchanged for Common Shares on such effective or record
date) or shall, in the case of the events referred to in Section 4.3(1)(b) above, be increased in proportion to the decrease in the
number of outstanding Common Shares resulting from such reduction, combination or consolidation on such effective or record date.
Such adjustment shall be made successively whenever any event referred to in this Section 4.3(1) shall occur. Any such issue of
Common Shares (or securities convertible into or exchangeable for Common Shares) by way of a stock dividend or other distribution
shall be deemed to have been made on the record date for the stock dividend or other distribution for the purpose of calculating the
number of outstanding Common Shares under Sections 4.3(2) and (3); to the extent that any such securities are not converted
into or exchanged for Common Shares prior to the expiration of the conversion or exchange right, the Conversion Price shall be
readjusted effective as at the date of such expiration to the Conversion Price which would then be in effect based upon the number
of Common Shares actually issued on the exercise of such conversion or exchange right.
(2)
If and whenever at any time prior to the Maturity Date, the Borrower shall fix a record date for the issuance of rights, options
or warrants to all or substantially all the holders of its outstanding Common Shares entitling them, for a period expiring not more than
forty-five (45) days after such date of issue (such period from the record date to the date of expiry being referred to in this Section
4.3(2) as the “Rights Period”), to subscribe for or purchase Common Shares (or securities convertible into or exchangeable
for Common Shares) (such subscription price per Common Share (inclusive of any cost of acquisition of securities exchangeable for or convertible
into Common Shares in addition to any direct cost of Common Shares) being referred to in this Section 4.3(2) as the “Per Share
Cost”), the Borrower shall give written notice to the Lender with respect thereto (any of such events herein referred to as
a “Rights Offering”), and the Lender shall have fifteen (15) days after receipt of such notice to elect to convert
any or all of the Principal Amount of this Debenture into Common Shares at the then applicable Conversion Price and otherwise on terms
and conditions set out in this Debenture. If the Lender elects to convert any or all of the Principal Amount of this Debenture, such conversion
shall occur immediately prior to the record date for the issuance of such rights, options or warrants. If the Lender elects not to convert
any of the Principal Amount of this Debenture, there shall continue to be an adjustment to the Conversion Price as a result of the issuance
of such rights, options or warrants, in the manner hereinafter provided. The Conversion Price will be adjusted effective immediately after
the end of the Rights Period to a price determined by multiplying the Conversion Price in effect immediately prior to the end of the Rights
Period by a fraction:
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(a)
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the numerator of which is the aggregate of:
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(i)
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the number of Common Shares outstanding as of the record date for the Rights Offering; and
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(ii)
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the number determined by dividing the product of the Per Share Cost and:
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(A)
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where the event giving rise to the application of this Section 4.3(2) was the issue of rights, options
or warrants to the holders of Common Shares under which such holders are entitled to subscribe for or purchase additional Common Shares,
the number of Common Shares so subscribed for or purchased during the Rights Period, or
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(B)
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where the event giving rise to the application of this Section 4.3(2) was the issue of rights, options
or warrants to the holders of Common Shares under which such holders are entitled to subscribe for or purchase securities exchangeable
for or convertible into Common Shares, the number of Common Shares for which those securities so subscribed for or purchased during the
Rights Period could have been exchanged or into which they could have been converted during the Rights Period,
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by the Current Market Price (as hereinafter
defined) of the Common Shares as of the record date for the Rights Offering; and
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(b)
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the denominator of which is
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(i)
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in the case described in subparagraph 4.3(2)(a)(ii)(A), the number of Common Shares outstanding,
or
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(ii)
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in the case described in subparagraph 4.3(2)(a)(ii)(B), the number of Common Shares that would be
outstanding if all the Common Shares described in subparagraph 4.3(2)(a)(ii)(B) had been issued,
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as at the end of the Rights Period.
“Current Market Price” of the
Common Shares at any date, means the weighted average of the sale prices per Common Share at which the Common Shares have traded on the
Exchange or, if the Common Shares are not listed on any stock exchange, then on the over-the-counter market, for any 20 consecutive Trading
Days selected by the Borrower commencing not later than 45 Trading Days and ending no later than five (5) Trading Days before such date;
provided, however, if such Common Shares are not traded during such 45 day period for at least 20 consecutive Trading Days, the simple
average of the following prices established for each of 20 consecutive Trading Days selected by the Borrower commencing not later than
45 Trading Days before such date:
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(a)
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the average of the bid and ask prices for each day on which there was no trading, and
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(b)
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the closing price of the Common Shares for each day that there was trading,
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or in the event that at any date the Common Shares
are not listed on the Exchange or on the over-the-counter market, the current market price shall be as determined by the directors of
the Borrower or such firm of independent chartered accountants as may be selected by the directors of the Borrower, acting reasonably,
and in good faith in their sole discretion; for these purposes, the weighted average price for any period shall be determined by dividing
the aggregate sale prices during such period by the total number of Common Shares sold during such period.
Any Common Shares owned by or held for the account
of the Borrower or any subsidiary or affiliate (as defined in the Securities Act (Ontario)) of the Borrower will be deemed not
to be outstanding for the purpose of any such computation.
If by the terms of the rights, options or warrants
referred to in this Section 4.3(2), there is more than one purchase, conversion or exchange price per Common Share, the aggregate price
of the total number of additional Common Shares offered for subscription or purchase, or the aggregate conversion or exchange price of
the convertible securities so offered, will be calculated for purposes of the adjustment on the basis of
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(c)
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the lowest purchase, conversion or exchange price per Common Share, as the case may be, if such price
is applicable to all Common Shares which are subject to the rights, options or warrants, and
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(d)
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the average purchase, conversion or exchange price per Common Share, as the case may be, if the applicable
price is determined by reference to the number of Common Shares acquired.
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To the extent that any adjustment in the Conversion
Price occurs pursuant to this Section 4.3(2) as a result of the fixing by the Borrower of a record date for the distribution of rights,
options or warrants referred to in this Section 4.3(2), the Conversion Price will be readjusted immediately after the expiration of any
relevant exchange, conversion or exercise right to the Conversion Price which would then be in effect based upon the number of Common
Shares actually issued and remaining issuable after such expiration, and will be further readjusted in such manner upon expiration of
any further such right.
If the Lender has exercised its Conversion Right
in accordance herewith during the Rights Period, the Lender will, in addition to the Common Shares to which it is otherwise entitled upon
such exercise, be entitled to that number of additional Common Shares equal to the result obtained when the difference, if any, between
the Conversion Price in effect immediately prior to, and the Conversion Price in effect immediately following the end of such Rights Offering
pursuant to this Section 4.3(2), is multiplied by the number of Common Shares received upon the exercise of the Conversion Right during
such period, and the resulting product is divided by the Conversion Price as adjusted for such
Rights Offering pursuant to this Section 4.3(2);
provided that no fractional Common Shares will be issued. Such additional Common Shares will be deemed to have been issued to the Lender
immediately following the end of the Rights Period and a certificate for such additional Common Shares will be delivered to the Lender
within ten Business Days following the end of the Rights Period.
(3)
If and whenever at any time prior to the Maturity Date, the Borrower shall fix a record date for the making of a distribution to
all or substantially all the holders of its outstanding Common Shares of (i) shares of any class other than Common Shares (or other than
securities convertible into or exchangeable for Common Shares), or (ii) rights, options or warrants (other than rights, options or warrants
referred to in Section 4.3(2)), or (iii) evidences of its indebtedness, or (iv) assets (other than dividends paid in the ordinary course)
then, in each such case, the Borrower shall give written notice to the Lender with respect thereto, and the Lender shall have fifteen
(15) days after receipt of such notice to elect to convert any or all of the Principal Amount of this Debenture into Common Shares at
the then applicable Conversion Price and otherwise on terms and conditions set out in this Debenture. If the Lender elects to convert
any or all of the Principal Amount of this Debenture, such conversion shall occur immediately prior to the record date for the making
of such distribution. If the Lender elects not to convert any of the Principal Amount of this Debenture, there shall continue to be an
adjustment to the Conversion Price as a result of the making of such distribution, (herein referred to as a “Special Distribution”)
determined in the manner hereafter set out. In this Section 4.3(3) the term “dividends paid in the ordinary course”
shall include the value of any securities or other property or assets distributed in lieu of cash dividends paid in the ordinary course
at the option of shareholders.
The Conversion Price will be adjusted effective
immediately after such record date to a price determined by multiplying the Conversion Price in effect on such record date by a fraction:
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(a)
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the numerator of which is:
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(i)
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the product of the number of Common Shares outstanding on such record date and the Current Market Price
of the Common Shares on such record date; less
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(ii)
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the aggregate fair market value (as determined by action by the directors of the Borrower, acting reasonably)
to the holders of the Common Shares of such securities or property or other assets so issued or distributed in the Special Distribution;
and
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(b)
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the denominator of which is the number of Common Shares outstanding on such record date multiplied by
the Current Market Price of the Common Shares on such record date.
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Any Common Shares owned by or held for the account
of the Borrower or any subsidiary or affiliate (as defined in the Securities Act (Ontario)) of the Borrower will be deemed not
to be outstanding for the purpose of any such computation.
(4)
In the case of any reclassification of, or other change in, the outstanding Common Shares pursuant to a Change of Control, the
Lender may elect, prior to the effective date of such Change of Control, to convert any or all of the Principal Amount of this Debenture
into Common Shares at the then applicable Conversion Price and otherwise on terms and conditions set out in this Debenture. To exercise
such right the Lender must provide a notice in writing to the Borrower no later than seven (7) days prior to the effective date of such
Change of Control, failing which the Lender’s right to convert this Debenture as a consequence of such Change of Control shall cease.
If the Lender elects to convert any or all of the Principal Amount of this Debenture, such conversion shall occur immediately prior to
the effective date of such Change of Control. If the Lender elects not to convert any of the Principal Amount of this Debenture, the Conversion
Price in effect after the effective date of such Change of Control shall be increased or decreased, as the case may be, in proportion
to any decrease or increase in the number of outstanding Common Shares resulting from such Change of Control so that the Lender, upon
exercising the Conversion Right after the effective date of such Change of Control, will be entitled to receive the aggregate number of
Common Shares or other securities, if any, which the Lender would have been entitled to receive as a result of such Change of Control
if, on the effective date thereof, the Lender had been the registered holder of the number of Common Shares to which the Lender was theretofore
entitled upon exercise of the Conversion Right.
(5) In
the case of any reclassification of, or other change in, the outstanding Common Shares (other than a change referred to in Section
4.3(1), Section 4.3(2), Section 4.3(3) or 4.3(4) hereof), the Conversion Price shall be adjusted in such manner, if any, and at such
time, as the Board of Directors of the Borrower determines to be appropriate on a basis consistent with the intent of this Section
4.3; provided that if at any time a dispute arises with respect to adjustments provided for in this Article 4, such dispute will be
conclusively determined by the auditors of the Borrower or if they are unable or unwilling to act, by such other firm of independent
chartered accountants as may be selected by action by the directors of the Borrower, acting reasonably, and any such determination
will be binding on the Borrower and the Lender. The Borrower will provide such auditors or accountants with access to all necessary
records of the Borrower. If and whenever at any time after the date hereof there is a reclassification or redesignation of the
Common Shares outstanding at any time or change of the Common Shares into other shares or into other securities (other than as set
out in Section 4.3(1), (2), (3) or (4)), or a consolidation, amalgamation or Merger of the Borrower with or into any other
corporation or other entity (other than a consolidation, amalgamation or Merger which does not result in any reclassification or
redesignation of the outstanding Common Shares or a change of the Common Shares into other shares and other than as set forth in
Section 4.3(4)), or a transfer of the undertaking or assets of the Borrower as an entirety or substantially as an entirety to
another corporation or other entity (any of such events being called a “Capital Reorganization”), the Lender,
upon the exercising the Conversion Right, after the effective date of such Capital Reorganization, will be entitled to receive in
lieu of the number of Common Shares to which the Lender was theretofore entitled upon such exercise, the aggregate number of shares,
other securities or other property, if any, which the Lender would have been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, the Lender had been the registered holder of the number of Common Shares to which
such Lender was theretofore entitled upon exercise of the Conversion Right. If determined appropriate by action of the directors of
the Borrower, appropriate adjustments will be made as a result of any such Capital Reorganization in the application of the
provisions set forth in this Section 4.3 with respect to the rights and interests thereafter of the Lender to the end that the
provisions set forth in this Section 4.3 will thereafter correspondingly be made applicable as nearly as may reasonably be in
relation to any shares, other securities or other property thereafter deliverable upon the exercise of the Conversion Right. Any
such adjustment must be made by and set forth in an amendment to this Debenture approved by action by the directors of the Borrower,
acting reasonably, and will for all purposes be conclusively deemed to be an appropriate adjustment.
(6)
In any case in which this Section 4.3 shall require that an adjustment shall become effective immediately after a record date for
an event referred to herein, the Borrower may defer, until the occurrence of such event, issuing to the Lender before the occurrence of
such event, the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event before giving
effect to such adjustment; provided, however, that the Borrower shall deliver to the Lender an appropriate instrument evidencing the Lender’s
right to receive such additional Common Shares upon the occurrence of the event requiring such adjustment and the right to receive any
distributions made on such additional Common Shares declared in favour of holders of record of Common Shares on and after the Issue Date
or such later date as the Lender would, but for the provisions of this Section 4.3(6), have become the holder of such additional Common
Shares pursuant to Section 4.3(2).
(7)
The adjustments provided for in this Section 4.3 are cumulative and shall apply to successive subdivisions, redivisions, reductions,
combinations, consolidations, distributions, issues or other event resulting in any adjustment under the provisions of this Section, provided
that, notwithstanding any other provision of this Section, no adjustment of the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments which
by reason of this Section 4.3(7) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.
Section 4.4 No Requirement
to Issue Fractional Common Shares
The Borrower shall not be
required to issue fractional Common Shares upon the conversion of the Debenture pursuant to this Article 4. If any fractional interest
in a Common Share, would, except for the provisions of this Section 4.4, be deliverable upon the conversion of any amount hereunder, the
number of Common Shares to be issued shall be rounded down to the nearest whole Common Share.
Section 4.5 Borrower to
Reserve Common Shares
The Borrower covenants with
the Lender that it will at all times reserve and keep available out of its authorized Common Shares, solely for the purpose of issue upon
exercise of the Conversion Right, and conditionally allot to the Lender, such number of Common Shares as shall then be issuable upon the
conversion of this Debenture.
The Borrower covenants with the Lender that all
Common Shares which shall be so issuable shall be duly and validly issued as fully paid and non-assessable.
Section 4.6 Certificate
as to Adjustment
The Borrower shall from time
to time, immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.3, deliver
an officer’s certificate to the Lender specifying the nature of the event requiring the same and the amount of the adjustment necessitated
thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Subject to
the dispute resolution procedure in subsection 4.3(5), such certificate shall be binding and determinative of the adjustment to be
made, absent manifest error.
Section 4.7 Shareholder
of Record
For all purposes, on the Issue
Date or the applicable date specified in Section 4.2 the Lender shall be deemed to have become the holder of record of the Common Shares
into which the Principal Amount of this Debenture (or a portion thereof) is converted in accordance with Section 4.2.
Section 4.8 Resale Restrictions,
Legending and Disclosure
By its acceptance hereof the
Lender acknowledges that this Debenture and the Common Shares issuable upon conversion hereof will be subject to certain resale restrictions
under Canadian Securities Laws or the applicable securities laws of any other jurisdiction, and the Lender agrees to comply with all such
restrictions and laws. The Lender further acknowledges and agrees that all Common Share certificates will bear the legend substantially
in the form set forth on the face page hereof as well as any legends required by the Exchange, provided that such legend shall not be
required on Common Share certificates issued at any time following four months plus one day after the date hereof. The Lender acknowledges
that the Borrower will be required to provide to the applicable securities regulatory authorities the identity of the Lender and its principals
and the Lender hereby agrees thereto.
Article
5 – RIGHTS OF DEBENTUREHOLDER
Section 5.1 Distribution
on Dissolution, Etc.
Subject to applicable law
and the rights of any holders of any Secured Debt or other indebtedness ranking in priority to the Lender, upon any sale, in one transaction
or a series of transactions, of all, or substantially all, of the assets of the Borrower or distribution of the assets of the Borrower
upon any dissolution or winding-up or total liquidation of the Borrower, whether in bankruptcy, liquidation, re-organization, insolvency,
receivership or other similar proceedings or upon an assignment to or for the benefit of creditors of the Borrower or otherwise any payment
or distribution of assets of the Borrower, whether in cash, property or security shall be paid or delivered by the trustee in bankruptcy,
receiver, assignee of or for the benefit of creditors or other liquidating agent of the Borrower making such payment or distribution,
directly to the holder of the Debentures or their representatives, to the extent necessary, to pay all obligations pursuant to the Debentures
in full.
Section 5.2 Certificate
Regarding Creditors
Upon any payment or distribution
of assets of the Borrower referred to in this Section 5.2, the Debentureholder shall be entitled to rely upon a certificate of the trustee
in bankruptcy, receiver, assignee of or for benefit of creditors or other liquidating agent of the Borrower making such payment or distribution,
delivered to the Debentureholder, for the purpose of ascertaining the Persons entitled to participate in such distribution, and other
indebtedness of the Borrower, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section 5.2.
Section 5.3 Rights of Debentureholder
Reserved
Nothing contained in
this Article 5 or elsewhere in this Debenture is intended to or shall impair, as between the Borrower and the Debentureholder, the
obligation of the Borrower, which is absolute and unconditional, to pay to the Debentureholder the Principal Amount and interest on
the Debenture, as and when the same shall become due and payable in accordance with their terms, nor shall anything herein prevent
the Debentureholder from exercising all remedies otherwise permitted by applicable law upon default under this Debenture.
Section 5.4 Payment of
Debenture Permitted
Nothing contained in this
Debenture shall:
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(a)
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prevent the Borrower from making payments of the Principal Amount, interest and other amounts to the Debentureholder
under this Debenture as herein provided;
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(b)
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prevent the conversion of this Debenture into Common Shares as herein provided or as otherwise permitted
according to law, including in connection with a bankruptcy, reorganization, insolvency, or other arrangement with creditors, of the Borrower;
and
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(c)
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prevent the redemption of this Debenture by the Borrower as herein provided or as otherwise permitted
according to law.
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Section 5.5 Security
The undersigned acknowledges
that the loan evidenced by this Debenture is secured, and the undersigned hereby grants a security interest, to and in favour of the Lender
by and in all of the assets of the undersigned, except for any ownership interest or securities of Bophelo Bio Science and Wellness (Pty)
Ltd., or the assets owned thereby which shall not be subject to any security interest by the Lender, in favour of the Lender pursuant
to a general security agreement (the “Security”) dated the date hereof. The undersigned hereby consents and agrees
to the loan, this Debenture and the Security.
The undersigned hereby acknowledges,
confirms and agrees that the time for attachment has not been postponed and that the undersigned has received valuable consideration for
the granting of the Security.
Article
6 – Covenants of the Borrower
Section 6.1 Covenants
The Borrower covenants and
agrees, for as long this Debenture remains outstanding, that:
(1)
Maintain Corporate Existence. Each of the Borrower and its material Subsidiaries shall maintain its corporate existence,
and preserve its rights, powers, licenses and privileges which are necessary or material to the conduct of its business, and not materially
change the nature of its business;
(2)
Compliance with Laws. Each of the Borrower and its Subsidiaries shall comply in all material respects with all applicable
laws, rules, governmental restrictions and regulations;
(3)
Maintain Books and Records. The Borrower shall, and shall cause each of its Subsidiaries to, keep adequate and accurate
records and books of account in which complete entries will be made reflecting all financial transactions and prepare its financial statements
in accordance with generally accepted accounting principles;
(4)
Payment of Taxes. Each of the Borrower and its Subsidiaries shall pay and discharge promptly all Taxes assessed or imposed
upon it or its property as and when the same become due and payable save and except where it contests in good faith the validity thereof
by proper legal proceedings;
(5)
Payment of Obligations. The Borrower shall pay all principal, interest and other amounts owing to the Lender hereunder promptly
when due;
(6)
Performance of Covenants. The Borrower shall promptly perform and satisfy all covenants and obligations to be performed
by it under this Debenture;
(7)
Disposal of Assets. Neither the Borrower nor its Subsidiaries shall convey, sell, lease, assign, transfer or otherwise
dispose of any of their respective material assets, other than in the ordinary course of business and for the purpose of carrying on the
same, except for any inter-company reorganization where the Lender has been given 10 Business Days notice thereof and the Borrower has
received the consent of the Lender acting reasonably but where security for the obligations hereof remain sufficient to cover any principal
and interest outstanding thereon; and
(8)
Notice of Event of Default. The Borrower shall promptly, and in any event within three (3) Business Days after the Borrower
becoming aware, give notice to the Lender of the existence of any Event of Default.
Article
7 – REPRESENTATIONS, WARRANTIES AND Covenants of the LENDER
Section 7.1 Representations
and Warranties
The Lender represents and
warrants to the Borrower that, as of the date of this Debenture, the Principal Amount is an amount equal to the aggregate principal amount
of that indebtedness owed to the Borrower (or any of its direct or indirect, wholly-owned subsidiaries) by Cannahealth Limited, Bophelo
Holdings Ltd., Bophelo Bio Science & Wellness (Pty) Ltd. and Canmart Ltd., as a result of the purchase by the Borrower of all of the
issued and outstanding shares in the capital of Cannahealth Limited, as well as funds expended by the Lender to operate the business,
including but not limited to salaries, professional fees, capital expenditures, working capital, travel and other costs or the reorganization
undertaken thereby in connection with such purchase.
Section 7.2 Covenants
(1)
The Lender agrees that, within ten (10) Business Days of the signing of the Debenture by both the Lender and the Borrower, the
Lender shall dispose of so many of the Common Shares that are held by the Lender that are necessary in order for the Lender to hold less
than 50% of the issued and outstanding Common Shares. The Lender agrees to provide the Borrower with a written confirmation of the disposal
within (3) three Business Days of such a disposal taking place. The Borrower agrees that any delays, on the part of the Borrower, in the
issuance of share certificates, or the completion of any other applicable documentation, by the Borrower that are requisite to the disposal
of any Common Shares held by the Lender pursuant to the covenants contemplated in this Section 7.2, shall not be taken into account when
determining the ten (10) Business Days available to the Lender to complete the disposal.
(2)
The Lender covenants and agrees, for as long this Debenture remains outstanding, that it shall not own 50% or more of the issued
and outstanding Common Shares and shall not exercise any conversion rights of any convertible securities that would result in the Lender
owning 50% or more of the issued and outstanding Common Shares (the “Non-Control Covenant”).
(3)
In the event that the Lender is in breach of the Non-Control Covenant, the Borrower shall be entitled, at its election, to:
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(a)
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suspend repayment of the Principal Amount and any accrued interest thereon at the time of breach;
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(b)
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suspend the charging of interest; and
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(c)
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extend the Maturity Date by one day for each day that the Lender is in breach of the Non-Control Covenant.
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Article
8 – Events of Default
Section 8.1 Events of Default
(1)
Any of the following shall constitute an Event of Default under this Debenture (each an “Event of Default”):
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(a)
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the Principal Amount owing hereunder shall not be paid when due;
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(b)
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if the Borrower fails to pay when due any interest or other amount owing by the Borrower to the Lender
and such breach or default shall continue for ten (10) Business Days of when it was due;
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(c)
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if the Borrower breaches any representation contained herein, fails to make any payment or to observe,
perform or comply with any term, covenant, condition or obligation of the Borrower contained herein or is otherwise in default of any
of the provisions contained herein (other than referred in subparagraphs (a) and (b) of this Section 8.1) and such default, if capable
of being remedied, is not remedied within thirty (30) days after the Borrower receives written notice of such default from the Lender;
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(d)
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if the Borrower shall generally fail to pay, or admit in writing its inability or unwillingness to pay,
debts as they become due or if a decree or order of a court having jurisdiction is entered adjudging the Borrower a bankrupt or insolvent;
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(e)
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if the Borrower shall apply for, consent to or acquiesce in the appointment of a trustee, receiver, or
other custodian for the Borrower or for a substantial part of the property thereof, or make a general assignment for the benefit of creditors;
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(f)
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if the Borrower shall in the absence of such application, consent or acquiescence, become subject to the
appointment of a trustee, receiver, or other custodian for the Borrower or for a substantial part of the property thereof, or have a distress,
execution, attachment, sequestration or other legal process levied or enforced on or against a substantial part of the property of the
Borrower; or,
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(g)
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if the Borrower shall permit or suffer to exist the commencement of any bankruptcy, reorganization, debt
arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding,
in respect of the Borrower and, if any such case or proceeding is not commenced by the Borrower, such case or proceeding, if contested
by the Borrower is not dismissed within thirty (30) days.
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(2)
If an Event of Default described in (e), (f) or (g) above shall occur, the entire unpaid principal of and accrued interest on this
Debenture shall become immediately due and payable without any declaration or other act on the part of the Lender. Immediately upon the
occurrence of any Event of Default described in (e), (f) or (g) above, or upon failure to pay this Debenture on the Maturity Date, the
Lender, with or without notice to the Borrower, may proceed to protect, enforce, exercise and pursue any and all rights and remedies available
to the Lender under this Debenture, or at law or in equity.
(3)
If any other Event of Default shall occur for any reason, whether voluntary or involuntary, and be continuing, the Lender may,
by notice to the Borrower, declare all or any portion of the outstanding Principal Amount of this Debenture to be due and payable, whereupon
the full unpaid amount of this Debenture shall become immediately due and payable without further notice, demand, presentment, protest
or other notice of any kind, all of which are expressly waived by the Borrower.
Article
9 – Mutilation, Loss, Theft or Destruction of Debenture Certificate
In case this Debenture certificate
shall become mutilated or be lost, stolen or destroyed, the Borrower, shall issue and deliver, a new replacement debenture certificate
upon surrender and cancellation of the mutilated Debenture certificate or, in the case of a lost, stolen or destroyed Debenture certificate,
in lieu of and in substitution for the same. In the case of loss, theft or destruction, the applicant for a substituted debenture certificate
shall furnish to the Borrower such evidence of the loss, theft or destruction of the Debenture certificate as shall be satisfactory to
the Borrower in its discretion and shall also furnish an indemnity and surety bond satisfactory to the Borrower in its discretion. The
applicant shall pay all reasonable expenses incidental to the issuance of any substituted debenture certificate.
Article
10 – General
Section 10.1 Notice
Any demand, notice, direction
or other communication to be made or given hereunder (in each case, “Communication”) shall be in writing and shall
be made or given by personal delivery, by courier, by facsimile or email transmission, or sent by registered mail, charges prepaid, addressed
to the respective parties as follows:
AKANDA CORP.
Attention: Tej Virk
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1
Attention: Tej Virk
E-mail: [*]
with a copy to:
Aird Berlis LLP
Brookfield Place, 181 Bay Street, Suite
1800
Toronto, ON M5J 2T9
Attention: Sean Mason
E-mail: smason@airdberlis.com
Halo Collective Inc.
504 - 100 Park Royal
West Vancouver, BC V7T 1A2
Attention: Kiranjit
Sidhu
E-mail: kiran@halocanna.com
with a copy to:
Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1
Attention: Eric
Foster
E-mail: eric.foster@dentons.com
or to such other address or email as any party
may from time to time designate in accordance with this Section. Any Communication made by personal delivery or by courier shall be conclusively
deemed to have been given and received on the day of actual delivery thereof or if such day is not a Business Day, on the first Business
Day thereafter. Any Communication made or given by email on a Business Day before 4:00 p.m. (local time of the recipient) shall be conclusively
deemed to have been given and received on such Business Day and otherwise shall be conclusively deemed to have been given and received
on the first Business Day following the transmittal thereof. Any Communication that is mailed shall be conclusively deemed to have been
given and received on the fifth Business Day following the date of mailing but if, at the time of mailing or within five Business Days
thereafter, there is or occurs a labour dispute or other event that might reasonably be expected to disrupt delivery of documents by mail,
any Communication shall be delivered or transmitted by any other means provided for in this Section.
Section 10.2 Change of
Control of Borrower
By its acceptance hereof,
each of the Borrower and the Lender acknowledges and agrees that in the event a Change of Control or Merger occurs, then all references
herein to the Borrower shall extend to and include the entity resulting therefrom or which thereafter will carry on the business of the
Borrower.
Section 10.3 Amendments
This Debenture may not be
amended or otherwise modified except by an instrument in writing executed by the Borrower and the Lender.
Section 10.4
Waivers
The Lender shall not, by any
act, delay, omission or otherwise, be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such
waiver shall be in writing and executed by an authorized officer of the Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by the Lender of any right, power and/or remedy on any one occasion shall not be construed as
a bar to or waiver of any such right, power and/or remedy which the Lender would otherwise have on any future occasion, whether similar
in kind or otherwise.
Section 10.5 Registration
of Debenture
The Borrower shall cause to
be kept at the head office of the Borrower in the City of Toronto, Ontario a register in which shall be entered the name and latest known
address of the Lender and any other holders of Debentures. Such register shall at all reasonable times during regular business hours of
the Borrower be open for inspection by the Lender and any such holder. The Borrower shall not be charged with notice of or be bound to
see to the performance of any trust, whether express, implied, or constructive, in respect of this Debenture and may act on the direction
of the Lender, whether named as trustee or otherwise, as though the Lender were the beneficial owner of this Debenture.
Section 10.6 No Transfer
of Debenture
No transfer of this Debenture
shall be permitted.
Section 10.7 Release and
Discharge
If the Lender exercises all conversion rights
attached to this Debenture pursuant to Article 4 hereof or if the Borrower pays all of the Obligations in full to the Lender, the Lender
shall release this Debenture and the Borrower shall be, and shall be deemed to have, discharged of all its obligations under this Debenture.
Section 10.8 Successors
and Assigns
This Debenture shall enure
to the benefit of the Lender and its successors and assigns and shall be binding upon the Borrower and its successors and permitted assigns.
Section 10.9 Time
Time shall be of the essence
of this Debenture.
Section 10.10 Governing
Law
This Debenture shall be governed
by and interpreted in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Borrower
and, by its acceptance hereof, the Lender each hereby irrevocably submit and attorn to the nonexclusive jurisdiction of the courts of
the Province of Ontario in connection with this Debenture.
Section 10.11 Further Assurances
The Borrower shall forthwith,
at its own expense and from time to time, do or file, or cause to be done or filed, all such things and shall execute and deliver all
such documents, agreements, opinions, certificates and instruments reasonably requested by the Lender or its counsel as may be necessary
or desirable to complete the transactions contemplated by this Debenture and carry out its provisions and intention.
Schedule B –
Conversion Notice
TO: HALO COLLECTIVE INC. (the “Lender”)
Pursuant to the Secured Convertible Debenture
(the “Debenture”) of the Borrower issued to the undersigned on November 3, 2021, the Borrower hereby notifies you that
$
of the principal amount outstanding and $
of interest thereon under the Debenture shall be converted into common shares in the capital of the Borrower at a price per Common Share
of $ .
[Describe the reason for the conversion –
if it is a Triggering Event, etc.]
Please confirm the registration instructions for
the certificates representing the Common Shares to be issued in the following format within five (5) Business Days hereof:
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Name
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Address for Delivery
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# of Common Shares
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(Print name as name is to appear on share certificate)
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DATED this _____ day of ___________________,
20 .
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AKANDA CORP.
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By:
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Name:
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Title:
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Exhibit 4.3
Form of Warrant Agreement
THE
REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES BY HIS, HER OR ITS ACCEPTANCE HEREOF, THAT SUCH HOLDER WILL NOT FOR A PERIOD OF ONE
HUNDRED EIGHTY (180) DAYS FOLLOWING THE Effective DATE OF THE REGISTRATION STATEMENT (AS DEFINED BELOW): (A) SELL, TRANSFER, ASSIGN, PLEDGE
OR HYPOTHECATE THIS PURCHASE WARRANT TO ANYONE OTHER THAN OFFICERS OR PARTNERS OF BOUSTEAD securities, llc, EACH OF WHOM SHALL HAVE AGREED
TO THE RESTRICTIONS CONTAINED HEREIN, IN ACCORDANCE WITH FINRA CONDUCT RULE 5110(E)(1), OR (B) CAUSE THIS PURCHASE WARRANT OR THE
SECURITIES ISSUABLE HEREUNDER TO BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT OR CALL TRANSACTION THAT WOULD RESULT IN THE
EFFECTIVE ECONOMIC DISPOSITION OF THIS PURCHASE WARRANT OR THE SECURITIES HEREUNDER, EXCEPT AS PROVIDED FOR IN FINRA RULE 5110(E)(2).
THIS PURCHASE WARRANT IS NOT
EXERCISABLE PRIOR TO [*], 2022 (THE DATE OF ISSUANCE). VOID AFTER 5:00 P.M., EASTERN TIME, [*], 2027 (THE DATE THAT IS FIVE YEARS FROM
THE DATE ON WHICH THE REGISTRATION STATEMENT IS DECLARED EFFECTIVE).
COMMON SHARES PURCHASE WARRANT
For the Purchase of [*] Common Shares
Of
AKANDA CORP.
1. Purchase
Warrant. THIS CERTIFIES THAT, pursuant to that certain Underwriting Agreement by and between Akanda Corp., a company incorporated
in the Province of Ontario (the “Company”) and Boustead Securities, LLC (“Boustead”), dated [*],
2022 (the “Underwriting Agreement”), Boustead (in such capacity with its permitted successors or assigns, the “Holder”),
as registered owner of this Purchase Warrant, is entitled, upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time or from time to time from [*], 2022 (the “Issuance Date”), and at or before 5:00
p.m., Eastern time, [*], 2027 (the “Expiration Date,”) which such date is five
(5) years from the effective date of the registration statement on Form F-1 (Registration No. 333-[*])
of the Company (the “Registration Statement”), but not thereafter, to subscribe for, purchase and receive,
in whole or in part, up to [*] Common Shares of the Company, without par value (the “Shares”), subject to adjustment
as provided in Section 5 hereof. If the Expiration Date is a day on which banking institutions are authorized by law
or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day that is not such a day in accordance
with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take
any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $[*] per Share (125% of the price
of the Shares sold in the Offering); provided, however, that upon the occurrence of any of the events specified in Section 5 hereof,
the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such
exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or
the adjusted exercise price, depending on the context. Any term not defined herein shall have the meaning ascribed thereto in the Underwriting
Agreement.
2. Exercise.
2.1 Exercise
Form. In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A (the “Exercise
Form”) must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of
the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated
by the Company or by certified check or official bank check to the order of the Company. If the subscription rights represented hereby
shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without
further force or effect, and all rights represented hereby shall cease and expire.
2.2 Cashless
Exercise. In lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section
2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof
being exercised), by surrender of this Purchase Warrant to the Company, together with the Exercise Form, in which event the Company shall
issue to Holder, Shares in accordance with the following formula:
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Where,
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X = The number of Shares to be issued to Holder;
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Y = The number of Shares
for which the Purchase Warrant is being exercised;
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A = The fair market
value of one Share; and
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B = The Exercise Price.
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For purposes of this Section
2.2, the fair market value means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common
Shares are then listed or quoted on a Eligible Market, the value shall be deemed to be the highest intra-day or closing price on any trading
day on such Eligible Market during the five trading days preceding the exercise, (b) if OTCQB or OTCQX is not an Eligible Market, the
value shall be deemed to be the highest intra-day or closing price on any trading day on the OTCQB or OTCQX on which the Common Shares
are then quoted during the five trading days preceding the exercise, as applicable, (c) if the Common Shares are not then listed or quoted
for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported in the “Pink Sheets” published by OTC
Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the “OTC Markets Group”,
the value shall be deemed to be the highest intra-day or closing price on any trading day on the Pink Sheets on which the Common Shares
are then quoted during the five trading days preceding the exercise, or (d) in all other cases, the fair market value of a Common Share
as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.
2.3 Legend.
Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as
follows unless such securities have been registered under the Securities Act of 1933, as amended (the “Securities Act”):
“The securities
represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”),
or applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Securities Act, or pursuant to an exemption from registration under the Securities
Act and applicable state law which, in the opinion of counsel to the Company, is available.”
3. Transfer.
3.1 General
Restrictions. The Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder (or permitted
assignees under FINRA Rule 5110(e)(1)) will not for a period of one hundred eighty (180) days following the date the Registration
Statement is declared effective (the “Effective Date”) by the Securities and Exchange Commission (the
“Commission”): (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant to anyone other than: (i)
Boustead or an underwriter, placement agent, or a selected dealer participating in the initial public offering (the
“Offering”) contemplated by the Underwriting Agreement, or (ii) officers or partners of Boustead or of any such
underwriter, placement agent or selected dealer, each of whom in (i) and (ii) shall have agreed to the restrictions contained
herein, in accordance with FINRA Conduct Rule 5110(e)(1), or (b) cause this Purchase Warrant or the securities issuable
hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective
economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and
after that date that is one hundred eighty (180) days after the effective date of the Registration Statement, transfers to others
may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the
Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed,
together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall
within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new
Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
3.2 Restrictions
Imposed by the Securities Act. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) if
required by law, the Company has received the opinion of counsel for the Company that the securities may be transferred pursuant to an
exemption from registration under Securities Act and applicable state securities laws, or (ii) a registration statement or post-effective
amendment to the Registration Statement relating to the offer and sale of such securities that includes a current prospectus has been
filed and declared effective by the Commission and compliance with applicable state securities law has been established.
4. New
Purchase Warrants to be Issued.
4.1 Partial
Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or
assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant
for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer
tax if exercised pursuant to Section 2.1 hereof, the Company shall cause to be delivered to the Holder without charge
a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase
the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
4.2 Lost
Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase
Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase
Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction
shall constitute a substitute contractual obligation on the part of the Company.
5. Adjustments.
5.1 Adjustments
to Exercise Price and Number of Shares. The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject
to adjustment from time to time as hereinafter set forth:
5.1.1 Share
Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 5.1.3 below, the number
of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the
effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding shares,
and the Exercise Price shall be proportionately decreased.
5.1.2 Aggregation
of Shares. If, after the date hereof, and subject to the provisions of Section 5.1.3 below, the number of outstanding
Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date
thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares, and the Exercise
Price shall be proportionately increased.
5.1.3 Replacement
of Shares upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a
change covered by Section 5.1.1 or Section 5.1.2 hereof or that solely affects the par value
of such Shares, or in the case of any share reconstruction or amalgamation or merger or consolidation of the Company with or into
another corporation (other than a consolidation or share reconstruction or amalgamation or merger in which the Company is the
continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case
of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an
entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter
(until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate
Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation or merger, or
consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company
obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a
change in Shares covered by Section 5.1.1 or Section 5.1.2, then such adjustment shall be made pursuant
to Section 5.1.1, Section 5.1.2 and this Section 5.1.3. The provisions of
this Section 5.1.3 shall similarly apply to successive reclassifications, reorganizations, share
reconstructions or amalgamations, mergers or consolidations, sales or other transfers.
5.1.4 Changes
in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section
5.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated
in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants
reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the date hereof or
the computation thereof.
5.2 Substitute
Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation or merger of the Company
with or into, another corporation (other than a consolidation or share reconstruction or amalgamation or merger which does not result
in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or
amalgamation or merger shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase
Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to
receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon
such consolidation or share reconstruction or amalgamation or merger, by a holder of the number of Shares of the Company for which such
Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation or merger, sale
or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for
in this Section 5. The above provision of this Section 5 shall similarly apply to successive consolidations
or share reconstructions or amalgamations or mergers.
5.3 Elimination
of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise
of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest
whole number of Shares or other securities, properties or rights.
6. Reservation
and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance
upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the
exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor,
in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully
paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise
of this Purchase Warrant and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall
be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as this Purchase
Warrant shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of
this Purchase Warrant to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on
the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or
quoted.
7. Registration.
The issuance of the Warrant and the Warrant Shares has been registered on the Registration Statement. The Company shall file
periodic filings with the Commission during the term of this Purchase Warrant as required by the rules and regulations issued by the
Commission. To the extent the Company does not maintain an effective registration statement for the Shares, during the term of this
Purchase Warrant and for a period of no more than seven (7) years from the commencement of sales of the Offering in accordance with
FINRA Rule 5110(g)(8)(D), whenever the Company proposes to register any of its securities under the Securities Act, whether for its
own account or for the account of another shareholder (except for the registration of securities (A) to be offered pursuant to an
employee benefit plan on Form S-8 or (B) pursuant to a registration made on Form F-4, or any successor forms then in effect) at any
time and the registration form to be used may be used for the registration of the Shares, it will so notify in writing the Holder (a
“Piggyback Notice”) as soon as practicable but in no event less than five (5) business days before
the anticipated filing date and offer to the Holder the opportunity to register the sale of such number of Shares as such Holder may
request in writing within three (3) business days after receipt of such Piggyback Notice (a “Piggyback
Registration”). Notwithstanding the foregoing, the Company may delay any such notice to the Holder, including until
after filing a registration statement, so long as the Holder has the same amount of time to determine whether to participate in an
offering as it would have had if such notice had not been so delayed. The Company shall cause such Shares to be included in such
registration and shall use commercially reasonable efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the Shares requested to be included in a Piggyback Registration on the same terms and conditions as
any similar securities of the Company and to permit the sale or other disposition of such Shares in accordance with the intended
method(s) of distribution thereof; provided, however, that if, solely in connection with any primary underwritten public offering
for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the
number of Common Shares which may be included in the registration statement because, in such underwriter(s)’ judgment,
marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be
obligated to include in such registration statement only such limited portion of the Shares with respect to which the Holder
requested inclusion hereunder as the underwriter shall reasonably permit. Holder shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such Piggyback Registration.
8. Certain
Notice Requirements.
8.1 Holder’s
Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive
notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the
Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section
8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen days
prior to the date fixed as a record date or the date of closing the transfer books (the “Notice Date”) for the determination
of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing
of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice
given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.
8.2 Events
Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of
the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings,
as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to
all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation or merger) or a sale
of all or substantially all of its property, assets and business shall be proposed.
8.3 Notice
of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section
5 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe
the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s
Chief Financial Officer.
8.4 Transmittal
of Notices. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be
deemed to have been duly made (1) when hand delivered, (2) when mailed by express mail or private courier service or (3) when the
event requiring notice is disclosed in all material respects and filed in a current report on Form 8-K (or similar report of the Company
required of foreign private issuers) or in a definitive proxy statement on Schedule 14A prior to the Notice Date: (i) if to the registered
Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following
address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
Fax: (815) 301-8099
Attention: Keith Moore, CEO
with a copy (which shall
not constitute notice) to:
BEVILACQUA PLLC
1050 Connecticut Avenue, Suite 500
Washington, DC 20036
Fax: (202) 869-0889
Attn: Louis A. Bevilacqua, Esq.
If to the Company:
Akanda Corp.
1a, 1b Learoyd Road
New Romney TN28
8XU, United Kingdom
Fax: [*]
Attention: Tejinder
Virk, CEO
with copies (which shall
not constitute notice) to:
Rimon, P.C.
423 Washington Street, Suite 600
San Francisco, California 94111
Fax: [*]
Attn: Mark C. Lee
Eric Foster Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1 Canada
Fax: [*]
Attn: [*]
9. Miscellaneous.
9.1 Amendments.
The Company and Boustead may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in
order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other
provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Boustead may
deem necessary or desirable and that the Company and Boustead deem shall not adversely affect the interest of the Holders. All other modifications
or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment
is sought.
9.2 Headings.
The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Purchase Warrant.
9.3 Entire
Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection
with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding
Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their
permitted assignees, respective successors, legal representatives and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing
Law; Submission to Jurisdiction; Trial by Jury. This Purchase Warrant shall be governed by and construed and enforced in accordance
with the laws of the State of California, without giving effect to conflict of laws principles thereof. The Company hereby agrees that
any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced
in the courts located in Los Angeles, California, or in the United States District Court located in Los Angeles, California, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction
and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting
a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section
8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding
or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other
party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders
and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial
by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.6 Waiver,
etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof
or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach,
non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance
or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Exchange
Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior
to the complete exercise of this Purchase Warrant by Holder, if the Company and Boustead enter into an agreement (“Exchange Agreement”)
pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both,
then Holder shall agree to such exchange and become a party to the Exchange Agreement.
9.8 Execution
in Counterparts. This Purchase Warrant may be executed in two (2) or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including
pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission
method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant
to be signed by its duly authorized officer as of [*], 2022.
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AKANDA CORP.
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By:
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Name: Tejinder Virk
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Title: Chief Executive Officer
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EXHIBIT A
Form to be used to exercise Purchase Warrant:
Date: __________, 20___
The undersigned hereby elects
irrevocably to exercise the Purchase Warrant for ______ Shares of Akanda Corp., a company incorporated in the Province of Ontario (the
“Company”) and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if
applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects
irrevocably to convert its right to purchase ___ Shares under the Purchase Warrant for ______ Shares, as determined in accordance with
the following formula:
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Where,
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X = The number of Shares to be issued to Holder;
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Y = The number of Shares
for which the Purchase Warrant is being exercised;
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A = The fair market value
(defined in Section 2.2 of the Purchase Warrant) of one Share which is equal to $_____; and
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B = The Exercise Price which
is equal to $______ per share
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The undersigned agrees and
acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation
shall be resolved by the Company in its sole discretion.
Please issue the Shares
as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant
representing the number of Shares for which this Purchase Warrant has not been exercised.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Delivery of Warrant Shares.
The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms
of the Warrant. Delivery shall be made to Holder, or for its benefit, as follows:
__ Check here if requesting
delivery as a certificate to the following name and to the following address:
__ Check here if requesting delivery by
Deposit/Withdrawal at Custodian as follows:
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DTC Participant:
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DTC Number:
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Account Number:
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Date: _____________ __,
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Name of Registered Holder
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EXHIBIT B
Form to be used to assign Purchase Warrant:
(To be executed by the registered
Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, does
hereby sell, assign and transfer unto the right to purchase shares of Akanda Corp., a company incorporated in the Province of Ontario
(the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on
the books of the Company.
Dated: ____________, 20__
Signature
NOTICE: The signature to
this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any
change whatsoever.
Exhibit 5.1
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Dentons Canada LLP
20th Floor, 250 Howe Street
Vancouver, BC, Canada V6C 3R8
dentons.com
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January [XX], 2022
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File No.: 587987-1
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Akanda Corp.
77 King Street West, Suite 400
Toronto, ON M5K 0A1
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Dear Sirs/Mesdames:
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Re:
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Akanda Corp. – Registration Statement on Form F-1
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We have acted as Canadian
counsel to Akanda Corp., a corporation organized under the laws of the Province of Ontario, Canada (the "Corporation"),
in connection with the Corporation’s filing of a Registration Statement on Form F-1 (File No. [●]) (the "Registration
Statement") filed by the Corporation under the U.S. Securities Act of 1933 (the "Securities Act") with
the Securities and Exchange Commission (the "Commission") relating to the initial public offering (the "Offering")
by the Corporation of up to 4,000,000 common shares, without par value, of the Corporation (including the up to 600,000 common shares
that the underwriters have the option to purchase to cover any over-allotments) (such common shares generally the "Common Shares"
and the Common Shares being issued pursuant to the Offering specifically, the "Offered Shares") pursuant to an underwriting
agreement to be entered into on or prior to the closing date of the Offering (the "Underwriting Agreement") between the
Corporation and Boustead Securities, LLC, as representative, and the other several underwriters to be named therein.
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A.
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Documents Reviewed and Relied Upon
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As Canadian counsel to the
Corporation, we have participated in the preparation of and examined original executed or electronically delivered copies, which have
been certified or otherwise identified to our satisfaction, of:
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1.
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the Registration Statement; and
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2.
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resolutions of an officer of the Corporation approving Offering, and authorizing and approving the issuance
of the Offered Shares (the "Authorizing Resolutions").
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We have also made such investigations
and examined originals or copies, certified or otherwise identified to our satisfaction, of such certificates of public officials and
of such other certificates, documents and records as we considered necessary or relevant for purposes of the opinions expressed below,
including:
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1.
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a certificate of status (the "Certificate of Status") dated [●], 2022 issued by
the Ministry of Government and Consumer Services (Ontario) in respect of the Corporation; and
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Rattagan Macchiavello
Arocena ► Jiménez de Aréchaga, Viana & Brause ► Lee International ► Kensington Swan ► Bingham
Greenebaum ► Cohen & Grigsby ► Sayarh & Menjra ► Larraín Rencoret ► Hamilton Harrison &
Mathews ► Mardemootoo Balgobin ► HPRP ► Zain & Co. ► Delany Law ► Dinner Martin ► For more
information on the firms that have come together to form Dentons, go to dentons.com/legacyfirms
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January [XX], 2022
Page 2
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dentons.com
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2.
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a certificate of certain officers of the Corporation dated the date hereof, as to certain factual matters
and certifying the constating documents of the Corporation and resolutions of the board of directors of the Corporation passed in connection
with the Offering (the "Officer's Certificate").
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As to various questions of
fact material to the opinions provided herein, we have relied upon the Officer’s Certificate.
We are qualified to practice
law in the Province of Ontario and our opinion herein is restricted to the laws of the Province of Ontario and the federal laws of Canada
applicable therein (the "Applicable Laws").
For the purposes of the opinions
expressed herein, we have assumed, without independent investigation, the following:
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1.
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with respect to all documents examined by us, the genuineness of all signatures, the authenticity, completeness
and accuracy of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as certified,
conformed, telecopied, PDF or photocopied copies of originals and the legal capacity of individuals signing any documents;
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2.
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the completeness, accuracy and currency of the indices and filing systems maintained at the public offices
where we have searched or made relevant inquiries and of other documents and certificates supplied by public officials;
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3.
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the Officer’s Certificate continues to be accurate on the date hereof;
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4.
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the minute books and corporate records of the Corporation made available to us are the original minute
books and records of the Corporation and contain all of the articles and constating documents of the Corporation and any amendments thereto
and all of the respective minutes, or copies thereof, of all proceedings of the shareholders and directors;
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5.
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at the time of offer, issuance and sale of any Offered Shares, the Registration Statement will have been
declared effective under the Securities Act, and no stop order suspending its effectiveness will have been issued and remain in effect;
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6.
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the Offered Shares will be delivered against payment of valid consideration therefor and in accordance
with the terms of the Authorizing Resolutions authorizing such sale and the Underwriting Agreement and as contemplated by the Registration
Statement; and
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7.
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that if any obligation under any document is required to be performed in a jurisdiction outside of the
Province of Ontario, the performance of that obligation will not be illegal under the laws of that jurisdiction.
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January [XX], 2022
Page 3
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dentons.com
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For the purposes of expressing
the opinions set forth herein, in connection with certain factual matters pertaining to this opinion, we have relied exclusively and without
independent investigation upon the Officer’s Certificate.
In giving the opinion expressed
in paragraph 1 below as it pertains to the Corporation being an existing corporation under the laws of the Province of Ontario, we have
relied solely on the Certificate of Status, which we have assumed continues to be accurate as of the date hereof.
Based upon and relying on
the foregoing and the qualifications hereinafter expressed, we are of the opinion that:
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1.
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The Corporation is an existing corporation under the Business Corporations Act (Ontario) and has
not been dissolved.
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2.
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The Offered Shares have been authorized for issuance and when issued in accordance with the terms of the
Underwriting Agreement and the Authorizing Resolutions will be validly issued, fully paid and non-assessable Common Shares in the capital
of the Corporation.
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3.
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The statements concerning tax matters set forth in the Registration Statement under the subheading "Certain
Material Canadian Federal Income Tax Considerations" under the heading “Certain Tax Considerations” insofar as they purport
to describe the provisions of the laws referred to therein represent our opinion with respect to the matters discussed therein subject
to the qualifications, assumptions and limitations set out under such heading.
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Whenever our opinion refers
to securities of the Corporation, whether issued or to be issued, as being "fully-paid and non-assessable", such phrase means
that the holders of such securities will not, after the issuance to them of such securities, be liable to pay further amounts to the Corporation
in respect of the issue price payable for such securities, and no opinion is expressed as to the adequacy of any consideration received
by the Corporation therefor.
For greater certainty, a specific
assumption, limitation or qualification in this opinion is not to be interpreted to restrict the generality of any other assumption, limitation
or qualification expressed in general terms in this opinion that includes the subject matter of the specific assumption, limitation or
qualification.
We hereby consent to the
reference to us under the heading "Legal Matters" and under the subheading "Certain Material Canadian Federal Income
Tax Considerations" under the heading “Certain Tax Considerations” in the Registration Statement and to the filing
of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not thereby admit that we are included in
the category of persons whose consent is required under Section 7 or Section 11 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
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January [XX], 2022
Page 4
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dentons.com
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The opinions are given as
at the date hereof and as of the effective date of the Registration Statement, and we disclaim any obligation or undertaking to advise
any person of any change in law or fact that may come to our attention after the effective date of the Registration Statement. Our opinions
do not take into account any proposed rules, policies or legislative changes that may come into force following the date hereof.
Exhibit 10.1
AKANDA
CORP.
2021
EQUITY INCENTIVE PLAN
ADOPTED
BY THE BOARD OF DIRECTORS: August 6, 2021
(a) Eligible
Award Recipients. Employees, Officers, Directors and Consultants are eligible to receive Awards.
(b) Available
Awards. The Plan provides for the grant of the following types of Awards: (i) Stock Options, and (ii) Restricted Share Unit
Awards.
(c) Purpose.
The Plan, through the grant of Awards, is intended to help the Corporation secure and retain the services of eligible award recipients,
provide incentives for such persons to exert maximum efforts for the success of the Corporation and any Affiliate and provide a means
by which the eligible recipients may benefit from increases in value of the Common Shares.
(a) Administration
by the Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees,
as provided in Section 2(c).
(b) Powers
of the Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To
determine (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted;
(D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise
receive cash or Common Shares under the Award; (E) the number of Common Shares subject to, or the cash value of, an Award.
(ii) To
construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration
of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in
any Award Agreement, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective.
(iii) To
settle all controversies regarding the Plan and Awards granted under it.
(iv) To
accelerate, in whole or in part, the time at which an Award may be exercised or vest (or the time at which cash or Common Shares may be
issued in settlement thereof).
(v) To
suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of
the Plan will not impair a Participant’s rights under the Participant’s then-outstanding Award without the Participant’s
written consent except as provided in subsection (viii) below.
(vi) To
amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to
Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or bringing the Plan or
Awards granted under the Plan into compliance with the requirements for Incentive Stock Options or ensuring that they are exempt from,
or compliant with, the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations,
if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 9(a) relating
to Capitalization Adjustments, the Corporation will seek shareholder approval of any amendment of the Plan that (A) materially increases
the number of Common Shares available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive
Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces
the price at which Common Shares may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially
expands the types of Awards available for issuance under the Plan. Except as otherwise provided in the Plan or an Award Agreement, no
amendment of the Plan will materially impair a Participant’s rights under an outstanding Award without the Participant’s written
consent.
(vii) To
submit any amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the
requirements of (A) Section 422 of the Code regarding Incentive Stock Options.
(viii) To
approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited
to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified
limits in the Plan that are not subject to Board discretion; provided however, that a Participant’s rights under any Award
will not be impaired by any such amendment unless (A) the Corporation requests the consent of the affected Participant, and (B) such
Participant consents in writing. Notwithstanding the foregoing, (1) a Participant’s rights will not be deemed to have been
impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially
impair the Participant’s rights, and (2) subject to the limitations of applicable law, if any, the Board may amend the terms
of any one or more Awards without the affected Participant’s consent (A) to maintain the qualified status of the Award as an
Incentive Stock Option under Section 422 of the Code; (B) to change the terms of an Incentive Stock Option, if such change results
in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422
of the Code; (C) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code;
or (D) to comply with other applicable laws or listing requirements.
(ix) Generally,
to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Corporation
and that are not in conflict with the provisions of the Plan or Awards.
(x) To
adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Officers, Directors
or Consultants who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary for
immaterial modifications to the Plan or any Award Agreement that are required for compliance with the laws of the relevant foreign jurisdiction).
(xi) To
effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any
outstanding Award; (B) the cancellation of any outstanding Award and the grant in substitution therefor of a new (1) Option,
(2) Restricted Share Unit Award, and/or (3) Other Award, determined by the Board, in its sole discretion, with any such substituted
award (x) covering the same or a different number of Common Shares as the cancelled Award and (y) granted under the Plan or
another equity or compensatory plan of the Corporation; or (C) any other action that is treated as a repricing under generally accepted
accounting principles.
(c) Delegation
to Committee.
(i) General.
The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated
to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board
that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee,
as applicable). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the
Plan, adopted from time to time by the Board or Committee (as applicable). The Committee may, at any time, abolish the subcommittee and/or
revest in the Committee any powers delegated to the subcommittee. The Board may retain the authority to concurrently administer the Plan
with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(d) Delegation
to an Officer. The Board may delegate to one or more Officers the authority to do one or both of the following: (i) designate
Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Awards) and,
to the extent permitted by applicable law, the terms of such Awards, and (ii) determine the number of Common Shares to be subject
to such Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify
the total number of Common Shares that may be subject to the Awards granted by such Officer and that such Officer may not grant an Award
to himself or herself. Any such Awards will be granted on the form of Award Agreement most recently approved for use by the Committee
or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to
an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Market Value pursuant to Section 14(w)(i)B
below.
(e) Effect
of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject
to review by any person and will be final, binding and conclusive on all persons.
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3.
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SHARES SUBJECT TO THE PLAN.
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(a) Share
Reserve. Subject to Section 9(a) relating to Capitalization Adjustments and any subsequent amendment to this Plan, the aggregate
number of shares reserved for issuance pursuant to Awards granted under this Plan, including any options granted under previous stock
option plans outstanding as of the date of this Plan, shall not exceed [20%] of the Corporation’s total issued and outstanding Common
Shares from time to time. This Plan is considered an “evergreen” plan, since the shares covered by Awards which have been
exercised or terminated shall be available for subsequent grants under the Plan and the number of Awards available to grant increases
as the number of issued and outstanding Shares increases.
(b) To
the extent any Awards (or portion(s) thereof) under this Plan are exercised, terminate or are cancelled for any reason prior to exercise
in full, any shares subject to such Awards (or portion(s) thereof) shall be added back to the number of shares reserved for issuance
under this Plan and will again become available for issuance pursuant to the exercise of Awards granted under this Plan.
(c) Any
shares issued by the Corporation through the assumption or substitution of outstanding stock options or other equity-based awards from
an acquired company shall not reduce the number of Shares available for issuance pursuant to the exercise of Awards granted under this
Plan.
(d) For
clarity, the Share Reserve in this Section 3(a) is a limitation on the number of Common Shares that may be issued pursuant to
the Plan. Accordingly, this Section 3(a) does not limit the granting of SAR Awards or any Other Award not involving, whether
by election or otherwise, the issuance of Common Shares to the Participant.
(e) Reversion
of Shares to the Share Reserve. If an Award or any portion thereof (i) expires or otherwise terminates without all of the shares
covered by such Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock),
such expiration, termination or settlement will not reduce (or otherwise offset) the number of Common Shares that may be available for
issuance under the Plan. If any Common Shares issued pursuant to an Award are forfeited back to or repurchased by the Corporation because
of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited
or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Corporation in satisfaction
of tax withholding obligations on an Award or as consideration for the exercise or purchase price of an Award will again become available
for issuance under the Plan.
(f) Source
of Shares. The shares issuable under the Plan will be shares of authorized but unissued Common Shares.
(a) Eligibility
for Specific Awards. Incentive Stock Options may be granted only to applicable employees of the Corporation or a “parent corporation”
or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code).
Awards other than Incentive Stock Options may be granted to Employees, Officers, Directors and Consultants.
(b) Ten
Percent Shareholders. A Ten Percent Shareholder will not be granted an Incentive Stock Option unless the exercise price of such Option
is at least 110% of the Market Value on the date of grant and the Option is not exercisable after the expiration of five years from
the date of grant.
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5.
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PROVISIONS RELATING TO OPTIONS AND STOCK APPRECIATION RIGHTS.
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Each Option or SAR
will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated
Incentive Stock Options or Non-Incentive Stock Options at the time of grant, and, if certificates are issued, a separate certificate
or certificates will be issued for Common Shares purchased on exercise of each type of Option. If an Option is not specifically designated
as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to
qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Non-Incentive Stock Option.
The provisions of separate Options or SARs need not be identical; provided, however, that each Award Agreement will conform to
(through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the
following provisions:
(a) Term.
Subject to the provisions of Section 4(b) regarding Ten Percent Shareholders, no Option or SAR will be exercisable after the
expiration of 10 years from the date of its grant or such shorter period specified in the Award Agreement.
(b) Exercise
Price. Subject to the provisions of Section 4(b) regarding Ten Percent Shareholders, the exercise or strike price of each
Option or SAR will be not less than 100% of the Market Value of the Common Shares subject to the Option or SAR on the date the Award is
granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Market
Value of the Common Shares subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option
or stock appreciation right pursuant to a Corporate Transaction; provided that such grant is permitted under applicable Securities Laws
and Stock Exchange Rules and, to the extent relevant to the Participant, is made in a manner consistent with the provisions of Section 409A
of the Code and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in Common Share equivalents.
(c) Purchase
Price for Options. The purchase price of Common Shares acquired pursuant to the exercise of an Option may be paid, to the extent permitted
by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below.
The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the
ability to use certain methods) and to grant Options that require the consent of the Corporation to use a particular method of payment.
The permitted methods of payment are as follows:
(i) by
cash, certified cheque, bank draft or money order payable to the Corporation;
(ii) if
an Option is a Non-Incentive Stock Option, by a “net exercise” arrangement pursuant to which the Corporation will reduce the
number of Common Shares issuable upon exercise by the largest whole number of shares with a Market Value that does not exceed the aggregate
exercise price; provided, however, that the Corporation will accept a cash or other payment from the Participant to the extent
of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Common
Shares will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon
exercise are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant
as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or
(iii) in
any other form of legal consideration that may be acceptable to the Board and specified in the applicable Award Agreement.
(d) Exercise
and Payment of a SAR. To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Corporation
in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such SAR. The appreciation distribution payable
on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Market Value (on the date of
the exercise of the SAR) of a number of Common Shares equal to the number of Common Share equivalents in which the Participant is vested
under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the aggregate strike price
of the number of Common Share equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution
may be paid in Common Shares, in cash, in any combination of the two or in any other form of consideration, as determined by the Board
and contained in the Award Agreement evidencing such SAR.
(e) Transferability
of Options and SARs. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and
the Corporation or as otherwise expressly consented to by the Board, Options and SARs shall not be assignable, transferable or negotiable
(whether by operation of law or otherwise) and may not be assigned or transferred other than by will or the laws of descent and distribution.
(f) Vesting
Generally. The total number of Common Shares subject to an Option or SAR may vest and therefore become exercisable in periodic installments
that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or
may not be exercised (which may be based on the satisfaction of performance goals or other criteria) as the Board may deem appropriate.
The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option
or SAR provisions governing the minimum number of Common Shares as to which an Option or SAR may be exercised.
(g) Termination
of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and
the Corporation, if a Participant’s Continuous Service terminates (other than for Cause and other than upon the Participant’s
death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise
such Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date ninety
(90) days following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the applicable
Award Agreement, which period will not be less than 30 days if necessary to comply with applicable laws unless such termination is
for Cause) and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of
Continuous Service, the Participant does not exercise his or her Option or SAR (as applicable) within the applicable time frame, the Option
or SAR will terminate.
(h) Disability
of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the
Corporation, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant
may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of
termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date 12 months following
such termination of Continuous Service (or such longer or shorter period specified in the Award Agreement, which period will not be less
than six months if necessary to comply with applicable laws unless such termination is for Cause), and (ii) the expiration of
the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not
exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.
(i) Death
of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the
Corporation, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the
Participant dies within the period (if any) specified in the Award Agreement for exercisability after the termination of the Participant’s
Continuous Service (for a reason other than death), then the Option or SAR may be exercised (to the extent the Participant was entitled
to exercise such Option or SAR as of the date of death) by the Participant’s estate, by a person who acquired the right to exercise
the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participant’s death,
but only within the period ending on the earlier of (i) the date 12 months following the date of death (or such longer or shorter
period specified in the Award Agreement, which period will not be less than six months if necessary to comply with applicable laws
unless such termination is for Cause), and (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement.
If, after the Participant’s death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable)
will terminate.
(j) Termination
for Cause. Except as explicitly provided otherwise in a Participant’s Award Agreement or other individual written agreement
between the Corporation or any Affiliate and the Participant, if a Participant’s Continuous Service is terminated for Cause, the
Option or SAR will terminate immediately upon such Participant’s termination of Continuous Service, and the Participant will be
prohibited from exercising his or her Option or SAR from and after the date of such termination of Continuous Service.
(k) Non-Exempt
Employees. If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act
of 1938, as amended, the Option or SAR will not be first exercisable for any Common Shares until at least six months following the date
of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the Worker Economic
Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such
Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participant’s
retirement (as such term may be defined in the Participant’s Award Agreement, in another agreement between the Participant and the
Corporation, or, if no such definition, in accordance with the Corporation’s then current employment policies and guidelines), the
vested portion of any Options and SARs may be exercised earlier than six months following the date of grant. The foregoing provision is
intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option or SAR
will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity
Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under
any other Award will be exempt from the employee’s regular rate of pay, the provisions of this Section will apply to all Awards
and are hereby incorporated by reference into such Award Agreements.
(l) Right
of Repurchase. Subject to the “Repurchase Limitation” and any applicable Securities Laws and Stock Exchange Rules,
the Option or SAR may include a provision whereby the Corporation may elect to repurchase all or any part of the vested Common Shares
acquired by the Participant pursuant to the exercise of the Option or SAR.
(m) Right
of First Refusal. Subject to any applicable Securities Laws and Stock Exchange Rules, the Option or SAR may include a provision whereby
the Corporation may elect to exercise a right of first refusal following receipt of notice from the Participant of the intent to transfer
all or any part of the Common Shares received upon the exercise of the Option. Such right of first refusal will be subject to the “Repurchase Limitation”.
Except as expressly provided in this Section or in the Award Agreement, such right of first refusal will otherwise comply with any
applicable provisions of the bylaws of the Corporation.
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6.
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PROVISIONS OF AWARDS OTHER THAN OPTIONS AND SARS.
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(a) Restricted
Share Unit Awards. Each Restricted Share Unit Award Agreement will be in such form and will contain such terms and conditions as the
will Board deem appropriate. The terms and conditions of Restricted Share Unit Award Agreements may change from time to time, and the
terms and conditions of separate Restricted Share Unit Award Agreements need not be identical. Each Restricted Share Unit Award Agreement
will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the
following provisions:
(i) Consideration.
At the time of grant of a Restricted Share Unit Award, the Board will determine the consideration, if any, to be paid by the Participant
upon delivery of each Common Share subject to the Restricted Share Unit Award. The consideration to be paid (if any) by the Participant
for each Common Share subject to a Restricted Share Unit Award may be paid in any form of legal consideration that may be acceptable to
the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting.
At the time of the grant of a Restricted Share Unit Award, the Board may impose such restrictions on or conditions to the vesting of the
Restricted Share Unit Award as it, in its sole discretion, deems appropriate.
(iii) Payment.
A Restricted Share Unit Award may be settled by the delivery of Common Shares, their cash equivalent, any combination thereof or in any
other form of consideration, as determined by the Board and contained in the Restricted Share Unit Award Agreement.
(iv) Additional
Restrictions. At the time of the grant of a Restricted Share Unit Award, the Board, as it deems appropriate, may impose such restrictions
or conditions that delay the delivery of the Common Shares (or their cash equivalent) subject to a Restricted Share Unit Award to a time
after the vesting of such Restricted Share Unit Award.
(v) Dividend
Equivalents. Dividend equivalents may be credited in respect of Common Shares covered by a Restricted Share Unit Award, as determined
by the Board and contained in the Restricted Share Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents
may be converted into additional Common Shares covered by the Restricted Share Unit Award in such manner as determined by the Board. Any
additional shares covered by the Restricted Share Unit Award credited by reason of such dividend equivalents will be subject to all of
the same terms and conditions of the underlying Restricted Share Unit Award Agreement to which they relate.
(vi) Termination
of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Share Unit Award Agreement, such
portion of the Restricted Share Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous
Service.
(vii) Compliance
with Section 409A of the Code. Notwithstanding anything to the contrary set forth herein, any Restricted Share Unit Award granted
under the Plan that is not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Restricted
Share Unit Award will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by
the Board and contained in the Restricted Share Unit Award Agreement evidencing such Restricted Share Unit Award. For example, such restrictions
may include, without limitation, a requirement that any Common Share that is to be issued in a year following the year in which the Restricted
Share Unit Award vests must be issued in accordance with a fixed pre-determined schedule.
(b) Other
Awards. Other forms of Awards valued in whole or in part by reference to, or otherwise based on, Common Shares, including the appreciation
in value thereof may be granted either alone or in addition to Awards provided for under Section 5 and the preceding provisions of
this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to
whom and the time or times at which such Other Awards will be granted, the number of Common Shares (or the cash equivalent thereof) to
be granted pursuant to such Other Awards and all other terms and conditions of such Other Awards.
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7.
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COVENANTS OF THE COMPANY.
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(a) Availability
of Shares. The Corporation will keep available at all times the number of Common Shares reasonably required to satisfy then-outstanding
Awards.
(b) Securities
Law Compliance. The Corporation will seek to obtain from each securities commission or other regulatory body having jurisdiction over
the Plan, as necessary, such authority as may be required to grant Awards and to issue and sell Common Shares upon exercise or vesting
of the Awards; provided, however, that this undertaking will not require the Corporation to register or qualify by prospectus under
applicable Securities Laws, the Plan, any Award or any Common Shares issued or issuable pursuant to any such Award. If, after reasonable
efforts and at a reasonable cost, the Corporation is unable to obtain from any such regulatory commission or agency the authority that
counsel for the Corporation deems necessary or advisable for the lawful issuance and sale of Common Shares under the Plan, the Corporation
will be relieved from any liability for failure to issue and sell Common Shares upon exercise or vesting of such Awards unless and until
such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common
Shares pursuant to the Award if such grant or issuance would be in violation of any applicable securities law.
(c) No
Obligation to Notify or Minimize Taxes. The Corporation will have no duty or obligation to any Participant to advise such holder as
to the tax treatment or time or manner of exercising such Award. Furthermore, the Corporation will have no duty or obligation to warn
or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be
exercised. The Corporation has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.
(a) Use
of Proceeds from Sales of Common Shares. Proceeds from the sale of Common Shares pursuant to Awards will constitute general funds
of the Corporation.
(b) Corporate
Action Constituting Grant of Awards. Corporate action constituting a grant by the Corporation of an Award to any Participant will
be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument,
certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that
the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms
(e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement or related grant
documents as a result of a clerical error in the papering of the Award Agreement or related grant documents, the corporate records will
control and the Participant will have no legally binding right to the incorrect term in the Award Agreement or related grant documents.
(c) Shareholder
Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Common Shares
subject to an Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of Common
Shares under, the Award pursuant to its terms, and (ii) the issuance of the Common Shares subject to the Award has been entered into
the books and records of the Corporation.
(d) No
Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection
with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Corporation or an Affiliate
in the capacity in effect at the time the Award was granted or will affect the right of the Corporation or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms
of such Consultant’s agreement with the Corporation or an Affiliate, or (iii) the service of a Director pursuant to the bylaws
of the Corporation or an Affiliate, and any applicable provisions of the corporate law of the state of foreign jurisdiction in which the
Corporation or the Affiliate is domiciled or incorporated, as the case may be.
(e) Change
in Time Commitment. In the event a Participant’s regular level of time commitment in the performance of his or her services
for the Corporation and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Corporation
and the Employee has a change in status from a full-time Employee to a part-time Employee or takes an extended leave of absence) after
the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction
in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date
of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule
applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award
that is so reduced or extended.
(f) Incentive
Stock Option Limitations. To the extent that the aggregate Market Value (determined at the time of grant) of Common Shares with respect
to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the
Corporation and any Affiliates) exceeds $100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing
Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or
otherwise do not comply with such rules will be treated as Non-Incentive Stock Options, notwithstanding any contrary provision of
the applicable Option Agreement(s).
(g) Investment
Assurances. The Corporation may require a Participant, as a condition of exercising or acquiring Common Shares under any Award, (i) to
give written assurances satisfactory to the Corporation as to the Participant’s knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to the Corporation who is knowledgeable and experienced in
financial and business matters and that the Participant is capable of evaluating, alone or together with the purchaser representative,
the merits and risks of exercising the Award; and (ii) to give written assurances satisfactory to the Corporation stating that the
Participant is acquiring Common Shares subject to the Award for the Participant’s own account and not with any present intention
of selling or otherwise distributing the Common Shares. The foregoing requirements, and any assurances given pursuant to such requirements,
will be inoperative if as to any particular requirement, a determination is made by counsel for the Corporation that such requirement
need not be met in the circumstances under the then applicable Securities Laws. The Corporation may, upon advice of counsel to the Corporation,
place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable
Securities Laws, including, but not limited to, legends restricting the transfer of the Common Shares.
(h) Withholding
Obligations. Unless prohibited by the terms of an Award Agreement, the Corporation may, in its sole discretion, satisfy any federal,
state or local tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing
the Participant to tender a cash payment; (ii) withholding Common Shares from the Common Shares issued or otherwise issuable to the
Participant in connection with the Award; provided, however, that no Common Shares are withheld with a value exceeding the maximum
amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Award as a liability
for financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any
amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Award Agreement.
(i) Deferrals.
To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Shares or the
payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs
and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A
of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee
or otherwise providing services to the Corporation. The Board is authorized to make deferrals of Awards and determine when, and in what
annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of Continuous
Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.
(j) Clawback/Recovery.
All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Corporation is required
to adopt pursuant to the listing standards of any national securities exchange or association on which the Corporation’s securities
are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition,
the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or
appropriate, including but not limited to a reacquisition right in respect of previously acquired Common Shares or other cash or property
upon the occurrence of Cause. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntary
terminate employment upon a “resignation for good reason,” or for a “constructive termination” or any similar
term under any plan of or agreement with the Corporation.
(k) Compliance
with Section 409A of the Code. Unless otherwise expressly provided for in an Award Agreement, the Plan and Award Agreements will
be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A
of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Board determines that any Award
granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award
will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and
to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the
Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise),
if the Common Shares are publicly traded, and if a Participant holding an Award that constitutes “deferred compensation” under
Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code, no distribution or
payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without
regard to alternative definitions thereunder) will be issued or paid before the date that is six months following the date of such Participant’s
“separation from service” or, if earlier, the date of the Participant’s death, unless such distribution or payment can
be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump-sum on the day
after such six month period elapses, with the balance paid thereafter on the original schedule.
(l) Repurchase
Limitation. The terms of any repurchase right will be specified in the Award Agreement. Subject to any applicable Securities Laws
and Stock Exchange Rules, the repurchase price for vested Common Shares will be the Market Value of the Common Shares on the date of repurchase.
Subject to any applicable Securities Laws and Stock Exchange Rules, the repurchase price for unvested Common Shares will be the lower
of (i) the Market Value of the Common Shares on the date of repurchase or (ii) their original purchase price. However, the Corporation
will not exercise its repurchase right until at least six months (or such longer or shorter period of time necessary to avoid classification
of the Award as a liability for financial accounting purposes) have elapsed following delivery of Common Shares subject to the Award,
unless otherwise specifically provided by the Board.
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9.
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ADJUSTMENTS UPON CHANGES IN COMMON SHARES; OTHER CORPORATE EVENTS.
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(a) Capitalization
Adjustments. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es)
and maximum number of securities subject to the Plan pursuant to Section 3(a), and (ii) the class(es) and number of securities
and price per share subject to outstanding Awards. The Board will make such adjustments, and its determination will be final, binding
and conclusive.
(b) Dissolution
or Liquidation. Except as otherwise provided in the Award Agreement, in the event of a dissolution or liquidation of the Corporation,
all outstanding Awards (other than Awards consisting of vested and outstanding Common Shares not subject to a forfeiture condition or
the Corporation’s right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and
the Common Shares subject to the Corporation’s repurchase rights or subject to a forfeiture condition may be repurchased or reacquired
by the Corporation notwithstanding the fact that the holder of such Award is providing Continuous Service, provided, however, that
the Board may, in its sole discretion, cause some or all Awards to become fully vested, exercisable and/or no longer subject to repurchase
or forfeiture (to the extent such Awards have not previously expired or terminated) before the dissolution or liquidation is completed
but contingent on its completion.
(c) Corporate
Transaction. The following provisions will apply to Awards in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Award or any other written agreement between the Corporation or any Affiliate and the Participant or unless
otherwise expressly provided by the Board at the time of grant of an Award. In the event of a Corporate Transaction, then, notwithstanding
any other provision of the Plan, the Board may take one or more of the following actions with respect to Awards, contingent upon the closing
or completion of the Corporate Transaction:
(i) arrange
for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or
continue the Award or to substitute a similar stock award for the Award (including, but not limited to, an award to acquire the same consideration
paid to the shareholders of the Corporation pursuant to the Corporate Transaction);
(ii) arrange
for the assignment of any reacquisition or repurchase rights held by the Corporation in respect of Common Shares issued pursuant to the
Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);
(iii) accelerate
the vesting, in whole or in part, of the Award (and, if applicable, the time at which the Award may be exercised) to a date prior to the
effective time of such Corporate Transaction as the Board determines (or, if the Board does not determine such a date, to the date that
is five days prior to the effective date of the Corporate Transaction), with such Award terminating if not exercised (if applicable)
at or prior to the effective time of the Corporate Transaction; provided, however, that the Board may require Participants to complete
and deliver to the Corporation a notice of exercise before the effective date of a Corporate Transaction, which exercise is contingent
upon the effectiveness of such Corporate Transaction;
(iv) arrange
for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Corporation with respect to the Award;
(v) cancel
or arrange for the cancellation of the Award, to the extent not vested or not exercised prior to the effective time of the Corporate Transaction,
in exchange for such cash consideration (including no consideration) as the Board, in its sole discretion, may consider appropriate; and
(vi) make
a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant
would have received upon the exercise of the Award immediately prior to the effective time of the Corporate Transaction, over (B) any
exercise price payable by such holder in connection with such exercise. For clarity, this payment may be zero ($0) if the value of the
property is equal to or less than the exercise price. Payments under this provision may be delayed to the same extent that payment of
consideration to the holders of the Corporation’s Common Shares in connection with the Corporate Transaction is delayed as a result
of escrows, earn outs, holdbacks or any other contingencies.
The Board need not take the same action or actions
with respect to all Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect
to the vested and unvested portions of an Award.
(d) Change
in Control. An Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as
may be provided in the Award Agreement for such Award or as may be provided in any other written agreement between the Corporation or
any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
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10.
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PLAN TERM; EARLIER TERMINATION OR SUSPENSION OF THE PLAN.
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(a) Plan
Term. The Board may suspend or terminate the Plan at any time. No Incentive Stock Option will be granted after the tenth anniversary
of the earlier of (i) the Adoption Date, or (ii) the date the Plan is approved by the shareholders of the Corporation. No Awards
may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No
Impairment of Rights. Suspension or termination of the Plan will not impair rights and obligations under any Award granted while the
Plan is in effect except with the written consent of the affected Participant or as otherwise permitted in the Plan.
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11.
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ASSIGNMENT OF RIGHTS.
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Any and all rights under Awards and Award Agreements
shall not be assignable, transferable or negotiable (whether by operation of law or otherwise) by the Participant and may not be assigned
or transferred other than by transmission by will or the laws of descent and distribution.
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12.
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EFFECTIVE DATE OF PLAN.
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This Plan, as amended and restated, will become
effective on the Effective Date.
The laws of the Province of Ontario will govern
all questions concerning the construction, validity and interpretation of this Plan, without regard to that province's conflict of laws
rules.
As used in the Plan, the following definitions
will apply to the capitalized terms indicated below:
(a) “Adoption
Date” means July ___, 2021, which is the date the Plan was adopted by the Board.
(b) “Affiliate”
means, at the time of determination, any “affiliate” of the Corporation, as such term is defined in the Business Corporations
Act (Ontario).
(c) “Award”
means any right to receive Common Shares granted under the Plan, including an Incentive Stock Option, a Non-Incentive Stock Option, a
Restricted Share Unit Award or any Other Award.
(d) “Award
Agreement” means a written agreement between the Corporation and a Participant evidencing the terms and conditions of an
Award.
(e) “Award
Agreement” means a written agreement between the Corporation and a Participant evidencing the terms and conditions of an
Award grant. Each Award Agreement will be subject to the terms and conditions of the Plan.
(f) “Board”
means the Board of Directors of the Corporation.
(g) “Capital
Stock” means each and every class of common stock of the Corporation, regardless of the number of votes per share.
(h) “Capitalization
Adjustment” means any change that is made in, or other events that occur with respect to, the Common Shares subject to the
Plan or subject to any Award after the Adoption Date without the receipt of consideration by the Corporation through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend,
stock split, reverse stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or any
similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards
Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the
Corporation will not be treated as a Capitalization Adjustment.
(i) “Cause”
will have the meaning ascribed to such term in any written agreement between the Participant and the Corporation defining such term and,
in the absence of such agreement, such term means, with respect to a Participant, the occurrence of any of the following events: (i) such
Participant’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of Canada, the
United States or any province or state thereof; (ii) such Participant’s attempted commission of, or participation in, a fraud
or act of dishonesty against the Corporation; (iii) such Participant’s intentional, material violation of any contract or agreement
between the Participant and the Corporation or of any statutory duty owed to the Corporation; (iv) such Participant’s unauthorized
use or disclosure of the Corporation’s confidential information or trade secrets; or (v) such Participant’s gross misconduct.
The determination that a termination of the Participant’s Continuous Service is either for Cause or without Cause will be made by
the Corporation, in its sole discretion. Any determination by the Corporation that the Continuous Service of a Participant was terminated
with or without Cause for the purposes of outstanding Awards held by such Participant will have no effect upon any determination of the
rights or obligations of the Corporation or such Participant for any other purpose.
(j) “Change
of Control” means the occurrence of one or more of the following events:
(i) any
change in the holding, direct or indirect, of shares in the capital of the Company as a result of which a person or group of persons acting
jointly or in concert, or person associated or affiliated with any such person or group within the meaning of the Securities Act
(Ontario), becomes the beneficial owner, directly or indirectly, of shares and/or other securities in excess of the number which, directly
or following conversion thereof, would entitle the holders thereof to cast more than 50% of the votes attaching to all shares of the Company
which may be cast to elect directors of the Company (the “Company Voting Securities”); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a Change of Control by virtue of any of the following acquisitions
of Company Voting Securities:
A. by
the Company or any subsidiary;
B. by
any employee benefit plan sponsored or maintained by the Company or any subsidiary;
C. by
any underwriter temporarily holding securities pursuant to an offering of such securities;
D. pursuant
to a Non-Qualifying Transaction (as defined in paragraph (ii)); or
E. from
the Company pursuant to a transaction (other than one described in paragraph (iii)), if a majority of the directors approve a resolution
providing expressly that the acquisition pursuant to this clause E shall not constitute a Change of Control under this paragraph (ii);
(ii) the
consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries
(a “Business Combination”), unless immediately following such Business Combination:
A. Company
Voting Securities that were outstanding immediately prior to the consummation of such Business Combination (or, if applicable, securities
into or for which such Company Voting Securities were converted or exchanged pursuant to such Business Combination) represent more than
50% of the combined voting power of the then outstanding securities eligible to vote for the election of directors or trustees (“voting
power”) of (1) the entity resulting from such Business Combination (the “Surviving Entity”), or (2) if
applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of 100% of the voting securities eligible
to elect directors of the Surviving Entity (the “Parent Entity”); or
B. no
person (other than any employee benefit plan sponsored or maintained by the Surviving Entity or the Parent Entity) is the beneficial owner,
directly or indirectly, of 50% or more of the voting power of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity);
(any Business Combination which satisfies all
of the criteria specified in A, B and C above shall be deemed to be a “Non-Qualifying Transaction”);
(iii) the
approval by the Board or shareholders of the Company of a complete liquidation or dissolution of the Company; or
(iv) a
sale or other disposition of all or substantially all of the property or assets of the Company, other than to an affiliate within the
meaning of the Securities Act (Ontario) or pursuant to a Non-Qualifying Transaction.
(k) “Code”
means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(l) “Committee”
means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(m) “Common
Shares” means the class of Common Shares of the Corporation.
(n) “Consultant”
means any person, including an advisor, who is engaged by the Corporation or an Affiliate to render consulting or advisory services pursuant
to a written consulting agreement, and is compensated for such services. However, service solely as a Director, or payment of a fee for
such service, will not cause a Director to be considered a “Consultant” for purposes of the Plan.
(o) “Continuous
Service” means that the Participant’s service with the Corporation or an Affiliate, whether as an Employee, Officer,
Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Corporation
or an Affiliate as an Employee, Officer, Director or Consultant or a change in the Entity for which the Participant renders such service,
provided that there is no interruption or termination of the Participant’s service with the Corporation or an Affiliate, will not
terminate a Participant’s Continuous Service; provided, however, that if the Entity for which a Participant is rendering
services ceases to qualify as an Affiliate, as determined by the Board in its sole discretion, such Participant’s Continuous Service
will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board
or the chief executive officer of the Corporation, in that party’s sole discretion, may determine whether Continuous Service will
be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick
leave, military leave or any other personal leave, or (ii) transfers between the Corporation, an Affiliate, or their successors.
In addition, to the extent required for exemption from or compliance with Section 409A of the Code, the determination of whether
there has been a termination of Continuous Service will be made, and such term will be construed, in a manner that is consistent with
the definition of “separation from service” as defined under Treasury Regulation Section 1.409A-1(h) (without regard
to any alternative definition thereunder).
(p) “Corporate
Transaction” means the consummation, in a single transaction or in a series of related transactions, of any one or more
of the following events:
(i) a
sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of
the Corporation and its Subsidiaries;
(ii) a
sale or other disposition of more than 50% of the outstanding securities of the Corporation;
(iii) a
merger, consolidation or similar transaction following which the Corporation is not the surviving corporation; or
(iv) a
merger, consolidation or similar transaction following which the Corporation is the surviving corporation but the Common Shares outstanding
immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation
or similar transaction into other property, whether in the form of securities, cash or otherwise.
(q) “Corporation”
means Akanda Corp., an Ontario business corporation.
(r) “Director”
means a member of the Board.
(s) “Disability”
means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12) months, and will be determined by the Board on the basis of such medical
evidence as the Board deems reasonable under the circumstances.
(t) “Effective
Date” means the effective date of this Plan, which is the earlier of (i) the date that this Plan is first approved
by the Corporation’s shareholders, and (ii) the date this Plan is adopted by the Board.
(u) “Employee”
means any person employed by the Corporation or an Affiliate.
(v) “Entity”
means a corporation, partnership, limited liability company or other entity.
(w) “Market
Value” means,
(i) as
of the date of grant of an Award, the value of the Common Shares determined as follows:
A. If
the Common Shares are listed on the Stock Exchange or traded on any other established market, the Market Value of a Common Share will
be, unless otherwise determined by the Board, the greater of the closing market prices of the underlying securities on (a) the trading
day prior to the date of grant of the Award; and (b) the date of grant of the stock options, and
B. In
the absence of such markets for the Common Shares, the Market Value will be determined by the Board in good faith and in a manner that
complies with Section 409A of the Code or, in the case of Incentive Stock Options, in compliance with Section 422 of the Code;
and
(ii) as
of any other relevant date, the value of the Common Shares determined as follows:
A. If
the Common Shares are listed on the Stock Exchange or traded on any other established market, the Market Value of a Common Share will
be, unless otherwise determined by the Board, the closing market price of the underlying securities on the trading day prior to such relevant
date, and
B. In
the absence of such markets for the Common Shares, the Market Value will be determined by the Board in good faith and in a manner that
complies with Section 409A of the Code or, in the case of Incentive Stock Options, in compliance with Section 422 of the Code.
(x) “Incentive
Stock Option” means an option granted pursuant to Section 5 of the Plan that is intended to be, and that qualifies
as, an “incentive stock option” within the meaning of Section 422 of the Code.
(y) “Insider”
has the meaning given to such term in the Stock Exchange Rules, or if the Common Shares are not listed or posted for trading on the Stock
Exchange, the meaning given under Securities Laws.
(z) “Non-Incentive
Stock Option” means an option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock
Option, including an Incentive Stock Option granted to a person not subject to taxation on income under the laws of the United States.
(aa) “Officer”
means a person who is an officer of the Corporation.
(bb) “Option”
means an Incentive Stock Option or a Non-Incentive Stock Option to purchase Common Shares granted pursuant to the Plan.
(cc) “Option
Agreement” means a written agreement between the Corporation and an Optionholder evidencing the terms and conditions of
an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.
(dd) “Optionholder”
means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(ee) “Other
Award” means an award based in whole or in part by reference to the Common Shares which is granted pursuant to the terms
and conditions of Section 6(b).
(ff) “Other
Award Agreement” means a written agreement between the Corporation and a holder of an Other Award evidencing the terms and
conditions of an Other Award grant. Each Other Award Agreement will be subject to the terms and conditions of the Plan.
(gg) “Own,”
“Owned,” “Owner,” “Ownership” A person or Entity will be
deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership”
of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise,
has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(hh) “Participant”
means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.
(ii) “Plan”
means this Akanda Corp. 2021 Equity Incentive Plan.
(jj) “Restricted
Share Unit Award” means a right to receive Common Shares which is granted pursuant to the terms and conditions of Section 11.
(kk) “Restricted
Share Unit Award Agreement” means a written agreement between the Corporation and a holder of a Restricted Share Unit Award
evidencing the terms and conditions of a Restricted Share Unit Award grant. Each Restricted Share Unit Award Agreement will be subject
to the terms and conditions of the Plan.
(ll) “Securities
Laws” means securities legislation, securities regulation and securities rules, as amended, and the policies, notices, instruments
and blanket orders in force from time to time that govern or are applicable to the Corporation or to which it is subject;
(mm) “Stock
Appreciation Right” or “SAR” means a right to receive the appreciation on Common Shares that
is granted pursuant to the terms and conditions of Section 5.
(nn) “Stock
Appreciation Right Agreement” means a written agreement between the Corporation and a holder of a Stock Appreciation Right
evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be subject to the
terms and conditions of the Plan.
(oo) “Stock
Exchange” means the Nasdaq Stock Market.
(pp) “Stock
Exchange Rules” means the applicable rules and policies of the Stock Exchange, as such rules and policies may
be amended, supplemented or replaced from time to time
(qq) “Subsidiary”
has the meaning given to it under the Business Corporations Act (Ontario).
(rr) “Ten
Percent Shareholder” means a person, who is subject to taxation on income under the laws of the United States, and who Owns
(or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power
of all classes of shares of the Corporation or any Affiliate.
Exhibit 10.2
AGREEMENT OF SUBLEASE
AGREEMENT OF SUBLEASE
MEMORANDUM OF AGREEMENT OF SUBLEASE
Concluded by and between
Mophuthi Matsoso Development Trust (Reg No:TD2015/0015)
(Hereinafter referred
to as the “Sub-lessor”)
Makhemeng Ts’akholo,
Mafetengand
Bophelo
Bioscience and Wellness Proprietary Limited (Reg No: 2018/62924)(Hereinafter referred to as the “Sub-lessee”)
Makhemeng Ts’akholo,
Mafeteng.
WHEREAS
The Sub-lessor hereby agrees to sublet to Sub-lessee, who agrees
to hire certain properties held by; A Form C
(Certificate of Allocation) in terms of Section 23(1) of Land Act 2010
NOW THEREFORE THE PARTIES AGREE AS FOLOWS ON THE TERMS AND CONDITIONS
OF THEAFORESAID AGREEMENT
1 INTERPRETATION
In this agreement -
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1.1
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clause headings are for the purposes of convenience and reference only and shall not be used in the
interpretation of this agreement;
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1.2
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unless the context clearly indicates a contrary intention an expression which denotes -
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1.2.1
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any gender includes the other genders;
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1.2.2
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a natural person includes an artificial person and vice versa;
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1.2.3
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the singular includes the plural and vice versa;
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1.3
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the following expressions shall, unless the context clearly indicates a contrary intention, bear the
following meanings and related expressions shall bear corresponding meanings-
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1.3.1
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“agreement” -this agreement of lease and all annexes
hereto;
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1.3.2
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“buildings” - at any relevant time, the greenhouses,
sheds and other building/s on the leased premises and all other improvements of every nature whatever situate on the leased premises;
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1.3.3
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“commencement date” - notwithstanding the signature
date, 1 April 2019;
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1.3.4
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“initial period” - the period commencing on the
commencement date and terminating on the 20th anniversary thereof;
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1.3.5
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“leased premises” subject to the provisions of
clause 4, the 68834 sq msituated on the properties indicated on Annex A;
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1.3.6
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“parties” - collectively the Sub-lessor and the
Sub-lessee and any reference to“party” shall be deemed to be reference to either one
of them as the context may require;
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1.3.7
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“permitted business” –the activities described
in clause 12.1
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1.3.8
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“prime rate” - the rate publicly quoted by The
Standard Bank of South Africa Limited, from time to time, as being its prime rate of interest (expressed as a nominal annual compounded
monthly in arrear rate), calculated on a 365 day a year basis, irrespective of whether or not the year is a leap year and prima facie
proved, in the event of there being a dispute in relation thereto, by a certificate signed by any manager of the aforesaid bank (whose
appointment, qualification or authority need not be proved);
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1.3.9
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“properties” - collectively the properties described
as South = 1345m, East = 954m, North = 4231m, West = 1397m, East-North = 1510m;
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1.3.10
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“signature date” – the last date on which
the parties sign this agreement;
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1.3.11
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“Sub-lessee” - Bophelo Bioscience and Wellness
Proprietary Limited (registration number 2018/62924), a company incorporated in accordance with the laws of The Kingdom of Lesotho;
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1.3.12
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“Sub-lessor” - Mophuthi Matsoso Development Trust
(Reg No: TD2015/0015)established in accordance with the laws of The Kingdom of Lesotho;
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1.3.13
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“termination date”- the date on which this
agreement is terminated for any reason whatsoever;
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1.3.14
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“VAT” - Value-added Tax as defined in the Vat Act
at the prescribed rate onthe date of supply to which it relates;
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1.3.15
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“VAT Act”-the Value-added Tax Act of 2001;
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1.4
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where any term is defined within the context of any particular clause, the term so defined, unless
it is clear from the clause in question that the term so defined has limited application to the relevant clause, shall bear the meaning
ascribed to it in terms of the particular clause for all purposes in terms of this agreement, notwithstanding that the term has not been
defined in this interpretation clause;
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1.5
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should any provision contained in a definition be a substantive provision conferring any right or
imposing any obligation on any party, then notwithstanding that it is only contained in this interpretation clause effect shall be given
to it as if it were a substantive provision in this agreement;
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1.6
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when any number of days is prescribed such number shall exclude the first and include the last day
unless the last day falls on a day which is not a business day, in which case the last day shall be the next succeeding business day;
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1.7
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the use of a specific example (whether or not after the word “including” or “such
as”) shall not be construed as limiting the meaning of the general wording preceding it
and the eiusdem generis rule shall not be applied in the interpretation of such general wording or such specific example/s.
Accordingly, without limiting the generality of the aforegoing, wherever the words “includes” or “including” are
used in this agreement, the words “without limitation” shall
be deemed to follow them;
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1.8
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the rule of construction that the contract shall be interpreted against the party responsible for
the drafting or preparation of the agreement.
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1.9
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all of the annexes, if any, hereto are deemed to be incorporated herein and shall havethe same force
and effect as if they were contained in the body of this agreement;
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1.10
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words and/or expressions defined in this agreement shall bear the same meanings when used in the annexes,
if any, hereto;
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1.11
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a reference to any statutory body or court shall be construed as a reference to that statutory body
or court as at the signature date and as substituted from time to time thereafter by successor statutory bodies or courts, as the case
may be;
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1.12
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the expiration or termination of this agreement shall not affect such of its provisions as expressly
provide that they shall continue to apply after such expiration or termination or which of necessity must continue to apply after such
expiration ortermination;
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1.13.1
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“business day” shall be construed as being any
day other than a Saturday,Sunday or public holiday in Lesotho;
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1.13.2
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day/s, month/s or year/s shall be construed as day/s, month/s or year/s in the Gregorian calendar;
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1.13.3
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any written agreement shall be a reference to that agreement as amended,substituted or replaced from
time to time in accordance with its terms;
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1.14
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no provision of this agreement shall, unless otherwise stipulated, constitute a stipulation for the
benefit of any person (stipulation alteri) who is not a party to this agreement.
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2 INTRODUCTION
It is recorded that the parties agree that the Sub-lessee
shall let from the Sub-lessor the leased premises, upon the terms and conditions set out in this agreement.
3 SUB-LEASE
The Sub-lessor hereby lets the leased premises to the Sub-lessee
on the terms and conditions set out in this agreement.
4 EXTENSION
OF LEASED PREMISES
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4.1
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The Sub-lessee shall have the right to increase the area of the leased premises, at anytime and on
one occasion or on more than one occasion, by notice in writing to the Sub-lessor so as to include any portion of the properties depicted
on annex B as part of the leased premises, provided that the maximum increase in extent of the leased premises shall not pursuant to the
exercise of the aforesaid right/s exceed an additional 192 hectares.
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4.2
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Should the Sub-lessee exercise its rights in terms of clause 4.1 the extended area to be comprised
in the leased premises shall be at the discretion of the Sub-lessee but shall be selected from the area shown in annex B and the leased
premises shall be extended with effect from the last day of the month in which such right is exercised by the Sub-lessee in terms of clause
4.1.
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4.3
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After the area of the leased premises has been extended by an additional 194 hectares pursuant
to the exercise by the Sub-lessee of the rights granted to it in terms of clause 4.1, the Sub-lessee shall have the right to further increase
the area of the leased premises, at any time and on one occasion or on more than one occasion, by notice in writing to the Sub-lessor
so as to include any portion of the properties depicted on annex C as part of the leased premises, provided that the maximum increase
in extent of the leased premises shall not pursuant to the exercise of the aforesaid right/s exceed an additional 1 000 hectares.
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4.4
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Should the Sub-lessee exercise its rights in terms of clause 4.3 the extended area to be comprised
in the leased premises shall be at the discretion of the Sub-lessee but shall be selected from the area shown in annex C and the leased
premises shall be extended with effect from the last day of the month in which such right is exercised by the Sub-lessee in terms of clause
4.3.
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4.5
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The Sub-lessor undertakes to ensure that the Sub-lessee, its employees, contractors, agents and invitees
are at all times given free and unrestricted access to all parts of the leased premises including the right to traverse the other parts
of the properties if necessary to gain access to any portion of the leased premises.
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5 REGISTRATION
OF SUBLEASE
The Sub-lessor undertakes to procure that-
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5.1
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it obtains the requisite consent in terms of section 36 of the Land Act 2010 for the Sub-lessor to
sublet the leased premises to the Sub-lessee; and
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5.2
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after obtaining the consent referred to in clause 5.1 that the lease is registered (as soon as possible
after the aforesaid consent is obtained but in any event within3 month from the date thereof) in terms of the Deeds Registry Act of 1969.
Refer to Annex A.
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6 DURATION
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6.1
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This agreement shall commence on the commencement date and shall terminate on the 20th anniversary
of the commencement date subject to such other rights as are vested in the parties in terms of this agreement or in terms of law.
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6.2
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The Sub-lessee shall have an option (“the first option”)
to renew this lease for a period of 30 years (“the first option period”)
from the termination of the initial period.
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6.3
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The Sub-lessee shall be entitled to exercise the first option by written notice to the Sub-lessor,
not less than 60 days prior to the termination of the initial period, failing which, the first option shall lapse.
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6.4
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The first option shall be on the same terms as set out in this lease applicable to the initial period.
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6.5
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The Sub-lessee shall have an option (“the second option”)
to renew this lease for a period of 30 years (“the second option period”)
from the termination of the first option period.
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6.6
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The Sub-lessee shall be entitled to exercise the second option by written notice to the Sub-lessor,
not less than 60 days prior to the termination of the first option period, failing which, the second option shall lapse.
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6.7
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The second option shall be on the same terms as set out in this lease applicable to the initial period.
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7 RENTAL
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7.1
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The monthly rental payable by the Sub-lessee to the Sub-lessor in respect of the hire of the leased
premises for the period commencing on the commencement date and terminating on the termination date shall be 350,000 Malotis per month.
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7.2
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The monthly rental referred to in clause 7.1 shall escalate on each anniversary of the commencement
date (including during any option period if the relevant option is exercised) at the rate of 10% on a compound basis.
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8 PAYMENT
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8.1
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The Sub-lessee shall pay the basic monthly rental to the Sub-lessor in Maloti free of any deduction
and/or set-off whatever and free of bank charges and/or commission no later than the 7th of every following month
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8.2
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Unless expressly notified in writing to the Sub-lessee to the contrary, all amounts payable to the
Sub-lessor in terms of this agreement shall be paid by means of electronic transfer of funds into the Sub-lessor’s
banking account referred to below -
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Account holder
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Mophuthi Matsoso Development Trust
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Bank
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Nedbank Lesotho
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Branch
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Mafeteng
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Branch code
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-
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[*]
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Account number
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[*]
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Reference
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Bophelo Rent
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or such other banking account in Lesotho as the Sub-lessor
may from time to time, inwriting, direct.
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8.3
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Any rent falling due for payment by the Sub-lessee under this agreement which is not paid on its due
date for payment, shall bear interest at the prime rate, calculated from the due date for payment thereof.
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8.4
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All amounts payable by the Sub-lessee to the Sub-lessor in terms of this agreement are expressed to
be exclusive of VAT on the basis that the Sub-lessee shall pay the Sub-lessor VAT thereon at the applicable rate as determined in accordance
with the provisions of the Vat Act from time to time.
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9 DELIVERY
OF KEYS AND REMOTES
The Sub-lessee shall deliver all keys to the buildings to
the Sub-lessor not later than 16:30 on the termination date. The Sub-lessee shall be responsible for all costs incurred by the Sub-lessor
in obtaining new keys should the Sub-lessee fail to deliver the keys as aforesaid.
10 ELECTRICITY,
WATER, GAS AND OTHER OUTGOINGS
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10.1
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The Sub-lessee shall with effect from the commencement date be liable for and pay forthwith on demand
to the Sub-lessor all costs for water, electricity, gas, sanitary fees, refuse removal fees, and any other services consumed by the Sub-lessee
at the leased premises.
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10.2
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Should the leased premises, or part of the leased premises, be served by specific sub-meters in respect
of electricity, water and/or gas, then the Sub-lessee shall pay to the Sub-lessor, the cost of all electricity, water and/or gas used
in and/or on the leased premises as metered by such sub-meters.
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10.3
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Should no separate sub meter be installed in respect of any of the services contemplated in terms
of clause 10.1 or should a common sub meter exist for more than the leased premises, such service charges shall be calculated by the Sub-lessor
on a pro rata basis based on the percentage which the hectares comprised in the leased premises bears to the hectares comprised in the
property/ies served by the common sub meter or in respect of which the charges are levied, as the case may be.
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11 RATES
AND TAXES
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11.1
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The Sub-lessee shall be liable for and shall pay to the Sub-lessor all rates and taxes, including
assessment rates, business or city improvement district fees, park levies and municipal fees and charges, levied by any competent local
authority in respect of the leased premises in respect of any period during this agreement.
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11.2
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Should any of the rates, taxes, fees and/or charges contemplated in clause 11.1 be levied in respect
of any area greater than just the leased premises, then the portion payable by the Sub-lessee shall be calculated on a pro rata basis
based on the percentage which the hectares comprised in the leased premises bears to the hectares comprised in the property/ies in respect
of which such amounts are levied.
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12 PURPOSE
FOR WHICH LEASED PREMISES ARE
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12.1
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The leased premises are let to the Sub-lessee for the purposes of(i) planting, growing, cultivating,
farming and manufacturing cannabis and all associated and ancillary activities; (ii) use as offices; and (iii) the provision of administration
services. The lessee shall not use the leased premises for any other purpose whatsoever without the prior written consent of the Sub-lessor, which consent
shall not be unreasonably withheld or delayed.
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12.2
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The Sub-lessee undertakes to make timeous application for any licences and any renewals thereof necessary
for the conduct of the permitted business in the leased premises and to proceed with any such applications without delay.
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13 MAINTENANCE
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13.1
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The Sub-lessee shall -
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13.1.1
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at its own cost, keep and maintain in a clean, good order and condition the buildings and replace
or repair same, as the case may be, which, without derogating from the generality hereof, shall include all fixtures and fittings, electrical
installations, plumbing, geysers and sanitary works, appliances, fire fighting equipment, air-conditioners, doors, roller shutter doors,
door handles, locks, keys, entrances, doors, glass and windows in or serving the leased premises and on termination of this agreement
shall deliver the buildings to the Sub-lessor in the same good order and condition as existed at the commencement date, fair wear and
tear excepted;
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13.1.2
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prevent any blockage of sewerage or water pipes or septic tanks or drains in or used in connection
with the leased premises and shall remove at its cost any obstruction or blockage in any sewer or water pipe or septic tanks or drains
serving the leased premises and, where necessary, repair the sewer pipe or drain concerned.
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13.2
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Should the Sub-lessee fail or refuse to maintain or repair the buildings as provided for in terms
of this agreement and remain in default for a period of 30 days after receipt of a written notice calling on the Sub-lessee to rectify
such default, then the Sub-lessor shall be entitled, without prejudice to its other rights in law or in terms of this agreement, to effect
the necessary maintenance or repairs and to claim the costs so incurred from the Sub-lessee.
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13.3
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The Sub-lessee shall notify the Sub-lessor in writing within 30 business days after the signature
date of any patent defects in the buildings, particularly in respect of taps, toilets, electrical plug points, lighting, locks, keys,
doors, glass and windows. The Sub-lessor undertakes to remedy such defects within a period of 14 days after receipt of the written notice
from the Sub-lessee, or such longer period as may be required in the circumstances.
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14 CONTRAVENTION OF LAWS
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14.1
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The Sub-lessee shall not contravene or permit the contravention of any law, by-law or statutory regulation
or the conditions of any licence relating to or affecting the occupation of the leased premises or the carrying on of the Sub-lessee’s
permitted business therein, which may expose the Sub-lessor to any claim, action or prosecution.
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14.2
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The Sub-lessee shall not contravene any of the conditions of title as set out in the title deed of
the properties on which the leased premises are situated and under which the Sub-lessor holds title, nor any laws which the Sub-lessor
is required to observe, by reason of its ownership of the leased premises.
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14.3
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Should the Sub-lessee contravene any law and the Sub-lessor be penalised in any way as a result thereof,
the Sub-lessor shall be entitled to recover any loss or damageeither incurred or to be incurred in the future, from the Sub-lessee.
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15 ALTERATIONS,
ADDITIONS, FIXTURES AND FITTINGS
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15.1
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The Sub-lessor shall not be under any obligation or liability to make any applications in respect
of, do any work or make any alterations or repairs to the buildings in order to comply with the requirements of any local authority or
other applicable laws and regulations.
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15.2
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The Sub-lessee shall be entitled to -
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15.2.1
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effect or cause to allow to be effected to the leased premises and/or to any buildings, any alterations
or additions or improvements or renovations (collectively “the improvements”),
whether external, internal, structural, non-structural or of any other nature whatsoever, without the prior consent of the Sub-lessor;
and/or
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15.2.2
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erect any other buildings or structures of any nature whatever on the leased premises, without the
prior consent of the Sub-lessor.
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15.3
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The Sub-lessee shall be entitled to exercise its rights in terms of clause 15.2 provided that the
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15.3.1
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plans and specifications for the works shall be prepared by an architect approved by the Sub-lessor
and submitted to the Sub-lessor for approval, which approval shall not be unreasonably withheld or delayed;
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15.3.2
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work shall be carried out by a contractor(s) reasonably approved by the Sub-lessor under the supervision
of the Sub-lessor’s architect and/or other professional consultant(s) nominated by the Sub-lessor
for such purpose;
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15.3.3
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reasonable professional fees and charges of the Sub-lessor’s
architect, quantity surveyor, consulting engineer and/or other professional consultant(s) shall be borne by the Sub-lessee.
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15.4
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Upon the termination of this agreement for any reason whatever the Sub-lessee shall have no claim
of whatever nature against the Sub-lessor for the value and/or cost of any improvements effected to the leased premises and/or the buildings,
whether or not such improvements were effected at the cost of the Sub-lessee, and the Sub-lessor shall be deemed to have become the owner
of such improvements upon the installation thereof.
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15.5
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The Sub-lessee shall be entitled from time to time without the Sub-lessor’s
consent, to erect on the buildings such fixtures and fittings as may be required or necessary for the carrying on of the permitted business
therein, provided that should this agreement be terminated for any reason whatever -
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15.5.1
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all such fixtures and fittings erected by the Sub-lessee in the buildings shall, only if the Sub-lessee
elects, be removed by the Sub-lessee upon the termination of this agreement, failing which such fixtures and fittings shall become the
Sub-lessor’s property;
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15.5.2
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any damage caused to the buildings as a result of any removal by the Sub-lessee of fixtures and fittings,
in respect of which the Sub-lessee haselected to remove, shall be made good at the Sub-lessee’s
expense;
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15.5.3
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the Sub-lessee shall not be entitled to any compensation from the Sub-lessor for any improvements
made.
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16 SUB-LESSEE’S
GENERAL OBLIGATIONS AND RESTRICTIONS
The Sub-lessee shall be-
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16.1
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liable to repair and/or replace, at its cost, all damage of whatever nature caused to the buildings;
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16.2
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entitled to modify the electrical installations of the buildings on the basis that the Sub-lessee
shall be liable for all costs of such modification/s;
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16.3
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responsible for ensuring the safety, safe use and maintenance of the electrical installations in the
buildings.
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17 SUBLETTING
The Sub-lessee shall not-
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17.1
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cede, assign, transfer, alienate, hypothecate or otherwise dispose of any rights and/or obligations
under this agreement; and/or
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17.2
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sub-let the leased premises or any part thereof; and/or
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17.3
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give up occupation or possession of the leased premises or any part thereof, to any person;
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without the Sub-lessor’s
prior written consent, which consent shall not be unreasonablywithheld or delayed.
18 RIGHT OF FIRST REFUSAL
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18.1
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The Sub-lessor hereby agrees that should it wish to sell any of the properties and/or any portion
thereof and/or any right in and to any such properties held by the Sub-lessor (collectively “the
sale property”), the Sub-lessor shall be obliged to first offer the sale property for sale
to the Sub-lessee upon the following terms and conditions -
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18.1.1
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the offer shall be made in writing to the Sub-lessee and shall contain the price which the Sub-lessor
requires for the sale property and all other terms and conditions upon which the Sub-lessor is prepared to sell the sale property(“the
offer”);
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18.1.2
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the Sub-lessee shall be afforded 30 days from receipt of the offer to accept the offer by furnishing
the Sub-lessor with a written acceptance to that effect. Should the Sub-lessee accept the offer as aforesaid, the Sub-lessee shall be
obliged to furnish the Sub-lessor, within 45 days of such written acceptance,
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with a guarantee/s issued by a registered bank or financial
institution, which guarantee/s shall secure payment of the purchase price of the sale property and shall be in such form as may be reasonably
approved by the Sub-lessor and be expressed to be payable free of exchange by electronic transfer in favour of the Sub-lessor or the Sub-lessor’s
nominee on the date of transferof the sale property to the Sub-lessee;
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18.1.3
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should the Sub-lessee refuse or fail to accept the offer timeously, the Sub-lessor shall be entitled forthwith upon the date of expiry
of the offer period or the date of such refusal, whichever is the earlier, to sell the sale property to any bona fide third party, provided
that such sale shall be at a price not less than and on terms and conditions no less onerous than the price and terms and conditions contained
in the offer to the Sub-lessee.
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18.2
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The Sub-lessee hereby acknowledges and agrees that the Sub-lessee’s right of first refusal as set out in shall automatically
terminate and cease to be of any force or effect should this agreement be cancelled for any reason whatever.
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18.3
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The Sub-lessor agrees that it shall only be entitled to sell the sale property to another party as envisaged in terms of clause 18.1.3,
if such purchaser agrees in writing, in favour of the Sub-lessee, to be bound by the provisions of this agreement.
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19.1
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The Sub-lessor gives the Sub-lessee the warranties in (“the warranties”) on the basisthat this agreement is entered into
by the Sub-lessee relying on the warranties, each of which is deemed to be a material warranty inducing the Sub-lessee to enter into this
agreement.
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19.2
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Each warranty shall be a separate warranty and shall in no way be limited to or restricted by reference to or by inference from the
terms of any other warranty.
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19.3
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The Sub-lessor warrants to the Sub-lessee that -
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19.3.1
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it has the lawful right to occupy the properties;
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19.3.2
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it is not precluded in any way from entering into this agreement and giving the Sub-lessee the rights granted to the Sub-lessee in
terms of this agreement;
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19.3.3
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no other person has the right to occupy the properties;
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19.3.4
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no person has any pre-emptive right, right of first refusal, option or other right of any nature whatever to buy any of the properties;
and
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19.3.5
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the properties are unencumbered.
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19.4
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It is agreed that, the Sub-lessee shall be entitled, without prejudice to its other rights in law or in terms hereof, to cancel this
agreement as a consequence of any breach by the Sub-lessor of any of the warranties.
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Save as otherwise provided herein should the -
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20.1
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Sub-lessee commit a breach of any provision of this agreement and fail to remedy such breach within 14 days after receiving written
notice from the Sub-lessor requiring the Sub-lessee to remedy such breach, then the Sub-lessor shall be entitled, without prejudice to
the Sub-lessor’s other rights in law, to cancel this agreement, or to claim immediate specific performance of all of the Sub-lessee’s
obligations then due for performance, in either event without prejudice to the Sub-lessor’s right to claim damages; or
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20.2
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Sub-lessor commit a breach of any provision of this agreement and fail to remedy such breach within 14 days after receiving written
notice from the Sub-lessee requiring the Sub-lessor to remedy such breach, then the Sub-lessee shall be entitled, without prejudice to
its other rights in law, to cancel this agreement or to claim immediate specific performance of all of the Sub-lessor’s obligations
then due for performance, in either event without prejudice to the Sub-lessee’s right to claim damages.
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21.1
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The parties choose domicilium citandi et executandi for all purposes of the giving ofany notice, the payment of any sum, the serving
of any process and for any other purpose arising from this agreement, as follows -
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21.1.1
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Sub-
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Ts’akholo, Makhemeng, Mafeteng
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lessor
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makhemeng@makhemeng.co.za
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email
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21.1.2
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Bophelo Bioscience and Wellness (Pty) Ltd
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Sub-lessee
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Marked for the attention of: Louisa Maliako Mojela
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makhemeng@makhemeng.co.za
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email
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21.2
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Each of the parties shall be entitled from time to time, by written notice to the others, to vary its domicilium to any other physical
address within Lesotho.
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21.3
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Any notice given and any payment made by any party to any other which is delivered by hand during the normal business hours of the
addressee at the addressee’s domicilium for the time being shall be presumed to have been received by the addressee at the time
of delivery.
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21.4
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Notwithstanding anything to the contrary contained in this clause written notice or other communication actually received by a party
shall be adequate written notice or communication to it notwithstanding that the notice was not sent or delivered to itschosen address
or electronic mail address.
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This agreement (including its validity, existence and implementation,
the interpretation and application of its provisions, the respective rights and obligations of the parties in terms of and arising out
of the conclusion, and termination of the provisions of this agreement), shall be interpreted and governed in all respects by the laws
of The Kingdom of Lesotho.
Save as otherwise provided herein, the parties hereby consent
to the non-exclusive jurisdiction of the Courts of The Kingdom Lesotho Commercial Division in respect of any action or legal proceedings
which may arise out of or in connection with this agreement, its interpretation, validity or termination.
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24.1
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Save for those provisions in this agreement which provide for their own remedies and for the purposes of this a “dispute”
shall mean any dispute which arises between the parties in connection with -
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24.1.1
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the formation or existence;
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24.1.2
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the implementation;
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24.1.3
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the interpretation or application of the provisions;
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24.1.4
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the parties’ respective rights and obligations in terms of or arising out of theconclusion, breach or termination;
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24.1.5
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the validity, enforceability, rectification, termination or cancellation, whetherin whole or in part;
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24.1.6
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any documents furnished by the parties pursuant to the provisions,
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of this agreement or which relates in any way to any matter
affecting the interests of the parties in terms of this agreement. The parties agree that any dispute shall, unless resolved amongst the
parties to the dispute, be referred to and be determined by arbitration.
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24.2
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The parties hereby consent to the arbitration being dealt with in terms of the laws of The Kingdom of Lesotho.
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24.3
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Any party to this agreement may demand that a dispute be determined in terms of this clause 24 by written notice given to the other
parties.
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24.4
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This clause 24 shall not preclude any party from obtaining interim relief by way of motion proceedings (including on an urgent basis)
from a court of law pending the decision of the arbitrator.
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24.5
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Only the parties and their representatives (including legal representatives) shall be entitled to attend the arbitration hearing.
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24.6
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The parties agree to keep the arbitration including the subject-matter of the arbitration and the evidence heard during the arbitration
confidential and not to disclose it to anyone except for purposes of a court order to be made in terms of clause 24.4.
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24.7
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The award of the arbitrator shall be final and binding on the parties to the dispute and may be made an order of the court at the
instance of any of the parties to the dispute.
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The parties agree that as between them the arbitral award shall
be final and bindingand have the effect of a court order.
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24.8
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Any arbitral award shall not be subject to a right of appeal.
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24.9
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The provisions of this clause -
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24.9.1
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constitute an irrevocable consent by the parties to any proceedings in terms hereof and no party shall be entitled to withdraw therefrom
or claim at any such proceedings that it is not bound by such provisions; and
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24.9.2
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are severable from the rest of this agreement and shall remain in effect despite the termination of or invalidity for any reason of
this agreement.
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24.10
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The parties agree that the written demand by any party in terms of that the dispute be submitted to arbitration, shall be deemed to
be a legal process for the purpose ofinterruption of extinctive prescription in terms of the Prescription Act of Lesotho
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Each party shall pay its own costs and charges
in connection with and incidental to the negotiation, drafting and execution of this agreement.
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26.1
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This document constitutes the sole record of the agreement between the parties inrelation to the subject matter hereof.
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26.2
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Neither party shall be bound by any representation, warranty, promise or the like not recorded herein.
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26.3
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No addition to, variation, or agreed cancellation of this agreement shall be of any force or effect unless recorded in a written document
and signed by or on behalf of the parties.
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26.4
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No indulgence which either party (“the grantor”) may grant to the other (“the grantee”) shall constitute a
waiver of any of the rights of the grantor, who shall not thereby be precluded from exercising any rights against the grantee which may
have arisen in the past or which might arise in the future.
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26.5
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The parties shall at all times act in good faith towards each other and shall not bringany of the other parties into disrepute.
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26.6
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Each of the parties undertakes at all times to do all such things, perform all such acts and take all such steps and to procure the
doing of all such things, within his/her power and control, as may be open to and is necessary for and incidental to the putting into
effect or maintenance of the terms, conditions and import of this agreement.
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THUS DONE AND SIGNED AT MAKHEMENG, TSAKHOLO ON THIS 20
AS WITNESSES
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1
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/s/ [ILLEGIBLE]
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/s/ [ILLEGIBLE]
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2
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/s/ [ILLEGIBLE]
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SUB- LESSOR
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THUS DONE AND SIGNED AT MASERU ON THIS day of 2018
AS WITNESSES
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1
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/s/ [ILLEGIBLE]
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/s/ [ILLEGIBLE]
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2
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/s/ [ILLEGIBLE]
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SUB-LESSEE
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ANNEX A
AS PER BELOW REGISTERED SUB LEASE
04412-10001
07-03-2019
LEASE
under
The Land Act
2010
Land Administration Authority
P.O. Box 11856
MASERU 100
Lesotho
Lease Number: 04412-10001
LEASE
(In terms of The Land Act 2010)
TO WHOM IT MAY CONCERN
THAT: MOPHUTHI MATSOSO DEVELOPMENT TRUST – REGISTERED UNDER
DEEDS REGISTRY ACT 1967
OF: SEA POINT
MASERU
Hereinafter referred to as the Lessee, has been granted, accepts
and holds title in land known as:
Plot Number: 04412-10001
Situated at: METSI MAHOLO MAFETENG DISTRICT
Approximate area: 68834 Square metres more or less
As shown on plan number 04412 as held by the Chief Surveyor.
Under a Lease issued by the Land Administration Authority pursuant
to the Land Administration Authority Act 2010 and the Land Act 2010, on behalf of and with the authority of:
HIS MAJESTY THE KING
Subject to the statutory conditions as prescribed in the Land Regulations
and any and all of the following terms and special conditions and general provisions:
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1.01
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Annual ground rent shall mean M16 520.16 per year or
such other amount as may be reassessed.
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2.01
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This lease shall come into operation on the 20 February 2019 and shall expire at the end of a sixty (60) Year term on
19 February 2079
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Land Administration Authority
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Page 1 of 4
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PO Box 11856, Maseru 100, Lesotho
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3. Special conditions:
3.1 The permitted use in respect of
which this lease is granted or issued is: COMMERCIAL
3.2 Other special conditions:
4. General provisions
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4.1
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That this title is inheritable subject to the provisions of
Section 35 of the Act and any other law which may be applicable.
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4.2
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That this lease shall only be terminated by:
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(i) the expiry of
its period; or
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(ii) the surrender
thereof under the provisions of Section 35; or
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(iii)its determination pursuant to the provisions of the
Act.
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4.3
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The Act shall mean the Land Act 2010 and all regulations made
there under.
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4.04
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This lease shall be governed by revisions of the Act and all
Acts and Regulations now or hereafter applicable to the land.
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Thus done, granted and executed on this 20 February 2019 at
Maseru.
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/s/ [ILLEGIBLE]
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/s/ [ILLEGIBLE]
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Director General
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Lessee
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(signature)
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Land Administration Authority
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/s/ [ILLEGIBLE]
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Witness
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(signature)
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Name:
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Papali Tsunyane
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Where the lessee is legal entity the capacity
of the signatory is: representative in exercise of the powers conferred on him/her by a Power of Attorney No - /
resolution of the Board of Directors of the Lessee / -
dated the 20th day of February 2019 a certified copy of which is attached hereto.
Seal affixed in the presence of the witness.
Lease number: 04412-10001
Registration number: 04412-10001
Registration date: 07-03-2019
Registration fee: M 100.00
Stamp duty: M 360.00
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Land Administration Authority
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Page 3 of 4
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PO Box 11856, Maseru 100, Lesotho
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Land Regulations 2011
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Regulation 10
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Statutory conditions
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1.
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Unless the Minister directs otherwise the Lessee shall fence the boundaries of the land within 6 (six) months of the date of the grant
and the Lessee shall maintain the fence to the satisfaction of the Director General.
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2.
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Unless special written authority is given by the Commissioner of Lands, the Lessee shall commence development of the land within 5
years of the date of the granting of a lease. This shall also apply to further development of the land held under a lease during the term
of the lease.
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3.
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Within a period of the time to be fixed by the planning authority, the Lessee shall provide at his own expense main drainage or main
sewerage connections from the building erected on the land as the planning authority may require.
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4.
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In the event of any main building erected on the land being dismantled, destroyed, demolished or removed, the Lessee shall replace
the building within a period specified by the planning authority and sub-regulations (2) and (3) of the Land Regulations 2011 shall apply
where applicable.
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5.
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The Lessee shall use the land comprised in the lease only for the purpose specified in the lease or in any variation made to the original
lease.
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6.
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The Lessee shall permit entry on land at any reasonable period of the day by any duly empowered employee, officer or agent of the:
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(i)Land Administration Authority;
(ii)Government of Lesotho; or
(iii)any statutory corporation or
parastatal organisation established to provide and maintain public utility services.
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7.
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Save with the written authority of the planning authority, no electrical power or telephone pole or line or water, drainage or sewer
pipe being upon or passing through, over or under the land and no replacement thereof, shall be moved or in any way be interfered with
and reasonable access thereto shall be preserved to allow for inspection, maintenance, repair, renewal and replacement.
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8.
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Full right and liberty reserved unto the Government of Lesotho freely to exercise or have, or unto the Minister to grant to a statutory
corporation or parastatal organisation, the right freely to exercise or have a public servitude over the land for the purpose of providing
and maintaining public utility services and more particularly for the purpose of erecting telephone or electric power poles, installing
electric or telephone wires and cables, laying down drains, sewers or water pipes and maintaining the same.
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9.
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The interior and exterior of any building erected on the land and all building additions thereto and all other buildings at any time
erected or standing on the land and walls, drains and other appurtenances, shall be kept by the Lessee in good repair and tenantable condition
to the satisfaction of the planning authority.
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10.
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No act, matter or thing, whatever, shall be done or permitted to be done upon the land or any part of such land which may cause or
lead to pollution of the environment or result in the creation of any hazard to the health of other persons, or become a nuisance or annoyance
to or damage or in any way interfere with the peace and comfort of adjoining Lessees or the occupiers of adjoining or other land in the
neighbourhood.
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11.
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The Lessee shall not subdivide the land or part with the possession of any part thereof without the written prior approval of the
planning authority.
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12.
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A Lessee shall, unless exempted under Section 77(1) or qualifies under Section 77(5), pay a prescribed annual ground rent in advance
not later than the 31st day of March in each year provided that on execution of the lease, the Lessee shall pay any ground rent due for
the period ending the 31st day of March which shall be calculated as follows:
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(i)where the lease begins to subsist on any day in the month
of April in any calendar year, one whole year’s rent;
(ii)in any other case, one whole year’s rent less
one- twelfth thereof for each complete month of that rental year that has elapsed prior to the date of the grant.
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13.
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Annual ground rent reserved in the lease shall be subject to revision every three (3) years of the term of the lease and consequent
upon any revision, the amount shall be fair and reasonable having regard to general values and no account shall be taken of any improvements
made by the Lessee to or on the land subsequent to the date of such revision.
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14.
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Upon application by the Lessee made not later than 6 (six) months before expiry of the term of the lease the Lessee shall be entitled
to the grant of a new lease of the land on terms set by the Director General provided the land or part thereof is not required for any
public purpose.
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14.
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Upon application by the Lessee made not later than 6 (six) months before expiry of the term of the lease the Lessee shall be entitled
to the grant of a new lease of the land on terms set by the Director General provided the land or part thereof is not required for any
public purpose.
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Land Administration Authority
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Page 4 of 4
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PO Box 11856, Maseru 100, Lesotho
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Exhibit 10.3
DATED: 29 September 2020
LOUISA MADIAKO MOJELA
(‘the Lender”)
AND
BOPHELO BIO SCIENCE & WELLNESS PTY LTD
(“the Borrower”)
This loan agreement dated the 28th September 2020 is made
between the following parties:
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1.
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Louisa Madiako Mojela, an individual of legal age, holder of a South African Passport bearing
the number M00181072 and residing at 2 & 3 West Road, South Estate, Farringdon street, Morningside, West Road South, Morningside 2146,
South Africa (Lender) and
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2.
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Bophelo Bio Science and Wellness Pty Ltd, a company incorporated and registered in the Kingdom
of Lesotho with registration number 62924 whose registered office is at Ts’Akholo, Mafeteng 900, Lesotho (Borrower).
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Background
The Lender has agreed to provide the Borrower with a short term facility
in an aggregate amount of upto ZAR 2,000,000 (two million rands) which shall be provided either in one lumpsum amount or in parts in accordance
with the terms of this agreement.
Now it is agreed as follows:
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1.
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Definitions & Interpretations
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1.1
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The definitions and rules of
interpretation in this clause apply in this agreement.
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Business day
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a day (other than Saturday or a Sunday) on which financial institutions
are open for general business in South Africa and the Kingdom of Lesotho;
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Loan
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means the principal amount of the loan made or to be made by the lender to the borrower under this agreement or the principal amount
outstanding for the time being of that loan;
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Total Facility amount
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means the maximum principal amount of the facility referred
to in clause 2;
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ZAR
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means the lawful currency of South Africa.
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1.2
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Clauses, schedules and paragraph headings shall not affect the interpretation of this agreement.
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1.3
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A reference to this agreement (or any provision of it) or any other document shall be construed as
a reference to this agreement, that provision or that document as it is in force for the time being and as amended, varied or supplemented
from time to time in accordance with its terms or with the agreement of the relevant parties.
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1.4
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A reference to a person shall include a reference to an individual, firm, company, corporation, unincorporated
body of persons, or any state or any agency of any person.
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1.5
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A reference to a statute, statutory provision or subordinate legislation is a reference to it as it
is in force for the time being, taking into account of any amendment, extension or re-enactment and includes any former statute, statutory
provision or subordinate legislation which it amends or re-enacts.
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1.6
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A reference to writing or written includes fax and email.
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1.7
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Unless the context otherwise requires, a reference to one gender shall include a reference to the
other genders.
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1.8
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Unless the context otherwise requires, words in the singular include the plural and, in the plural,
include the singular.
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1.9
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A reference to an amendment includes a novation, re-enactment, supplement or variation (and amended
shall be construed accordingly).
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1.10
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A reference to the Borrower and the Lender shall include their respective successors, permitted transferees
and permitted assigns.
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1.11
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A reference to continuing in relation to an Event of Default means an Event of Default which has not
been remedied or waived.
|
The Lender grants to the Borrower a ZAR short term loan
facility of a total principal amount not exceeding ZAR 2,000,000.00 (two million rands only) on the terms, and subject to the conditions,
of this Agreement.
Subject to clause 7, the Borrower may utilise the Loan in
a single amount on any Business Day during the term of the Loan or may utilize it in parts as and when faced with a cash crunch. To do
this, the Borrower should provide the Lender with at least one (1) Business Day’s prior notice of the date on which the Borrower
intends to draw down the Loan, specifying the amount of the Loan, the Business Day on which it is to be made and the bank account to which
payment is to be made. The amount of the Loan shall not exceed the Total Facility Amount.
The Borrower shall repay the loan in full within 30 days
of the payment being received by the borrower including the interest for the period of the loan.
The Lender shall charge interest at the prevailing bank interest
rate in South Africa.
Except as otherwise provided for in this Agreement, this
Agreement constitutes the entire understanding of the rights and obligations of the Lender and the Borrower with respect to the subject
matter hereof. This Agreement may not be modified or amended except by a written agreement signed by the parties.
All notices required or permitted by this Agreement shall
be in writing and delivered by hand or sent by prepaid post to:
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|
Lender:
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Louisa Madiako Mojela
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|
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Address:
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2 & 3 West Road South Estate, Farringdon Street, Morningside, West Road, South Morning Side 2146, South Africa
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|
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Borrower:
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Bophelo Bio Science and Wellness Pty Ltd
|
|
|
Address:
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Khoabane Mojela, Ha Mojela, Ts’Akholo, Mafeteng, Lesotho
900
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or at such other address of which the addressee may from
time to time have notified the addressor. A notice shall be deemed to have been sent and received on the day, if it is delivered by hand,
or, if it is sent by prepaid post, at the expiration of 72 hours after the same was posted, or on the day on which transmission is confirmed,
if sent by facsimile transmission. If such day is not a Business Day or if the notice is received after ordinary office hours (time of
place of receipt), the notice shall be deemed to have been sent and received on the next Business Day. In proving service by post of any
such notice it shall be sufficient to prove that the envelope containing the same was properly addressed stamped and posted.
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8.
|
Remedies,
Waivers, Amendments & Consents
|
|
|
8.1
|
Any amendment to this Agreement shall be in writing and signed by, or on behalf of, each party.
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|
8.2
|
No waiver of any provision of this Agreement shall be binding unless it is in writing.
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|
8.3
|
No indulgence or forbearance by a party shall constitute a waiver of such party’s right to insist
on performance in full and in a timely manner of all covenants in this Agreement. Waiver of any provision shall not be deemed to waive
the same provision thereafter, or any other provision of this Agreement at any time.
|
If any provision of this Agreement is invalid or unenforceable,
such provision shall be severed and the remainder of this Agreement shall be unaffected thereby and shall continue to be valid and enforceable
to the fullest extent permitted by law.
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10.
|
Assiqnment & Transfer
|
Neither party may assign or transfer any of its rights or
obligations under this Agreement without the prior written agreement of the other party.
This Agreement may be executed in any number of counterparts,
each of which is an original and which, together, have the same effect as if each party had signed the same document.
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|
12.
|
Governing Law and Jurisdiction
|
This agreement and any dispute or claim arising out of or
in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed
in accordance with the laws of South Africa and is irrevocably agreed by the parties to this agreement.
This agreement has been entered into on the date stated at
the beginning of it.
Executed by Louisa Madiako Mojela
|
/s/ [ILLEGIBLE]
|
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Executed by
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On behalf of Bophelo Bio Science and Wellness Pty Ltd
Exhibit 10.4
Certain portions of this exhibit have been redacted in accordance with
Item 601(a)(6) of Regulation S-K. This information is not material and disclosure of such information would constitute an unwarranted
invasion of personal privacy. “[*]” indicates that information has been redacted.
AKANDA CORP.
UP TO $10,000,000 (or 4,000,000 SHARES) of COMMON
SHARES
Investor Package dated as of August 26, 2021
This Investor Package (the “Investor Package”) contains
the documents listed below in connection with an offering by Akanda Corp., a Province of Ontario, Canada corporation (“we”
or the “Company”), of up to $10,000,000, or 4,000,000 shares of the Company’s common shares (the “Shares”).
The offering of the Shares is known as the “Offering.”
The Shares under this Offering will only be offered and sold to “accredited
investors” (“Accredited Investors”), as that term is defined in Rule 501(a) of Regulation D promulgated
by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities
Act”) or, as defined under applicable Canadian laws, pursuant to Section 4(a)(2) of the Securities Act, Rule 506(b) of
Regulation D promulgated thereunder, Regulation S promulgated thereunder and applicable foreign or state laws. The price of the Shares
has been determined by us and such price does not necessarily bear any relation to the book value or other recognized criteria of value
of the Company.
The Offering will commence on the date of this Investor Package and
continue until the earlier of the sale of all 4,000,000 Shares or September 30, 2021, unless extended by the Company in its sole
discretion.
The
Company was only recently incorporated, has not commenced commercial operations and has no assets other than cash. The Company expects
to acquire all the issued and outstanding equity interests of Canmart Limited, Bophelo Bio Science and Wellness (Pty) Ltd., Bophelo
Holdings Limited and Cannahealth Limited from Halo Collective Inc. immediately prior to the closing of this Offering. See “The Proposed
Acquisition” in the Business Summary of the Company on Exhibit B for more detailed information. The closing of the Offering
will be subject to the completion of this acquisition.
Under our engagement letter with Boustead, originally entered into
on June 17, 2021 (the “Engagement Letter”), Boustead has been engaged as our exclusive financial advisor for an
initial 12 month term, which may be extended pursuant to the Engagement Letter, in connection with the Company’s intention to pursue
corporate finance activities including private placements. The Shares are being offered in this Offering by Boustead Securities, LLC (“Boustead”)
which will be paid a commission of 7% of the gross proceeds from the sale of Common Shares sold in the Offering and an additional non-accountable
expense allowance of 1% of the gross proceeds from the sale of Common Shares in the Offering.
This Investor Package consists of (a) Subscription
Agreement to be executed by the Company and each subscriber to the Shares, and an Investor Representation and Suitability Questionnaire
to be completed by each subscriber to the Shares1, (b) Exhibit A – Terms of the Offering, (c) Exhibit B
– Business Summary of the Company, (d) Exhibit C – Risk Factors to be considered by potential subscribers
to the Shares, (d) Exhibit D – Company Investor Presentation, (e) Exhibit E – a Lock-Up
Agreement to be executed by each subscriber to the Shares (collectively, the “Offering Documents”).
1 Investors other than Canadian
Investors shall complete the “Investor Representation and Suitability Questionnaire (for non-Canadian Subscribers)”. Canadian
investors shall complete the “Investor Representation and Suitability Questionnaire (for Canadian Subscribers)”.
SUBSCRIPTION PROCEDURE (FOR NON-CANADIAN SUBSCRIBERS):
To
subscribe to purchase the Shares, an investor must pay the applicable subscription price and email a duly executed Subscription Agreement
and a completed and duly executed Investor Representation and Suitability Questionnaire to offerings@boustead1828.com.
Alternatively, investors may mail or deliver a duly executed Subscription
Agreement and a completed and duly executed Investor Representation and Suitability Questionnaire to:
Sutter Securities Clearing, LLC
6 Venture, Suite 395
Irvine, CA 92618
For: Akanda Corp.
The subscription price may be paid by wire transfer
as follows:
|
Bank Name:
|
[*]
|
|
Bank Address:
|
[*]
|
|
SWIFT Code:
|
[*]
|
|
Routing #:
|
[*]
|
|
|
|
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Account Name:
|
[*]
|
|
Account #:
|
[*]
|
|
REF / Notes:
|
Akanda Corp. – [Investor Name]
|
Subscription Agreement and
Investor Representation and Suitability Questionnaire
Exhibit A - Term Sheet
Exhibit B - Business
Summary
Exhibit C - Risk Factors
Exhibit D - Akanda Corp.
Investor Presentation
Exhibit E - Lockup Agreement
SUBSCRIPTION PROCEDURE (FOR CANADIAN SUBSCRIBERS):
(Attached under separate cover)
IMPORTANT INVESTOR NOTICES
NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE
RELIED UPON IN THE OFFERING OF THE SHARES EXCEPT FOR THIS INVESTOR PACKAGE AND ANY EXHIBITS AND SUPPLEMENTS HERETO, AND NO PERSON HAS
BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.
THIS INVESTOR PACKAGE IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT
BE REPRODUCED, DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY. EACH PERSON WHO ACCEPTS DELIVERY OF THIS INVESTOR PACKAGE, ACKNOWLEDGES AND AGREES TO
THE FOREGOING RESTRICTIONS.
THIS INVESTOR PACKAGE DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN
ALL OF THE INFORMATION THAT YOU MAY DESIRE IN EVALUATING THE COMPANY, OR AN INVESTMENT IN THE OFFERING. THIS INVESTOR PACKAGE DOES
NOT CONTAIN ALL OF THE INFORMATION THAT WOULD NORMALLY APPEAR IN A PROSPECTUS FOR AN OFFERING REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”) OR CANADIAN SECURITIES LAWS. YOU MUST CONDUCT AND RELY ON YOUR OWN EVALUATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED, IN DECIDING WHETHER TO INVEST IN THE OFFERING.
THIS INVESTOR PACKAGE DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
OF AN OFFER TO ANY PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR NOT AUTHORIZED. EACH PERSON WHO ACCEPTS
DELIVERY OF THIS INVESTOR PACKAGE AGREES TO DELETE OR OTHERWISE DESTROY IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE
ANY OF THE SECURITIES DESCRIBED HEREIN.
NEITHER THE DELIVERY OF THIS INVESTOR PACKAGE AT ANY TIME NOR ANY SALE
OF SECURITIES HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THE COMPANY WILL
EXTEND TO EACH PROSPECTIVE INVESTOR (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE OPPORTUNITY, PRIOR TO ITS
PURCHASE OF SECURITIES, TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL INFORMATION,
TO THE EXTENT THE COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY
OF THE INFORMATION SET FORTH HEREIN. ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY
THROUGH ITS DULY AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION PROVIDED BY ANY BROKER OR THIRD PARTY
MAY BE RELIED UPON.
NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR
SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN INVESTOR IN THE COMPANY. THIS INVESTOR
PACKAGE CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY’S PERFORMANCE, STRATEGY, PLANS, OBJECTIVES, EXPECTATIONS, BELIEFS
AND INTENTIONS. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO SUBSTANTIAL RISKS, AND ACTUAL RESULTS
COULD DIFFER MATERIALLY.
THE OFFERING PRICE OF THE SECURITIES HAS BEEN DETERMINED ARBITRARILY.
THE PRICE OF THE SECURITIES DOES NOT NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, EARNINGS OR BOOK VALUE OF THE COMPANY, OR TO POTENTIAL
ASSETS, EARNINGS, OR BOOK VALUE OF THE COMPANY. THE PRICE OF COMMON SHARES MAY BE IMPACTED BY A LACK OF LIQUIDITY OR AVAILABILITY
OF COMMON SHARES FOR PUBLIC SALE AND ALSO WILL NOT NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, EARNINGS, BOOK VALUE OR POTENTIAL
PROSPECTS OF THE COMPANY OR APPLICABLE QUOTED OR TRADING PRICES THAT MAY EXIST FOLLOWING REGISTRATION OR THE LAPSE OF RESTRICTIONS
ON THE SECURITIES SOLD PURSUANT TO THE OFFERING OR OTHER RESTRICTIONS. SUCH PRICES SHOULD NOT BE CONSIDERED ACCURATE INDICATORS OF FUTURE
QUOTED OR TRADING PRICES THAT MAY SUBSEQUENTLY EXIST FOLLOWING THE OFFERING.
THIS OFFERING IS MADE AS A
PRIVATE PLACEMENT PURSUANT TO APPLICABLE Canadian Securities laws, SECTION 4(A)(2) OF THE SECURITIES ACT AND RULE 506(B) OF
REGULATION D PROMULGATED THEREUNDER, AND ONLY TO PARTIES THAT ARE “ACCREDITED INVESTORS” AS DEFINED under canadian securities
laws AND IN RULE 501(A) OF REGULATION D UNDER THE SECURITIES ACT, as applicable. OUTSIDE THE UNITED STATES and canada, THIS OFFERING
IS ALSO MADE PURSUANT TO REGULATION S UNDER THE SECURITIES ACT ONLY TO PARTIES THAT ARE NOT “U.S. PERSONS” AS DEFINED IN SUCH
REGULATION, AND PURSUANT TO EXEMPTIONS FROM APPLICABLE SECURITIES LAWS OF OTHER COUNTRIES (THE “FOREIGN SECURITIES LAWS”).
THIS OFFERING IS MADE IN RELIANCE
UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND FOREIGN SECURITIES LAWS AS DESCRIBED ABOVE. the COMPANY WILL
NOT BE OBLIGATED TO REGISTER THE SHARES UNDER THE SECURITIES ACT OR ANY FOREIGN SECURITIES LAWS IN THE FUTURE. ALL THE SHARES, WHETHER
ACQUIRED WITHIN THE UNITED STATES OR OUTSIDE THE UNITED STATES, WILL BE “RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE
144 UNDER THE SECURITIES ACT AND, THEREFORE, MAY NOT BE TRANSFERRED BY A HOLDER THEREOF WITHIN THE UNITED STATES OR TO A “U.S.
PERSON” UNLESS SUCH TRANSFER IS MADE PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, PURSUANT TO AN EXEMPTION THEREFROM, OR IN
A TRANSACTION OUTSIDE THE UNITED STATES PURSUANT TO THE RESALE PROVISIONS OF REGULATION S. MOREOVER, THE SHARES WILL BE SUBJECT TO
LOCK-UP RESTRICTIONS SET FORTH IN THE OFFERING DOCUMENTS. HEDGING TRANSACTIONS INVOLVING THE SHARES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT. YOU MAY BE REQUIRED TO BEAR INDEFINITELY THE FINANCIAL RISKS OF ANY INVESTMENT YOU MAKE IN THE
SHARES.
this offering is made on a
private placement basis in canada and there are restrictions with respect to trading in, and the restricted period or statutory hold period
applicable to the Securities imposed by canadian securities legislation and regulations of, and the instruments, policies, rules, orders,
codes, notices and interpretation notes of the Canadian securities regulatory authorities in each of the provinces AND TERRITORIES of
Canada, as applicable.
THE COMPANY MAY REJECT ANY SUBSCRIPTION, IN WHOLE OR IN PART, IN
ANY ORDER AND FOR ANY OR NO REASON, IN OUR SOLE DISCRETION. IN THE EVENT THAT THIS OFFERING IS OVER-SUBSCRIBED, THE COMPANY MAY REDUCE
(OR REJECT) THE SUBSCRIPTIONS BASED ON EACH INVESTOR’S PRO RATA PARTICIPATION IN THIS OFFERING OR IN ANY OTHER MANNER THAT THE COMPANY
TOGETHER WITH THE PLACEMENT AGENT MAY DETERMINE, OR THE COMPANY MAY INCREASE THE SIZE OF THE OFFERING.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SEC, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS INVESTOR PACKAGE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS INVESTOR
PACKAGE AS INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE. EACH INVESTOR SHOULD CONTACT HIS, HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS
OF THIS INVESTMENT AND THE TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON AN INVESTOR’S PARTICULAR FINANCIAL SITUATION.
IN NO EVENT SHOULD THIS INVESTOR PACKAGE BE DEEMED OR CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.
THIS INVESTOR PACKAGE WAS PREPARED BY REPRESENTATIVES OF THE COMPANY.
BOUSTEAD SECURITIES LLC, AND ITS OFFICERS, DIRECTORS, PARTNERS, SHAREHOLDERS, MANAGERS, MEMBERS AND EMPLOYEES, ACTING AS PLACEMENT AGENT,
EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTY REGARDING INVOLVEMENT IN OR RESPONSIBILITY FOR ANY INFORMATION OR FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS MEMORANDUM. BOUSTEAD IS ACTING AS PLACEMENT AGENT FOR THE COMPANY, AND, IN THAT CAPACITY, IS NOT ACTING AS
INVESTMENT ADVISOR TO PROSPECTIVE INVESTORS IN CONNECTION WITH THE SECURITIES BEING OFFERED IN THIS MEMORANDUM. PROSPECTIVE INVESTORS
MUST MAKE THEIR OWN INVESTMENT DECISIONS. IN MAKING THOSE DECISIONS, PROSPECTIVE INVESTORS SHOULD BE AWARE THAT BOUSTEAD WILL RECEIVE
A PLACEMENT FEE AND OTHER COMPENSATION AS DESCRIBED ELSEWHERE IN THIS INVESTOR PACKAGE.
CONFIDENTIALITY
By accepting delivery of this Investor Package,
you acknowledge and agree that all of the information contained herein is of a confidential nature and that this Investor Package has
been furnished to you for the sole purpose of enabling you to consider and evaluate an investment in the Shares. You agree that you will
treat such information in a confidential manner, will not use such information for any purpose other than evaluating an investment in
the Shares, and will not, directly or indirectly, disclose or permit your agents, representatives or affiliates to disclose any of such
information without the prior written consent of the Company.
You also agree to make your agents, affiliates
and representatives aware of the confidential nature of the information contained herein and the terms of this paragraph including your
agreement to not disclose such information and to be responsible for any disclosure or other improper use of such information by such
agents, affiliates or representatives. Likewise, without the prior written consent of the Company, you agree that you will not, directly
or indirectly, make any statements, public announcements, or other release or provision of information in any form to any trade publication,
to the press or to any other person or entity whose primary business is or includes the publication or dissemination of information related
to the subject matter of this Investor Package. If you decide not to pursue further investigation or evaluation of the Company or to not
participate in the Offering, you agree to promptly delete or otherwise destroy this Investor Package and any accompanying documentation
(and all copies thereof).
THE SECURITIES TO BE ISSUED PURSUANT TO THIS
AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR ANY OTHER APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED THEREUNDER OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS
AGREEMENT HAVE NOT BEEN QUALIFIED BY A PROSPECTUS IN CANADA AND THERE ARE RESTRICTIONS WITH RESPECT TO TRADING IN, AND THE RESTRICTED
PERIOD OR STATUTORY HOLD PERIOD APPLICABLE TO THE SECURITIES IMPOSED BY CANADIAN SECURITIES LEGISLATION AND REGULATIONS OF, AND THE INSTRUMENTS,
POLICIES, RULES, ORDERS, CODES, NOTICES AND INTERPRETATION NOTES OF THE CANADIAN SECURITIES REGULATORY AUTHORITIES IN EACH OF THE PROVINCES
AND TERRITORIES OF CANADA, AS APPLICABLE.
SUBSCRIPTION AGREEMENT
Akanda Corp.
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, Ontario M5K 0A1
Ladies and Gentlemen:
Subscription.
I (sometimes referred to herein as the “Investor” or “Subscriber”) hereby subscribe for and
agree to purchase the Securities (as defined below) for the purchase price (the “Purchase Price”) set forth on the
signature page hereto of Akanda Corp., a Province of Ontario, Canada corporation (the “Company”), on the terms
and conditions described herein and in Exhibits A, B, C, D and E hereto (collectively, the “Offering Documents”).
Terms not defined herein are as defined in the Offering Documents. The Company seeks to raise a minimum of $5,000,000 or,
2,000,000 shares (the “Minimum Offering Amount”) and maximum of $10,000,000 or 4,000,000 shares (the “Maximum
Offering Amount”) in this Offering. The minimum amount of investment required from any one subscriber to participate in this
Offering is $50,000 or 20,000 shares, subject to the Company’s discretion to access a smaller amount. All references to $ means
United States dollars.
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1.
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Description of Securities; Description of Company and
Risk Factors; Lock-Up.
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a. Description
of Securities. The Company is offering (the “Offering”) to the Investor common shares of the Company (“Shares”
or “Securities”) at a purchase price of $2.50 per share. For a more detailed description of the Securities see the
Term Sheet attached as Exhibit A.
b. Risks
Related to the Investment in the Securities. Investing in the Securities involves a high degree of risk. Before investing, Investors
should carefully consider the description of our business and the risks related to our business, as set forth in Exhibits B and C and
the investor deck set forth in Exhibit D, together with the other information contained in Offering Documents.
c. Lock-Up.
In connection with this Offering, the Investor agrees to enter into the Lock-up Agreement attached as Exhibit E (the “Lock-up
Agreement”) and be subject to the transfer restrictions set forth therein.
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a.
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I hereby agree to tender to Sutter Securities Clearing, LLC (the “Escrow Agent”), by certified check or wire transfer
of immediately available funds (to the bank account and related wire instructions set forth on page 2 of this Investor Package) made
payable to “Akanda Corp.” for such number of Shares indicated on the signature page hereto, an executed copy of this
Subscription Agreement, an executed copy of my Investor Representation and Suitability Questionnaire2 (“Investor
Questionnaire”) attached hereto and an executed copy of the Lock-up Agreement. Funds will be held in escrow, as set forth in
more detail below (the “Escrow Account”), pending the Initial Closing.
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b.
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This Offering will continue until the earlier of (a) the sale of 4,000,000 Shares for $10,000,000 of gross proceeds of the Maximum
Offering Amount or (b) September 30, 2021, subject to extension or early termination by mutual agreement of the Company and
the Placement Agent (either, the “Termination Date”). Upon the earlier of a Closing (defined below) on my subscription
or completion of the Offering, I will be notified promptly by the Company as to whether my subscription has been accepted by the
Company.
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3.
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Acceptance or Rejection of Subscription.
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a.
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I understand and agree that the Company reserves the right to reject this subscription for the Securities, in whole or in part, for
any reason and at any time prior to the Closing (defined below) of my subscription.
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b.
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In the event the Company rejects this subscription, my subscription payment will be promptly returned to me without interest or deduction
and this Subscription Agreement shall be of no force or effect. In the event my subscription is accepted and the Offering is completed,
the subscription funds submitted by me shall be released to the Company.
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4. Closing.
The closing (“Closing”) of this Offering may occur at any time and from time to time on or before the Termination
Date. The Company must achieve the Minimum Offering Amount and complete the proposed Acquisition described under “The Proposed
Acquisition” in the Business Summary of the Company on Exhibit B (the “Acquisition”) prior to conducting
an initial Closing (the “Initial Closing”). Upon receipt of the Minimum Offering Amount, an Initial Closing will
be held and all funds will be released from the Escrow Account and paid to the Company, less professional fees and compensation paid to
the Placement Agent and syndicate members. Thereafter additional Closings will be held as funds are received up to the earlier to occur
of receipt of the $10,000,000 Maximum Offering Amount or the Termination Date. Pending receipt of the Minimum Offering Amount, all subscriptions
will be placed in escrow with the Escrow Agent. If, for any reason, the Minimum Offering Amount of subscriptions are not received by the
Termination Date, all escrowed funds will be returned to subscribers, without interest or deduction. The Securities subscribed for herein
shall not be deemed issued to or owned by me until one copy of this Subscription Agreement has been executed by me and countersigned by
the Company and the Closing with respect to such Securities has occurred.
5. Disclosure.
The Shares under this Offering will only be offered and sold to “accredited investors”, as that term is defined in Rule 501(a) of
Regulation D promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as
amended (the “Securities Act”), or as defined under applicable Canadian law, and pursuant to Section 4(a)(2) of
the Securities Act, Rule 506(b) of Regulation D promulgated thereunder, Regulation S promulgated thereunder and applicable foreign
or state laws. The Securities are being sold without registration under the Securities Act or qualification by a prospectus under Canadian
Securities Laws (as defined below). I acknowledge receipt of the Offering Documents and represent that I have carefully reviewed and understand
the Offering Documents, including all exhibits attached hereto. I have received all information and materials regarding the Company that
I have requested. I fully understand that each of the Company and the subsidiaries it contemplates acquiring under the Acquisition has
a limited financial and operating history and that the Securities are speculative investments which involve a high degree of risk, including
the potential loss of my entire investment. I fully understand the nature of the risks involved in purchasing the Securities and I am
qualified to make such investment based on my knowledge of and experience in investing in securities of this type. I have carefully considered
the potential risks relating to the Company and purchase of its Securities and have, in particular, reviewed each of the risks set forth
in the Offering Documents including the those discussed on Exhibit C. Both my advisors and I have had the opportunity to ask
questions of and receive answers from representatives of the Company or persons acting on its behalf concerning the Company and the terms
and conditions of a proposed investment in the Company and my advisors and I have also had the opportunity to obtain additional information
necessary to verify the accuracy of information furnished about the Company. Accordingly, I have independently evaluated the risks
of purchasing the Securities.
2 Investors other than Canadian Investors shall complete
the “Investor Representation and Suitability Questionnaire (for non-Canadian Subscribers)”. Canadian investors shall complete
the “Investor Representation and Suitability Questionnaire (for Canadian Subscribers)”.
6. Investor
Representations and Warranties. I acknowledge, represent and warrant to, and agree with, the Company as follows:
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a.
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I am aware that my investment involves a high degree of risk as disclosed in the Offering Documents and have read carefully the Offering
Documents, and I understand that by signing this Subscription Agreement I am agreeing to be bound by all of the terms and conditions of
the Offering Documents.
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b.
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I acknowledge and am aware that there is no assurance as to the future performance of the Company.
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c.
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I acknowledge that there may be certain adverse tax consequences to me in connection with my purchase of Securities, and the Company
has advised me to seek the advice of experts in such areas prior to making this investment.
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d.
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I am purchasing the Securities for my own account for investment purposes only and not with a view to or for sale in connection with
the distribution of the Securities, nor with any present intention of selling or otherwise disposing of all or any part of the foregoing
securities. I agree that I must bear the entire economic risk of my investment for an indefinite period of time because, among other
reasons, the Securities have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot
be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under applicable
securities laws of certain states or an exemption from such registration is available. I hereby authorize the Company to place a
restrictive legend on the Securities that are issued to me.
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e.
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I recognize that the Securities, as an investment, involve a high degree of risk including, but not limited to, the risk of economic
losses from operations of the Company and the total loss of my investment. I believe that the investment in the Securities is suitable
for me based upon my investment objectives and financial needs, and I have adequate means for providing for my current financial needs
and contingencies and have no need for liquidity with respect to my investment in the Company.
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f.
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I have been given access to full and complete information regarding the Company and have utilized such access to my satisfaction for
the purpose of obtaining information in addition to, or verifying information included in, the Offering Documents, and I have either met
with or been given reasonable opportunity to meet with officers of the Company for the purpose of asking questions of, and receiving answers
from, such officers concerning the terms and conditions of the offering of the Securities and the business and operations of the Company
and to obtain any additional information, to the extent reasonably available.
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g.
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I have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment
in the Securities and have obtained, in my judgment, sufficient information from the Company to evaluate the merits and risks of an investment
in the Company. I have not utilized any person as my purchaser representative as defined in Regulation D under the Securities Act
in connection with evaluating such merits and risks.
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h.
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I have relied solely upon my own investigation in making a decision to invest in the Company.
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i.
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I have received no representation or warranty from the Company or any of its officers, directors, employees or agents in respect of
my investment in the Company and I have received no information (written or otherwise) from them relating to the Company or its business
other than as set forth in the Offering Documents. I am not participating in the offer as a result of or subsequent to: (i) any
advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television
or radio or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
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j.
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I have had full opportunity to ask questions and to receive satisfactory answers concerning the offering and other matters pertaining
to my investment and all such questions have been answered to my full satisfaction.
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k.
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I have been provided an opportunity to obtain any additional information concerning the offering and the Company and all other information
to the extent the Company possesses such information or can acquire it without unreasonable effort or expense.
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l.
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I am an “accredited investor” as defined in Section 2(15) of the Securities Act and in Rule 501(a) promulgated
thereunder or under applicable Canadian law and have attached the applicable completed Investor Questionnaire to indicate my “accredited
investor” status. I can bear the entire economic risk of the investment in the Securities for an indefinite period of time
and I am knowledgeable about and experienced in making investments in the equity securities of non-publicly traded companies, including
early stage companies. I am not acting as an underwriter or a conduit for sale to the public or to others of unregistered securities,
directly or indirectly, on behalf of the Company or any person with respect to such securities.
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m.
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I understand that (1) the Securities have not been registered under the Securities Act, or the securities laws of certain states,
in reliance on specific exemptions from registration, (2) no securities administrator of any state or the federal government has
recommended or endorsed this offering or made any finding or determination relating to the fairness of an investment in the Company, and
(3) the Company is relying on my representations and agreements for the purpose of determining whether this transaction meets the
requirements of certain exemptions from registration afforded by the Securities Act and certain state securities laws.
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n.
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I understand that the sale of the Securities by the Company to me is conditional upon such sale being exempt from the requirements
as to the filing of a prospectus and as to the preparation of an offering memorandum or similar document prescribed in any statute, regulation,
instrument, rule or policy applicable to the sale of the Securities in any jurisdiction where the Securities are offered or upon
the issue of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus
or delivering an offering memorandum or similar document.
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o.
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I understand that since neither the offer nor sale of the Securities has been registered under the Securities Act or the securities
laws of any state, the Securities may not be sold, assigned, pledged or otherwise disposed of unless they are so registered or an exemption
from such registration is available.
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p.
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I have had the opportunity to seek independent advice from my professional advisors relating to the suitability of an investment in
the Company in view of my overall financial needs and with respect to the legal and tax implications of such investment.
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q.
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If the Investor is a corporation, company, trust, employee benefit plan, individual retirement account, Keogh Plan, or other tax-exempt
entity, it is authorized and qualified to become an Investor in the Company and the person signing this Subscription Agreement on behalf
of such entity has been duly authorized by such entity to do so.
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r.
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To the extent the undersigned Subscriber is not a “U.S. Person,” as such term is defined in Rule 902(k) of Regulation
S, the undersigned has initialed the following representation (please initial below if applicable) and made the following representations
below:
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_____ The undersigned Subscriber is not a “U.S. Person,”
as such term is defined in Rule 902(k) of Regulation S.3
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i.
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The undersigned is not acquiring the Securities for the account or benefit of a U.S. Person.
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ii.
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If the undersigned is a legal entity, it has not been formed specifically for the purpose of investing in the Company.
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iii.
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The undersigned hereby represents that he, she or it has satisfied and fully observed the laws of the jurisdiction in which he, she
or it is located or domiciled, in connection with the acquisition of the Securities, including (i) the legal requirements of the
undersigned’s jurisdiction for the acquisition of the Securities, (ii) any foreign exchange restrictions applicable to such
acquisition, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences,
if any, which may be relevant to the holding, redemption, sale, or transfer of the Securities; and further, the undersigned agrees to
continue to comply with such laws as long as he, she or it shall hold the Securities.
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3 Regulation S provides in part as follows:
1. “U.S. person” means: (i) any natural person resident in the United States; (ii) any partnership or corporation organized
or incorporated under the laws of the United States; (iii) any estate of which any executor or administrator is a U.S. person; (iv) any
trust of which any trustee is a U.S. person; (v) any agency or branch of a foreign entity located in the United States; (vi) any non-discretionary
account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and (viii) any partnership or corporation if: (A) organized or incorporated under
the laws of any foreign jurisdiction; and (B) formed by a U.S. person principally for the purpose of investing in securities not registered
under the Securities Act of 1933, as amended, unless it is organized or incorporated, and owned, by accredited investors (as defined in
Rule 501(a)) who are not natural persons, estates or trusts.
2. The following are not “U.S. persons”: (i) any discretionary account or similar account (other than an estate or trust)
held for the benefit or account of a non-U.S. person by a dealer or other professional fiduciary organized, incorporated, or (if an individual)
resident in the United States; (ii) any estate of which any professional fiduciary acting as executor or administrator is a U.S. person
if: (A) an executor or administrator of the estate who is not a U.S. person has sole or shared investment discretion with respect to the
assets of the estate; and (B) the estate is governed by foreign law; (iii) any trust of which any professional fiduciary acting as trustee
is a U.S. person, if a trustee who is not a U.S. person has sole or shared investment discretion with respect to the trust assets, and
no beneficiary of the trust (and no settlor if the trust is revocable) is a U.S. person; (iv) an employee benefit plan established and
administered in accordance with the law of a country other than the United States and customary practices and documentation of such country;
(v) any agency or branch of a U.S. person located outside the United States if: (A) the agency or branch operates for valid business reasons;
and (B) the agency or branch is engaged in the business of insurance or banking and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located; and (vi) the International Monetary Fund, the International Bank for Reconstruction and
Development, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, and any other similar international organizations, their agencies, affiliates and pension plans.
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iv.
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To the knowledge of the undersigned, without having made any independent investigation, neither the Company nor any person acting
for the Company, has conducted any “directed selling efforts” in the United States as the term “directed selling efforts”
is defined in Rule 902 of Regulation S, which, in general, means any activity undertaken for the purpose of, or that could reasonably
be expected to have the effect of, conditioning the marketing in the United States for any of the Securities being offered. Such activity
includes, without limitation, the mailing of printed material to investors residing in the United States, the holding of promotional seminars
in the United States, and the placement of advertisements with radio or television stations broadcasting in the United States or in publications
with a general circulation in the United States, which discuss the offering of the Securities. To the knowledge of the undersigned, the
Securities were not offered to the undersigned through, and the undersigned is not aware of, any form of general solicitation or general
advertising, including without limitation, (i) any advertisement, article, notice or other communication published in any newspaper,
magazine or similar media or broadcast over television or radio, and (ii) any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
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v.
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The undersigned will offer, sell or otherwise transfer the Securities, only (A) pursuant to a registration statement that has
been declared effective under the Securities Act, (B) pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S in a transaction meeting the requirements of Rule 904 (or other applicable Rule) under the Securities Act,
or (C) pursuant to another available exemption from the registration requirements of the Securities Act, subject to the Company’s
right prior to any offer, sale or transfer pursuant to clauses (B) or (C) to require the delivery of an opinion of counsel,
certificates or other information reasonably satisfactory to the Company for the purpose of determining the availability of an exemption.
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vi.
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The undersigned will not engage in hedging transactions involving the Securities unless such transactions are in compliance with the
Securities Act.
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vii.
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The undersigned represents and warrants that the undersigned is not a citizen of the United States and is not, and has no present
intention of becoming, a resident of the United States (defined as being any natural person physically present within the United States
for at least 183 days in a 12-month consecutive period or any entity who maintained an office in the United States at any time during
a 12-month consecutive period). The undersigned understands that the Company may rely upon the representations and warranty of this paragraph
as a basis for an exemption from registration of the Securities under the Securities Act of 1933, as amended, and the provisions of relevant
state securities laws.
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s.
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I, or others for whom I am contracting hereunder, am aware that the Company is not now a “reporting issuer” under Canadian
Securities Laws and there is no guarantee that it will become a reporting issuer in the future and have been independently advised as
to or am aware of the restrictions with respect to trading in, and the restricted period or statutory hold period applicable to the Securities
imposed by securities legislation in Canada and the regulations of, and the instruments, policies, rules, orders, codes, notices and interpretation
notes of the Canadian securities regulatory authorities in each of the provinces and territories of Canada, as applicable (collectively
the “Canadian Securities Laws”), that a suitable legend or legends will be placed on the certificates representing
the Securities to reflect the applicable restricted period and hold period to which the Securities are subject, and I, or others for whom
I am contracting hereunder, are solely responsible (and the Company is in no way responsible) for compliance with applicable resale restrictions.
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t.
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I acknowledge and agree that the certificates representing the Securities may bear the following legend:
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“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER
OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER OF (i) [DATE OF DISTRIBUTION],
AND (ii) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY.”
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u.
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I, or others for whom I am contracting hereunder, am basing my investment decision solely on the Offering Documents and other publicly
available information concerning the Company and not on any other information concerning the Company.
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v.
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I, or others for whom I am contracting hereunder, acknowledge that the Company is a private company and does not have any of its securities
listed on a stock exchange, and there is no assurance that its securities will ever become publicly listed and that there is currently
no market for the Securities and no market may ever develop.
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w.
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I, or others for whom I am contracting hereunder, acknowledge that as a consequence of the sale being exempt from the prospectus requirements
of Canadian Securities Laws: (A) certain protections, rights and remedies provided by Canadian Securities Laws, including statutory
rights of rescission and certain statutory remedies against an issuer, underwriters, auditors, directors and officers that are available
to investors who acquire securities offered by a prospectus, will not be available to me, or, if applicable, others for whom I am contracting
hereunder; (B) the common law may not provide investors with an adequate remedy in the event that they suffer investment losses in
connection with securities acquired in a private placement; (C) I, or, if applicable, others for whom I am contracting hereunder,
may not receive information that would otherwise be required to be given under Canadian Securities Laws; and (D) the Company is relieved
from certain obligations that would otherwise apply under Canadian Securities Laws.
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x.
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I, or others for whom I am contracting hereunder, represent and warrant that no person has made any written or oral representation:
(A) that any person will resell or repurchase any of the Securities; (B) that any person will refund the purchase price for
the Securities; or (C) as to the future price or value of the Securities.
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y.
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I, or others for whom I am contracting hereunder, acknowledge that there is no government or other insurance covering the Securities.
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z.
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I, or others for whom I am contracting hereunder, represent and warrant that the funds representing the aggregate purchase price in
respect of the Securities which will be advanced by me or on my behalf to the Company hereunder will not represent proceeds of crime for
the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (for the purposes of this paragraph
the “PCMLTFA”) and I acknowledge that the Company may in the future be required by law to disclose my name and other
information relating to this Agreement and the subscription hereunder, on a confidential basis, pursuant to the PCMLTFA. (a) None
of the subscription funds provided by me: (i) have been or will be derived directly or indirectly from or related to any activity
that is deemed criminal under the laws of Canada, the United States of America, or any other jurisdiction; or (ii) are being tendered
on behalf of a person or entity who has not been identified to me; and (b) I will promptly notify the Company if I discover that
any of such representations cease to be true, and to provide the Company with appropriate information in connection therewith.
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aa.
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I, and, if applicable, others for whom I am contracting hereunder, acknowledge that we have not received, nor have we requested nor
had any need to receive, or been provided with a prospectus, offering memorandum (within the meaning of Canadian Securities Laws) or any
document purporting to describe the business and affairs of the Company which has been prepared for review by prospective purchasers to
assist in making an investment decision in respect of the Securities, other than the Offering Documents and that my decision, or, if applicable,
the decision of others for whom I am contracting hereunder, to enter into this Agreement and to purchase the Securities from the Company
is based entirely upon the Offering Documents and not upon any other verbal or written representation as to fact or otherwise made by
or on behalf of the Company.
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bb.
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I agree not to sell the Securities except in accordance with any applicable Canadian resale restrictions.
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cc.
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If required by applicable securities laws or stock exchange rules, I will execute, deliver and file or assist the Company in
obtaining and filing such reports, undertakings and other documents relating to the purchase of the Securities as may be required by applicable
securities law, any securities commission, stock exchange or other regulatory authority.
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dd.
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I acknowledge that I have consented to and requested that all documents evidencing or relating in any way to the sale of the Securities
be drawn up in the English language only. Le souscripteur reconnaît par les présentes avoir consenti et exigé que
tous les documents faisant foi ou se rapportant de quelque manière à la vente des bons de unités soient rédigés
en anglais seulement.
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ee.
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The information contained in my Investor Questionnaire, as well as any information which I have furnished to the Company with respect
to my financial position and business experience, is correct and complete as of the date of this Subscription Agreement and, if there
should be any material change in such information prior to the Closing of the offering, I will furnish such revised or corrected
information to the Company. I hereby acknowledge and am aware that except for any rescission rights that may be provided under applicable
laws, I am not entitled to cancel, terminate or revoke this subscription and any agreements made in connection herewith shall survive
my death or disability.
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7. Placement
Agent. The Company has engaged Boustead Securities LLC, a broker-dealer licensed with FINRA (the “Placement Agent”),
as placement agent for the Offering on a reasonable best efforts basis. The Company anticipates that the Placement Agent and its sub-agents
or syndicate members will be paid at each Closing from the proceeds in the Escrow Account, fees including and not to exceed: a cash commission
of seven percent (7%) of the gross Purchase Price paid by subscribers in the Offering; and a non-accountable expense allowance of one
percent (1%) of the gross Purchase Price paid by subscribers in the Offering. Any sub-agent or syndicate member of the Placement Agent
that introduces investors to the Offering will be entitled to share in the cash fees attributable to those investors as described above,
pursuant to the terms of an executed sub-agent, finder or selected dealer agreement). The Company will also pay certain expenses of the
Placement Agent.
8. Representations
and Warranties of the Company. The Company hereby represents and warrants to the Subscriber, as of the date hereof and on each
Closing Date, (it being understood that these representations and warranties are given as of immediately following the closing of the
Acquisition such that they are made with respect to the Company and each of the entities acquired directly and indirectly through the
Acquisition), the following:
a. Organization
and Qualification. The Company and each of its subsidiaries is a corporation or other business entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation, and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on
the assets, business, financial condition, results of operations or future prospects of the Company and its subsidiaries taken as a whole
(a “Material Adverse Effect”).
b. Authorization,
Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, and each of the other agreements and documents that are exhibits hereto or thereto or
are contemplated hereby or thereby or necessary or desirable to effect the transactions contemplated hereby or thereby (the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof, (ii) the execution and delivery by the Company
of each of the Transaction Documents and the consummation by it of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Securities have been, or will be at the time of execution of such Transaction Document, duly authorized
by the Company’s Board of Directors, and no further consent or authorization is, or will be at the time of execution of such Transaction
Document, required by the Company, its respective Board of Directors or its shareholders, (iii) each of the Transaction Documents
will be duly executed and delivered by the Company, (iv) the Transaction Documents when executed and delivered by the Company and
each other party thereto will constitute the valid and binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.
c. Capitalization.
The authorized capital stock of the Company consists of an unlimited number of common shares and preferred shares. Immediately prior to
the Initial Closing, the Company will have no more than 20,137,740 common shares outstanding on a “fully diluted” basis, and
no preferred shares issued and outstanding. Such “fully diluted” shares outstanding will not include the Company’s right
at any time, upon the approval of its Board of Directors or the compensation committee thereof, to award stock options and/or restricted
share unit awards to qualified participants pursuant to the terms of the Company’s Employee Stock Option Plan. All of the outstanding
shares of capital stock or other equity interests of each of the Company’s subsidiaries have been or will be, as of the Initial
Closing, duly authorized, validly issued and are fully paid and nonassessable. (i) No shares of capital stock or other equity interests
of the Company or any of its subsidiaries will be subject to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there will be no agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of their securities under the Securities Act, and (iii) there are no securities or instruments
of the Company or any of its subsidiaries containing anti-dilution or similar provisions, including the right to adjust the exercise,
exchange or reset price under such securities, that will be triggered by the issuance of the Securities as described in this Agreement.
Upon request, the Company will make available to the Subscriber true and correct copies of the Company’s articles of incorporation,
and as in effect on the date hereof (the “Articles of Incorporation”), and the Company’s by-laws, as in effect
on the date hereof (the “By-laws”), and the terms of all securities exercisable for common shares and the material
rights of the holders thereof in respect thereto other than stock options issued to officers, directors, employees and consultants.
d. Subsidiaries.
Upon the completion of the contemplated Acquisition and prior to the Initial Closing, the Company will own, directly or indirectly,
100% of Canmart Limited, Bophelo Bio Science and Wellness (Pty) Ltd., Bophelo Holdings Limited and Cannahealth Limited. The Company will
have no other direct or indirect subsidiaries as of each Closing.
e. Issuance
of Securities. The Securities are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully
paid and nonassessable, and are free and clear of all taxes, liens and charges with respect to the issue thereof.
f. No
Conflicts. The execution, delivery and performance of each of the Transaction Documents by the Company, and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Articles of Incorporation or
the By-laws (or equivalent constitutive document) of the Company or any of its subsidiaries or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument
to which the Company or any subsidiary is a party, except for those which would not reasonably be expected to have a Material Adverse
Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or any subsidiary or by which any property or asset of the Company or any subsidiary
is bound or affected except for those which could not reasonably be expected to have a Material Adverse Effect. Except those which could
not reasonably be expected to have a Material Adverse Effect, neither the Company nor any subsidiary is in violation of any term of or
in default under its constitutive documents. Except those which could not reasonably be expected to have a Material Adverse Effect, neither
the Company nor any subsidiary is in violation of any term of or in default under any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or any subsidiary.
The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any law, ordinance,
or regulation of any governmental entity, except for any violation which could not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the Securities Act, Canadian
Securities Laws and any applicable state or foreign securities laws, neither the Company nor any of its subsidiaries is required to obtain
any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this Agreement or the other Transaction Documents in accordance with
the terms hereof or thereof. Neither the execution and delivery by the Company of the Transaction Documents, nor the consummation by the
Company of the transactions contemplated hereby or thereby, will require any notice, consent or waiver under any contract or instrument
to which the Company or any subsidiary is a party or by which the Company or any subsidiary is bound or to which any of their assets is
subject, except for any notice, consent or waiver the absence of which would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect and would not adversely affect the consummation of the transactions contemplated hereby or thereby.
All consents, authorizations, orders, filings and registrations which the Company or any of its subsidiaries is required to obtain pursuant
to the preceding two sentences have been or will be obtained or effected on or prior to the Closing.
g. Absence
of Litigation. There is no action, suit, claim, inquiry, notice of violation, proceeding (including any partial proceeding such as
a deposition) or investigation before or by any court, public board, governmental or administrative agency, self-regulatory organization,
arbitrator, regulatory authority, stock market, stock exchange or trading facility (an “Action”) now pending or, to
the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries, wherein an unfavorable decision,
ruling or finding would (i) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform
its obligations under this Agreement or any of the other Transaction Documents, or (ii) have a Material Adverse Effect.
h. Acknowledgment
Regarding Subscriber’s Purchase of the Securities. The Company acknowledges and agrees that each Subscriber is acting solely
in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby
and thereby. The Company further acknowledges that each Subscriber is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice
given by such Subscriber or any of their respective representatives or agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Subscriber’s purchase of the Securities.
i. No
General Solicitation. Neither the Company, nor any of its “affiliates” (as defined in Rule 144 under the Securities
Act), nor, to the knowledge of the Company, any person acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities.
j. No
Integrated Offering. Neither the Company, nor any of its affiliates, nor to the knowledge of the Company, any person acting on its
or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of the Securities under the Securities Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Securities Act.
k. Employee
Relations. Neither the Company nor any subsidiary is involved in any labor dispute nor, to the knowledge of the Company, is any such
dispute threatened. Neither the Company nor any subsidiary is party to any collective bargaining agreement. The Company’s and/or
its subsidiaries’ employees are not members of any union, and the Company believes that its and its subsidiaries’ relationship
with their respective employees is good.
l. Permits.
The Company and its subsidiaries have all authorizations, approvals, clearances, licenses, permits, certificates or exemptions (including
manufacturing approvals and authorizations, pricing and reimbursement approvals, labeling approvals, registration notifications or their
foreign equivalent) issued by any regulatory authority or governmental agency (collectively, “Permits”) required to
conduct their respective businesses as currently conducted and as will be conducted immediately following the Acquisition, except to the
extent that the failure to have such Permits would not have a Material Adverse Effect. The Company or its subsidiaries have fulfilled
and performed in all material respects their obligations under each Permit, and, as of the date hereof, to the knowledge of the Company,
no event has occurred or condition or state of facts exists which would constitute a breach or default or would cause revocation or termination
of any such Permit except to the extent that such breach, default, revocation or termination would not have a Material Adverse Effect.
m. Title.
Each of the Company and its subsidiaries has good and marketable title to all of its real and personal property and assets, free and clear
of any material restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance which would
have a Material Adverse Effect. With respect to properties and assets it leases, each of the Company and its subsidiaries is in material
compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances which would have a Material
Adverse Effect.
n. Rights
of First Refusal. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise
to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other
third parties.
o. Reliance.
The Company acknowledges that the Subscriber is relying on the representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Subscriber purchasing the Securities. The Company further acknowledges
that without such representations and warranties of the Company made hereunder, the Subscriber would not enter into this Agreement.
p. Brokers’
Fees. The Company does not have any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement, except for the payment of fees to the Placement Agent as described above.
q. Off-Balance
Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any subsidiary and an unconsolidated
or other off-balance sheet entity that is required to be disclosed by the Company in its financial statements and is not so disclosed
or that otherwise would have a Material Adverse Effect.
r. Investment
Company. The Company is not required to be registered as, and is not an affiliate of, and immediately following the Closing will not
be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
s. Reliance.
The Company acknowledges that the Purchaser is relying on the representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Purchaser purchasing the Shares. The Company further acknowledges that
without such representations and warranties of the Company made hereunder, the Purchaser would not enter into this Agreement.
9. Indemnification.
a. Investor
Indemnification. I hereby agree to indemnify and hold harmless the Company and its officers, directors, shareholders, employees, agents,
advisors and counsel, and Boustead Securities, LLC and its officers, directors, shareholders, employees, agents, advisors and counsel,
against any and all losses, claims, demands, liabilities and expenses (including reasonable legal or other expenses, including reasonable
attorneys’ fees) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether
or not resulting in any liability to such person, to which any such indemnified party may become subject under the Securities Act, under
any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of
or are based upon any untrue statement or alleged untrue statement of a material fact made by me and contained in this Subscription Agreement
or my Investor Questionnaire, or (b) arise out of or are based upon any breach by me of any representation, warranty, or agreement
made by me contained herein or therein.
b. Company
Indemnification. The Company agrees to indemnify and hold harmless each Subscriber, the Placement Agent and their respective affiliates
and their respective directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and expenses
(including without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “Losses”)
to which such person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be
performed on the part of the Company under the Offering Documents, and will reimburse any such person for all such amounts as they are
incurred by such person.
10. Transfer
Restrictions. None of the Shares have been registered under the Securities Act. As such, any Shares purchased pursuant to this
Subscription Agreement constitute “restricted securities” under the Securities Act. Such Shares may not be sold or otherwise
transferred unless they are registered under the Securities Act and applicable foreign or state laws or unless exemptions from registration
are available under such laws. Any certificates evidencing the Shares will bear a legend restricting the distribution, resale, transfer,
pledge, hypothecation or other disposition of such securities unless and until such securities are registered under the Securities Act
or an opinion of counsel acceptable to the Company is received concluding that registration is not required under the Securities Act.
The Company is also not a reporting issuer in any jurisdiction of Canada and the Shares are not currently listed on any stock exchange.
Accordingly, pursuant to Canadian securities laws, the Shares will be subject to a statutory hold period in Canada expiring on the date
which is four months and a day after the later of (i) the issuance date, and (ii) the date that the Company becomes a reporting
issuer in any province or territory of Canada.
11. Collection
of Personal Information. I, on my own behalf and, if applicable, on behalf of each beneficial purchaser for whom I am contracting
hereunder, acknowledge and consent to the fact that the Company is collecting our personal information (as that term is defined under
applicable privacy legislation, including, without limitation, the Personal Information Protection and Electronic Documents Act (Canada)
and any other applicable similar, replacement or supplemental provincial or federal legislation or laws in effect from time to time),
and, if applicable, that of each beneficial purchaser for whom I am contracting hereunder, for the purpose of completing this Agreement
and the transaction contemplated herein. I, on my own behalf, and, if applicable, on behalf of each beneficial purchaser for whom I am
contracting hereunder, acknowledge and consent to the Company retaining such personal information for as long as permitted or required
by law or business practices. I, on my own behalf, and, if applicable, on behalf of each beneficial purchaser for whom I am contracting
hereunder, further acknowledge and consent to the fact that the Company may be required by Canadian Securities Laws, the rules and
policies of any stock exchange or the rules of the Investment Industry Regulatory Organization of Canada or otherwise by applicable
law to provide regulatory authorities with any personal information provided under this Agreement. I represent and warrant, as applicable,
that I have the authority to provide the consents and acknowledgements set out in this paragraph on behalf of each beneficial purchaser
for whom I am contracting hereunder. In addition to the foregoing, I agree and acknowledge that the Company may use and disclose
my personal information, or that of each beneficial purchaser for whom I am contracting hereunder, as follows:
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for internal use with respect to managing the relationships between and contractual obligations of the Company and me or any beneficial
purchaser for whom I am contracting hereunder;
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for use and disclosure for income tax related purposes, including without limitation, where required by law, disclosure to Canada
Revenue Agency;
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for disclosure to stock exchanges, securities regulatory authorities and other regulatory bodies with jurisdiction with respect to
reports of trades and similar regulatory filings;
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for disclosure to a governmental or other authority to which the disclosure is required by court order or subpoena compelling such
disclosure and where there is no reasonable alternative to such disclosure;
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for disclosure to professional advisers of the Corporation in connection with the performance of their professional services;
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for disclosure to any person where such disclosure is necessary for legitimate business reasons and is made with my prior written
consent;
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for disclosure to a court determining the rights of the parties under this Agreement; or
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for use and disclosure as otherwise required or permitted by law.
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The information provided by me in this Agreement identifying my name,
address, and telephone number, the number of Securities being purchased hereunder, the aggregate purchase price and the closing date,
will be disclosed to the securities regulatory authority or regulator in each of the provinces and territories of Canada in which Securities
are distributed by the Company, and such information is being collected by such securities regulatory authorities and regulators under
the authority granted to each of them under securities legislation. This information is being collected for the purposes of the administration
and enforcement of the securities legislation of such selling jurisdictions. I hereby authorize the indirect collection of such information
by such securities regulatory authorities and regulators. In the event I have any questions with respect to the indirect collection of
such information by such securities regulatory authorities and regulators, I should contact the applicable securities regulatory
authority or regulator using the contact information set out below:
· British
Columbia Securities Commission, P.O. Box 10142, Pacific Centre, 701 West Georgia Street, Vancouver, British Columbia V7Y 1L2, Inquiries:
(604) 899-6854, Toll free in Canada: 1-800-373-6393, Facsimile: (604) 899-6581, Email: inquiries@bcsc.bc.ca;
· Alberta
Securities Commission, Suite 600, 250 – 5th Street, SW Calgary, Alberta T2P 0R4, Telephone: (403) 297-6454, Toll free in Canada:
1-877-355-0585, Facsimile: (403) 297-2082;
· Financial
and Consumer Affairs Authority of Saskatchewan, Suite 601 - 1919 Saskatchewan Drive, Regina, Saskatchewan S4P 4H2, Telephone: (306)
787-5879, Facsimile: (306) 787-5899;
· The
Manitoba Securities Commission, 500 – 400 St. Mary Avenue, Winnipeg, Manitoba R3C 4K5, Telephone: (204) 945-2548, Toll free in Manitoba
1-800-655-5244, Facsimile: (204) 945-0330;
· Ontario
Securities Commission, 20 Queen Street West, 22nd Floor Toronto, Ontario M5H 3S8, Telephone: (416) 593- 8314, Toll free in Canada: 1-877-785-1555,
Facsimile: (416) 593-8122, Email: exemptmarketfilings@osc.gov.on.ca, Public official contact regarding indirect collection of information:
Inquiries Officer;
· Autorité
des marchés financiers, 800, Square Victoria, 22e étage, C.P. 246, Tour de la Bourse, Montréal, Québec H4Z
1G3, Telephone: (514) 395-0337 or 1-877-525-0337, Facsimile: (514) 873-6155 (For filing purposes only), Facsimile: (514) 864-6381 (For
privacy requests only), Email: financementdessocietes@lautorite.qc.ca (For corporate finance issuers); fonds_dinvestissement@lautorite.qc.ca
(For investment fund issuers);
· Financial
and Consumer Services Commission (New Brunswick), 85 Charlotte Street,, Suite 300 Saint John, New Brunswick E2L 2J2, Telephone: (506)
658-3060, Toll free in Canada: 1-866-933-2222, Facsimile: (506) 658-3059, Email: info@fcnb.ca
· Nova
Scotia Securities Commission, Suite 400, 5251 Duke Street, Duke Tower, P.O. Box 458 Halifax, Nova Scotia B3J 2P8, Telephone:
(902) 424-7768, Facsimile: (902) 424-4625;
· Prince
Edward Island Securities Office, 95 Rochford Street, 4th Floor Shaw Building, P.O. Box 2000 Charlottetown, Prince Edward Island C1A
7N8, Telephone: (902) 368-4569, Facsimile: (902) 368-5283;
· Government
of Newfoundland and Labrador, Financial Services Regulation Division, P.O. Box 8700, Confederation Building 2nd Floor, West Block,
Prince Philip Drive, St. John's, Newfoundland and Labrador A1B 4J6, Attention: Director of Securities, Telephone: (709) 729-4189, Facsimile:
(709) 729-6187;
· Government
of Yukon, Department of Community Services Law Centre, 3rd Floor, 2130 Second Avenue, Whitehorse, Yukon Y1A 5H6, Telephone: (867) 667-5314,
Facsimile: (867) 393-6251;
· Government
of the Northwest Territories, Office of the Superintendent of Securities, P.O. Box 1320 Yellowknife, Northwest Territories X1A 2L9
Attention: Deputy Superintendent, Legal & Enforcement, Telephone: (867) 920-8984, Facsimile: (867) 873-0243; and
· Government
of Nunavut, Department of Justice, Legal Registries Division, P.O. Box 1000, Station 570, 1st Floor, Brown Building, Iqaluit,
Nunavut X0A 0H0, Telephone: (867) 975-6590, Facsimile: (867) 975-6594.
12. Severability.
In the event any parts of this Subscription Agreement are found to be void, the remaining provisions of this Subscription Agreement
shall nevertheless be binding with the same effect as though the void parts were deleted.
13. No
Third-Party Beneficiaries Other than Placement Agent. Except for the Placement Agent, who is an intended third-party beneficiary
of this Agreement, including the representations and warranties and indemnities made in this Agreement, this Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person
14. Choice
of Law and Jurisdiction. This Subscription Agreement shall be governed by the laws of the Province of Ontario, Canada. Any
action arising out of this Subscription Agreement shall be brought exclusively in a court of competent jurisdiction in the Province of
Ontario, and the parties hereby irrevocably attorn to the courts of such Province.
15. Counterparts.
This Subscription Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this Subscription Agreement may be by actual or facsimile
signature.
16. Assignability.
Neither this Subscription Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by the undersigned without the prior written consent of the Company. This Subscription Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted successors and assigns.
17. Notices
and Addresses. All notices, offers, acceptance and any other acts under this Subscription Agreement (except payment) shall
be in writing, and shall be sufficiently given if delivered to the addresses in person, by Federal Express or similar receipted delivery,
or by email delivery, as follows:
Investor:
At the address designated on the signature
page of this Subscription Agreement.
The Company:
Akanda Corp.
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, Ontario M5K 0A1
Attn: Trevor Scott
Email: trevor@akandacorp.com
With a copy to:
Greenberg Traurig, P.A.
1201 K Street, Suite 1100
Sacramento, CA 95814
Attn: Mark Lee, Esq.
Email: leema@gtlaw.com
Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1 Canada
Attn: Eric Foster
Email: eric.foster@dentons.com
or to such other address as any of them, by notice to the others may
designate from time to time. The transmission confirmation receipt from the sender's email service provider shall be conclusive
evidence of successful email delivery. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing.
18. Entire
Agreement. This Subscription Agreement constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.
This Subscription Agreement may not be changed, waived, discharged, or terminated orally but, rather, only by a statement in writing
signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought.
19. Section Headings.
Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part, any of the terms or provisions of this Subscription Agreement.
20. Survival
of Representations, Warranties and Agreements. The representations, warranties and agreements contained herein shall survive
the delivery of, and the payment for, the Securities.
21. Acceptance
of Subscription. The Company may accept this Subscription Agreement at any time for all or any portion of the Securities
subscribed for by executing a copy hereof as provided and notifying me within a reasonable time thereafter.
United States Disclaimers
RESIDENTS
OF ALL STATES: THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF
THE OFFERING DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FOR
FLORIDA RESIDENTS: THE SECURITIES OFFERED HEREBY WILL BE SOLD, AND ACQUIRED, IN A TRANSACTION EXEMPT UNDER SECTION 517.061(11)
OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA.
PURSUANT TO SECTION 517.061(11) OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, WHEN SALES ARE MADE TO FIVE (5) OR MORE
PERSONS (EXCLUDING ACCREDITED INVESTORS) IN THE STATE OF FLORIDA, ANY SALE IN THE STATE OF FLORIDA MADE PURSUANT TO SECTION 517.061(11)
OF SUCH ACT IS VOIDABLE BY THE PURCHASER IN SUCH SALE (WITHOUT INCURRING ANY LIABILITY TO THE COMPANY OR TO ANY OTHER PERSON OR ENTITY)
EITHER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER
OCCURS LATER. TO VOID HIS OR HER PURCHASE, THE PURCHASER NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT THE ADDRESS INDICATED HEREIN.
ANY SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THREE (3) DAY PERIOD. IT IS PRUDENT
TO SEND ANY SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ASSURE THAT IT IS RECEIVED AND ALSO TO HAVE EVIDENCE OF THE TIME
THAT IT WAS MAILED. SHOULD A PURCHASER MAKE THIS REQUEST ORALLY, THAT PURCHASER MUST ASK FOR WRITTEN CONFIRMATION THAT THE REQUEST HAS
BEEN RECEIVED. IF NOTICE IS NOT RECEIVED WITHIN THE TIME LIMIT SPECIFIED HEREIN, THE FOREGOING RIGHT TO VOID THE PURCHASE SHALL BE NULL
AND VOID.
Canadian Disclaimers
The Offering Documents may constitute an offering memorandum under
Canadian Securities Laws. Securities legislation in certain of the provinces of Canada provides purchasers with rights of rescission or
damages, or both, where an offering memorandum or any amendment to it contains a misrepresentation. A “misrepresentation”
is an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to
make any statement not misleading or false in the light of the circumstances in which it was made.
These remedies must be commenced by the purchaser within the time
limits prescribed and are subject to the defences contained in the applicable securities legislation. Each purchaser should refer to the
provisions of the applicable securities laws for the particulars of these rights or consult with a legal advisor.
The following rights will only apply to a purchaser of securities
of the Company in the event that the Offering Documents are deemed to be an offering memorandum pursuant to applicable securities legislation
in certain provinces of Canada and are in addition to and without derogation from any other right or remedy which purchasers may have
at law and are intended to correspond to the provisions of the relevant Canadian Securities Laws and are subject to the defences contained
therein. The following summaries are subject to the express provisions of the applicable securities statutes and instruments in the below-referenced
provinces and the regulations, rules and policy statements thereunder and reference is made thereto for the complete text of such
provisions.
FOR
ONTARIO RESIDENTS: UNDER ONTARIO SECURITIES LEGISLATION, CERTAIN PURCHASERS WHO PURCHASE SECURITIES OFFERED BY AN OFFERING
MEMORANDUM DURING THE PERIOD OF DISTRIBUTION WILL HAVE A STATUTORY RIGHT OF ACTION FOR DAMAGES, OR WHILE STILL THE OWNER OF THE SECURITIES,
FOR RESCISSION AGAINST THE ISSUER OR ANY SELLING SECURITY HOLDER IF THE OFFERING MEMORANDUM CONTAINS A MISREPRESENTATION WITHOUT REGARD
TO WHETHER THE PURCHASERS RELIED ON THE MISREPRESENTATION. THE RIGHT OF ACTION FOR DAMAGES IS EXERCISABLE NOT LATER THAN THE EARLIER OF
180 DAYS FROM THE DATE THE PURCHASER FIRST HAD KNOWLEDGE OF THE FACTS GIVING RISE TO THE CAUSE OF ACTION AND THREE YEARS FROM THE DATE
ON WHICH PAYMENT IS MADE FOR THE SECURITIES. THE RIGHT OF ACTION FOR RESCISSION IS EXERCISABLE NOT LATER THAN 180 DAYS FROM THE DATE ON
WHICH PAYMENT IS MADE FOR THE SECURITIES. IF A PURCHASER ELECTS TO EXERCISE THE RIGHT OF ACTION FOR RESCISSION, THE PURCHASER WILL HAVE
NO RIGHT OF ACTION FOR DAMAGES AGAINST THE ISSUER OR ANY SELLING SECURITY HOLDER. IN NO CASE WILL THE AMOUNT RECOVERABLE IN ANY ACTION
EXCEED THE PRICE AT WHICH THE SECURITIES WERE OFFERED TO THE PURCHASER AND IF THE PURCHASER IS SHOWN TO HAVE PURCHASED THE SECURITIES
WITH KNOWLEDGE OF THE MISREPRESENTATION, THE ISSUER AND ANY SELLING SECURITY HOLDER WILL HAVE NO LIABILITY. IN THE CASE OF AN ACTION FOR
DAMAGES, THE ISSUER AND ANY SELLING SECURITY HOLDER WILL NOT BE LIABLE FOR ALL OR ANY PORTION OF THE DAMAGES THAT ARE PROVEN TO NOT REPRESENT
THE DEPRECIATION IN VALUE OF THE SECURITIES AS A RESULT OF THE MISREPRESENTATION RELIED UPON. THESE RIGHTS ARE NOT AVAILABLE FOR A PURCHASER
THAT IS (A) A CANADIAN FINANCIAL INSTITUTION OR A SCHEDULE III BANK (EACH AS DEFINED IN NATIONAL INSTRUMENT 45-106 – PROSPECTUS
EXEMPTIONS), (B) THE BUSINESS DEVELOPMENT BANK OF CANADA INCORPORATED UNDER THE BUSINESS DEVELOPMENT BANK OF CANADA ACT (CANADA),
OR (C) A SUBSIDIARY OF ANY PERSON REFERRED TO IN PARAGRAPHS (A) AND (B), IF THE PERSON OWNS ALL OF THE VOTING SECURITIES
OF THE SUBSIDIARY, EXCEPT THE VOTING SECURITIES REQUIRED BY LAW TO BE OWNED BY DIRECTORS OF THAT SUBSIDIARY. THESE RIGHTS ARE IN ADDITION
TO, AND WITHOUT DEROGATION FROM, ANY OTHER RIGHTS OR REMEDIES AVAILABLE AT LAW TO AN ONTARIO PURCHASER. THE FOREGOING IS A SUMMARY OF
THE RIGHTS AVAILABLE TO AN ONTARIO PURCHASER. NOT ALL DEFENCES UPON WHICH AN ISSUER, SELLING SECURITY HOLDER OR OTHERS MAY RELY ARE
DESCRIBED HEREIN. ONTARIO PURCHASERS SHOULD REFER TO THE COMPLETE TEXT OF THE RELEVANT STATUTORY PROVISIONS.
FOR
ALBERTA AND BRITISH COLUMBIA RESIDENTS: BY PURCHASING SECURITIES OF THE COMPANY, PURCHASERS IN ALBERTA AND BRITISH COLUMBIA
ARE NOT ENTITLED TO THE STATUTORY RIGHTS DESCRIBED ABOVE. IN CONSIDERATION OF THEIR PURCHASE OF SECURITIES IN THE COMPANY AND UPON ACCEPTING
A PURCHASE CONFIRMATION IN RESPECT THEREOF, THESE PURCHASERS ARE HEREBY GRANTED BY THE COMPANY, A CONTRACTUAL RIGHT OF ACTION FOR DAMAGES
OR RESCISSION THAT IS SUBSTANTIALLY THE SAME AS THE STATUTORY RIGHT OF ACTION PROVIDED TO RESIDENTS OF ONTARIO WHO PURCHASE SECURITIES.
FOR
SASKATCHEWAN RESIDENTS: UNDER SASKATCHEWAN SECURITIES LEGISLATION, CERTAIN PURCHASERS WHO PURCHASE SECURITIES OFFERED BY AN
OFFERING MEMORANDUM DURING THE PERIOD OF DISTRIBUTION WILL HAVE A STATUTORY RIGHT OF ACTION FOR DAMAGES AGAINST THE ISSUER, EVERY DIRECTOR
AND PROMOTER OF THE ISSUER OR ANY SELLING SECURITY HOLDER AS OF THE DATE OF THE OFFERING MEMORANDUM, EVERY PERSON OR COMPANY WHOSE CONSENT
HAS BEEN FILED UNDER THE OFFERING MEMORANDUM, EVERY PERSON OR COMPANY THAT SIGNED THE OFFERING MEMORANDUM OR THE AMENDMENT TO THE OFFERING
MEMORANDUM AND EVERY PERSON OR COMPANY WHO SELLS THE SECURITIES ON BEHALF OF THE ISSUER OR SELLING SECURITY HOLDER UNDER THE OFFERING
MEMORANDUM, OR WHILE STILL THE OWNER OF THE SECURITIES, FOR RESCISSION AGAINST THE ISSUER OR SELLING SECURITY HOLDER IF THE OFFERING MEMORANDUM
CONTAINS A MISREPRESENTATION WITHOUT REGARD TO WHETHER THE PURCHASERS RELIED ON THE MISREPRESENTATION. THE RIGHT OF ACTION FOR DAMAGES
IS EXERCISABLE NOT LATER THAN THE EARLIER OF ONE YEAR FROM THE DATE THE PURCHASER FIRST HAD KNOWLEDGE OF THE FACTS GIVING RISE TO THE
CAUSE OF ACTION AND SIX YEARS FROM THE DATE ON WHICH PAYMENT IS MADE FOR THE SECURITIES. THE RIGHT OF ACTION FOR RESCISSION IS EXERCISABLE
NOT LATER THAN 180 DAYS FROM THE DATE ON WHICH PAYMENT IS MADE FOR THE SECURITIES. IF A PURCHASER ELECTS TO EXERCISE THE RIGHT OF ACTION
FOR RESCISSION, THE PURCHASER WILL HAVE NO RIGHT OF ACTION FOR DAMAGES AGAINST THE ISSUER OR THE OTHERS LISTED ABOVE. IN NO CASE WILL
THE AMOUNT RECOVERABLE IN ANY ACTION EXCEED THE PRICE AT WHICH THE SECURITIES WERE OFFERED TO THE PURCHASER AND IF THE PURCHASER IS SHOWN
TO HAVE PURCHASED THE SECURITIES WITH KNOWLEDGE OF THE MISREPRESENTATION, THE ISSUER AND THE OTHERS LISTED ABOVE WILL HAVE NO LIABILITY.
IN THE CASE OF AN ACTION FOR DAMAGES, THE ISSUER AND THE OTHERS LISTED ABOVE WILL NOT BE LIABLE FOR ALL OR ANY PORTION OF THE DAMAGES
THAT ARE PROVEN TO NOT REPRESENT THE DEPRECIATION IN VALUE OF THE SECURITIES AS A RESULT OF THE MISREPRESENTATION RELIED UPON.
OTHER DEFENCES IN SASKATCHEWAN LEGISLATION INCLUDE THAT NO PERSON OR
COMPANY, OTHER THAN THE ISSUER, WILL BE LIABLE IF THE PERSON OR COMPANY PROVES THAT (A) THE OFFERING MEMORANDUM OR ANY AMENDMENT
TO IT WAS SENT OR DELIVERED WITHOUT THE PERSON’S OR COMPANY’S KNOWLEDGE OR CONSENT AND THAT, ON BECOMING AWARE OF IT BEING
SENT OR DELIVERED, THAT PERSON OR COMPANY IMMEDIATELY GAVE REASONABLE GENERAL NOTICE THAT IT WAS SO SENT OR DELIVERED, OR (B) WITH
RESPECT TO ANY PART OF THE OFFERING MEMORANDUM OR ANY AMENDMENT TO IT PURPORTING TO BE MADE ON THE AUTHORITY OF AN EXPERT, OR PURPORTING
TO BE A COPY OF, OR AN EXTRACT FROM, A REPORT, AN OPINION OR A STATEMENT OF AN EXPERT, THAT PERSON OR COMPANY HAD NO REASONABLE GROUNDS
TO BELIEVE AND DID NOT BELIEVE THAT THERE HAD BEEN A MISREPRESENTATION, THE PART OF THE OFFERING MEMORANDUM OR ANY AMENDMENT TO IT
DID NOT FAIRLY REPRESENT THE REPORT, OPINION OR STATEMENT OF THE EXPERT.
NO PERSON OR COMPANY, OTHER THAN THE ISSUER, IS LIABLE FOR ANY
PART OF THE OFFERING MEMORANDUM OR THE AMENDMENT TO THE OFFERING MEMORANDUM NOT PURPORTING TO BE MADE ON THE AUTHORITY OF AN EXPERT
AND NOT PURPORTING TO BE A COPY OF OR AN EXTRACT FROM A REPORT, OPINION OR STATEMENT OF AN EXPERT, UNLESS THE PERSON OR COMPANY (A) FAILED
TO CONDUCT A REASONABLE INVESTIGATION SUFFICIENT TO PROVIDE REASONABLE GROUNDS FOR A BELIEF THAT THERE HAD BEEN NO MISREPRESENTATION,
OR (B) BELIEVED THERE HAD BEEN A MISREPRESENTATION.
SIMILAR RIGHTS OF ACTION FOR DAMAGES AND RESCISSION ARE PROVIDED IN
SASKATCHEWAN LEGISLATION IN RESPECT OF A MISREPRESENTATION IN ADVERTISING AND SALES LITERATURE DISSEMINATED IN CONNECTION WITH AN OFFERING
OF SECURITIES.
SASKATCHEWAN LEGISLATION ALSO PROVIDES THAT WHERE AN INDIVIDUAL MAKES
A VERBAL STATEMENT TO A PROSPECTIVE PURCHASER THAT CONTAINS A MISREPRESENTATION RELATING TO THE SECURITY PURCHASED AND THE VERBAL STATEMENT
IS MADE EITHER BEFORE OR CONTEMPORANEOUSLY WITH THE PURCHASE OF THE SECURITY, THE PURCHASER HAS, WITHOUT REGARD TO WHETHER THE PURCHASER
RELIED ON THE MISREPRESENTATION, A RIGHT OF ACTION FOR DAMAGES AGAINST THE INDIVIDUAL WHO MADE THE VERBAL STATEMENT.
IN ADDITION, SASKATCHEWAN LEGISLATION PROVIDES A PURCHASER WITH THE
RIGHT TO VOID THE PURCHASE AGREEMENT AND TO RECOVER ALL MONEY AND OTHER CONSIDERATION PAID BY THE PURCHASER FOR THE SECURITIES IF THE
SECURITIES ARE SOLD BY A VENDOR WHO IS TRADING IN SASKATCHEWAN IN CONTRAVENTION OF SASKATCHEWAN SECURITIES LEGISLATION, REGULATIONS OR
A DECISION OF THE FINANCIAL AND CONSUMER AFFAIRS AUTHORITY OF SASKATCHEWAN.
THE SASKATCHEWAN LEGISLATION ALSO PROVIDES A RIGHT OF ACTION FOR RESCISSION
OR DAMAGES TO A PURCHASER OF SECURITIES TO WHOM AN OFFERING MEMORANDUM OR ANY AMENDMENT TO IT WAS NOT SENT OR DELIVERED PRIOR TO OR AT
THE SAME TIME AS THE PURCHASER ENTERS INTO AN AGREEMENT TO PURCHASE THE SECURITIES, AS REQUIRED BY THE SASKATCHEWAN LEGISLATION.
A PURCHASER WHO RECEIVES AN AMENDED OFFERING MEMORANDUM HAS THE RIGHT
TO WITHDRAW FROM THE AGREEMENT TO PURCHASE THE SECURITIES BY DELIVERING A NOTICE TO THE ISSUER OR SELLING SECURITY HOLDER WITHIN TWO BUSINESS
DAYS OF RECEIVING THE AMENDED OFFERING MEMORANDUM.
THESE RIGHTS ARE IN ADDITION TO, AND WITHOUT DEROGATION FROM, ANY OTHER
RIGHTS OR REMEDIES AVAILABLE AT LAW TO A SASKATCHEWAN PURCHASER. THE FOREGOING IS A SUMMARY OF THE RIGHTS AVAILABLE TO A SASKATCHEWAN
PURCHASER. NOT ALL DEFENCES UPON WHICH AN ISSUER OR OTHERS MAY RELY ARE DESCRIBED HEREIN. SASKATCHEWAN PURCHASERS SHOULD REFER TO
THE COMPLETE TEXT OF THE RELEVANT STATUTORY PROVISIONS.
FOR
MANITOBA RESIDENTS: IF AN OFFERING MEMORANDUM OR ANY AMENDMENT THERETO, SENT OR DELIVERED TO A PURCHASER CONTAINS A MISREPRESENTATION,
THE PURCHASER WHO PURCHASES THE SECURITY IS DEEMED TO HAVE RELIED ON THE MISREPRESENTATION IF IT WAS A MISREPRESENTATION AT THE TIME OF
THE PURCHASE AND HAS A STATUTORY RIGHT OF ACTION FOR DAMAGES AGAINST THE ISSUER, EVERY DIRECTOR OF THE ISSUER AT THE DATE OF THE OFFERING
MEMORANDUM, AND EVERY PERSON OR COMPANY WHO SIGNED THE OFFERING MEMORANDUM. ALTERNATIVELY, THE PURCHASER MAY ELECT TO EXERCISE A
STATUTORY RIGHT OF RESCISSION AGAINST THE ISSUER, IN WHICH CASE THE PURCHASER WILL HAVE NO RIGHT OF ACTION FOR DAMAGES AGAINST ANY
OF THE AFOREMENTIONED PERSONS.
UNLESS OTHERWISE PROVIDED UNDER APPLICABLE SECURITIES LEGISLATION,
NO ACTION SHALL BE COMMENCED TO ENFORCE ANY OF THE FOREGOING RIGHTS MORE THAN: (A) IN THE CASE OF AN ACTION FOR RESCISSION, 180 DAYS
FROM THE DATE OF THE TRANSACTION THAT GAVE RISE TO THE CAUSE OF ACTION, OR (B) IN THE CASE OF AN ACTION FOR DAMAGES, THE EARLIER
OF (I) 180 DAYS AFTER THE PURCHASER FIRST HAD KNOWLEDGE OF THE FACTS GIVING RISE TO THE CAUSE OF ACTION, OR (II) TWO YEARS AFTER
THE DATE OF THE TRANSACTION THAT GAVE RISE TO THE CAUSE OF ACTION.
A PURCHASER TO WHOM THE OFFERING MEMORANDUM IS REQUIRED TO BE SENT
MAY RESCIND THE CONTRACT TO PURCHASE THE SECURITIES BY SENDING A WRITTEN NOTICE OF RESCISSION TO THE ISSUER NOT LATER THAN MIDNIGHT
ON THE SECOND DAY, EXCLUDING SATURDAYS, SUNDAY AND HOLIDAYS, AFTER THE PURCHASER SIGNS THE AGREEMENT TO PURCHASE THE SECURITIES.
SECURITIES LEGISLATION IN MANITOBA PROVIDES A NUMBER OF LIMITATIONS
AND DEFENCES TO SUCH ACTIONS, INCLUDING:
A) IN AN ACTION FOR RESCISSION OR DAMAGES, NO PERSON OR COMPANY WILL
BE LIABLE IF IT PROVES THAT THE PURCHASER PURCHASED THE SECURITIES WITH KNOWLEDGE OF THE MISREPRESENTATION;
B) IN AN ACTION FOR DAMAGES, NO PERSON OR COMPANY WILL BE LIABLE FOR
ALL OR ANY PORTION OF THE DAMAGES THAT IT PROVES DO NOT REPRESENT THE DEPRECIATION IN VALUE OF THE SECURITIES AS A RESULT OF THE MISREPRESENTATION
RELIED UPON; AND
C) IN NO CASE WILL THE AMOUNT RECOVERABLE UNDER THE RIGHT OF ACTION
DESCRIBED ABOVE EXCEED THE PRICE AT WHICH THE SECURITIES WERE OFFERED UNDER THE OFFERING MEMORANDUM.
FOR
NEW BRUNSWICK RESIDENTS: UNDER NEW BRUNSWICK SECURITIES LEGISLATION, CERTAIN PURCHASERS WHO PURCHASE SECURITIES OFFERED BY
AN OFFERING MEMORANDUM DURING THE PERIOD OF DISTRIBUTION WILL HAVE A STATUTORY RIGHT OF ACTION FOR DAMAGES, OR WHILE STILL THE OWNER OF
THE SECURITIES, FOR RESCISSION AGAINST THE ISSUER AND ANY SELLING SECURITY HOLDER IN THE EVENT THAT THE OFFERING MEMORANDUM, OR A DOCUMENT
INCORPORATED BY REFERENCE IN OR DEEMED INCORPORATED INTO THE OFFERING MEMORANDUM, CONTAINS A MISREPRESENTATION WITHOUT REGARD TO WHETHER
THE PURCHASERS RELIED ON THE MISREPRESENTATION. THE RIGHT OF ACTION FOR DAMAGES IS EXERCISABLE NOT LATER THAN THE EARLIER OF ONE YEAR
FROM THE DATE THE PURCHASER FIRST HAD KNOWLEDGE OF THE FACTS GIVING RISE TO THE CAUSE OF ACTION AND SIX YEARS FROM THE DATE ON WHICH PAYMENT
IS MADE FOR THE SECURITIES. THE RIGHT OF ACTION FOR RESCISSION IS EXERCISABLE NOT LATER THAN 180 DAYS FROM THE DATE ON WHICH PAYMENT IS
MADE FOR THE SECURITIES. IF A PURCHASER ELECTS TO EXERCISE THE RIGHT OF ACTION FOR RESCISSION, THE PURCHASER WILL HAVE NO RIGHT OF ACTION
FOR DAMAGES AGAINST THE ISSUER OR ANY SELLING SECURITY HOLDER. IN NO CASE WILL THE AMOUNT RECOVERABLE IN ANY ACTION EXCEED THE PRICE AT
WHICH THE SECURITIES WERE OFFERED TO THE PURCHASER AND IF THE PURCHASER IS SHOWN TO HAVE PURCHASED THE SECURITIES WITH KNOWLEDGE OF THE
MISREPRESENTATION, THE ISSUER AND ANY SELLING SECURITY HOLDER WILL HAVE NO LIABILITY. IN THE CASE OF AN ACTION FOR DAMAGES, THE ISSUER
AND ANY SELLING SECURITY HOLDER WILL NOT BE LIABLE FOR ALL OR ANY PORTION OF THE DAMAGES THAT ARE PROVEN TO NOT REPRESENT THE DEPRECIATION
IN VALUE OF THE SECURITIES AS A RESULT OF THE MISREPRESENTATION RELIED UPON.
THESE RIGHTS ARE IN ADDITION TO, AND WITHOUT DEROGATION FROM, ANY OTHER
RIGHTS OR REMEDIES AVAILABLE AT LAW TO A NEW BRUNSWICK PURCHASER. THE FOREGOING IS A SUMMARY OF THE RIGHTS AVAILABLE TO A NEW BRUNSWICK
PURCHASER. NOT ALL DEFENCES UPON WHICH AN ISSUER, SELLING SECURITY HOLDER OR OTHERS MAY RELY ARE DESCRIBED HEREIN. NEW BRUNSWICK
PURCHASERS SHOULD REFER TO THE COMPLETE TEXT OF THE RELEVANT STATUTORY PROVISIONS.
FOR
NOVA SCOTIA RESIDENTS: UNDER NOVA SCOTIA SECURITIES LEGISLATION, CERTAIN PURCHASERS WHO PURCHASE SECURITIES OFFERED BY AN OFFERING
MEMORANDUM DURING THE PERIOD OF DISTRIBUTION WILL HAVE A STATUTORY RIGHT OF ACTION FOR DAMAGES AGAINST THE ISSUER OR OTHER SELLER AND
THE DIRECTORS OF THE ISSUER AS OF THE DATE THE OFFERING MEMORANDUM, OR WHILE STILL THE OWNER OF THE SECURITIES, FOR RESCISSION AGAINST
THE ISSUER OR OTHER SELLER IF THE OFFERING MEMORANDUM, OR A DOCUMENT INCORPORATED BY REFERENCE IN OR DEEMED INCORPORATED INTO THE OFFERING
MEMORANDUM, CONTAINS A MISREPRESENTATION WITHOUT REGARD TO WHETHER THE PURCHASERS RELIED ON THE MISREPRESENTATION. THE RIGHT OF ACTION
FOR DAMAGES OR RESCISSION IS EXERCISABLE NOT LATER THAN 120 DAYS FROM THE DATE ON WHICH PAYMENT IS MADE FOR THE SECURITIES OR AFTER THE
DATE ON WHICH THE INITIAL PAYMENT FOR THE SECURITIES WAS MADE WHERE PAYMENTS SUBSEQUENT TO THE INITIAL PAYMENT ARE MADE PURSUANT TO A
CONTRACTUAL COMMITMENT ASSUMED PRIOR TO, OR CONCURRENTLY WITH, THE INITIAL PAYMENT. IF A PURCHASER ELECTS TO EXERCISE THE RIGHT OF ACTION
FOR RESCISSION, THE PURCHASER WILL HAVE NO RIGHT OF ACTION FOR DAMAGES AGAINST THE ISSUER OR OTHER SELLER OR THE DIRECTORS OF THE ISSUER.
IN NO CASE WILL THE AMOUNT RECOVERABLE IN ANY ACTION EXCEED THE PRICE AT WHICH THE SECURITIES WERE OFFERED TO THE PURCHASER AND IF THE
PURCHASER IS SHOWN TO HAVE PURCHASED THE SECURITIES WITH KNOWLEDGE OF THE MISREPRESENTATION, THE ISSUER OR OTHER SELLER AND THE DIRECTORS
OF THE ISSUER WILL HAVE NO LIABILITY. IN THE CASE OF AN ACTION FOR DAMAGES, THE ISSUER OR OTHER SELLER AND THE DIRECTORS OF THE ISSUER
WILL NOT BE LIABLE FOR ALL OR ANY PORTION OF THE DAMAGES THAT ARE PROVEN TO NOT REPRESENT THE DEPRECIATION IN VALUE OF THE SECURITIES
AS A RESULT OF THE MISREPRESENTATION RELIED UPON.
IN ADDITION, A PERSON OR COMPANY, OTHER THAN THE ISSUER, IS NOT
LIABLE WITH RESPECT TO ANY PART OF THE OFFERING MEMORANDUM OR ANY AMENDMENT TO THE OFFERING MEMORANDUM NOT PURPORTING (A) TO
BE MADE ON THE AUTHORITY OF AN EXPERT OR (B) TO BE A COPY OF, OR AN EXTRACT FROM, A REPORT, OPINION OR STATEMENT OF AN EXPERT, UNLESS
THE PERSON OR COMPANY (I) FAILED TO CONDUCT A REASONABLE INVESTIGATION TO PROVIDE REASONABLE GROUNDS FOR A BELIEF THAT THERE HAD
BEEN NO MISREPRESENTATION OR (II) BELIEVED THAT THERE HAD BEEN A MISREPRESENTATION.
A PERSON OR COMPANY, OTHER THAN THE ISSUER, WILL NOT BE LIABLE IF THAT
PERSON OR COMPANY PROVES THAT (A) THE OFFERING MEMORANDUM OR ANY AMENDMENT TO THE OFFERING MEMORANDUM WAS SENT OR DELIVERED TO THE
PURCHASER WITHOUT THE PERSON’S OR COMPANY’S KNOWLEDGE OR CONSENT AND THAT, ON BECOMING AWARE OF ITS DELIVERY, THE PERSON OR
COMPANY GAVE REASONABLE GENERAL NOTICE THAT IT WAS DELIVERED WITHOUT THE PERSON’S OR COMPANY’S KNOWLEDGE OR CONSENT, (B) AFTER
DELIVERY OF THE OFFERING MEMORANDUM OR ANY AMENDMENT TO THE OFFERING MEMORANDUM AND BEFORE THE PURCHASE OF THE SECURITIES BY THE PURCHASER,
ON BECOMING AWARE OF ANY MISREPRESENTATION IN THE OFFERING MEMORANDUM OR ANY AMENDMENT TO THE OFFERING MEMORANDUM, THE PERSON OR COMPANY
WITHDREW THE PERSON’S OR COMPANY’S CONSENT TO THE OFFERING MEMORANDUM OR ANY AMENDMENT TO THE OFFERING MEMORANDUM, AND GAVE
REASONABLE GENERAL NOTICE OF THE WITHDRAWAL AND THE REASON FOR IT, OR (C) WITH RESPECT TO ANY PART OF THE OFFERING MEMORANDUM
OR ANY AMENDMENT TO THE OFFERING MEMORANDUM PURPORTING (I) TO BE MADE ON THE AUTHORITY OF AN EXPERT, OR (II) TO BE A COPY OF,
OR AN EXTRACT FROM, A REPORT, AN OPINION OR A STATEMENT OF AN EXPERT, THE PERSON OR COMPANY HAD NO REASONABLE GROUNDS TO BELIEVE AND DID
NOT BELIEVE THAT (A) THERE HAD BEEN A MISREPRESENTATION, OR (B) THE RELEVANT PART OF THE OFFERING MEMORANDUM OR ANY AMENDMENT
TO THE OFFERING MEMORANDUM DID NOT FAIRLY REPRESENT THE REPORT, OPINION OR STATEMENT OF THE EXPERT, OR WAS NOT A FAIR COPY OF, OR AN EXTRACT
FROM, THE REPORT, OPINION OR STATEMENT OF THE EXPERT.
THESE RIGHTS ARE IN ADDITION TO, AND WITHOUT DEROGATION FROM, ANY OTHER
RIGHTS OR REMEDIES AVAILABLE AT LAW TO A NOVA SCOTIA PURCHASER. THE FOREGOING IS A SUMMARY OF THE RIGHTS AVAILABLE TO A NOVA SCOTIA PURCHASER.
NOT ALL DEFENCES UPON WHICH AN ISSUER OR OTHER SELLER OR OTHERS MAY RELY ARE DESCRIBED HEREIN. NOVA SCOTIA PURCHASERS SHOULD REFER
TO THE COMPLETE TEXT OF THE RELEVANT STATUTORY PROVISIONS.
FOR
PRINCE EDWARD ISLAND RESIDENTS: IF AN OFFERING MEMORANDUM, TOGETHER WITH ANY AMENDMENT THERETO, IS DELIVERED TO A PURCHASER
AND THE OFFERING MEMORANDUM, OR ANY AMENDMENT THERETO, CONTAINS A MISREPRESENTATION, A PURCHASER HAS, WITHOUT REGARD TO WHETHER THE PURCHASER
RELIED ON THE MISREPRESENTATION, A STATUTORY RIGHT OF ACTION FOR DAMAGES AGAINST (A) THE ISSUER, (B) SUBJECT TO CERTAIN ADDITIONAL
DEFENCES, AGAINST EVERY DIRECTOR OF THE ISSUER AT THE DATE OF THE OFFERING MEMORANDUM AND (C) EVERY PERSON OR COMPANY WHO SIGNED
THE OFFERING MEMORANDUM, BUT MAY ELECT TO EXERCISE THE RIGHT OF RESCISSION AGAINST THE ISSUER (IN WHICH CASE THE PURCHASER SHALL
HAVE NO RIGHT OF ACTION FOR DAMAGES AGAINST THE AFOREMENTIONED PERSONS OR COMPANY).
NO ACTION SHALL BE COMMENCED TO ENFORCE THE RIGHT OF ACTION DISCUSSED
ABOVE MORE THAN: (A) IN THE CASE OF AN ACTION FOR RESCISSION, 180 DAYS AFTER THE DATE OF THE TRANSACTION THAT GAVE RISE TO THE CAUSE
OF ACTION; OR (B) IN THE CASE OF ANY ACTION FOR DAMAGES, THE EARLIER OF: (I) 180 DAYS AFTER THE PURCHASER FIRST HAD KNOWLEDGE
OF THE FACTS GIVING RISE TO THE CAUSE OF ACTION; OR (II) THREE YEARS AFTER THE DATE OF THE TRANSACTION THAT GAVE RISE TO THE CAUSE
OF ACTION.
SECURITIES LEGISLATION IN PRINCE EDWARD ISLAND PROVIDES A NUMBER OF
LIMITATIONS AND DEFENCES TO SUCH ACTIONS, INCLUDING:
A) NO PERSON OR COMPANY WILL BE LIABLE IF IT PROVES THAT THE PURCHASER
PURCHASED THE SECURITIES WITH KNOWLEDGE OF THE MISREPRESENTATION;
B) IN AN ACTION FOR DAMAGES, THE DEFENDANT IS NOT LIABLE FOR ALL OR
ANY PORTION OF THE DAMAGES THAT IT PROVES DOES NOT REPRESENT THE DEPRECIATION IN VALUE OF THE SECURITIES AS A RESULT OF THE MISREPRESENTATION
RELIED UPON; AND
C) IN NO CASE SHALL THE AMOUNT RECOVERABLE UNDER THE RIGHT OF ACTION
DESCRIBED HEREIN EXCEED THE PRICE AT WHICH THE SECURITIES WERE OFFERED UNDER THE OFFERING MEMORANDUM, OR ANY AMENDMENT THERETO.
FOR
NEWFOUNDLAND AND LABRADOR RESIDENTS: IF AN OFFERING MEMORANDUM, TOGETHER WITH ANY AMENDMENT THERETO, CONTAINS A MISREPRESENTATION,
A PURCHASER HAS, WITHOUT REGARD TO WHETHER THE PURCHASER RELIED ON THE MISREPRESENTATION, A STATUTORY RIGHT OF ACTION FOR DAMAGES AGAINST
(A) THE ISSUER, (B) SUBJECT TO CERTAIN ADDITIONAL DEFENCES, AGAINST EVERY DIRECTOR OF THE ISSUER AT THE DATE OF THE OFFERING
MEMORANDUM AND (C) EVERY PERSON WHO SIGNED THE OFFERING MEMORANDUM, BUT MAY ELECT TO EXERCISE THE RIGHT OF RESCISSION AGAINST
THE ISSUER (IN WHICH CASE THE PURCHASER SHALL HAVE NO RIGHT OF ACTION FOR DAMAGES AGAINST THE AFOREMENTIONED PERSONS).
NO ACTION SHALL BE COMMENCED TO ENFORCE THE RIGHT OF ACTION DISCUSSED
ABOVE MORE THAN: (A) IN THE CASE OF AN ACTION FOR RESCISSION, 180 DAYS AFTER THE DATE OF THE TRANSACTION THAT GAVE RISE TO THE CAUSE
OF ACTION; OR (B) IN THE CASE OF ANY ACTION FOR DAMAGES, THE EARLIER OF: (I) 180 DAYS AFTER THE PURCHASER FIRST HAD KNOWLEDGE
OF THE FACTS GIVING RISE TO THE CAUSE OF ACTION; OR (II) THREE YEARS AFTER THE DATE OF THE TRANSACTION THAT GAVE RISE TO THE CAUSE
OF ACTION. SECURITIES LEGISLATION IN NEWFOUNDLAND AND LABRADOR PROVIDES A NUMBER OF LIMITATIONS AND DEFENCES TO SUCH ACTIONS, INCLUDING:
A) NO PERSON WILL BE LIABLE IF IT PROVES THAT THE PURCHASER PURCHASED
THE SECURITIES WITH KNOWLEDGE OF THE MISREPRESENTATION;
B) IN AN ACTION FOR DAMAGES, THE DEFENDANT IS NOT LIABLE FOR ALL OR
ANY PORTION OF THE DAMAGES THAT IT PROVES DOES NOT REPRESENT THE DEPRECIATION IN VALUE OF THE SECURITIES AS A RESULT OF THE MISREPRESENTATION
RELIED UPON; AND
C) IN NO CASE SHALL THE AMOUNT RECOVERABLE UNDER THE RIGHT OF ACTION
DESCRIBED HEREIN EXCEED THE PRICE AT WHICH THE SECURITIES WERE OFFERED UNDER THE OFFERING MEMORANDUM, OR ANY AMENDMENT THERETO.
THE AGGREGATE AMOUNT SUBSCRIBED FOR HEREBY IS:
_______________ shares for a total purchase price of $_______________
Manner in Which Title is to be Held. (check one)
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¨
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Individual Ownership
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¨
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Community Property
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¨
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Joint Tenant with Right of Survivorship (both parties must sign)
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¨
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Partnership
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¨
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Tenants in common
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¨
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Corporation Trust
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¨
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IRA or Keogh
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¨
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Other (please indicate)
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INDIVIDUAL INVESTORS
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ENTITY INVESTORS
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Name of entity, if any
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Signature (Individual)
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By:
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*Signature
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Its:
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Signature (Joint)
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Title:
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(all record holders must sign)
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Name(s) Typed or Printed
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Name Typed or Printed
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Address to Which Correspondence
Should be Directed
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Address to Which Correspondence
Should be Directed
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City, Country, State and Zip Code/Postal Code
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City, Country, State and Zip Code/Postal Code
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Tel:
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Tel:
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Email:
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Email:
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Tax Identification or
Social Security Number
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Tax Identification or
Social Security Number
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State whether the Subscriber is a Registrant1:
Yes
¨
No ¨
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State whether the Subscriber is an Insider2 of the Corporation:
Yes
¨
No ¨
Number and kind of securities of the Company held, directly or indirectly,
if any:
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(1)
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“Registrant” means a dealer, adviser, investment fund management, ultimate designated person or chief compliance
officer as those terms are used pursuant to the Canadian Securities Laws, or a person registered or otherwise required to be registered
under Canadian Securities Laws
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(2)
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“Insider” means (i) a director or officer of the Company (or a subsidiary of the Company), (ii) any person
who beneficially owns, directly or indirectly, voting securities of the Company or who exercises control or direction over, directly or
indirectly, voting securities of the Company or a combination of both carrying more than 10% of the voting rights attached to all voting
securities of the Company for the time being outstanding, or (iii) a director or officer of an Insider of the Company.
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*
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If Securities are being subscribed for by any entity, the
Certificate of Signatory on the next page must also be completed
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The foregoing subscription is accepted and the Company hereby agrees
to be bound by its terms on _____ day of ___________________, 2021.
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Akanda Corp.
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Dated:
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By:
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Name: Tejinder Virk
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Its: Chief Executive Officer
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CERTIFICATE OF SIGNATORY
(To be completed if Securities are being subscribed for by an entity)
I, ____________________________, the __________________________________
(name
of signatory) (title)
of ________________________________________ (“Entity”),
a ________________________
(name of entity) (type
of entity)
Organized under the laws of ______________, hereby certify that I am
empowered and duly authorized by the Entity to execute the Subscription Agreement and to purchase the Securities, and certify further
that the Subscription Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation
of the Entity.
IN WITNESS WHEREOF, I have set my hand this ______ day of ____________,
2021.
INSTRUCTIONS FOR COMPLETION OF
INVESTOR REPRESENTATION
AND SUITABILITY QUESTIONNAIRE
(FOR NON-CANADIAN SUBSCRIBERS)
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Item I:
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Name and address information must be provided. Securities will be issued in the name(s) set forth
in this Item and delivered to the address set forth in this Item. If two people are subscribing jointly, both people must provide their
names and social security numbers. A telephone number must also be provided.
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Item II:
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If the securities are to be held in a different name than the investor and sent to a different address
(i.e., an IRA or other account held at a brokerage firm), this Item must be completed. If the securities are to be issued and delivered
directly to the entity listed in Item I, this Item need not be completed.
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Item III:
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This Item needs to be read by the investor, but nothing needs to be written here. The Securities are suitable
for investment only by prospective investors who are “Accredited Investors.”
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Item IV:
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A. Only complete this Item by checking the appropriate line if you are an individual investor.
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B. Only complete this Item if you are
an entity investor.
C. Only complete this Item if you are
a trust investor.
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Item V:
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This Item needs to be read by the investor, but nothing needs to be written here.
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Item VI:
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The USA Freedom Act requires us to collect information on the sources of funds. Please complete section
1, add the documents requested in section 2 only if funds did not come from an approved country (U.S. is approved), and complete section
3.
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Item VII:
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You must thoroughly complete the Suitability Questionnaire, in order for the Company and the Managing
Dealer to make a determination whether this is a suitable investment for you.
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Item VIII:
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You and must sign and date here.
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INSTRUCTIONS FOR PAYMENT
Review and complete the Investor Representation &
Suitability Questionnaire and deliver it to the email or address below along with payment for your investment.
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Email:
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offerings@boustead1828.com
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Subject:
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Akanda Corp. – [Investor Name]
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Address:
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Boustead Securities, LLC
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6 Venture, Suite 395
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Irvine, CA 92618
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WIRE INSTRUCTIONS
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Bank Name:
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[*]
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Bank Address:
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[*]
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SWIFT Code:
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[*]
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Routing #:
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[*]
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Account Name:
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[*]
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Account #:
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[*]
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REF / Notes:
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Akanda Corp. – [Investor Name]
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If you need assistance, please contact:
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Email:
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offerings@boustead1828.com
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Phone:
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(949)-502-4408
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INVESTOR REPRESENTATION & SUITABILITY
QUESTIONNAIRE
(For Non-Canadian Subscribers)
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Please read all instructions of this Investor Representation and
Suitability Questionnaire (this “Questionnaire”) carefully before filling out this Questionnaire. This is a legally binding
document. If you need assistance, please call 949-502-4408 or by email at offerings@boustead1828.com.
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¨ Individual
Account
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¨ Trust
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¨ Corporation,
Partnership, LLC,
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¨ Joint
Registration
* If no box below is checked, we
will issue the securities
as
JTWROS.
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¨ Individual
Retirement Account
(IRA)
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Pension or Profit-Sharing Plan.
Association,
or other Entity
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¨ Joint
Tenants with
Rights
of Survivorship *
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¨ Tenants
in Common
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¨ Tenants
in Entirety
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¨ Community
Property
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PLEASE PUT A CHECK NEXT TO EACH SOCIAL SECURITY NUMBER OR TAX ID NUMBER THAT IS RESPONSIBLE FOR TAXES. WE WILL REPORT THIS NUMBER TO THE IRS.
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¨
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Name of INVESTOR (Individual, Entity, Custodian, Trust or Beneficiary)
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Date of Birth
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Soc. Sec. / Tax
ID #
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¨
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Name of SIGNER (Signer for Entity, Trust. Name of IRA Participant)
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Date of Birth
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Soc. Sec. / Tax ID #
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¨
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Name of JOINT INVESTOR or CO- TRUSTEE (if applicable)
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Date of Birth
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Soc. Sec. / Tax ID #
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Marital Status (please check one):
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¨
Single
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¨ Married
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¨ Other
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$ _____________________Total Investment Amount
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HOME
ADDRESS
¨ USE THIS ADDRESS FOR MAILING
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Street Address
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Apt / Suite / Unit #
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City
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State
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Zip
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Home Phone
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Fax
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Email
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BUSINESS ADDRESS ¨ USE THIS ADDRESS FOR MAILING
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Street Address
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Apt / Suite / Unit #
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City
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State
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Zip
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Business Phone
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Fax
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Email
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II.
|
ALTERNATIVE
DISTRIBUTION INFORMATION
|
To direct distributions to a party other than the registered owner, complete the information below. YOU MUST COMPLETE THIS ITEM IF THIS IS AN IRA INVESTMENT.
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Name of Firm (Bank or Brokerage):
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Account Name:
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Account #:
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Address:
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III.
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INVESTOR
REPRESENTATIONS & AUTHORIZATIONS
|
You as an individual or you on behalf of the subscribing entity are being asked to complete this Investor Representation and Suitability Questionnaire so a determination can be made as to whether or not you are qualified to purchase securities under applicable federal and state securities laws. Your answers to the questions contained herein must be true and correct in all respects, and a false representation by you may constitute a violation of law for which a claim for damages may be made against you.
Your answers will be kept strictly confidential; however, by signing this Questionnaire, you will be authorizing release of this Questionnaire to make certain that the offer and sale of the securities will not result in a violation of the Securities Act of 1933, as amended (the “Act”) or of the securities laws of any state.
This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy securities or any other security. All questions must be answered. If the appropriate answer is “None” or “Not Applicable,” please state so. Please print or type your answers to all questions and attach additional sheets if necessary to complete your answers to any item. Please initial any correction.
INDIVIDUAL SUBSCRIBERS:
If the securities subscribed for are to be owned by more than one person, you and the other co-subscriber must each complete separate Questionnaires (except if the co-subscriber is your spouse or spousal equivalent) and sign the Signature Page annexed hereto. If your spouse or spousal equivalent is a co-subscriber, you must indicate their name and social security number.
CORPORATIONS, PARTNERSHIPS, PENSION PLANS AND TRUSTS:
The information requested herein relates to the subscribing entity and not to you personally (unless otherwise determined in the Item IV. Accredited Investor Status).
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IV.
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ACCREDITED
INVESTOR STATUS
|
TO BE AN ACCREDITED INVESTOR, YOU MUST MEET
ONE OF THE FOLLOWING TESTS, PLEASE CHECK THE APPROPRIATE SPACES BELOW.
I certify that I am an “accredited investor” because:
(a) ___
I had an individual income of more than $200,000 in each of the two most recent calendar years, and I reasonably expect to have an
individual income in excess of $200,000 in the current calendar year; or my spouse or spousal equivalent and I had joint income in excess
of $300,000 in each of the two most recent calendar years, and we reasonably expect to have a joint income in excess of $300,000 in the
current calendar year (please complete “Item V. Income Statement”); or
(b) I
have an individual net worth, or my spouse or spousal equivalent and I have a joint net worth, in excess of $1,000,000 (excluding my
(our) primary residence); or
(c) I hold in good standing the FINRA Series 7,
Series 65, or Series 82 licenses, and/or other such certain professional certifications, designations or credentials or other
credentials issued by an accredited educational institution, which the SEC may designate from time to time by order; or
(d) I am a knowledgeable employee of the fund. (This should only be answered with respect
to investments in a private fund); or
(e) I am a director, executive officer,
or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a
general partner of that issuer.
For purposes
of this Questionnaire “individual income” means “adjusted gross income” as reported for Federal income tax purposes,
exclusive of any income attributable to a spouse or spousal equivalent or to property owned by a spouse or spousal equivalent,
and increased by the following amounts:
(i) the
amount of any interest income received which is tax-exempt under Section 103 of the Internal Revenue Code of 1986, as amended,
(the “Code”); (ii) the amount of losses claimed as a limited partner in a limited partnership (as reported on
Schedule E of form 1040); (iii) any deduction claimed for depletion under Section 611 et seq. of the Code; and
(iv) any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to
the provisions of Sections 1202 of the Code as it was in effect prior to enactment of the Tax Reform Act of 1986.
For
purposes of this Questionnaire, “joint income” means “adjusted gross income” as reported for federal income tax
purposes, including any income attributable to a spouse or spousal equivalent or to property owned by a spouse or spousal equivalent
and increased by the following amounts:
(i) the amount of any interest income received which is tax-exempt under Section 103
of the Code; (ii) the amount of losses claimed as a limited partner in a limited partnership (as reported on Schedule E of Form 1040);
(iii) any deduction claimed for depletion under Section 611 et seq. of the Code; and (iv) any amount by which income from
long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the
Code as it was in effect prior to enactment of the Tax Reform Act of 1986.
For the purposes of this Questionnaire, “net
worth” means (except as otherwise specifically defined) the excess of total assets at fair market value over total liabilities,
excluding your primary residence and the related amount of indebtedness secured by the primary residence up to its fair market value;
provided, however, that indebtedness secured by the primary residence should be considered a liability and deducted from
net worth to the extent that (i) the amount of such indebtedness outstanding at the time of completion of this Questionnaire exceeds
the amount outstanding 60 calendar days before such time, other than as a result of the acquisition of the primary residence; and (ii) the
amount of the indebtedness exceeds the estimated fair market value of the primary residence at the time of completion of this Questionnaire.
For the purposes of this Questionnaire, “spousal equivalent” means a cohabitant occupying a relationship generally
equivalent to that of a spouse or spousal equivalent.
B. CORPORATIONS,
PARTNERSHIPS, LIMITED LIABILITY COMPANIES, EMPLOYEE BENEFIT PLANS, OR OTHER ENTITIES (Please provide a copy of the Corporate Resolution
authorizing this investment, Partnership Agreement, Limited Liability Company Operating Agreement, Employee Benefit Plan, or other entity
documentation as applicable.)
Has
the subscribing entity been formed for the specific purpose of investing in the
securities? ¨
Yes ¨ No
If your answer to the question above is “No,” CHECK whichever of the following statements (a-e) is applicable
to the subscribing entity. If your answer to the question above is “Yes,” the subscribing entity must be able to certify
to statement (c) below in order to qualify as an “accredited investor.”
The undersigned certifies that:
(a) ___ the undersigned entity is an “accredited investor,” because it is
an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”),
provided that the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, and the plan fiduciary
is a bank, savings and loan association, insurance company or registered investment adviser; or
(b) ___
the undersigned entity is an “accredited investor,” because it is an employee benefit plan within the meaning of ERISA,
Title I that has total assets in excess of $5,000,000; or
(c) ___ Any private
business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended; or
(d) ___ the undersigned entity is an “accredited investor because it is an entity
whose shareholders, partners, beneficiaries or equity owners are all accredited investors (If you are checking this option, please
submit a list of all owners; EACH owner of the entity must complete Item IV and, complete Item V, if applicable, and Item
VI. Make copies of this Item IV, Item VI (and V if applicable) to do this and note each owner’s name on each copy); I
am one of its equity owners; and I meet at least one of the conditions described below (Please also CHECK the appropriate space below):
¨
I had an individual income of more than $200,000 in each of the two most recent calendar years, and I reasonably expect to have
an individual income in excess of $200,000 in the current calendar year; or my spouse or spousal equivalent and I had joint income in
excess of $300,000 in each of the two most recent calendar years, and we reasonably expect to have a joint income in excess of $300,000
in the current calendar year (please complete “Item V. Income Statement”); or
¨
I have an individual net worth, or my spouse or spousal equivalent and I have a joint net worth, in excess of $1,000,000 (excluding
my (our) primary residence); or
¨
I hold in good standing the FINRA Series 7, Series 65, or Series 82 licenses, and/or other such certain professional
certifications, designations or credentials or other credentials issued by an accredited educational institution, which the SEC may
designate from time to time by order; or
¨ I am a knowledgeable employee of the fund;
or
¨
I am a director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director,
executive officer, or general partner of a general partner of that issuer.
(e) ___ the undersigned entity is an “accredited investor,”
because it is a self-directed employee benefit plan; I solely make its investment decisions; and I meet at least one of the conditions
described below (Please also CHECK the appropriate space below):
¨
I had an individual income of more than $200,000 in each of the two most recent calendar years, and I reasonably expect to have
an individual income in excess of $200,000 in the current calendar year; or my spouse or spousal equivalent and I had joint income in
excess of $300,000 in each of the two most recent calendar years, and we reasonably expect to have a joint income in excess of $300,000
in the current calendar year (please complete “Item V. Income Statement”); or
¨
I have an individual net worth, or my spouse or spousal equivalent and I have a joint net worth, in excess of $1,000,000 (excluding
my (our) primary residence); or
¨
I hold in good standing the FINRA Series 7, Series 65, or Series 82 licenses, and/or other such certain professional
certifications, designations or credentials or other credentials issued by an accredited educational institution, which the SEC may designate
from time to time by order; or
¨ I am a knowledgeable
employee of the fund; or
¨
I am a director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director,
executive officer, or general partner of a general partner of that issuer. or
(f) ___
the undersigned entity is an “accredited investor,” because it is an organization described in section 501(c)3 of the
Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000; or
(g) ___
the undersigned entity is an “accredited investor,” because it is a limited liability company, SEC or state -registered
Investment Adviser, Exempt Reporting Adviser, or a rural business investment company (RBIC) with $5,000,000 in assets; or
(h) ___
the undersigned entity is an “accredited investor,” because it is an Indian tribe, governmental body, fund, or any entity
organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment
Company Act, in excess of $5,000,000 and that was not formed for the specific purpose of investing in the securities offered; or
(i) ___ the undersigned entity is an “accredited investor,” because it is a family
office with at least $5,000,000 in assets under management and their “family clients,” as each term is defined under the
Investment Advisers Act.
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C.
|
TRUST ACCOUNTS (Please provide a complete copy of the
Trust document.)
|
Has
the subscribing entity been formed for the specific purpose of investing in the
securities? ¨ Yes
¨ No
If your answer to the question above is “No,” CHECK whichever of the following statements (a-c) is applicable
to the subscribing entity. If your answer to the question above is “Yes,” the subscribing entity must be able to certify
to the statement (c) below in order to qualify as an “accredited investor.”
The undersigned trustee certifies
that the trust is an “accredited investor” because:
(a) ___ the trust
has total assets in excess of $5,000,000 and the investment decision has been made by a “sophisticated person,” as described
in Rule 506(b)(ii) promulgated under the Act; or
(b) ___ the
trustee making the investment decision on its behalf is a bank (as defined in Section 3(a)(2) of the Act), a saving and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act, acting in its fiduciary capacity; or
(c) ___
the grantor(s) of the trust may revoke the trust at any time and regain title to the trust assets and has (have) retained sole
investment control over the assets of the trust and the (each) grantor(s) meets at least one of the conditions described below.
Each grantor must also INITIAL the appropriate space below.
¨
I had an individual income of more than $200,000 in each of the two most recent calendar years, and I reasonably expect to have
an individual income in excess of $200,000 in the current calendar year; or my spouse or spousal equivalent and I had joint income in
excess of $300,000 in each of the two most recent calendar years, and we reasonably expect to have a joint income in excess of $300,000
in the current calendar year (please complete “Item V. Income Statement”); or
¨
I have an individual net worth, or my spouse or spousal equivalent and I have a joint net worth, in excess of $1,000,000 (excluding
my (our) primary residence); or
¨
I hold in good standing the FINRA Series 7, Series 65, or Series 82 licenses, and/or other such certain professional
certifications, designations or credentials or other credentials issued by an accredited educational institution, which the SEC may designate
from time to time by order; or
¨ I am a knowledgeable
employee of the fund; or
¨ I am a director, executive
officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner
of a general partner of that issuer.
I understand that investment in the securities is an illiquid investment. In particular, I recognize that I must bear the economic risk of investment in the securities for an indefinite period of time since the securities have not been registered under the Act and therefore cannot be sold unless either they are subsequently registered under the Act or an exemption from such registration is available and a favorable opinion of counsel for the Company to that effect is obtained if requested by the Company. I consent to the affixing by the Company of such legends on certificates representing the securities as any applicable federal or state securities law may require from time to time.
I represent and warrant to the Company that: (i) all information provided in this Questionnaire is complete, true and correct; (ii) I and my investment managers, if any, have carefully reviewed and understand the risks of, and other considerations relating to, a purchase of these securities, including, but not limited to, the risks set forth in the risk factor disclosure document and other Offering Materials provided to me; (iii) I and my investment managers, if any, have been afforded the opportunity to obtain all information necessary to verify the accuracy of any representations or information in the transaction documents for this offering and other information provided to the undersigned and have had all inquiries to the Company answered, and have been furnished all requested materials relating to the Company and the offering and sale of the securities; (iv) I have such knowledge and experience in financial and investment matters, either alone or with my investment managers, that I am capable of evaluating the merits and risks of this investment; (v) neither I nor my investment managers, if any, have been furnished any offering literature by the Company or any of its affiliates, associates or agents other than the transaction documents, the term sheet, the Business Summary, the Risk Factor Disclosure Document, and the investor presentation provided to the undersigned by the Company related to this investment (collectively, the “Offering Materials”) relating to this investment, and the documents referenced therein; and (vi) I am acquiring the securities for which I am subscribing for my own account, as principal, for investment and not with a view to the resale or distribution of all or any part of the securities. By my completion of this Questionnaire and execution of other transaction documents, I confirm and agree that I have reviewed and understand the provisions of each such transaction document and, should my subscription be accepted by the Company, agree to be bound thereby.
The undersigned, if a corporation, partnership, trust or other form of business entity: (i) is authorized and otherwise duly qualified to purchase and hold the securities; (ii) has obtained such additional tax and other advice that it has deemed necessary; (iii) has its principal place of business at its address set forth in this Questionnaire; and (iv) has not been formed for the specific purpose of acquiring the securities (although this may not necessarily disqualify the subscriber as a purchaser). The persons completing this Questionnaire and executing all other documents related to the offering, represent that they are duly authorized to complete or execute all such documents on behalf of the entity. (If the undersigned is one of the aforementioned entities, it agrees to supply any additional written information that may be required.
All of the information which I have furnished to the Company, and which is set forth in this Questionnaire is correct and complete as of the date of this Questionnaire. If any material change in this information should occur prior to my subscription being accepted, I will immediately furnish the revised or corrected information. I further agree to be bound by all of the terms and conditions of the Offering Materials. I am the only person with a direct or indirect interest in the securities subscribed for hereby.
I agree to indemnify and hold harmless the Company and its Officers, Directors, employees, affiliates, and agents as well as the brokerage firm through which I am subscribing (if any) and all of its officers, directors, employees, affiliates, and agents from and against all damages, losses, costs and expenses (including reasonable attorneys’ fees) they may incur by reason of the failure of the undersigned to fulfill any of the terms or conditions set forth in the transaction documents. This subscription is not transferable or assignable by me without the written consent of the Company. If more than one person is completing this Questionnaire, the obligations of each shall be joint and several, and the representations contained in this Questionnaire shall be deemed to be made by, and be binding upon, each of these persons and his or her heirs, executors, administrators, successors, and assigns. This subscription, upon acceptance by the Company, shall be binding upon my heirs, executors, administrators, successors, and assigns.
This Questionnaire and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed, and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
Under penalties of perjury, by signing below I certify that (i) my taxpayer identification number shown in this Questionnaire is correct; and (ii) I am not subject to backup withholding because: (a) I have not been notified that I am subject to backup withholding as a result of a failure to report all interest and dividends; or (b) the Internal Revenue Service has notified me that I am no longer subject to backup withholding. (If you have been notified that you are subject to backup withholding and the Internal Revenue Service has not advised you that backup withholding has been terminated, strike out item (ii)).
|
|
VI.
|
INFORMATION
REQUIRED BY FEDERAL LAW
|
The USA Freedom Act requires us to obtain the following information from you to detect and prevent misuse of the world financial system.
1. In the space provided below, please provide details of where monies were transferred from to the Company in relation to your subscription for the securities.
|
Country
|
Name of Bank / Financial Institution
|
Name of Account Holder
|
Account Number
|
|
|
|
|
|
If the country from which the monies were
transferred appears in the Approved Country List below, please skip to section 3. If the country does not appear, please go to section
2.
|
Argentina
|
Australia
|
Austria
|
Belgium
|
Brazil
|
|
Canada
|
Denmark
|
Finland
|
France
|
Germany
|
|
Greece
|
Gulf Cooperation Council
|
Hong Kong
|
*Iceland
|
Ireland
|
|
Italy
|
Japan
|
The Netherlands (including the Netherlands Antilles and Aruba)
|
Luxembourg
|
Mexico
|
|
New Zealand
|
Norway
|
Portugal
|
*Russian Federation
|
Singapore
|
|
South Africa
|
Spain
|
Sweden
|
Switzerland
|
Turkey
|
|
United Kingdom
|
United States
|
|
|
|
*Vision Financial Markets
will require enhanced due diligence as applicable.
|
|
2.
|
If subscription monies were transferred to the Company from
any country other than on the "Approved Country List" (see above), please provide the following documentation to the Company
(all copies should be in English and certified as being "true and correct copies of the original" by a notary public of the
jurisdiction of which you are resident).
|
|
|
(i)
|
evidence of name, signature, date of birth and photographic
identification;
|
|
|
(ii)
|
evidence of permanent address; and
|
|
|
(iii)
|
where possible, a reference from a bank with whom the individual
maintains a current relationship and has maintained such relationship for at least two years.
|
|
|
(i)
|
a copy of its certificate of incorporation and any change of
name certificate;
|
|
|
(ii)
|
a certificate of good standing;
|
|
|
(iii)
|
a register or other acceptable list of directors and officers;
|
|
|
(iv)
|
a properly authorized mandate of the company to subscribe in
the form, for example, of a certified resolution which includes naming authorized signatories;
|
|
|
(v)
|
a description of the nature of the business of the company;
|
|
|
(vi)
|
identification, as described above for individuals, for at least
two directors and authorized signatories;
|
|
|
(vii)
|
a register of members or list of shareholders holding a controlling
interest; and
|
|
|
(viii)
|
identification, as described above, for individuals who are
beneficial owners of corporate shareholders which hold 10% or more of the capital share of the company.
|
|
|
(c)
|
For Partnerships
and Unincorporated Businesses:
|
|
|
(i)
|
a copy of any certificate of registration and a certificate
of good standing, if registered;
|
|
|
(ii)
|
identification, as described above, for individuals and, where
relevant, companies constituting a majority of the partners, owners or managers and authorized signatories;
|
|
|
(iii)
|
a copy of the mandate from the partnership or business authorizing
the subscription in the form, for example, of a certified resolution which includes naming authorized signatories; and
|
|
|
(iv)
|
a copy of constitutional documents (formation and partnership
agreements).
|
|
|
(i)
|
identification, as described above, for individuals or companies
(as the case may be) in respect of the trustees;
|
|
|
(ii)
|
identification, as described above for individuals, of beneficiaries,
any person on whose instructions or in accordance with those wishes the trustee/nominee is prepared or accustomed to act and the settlor
of the trust; and
|
|
|
(iii)
|
evidence of the nature of the duties or capacity of the trustee.
|
|
|
3.
|
The Company is also required to verify the source of funds.
To this end, summarize the underlying source of the funds remitted to us (for example, where subscription monies were the profits of
business (and if so, please specify type of business), investment income, savings, etc.).
|
|
VII.
|
SUITABILITY QUESTIONNAIRE
|
This is a speculative investment (Each responding individual must complete his/her
own Suitability Questionnaire)
Name of Individual Investor OR Name of Person Answering Questions on behalf of an
Entity/Trust/IRA Investor:
|
|
A.
|
Please provide the below Identification information:
|
|
|
ID Number: ____________________________________
|
|
|
Place of Issuance: _______________________________
|
|
|
Issue Date: ____________________________________
|
|
|
Expiration Date: _________________________________
|
|
|
|
Are you a U.S. Citizen? ¨
Yes ¨
No
|
Please provide a copy of the photo page of your government-issued identification.
|
|
B.
|
Please provide your present employment status. If currently retired or unemployed, please provide your last/most recent employment history:
|
Current Employment Status Latest Role/Occupation Latest
Employer Name
|
|
C.
|
Please provide the following information concerning your financial experience:
|
|
|
C-1.
|
Risk Tolerance (select one):
|
¨ Speculative
– You are willing to accept substantial risk. May endure extensive volatility and very limited or no liquidity. You value the potential
for maximizing long-term returns over principal preservation.
¨ Aggressive
– You are willing to accept considerable risk. You may endure high volatility and limited or very limited liquidity. You value long-term
appreciation over principal preservation.
¨ Moderate
– You are willing to accept limited risk. You may endure some volatility and illiquidity. You value enhancing returns and principal
preservation equally. You are willing to risk losing a substantial amount of your investment.
¨ Conservative
– You are willing to accept low risk for greater stability and liquidity. You value minimizing risk and maximizing principal preservation.
|
|
C-2.
|
What is your primary investment objective? (select one):
|
¨ Investment
speculation
¨ Steadily
accumulate wealth over the long term
¨ Partially
fund my retirement
¨ Other
|
|
C-3.
|
What are your time horizon and liquidity needs?
|
|
(a)
|
Time Horizon (select one):
|
(b)
|
Liquidity Needs (select one):
|
|
|
¨ 10 years or more
|
|
¨ Low
|
|
|
¨ 5 –10 years
|
|
¨ Medium
|
|
|
¨ 2 – 5 years
|
|
¨ High
|
|
|
¨ Under 2 years
|
|
|
|
|
C-4.
|
How much investment experience do you have? (select one):
|
¨ Extensive
¨ Substantial
¨ Moderate
¨ Limited
¨ None
|
|
C-5.
|
Please state the approximate number and total dollar amount of your prior investments in restricted securities (e.g., private placements):
|
|
|
No. of Investments: ______________________
|
Total Amount: ______________________
|
|
|
C-6.
|
Please indicate your Annual Income and Net Worth:
|
|
|
(a)
|
Annual Income
|
(b)
|
Net Worth
|
(c)
|
Liquid Net Worth
|
|
|
|
¨ Under $25,000
|
|
¨ Under $25,000
|
|
¨ Under $25,000
|
|
|
|
¨ $25,000 – $50,000
|
|
¨ $25,000 – $50,000
|
|
¨ $25,000 – $50,000
|
|
|
|
¨ $50,000 – $75,000
|
|
¨ $50,000 – $75,000
|
|
¨ $50,000 – $75,000
|
|
|
|
¨ $75,000 – $100,000
|
|
¨ $75,000 – $100,000
|
|
¨ $75,000 – $100,000
|
|
|
|
¨ $100,000 – $200,000
|
|
¨ $100,000 – $150,000
|
|
¨ $100,000 – $150,000
|
|
|
|
¨ $200,000 – $300,000
|
|
¨ $150,000 – $200,000
|
|
¨ $150,000 – $200,000
|
|
|
|
¨ $300,000 – $500,000
|
|
¨ $200,000 – $250,000
|
|
¨ $200,000 – $250,000
|
|
|
|
¨ $500,000 – $1,200,000
|
|
¨ $250,000 – $500,000
|
|
¨ $250,000 – $500,000
|
|
|
|
¨ Over $1,200,000
|
|
¨ $500,000 – $1,000,000
|
|
¨ $500,000 – $1,000,000
|
|
|
|
|
|
¨ $1,000,000 – $5,000,000
|
|
¨ $1,000,000 – $5,000,000
|
|
|
|
|
|
¨ Over $5,000,000
|
|
¨ Over $5,000,000
|
C-7. Please provide in the space below any additional
information which would indicate that you have sufficient knowledge and experience in financial and business matters so that you are capable
of evaluating the merits and risks of investing in restricted securities of private or thinly traded enterprise.
|
|
D.
|
Please provide the following information concerning your industry and other affiliations.
|
D-1. Are you, your spouse or spousal equivalent,
or any other immediate family members, including parents, in-laws, and siblings that are dependents, an officer, director or greater than
ten percent (10%) shareholder of the Company offering securities?
¨ Yes ¨
No
D-2. Are you, your spouse or spousal equivalent,
or any other immediate family members, including parents, in-laws, and siblings that are dependents, employed by or associated with the
securities industry (for example, investment advisor, sole proprietor, partner, officer, director, branch manager or broker at a broker-dealer
firm or municipal securities dealer) or a financial regulatory agency, such as FINRA or the New York Stock Exchange?
¨ Yes ¨
No
If yes, please provide the name and contact information
for such firm.
D-3. Are you a senior military, governmental or
political official in a non-US country?
¨
Yes ¨ No
If yes, please provide the name of the country.
|
|
E.
|
Did anyone at Boustead Securities, LLC recommend the investment to you?
|
¨ Yes ¨
No
If yes, please provide the name of the individual.
|
|
F.
|
Trusted Contact. If you are over 65 years old, please provide the name and contact phone number of a trusted contact:
|
|
|
|
|
|
|
Name
|
Relationship
|
Contact Number
|
|
This Questionnaire contains various statements and representations
by subscribers and should be carefully reviewed in its entirety before executing this signature page. I hereby certify that I have reviewed
and am familiar with the instructions of this Questionnaire.
|
|
¨
|
(check if applicable) I hereby certify that I previously
invested in the Company and that, unless otherwise indicated in this Questionnaire, the information I provided in the Questionnaire dated
for my previous investment continues to be true and correct and is incorporated by reference into this Questionnaire.
|
Dated: ____________
|
Print name of individual subscriber, custodian, corporation, trust:
|
|
Signature of individual subscriber, authorized person, Trustee:
|
|
|
|
|
|
|
|
|
|
Print name of co-subscriber, authorized person, co-trustee if required by trust instrument:
|
|
Signature of co-subscriber, authorized person, co-trustee if required by trust instrument:
|
|
|
|
|
Investment Authorization. The undersigned corporation, partnership,
limited liability company, benefit plan, or IRA has all requisite authority to acquire the securities hereby subscribed for and to complete
the Questionnaire, and further, the undersigned officer, partner, manager, or fiduciary of the subscribing entity has been duly authorized
by all requisite action on the part of such entity to execute these documents on its behalf. Such authorization has not been revoked and
is still in full force and effect.
Check Box: ¨ Yes ¨ No
¨ Not Applicable
CAPACITY CLAIMED BY SIGNER: (select one)
|
¨
Individual(s)
|
|
¨
Attorney-In-Fact
|
|
¨
Partner(s)
|
|
¨
Trustee(s)
|
|
¨ Corporate Officer:
|
|
|
¨ Other:
|
|
|
|
|
Title
|
|
|
Title
|
|
INSTRUCTIONS FOR COMPLETION OF
INVESTOR REPRESENTATION
AND SUITABILITY QUESTIONNAIRE
(FOR CANADIAN SUBSCRIBERS)
(Attached under separate cover)
INVESTOR REPRESENTATION & SUITABILITY
QUESTIONNAIRE
(For
Canadian Subscribers)
TO BE COMPLETED BY ACCREDITED INVESTORS RESIDENT
IN OR SUBJECT TO THE LAWS OF A JURISDICTION OF CANADA
The categories listed herein contain certain
specifically defined terms, some of which are defined below the following list of categories. If you are unsure as to the meanings of
any term, or are unsure as to the applicability of any category below, please contact your broker and/or legal advisor before completing
this certificate.
|
TO:
|
Akanda Corp.
(the "Company")
|
In connection with the purchase of the Securities
by the undersigned subscriber, on its own behalf and on behalf of each disclosed principal for whom the subscriber is acting (together
referred to as the "Subscriber" for the purposes of this Investor Representation & Suitability Questionnaire),
the Subscriber hereby represents, warrants, covenants and certifies to the Company (and acknowledges that the Company and its counsel
are relying thereon) that:
|
|
(a)
|
the Subscriber is resident in or otherwise subject to the securities laws of one of the jurisdictions of Canada;
|
|
|
(b)
|
the Subscriber is purchasing the Securities as principal for its own account and not for the benefit of any other person (unless
the Subscriber is an accredited investor pursuant to paragraphs (p) and (q) below);
|
|
|
(c)
|
the Subscriber is (and will be at the closing time) an "accredited investor" within the meaning of National Instrument
45-106 – Prospectus Exemptions or, in Ontario, section 73.3 of the Securities Act (Ontario), on the basis that the Subscriber fits
within the category of an "accredited investor" reproduced below beside which the undersigned has indicated the undersigned
belongs to such category;
|
|
|
(d)
|
the Subscriber was not created and is not used solely to purchase or hold securities as an accredited investor as described in
paragraph (m) of the definition of "accredited investor" below; and
|
|
|
(e)
|
upon execution of this Investor Representation & Suitability Questionnaire by the Subscriber, this Investor Representation &
Suitability Questionnaire and, if applicable, Appendix 1 to Investor Representation & Suitability Questionnaire, will be incorporated
into and form a part of the Agreement.
|
Terms used herein and not otherwise defined find their meaning in the
accompanying Agreement.
(CHECK THE BOX OF THE APPLICABLE CATEGORY
OF ACCREDITED INVESTOR ON THE FOLLOWING PAGE AND PROVIDE ANY OTHER INFORMATION REQUIRED AS NOTED BELOW SUCH CATEGORY)
THE COMPANY MAY FOLLOW UP WITH THE SUBSCRIBER
AT THE TELEPHONE NUMBER PROVIDED IN ORDER TO VERIFY THEIR ACCREDITED INVESTOR STATUS BY OBTAINING FURTHER INFORMATION IN ORDER SATISFY
THE COMPANY'S OBLIGATIONS UNDER APPLICABLE SECURITIES LAWS.
Accredited
Investor means:
|
¨
|
(a)
|
a Canadian financial institution, or a Schedule III bank;
|
|
¨
|
(b)
|
the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada);
|
|
¨
|
(c)
|
a subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
|
|
¨
|
(d)
|
a person registered under the securities legislatio of a jurisdiction of Canada as an adviser or dealer;
Jurisdiction(s) registered ____________________________________
Category/ies of registration: __________________________________
|
|
¨
|
(e)
|
an individual registered under the securities legislation of a jurisdiction of Canada as a representative of a person referred to in paragraph (d);
|
|
¨
|
(e.1)
|
an individual formerly registered under the securities legislation of a jurisdiction of Canada, other than an individual formerly registered solely as a representative of a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and abrador);
Person with whom Subscriber is or was registered:________________________
Jurisdiction(s) registered: ____________________________________
Category/ies of registration: __________________________________
|
|
¨
|
(f)
|
the Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the Government of Canada or a jurisdiction of Canada;
|
|
¨
|
(g)
|
a municipality,
public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de
l'île de Montréal or an intermunicipal management board in Québec;
|
|
¨
|
(h)
|
any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;
|
|
¨
|
(i)
|
a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction of Canada;
Jurisdiction(s) registered: ____________________________________
Registration number(s): __________________________________
|
|
¨
|
(j)
|
an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000;
A subscriber under this category must complete Appendix 1 to this Investor Representation & Suitability Questionnaire – Form 45-106F9 Risk Acknowledgement Form for Certain Accredited Investors
|
|
¨
|
(j.1)
|
an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5,000,000;
|
|
¨
|
(k)
|
an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year;
A subscriber under this category must complete Appendix 1 to this Investor Representation & Suitability Questionnaire – Form 45-106F9 Risk Acknowledgement Form for Certain Accredited Investors
|
|
¨
|
(l)
|
an individual who, either alone or with a spouse, has net assets of at least $5,000,000;
A subscriber under this category must complete Appendix 1 to this Investor Representation & Suitability Questionnaire – Form 45-106F9 Risk Acknowledgement Form for Certain Accredited Investors
|
|
¨
|
(m)
|
a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements;
Type of entity: ____________________________________
Jurisdiction and date of formation: ____________________________________
|
|
¨
|
(m)
|
(n)an investment fund that distributes or has distributed its securities only to
(i) a person that is or was an accredited investor at the time of the distribution;
(ii) a person that acquires or acquired securities in the circumstances referred to in sections 2.10 [Minimum amount investment] and 2.19 [Additional investment in investment funds] of NI 45-106, or
(iii) a person described in subparagraph (i) or (ii) that acquires or acquired securities under section 2.18 [Investment fund reinvestment] of NI 45-106;
|
|
¨
|
(o)
|
an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt;
|
|
¨
|
(p)
|
a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or (subject to paragraph (p.1)) under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case ma be;
Jurisdiction(s) registered: ____________________________________
Registration number(s): ____________________________________
|
|
¨
|
(p.1)
|
a trust company or trust corporation registered under the laws of Prince Edward Island and not registered under the Trust and Loan Companies Act (Canada) or under comparable legislation in another jurisdiction of Canada, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be;
Registration number(s): ______________________________________
|
|
¨
|
(q)
|
a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction;
Jurisdiction(s) registered or authorized: __________________________
Category/ies
of registration: ___________________________________________
|
|
¨
|
(r)
|
a
registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser
or an adviser registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities
being traded;
Registration number(s) of subscriber: __________________________
Name of eligibility adviser or registered adviser: ____________________
Jurisdiction(s) registered: ____________________________________
Category/ies of registration: __________________________________
|
|
¨
|
(s)
|
an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) to (d) or paragraph (i) in for and function;
Jurisdiction organized: ______________________________
Type of
entity: __________________________
|
|
¨
|
(t)
|
a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors;
Each owner must complete and submit its own copy of this Accredited Investor Status Certificate;
Name(s) of owner(s): ___________________________________
Category/ies
of accredited investor: ______________________________
|
|
¨
|
(u)
|
an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser;
Name of adviser: _____________________________________
Jurisdiction(s) registered: ______________________________
Category/ies of registration (if applicable): ________________________
Basis of exemption (if applicable): _______________________________
|
|
¨
|
(v)
|
a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator as an accredited investor; or
Jurisdiction(s) recognized or designated: _________________________
|
|
¨
|
(w)
|
a trust established by an accredited investor for the benefit of the accredited investor's family members of which a majority of the trustees are accredited investors and all of the beneficiaries are the accredited investor's spouse, a former spouse of the accredited investor or a parent, grandparent, brother, sister, child or grandchild of that accredited investor, of that accredited investor's spouse or of that accredited investor's former spouse.
Name(s) of settlor: ________________________________
Name(s) of trustees: ________________________________
Categories of accredited investor: _______________________________
Categories
of beneficiaries: ___________________________________
|
For the purposes hereof, the following definitions are included for
convenience:
"Canadian financial institution" means:
(i) an association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative credit society for which
an order has been made under section 473(1) of that Act; or (ii) a bank, loan corporation, trust company, trust corporation,
insurance company, treasury branch, credit union, caisse populaire, financial services cooperative, or league that, in each case, is authorized
by an enactment of Canada or a jurisdiction of Canada to carry on business in Canada or a jurisdiction of Canada;
"entity" means a company, syndicate,
partnership, trust or unincorporated organization;
"financial assets" means cash, securities,
or any a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;
"founder" means, in respect of the Company,
a person who: (i) acting alone, in conjunction, or in concert with one or more persons, directly or indirectly, takes the initiative
in founding, organizing or substantially reorganizing the business of the Company; and (ii) at the time of the trade is actively
involved in the business of the Company;
"fully managed account" means an account
of a client for which a person makes the investment decisions if that person has full discretion to trade in securities for the account
without requiring the client's express consent to a transaction;
"investment fund" means a mutual fund
or a non-redeemable investment fund;
"mutual fund" means an issuer whose primary
purpose is to invest money provided by its security holders and whose securities entitle the holder to receive on demand, or within a
specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in part of the
net assets, including a separate fund or trust account, of the issuer;
"non-redeemable investment fund" means
an issuer,
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(i)
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whose primary purpose is to invest money provided by its securityholders,
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(ii)
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that does not invest:
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(A)
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for the purpose of exercising or seeking to exercise control of an issuer, other than an issuer that is a mutual fund or a non-redeemable
investment fund; or
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(B)
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for the purpose of being actively involved in the management of any issuer in which it invests, other than an issuer that is a mutual
fund or a non-redeemable investment fund; and
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(iii)
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that is not a mutual fund;
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"related liabilities" means liabilities
incurred or assumed for the purpose of financing the acquisition or ownership of financial assets and liabilities that are secured by
financial assets;
"Schedule III bank" means an authorized
foreign bank named in Schedule III of the Bank Act (Canada);
"spouse" means an individual who: (i) is
married to another individual and is not living separate and apart within the meaning of the Divorce Act (Canada), from the other individual;
(ii) is living with another individual in a marriage-like relationship, including a marriage-like relationship between individuals
of the same gender; or (iii) in Alberta, is an individual referred to in subparagraph (i) or (ii), or is an adult interdependent
partner within the meaning of the Adult Interdependent Relationships Act (Alberta); and
"subsidiary" means an issuer that is
controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary.
Affiliate:
An issuer is considered to be an affiliate of another issuer if one is a subsidiary of the other, or if both are subsidiaries
of the same issuer, or if each of them is controlled by the same issuer.
Control:
A person (first person) is considered to control another person (second person) if: (i) the first person, directly
or indirectly, beneficially owns or exercises control or direction over securities of the second person carrying votes which, if exercised,
would entitle the first person to elect a majority of the directors of the second person, unless that first person holds the voting securities
only to secure an obligation; (ii) the second person is a partnership, other than a limited partnership, and the first person holds
more than 50% of the interests of the partnership; or (iii) the second person is a limited partnership and the general partner of
the limited partnership is the first person.
Beneficial
Ownership: The following is an excerpt from Companion Policy 45-106CP which provides guidance as to the meaning of beneficial
ownership of financial assets:
Paragraphs (j) and (j.1) of the "accredited investor"
definition refer to the beneficial ownership of financial assets. As a general matter, it should not be difficult to determine whether
financial assets are beneficially owned by an individual, an individual's spouse, or both, in any particular instance. However, in the
case where financial assets are held in a trust or in another type of investment vehicle for the benefit of an individual there may be
questions as to whether the individual beneficially owns the financial assets. The following factors are indicative of beneficial ownership
of financial assets:
(a) physical or constructive possession of evidence
of ownership of the financial asset;
(b) entitlement to receipt of any income generated by
the financial asset;
(c) risk of loss of the value of the financial asset;
and
(d) the ability to dispose of the financial asset or
otherwise deal with it as the individual sees fit.
For example, securities held in a self-directed RRSP, for
the sole benefit of an individual, are beneficially owned by that individual. In general, financial assets in a spousal RRSP would also
be included for the purposes of the $1,000, 000 financial asset test in paragraph (j) because it takes into account financial assets
owned beneficially by a spouse. However, financial assets in a spousal RRSP would not be included for purposes of the $5,000,000 financial
asset test in paragraph (j.1). Financial assets held in a group RRSP under which the individual does not have the ability to acquire the
financial assets and deal with them directly would not meet the beneficial ownership requirements in either paragraph (j) or paragraph
(j.1).
[The rest of this page is intentionally
left blank.]
SIGNATURE PAGE TO INVESTOR REPRESENTATION &
SUITABILITY QUESTIONNAIRE
(FOR CANADIAN SUBSCRIBERS)
The foregoing representations contained in this
Investor Representation & Suitability Questionnaire are true and accurate as of the date of this certificate and will be true
and accurate as of the closing time of the Offering. If any such representation ceases to be true and accurate prior to the closing time
of the Offering, the undersigned will give immediate written notice of such fact to the Company prior to such closing time.
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Dated:
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Signed:
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Witness (If Subscriber is an Individual)
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Print
the name of Subscriber
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Print
Name of Witness
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If
Subscriber is a corporation, print name and title of Authorized Signing Officer
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APPENDIX 1 TO INVESTOR REPRESENTATION &
SUITABILITY QUESTIONNAIRE
RISK ACKNOWLEDGEMENT FORM (FORM 45-106F9)
FOR CERTAIN ACCREDITED INVESTORS
This form must be completed by "accredited investors"
who have checked boxes (j), (k) or (l) of Exhibit B, and by any other accredited investors that the Company directs to
complete this form.
WARNING!
This investment is risky. Do not invest unless you can afford to lose all the money you pay for this investment
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Section 1 – TO BE COMPLETED BY THE ISSUER OR SELLING SECURITY HOLDER
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1. About your investment
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Type of Securities: Common Shares
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Issuer: Akanda Corp. (the "Issuer")
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Purchased from: The Issuer
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Sections 2 to 4 – TO BE COMPLETED BY THE PURCHASER
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2. Risk acknowledgement
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This investment is risky. Initial that you understand that:
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Your Initials
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Risk of loss – You could lose your entire investment of $ ___________ [Insert total dollar amount of the Investment]
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Liquidity risk – You may not be able to sell your investments quickly – or at all.
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Lack of information – You may receive little or no information about your investment.
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Lack of advice – You will not receive advice from the salesperson about whether this investment is suitable for you unless the salesperson is registered. The salesperson is the person who meets with, or provides information to, you about making this investment. To check whether the salesperson is registered, go to www.aretheyregistered.ca.
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3. Accredited investor status
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You must meet at least one of the following criteria to be able to make this investment. Initial the statement that applies to you. (You may initial more than one statement.) The person identified in section 6 is responsible for ensuring that you meet the definition of accredited investor. That person, or the salesperson identified in section 5, can help you if you have questions about whether you meet these criteria.
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Your Initials
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·
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Your net income before taxes was more than $200,000 in each of the 2 most recent calendar years, and you expect it to be more than $200,000 in the current calendar year. (You can find your net income before taxes on your personal income tax return.)
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·
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Your net income before taxes combined with your spouse's was more than $300,000 in each of the 2 most recent calendar years, and you expect your combined net income before taxes to be more than $300,000 in the current calendar year.
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·
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Either alone or with your spouse, you own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities.
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Either alone or with your spouse, you have net assets worth
more than $5 million. (Your net assets are your total assets (including real estate) minus your total debt.)
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4. Your name and signature
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By signing this form, you confirm that you have read this form and you understand the risks of making this investment as identified in this form.
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First and Last Name (please print):
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Signature:
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Date:
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Section 5 – TO BE COMPLETED BY THE SALESPERSON
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5. Salesperson information
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[Instruction: The salesperson is the person who meets with, or provides information to, the purchaser with respect to making this investment. That could include a representative of the issuer or selling security holder, a registrant or a person who is exempt from the registration requirement.]
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First and Last Name of Salesperson (please print): Tej Virk
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Telephone:
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Email: tej@akandacorp.com
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Name of Firm (if registered): N/A
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Section 6 – TO BE COMPLETED BY THE ISSUER OR SELLING SECURITY HOLDER
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6. For more information about this investment
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For more information about this investment / the Issuer:
Akanda Corp.
77 King Street West, Suite 400
Toronto, ON M5K 0A1
Attention: Chief Executive Officer
Email: tej@akandacorp.com
For more information about prospectus exemptions, contact your local
securities regulator. You can find contact information at www.securities-administrators.ca.
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Form instructions:
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1.
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The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs the form.
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2.
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The purchaser must sign this form. Each of the purchaser and the issuer or selling security holder must receive a copy of this
form signed by the purchaser. The issuer or selling security holder is required to keep a copy of this form for 8 years after the distribution.
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Exhibit A
AKANDA CORP.
TERM SHEET SUMMARY
August 26, 2021
This Term Sheet Summary (the “Term Sheet”) summarizes
the terms on which you and other qualified accredited investors (the “Investors”) are invited to make an investment
(the “Investment”) in Akanda Corp. (“we,” “us,” “our” or the
“Company”). This Term Sheet is merely a summary of the terms and provisions of the Subscription Agreement (the “Subscription
Agreement”), the form of which has been provided to you. Accordingly, this Term Sheet is qualified in its entirety by reference,
and is subject in all instances, to the terms and provisions of the Subscription Agreement. You are advised to carefully review the terms
and provisions of the Subscription Agreement, as well as the risk factors attached thereto, before making a decision concerning the Investment.
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Issuer:
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Akanda Corp., a Province of Ontario, Canada corporation (“Akanda” or the “Company”).
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Business:
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The Company is a cannabis cultivation, manufacturing, and distribution company with proposed operations in the Kingdom of Lesotho and the United Kingdom. For more information about the Company and its current and intended operations, see the Business Summary attached as Exhibit B to the Subscription Agreement and the investor deck attached as Exhibit D to the Subscription Agreement.
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Placement Agent:
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Boustead Securities, LLC (the “Placement Agent”), a California-based investment bank and Broker/Dealer regulated by the U.S. Financial Industry Regulatory Association and a Member of the Securities Investor Protection Corporation and other licensed brokers who may become part of the selling syndicate.
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Securities Being Offered:
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Subject to the terms of this Term Sheet, the Company is offering (the “Offering”) in the aggregate a minimum of USD$5,000,000 or 2,000,000 common shares (the “Minimum Amount”) and up to a maximum of USD$10,000,000 (the “Maximum Amount”) or 4,000,000 common shares (the “Shares”) of the Company, at a purchase price of USD$2.50 per Share (subject to adjustment).
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Minimum Investment:
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USD$50,000. The Company may accept investments for less than the minimum investment amount in its sole discretion.
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Offering Size:
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Minimum Amount: USD$5,000,000 or 2,000,000 Shares
Maximum Amount: USD$10,000,000 or 4,000,000 Shares
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Plan of Offering:
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The Shares are being offered through the Placement Agent and selling
syndicate on a “best efforts, all or none” basis as to the Minimum Amount and, thereafter, the remaining Shares will be offered
on a “best efforts” basis. The Offering will continue until September 30, 2021 (the “Expiration Date”),
subject to extension or termination of the Offering prior to the Expiration Date by the Company and the Placement Agent.
The Placement Agent and selling syndicate will receive a success
fee not to exceed seven percent (7%) of the gross purchase price of the Shares sold at each closing, payable in cash. In addition, the
Placement Agent and selling syndicate will receive a non-accountable expense allowance of one percent (1%) of the gross purchase price
of Shares sold.
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Affiliates of the Placement Agent and the Company (including their
respective officers, directors, employees and affiliates) may purchase Shares in this Offering. Any of such purchases may be used to satisfy
the Minimum Amount.
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Payment and Escrow; Offering Period:
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The purchase price for the Shares is payable in U.S. dollars upon delivery of the completed Subscription Agreement and Investor Questionnaire. All subscription funds will be held in a non-interest-bearing escrow account, for the benefit of the investors, in the Company’s name with the Placement Agent’s affiliate Sutter Securities Clearing, LLC, or with such other escrow agent as may be appointed by the Placement Agent and the Company. In the event that the Company does not receive and accept subscriptions for at least the Minimum Amount on or before September 30, 2021, subject to extension, in the discretion of the Placement Agent and the Company, the Company will refund all subscription funds, without interest thereon, and will return to each investor the subscription documents completed by each such investor. If the Company rejects a subscription, either in whole or in part (which decision is in the sole discretion of the Company), the rejected subscription funds, or the rejected portion thereof, will be returned promptly to such investor without interest thereon. After the closing of the Minimum Amount and until the Company has offered in an aggregate the Maximum Amount of Shares in the offering, subsequent closings may occur at any date mutually agreed by the Company and the Placement Agent but no later than September 30, 2021, subject to extension, in the discretion of the Placement Agent and the Company.
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Eligible Investors:
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The Shares which are offered by this Term Sheet will be sold to an unlimited number of “accredited investors” in the United States and Canada, including qualified institutional buyers as such term is defined in Rule 501(a) of Regulation D as promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Shares may also be offered and sold to purchasers outside the United States or Canada in accordance with the rules of Regulation S promulgated under the Securities Act, applicable Canadian securities laws and/or such other rules and regulations, as may be applicable under the circumstances. Investors will be required to make certain representations with respect to their status and business experience and to represent, among other things, that they have received a copy of this Term Sheet, that they understand the terms and risks of this Offering, and that they are capable of withstanding a loss of their entire investment in the Shares.
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Authorized and Issued Capital of the Company:
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The authorized capital of the Company consists of an unlimited number of common shares and preferred shares, of which no more than 20,137,740 common shares will be outstanding on a “fully diluted” basis immediately prior to the initial closing of this Offering (“Fully-Diluted Shares Outstanding”). Fully-Diluted Shares Outstanding does not include the Company’s right at any time, upon the approval of its Compensation Committee, to award stock options and / or restricted share unit awards underlying the issuance of up to 20% of issued and outstanding shares to employees under the terms of the Company’s Employee Stock Option Plan (“ESOP”). The shares underlying the initial award of stock options and / or restricted share unit awards shall not exceed 10% of the fully-diluted shares outstanding prior to the Company’s planned initial public offering (“IPO”).
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Description of Shares:
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The holders of common shares are entitled to one vote for each such share and shall be entitled to notice of any shareholders’ meeting. The Shares are not redeemable at the option of the holder and not convertible into shares of any other class.
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Lock-Up:
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In connection with this Offering, the Investor agrees to the following
lock-up agreement with respect to the purchased Shares:
i. From
and after the date hereof and until the 180th day after the date the Company’s Common Shares are first listed for trading on a national
securities exchange (such first trading day, the “Lock-Up Trigger Date”), the Investor agrees not to sell, transfer
or otherwise dispose of the Shares.
ii. Between
the 181st and 270th day after the Lock-Up Trigger Date, the Investor agrees not to sell, transfer or otherwise dispose of more than one-third
of the Shares purchased pursuant to the Subscription Agreement, subject to a maximum sale on any trading day of 3% of the daily volume.
iii. Between
the 271st and 365th day after the Lock-Up Trigger Date, the Investor agrees not to sell, transfer or otherwise dispose of more than one-third
of the Shares purchased pursuant to the Subscription Agreement, subject to a maximum sale on any trading day of 3% of the daily volume.
iv. After
the 365th day after the Lock-Up Trigger Date, the Investor will be entitled to sell the remaining Shares purchased hereunder without restriction.
Notwithstanding the above, commencing 90 days after the Lock-Up Trigger
Date, if the Company’s common share price is at least 50% higher than the IPO price per share and trades at least 100,000 shares
daily, both for ten (10) consecutive trading days, the Investor may sell one-third of its shares subject to a maximum sale on any
trading day of 3% of the daily volume; and if the Company’s common share price is at least 100% higher than the IPO price per share
and trades at least 100,000 shares daily, both for ten (10) consecutive trading days, the Investor may sell up to an additional one-third
of its shares subject to a maximum sale on any trading day of 3% of the daily volume; and if the Company common share price is at least
150% higher than the IPO price per share and trades at least 100,000 shares daily, both for ten (10) consecutive trading days, the
Investor may sell an additional one-third constituting a maximum total of all of its shares subject to a maximum sale on any trading day
of 3% of the daily volume. For purpose of this term, the “IPO price” shall mean the price the Company’s common shares
are first sold to the public pursuant to an underwritten registered offering resulting in a listing of its common shares on the NASDAQ
Stock Market or another national stock exchange.
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Use of Proceeds:
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The Company intends to use the net proceeds from the Offering to: expand its existing operations, fund working capital requirements and potential acquisitions, and fund the cost of the IPO.
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Representations and Warranties:
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The Company will make the representations and warranties contained in the Subscription Agreement.
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Covenants:
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The Subscription Agreement contains certain affirmative and negative covenants of the Company which are customary in a transaction of this nature.
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Conditions Precedent:
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The Company will have taken such corporate and shareholder actions as are necessary to approve the definitive agreements and any other transactions contemplated thereby.
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Governing Law:
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Province of Ontario, Canada.
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Private Placement:
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The Shares offered hereby are not being registered under the Securities Act in reliance upon the exemption from registration provided by Section 4(a)(2) thereof and Rule 506(b) of Regulation D promulgated thereunder, and pursuant to certain state securities laws. The Company is also offering the Shares in “offshore transactions” to non-U.S. persons made in compliance with the provisions of Regulation S promulgated under the Securities Act. Accordingly, the sale, transfer or other disposition of any of our securities, which are purchased pursuant hereto, may be restricted by applicable federal securities laws and/or the securities laws of one or more non-U.S. countries (depending on the residency of the Investor) and by the provisions of the Subscription Agreement executed by such Investor. See also “Lock-Up” above.
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Restrictions on Transferability:
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None of the Shares have been registered under the Securities Act. As
such, they constitute “restricted securities” under the Securities Act. Such Shares may not be sold or otherwise transferred
unless they are registered under the Securities Act and applicable foreign or state laws or unless exemptions from registration are available
under such laws. Any certificates evidencing the Shares will bear a legend restricting the distribution, resale, transfer, pledge, hypothecation
or other disposition of such securities unless and until such securities are registered under the Securities Act or an opinion of counsel
acceptable to the Company is received concluding that registration is not required under the Securities Act.
The Company is also not a reporting issuer in any jurisdiction of Canada
and the Shares are not currently listed on any stock exchange. Accordingly, pursuant to Canadian securities laws, the Shares will be subject
to a statutory hold period in Canada expiring on the date which is four months and a day after the later of (i) the issuance date,
and (ii) the date that the Company becomes a reporting issuer in any province or territory of Canada.
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Documentation:
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The Shares being offered hereby involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See the Risk Factors attached as Appendix B to the Subscription Agreement.
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Confidentiality:
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You are requested to keep the Offering
and the terms thereof, including but not limited to the provisions of this Term Sheet, in the strictest of confidence. Neither this Term
Sheet nor any other information regarding the Offering should be disclosed by you other than to your advisors who need to know such information
for purposes of evaluating an investment.
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Contact:
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Boustead Securities, LLC
6 Venture, Suite 395
Irvine, California 92618 USA
offerings@boustead1828.com
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Exhibit B
THIS IS A PRIVATE OFFERING OF SECURITIES OF AKANDA CORP. THAT IS
BEING MADE PURSUANT TO RULE 506(B) OF REGULATION D AND REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND WITHIN THE UNITED
STATES, IS BEING OFFERED ONLY TO ACCREDITED INVESTORS AS DEFINED IN RULE 501 UNDER THE ACT. PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS.
NEITHER THIS BUSINESS SUMMARY NOR THE ACCOMPANYING INVESTOR PRESENTATION
MAY BE SHOWN OR GIVEN TO ANY PERSON OTHER THAN THE PERSON TO WHOM IT WAS DIRECTLY PROVIDED BY THE COMPANY AND MAY NOT BE PRINTED,
REPRODUCED OR DISSEMINATED IN ANY MANNER WHATSOEVER. FAILURE TO COMPLY WITH THIS DIRECTIVE CAN RESULT IN A VIOLATION OF APPLICABLE LAWS, INCLUDING
THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND/OR ANY APPLICABLE FOREIGN LAWS. ANY FURTHER DISTRIBUTION OR REPRODUCTION OF THESE MATERIALS, IN
WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF THE CONTENTS BY AN INVESTOR IS UNAUTHORIZED AND STRICTLY PROHIBITED.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This document contains forward-looking statements. In
addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these
forward-looking statements on our expectations and projections about future events, which we derive from the information currently
available to us. Such forward-looking statements relate to future events or our future performance, including: our financial
performance and projections; our growth in revenue and earnings; and our business prospects and opportunities. You can
identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as
“may,” “should,” “expects,” “anticipates,” “contemplates,”
“estimates,” “believes,” “plans,” “projected,” “predicts,”
“potential,” or “hopes” or the negative of these or similar terms. In evaluating these forward-looking
statements, you should consider various factors, including: regulatory or political change such as changes in applicable laws and
regulations, the ability to obtain and maintain required licenses, the complex and evolving regulatory environment for the cannabis
industry, changes in public perception of the cannabis industry, the Company having a limited operating history and negative cash
flow from operations, operational risks, the impact of the COVID-19 pandemic, the effect of capital market conditions and other
factors on capital availability and general economic, market and business conditions. These and other factors may cause our
actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions.
The forward-looking events discussed in this document and other statements made from time to time by us or our representatives, may
not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us,
including but not limited to assumptions that legal, licensing and regulatory regimes globally in the industry in which the Company
operates will become increasingly favorable, that after the Acquisition the Company will experience financial growth and
profitability, and that intended expansion of its business and operations and negotiations with strategic third parties to access
additional markets will be successful. We are not obligated to publicly update or revise any forward-looking statement, whether as a
result of uncertainties and assumptions, the forward-looking events discussed in this document and other statements made from time
to time by us or our representatives might not occur.
BUSINESS SUMMARY
Unless
otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,”
“our Company,” or “Akanda” refer to Akanda Corp., a Province of Ontario, Canada corporation.
The Company
We
are a cannabis cultivation, manufacturing and distribution company. We are an early stage, emerging growth company incorporated in
the Province of Ontario, Canada and headquartered in London, the United Kingdom.
The Proposed Acquisition
During
July 2021, Halo Collective Inc. (“Halo”), a publicly-traded, vertically integrated multinational cannabis company
(NEO: HALO) (OTCQX: HCANF) (Germany: A9KN), resolved to reorganize its non-U.S. operations to consolidate them under Akanda whose
mission is to provide high-quality and ethically sourced medical cannabis products to patients worldwide. In connection with this contemplated
reorganization, Akanda intends to acquire all the issued and outstanding equity interests of Cannahealth Limited, a Republic of Malta
company (“Cannahealth”), from Halo (the “Acquisition”). Immediately prior to the closing of the
Acquisition, Cannahealth will own all the issued and outstanding equity interests of Canmart Limited, an England and Wales company (“Canmart”)
and Bophelo Holdings Limited., an England and Wales company, which will own all the issued and outstanding equity interests of Bophelo
Bio Science and Wellness (Pty) Ltd., a Kingdom of Lesotho company (“Bophelo”). As a result of this Acquisition, we
will operate and control all of Canmart and Bophelo’s respective businesses and affairs. As consideration for this Acquisition,
we will issue Common Shares to Halo, which is expected to own approximately 62.06% of all our outstanding Common Shares at the closing
of this Acquisition. The Acquisition is expected to close immediately prior to the closing of the Offering.
The following diagram summarizes our legal entity structure at the
closing of the proposed Acquisition above and prior to the closing of the Offering.
Our Business
We
have not commenced commercial operations and currently have no assets other than cash. Upon the completion of the Acquisition,
we will operate and control all of Canmart and Bophelo’s respective businesses and affairs, and continue to expand their local operations
and develop sales channels of our medicinal-grade cannabis products and cannabis based medical and wellness products in international
markets and in particular, in Africa and Europe.
Bophelo
Bophelo’s business focuses on the cultivation of cannabis, the
production of medical cannabis products including dried flower, oils, and other concentrates and the supply of such medical cannabis products
to wholesalers in international markets. Its operations are based in the Kingdom of Lesotho in the Mafeteng Region of Southern Africa.
Bophelo is the holder of one of a limited number of operational licenses issued in Lesotho for the production and export of medicinal
cannabis products. On July 27, 2018, the Ministry of Health in Lesotho issued a prohibited drug operator license to Bophelo. This
license allows the following activities in respect of cannabis and cannabis resin: cultivate, manufacture, supply, hold, import, export
and transit. This license will remain effective for 8 years, with an option for further renewal.
Bophelo commenced operations including establishing sites and first
phase construction and starting site preparation activities in 2018. As of August 2021, Bophelo has completed a few harvests and
obtained its Good Agricultural and Collection Practices (“GACP”) certification. Furthermore, manufacturing plans are
on track to build out an on-site extraction facility at Bophelo of approximately 80 square meters (800 square feet). This extraction room
and the accompanying lab will be built to EU GMP specifications, which is expected to allow for export of oils and concentrates worldwide
where allowed.
In January 2020, Bophelo entered into a strategic alliance and
seed purchase agreement with OG DNA Genetics Inc. (“DNA Genetics”), which provides Bophelo with exclusive rights to
develop new and existing DNA Genetics’ strains of medical cannabis in Lesotho for worldwide exportation. The initial period of the
strategic alliance is five years, with successive five-year renewal options in place. In addition, Bophelo and DNA Genetics entered into
an exclusive seed purchase agreement. This seed purchase agreement will enable Bophelo to commence imports to Lesotho of cannabis seeds
for cultivation from DNA Genetics.
On August 7, 2020, Bophelo entered into a C$30,000,000 offtake
agreement with Medcan Ltd. for the sale of bulk cannabis biomass, primarily into the European market. The contract specifies initial deliveries
of up to 10,000 kilograms. The term of the agreement is for a period commencing on August 3, 2020, and ended on the earlier of: (i) the
date on which Medcan has purchased the full specified volume biomass from Bophelo; or (ii) the seventh anniversary of the effective
date.
Canmart
Canmart is a licensed importer and distributor of cannabis-based products
for medicinal use (“CBPMs”) in the United Kingdom. Canmart holds one of a limited number of Controlled Drug Licenses issued
by the Home Office to possess and supply CBPMs in the United Kingdom. This license is due to expire on February 3, 2022 and needs
to be reapplied for on a yearly basis. Canmart is required to apply for an import license issued by the Home Office for every specific
shipment of CBPMs and Canmart has successfully been granted such import licenses. Canmart holds both a Manufacturer’s Specials License
for importation of CBPMs and a Wholesale Distribution Authorization from the Medicines and Healthcare Products Regulatory Agency. In addition,
Canmart operates a licensed 25,000 square foot third-party logistics warehouse in the southeast of England.
Canmart commenced importing and distributing CBPMs in 2020. Under the
current controlled drugs regulatory regime, Canmart is only able to supply to dispensing pharmacists, clinics and other wholesale distributors.
However, Canmart’s intention is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies.
Canmart’s strategy is to grow the medical cannabis market by identifying patients with specific conditions and needs and providing
easy to access education and consultations to patients about medical benefits of CBPMs based on observational clinical studies from international
studies. We believe this direct sales model will enable Canmart to expand its market share effectively and efficiently.
Our Opportunity, Competitive Strengths and Growth Strategies
We are targeting what we believe to be the lucrative international
medical cannabis market, which is estimated to be worth approximately $47 billion by 2027, according to Emergen Research. There has been
a growing demand for medical cannabis around the world as a result of the increased legalization of cannabis for medical purposes as well
as the rise in cannabis-related medical research activities.
We believe that upon the completion of the Acquisition, the following
competitive strengths will contribute to our success and differentiate us from our competitors:
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Lesotho Cultivation Advantage. Through Bophelo’s cultivation operations, we have the ability to cultivate high
yielding strains of cannabis for medical purposes at a comparatively low cost. Conditions at Bophelo’s site of operations near T’sakholo
in the Mafeteng District of Lesotho are conductive for the cultivation of medical-grade cannabis including favorable environmental conditions,
abundant supply of semi-skilled and unskilled labor, world-class road and air infrastructure network and favorable tax treatments.
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Significant Potential to Scale Up Production. Bophelo is one of the largest licensed landholders engaging in cannabis
cultivation in Lesotho. Bophelo is cultivating cannabis over a 5 hectare area under greenhouse or indoor conditions, with conditional
government approval to expand our cultivation footprint up to 200 hectares once it has fully utilized the first 5 hectares of our licensed
cultivation area, which gives us the potential ability to significantly scale up production. Bophelo has leased a 200-hectare land package
in an emerging Special Economic Zone in Lesotho which is intended to be dedicated to the cannabis cultivation and related operations.
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Possession of Licenses. Canmart possesses a collection of regulatory licenses, of which only a limited number have been
issued, for the import and distribution of medical cannabis to patients in the United Kingdom. Bophelo is the holder of one of a limited
number of operational licenses issued in Lesotho for the import, cultivation, production and export of medicinal cannabis products.
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Pursuit for ESG Goals and Strong Partnership with Local Communities. We focus on environmental, social and governance
(“ESG”) initiatives and aim to empower women and vulnerable persons. To this end, Bophelo has partnered and we will
continue to partner with Mophuthi Matsoso Development Trust, a Lesotho non-profit organization, to provide for the construction of a learning
center, a place of worship, feeding programs and other public good initiatives for the local community of T’sakholo. We believe
a commitment to ESG initiatives and building a strong partnership with the local African community will promote goodwill towards our local
operations and brands and benefit our long-term business growth.
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Experienced Management Team. Our management is experienced and has an extensive knowledge of the international cannabis
industry as well as local conditions in Lesotho and the United Kingdom.
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Our goal after the Acquisition is completed
is to become a market leader in the cultivation, processing and supply of ethically sourced, medicinal-grade cannabis products and cannabis
based medical and wellness products for international markets. Our primary strategies to achieve our goals include:
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Expanding our production capacity. In the near term, our primary strategy is to expand our production capacity
as quickly as possible at Bophelo. We plan to take advantage of the favorable cultivation conditions in Lesotho to achieve economies of
scale in our production of premium quality cannabis products.
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Expanding our geographic footprint. Our current focus is on selling third-party CBPMs in the United Kingdom in
the short term, with plan to expand sales of such products in the United Kingdom and sales of cannabis products produced by Bophelo to
international markets, subject to regulatory conditions in such countries.
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Pursuing accretive acquisitions. We believe that our deal-making capabilities and experience will allow us to successfully
identify, consummate and integrate acquisitions.
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Ethical sourcing. We are committed to ESG performance in our operations, with a particular focus on empowering women
and vulnerable persons in local communities. We believe our ESG commitments and practices will enable us to build strong partnerships
with the communities in which we operate, enhance the reputation of our brands and benefit our long-term growth.
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Our Management Team
Louisa
Mojela serves as Executive Chairman and director of Akanda and is one of Southern Africa’s most influential
and successful business leaders. Ms. Mojela is the Group CEO of Wiphold (Women Investment Portfolio Holdings), one of the largest
African-based ESG funds to empower black African women, which she co-founded in 1994. She has led capital raises and held directorships
at companies such as Sasol Mining (a subsidiary of Sasol Holdings listed on the New York Exchange), Distell, Ixia Coal, South African
Airways, Ericsson SA, Adcorp, and Sun International (SJ: SUI), amongst others. In addition to her business dealings, Ms. Mojela is
focused on various social development initiatives in Lesotho in line with the Sustainable Development Goals of the Government
of Lesotho. She has received numerous accolades for her leadership. Among these, in 2000 she was selected as one of 40 women for
the “Leading Women Entrepreneur of the World”; in 2015 she was named one of three “Business Women of the Year – Southern
Africa” at the All Africa Business Leaders Awards in partnership with CNBC Africa; and in 2016, she won the European Business Assembly’s
“Best Manager of the Year” award at an event held in Switzerland.
Tej
Virk, an accomplished cannabis and corporate finance and banking industry executive, serves as Akanda’s founding Chief
Executive Officer and director. He joins Akanda from Khiron Life Sciences (TSX-V: KHRN) (OTC: KHRNF) (“Khiron”), where
he was President and Managing Director, Europe, establishing Khiron’s medical and consumer packaged goods business in the region.
Prior to Khiron, Mr. Virk was Managing Director, Europe, for Canopy Growth Corporation (NASDAQ: CGC) (TSE: WEED) (“Canopy”),
where he was responsible for driving the multinational expansion of Canopy's European operations. Working with top research doctors in
the UK, Spain, and Germany, he has overseen the launch of multiple medical cannabis products in Europe, including flower
for inhalation and oils. Mr. Virk has extensive cannabis sector M&A experience and has transacted on numerous IPOs and follow-on
capital raises for global cannabis companies, including Canopy and Tilray (NASDAQ: TLRY). At the beginning of his career, Virk spent 15
years in investment banking and capital markets at BMO Financial Group (NYSE: BMO).
Charles
Kie will serve as the Lead Independent Director of Akanda. As the Co-Founder and CEO of New African Capital Partners and
former Managing Director and CEO of Ecobank Nigeria, Mr. Kie brings a wealth of financial and operational expertise to the Akanda.
Mr. Kie also currently serves as a non-executive board member at Empower Families for Innovative Philanthropy (ERFIP) – Edmond
de Rothschild Foundations – Switzerland.
Philip
van den Berg serves as director of Akanda and brings an extensive 30-year career in finance, principally in the equities
divisions at Goldman Sachs and Deutsche Morgan Grenfell in London, as well as on the buy-side as co-founder of both Olympus Capital
Management, one of the first European hedge funds and Taler Asset Management, a wealth management company based in Gibraltar. Since
2014, Mr. van den Berg has been an active investor in various start-up companies in Europe and the U.S. where he has held
positions as director and CFO of several public companies. Mr. van den Berg is currently a director and Chief Financial Officer of
Halo. He has implemented corporate governance and administrative systems, has been involved in a number of capital market transactions,
oversaw a public listing, and has been involved in mergers and acquisitions.
Trevor
Scott serves as Akanda’s Chief Financial Officer and Corporate Secretary. Trevor has, since 2009, held several positions
as director and CFO of a number of public, stock exchange listed companies and has significant experience in the international cannabis
industry. Trevor was involved in the formation of Bophelo in 2018 and has served as its CFO since its inception. Trevor is a chartered
accountant by profession, and has experience with regards to fundraising, accounting, investor relations, internal controls and mergers
and acquisition related matters.
Corporate Structure
Akanda was incorporated on July 16, 2021 in the Province of Ontario,
Canada under the Business Corporations Act (Ontario) and is headquartered in London, the United Kingdom.
Exhibit C
RISK FACTORS
An investment in the Shares involves a
high degree of risk. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our business, financial condition and operating results. If
any of the following risks, or any other risks not described below, actually occur, it is likely that business, financial condition and
operating results could be seriously harmed. As a result you could lose part or all of your investment.
Risks Related to our Business and Industry
We are an early-stage company with limited operating history
and may never become profitable.
The
Company was only recently incorporated, has not commenced commercial operations and has no assets other than cash. Each of Bophelo
and Canmart has a very limited operating history and has generated minimal revenue. Upon the completion of the Acquisition, we will remain
an early-stage company and will have limited financial resources and minimal operating cash flow. If we cannot successfully develop, manufacture
and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control
problems or other disruptions, we may not be able to develop or offer market-ready commercial products at acceptable costs, which would
adversely affect our ability to effectively enter the market or expand our market share. A failure by us to achieve a low-cost structure
through economies of scale or improvements in cultivation, manufacturing or distribution processes would have a material adverse effect
on our commercialization plans and our business, prospects, results of operations and financial condition.
We will require adequate proceeds generated
from this Offering and additional funding to maintain and expand our operations and develop our sales and distribution channels. There
can be no assurance that additional funding will be available to us for the development of our business, which will require the commitment
of substantial resources. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties
frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties
that an early stage company with a very limited operating history will face. In particular, potential investors should consider that we
may be unable to:
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successfully implement or execute our business plan, or that our business plan is sound;
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effectively pursue business opportunities, including potential acquisitions;
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adjust to changing conditions or keep pace with increased demand;
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attract and retain an experienced management team; or
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raise sufficient funds in the capital markets to effectuate our business plan, including expanding production capacity, licensing
and approvals.
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Our financial situation creates doubt as to whether we will continue
as a going concern.
Each of Akanda, Bophelo and Canmart has generated no revenue or, only
minimal revenue, since inception, and after the completion of the Acquisition, we expect to incur a net loss for the fiscal year ending
December 31, 2021 and thereafter, primarily as a result of increased operating expenses to execute our business plan and growth strategy.
There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations
or obtain funding from this Offering or additional financing through private placements, public offerings and/or bank financing necessary
to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank
financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will
be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as
a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors
to lose their entire investment.
The closing of the Acquisition will
be subject to the satisfaction or waiver of certain closing conditions, and there is a risk that the closing will not occur timely if
those conditions are not satisfied or waived.
We plan to enter into a share purchase agreement
(the “Purchase Agreement”) with Halo to acquire all the issued and outstanding equity interests in Cannahealth. Pursuant
to the Purchase Agreement, as consideration for the Acquisition, we will issue 13,129,212 Common Shares at the closing, which is expected
to occur immediately prior to the closing of this Offering. The closing of the Acquisition will be subject to the satisfaction or waiver
of certain closing conditions, including: (i) the accuracy of the representations and warranties of the parties set forth in the
Purchase Agreement as of the closing; (ii) the performance by the parties of all covenants and obligations set forth in the agreement
which are required to be performed or complied with at or prior to the closing; (iii) the receipt of all necessary third party consents,
waivers and releases required to be obtained in connection with the Acquisition; and (iv) Halo’s completion of certain reorganization
transactions to consolidate Bophelo and Canmart’s equity ownership interests under Cannahealth as shown in the diagram on Exhibit B
“Business Summary”. Accordingly, if either we or Halo is unable to meet all closing conditions, as required by the Purchase
Agreement, we may not be able to close the Acquisition and acquire Bophelo and Canmart.
The Company cannot be certain when or if the
conditions for the Acquisition will be satisfied or, if permissible under applicable law, waived, or if or when the Acquisition will be
completed. Any failure to complete the Acquisition could negatively impact the Company’s ongoing business, financial condition and
results of operations.
Future acquisitions and strategic investments could be difficult
to integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value, and harm our results of
operations and financial condition.
We expect to complete the Acquisition by acquiring Bophelo and Canmart
from Halo prior to the closing of the Offering and we may in the future seek to acquire or invest in, businesses, products, or technologies
that we believe could complement our operations or expand our breadth, enhance our capabilities, or otherwise offer growth opportunities. While
our growth strategy includes broadening our product offerings, implementing an aggressive marketing plan and employing product diversification,
there can be no assurance that our systems, procedures and controls will be adequate to support our operations as they expand. We
cannot assure you that our personnel, systems, procedures or controls will be adequate to support our operations in the future or that
we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of our planned growth and
diversified product offerings, we may have to implement new operational and financial systems, procedures and controls to expand, train
and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that
if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. Additionally, the integration
of our acquisitions and pursuit of potential future acquisitions may divert the attention of management and cause us to incur various
expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. Any acquisition, investment
or business relationship may result in unforeseen operating difficulties and expenditures. In addition, we have limited experience in
acquiring other businesses. Specifically, we may not successfully evaluate or utilize the acquired products, assets or personnel, or accurately
forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition,
investment, or business relationship may not be realized, or we may be exposed to unknown risks or liabilities associated with our acquisitions.
We may not be able to find and identify desirable acquisition targets
or we may not be successful in entering into an agreement with any one target. Acquisitions could also result in dilutive issuances of
equity securities or the incurrence of debt, which could harm our results of operations. In addition, if an acquired business fails to
meet our expectations, our business, results of operations, and financial condition may suffer. In some cases, minority shareholders
may exist in certain of our non-wholly-owned acquisitions (for businesses we do not purchase as an 100% owned subsidiary) and may
retain minority shareholder rights which could make a future change of control or necessary corporate approvals for actions more difficult
to achieve and/or more costly.
We may also make strategic investments in early-stage companies developing
products or technologies that we believe could complement our business or expand our breadth, enhance our technical capabilities, or otherwise
offer growth opportunities. These investments may be in early-stage private companies for restricted stock. Such investments are generally
illiquid and may never generate value. Further, the companies in which we invest may not succeed, and our investments could lose their
value.
Demand for cannabis and its derivative products could be adversely
affected and significantly influenced by scientific research or findings, regulatory proceedings, litigation, or media attention.
The legal cannabis industry in the United Kingdom, the Kingdom of Lesotho
and in many other potential international markets for us is at an early stage of its development. Consumer perceptions regarding legality,
morality, consumption, safety, efficacy and quality of medicinal cannabis are mixed and evolving and can be significantly influenced by
scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption
of medicinal cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation,
media attention or other research findings or publicity will be favorable to the medicinal cannabis market or any particular product,
or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other
publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity, could have a material
adverse effect on the demand for medicinal cannabis and on our business, results of operations, financial condition and cash flows. Public
opinion and support for medicinal cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. Our ability
to gain and increase market acceptance of our business may require substantial expenditures on investor relations, strategic relationships
and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure to materialize into significant
demand may have an adverse effect on our financial condition.
Our success will depend, in part, on our ability to continue
to enhance our product offerings to respond to technological and regulatory changes and emerging industry standards and practices.
Rapidly changing markets, technology, emerging industry and regulatory
standards and frequent introduction of new products characterize our business. The process of cultivating and processing our cannabis
products to meet applicable standards and successfully marketing such products and obtaining necessary licenses requires significant continuing
costs, marketing efforts, third-party commitments and regulatory approvals. We may not be successful in timely expanding our production
capacity, or obtaining any required regulatory approvals or licenses, which, together with any capital expenditures made in our operations,
may have a material adverse effect on our business, financial condition and operating results.
We are subject to the inherent risk of exposure to product liability
claims.
As a cultivator and distributor of products designed to be ingested
by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged
to have caused bodily harm or injury. In addition, the sale of our products involves the risk of injury to consumers due to tampering
by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our products alone or in
combination with other medications or substances could occur. We may be subject to various product liability claims, including, among
others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning
health risks, possible side effects or interactions with other substances. Product liability claims or regulatory actions against us could
result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse
effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product
liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not
be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or
to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products.
We are subject to the inherent risks involved with product recalls.
Manufacturers and distributors of products are sometimes subject to
the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful
side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of our
products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of
the recall and any legal proceedings that might arise in connection therewith. There can be no assurance that any quality, potency or
contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if our
products are subject to recall, our reputation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand
for our products and could have a material adverse effect on our results of operations and financial condition. Additionally, product
recalls may lead to increased scrutiny of our operations by regulatory agencies, requiring further management attention, potential loss
of applicable licenses, and increased legal fees and other expenses.
Research regarding the medical benefits, viability, safety, efficacy,
use and social acceptance of cannabis or isolated cannabinoids (such as cannabidiol and tetrahydrocannabinol) remains in early stages.
There have been relatively few clinical trials on the benefits of cannabis
or isolated cannabinoids (such as cannabidiol and tetrahydrocannabinol. Although we believe that the articles, reports and studies support
our beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and
clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given
these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and reports. Future research studies
and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions related to medical cannabis, which
could have a material adverse effect on the demand for our products and could result in a material adverse effect on our business, financial
condition and results of operations or prospects.
We may not be able to maintain effective quality control systems.
We may not be able to maintain an effective quality control system.
The effectiveness of our quality control system and our ability to obtain or maintain EU GMP and GACP certifications with respect to our
manufacturing, processing and testing facilities depend on a number of factors, including the design of our quality control procedures,
training programs, and the ability to ensure that our employees adhere to our policies and procedures. We also may depend on third party
service providers to manufacture, process or test our products, that are subject to EU GMP and GACP requirements.
We expect that regulatory agencies will periodically inspect our and
our service providers’ facilities to evaluate compliance with applicable EU GMP and GACP requirements. Failure to comply with these
requirements may subject us or our service providers to possible regulatory enforcement actions. Any failure or deterioration of our or
our service providers’ quality control systems, including loss of EU GMP and GACP certifications, may have a material adverse effect
on our business, results of operations and financial condition.
The cannabis and cannabinoid industries face strong opposition.
Many political and social organizations oppose hemp and cannabis and
their legalization, and many people, even those who support legalization, oppose the sale of hemp, cannabis and their derivatives in their
geographies. Our business will need support from local governments, industry participants, consumers and residents to be successful. Additionally,
there are large, well-funded businesses and industry groups that may have a strong opposition to the cannabis industry. For example, the
pharmaceutical and alcohol industries have traditionally opposed cannabis legalization. Any efforts by these or other industries opposed
to cannabis to halt or impede the cannabis industry could have detrimental effects on our business.
We are subject to the risks inherent in an agricultural business.
Upon the completion of the Acquisition, our business will involve the
growing of cannabis, which is an agricultural product. The occurrence of severe adverse weather conditions, especially droughts, fires,
storms or floods is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely
affect the supply of cannabis. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction
and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce our yields or require us to
increase our level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an
increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts could reduce the yield and quality
of our cannabis production, which could materially and adversely affect our business, financial condition and results of operations.
The occurrence and effects of plant disease, insects and pests can
be unpredictable and devastating to agricultural production, potentially rendering all or a substantial portion of the affected harvests
unsuitable for sale. Even when only a portion of the production is damaged, our results of operations could be adversely affected because
all or a substantial portion of the production costs may have been incurred. Although some plant diseases are treatable, the cost of treatment
can be high and such events could adversely affect our operating results and financial condition. Furthermore, if we fail to control a
given plant disease and the production is threatened, we may be unable to adequately supply our customers, which could adversely affect
our business, financial condition and results of operations. There can be no assurance that natural elements will not have a material
adverse effect on production.
Our business will be reliant upon third party suppliers, service
providers and distributors.
As our business grows, we will need a supply chain for certain material
portions of the production and distribution process of our products. Our suppliers, service providers and distributors may elect, at any
time, to breach or otherwise cease to participate in supply, service or distribution agreements, or other relationships, on which our
operations rely. Loss of our suppliers, service providers or distributors would have a material adverse effect on our business and operational
results.
Bophelo currently depends on OG DNA Genetics Inc. for the supply of
quality cannabis seeds. Upon the completion of the Acquisition, if for any reason the supply of cannabis seeds is ceased or delayed, we
would have to seek alternate suppliers and obtain all necessary authorization for the new seeds. If replacement seeds cannot be obtained
at comparable prices, or at all, or if the necessary authorizations are not obtained, our business, financial condition and results of
operations would be materially and adversely affected. Our operations could be materially and adversely affected if the supply of cannabis
seeds is ceased or delayed and we do not find replacement suppliers and obtain all necessary authorizations.
Part of our strategy is to enter into and maintain arrangements
with third parties related to the development, testing, marketing, manufacturing, distribution and commercialization of our products.
Our revenues are dependent on the successful efforts of these third parties, including the efforts of our distribution partners. Entering
into strategic relationships can be a complex process and the interests of our distribution partners may not be or remain aligned with
our interests. Some of our current and future distribution partners may decide to compete with us, refuse or be unable to fulfill or honor
their contractual obligations to us, or change their plans to reduce their commitment to, or even abandon, their relationships with us.
There can be no assurance that our distribution partners will market our products successfully or that any such third-party collaboration
will be on favorable terms.
Our profit margins and the timely delivery of our products are dependent
upon the ability of our outside suppliers and manufacturers to supply us with products in a timely and cost-efficient manner. Our ability
to develop our business and enter new markets and sustain satisfactory levels of sales in each market depends upon the ability of its
outside suppliers and manufacturers to produce the ingredients and products and to comply with all applicable regulations. The failure
of our primary suppliers or manufacturers to supply ingredients or produce its products could adversely affect our business operations.
There is no assurance that our sales and promotional activities
will be successful.
Our future growth and profitability will depend on the effectiveness
and efficiency of sales and promotional expenditures, including our ability to (i) create greater awareness of our products, (ii) determine
the appropriate creative message and media mix for future marketing expenditures and (iii) effectively manage sales and promotional
costs in order to maintain acceptable operating margins. Upon completion of the Acquisition, we plan to continue to develop the direct
sale model of Canmart, which may require us to establish our own clinics and pharmacies. There can be no assurance that our sales and
promotional expenditures will result in revenues in the future or will generate awareness of our products and services. In addition, no
assurance can be given that we will be able to manage our sales and promotional expenditures on a cost-effective basis.
We believe that maintaining and promoting our brand is critical to
expanding our customer base. Maintaining and promoting our brand will depend largely on our ability to continue to provide quality, reliable
and innovative products, which we may not do successfully. We may introduce new products or services that our customers do not like, which
may negatively affect our brand and reputation. Maintaining and enhancing our brand may require us to make substantial investments, and
these investments may not achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive
expenses in this effort, our business and financial results from operations could be materially adversely affected.
We may be unable to sustain its pricing model.
Significant price fluctuations or shortages in the cost of materials
may increase our cost of goods sold and cause its results of operations and financial condition to suffer. If we are unable to secure
materials at a reasonable price, we may have to alter or discontinue selling some of our products or attempt to pass along the cost to
its customers, any of which could adversely affect our results of operations and financial condition.
Additionally, increasing costs of labor, freight and energy could increase
our and our suppliers’ cost of goods. If our suppliers are affected by increases in their costs of labor, freight and energy, they
may attempt to pass these cost increases on to us. If we pay such increases, we may not be able to offset them through increases in its
pricing, which could adversely affect our results of operations and financial condition.
We may be unable to effectively manage future growth.
We may be subject to growth-related risks, including capacity constraints
and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and
improve our operational and financial systems and to expand, train and manage our employee base. Rapid growth of our business may significantly
strain our management, operations and technical resources. If we are successful in obtaining large orders for its products, we will be
required to deliver large volumes of products to our customers on a timely basis and at a reasonable cost. We may not obtain large-scale
orders for our products and if we do, we may not be able to satisfy large-scale production requirements on a timely and cost-effective
basis. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations
and prospects.
We are subject to significant competition by new and existing
competitors in the cannabis industry.
The industry in which we operate is subject to intense and increasing
competition. Many of our competitors have greater resources that may enable them to compete more effectively than us in the cannabis industry,
or they have a longer operating history and greater capital resources and facilities, which may enable them to compete more effectively
in this market. We expect to face additional competition from existing licensees and new market entrants who are granted licenses in the
jurisdictions in which we expect to operate, including the United Kingdom and the Kingdom of Lesotho, and other jurisdictions in which
we intend to expand our operations. If a significant number of new licenses are granted in the near term, we may experience increased
competition for market share and may experience downward pricing pressure on our products as new entrants increase production. Such competition
may cause us to encounter difficulties in generating revenues and market share, and in positioning our products in the market. If we are
unable to successfully compete with existing companies and new entrants to the market, our lack of competitive advantage will have a negative
effect on our business and financial condition.
The legalization of adult-use, recreational cannabis may reduce
sales of medical cannabis.
Legalization of the sale to adults of recreational, non-medical cannabis
in any country may increase competition in the medical cannabis market. We currently do not plan to sell recreational, non-medical cannabis
products. We may not be able to achieve our business plan in a highly competitive market where recreational, adult-use cannabis is legal,
or the market may experience a drop in the price of cannabis and cannabis products over time, decreasing our profit margins.
We are dependent upon our management and key employees, and the
loss of any member of our management team or any key employee could have a material adverse effect on our operations.
Our success is dependent upon the ability, expertise, judgment, discretion
and good faith of our senior management and key employees, including, without limitation, Louisa Mojela, our Executive Chairman, and Tejinder
Virk, our Chief Executive Officer. The loss of any member of our management team or any of our key employees could have a material adverse
effect on our business and results of operations. While employment agreements and incentive programs are customarily used as primary methods
of retaining the services of key employees, these agreements and incentive programs cannot assure the continued services of such employees.
Any loss of the services of such individuals, or an inability to attract other suitably qualified persons when needed, could have a material
adverse effect on our business, operating results or financial condition. We do not currently maintain key-person insurance on the lives
of any of our key employees or members of management. Competition for qualified technical, sales and marketing staff, as well as officers
and directors can be intense, and no assurance can be provided that we will be able to attract or retain such qualified individuals in
the future, which may adversely affect our operations.
Our directors and officers may have
conflicts of interest in conducting their duties.
We may be subject to various potential conflicts
of interest because of the fact that some of our officers and directors may be engaged in a range of business activities. In addition,
our executive officers and directors may devote time to their outside business interests, so long as such activities do not materially
or adversely interfere with their duties to us. In some cases, our executive officers and directors may have fiduciary obligations associated
with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect
our operations. These business interests could require significant time and attention of our executive officers and directors.
The recent Coronavirus (“COVID-19”) outbreak
and similar disease outbreaks or public health emergencies could adversely affect our future operations.
Our operations could be significantly and adversely affected by the
effects of a widespread global outbreak of a contagious disease and other unforeseen events, including the recent outbreak of a respiratory
illness caused by COVID-19 and the related economic repercussions. We cannot accurately predict the effects COVID-19 will have on our
operations and the ability of others to meet their obligations with us, including uncertainties relating to the ultimate geographic spread
of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed
by governments of affected countries. In light of the recent COVID-19 pandemic, upon the completion of the Acquisition, there could be
a negative impact on sourcing medical cannabis products for our distribution in the United Kingdom or, the continued buildout and optimization
of our cultivation and manufacturing facilities in Lesotho in accordance with the requirement of EU GMP. Additionally, COVID-19 has caused
significant disruptions to the global financial markets, which could impact our ability to raise additional capital. The ultimate impact
on us and our significant suppliers and prospective customers is unknown, but our operations and financial condition could suffer in the
event of any of these types of unpredictable events. Further, any significant uninsured liability may require us to pay substantial amounts,
which would adversely affect our business, results of operations, financial condition and cash flows.
At Bophelo and Canmart’s offices and operations facilities in
the United Kingdom and the Kingdom of Lesotho, all employees wear masks and practice social distancing. There are strict protocols on
screening of employees and visitors; which include temperature checks and the requirement to complete detailed questionnaires concerning,
among other things, possible exposure to COVID-19. Hand sanitizer is provided and hand washing protocols are in place. Signage has been
put in place at our operations reminding visitors and staff of COVID-19 protocols. Both the UK and Lesotho governments have commenced
the roll-out of COVID-19 vaccines to the population of each of those countries. The UK population has reached a significant level of vaccination,
while Lesotho’s rate of vaccination is still in its early stages. Bophelo and Canmart have encouraged all of their employees to
be vaccinated. Despite these measures taken, there is no guarantee that the continued development of COVID-19 will not affect their operations
negatively.
We could be subject to a security breach that could result in
significant damage or theft of products and equipment.
Breaches of security at our facilities may occur and could result in
damage to or theft of products and equipment. A security breach at our facilities could result in a significant loss of inventory or work
in process, expose us to liability under applicable regulations and increase expenses relating to the investigation of the breach and
implementation of additional preventative security measures, any of which could have an adverse effect on our business, financial condition
and results of operations.
We may incur significant costs to defend our intellectual property
and other proprietary rights.
The ownership and protection of trademarks, patents, trade secrets
and intellectual property rights are significant aspects of our future success. Unauthorized parties may attempt to replicate or otherwise
obtain and use our products and technology. Policing the unauthorized use of our current or future trademarks, patents, trade secrets
or intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against
unauthorized use by others.
In addition, other parties may claim that our products infringe on
their proprietary rights such as trade secrets. Such claims, regardless of their merit, may result in the expenditure of significant financial
and managerial resources, legal fees, injunctions, temporary restraining orders and/or require the payment of damages. Additionally, we
may need to obtain licenses from third parties who allege that we have infringed on their lawful rights. Such licenses may not be available
on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all,
licenses or other rights with respect to intellectual property that we do not own.
Risks Related to Our Expected International Operations and Operations
in Emerging Markets
As a company based outside of the United States, we are subject
to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated
with conducting business outside of the United States. Upon the completion of the Acquisition, our operations will be based primarily
in the United Kingdom and the Kingdom of Lesotho. Our principal office and Canmart’s operations are located in the United Kingdom,
and Bophelo’s cultivation operations are located in Lesotho. Accordingly, our future results could be harmed by a variety of factors,
including, without limitation, the following:
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economic weakness, including inflation, or political instability in non-U.S. economies and markets;
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differing and changing regulatory requirements for product licenses and approvals;
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differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;
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difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and
compliance with a wide variety of foreign laws, treaties and regulations;
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changes in applicable non-U.S. regulations and customs, tariffs and trade barriers;
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changes in applicable non-U.S. currency exchange rates and currency controls;
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changes in a specific country’s or region’s political or economic environment, including the implications of the recent
decision of the United Kingdom to withdraw from the European Union;
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trade protection measures, import or export licensing requirements or other restrictive actions by governments;
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differing reimbursement regimes and price controls in certain non-U.S. markets;
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negative consequences from changes in tax laws;
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compliance with applicable tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example,
the variable tax treatment in different jurisdictions of options granted under our share option schemes or equity incentive plans;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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difficulties associated with staffing and managing international operations, including differing labor relations;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes,
typhoons, floods and fires.
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Our business could suffer as a result of the United Kingdom’s
withdrawal from the European Union.
While we are incorporated in the Province of Ontario in Canada, our
principal office, a number of our executive officers and key employees, and Canmart’s operations and assets are primarily located
in the United Kingdom. The United Kingdom formally exited the European Union, commonly referred to as Brexit, on January 31, 2020.
Under the terms of its departure, the United Kingdom entered into a transition period during which it continued to follow all European
Union rules, and the trading relationship remained the same, until December 31, 2020. On December 24, 2020, the European Union
and the United Kingdom entered into a new trade agreement to govern their relationship following Brexit. However, substantial uncertainty
remains concerning which EU laws and regulations will continue to be implemented in the United Kingdom after Brexit (including financial
laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws, supply chain logistics, environmental,
health and safety laws and regulations, immigration laws and employment laws).
The uncertainty concerning the United Kingdom’s legal, political
and economic relationship with the European Union after Brexit may negatively impact direct foreign investment in the United Kingdom,
increase costs, depress economic activity and restrict access to capital. It may also be a source of instability in the international
markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border cooperation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise) beyond the date of Brexit. We may also face new regulatory
costs and challenges that could have an adverse effect on our operations.
The United Kingdom’s withdrawal
from the European Union could lead to increased market volatility, which could make it more difficult for us to do business in Europe
or have other adverse effects on our business.
As a result of the United Kingdom’s
withdrawal from the European Union, the United Kingdom now has third country status outside of the European Union. Before the end of 2020,
the United Kingdom and the European concluded a Trade and Cooperation Agreement (“TCA”) which took
effect January 1, 2021. The terms of the TCA allow for tariff-free and quota-free access to the EU market for the United
Kingdom so long as the United Kingdom does not diverge from EU laws. To the extent the United Kingdom does diverge from EU laws, access
to EU markets may be made more restricted than it currently is. In addition, the TCA does not allow U.K. institutions access to EU
markets, so it is possible that there will be a period of considerable uncertainty, particularly in relation to U.K. financial and
banking markets, as well as in relation to the regulatory process in Europe. As a result of this uncertainty, financial markets could
experience volatility. We may also face new regulatory costs and challenges that could have a material adverse effect on our operations.
In this regard, the European Medicines Agency has already issued a notice reminding marketing authorization holders of centrally authorized
medicinal products for human and veterinary use of certain legal requirements that need to be considered as part of Brexit, such as the
requirement for the marketing authorization holder of a product centrally approved by the European Commission to be established in the
European Union, and the requirement for some activities relating to centrally approved products to be performed in the European Union.
As a third country, the United Kingdom will lose the benefits of global trade agreements negotiated by the European Union on
behalf of its members, which may result in increased trade barriers which could make our doing business worldwide more difficult. In addition,
currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely
affected by Brexit. Should this foreign exchange volatility continue, it could cause volatility in our financial results.
We expect to increase our international sales in the future,
and such sales may be subject to unexpected exchange rate fluctuations, regulatory requirements and other barriers.
We currently expect that our sales will be denominated in U.S. Dollars
and Euro and that we may, in the future, have sales denominated in the currencies of additional countries in which we establish operations
or distribution. In addition, upon the completion of the Acquisition, we expect to incur the majority of our operating expenses in U.S.
Dollars, Euro, South African Rands and Lesotho Maloti. Our international sales may be subject to unexpected regulatory requirements and
other barriers. Any fluctuation in the exchange rates of foreign currencies may negatively affect our business, financial condition and
results of operations. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure,
we may not be able to hedge effectively due to lack of experience, unreasonable costs or illiquid markets. In addition, those activities
may be limited in the protection they provide from foreign currency fluctuations and can themselves result in losses.
A change in our tax residence could have a negative effect on
our future profitability.
Although we are incorporated in the Province of Ontario in Canada,
we are a resident in the United Kingdom for tax purposes. It is possible that in the future, whether as a result of a change in law or
the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review by our directors
or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than the United Kingdom.
Should we cease to be tax resident in the United Kingdom, we may have exposure related to unexpected tax liabilities, such as a charge
of United Kingdom, capital gains tax on a deemed disposal at market value of our assets and of unexpected tax charges in other jurisdictions
on our income. Similarly, if the tax residency of any of our future subsidiaries were to change from their current jurisdiction for any
of the reasons listed above, we may be subject to a charge of local capital gains tax on the assets.
Tax regulations and challenges by tax authorities could have
a material adverse effect on our business.
We expect to operate in a number of countries and will therefore be
regularly examined by and remain subject to numerous tax regulations. Changes in our global mix of earnings could affect our effective
tax rate. Furthermore, changes in tax laws could result in higher tax-related expenses and payments. Legislative changes in any of the
countries in which we operate could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred
tax liabilities. Additionally, the uncertain tax environment in some regions in which we operate may limit our ability to successfully
challenge adverse determination by any local tax authorities. We expect to operate in countries with complex tax rules, which may be interpreted
in a variety of ways and could affect our effective tax rate. Future interpretations or developments of tax regimes or a higher than anticipated
effective tax rate could have a material adverse effect on our tax liability, return on investments and business operations.
In addition, we and our future subsidiaries operate in, are incorporated
in and are tax residents of, various jurisdictions. The tax authorities in the various jurisdictions in which we and our subsidiaries
operate, or are incorporated, may disagree with and challenge our assessments of our transactions, tax position, deductions, exemptions,
where we or our subsidiaries are tax resident, or other matters. If we are unsuccessful in responding to any such challenge from a tax
authority, we may be required to pay additional taxes, interest, fines or penalties, we may be subject to taxes for the same business
in more than one jurisdiction or may also be subject to higher tax rates, withholding or other taxes. A successful challenge could potentially
result in payments to the relevant tax authority of substantial amounts that could have a material adverse effect on our financial condition
and results of operations.
Even if we are successful in responding to challenges by taxing authorities,
responding to such challenges may be expensive, consume time and other resources, or divert management’s time and focus from our
business operations. Therefore, a challenge as to our tax position or status or transactions, even if unsuccessful, may have a material
adverse effect on our business, financial condition, results of operations or liquidity or the business, financial condition, and results
of operations.
We may be subject to emerging market risks.
Emerging market investment generally poses a greater degree of risk
than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization
resulting from domestic and international developments.
The Kingdom of Lesotho has a history of economic instability and crises,
as well as political instability. Laws and regulations applicable to our cultivation operations in the Kingdom of Lesotho are subject
to change in the future and could adversely affect our business, financial condition and results of operations. In particular, fluctuations
in the economy in Southern Africa and actions adopted by the government have had and may continue to have a significant impact on companies
operating in Southern Africa, including in the Kingdom of Lesotho. Specifically, Bophelo may be impacted by inflation, foreign currency
fluctuations, regulatory policies, business and tax regulations and, in general, by the political, social and economic scenarios in the
Kingdom of Lesotho and other countries in which we may do business.
Global or regional economic crises could negatively affect investor
confidence in emerging markets or the economies of the countries in Southern Africa, including the Kingdom of Lesotho. A significant decline
in economic growth or a sustained economic downturn for any of Lesotho’s major trading partners (in particular, the United Kingdom,
the United States and China) could have a material adverse impact on the balance of trade and remittances, resulting in lower economic
growth. Deterioration in the economic and political situation in South Africa, which surrounds the Kingdom of Lesotho entirely, could
adversely affect the local economy and cause instability by disrupting diplomatic or commercial relationships with other nearby countries.
Any future tensions may cause political and economic uncertainty, instability, market volatility, low confidence levels and higher risk
aversion by investors and market participants that may negatively affect economic activity generally in Southern Africa, including in
the Kingdom of Lesotho. Such events could materially and adversely affect Bophelo’s business, financial condition and results of
operations.
Exchange controls may restrict our ability to convert or transfer
sums in foreign currencies.
Companies operating in Southern Africa are subject to exchange control
limitations. Exchange controls in Lesotho are administered by the Central Bank of Lesotho. While exchange controls have been relaxed in
recent years and may continue to be relaxed, companies operating in Southern Africa remain subject to restrictions on their ability to
export capital outside of the Common Monetary Area, which includes South Africa, Namibia, Lesotho and Eswatini. In addition, as the cash
flows of certain countries are highly dependent on the export of certain raw materials, the ability to convert such currencies can be
limited by the timing of payments for such exports, which may require us to organize our currency conversions around such constraints.
These restrictions may affect the manner in which we finance our transactions outside Southern Africa and the geographic distribution
of our debt.
We can offer no assurance that additional restrictions on currency
exchange will not be implemented in the future or that these restrictions will not limit our ability to transfer cash, which could have
a material adverse effect on our business, financial condition, results of operations and prospects.
The markets in which we may operate are exposed to high inflation
and interest rates which could increase our operating costs and reduce our profitability.
The economies of the countries in which we may operate, including the
Kingdom of Lesotho, in the past have been, and in the future may continue to be, characterized by rates of inflation and interest rates
that are substantially higher than those prevailing in the United States and other highly developed economies. High rates of inflation
could increase our costs in such regions and decrease our operating margins. Inflation in Southern African countries generally results
in an increase in our operational costs. Higher and sustained inflation in the future, with a consequent increase in operational costs,
could have a material adverse effect on our results of operations and our financial condition and could result in operations being discontinued
or reduced or rationalized, which could have a material adverse effect on our business, financial condition and results of operations.
Although higher interest rates would increase the amount of income
we earn on our cash balances, they would also adversely affect our ability to obtain cost-effective debt financing in certain countries
in which we may operate.
Operating in emerging markets may subject us to greater political,
economic and market risks than those we would face if we only operated in more developed markets, which could increase our operating costs.
Emerging markets, including the Kingdom of Lesotho in Southern Africa,
are subject to greater risks than more developed markets. The political, economic and market conditions in many emerging markets present
risks that could make it more difficult to operate our business successfully. These risks include:
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the strength of emerging market economies;
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fluctuations in interest rates;
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political and economic instability, including higher rates of inflation and currency fluctuations;
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high levels of crime and unemployment;
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higher levels of corruption, including bribery of public officials;
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loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
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lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;
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potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs,
taxation and other laws or policies affecting foreign trade or investment;
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restrictions on the right to convert or repatriate currency or export assets;
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introduction or changes to indigenization and empowerment programs;
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logistical and communications challenges;
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difficulties in staffing and managing operations and ensuring the safety of our employees;
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greater risk of uncollectible accounts and longer collection cycles; and
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future downgrades of the debt ratings of the countries in which we operate.
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If we are unable to effectively manage these risks, it could have a
material adverse effect on our business, financial condition and results of operations.
Governments in Africa have in the past intervened in the economies
of their respective countries and occasionally made significant changes in policy and regulations. Governmental actions have often involved,
among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on wages and employee
benefits, capital controls, limits on imports and arbitrary interference with private ownership of contract rights. Our business, financial
condition and results of operations may be adversely affected by changes in government policies or regulations, including such factors
as exchange rate and exchange control policies, inflation control policies, price control policies, consumer protection policies, import
duties and restrictions, liquidity of domestic capital and lending markets, electricity rationing, tax policies, including tax increases
and retroactive tax claims, and other political, diplomatic, social and economic developments in or affecting the countries where we operate.
In the future, the level of intervention by African governments may continue to increase. It is difficult to predict the future political,
economic and market environment in these countries, and these or other measures could have a material adverse effect on the economy of
the countries in which we may operate and, consequently, could have a material adverse effect on our business, financial condition and
results of operations.
We face the risk of disruption from labor disputes and changes
to labor laws, which could result in significant additional operating costs or alter our relationship with our employees.
We are required to comply with extensive labor regulations in each
of the countries in which we will have employees, including with respect to wages, social security benefits and termination payments.
For example, Lesotho laws relating to labor regulate work time, provide for mandatory compensation in the event of termination of employment
for operational reasons, and impose monetary penalties for non-compliance with administrative and reporting requirements in respect of
affirmative action policies, which could result in significant costs.
In addition, future changes to Lesotho legislation and regulations
relating to labor may increase our costs or alter our relationship with our employees. Resulting disruptions could have a material adverse
effect on our business, results of operations and financial condition.
Risks Related to our Regulatory Framework
The medicinal cannabis regulatory regime is very restrictive
and new in the United Kingdom, and laws and enforcement could rapidly change again.
There are significant legal restrictions and regulations that govern
the cannabis industry in the United Kingdom. The legislative changes recently made to allow for the prescription and possession of medicinal
cannabis without Home Office licenses were very narrow. “Cannabis” remains a Class B controlled drug under the Misuse
of Drugs Act 1973 and remains a Schedule 1 drug under the Misuse of Drugs Regulation 2001 (“MDR 2001”). Schedule 1
contains drugs which are not used medically. Cultivation, distribution and possession of Schedule 1 controlled drug is illegal without
appropriate licenses. It is only cannabis based products for medicinal use (“CBPMs”) that have been moved to various
other schedules under the MDR 2001, which then allows for the prescription and possession of CBPMs without a license.
However, there are also strict requirements that need to be met for
the supply of CBPMs to patients to be compliant with the regulations. Despite the demand for CBPMs, there has been great reluctance from
the medical establishment in general to prescribe “medicinal products” for which there are no official prescribing guidelines
and a lack of clinical data. In particular, the Royal College of Physicians and NHS England have issued guidelines for medical practitioners
stating that there is currently limited evidence of the effectiveness of CBPMs, except in very limited cases. This appears to have made
specialist doctors loathe to prescribe CBPMs against this explicit guidance. As the medical establishment and regulators are still firming
up their approaches to guidance and enforcement, this can create a level of operating uncertainty.
Our activities are, and will continue to be, subject to evolving regulation
by governmental authorities. Due to the current regulatory environment in the United Kingdom, new risks may emerge; management may not
be able to predict all such risks.
UK
based companies also need to be aware of the potential difficulties posed by the UK Proceeds of Crime Act 2002 (“POCA”).
POCA prohibits dealing with any benefit (directly or indirectly) arising from criminal conduct. Conduct is criminal if it:
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constitutes an offence in any part of the United Kingdom, or
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would constitute an offence in part of the United Kingdom if it occurred there.
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This principle of “dual criminality” means that measures
to legalize cannabis overseas can be potentially irrelevant when it comes to investing in the United Kingdom, and medicinal cannabis companies
operating in the United Kingdom.
Although the risk of action being taken against a UK investor by law
enforcement may be considered low when dealing with the indirect proceeds of cannabis, UK companies and investors should be sure to understand
the precise nature of their investments or transactions and to keep in mind that investing in, or doing business with, companies involved
in recreational cannabis, even where their activity is legal under the laws applicable to them, may nonetheless cause the UK-based investor
or counterparty to violate UK money laundering laws.
Cannabis laws, regulations, and guidelines are dynamic and subject
to changes.
Cannabis laws and regulations are dynamic and subject to evolving interpretations
which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. It is also
possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our businesses. We cannot
predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental
regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the
legislative and regulatory environment in the cannabis industry in the United Kingdom, the Kingdom of Lesotho and internationally will
continue to be dynamic and will require innovative solutions to try to comply with this changing legal landscape in this nascent industry
for the foreseeable future. Failure to comply with any such legislation may have a material adverse effect on our business, financial
condition and results of operations.
Public opinion can also exert a significant influence over the regulation
of the cannabis industry. A negative shift in the public’s perception of the cannabis industry could affect future legislation or
regulation in different jurisdictions.
There are risks associated with the regulatory regime and permitting
requirements of our operations.
Achievement of our business objectives is contingent, in part, upon
compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for
the cultivation, processing and sale of our products. Bophelo and Canmart currently holds the licenses required to conduct their respective
operations. We may not be able to obtain or maintain the necessary licenses, permits, quotas, authorizations or accreditations to operate
our business going forward, or may only be able to do so at great cost. We cannot predict the time required to secure all appropriate
regulatory approvals for our products, or the extent of testing and documentation that may be required by local governmental authorities.
Our officers and directors must rely, to a great extent, on our local
legal counsel and local consultants retained in the United Kingdom and Lesotho in order to keep abreast of material legal, regulatory
and governmental developments as they pertain to and affect our business operations, and to assist us with governmental relations. Upon
the completion of the Acquisition, we must rely, to some extent, on those members of management and the Board who have previous experience
working and conducting business in the United Kingdom or the Kingdom of Lesotho in order to enhance our understanding of and appreciation
for the local business culture and practices in such jurisdictions.
We also rely on the advice of local experts and professionals in connection
with any current and new regulations that develop in respect of banking, financing and tax matters in the jurisdictions in which we operate.
Any developments or changes in such legal, regulatory or governmental requirements or in local business practices in such jurisdictions
are beyond our control and may adversely affect our business.
We will incur ongoing costs and obligations related to regulatory compliance.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring
capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate those suffering loss
or damage by reason of our operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to
our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our business,
results of operations and financial condition.
Any failure on our part to comply with applicable regulations
or to obtain and maintain the necessary licenses and certifications could prevent us from being able to carry on our business, and there
may be additional costs associated with any such failure.
Our business activities are heavily regulated in all jurisdictions
where we do business. Our operations are subject to various laws, regulations and guidelines by governmental authorities relating to the
cultivation, processing, manufacture, marketing, management, distribution, transportation, storage, sale, packaging, labelling, pricing
and disposal of cannabis and cannabis products. In addition, we are subject to laws and regulations relating to employee health and safety,
insurance coverage and the environment. Laws and regulations, applied generally, grant government agencies and self-regulatory bodies
broad administrative discretion over our activities, including the power to limit or restrict business activities as well as impose additional
disclosure requirements on our products and services.
Any failure by us to comply with applicable regulatory requirements
could:
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require extensive changes to our operations;
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result in regulatory or agency proceedings or investigations;
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result in the revocation of our licenses and permits, the imposition of additional conditions on licenses to operate our business, and increased compliance costs;
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result in product recalls or seizures;
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result in damage awards, civil or criminal fines or penalties;
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result in the suspension or expulsion from a particular market or jurisdiction of our key personnel;
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result
in restrictions on our operations or the imposition of additional or more stringent inspection, testing and reporting requirements;
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harm our reputation; or
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give rise to material liabilities.
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There can be no assurance that any future regulatory or agency proceedings,
investigations or audits will not result in substantial costs, a diversion of management’s attention and resources or other adverse
consequences to our business.
In addition, changes in regulations, government or judicial interpretation
of regulations, or more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations,
increase compliance costs or give rise to material liabilities or a revocation of our licenses and other permits. Furthermore, governmental
authorities may change their administration, application or enforcement procedures at any time, which may adversely affect our ongoing
regulatory compliance costs. There is no assurance that we will be able to comply or continue to comply with applicable regulations.
The legal cannabis market is a relatively new industry. As a
result, the size of our target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of
market data.
Because the cannabis industry is in a nascent stage, there is a lack
of information about comparable companies available for potential investors to review in deciding whether to invest in us and, few, if
any, established companies whose business model we can follow or upon whose success we can build. Accordingly, investors should rely on
their own estimates regarding the potential size, economics and risks of the cannabis market in deciding whether to invest in our Common
Shares. We are an early-stage company that has not generated net income. There can be no assurance that our growth estimates are accurate
or that the cannabis market will be large enough for our business to grow as projected.
Although we are committed to researching and developing new markets
and products and improving existing products, there can be no assurances that such research and market development activities will prove
profitable or that the resulting markets or products, if any, will be commercially viable or successfully produced and marketed. We must
rely largely on our own market research to forecast sales and design products as detailed forecasts and consumer research are not generally
obtainable from reliable third-party sources in the United Kingdom, the European market, Southern Africa, Canada and in other international
jurisdictions.
In addition, there is no assurance that the industry and market will
continue to exist and grow as currently estimated or anticipated or function and evolve in the manner consistent with management’s
expectations and assumptions. We could also be subject to other events or circumstances that adversely affect the cannabis industry, such
as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets.
Marijuana remains illegal under U.S. federal law, and the enforcement
of U.S. cannabis laws could change.
There are significant legal restrictions and regulations that govern
the cannabis industry in the United States. Marijuana remains a Schedule I drug under the Controlled Substances Act, making it illegal
under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. In those
states in which the use of marijuana has been legalized, its use remains a violation of federal law pursuant to the Controlled Substances
Act. The Controlled Substances Act classifies marijuana as a Schedule I controlled substance, and as such, medical and adult use cannabis
use is illegal under U.S. federal law. Unless and until the U.S. Congress amends the Controlled Substances Act with respect to marijuana
(and the President approves such amendment), there is a risk that federal authorities may enforce current federal law. Financial transactions
involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis
for prosecution under applicable U.S. federal money laundering legislation. While the approach to enforcement of such laws by the federal
government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use
cannabis regulatory programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will
neither absolve us of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against
us should we expand our operations into the U.S. Since U.S. federal law criminalizing the use of marijuana pre-empts state laws that legalize
its use, enforcement of federal law regarding marijuana may be a significant risk and could greatly harm our business, prospects, revenue,
results of operation and financial condition if we were to expand our operations into the United States. We currently have no operations
in the United States and no plans to expand our operations into the United States in the foreseeable future.
Our activities are, and will continue to be, subject to evolving regulation
by governmental authorities. The legality of the production, cultivation, extraction, distribution, retail sales, transportation and use
of cannabis differs among states in the United States. Due to the current regulatory environment in the United States, new risks may emerge;
management may not be able to predict all such risks. Due to the conflicting views between state legislatures and the federal government
regarding cannabis, cannabis businesses are subject to inconsistent laws and regulations. There can be no assurance that the federal government
will not enforce federal laws relating to marijuana and seek to prosecute cases involving marijuana businesses that are otherwise compliant
with state laws in the future. To date, federal enforcement agencies have taken little or no action against state-compliant cannabis businesses
in the United States. However, the DOJ may change its enforcement policies at any time, with or without advance notice. The uncertainty
of U.S. federal enforcement practices going forward and the inconsistency between U.S. federal and state laws and regulations may present
risks for us if we expand our operations into the United States in the future.
Risks Related to Financials and Accounting
There are tax risks we may be subject to in carrying out our
business in multiple jurisdictions.
We will operate and, accordingly, will be subject to income tax and
other forms of taxation in multiple jurisdictions. We may be subject to income taxes and non-income taxes in a variety of jurisdictions
and our tax structure may be subject to review by both domestic and foreign taxation authorities. Those tax authorities may disagree
with our interpretation and/or application of relevant tax rules. A challenge by a tax authority in these circumstances might require
us to incur costs in connection with litigation against the relevant tax authority or reaching a settlement with the tax authority and,
if the tax authority’s challenge is successful, could result in additional taxes (perhaps together with interest and penalties)
being assessed on us, and as a result an increase in the amount of tax payable by us. In addition, we may be subject to different taxes
imposed by the local governments in the jurisdictions where we operate, and changes within such tax, legal and regulatory framework may
have an adverse effect on our financial results.
Taxation laws and rates which determine taxation expenses may vary
significantly in different jurisdictions, and legislation governing taxation laws and rates are also subject to change. Therefore, our
earnings may be affected by changes in the proportion of earnings taxed in different jurisdictions, changes in taxation rates, changes
in estimates of liabilities and changes in the amount of other forms of taxation. The determination of our provision for income taxes
and other tax liabilities will require significant judgment (including based on external advice) as to the interpretation and application
of these rules. We may have exposure to greater than anticipated tax liabilities or expenses.
There is a risk that we will be a passive foreign investment
company (“PFIC”) for U.S. federal income tax purposes for the current or any future taxable year, which could result in material
adverse U.S. federal income tax consequences if you are a U.S. Holder.
If we (or any of our non-U.S. subsidiaries) are a PFIC for any taxable
year during which a U.S. Holder owns Common Shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder.
The determination of whether a corporation is a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income
tax rules that are subject to differing interpretations. In addition, the determination of whether a corporation will be a PFIC for
any taxable year generally can only be made after the close of such taxable year. Therefore, it is possible that we could be classified
as a PFIC for our initial taxable year or in future years due to changes in the nature of our business, composition of our assets or income,
as well as changes in our market capitalization. In particular, our PFIC status will depend, in part, on the amount of cash that we raise
in this offering and how quickly we utilize the cash in our business. Based upon the foregoing, it is uncertain whether we will be a PFIC
for our current taxable year or any future taxable year. We have not determined, if we (or any of our non-U.S. subsidiaries) were to be
classified as a PFIC for a taxable year, whether we will provide information necessary for a U.S. Holder to make a “qualified electing
fund” election which, if available, would result in tax treatment different from (and generally less adverse than) the general tax
treatment for PFICs. Accordingly, U.S. Holders should assume that they will not be able to make a qualified electing fund election with
respect to our Common Shares. The PFIC rules are complex, and each U.S. Holder should consult his, her or its own tax advisor regarding
the PFIC rules, the elections which may be available, and how the PFIC rules may affect the U.S. federal income tax consequences
relating to the ownership and disposition of our Common Shares.
Failure to develop our internal controls over financial reporting
as we grow could have an adverse effect on our operations.
As we mature, we will need to continue to develop and improve our current
internal control systems and procedures to manage our growth. We are required to establish and maintain appropriate internal controls
over financial reporting. Failure to establish appropriate controls, or any failure of those controls once established, could adversely
affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment
of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls
over financial reporting or other matters that may raise concerns for investors.
Risks Related to our Common Shares and this Offering
Although a minimum offering amount is required, there will be
multiple closings in the Offering which will increase the risk that investors, especially earlier investors, could lose their entire investment.
Although a minimum offering amount is required for the initial closing
of this Offering, once the minimum offering amount is achieved, proceeds from the Offering will be released then and thereafter as the
Company receives additional subscriptions for Shares. If the Company raises less than the maximum offering amount, it may lack the working
capital and to fully implement its business plans. No assurance can be given that the Company will raise any funds after the initial closing
and the allowance for the Company to have multiple closings increases the chance that investors, particularly early investors, may lose
their entire investment.
Affiliates of our Company and the Placement Agent, including
officers, directors and existing stockholders of our Company, may invest in this offering and their funds will be counted toward our achievement
of the Minimum Amount.
There is no restriction on affiliates of our Company or of the placement
agent, including its officers, directors and existing stockholder, investing in the offering. As a result, it is possible that if we raise
some funds, but have not reached the minimum amount, affiliates can contribute the balance so that there will be a closing. The minimum
amount is typically intended to be a protection for investors and give investors confidence that other investors, along with them, are
sufficiently interested in the offering and the company, and its prospects to receive investments of at least the minimum amount. By permitting
affiliates to invest in the offering and make up any shortfall between what non-affiliate investors have invested and the minimum amount,
this protection is largely eliminated. Investors should be aware that no funds other than their own and those of affiliates investing
along with them may be invested in this offering.
We have no significant sources of revenue
and limited capitalization and may require additional financing after the Offering, which may not be available.
We
are in the development stage and have not generated any revenue. We have limited capitalization, which increases our vulnerability to
general adverse economic and industry conditions, limits our flexibility in planning for, or reacting to changes in our business and industry
and may place us at a competitive disadvantage to competitors with sufficient or excess capitalization. After the completion of the Acquisition,
to develop our business, we will require additional cash in the form of equity or debt following completion of the Offering in order to
meet our working capital requirements. If we are unable to obtain sufficient additional financing on satisfactory terms and conditions,
we may be forced to curtail our plans or operations. Our ability to obtain additional financing will depend upon a number of factors,
many of which are beyond our control. We have no current arrangements with respect to, or sources of, financing other than the proposed
Offering. Should we be unable to raise additional capital, investors could lose their entire investment.
We have a limited operating history upon which investors may
base their investment decision, and as a result any potential investment is highly speculative.
Although we believe our management team has extensive knowledge of
the cannabis product industry and closely monitors changes in legislation with regards to recreational cannabis laws worldwide, we operate
in an evolving industry that may not develop as expected and we may not be able to adapt as needed to stay competitive in such industry.
Furthermore, we were incorporated in July 2021 and Bophelo and Canmart, which we intend to acquire, also each have a limited operating
history. We are, and upon the completion of the Acquisition, will continue to subject to all of the business risks and uncertainties associated
with any new business, including the risk that we will not achieve any investment objectives as described in the Offering Documents. Our
financial condition and results of operations will depend on many factors, including our ability to bring our products to commercial production,
marketing success and obtaining and maintaining the necessary licenses and certifications.
An investment in our Shares carries a high degree of risk and should
be considered as a speculative investment by purchasers. Akanda, Bophelo and Canmart each have a limited history of earnings, limited
cash reserves, a limited operating history, have not paid dividends, and are unlikely to pay dividends in the immediate or near future.
We are, and upon the completion of the Acquisition, will continue to be in the development and planning phases of our business. Operations
are not yet sufficiently established such that we can mitigate the risks associated with planned activities.
We may be presumed to be insolvent from time to time.
In the future, the Company may not be able to pay its debts as they
become due. Therefore, the Company may be deemed to be insolvent until the Company receives sufficient proceeds from debt or equity financings,
including the Offering, or until it generates sufficient revenues from operations. No assurance can be given that the Company will raise
sufficient funds in equity financings, generate sufficient revenues from operations or that the Company will become solvent should a period
of insolvency be experienced.
The
purchase price of the Shares has been arbitrarily set and does not bear any relationship to our assets, financial
condition or our actual or projected performance or on any other criteria of market value.
As
a development stage company we lack operating history or other metrics to provide a valuation of the Shares and we arbitrarily set the
price and number of offering Shares to reflect our goals of having a balanced ownership between management and the private investors and
our consideration of certain market factors. As a result of this arbitrarily defined initial selling price for the Shares offered hereby,
such price does not necessarily bear any relationship to our assets, book value, net worth, financial condition, current or anticipated
revenue, cash flow, earnings, shareholders’ equity or any other recognized criteria of market value and is not indicative of the
price of the Common Shares that may be realized upon disposition of such Common Shares. Purchasers of our equity securities may not be
able to resell their shares at or above their purchase price.
We do not expect to pay dividends on any
shares of our capital stock in the near future.
It
is not expected that we will pay any cash dividends on any shares of our capital stock in the near future. Initially, it is expected
that we will retain virtually any and all profit to fund our business and growth plans. Future dividend declarations and payments will
be made at the discretion of our board of directors and will depend on, among other things, the capital needed to satisfy current and
projected business opportunities, as well as applicable contractual and regulatory requirements. No assurance can be given that our operations
will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flows. Furthermore, no assurance
can be given that our board of directors will declare dividends even if we are profitable.
There may be no public market for our securities
and investors may be unable to liquidate their purchased Shares if they need money.
There is no public market for any of our securities.
There is no guarantee that an active market for any of our securities will develop or be sustained after the Offering or in the foreseeable
future. Therefore, investors may not be able to sell any securities they acquire in connection with the Offering until a public market
develops.
There are restrictions on the transfer of
our securities.
None of our Shares will be registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), or registered
or qualified with any state or foreign securities regulatory agency. Until any such registration occurs, investors will not be able to
sell, transfer or otherwise dispose of these securities, even if a public market develops for the securities, unless the disposition is
exempt from registration under any applicable federal, state or foreign laws. We cannot guarantee that any exemption from registration
or qualification will be available subsequent to the Offering. As result, the investors may have to hold the purchased Shares for an indefinite
period.
The Company may not be able to achieve its
financial projections.
The operating and financial information contained in any projected
financial data furnished to investors have been prepared by management of the Company based upon its goals and objectives for the future
performance and various assumptions concerning future phenomena. In addition, the Company’s projected results are dependent on the
successful implementation of management’s growth and operating strategies and are based on hypothetical assumptions and events over
which the Company has only partial or no control. While management believes that its goals and objectives are reasonable and achievable,
no assurance can be given that they will be realized. The selection of assumptions underlying the projected information required the exercise
of judgment by, and represent the opinions and beliefs of, the Company’s management. Others may have different opinions and beliefs.
In addition, the projections have not been compiled, reviewed or examined by any independent public accountants and were not prepared
with a view to public disclosure or compliance with published guidelines of the Securities and Exchange Commission or with the guidelines
established by the American Institute of Certified Public Accountants regarding projections. Moreover, the Company’s projections
are subject to uncertainty due to the effects that economic, legislative, political or other changes may have on future events. Changes
in the facts or circumstances underlying such assumptions could materially and adversely affect the projections. To the extent assumed
events do not materialize, actual results may vary substantially from the projected results. As a result, no assurance can be given that
the Company will achieve the operating or financial results set forth in its financial projections and, accordingly, investors are cautioned
about placing undue reliance thereon.
We have broad discretion in how we use
the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations.
We will have considerable discretion in the
application of the net proceeds of this Offering. We intend to use the net proceeds from this offering for operating capacity, potential
acquisitions, working capital and general corporate purposes. As a result, investors will be relying upon management’s judgment
with only limited information about our specific intentions for the use of the balance of the net proceeds of this Offering. We may use
the net proceeds for purposes that do not yield a significant return or any return at all for our shareholders. In addition, pending their
use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
We have a significant shareholder, which may limit your ability
to influence corporate matters and may give rise to conflicts of interest.
We have a significant shareholder, Halo, and certain of our directors
and officers including our Executive Chairman, Louisa Mojela, are former directors or officers of Halo. Following this Offering, assuming
all of the Shares offered hereby are sold, we anticipate that Halo will own approximately 47.41% of our outstanding Common Shares. Accordingly,
Halo exerts and may continue to exert significant influence over us and any action requiring the approval of the holders of our Common
Shares, such as election of directors, amendments to our organizational documents, and approval of significant corporate transactions.
This concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our Common Shares that you may
feel are in your best interest as one of our shareholders. Furthermore, the interests of Halo may not always coincide with your interests
or the interests of other shareholders and Halo may act in a manner that advances its best interests and not necessarily those of other
shareholders.
Investors may be unable to enforce judgments against our directors
and officers because our directors and officers reside outside of the United States.
We are incorporated under the laws of the Province of Ontario, Canada
and most of our assets are located outside of the United States. Furthermore, most of our directors and officers reside outside of the
United States in Canada, the Kingdom of Lesotho and the United Kingdom. As a result, investors may not be able to effect service of process
within the United States upon our directors or officers or enforce against them in U.S. courts, judgments predicated on U.S. securities
laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts, judgments obtained against these persons in courts
located in jurisdictions outside of the United States.
As a result of the above, public shareholders may have more difficulty
in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders
than they would as public shareholders of a U.S. based company.
Investing in private placements like this offering involves significant
risks not present in investments in public offerings.
Investing in private placements involves a high degree of risk. Securities
sold through private placements are typically not publicly traded and, therefore, are less liquid. Additionally, investors will receive
restricted securities that are subject to holding period requirements. Companies seeking private placement investments tend to be in earlier
stages of development and have not yet been fully tested in the public marketplace. Investing in private placements requires high risk
tolerance, low liquidity concerns, and long-term commitments. Investors must be able to afford to lose their entire investment. Investment
products are not Federal Deposit Insurance Corporation insured, may lose value, and there is no bank guarantee.
Exhibit D
Akanda Corp. Investor Presentation
(Attached under separate cover)
Exhibit E
August 26, 2021
Akanda Corp.
77 King Street West, Suite 400
Toronto-Dominion
Centre
Toronto, Ontario M5K 0A1
Attention: Trevor Scott, Chief Financial Officer
Re: Lock-Up Agreement
Ladies and Gentlemen:
This letter (this “Letter Agreement”) is being delivered
to Akanda Corp. (the “Company”) in accordance with the subscription agreement signed and delivered by the undersigned
to the Company. In order to induce the Company to proceed with the sale and issuance of Common Shares of the Company (“Common
Shares”) to the undersigned pursuant to the subscription agreement and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the undersigned (the “Securityholder”) hereby agrees with the Company
as follows:
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1.
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Subject to the exceptions set forth herein, the Securityholder agrees not to, without the prior written consent of the Company and
the managing underwriter, during the periods specified under (a), (b) and (c) below (the entire period from the date when the
period under (a) commences and until the date when the period under (c) expires, the “Lock-up Period”), (i) lend;
offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option,
right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any Common Shares or any securities convertible
into or exercisable or exchangeable (directly or indirectly) for Common Shares, or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common Shares or other securities, in cash, or otherwise
(the actions specified in clauses (i)-(ii), collectively, “Transfer”) as required below:
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(a)
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From the date when the subscription agreement is
signed by both the Securityholder and the Company to the 180th day after the closing of the Company’s initial public offering of
Common Shares which results in a listing of the Company’s Common Shares on the NASDAQ Stock Market or another national stock exchange
(such first trading day, the “Lock-Up Trigger Date”), the Securityholder shall not Transfer the Purchased Shares.
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(b)
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Between the 181st and 270th day after the Lock-up Trigger Date, the Securityholder shall not Transfer more than one-third of the Purchased
Shares, subject to a maximum sale on any trading day of 3% of the daily volume.
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(c)
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Between the 271st and 365th day after the Lock-Up Trigger Date, the Securityholder shall not Transfer more than one-third of the Purchased
Shares, subject to a maximum sale on any trading day of 3% of the daily volume.
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(d)
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After the 365th day after the Lock-Up Trigger Date, the Securityholder will be entitled to Transfer the remaining Purchased Shares
without restriction.
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Notwithstanding the foregoing, commencing 90 days after the
Lock-Up Trigger Date, if the Company’s Common Share price is at least 50% higher than the IPO price per share and trades at least
100,000 shares daily, both for ten (10) consecutive trading days, the Securityholder may sell up to one-third of its Purchased Shares
subject to a maximum sale on any trading day of 3% of the daily volume; and if the Company’s Common Share price is at least 100%
higher than the IPO price per share and trades at least 100,000 shares daily, both for ten (10) consecutive trading days, the Securityholder
may sell up to an additional one-third of its Purchased Shares subject to a maximum sale on any trading day of 3% of the daily volume;
and if the Company Common Share price is at least 150% higher than the IPO price per share and trades at least 100,000 shares daily, both
for ten (10) consecutive trading days, the Securityholder may sell up to an additional one-third of its Purchased Shares constituting
a maximum total of all of its Purchased Shares subject to a maximum sale on any trading day of 3% of the daily volume. For purpose of
this term, the “IPO price” shall mean the price the Company’s Common Shares are first sold to the public pursuant
to an underwritten registered offering resulting in a listing of its Common Shares on the NASDAQ Stock Market or another national stock
exchange.
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2.
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The restrictions set forth in paragraph 1 shall not apply to:
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(a)
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in the case of a corporation, limited liability company, partnership, trust or other entity, Transfers to its shareholders, members,
partners or trust beneficiaries as part of a distribution, including Transfers by virtue of the laws of the state of the entity’s
organization and the entity’s organizational documents upon dissolution of the entity, or to any corporation, partnership or other
entity that is its affiliate.
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(b)
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in the case of an individual, Transfers by gift to members of the individual’s immediate family (as defined below) or to a trust,
the beneficiary of which is a member of one of the individual’s immediate family, an affiliate of such person or to a charitable
organization.
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(c)
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in the case of an individual, Transfers by virtue of laws of descent and distribution upon death of the individual.
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(d)
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in the case of an individual, Transfers pursuant to a qualified domestic relations order.
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provided,
however, that (A) in the case of clauses (a) through (d), these permitted transferees must enter into a written agreement, in
substantially the form of this Letter Agreement (it being understood that any references to “immediate family” in the agreement
executed by such transferee shall expressly refer only to the immediate family of the Securityholder and not to the immediate family of
the transferee), agreeing to be bound by these Transfer restrictions. For purposes of this paragraph, “immediate family” shall
mean a spouse, domestic partner, child, grandchild or other lineal descendant (including by adoption), father, mother, brother or sister
of the undersigned; and “affiliate” shall have the meaning set forth in Rule 405 under the Securities Act of 1933, as
amended.
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3.
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This Letter Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof
and supersedes all prior understandings, agreements or representations by or among the parties hereto, written or oral, to the extent
they relate in any way to the subject matter hereof or the transactions contemplated hereby. This Letter Agreement may not be changed,
amended, modified or waived (other than to correct a typographical error) as to any particular provision, except by a written instrument
executed by all parties hereto.
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4.
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No party hereto may assign either this Letter Agreement or any of its rights, interests or obligations hereunder without the prior
written consent of the other party. Any purported assignment in violation of this paragraph shall be void and ineffectual and shall not
operate to transfer or assign any interest or title to the purported assignee. This Letter Agreement shall be binding on the Securityholder
and each of its respective successors, heirs and assigns and permitted transferees.
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5.
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This Letter Agreement shall be governed by and construed and enforced in accordance with the laws of the Province of Ontario, Canada
and the federal laws of Canada applicable therein, without giving effect to conflicts of law principles that would result in the application
of the substantive laws of another jurisdiction. The parties hereto (i) all agree that any action, proceeding, claim or dispute arising
out of, or relating in any way to, this Letter Agreement shall be brought and enforced in a court of competent jurisdiction in the Province
of Ontario, and irrevocably submit to such jurisdiction and venue, which jurisdiction and venue shall be exclusive and (ii) waive
any objection to such exclusive jurisdiction and venue or that such courts represent an inconvenient forum.
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6.
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This Letter Agreement shall terminate on the expiration of the Lock-up Period. In addition to the restrictions agreed upon herein,
the Securityholder acknowledges and agrees that it shall comply with any Transfer restrictions imposed by the subscription agreement and
the applicable law whether within or beyond the Lock-up Period.
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7.
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The undersigned acknowledges and agrees that Boustead Securities, LLC is an intended, third-party beneficiary of this Agreement and
may enforce the Company’s rights hereunder directly against the undersigned as if Boustead Securities, LLC were a party to this
Agreement.
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The undersigned understands that the Company and the underwriters for
the Company’s initial public offering are relying on this Letter Agreement in proceeding toward consummation of the public offering.
This Letter Agreement is irrevocable and shall be binding upon the undersigned and the heirs, personal representatives, successors and
assigns of the undersigned.
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Very truly yours,
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[SECURITYHOLDER NAME]
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Certain portions of this exhibit have been redacted in accordance with
Item 601(a)(6) of Regulation S-K. This information is not material and disclosure of such information would constitute an unwarranted
invasion of personal privacy. “[*]” indicates that information has been redacted.
SUPPLEMENT
NUMBER 1
to
INVESTOR PACKAGE
Dated August 26, 2021
with respect to the offering by
AKANDA CORP.
Offering of a
Minimum of 2,000,000 Shares at $2.50 per Share ($5,000,000)
up to a
Maximum of 4,000,000 Shares at $2.50 per Share ($10,000,000)
The information contained herein corrects and
supplements certain information contained in the Confidential Private Placement Investor Package that was previously distributed to you
in September 2021 (the “September Investor Package”). Each prospective investor should carefully review and consider
the information contained herein before deciding whether to invest in the Shares referred to in the September Investor Package. From
and after the date hereof, all references in the September Investor Package to “this Investor Package” (or similar expressions)
shall be deemed to refer the September Investor Package as corrected and supplemented by the information contained in this Supplement.
Capitalized terms used herein, unless otherwise defined or noted in this Supplement, shall have the meanings set forth in the September Investor
Package.
1. This
Supplement extends the offering period to November 29, 2021. The Company may, in its sole discretion, extend the Offering up to an
additional 60 days beyond November 29, 2021. The offering period was previously set to expire on September 30, 2021.
Should
you have any questions regarding the extension of the offering period or if you have already placed your funds in escrow but no longer
desire to go forward with your investment as a result of this change to the offering period, please contact your representative at the
placement agent or contact Trevor Scott, Chief Financial Officer of the Company, at [*] or by email at [*].
The date of this Supplement is September 28,
2021
RECONFIRMATION
OFFER
The undersigned (“you” or the
“Investor”) has subscribed to purchase $_________ (the “Subscription Amount”) of securities of Akanda
Corp., a Province of Ontario, Canada corporation (the “Company”), in connection with the Company’s private placement
(the “Original Offering”) as described in the Company’s Confidential Private Placement Investor Package, dated
August 26, 2021 (the “Investor Package”). The Investor has executed subscription documents and placed the Subscription
Amount in an escrow account maintained through Sutter Securities Clearing, LLC.
Following your execution of the subscription documents
and payment of the Subscription Amount, the Company and Boustead Securities LLC (the “Placement Agent”) have agreed
to extend the last day of the offering period from September 30, 2021 to November 29, 2021. The Company may, in its sole discretion,
extend the offering up to an additional 60 days.
The Investor Package has been supplemented as
of September 28, 2021, which supplement reflects the fact that the offering period has been extended to November 29, 2021. The
Investor Package, as so supplemented, was made available to the Investor by the Placement Agent.
By signing this Reconfirmation Offer in the space
provided below, the Investor reconfirms the Investor’s desire to participate in the Offering, acknowledges and agrees to the extended
Offering period (to November 29, 2021), and acknowledges and agrees that the Investor has been provided with the Investor Package,
updated as described herein, and reconfirms the Investor’s desire to invest the existing Subscription Amount already delivered to
escrow into the Offering. If you do not reconfirm on or before September 30, 2021, then the Subscription Amount will be promptly
returned to you without interest.
ACKNOWLEDGED AND AGREED TO
AS OF SEPTEMBER ___, 2021
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FOR INDIVIDUALS
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FOR ENTITIES:
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Print Name
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Print Name
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By:
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Signature
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Signature of Authorized Signatory
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Print Name of Joint Member, if any
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Printed Name of Authorized Signatory
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Print Title of Authorized Signatory
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Exhibit 10.5
Certain portions of this exhibit have been redacted
in accordance with Item 601(a)(6) of Regulation S-K. This information is not material and disclosure of such information would constitute
an unwarranted invasion of personal privacy. “[*]” indicates that information has been redacted.
AKANDA
Corp.
SUBSCRIPTION AGREEMENT FOR COMMON SHARES
The following items in this Subscription Agreement must be completed as directed. Please initial or mark "N/A" in each box, as applicable:
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All Subscribers:
□ All
Subscriber information in the boxes on pages 1 and 2.
□ A
certified cheque, money order, bank draft, wire or other applicable means in the amount of the aggregate subscription price set forth
on the face page of this Subscription Agreement made payable to Dentons Canada LLP in Trust
Canadian Purchasers:
□ For
Canadian residents purchasing the Common Shares as an "accredited investor" as defined in NI 45-106, a duly completed and executed
copy of Schedule "A" (including the applicable schedules attached thereto).
United States Purchasers:
□ For
Subscribers resident in the United States, a duly completed and executed copy of Schedule "B".
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Delivery of Subscription Agreement:
A completed and originally executed copy of this
Subscription Agreement and all applicable schedules and exhibits hereto must be delivered by no later than 4:00 p.m. (Toronto time)
on the date that is two business days prior to the Closing Time to the Company at:
Akanda Corp.
Address: 77 King Street West, Suite 400, Toronto, Ontario
M5K 0A1
Contact: Tej Virk
Email: tej@akandacorp.com
Telephone: +44 (791) 274 1995
Payment:
A certified cheque, money order, bank draft, wire
or other applicable means in the amount of the aggregate subscription price set forth on the face page of this Subscription Agreement
made payable to Dentons Canada LLP in Trust. Payment may be made by wire in accordance with the instructions in Schedule "C".
Please reference "Akanda Corp." when making payment by wire.
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AKANDA
Corp.
SUBSCRIPTION AGREEMENT FOR COMMON SHARES
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TO:
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Akanda Corp. (the "Company")
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The undersigned (the "Subscriber"),
on its own behalf and, if applicable, on behalf of those for whom the Subscriber is contracting hereunder, hereby irrevocably subscribes
for and agrees to purchase the number of common shares ("Common Shares") in the capital of the Company set forth below
for the aggregate subscription price set forth below, representing a subscription price of USD$0.533162238 per Common Share, upon and
subject to the terms and conditions set forth in the "Terms and Conditions of Subscription for Common Shares of Akanda Corp."
attached to and forming a part of this subscription agreement (this "Subscription Agreement"). In addition to this
face page, the Subscriber must also complete the applicable schedules attached hereto.
PART A – DETAILS OF SECURITIES PURCHASED:
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Number of Securities:
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Aggregate Subscription Price:
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PART B – LEGAL NAME OF SUBSCRIBER:
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Non-Individual Subscriber Signature
___________________________________________________
(Name of Subscriber - please print)
By: ________________________________________________
(Authorized Signature)
___________________________________________________
(Official Capacity or Title - please print)
___________________________________________________
Please print name of individual whose signature
appears above on behalf of the non-individual subscriber.
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Individual Subscriber Signature
___________________________________________________
(Family Name - please print)
___________________________________________________
(First Name - please print)
___________________________________________________
(Secondary Given Name(s) - please print)
By: _________________________________________________
(Signature)
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OTHER:
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[CHECK IF APPROPRIATE]
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The Subscriber is a registrant:
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The Subscriber is an insider of the issuer:
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[Subscriber Information Continues on Next Page]
PART C – CONTACT INFORMATION OF
SUBSCRIBER:
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Subscriber Information
___________________________________________________
(Subscriber’s Residential Address)
___________________________________________________
(Municipality) (Province/State)
___________________________________________________
(Postal Code/Zip Code) (Country)
___________________________________________________
(Telephone Number)
___________________________________________________
(Email Address)
Number of Securities of the Company currently owned:
___________________________________________________
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Disclosed Beneficial Subscriber:
If the Subscriber is signing as agent for a principal and is not a trust company, trust corporation, or registered adviser described in paragraph (p) or (q) of the definition of "accredited investor" in section 1.1 of National Instrument 45-106 Prospectus Exemptions, each purchasing on behalf of a fully managed account, complete the following and ensure that each of the Schedules, as applicable, are completed on behalf of such principal:
___________________________________________________
(Name of Principal)
___________________________________________________
(Municipality)
(Province/State)
___________________________________________________
(Postal Code/Zip Code) (Country)
___________________________________________________
(Telephone Number)
___________________________________________________
(Email Address)
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Register the Securities as set forth below:
¨ Same as Subscriber Information (otherwise complete below)
___________________________________________________
(Name)
___________________________________________________
(Account reference, if applicable)
___________________________________________________
(Address)
___________________________________________________
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Deliver the Securities as set forth below:
¨ Same as Registered Address (otherwise complete below)
___________________________________________________
(Name)
___________________________________________________
(Account reference, if applicable)
___________________________________________________
(Contact Name)
___________________________________________________
(Address)
___________________________________________________
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TO BE COMPLETED BY THE COMPANY ONLY
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The Company accepts the subscription on the terms and conditions of this Subscription Agreement, including the attached "Terms and Conditions of Subscription for Common Shares of Akanda Corp."
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Date:________________________
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AKANDA Corp.
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By: _________________________
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Authorized Signing Officer
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TERMS AND CONDITIONS OF SUBSCRIPTION FOR
Common Shares OF AKANDA Corp.
Details of the Offering
The Subscriber acknowledges that the Common Shares
subscribed for by the Subscriber hereunder form part of a private placement by the Company of an aggregate of up to 468,900 Common Shares
in the capital of the Company at a subscription price of USD$0.533162238 per Common Share for aggregate gross proceeds of up to USD$250,000
(the "Offering") and that Boustead Securities LLC (the “Placement Agent”), a broker-dealer that is
registered with the U.S. Securities And Exchange Commission and a member of the Financial Industry Regulatory Authority in the United
States, is acting as the exclusive placement agent. The amount to be raised in the Offering is subject to adjustment by the mutual agreement
of the Company and the Placement Agent.
Representations, Warranties and Covenants by
Subscriber
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1.
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The Subscriber represents, warrants and covenants (on its own behalf and on behalf of any beneficial purchaser
for whom it is acting) to the Company (and acknowledges that the Company and its counsel are relying thereon) as at the date hereof and
as at the completion of the purchase and sale of the Common Shares contemplated hereby that:
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(a)
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it has been independently advised as to restrictions with respect to trading in the Common Shares imposed
by applicable securities legislation in the jurisdiction in which it resides, confirms that no representation has been made to it by or
on behalf of the Company with respect thereto, acknowledges that it is aware of the characteristics of the Common Shares, the risks relating
to an investment therein and of the fact that it may not be able to resell the Common Shares except in accordance with limited exemptions
under applicable securities legislation and regulatory policies until expiry of the applicable hold period (which hold period may be indefinite)
and in compliance with the other requirements of applicable law;
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(b)
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it understands that the Company is not a "reporting issuer" as that term is defined in the Securities
Act (Ontario), in Ontario, or in any other jurisdiction, and, therefore, the Common Shares will be subject to an indefinite hold period
and may not be resold except in accordance with limited exemptions under applicable securities legislation and regulatory policies;
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(c)
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it understands that any share certificate or replacement certificate representing the Common Shares will
bear a legend or legends, substantially in the following form:
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UNLESS PERMITTED UNDER SECURITIES
LEGISLATION, THE HOLDER OF THESE SECURITIES MUST NOT TRADE THE SECURITIES BEFORE THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE LATER
OF: (I) THE DATE OF ISSUE, AND (II) THE DATE THE ISSUER BECOMES A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY IN CANADA.
[IF APPLICABLE] THE SECURITIES REPRESENTED
HEREBY 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. THE HOLDER HEREOF, BY PURCHASING THESE SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT
THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ENCUMBERED ONLY (A) TO THE COMPANY,
(B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S ("REGULATION S") UNDER THE U.S. SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH (1) RULE 144A
UNDER THE U.S. SECURITIES ACT OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS,
OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES
LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, A LEGAL OPINION SATISFACTORY TO THE COMPANY MUST
FIRST BE PROVIDED TO THE COMPANY OR THE TRANSFER AGENT, IF ANY, OF THE COMPANY.
[IF APPLICABLE] THE SALE OF THE SECURITIES
REPRESENTED HEREBY HAS NOT BEEN QUALIFIED WITH ANY STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF
THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO
ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE.
[IF APPLICABLE] THESE SECURITIES
MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON CANADIAN STOCK EXCHANGES. IF THE COMPANY IS A "FOREIGN
ISSUER" WITHIN THE MEANING OF REGULATION S AT THE TIME OF TRANSFER, A NEW CERTIFICATE, BEARING NO LEGEND, MAY BE OBTAINED FROM
THE TRANSFER AGENT, IF ANY, OF THE COMPANY, UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY
TO THE COMPANY AND THE TRANSFER AGENT OF THE COMPANY AND, IF SO REQUIRED BY THE TRANSFER AGENT OF THE COMPANY, AN OPINION OF COUNSEL,
TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S.
SECURITIES ACT.
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(d)
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it understands that in the event that the Common Shares held by the Subscriber are ever listed on any
stock exchange such securities may be subject to restrictive hold periods or escrow provisions and it hereby agrees to accept such hold
periods and/or escrow provisions and in furtherance of this covenant, the Subscriber hereby irrevocably appoints the Chief Executive Officer
of the Company as his, her, or its attorney-in-fact and authorizes him as his, her, or its attorney-in-fact to approve and sign an escrow
agreement on behalf of the Subscriber to provide for escrow of the Common Shares;
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(e)
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the delivery of this subscription, the acceptance hereof by the Company and the issuance of Common Shares
to the Subscriber complies with all applicable laws of the Subscriber’s jurisdiction of residence and domicile and will not cause
the Company or any of its officers or directors to become subject to or require any disclosure, prospectus or other reporting requirement
to which the Company is not currently subject;
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(f)
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it is aware that it is not purchasing the Common Shares hereunder pursuant to a prospectus and as a result:
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(i)
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there is no government or other insurance covering the Common Shares;
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(ii)
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it is restricted from using most of the civil remedies available under applicable securities legislation;
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(iii)
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it will not receive information that would otherwise be required to be provided to it under applicable
securities legislation;
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(iv)
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the Company is relieved of certain obligations that would otherwise apply under applicable securities
legislation; and
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(v)
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no securities commission or similar regulatory authority has reviewed or passed on the merits of the Common
Shares or the Offering;
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(g)
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it understands that the Company is relying on an exemption from the requirement to provide the Subscriber
with a prospectus under applicable Canadian securities laws and, as a consequence of acquiring the Common Shares pursuant to such exemption:
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(i)
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certain protections, rights and remedies provided by applicable Canadian securities laws, including statutory
rights of rescission, or damages and certain statutory remedies against an issuer, underwriters, auditors, directors and officers that
are available to investors who acquire securities offered by a prospectus, will not be available to the Subscriber,
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(ii)
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the common law may not provide investors with an adequate remedy in the event that they suffer investment
losses in connection with securities acquired in a private placement, and
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(iii)
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the Subscriber may not receive information that would otherwise be required to be given under the applicable
Canadian securities laws, and the Company is relieved from certain obligations that would otherwise apply under applicable Canadian securities
laws;
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(h)
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it understands that the sale and delivery of the Common Shares is conditional upon such sale being exempt
from the requirements of applicable securities legislation as to the filing of a prospectus or upon the issuance of such orders, consents
or approvals as may be required to permit such sale without the requirement of filing a prospectus;
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(i)
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no representation has been made to it regarding the present or future value of the Common Shares;
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(j)
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it has not received nor has it requested, nor does it have any need to receive, any document describing
the business and affairs of the Company and it has not become aware of any advertisement with respect to the Offering or the distribution
of the Common Shares by the Company;
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(k)
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the Common Shares are not being purchased by the Subscriber as a result of any material information concerning
the Company that has not been publicly disclosed and the Subscriber’s decision to tender this offer and acquire the Common Shares
has not been made as a result of any oral or written representation as to fact or otherwise made by or on behalf of the Company or any
other person and is based entirely upon currently available public information concerning the Company;
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(l)
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if the Subscriber is resident in Canada,
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(i)
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it is purchasing the Common Shares as principal for its own account and not for the benefit of any other
person, (or is deemed to be purchasing as principal under subsection 2.3(5) of National Instrument 45-106 – Prospectus
Exemptions ("NI 45-106")) and not with a view to the resale or distribution of all or any of the Common Shares
subscribed for hereunder;
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(ii)
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it is resident in the jurisdiction set out as the "Subscriber’s Residential Address" on
page two hereof; and
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(iii)
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it fully complies with a prospectus exemption set forth in Schedule "A" to this Subscription
Agreement;
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(m)
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it has not received or been provided with a prospectus, offering memorandum (within the meaning of applicable
Canadian securities laws) or any sales or advertising literature in connection with this Subscription Agreement or any document purporting
to describe the business and affairs of the Company which has been prepared for review by prospective purchasers to assist in making an
investment decision in respect of the Common Shares;
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(n)
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if the Subscriber is a resident of the United States,
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(i)
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it is resident in the jurisdiction set out as the "Subscriber’s Residential Address" on
page two hereof;
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(ii)
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it qualifies as an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D promulgated under the U.S. Securities Act, and one or more of the categories set forth in Schedule "B" attached
hereto and incorporated herein correctly and in all respects describes the Subscriber;
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(iii)
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it has been advised that the Common Shares have not been and will not be registered under the U.S. Securities
Act of 1933, as amended (the "U.S. Securities Act"), or the securities laws of any state of the U.S., and that the offer
and sale of the Common Shares to it are being made in reliance upon Section 4(a)(2) of the US. Securities Act and Rule 506(b) of
Regulation D under the ("Regulation D");
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(iv)
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it acknowledges that it has not purchased the Common Shares as a result of any "directed selling
efforts" (as defined in Regulation S under the U.S. Securities Act) or any "general solicitation" or "general advertising"
(as those terms are used in Regulation D), including advertisements, articles, notices or other communications published in any newspaper,
magazine or similar media or on the Internet, or broadcast over radio or television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising; and
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(v)
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Neither Subscriber nor, to its knowledge, any beneficial owner of the Company’s voting equity securities
(in accordance with Rule 506(d) of the U.S. Securities Act) held by such Subscriber is subject to any of the “bad actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under the U.S. Securities Act, (“Disqualification Events”),
except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the U.S. Securities Act,
and disclosed reasonably in advance of the Closing Time in writing in reasonable detail to the Company.
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(o)
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it undertakes and agrees that it will not offer or sell the Common Shares in the United States unless
such securities are registered under the 1933 Act and the securities laws of all applicable states of the United States or an exemption
from such registration requirements is available, and further that it will not resell the Common Shares, except in accordance with the
provisions of applicable securities legislation, regulations, rules, policies and orders and stock exchange rules;
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(p)
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if an individual, it is of the full age of majority and is legally competent to execute this Subscription
Agreement and take all action pursuant hereto;
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(q)
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if a company, body corporate, partnership, incorporated association or other entity, it is a valid and
subsisting entity, has the necessary legal capacity and authority to execute and deliver this Subscription Agreement and to take all actions
required pursuant thereto, was not created or is not being used solely to purchase or hold the Common Shares and certifies that all necessary
approvals by its directors, shareholders, partners, members or otherwise has been given;
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(r)
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this Subscription Agreement has been duly and validly authorized, executed and delivered by and constitutes
a legal, valid, binding and enforceable obligation of the undersigned;
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(s)
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the Subscriber has such knowledge in financial and business affairs as to be capable of evaluating the
merits and risks of its investment in this company and it is able to bear the economic risk of loss of its investment;
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(t)
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if required by applicable securities legislation, regulations, rules, policies or orders or by any securities
commission, stock exchange or other regulatory authority, the undersigned will execute, deliver, file and otherwise assist the Company
in filing, such reports, undertakings and other documents with respect to the issue or continued ownership of the Common Shares as may
be required;
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(u)
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it will comply with all applicable securities legislation, regulations, rules, orders, policies or other
laws concerning the purchasing, holding and resale or other disposition of the Common Shares, including the execution and filing of any
required private placement reports. In particular, the Subscriber will not resell or otherwise transfer or dispose of any of the Common
Shares except in accordance with the provisions of all applicable securities laws;
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(v)
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it will keep confidential all information provided to the Subscriber from time to time relating to the
business and affairs of the Company and will not distribute or otherwise make available any such information to any other person or otherwise
exploit any such information;
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(w)
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none of the funds the Subscriber is using to purchase the Common Shares are, to the knowledge of the Subscriber,
proceeds obtained or derived, directly or indirectly, as a result of illegal activities; and
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(x)
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the representations and warranties of the Subscriber stated or referred to herein will be true and correct,
both as of the execution of this Subscription Agreement and as of the Closing Time (as such term is defined below) as if repeated at such
time and shall survive the completion of the issuance of the Common Shares.
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Acknowledgements by Subscriber
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2.
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The Subscriber acknowledges (on its own behalf and on behalf of any beneficial purchaser for whom it is
acting) to the Company (and further acknowledges that the Company and its counsel are relying thereon) that:
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(a)
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this subscription represents "seed" or "risk" capital as the Company currently has
no business and may not be successful in future efforts to acquire businesses and non-cash assets;
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(b)
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the Company was only recently incorporated, has not commenced commercial operations and has no assets
other than cash. It has no history of earnings, and may not generate earnings or pay dividends;
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(c)
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the directors and officers of the Company will only devote a portion of their time to the business and
affairs of the Company and some of them are or will be engaged in other projects or businesses such that conflicts of interest may arise
from time to time;
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(d)
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assuming completion of the Offering, the Subscriber will suffer an immediate dilution to its investment;
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(e)
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the Company may issue additional securities subsequent to this Offering and this may result in further
dilution to the Subscriber, which dilution may be significant and which may also result in a change of control of the Company;
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(f)
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there can be no assurance that an active and liquid market for the Company's Common Shares will ever develop
and an investor may find it difficult to resell its Common Shares;
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(g)
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the Company has only limited funds with which to identify and evaluate potential businesses and assets
to acquire and there can be no assurance that the Company will be able to identify any suitable businesses and assets;
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(h)
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the Company may never become a "reporting issuer" as that term is defined in the Securities
Act (Ontario), in Ontario or in any other jurisdiction;
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(i)
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in the event that management of the Company resides outside of Canada or the Company identifies a foreign
business for acquisition, investors may find it difficult or impossible to effect service or notice to commence legal proceedings upon
any management resident outside of Canada or upon the foreign business and may find it difficult or impossible to enforce against such
persons, judgments obtained in Canadian courts;
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(j)
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the Subscriber is not entitled to be paid any commission in relation to its participation in the Offering;
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(k)
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there is no person acting or purporting to act in connection with the transactions contemplated herein
who is entitled to any brokerage or finder’s fee;
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(l)
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the Company’s counsel is acting solely as counsel to the Company and not as counsel to the Subscriber;
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(m)
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the Placement Agent has entered into an agreement with the Company that provides the Placement Agent with
the right to receive certain fees, reimbursement of expenses, rights to act as the Company’s intermediary in the future, and indemnification
rights, including the right to receive a success fee payable (i) in cash, equal to seven percent (7%) of the gross amount to be distributed
to the Company at the closing of this Offering, plus (ii) a non-accountable expense allowance equal to one percent (1%) of the gross
amount to be disbursed to the Company at the closing of this Offering, plus (iii) warrants equal to seven percent (7%) of the gross
amount to be disbursed to the Company at the closing of this Offering.
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Representations, Warranties and Covenants by
Company
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3.
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The Company represents, warrants and covenants to the Subscriber that:
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(a)
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the Company is a valid and subsisting Ontario company, duly incorporated and in good standing, and has
all requisite corporate power and authority to carry on its business as now conducted, to own, lease and operate its properties and assets
and to carry out the provisions hereof; and
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(b)
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upon their issuance at the Closing Time, the Common Shares will be validly issued and outstanding as fully
paid and non-assessable securities of the Company
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(c)
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Immediately prior to the Closing Time, the authorized equity of the Company consists of [*] Common Shares,
of which [*] Common Shares are issued and outstanding, and [*] preferred shares of which no preferred shares are issued and outstanding.
All outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance with all applicable U.S., Canadian and other applicable securities laws. There are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible
into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, any Common Shares of the Company,
or contracts, commitments, understandings or arrangements by which the Company or any subsidiary is or may become bound to issue additional
Common Shares, or securities or rights convertible or exchangeable into Common Shares. There are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) other than as provided
herein and the issue and sale of the securities hereunder will not obligate the Company to issue Common Shares or other securities to
any person (other than the Subscriber) and will not result in a right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
|
|
|
(d)
|
Based in part on the representations made by the Subscriber made herein, the offer and sale of the Common
Shares hereunder in accordance with this Agreement is exempt from the registration and prospectus delivery requirements of the Securities
Act of 1933, as amended (the “Securities Act”) and the securities registration and qualification requirements of the
currently effective provisions of the securities laws of the state in which the Subscriber is resident based upon the Subscriber’s
address set forth on the signature pages attached hereto.
|
|
|
(e)
|
The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions
contemplated thereby (i) are within the power of the Company and (ii) have been duly authorized by all necessary actions on
the part of the Company.
|
|
|
(f)
|
This Agreement has been, or will be, duly executed and delivered by the Company and constitutes, or will
constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except
as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’
rights generally and general principles of equity.
|
|
|
(g)
|
The execution and delivery by the Company of this Agreement and the performance and consummation of the
transactions contemplated hereby do not and will not (i) violate the Company’s constitutional and organizational documents
or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision
of, or result in the breach or the acceleration of, or entitle any other person to accelerate (whether after the giving of notice or lapse
of time or both), any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is
bound; or (iii) result in the creation or imposition of any security interest, mortgage, pledge, lien, claim, charge or other encumbrance
(“Lien”) upon any property, asset or revenue of the Company (other than any Lien arising under this Agreement) or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to
the Company, its business or operations, or any of its assets or properties.
|
|
|
(h)
|
No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental
authority or other person (including, without limitation, the shareholders of any Person) is required in connection with the execution
and delivery of this Agreement and the performance and consummation of the transactions contemplated hereby, other than such as have been
obtained and remain in full force and effect and other than such qualifications or filings under applicable securities laws as may be
required in connection with the transactions contemplated by this Agreement.
|
|
|
(i)
|
There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its subsidiaries that could, individually or in the aggregate, reasonably be expected to have a material adverse effect
on the assets, properties, condition (financial or otherwise), operations of the Company and its subsidiaries, taken as a whole (a “Material
Adverse Effect”).
|
|
|
(j)
|
Except for brokerage fees payable to the Placement Agent, which have been separately disclosed to the
Subscriber, there are no brokerage or finder’s fees or commissions which are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated
by this Agreement, and the Company has not taken any action that would cause any Subscriber to be liable for any such fees or commissions.
|
|
|
(k)
|
The Company and its subsidiaries have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use
in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). Neither the Company nor any subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company,
all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual
Property Rights.
|
Closing
|
|
4.
|
The Subscriber agrees to deliver to the Company on or before the Closing Time:
|
|
|
(a)
|
this duly completed and executed Subscription Agreement together with the applicable schedules attached
hereto;
|
|
|
(b)
|
a certified cheque, money order, bank draft, wire or other applicable means in the amount of the aggregate
subscription price set forth on the face page of this Subscription Agreement made payable to Dentons Canada LLP in Trust; and
|
|
|
(d)
|
such other documents as may be required by counsel to the Company.
|
|
|
5.
|
The sale and issuance of the Common Shares will be completed at the offices of the Company at such place,
time or date as the Company may determine (the "Closing Time") on an individual basis, provided that the Company shall
not be required to complete the sale and issuance of the Common Shares unless the Subscriber shall have complied with Section 4 hereof
and the conditions set forth in Section 8 hereof have been met or waived. The certificates for the Common Shares shall be stored
at the offices of counsel to the Company, unless a Subscriber specifically requests otherwise, and copies shall be delivered to each individual
Subscriber by email subsequent to the Closing Time.
|
|
|
6.
|
The Subscriber hereby irrevocably authorizes the Company to complete or correct any errors or omissions
in any form or document provided by the undersigned and to register and deliver certificates representing the Common Shares purchased
under this subscription in the name and to the address provided on the face page of this Subscription Agreement.
|
|
|
7.
|
The Company shall be entitled to rely on delivery of a facsimile or electronic copy of executed subscriptions,
and acceptance by the Company of such facsimile or electronic subscriptions shall be legally effective to create a valid and binding agreement
between the Subscriber and the Company in accordance with the terms hereof.
|
|
|
8.
|
The obligations of the Subscriber and the Company to complete the purchase and sale of the Common Shares
as contemplated hereby shall be conditional upon receipt of all regulatory approvals necessary to the purchase and sale of the Common
Shares on or before the Closing Time. In the event that this condition has not been met or waived by the Company, the Subscriber shall
not be required to purchase, and the Company shall not be required to issue and sell, any Common Shares, and any subscription funds received
by the Company will be returned to the Subscriber without interest thereon or deduction therefrom.
|
General
|
|
9.
|
The Company has the unconditional right to accept or reject any subscriptions in its sole discretion.
If the Company rejects this subscription it will, in a timely manner, cause the return to the Subscriber of the funds tendered herewith,
without interest thereon or deduction therefrom.
|
|
|
10.
|
The representations, warranties and covenants of the Subscriber herein are made with the intent that they
be relied upon by the Company in determining the suitability of a purchaser of Common Shares and the Subscriber agrees to indemnify the
Company against all losses, claims, costs, expenses and damages or liabilities which the Company may suffer or incur caused or arising
from reliance thereon. The Subscriber undertakes to immediately notify the Company of any change in any statement or other information
relating to the Subscriber set forth herein which takes place after execution hereof and prior to completion of the purchase and sale
of the Common Shares contemplated hereby.
|
|
|
11.
|
This Subscription Agreement, any amendment, schedule, exhibit, addendum, attachment or supplement hereto,
and all other documents relating hereto shall be governed by and construed in accordance with the internal laws of the Province of Ontario
governing contracts made and to be performed wholly therein, and without reference to its principles governing the choice or conflict
of laws. The parties hereto irrevocably attorn and submit to the jurisdiction of the courts of the Province of Ontario, sitting in the
City of Toronto, with respect to any dispute related to or arising from this Subscription Agreement. Time shall be of the essence hereof.
|
|
|
12.
|
This Subscription Agreement represents the entire agreement of the parties hereto relating to the subject
matter hereof and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or
referred to herein.
|
|
|
13.
|
If any provision of this Subscription Agreement is determined to be void or unenforceable in whole or
in part, it shall be deemed not to affect or impair the validity of any other provision of this agreement and such void or unenforceable
provision shall be severable from this agreement.
|
|
|
14.
|
The covenants, representations and warranties contained herein shall survive the closing of the transactions
contemplated hereby.
|
|
|
15.
|
This Subscription Agreement is not transferable or assignable.
|
|
|
(a)
|
acknowledges, consents and authorizes the Company to collect the Subscriber’s personal information
(such as full names, residential address and telephone number) for the purpose of completing the Subscriber’s subscription;
|
|
|
(b)
|
acknowledges, consents and authorizes the Company to retain the personal information for as long as permitted
or required by applicable law or business practices;
|
|
|
(c)
|
acknowledges, consents and authorizes the Company to deliver the personal information pertaining to the
Subscriber to the applicable regulatory authorities to comply with applicable securities legislation, stock exchanges, revenue or taxing
authorities, and any other parties involved in the Offering or future transactions of the Company; and
|
|
|
(d)
|
agrees that by executing this Subscription Agreement, the Subscriber is deemed to be consenting to the
foregoing collection, use, and disclosure of personal information.
|
[Schedule "A" and Schedule "B"
follow on next page]
Schedule
"A"
CANADIAN
ACCREDITED INVESTOR CERTIFICATE
|
|
TO:
|
AKANDA Corp. (the
"Issuer")
|
|
|
RE:
|
Purchase of Common
Shares of the Issuer
|
Representations
and Warranties
In connection with the purchase by the undersigned
(the "Subscriber") of the Common Shares (as defined in the attached Subscription Agreement), the Subscriber hereby represents,
warrants and certifies (on its own behalf and on behalf of any beneficial purchaser for whom it is acting) to the Issuer (and further
acknowledges that the Issuer and its counsel are relying thereon) that the Subscriber:
|
|
(i)
|
is purchasing the Common Shares as principal for its own account and not for the benefit of any other
person or is deemed to be purchasing as principal pursuant to National Instrument 45-106 – Prospectus Exemptions ("NI
45-106");
|
|
|
(ii)
|
has read and understands the indicated criterion of an accredited investor as set out in Annex "1"
to this Schedule "A";
|
|
|
(iii)
|
is (and will be at the Closing Time (as defined in the Subscription Agreement)) an "accredited investor"
(as defined in NI 45-106) or Section 73.3 of the Securities Act (Ontario), as applicable, by virtue of satisfying the indicated
criterion on Annex "1" to this Schedule "A";
|
|
|
(iv)
|
was not created or used solely to purchase or hold securities as an accredited investor as described in
paragraph (m) of the definition of "accredited investor" in NI 45-106;
|
|
|
(v)
|
if the Subscriber is an accredited investor by virtue of satisfying paragraph (j), (k) or (l) of
Annex "1" to this certificate, it has reviewed and understands the definitions of "financial assets" and "related
liabilities", as applicable, contained herein and it acknowledges that it needs to complete Appendix "2" to this Schedule
"A";
|
|
|
(vi)
|
has not been provided with any offering memorandum (as such term is defined in Annex "1" to
this Schedule "A") in connection with the purchase of the Common Shares; and
|
|
|
(vii)
|
upon execution of this Schedule "A" by the Subscriber, this Schedule "A" (and all
annexes attached hereto) shall be incorporated into and form a part of the Subscription Agreement.
|
By completing this Schedule "A",
the Subscriber authorizes the indirect collection of this information by each applicable securities regulatory authority or regulator
and acknowledges that such information is made available to the public under applicable securities legislation.
Certified ________________________:
|
|
|
|
|
(Name of Subscriber - please print)
|
|
|
|
|
|
By:
|
|
|
|
|
|
(Authorized Signature)
|
|
|
|
|
|
(Official Capacity or Title - please print)
|
|
|
|
|
|
Please print name of individual whose signature appears above if different than
the name of the Subscriber printed above.
|
ANNEX "1" (APPLICABLE CATEGORY)
TO CANADIAN ACCREDITED INVESTOR CERTIFICATE (SCHEDULE "A")
(All underlined words have the meanings set forth
at the end of this Annex "1").
***Please note that if the Investor qualifies
as an "accredited investor" under paragraphs (j), (k) or (l), below, a completed and executed Form 45-106F9 must also
be obtained (see Annex "2") ***
Please check
the appropriate box:
|
¨
|
(a)
|
a financial institution,
|
|
|
|
|
|
¨
|
(b)
|
the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada),
|
|
|
|
|
|
¨
|
(c)
|
a subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary,
|
|
|
|
|
|
¨
|
(d)
|
a person registered under the securities legislation of a jurisdiction of Canada as an adviser or dealer,
|
|
|
|
|
|
¨
|
(e)
|
an individual registered under the securities legislation of a jurisdiction of Canada as a representative of a person referred to in paragraph (d),
|
|
|
|
|
|
¨
|
(e.1)
|
an individual formerly registered under the securities legislation of a jurisdiction of Canada, other than an individual formerly registered solely as a representative of a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador),
|
|
|
|
|
|
¨
|
(f)
|
the Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the Government of Canada or a jurisdiction of Canada,
|
|
|
|
|
|
¨
|
(g)
|
a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec,
|
|
|
|
|
|
¨
|
(h)
|
any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government,
|
|
|
|
|
|
¨
|
(i)
|
a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada), a pension commission or similar regulatory authority of a jurisdiction of Canada,
|
|
|
|
|
|
¨
|
(j)
|
an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000,
|
|
|
|
|
|
¨
|
(j.1)
|
an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5,000,000,
|
|
¨
|
(k)
|
an individual whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year,
|
|
|
|
|
|
¨
|
(l)
|
an individual who, either alone or with a spouse, has net assets of at least $5,000,000,
|
|
|
|
|
|
¨
|
(m)
|
a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements and that has not been created or used solely to purchase or hold securities as an accredited investor as defined in this paragraph (m),
|
|
|
|
|
|
¨
|
(n)
|
an investment fund that distributes or has distributed
its securities only to
(i) a person
that is or was an accredited investor at the time of the distribution,
(ii) a person
that acquires or acquired securities in the circumstances referred to in sections 2.10 [Minimum amount investment] of NI 45-106, or 2.19
[Additional investment in investment funds] of NI 45-106, or
(iii) a
person described in paragraph (i) or (ii) that acquires or acquired securities under section 2.18 [Investment fund reinvestment]
of NI 45-106,
|
|
|
|
|
|
¨
|
(o)
|
an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt,
|
|
|
|
|
|
¨
|
(p)
|
a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be,
|
|
|
|
|
|
¨
|
(q)
|
a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction,
|
|
|
|
|
|
¨
|
(r)
|
a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser or an adviser registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded,
|
|
|
|
|
|
¨
|
(s)
|
an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) to (d) or paragraph (i) in form and function,
|
|
|
|
|
|
¨
|
(t)
|
a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors,
|
|
|
|
|
|
¨
|
(u)
|
an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser,
|
|
¨
|
(v)
|
a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator as an accredited investor,
|
|
|
|
|
|
¨
|
(w)
|
a trust established by an accredited investor for the benefit of the accredited investor’s family members of which a majority of the trustees are accredited investors and all of the beneficiaries are the accredited investor’s spouse, a former spouse of the accredited investor or a parent, grandparent, brother, sister, child or grandchild of that accredited investor, of that accredited investor’s spouse or of that accredited investor’s former spouse.
|
|
|
|
|
As
used in this ACCREDITED INVESTOR CERTIFICATE, the following terms have the following meanings:
"control person" means
in Ontario, Alberta, Newfoundland and Labrador,
Nova Scotia and Saskatchewan:
|
|
(a)
|
a person or company who holds a sufficient number of the voting rights attached to all outstanding voting
securities of an issuer to affect materially the control of the issuer, and, if a person or company holds more than 20 per cent of the
voting rights attached to all outstanding voting securities of an issuer, the person or company is deemed, in the absence of evidence
to the contrary, to hold a sufficient number of the voting rights to affect materially the control of the issuer, or
|
|
|
(b)
|
each person or company in a combination of persons or companies, acting in concert by virtue of an agreement,
arrangement, commitment or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting
securities of an issuer to affect materially the control of the issuer, and, if a combination of persons or companies holds more than
20 per cent of the voting rights attached to all outstanding voting securities of an issuer, the combination of persons or companies is
deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to affect materially the control
of the issuer;
|
in British Columbia and New Brunswick:
|
|
(a)
|
a person who holds a sufficient number of the voting rights attached to all outstanding voting securities
of an issuer to affect materially the control of the issuer, or
|
|
|
(b)
|
each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment
or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting securities of an issuer
to affect materially the control of the issuer,
|
and, if a person or combination of persons holds
more than 20% of the voting rights attached to all outstanding voting securities of an issuer, the person or combination of persons is
deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to affect materially the control
of the issuer;
in Prince Edward Island, Northwest Territories,
Nunavut and the Yukon:
|
|
(a)
|
a person who holds a sufficient number of the voting rights attached to all outstanding voting securities
of an issuer to affect materially the control of the issuer, and if a person holds more than 20% of the voting rights attached to all
outstanding voting securities of an issuer, the person is deemed, in the absence of evidence to the contrary, to hold a sufficient number
of the voting rights to affect materially the control of the issuer, or
|
|
|
(b)
|
each person in a combination of persons acting in concert by virtue of an agreement, arrangement, commitment
or understanding, who holds in total a sufficient number of the voting rights attached to all outstanding voting securities of an issuer
to affect materially the control of the issuer, and if a combination of persons holds more than 20% of the voting rights attached to all
outstanding voting securities of an issuer, the combination of persons is deemed, in the absence of evidence to the contrary, to hold
a sufficient number of the voting rights to affect materially the control of the issuer;
|
in Quebec:
|
|
(a)
|
a person that, alone or with other persons acting in concert by virtue of an agreement, holds a sufficient
number of the voting rights attached to all outstanding voting securities of an issuer to affect materially the control of the issuer.
If the person, alone or with other persons acting in concert by virtue of an agreement, holds more than 20% of those voting rights, the
person is presumed to hold a sufficient number of the voting rights to affect materially the control of the issuer; and
|
in Manitoba
|
|
(a)
|
a person or company who holds a sufficient number of the voting rights attached to all outstanding voting
securities of an issuer to affect materially the control of the issuer,
|
|
|
(b)
|
each person or company, or combination of persons or companies acting in concert by virtue of an agreement,
arrangement, commitment or understanding, that holds in total a sufficient number of the voting rights attached to all outstanding voting
securities of an issuer to affect materially the control of the issuer, or
|
|
|
(c)
|
a person or company, or combination of persons or companies, that holds more than 20% of the voting rights
attached to all outstanding voting securities of an issuer, unless there is evidence that the holding does not affect materially the control
of the issuer;
|
"director" means
|
|
(a)
|
a member of the board of directors of a company or an individual who performs similar functions for a
company, and
|
|
|
(b)
|
with respect to a person that is not a company, an individual who performs functions similar to those
of a director of a company;
|
"eligibility adviser" means
|
|
(c)
|
a person that is registered as an investment dealer and authorized to give advice with respect to the
type of security being distributed, and
|
|
|
(d)
|
in Saskatchewan or Manitoba, also means a lawyer who is a practicing member in good standing with a law
society of a jurisdiction of Canada or a public accountant who is a member in good standing of an institute or association of chartered
accountants, certified general accountants or certified management accountants in a jurisdiction of Canada provided that the lawyer or
public accountant must not
|
|
|
(i)
|
have a professional, business or personal relationship with the issuer, or any of its directors, executive
officers, founders, or control persons (as such term is defined in applicable securities legislation), and
|
|
|
(ii)
|
have acted for or been retained personally or otherwise as an employee, executive officer, director, associate
or partner of a person that has acted for or been retained by the issuer or any of its directors, executive officers, founders or control
persons (as such term is defined in applicable securities legislation) within the previous 12 months;
|
"executive officer" means, for
an issuer, an individual who is
|
|
(a)
|
a chair, vice-chair or president,
|
|
|
(b)
|
a vice-president in charge of a principal business unit, division or function including sales, finance
or production, or
|
|
|
(c)
|
performing a policy-making function in respect of the issuer;
|
"financial assets" means
|
|
(c)
|
a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes
of securities legislation;
|
"financial institution" means,
|
|
(a)
|
other than in Ontario,
|
|
|
(i)
|
an association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative
credit society for which an order has been made under section 473(1) of that Act,
|
|
|
(ii)
|
a bank, loan corporation, trust company, trust corporation, insurance company, treasury branch, credit
union, caisse populaire, financial services cooperative, or league that, in each case, is authorized by an enactment of Canada or a jurisdiction
of Canada to carry on business in Canada or a jurisdiction of Canada; or
|
|
|
(iii)
|
a Schedule III bank,
|
|
|
(i)
|
a bank listed in Schedule I, II or III to the Bank Act (Canada);
|
|
|
(ii)
|
an association to which the Cooperative Credit Association Act (Canada) applies or a central cooperative
credit society for which an order has been made under subsection 473(1) of that Act; or
|
|
|
(iii)
|
a loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union,
caisse populaire, financial services cooperative or credit union league or federation that is authorized by a statute of Canada or Ontario
to carry on business in Canada or Ontario, as the case may be.
|
"founder" means, in respect of
an issuer, a person who,
|
|
(a)
|
acting alone, in conjunction, or in concert with one or more persons, directly or indirectly, takes the
initiative in founding, organizing or substantially reorganizing the business of the issuer, and
|
|
|
(b)
|
at the time of the distribution or trade is actively involved in the business of the issuer;
|
"fully managed account" means
an account of a client for which a person makes the investment decisions if that person has full discretion to trade in securities for
the account without requiring the client’s express consent to a transaction;
"investment fund" has the same
meaning as in National Instrument 81-106 Investment Fund Continuous Disclosure;
"offering memorandum" means a
document, together with any amendments to that document, purporting to describe the business and affairs of an issuer that has been prepared
primarily for delivery to and review by a prospective purchaser so as to assist the prospective purchaser to make an investment decision
in respect of securities being sold in a distribution to which section 53 of the Securities Act (Ontario) would apply but for the
availability of one or more exemptions contained in Ontario securities laws, but does not include a document setting out current information
about an issuer for the benefit of a prospective purchaser familiar with the issuer through prior investment or business contacts,
"person" includes
|
|
(c)
|
a partnership, trust, fund and an association, syndicate, organization or other organized group of persons,
whether incorporated or not, and
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|
(d)
|
an individual or other person in that person’s capacity as a trustee, executor, administrator or
personal or other legal representative;
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"related liabilities" means
|
|
(a)
|
liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial
assets, or
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|
|
(b)
|
liabilities that are secured by financial assets;
|
"Schedule III bank" means an
authorized foreign bank named in Schedule III of the Bank Act (Canada);
"spouse" means, an individual
who,
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|
(a)
|
is married to another individual and is not living separate and apart within the meaning of the Divorce
Act (Canada), from the other individual,
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|
|
(b)
|
is living with another individual in a marriage-like relationship, including a marriage-like relationship
between individuals of the same gender, or
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|
|
(c)
|
in Alberta, is an individual referred to in paragraph (a) or (b), or is an adult interdependent partner
within the meaning of the Adult Interdependent Relationships Act (Alberta);
|
"subsidiary" means an issuer
that is controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary.
Interpretation
In this Schedule "A", a person (first
person) is considered to control another person (second person) if
|
|
(a)
|
the first person, directly or indirectly, beneficially owns or exercises control or direction over securities
of the second person carrying votes which, if exercised, would entitle the first person to elect a majority of the directors of the second
person, unless that first person holds the voting securities only to secure an obligation,
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|
(b)
|
the second person is a partnership, other than a limited partnership, and the first person holds more
than 50% of the interests of the partnership, or
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|
(c)
|
the second person is a limited partnership and the general partner of the limited partnership is the first
person.
|
ANNEX "2" (RISK ACKNOWLEDGEMENT FORM)
TO CANADIAN ACCREDITED INVESTOR CERTIFICATE (SCHEDULE "A")
Form 45-106F9
Form for Individual Accredited Investors
WARNING!
This
investment is risky.
Don’t invest unless you can afford to lose all the money you pay for this investment.
|
SECTION 1 TO BE COMPLETED BY THE ISSUER OR SELLING SECURITY HOLDER
|
|
1. About your investment
|
|
Type of securities: Common Shares
|
Issuer: Akanda Corp.
|
|
Purchased from: the Issuer
|
|
SECTIONS 2 TO 4 TO BE COMPLETED BY THE INVESTOR
|
|
2. Risk acknowledgement
|
|
This investment is risky. Initial that you understand that:
|
Your initials
|
Risk of loss – You could lose your entire investment of $____________________.
[Instruction: Insert the total dollar amount of the investment.]
|
|
|
Liquidity risk – You may not be able to sell your investment quickly – or at all.
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|
|
Lack of information – You may receive little or no information about your investment.
|
|
|
Lack
of advice – You will not receive advice from the salesperson about whether this investment is suitable for you unless the
salesperson is registered. The salesperson is the person who meets with, or provides information to, you about making this investment.
To check whether the salesperson is registered, go to www.aretheyregistered.ca.
|
|
|
3. Accredited investor status
|
|
You must meet at least one of the following criteria to be able to make this investment. Initial the statement that applies to you. (You may initial more than one statement.) The person identified in section 6 is responsible for ensuring that you meet the definition of accredited investor. That person, or the salesperson identified in section 5, can help you if you have questions about whether you meet these criteria.
|
Your initials
|
|
· Your net income before taxes was more than $200,000 in each of the 2 most recent calendar years, and you expect it to be more than $200,000 in the current calendar year. (You can find your net income before taxes on your personal income tax return.)
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· Your net income before taxes combined with your spouse’s was more than $300,000 in each of the 2 most recent calendar years, and you expect your combined net income before taxes to be more than $300,000 in the current calendar year.
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· Either alone or with your spouse, you own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities.
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· Either alone or with your spouse, you have net assets worth more than $5 million. (Your net assets are your total assets (including real estate) minus your total debt.)
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4. Your name and signature
|
|
By signing this form, you confirm that you have read this form and you understand the risks of making this investment as identified in this form.
|
|
First and last name (please print): _____________________________
|
|
Signature: _____________________________
|
Date: _______________
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|
SECTION 5 TO BE COMPLETED BY THE SALESPERSON
|
|
5. Salesperson information
|
|
[Instruction: The salesperson is the person who meets with, or provides information to, the purchaser with respect to making this investment. That could include a representative of the issuer or selling security holder, a registrant or a person who is exempt from the registration requirement.]
|
|
First and last name of salesperson (please print): ___________________________________________
|
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Telephone: ______________________________
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Email: ______________________________
|
|
Name of firm (if registered): _____________________________________
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|
SECTION 6 TO BE COMPLETED BY THE ISSUER OR SELLING SECURITY HOLDER
|
|
6. For more information about this investment
|
|
Akanda Corp.
Address: 77 King Street West, Suite 400, Toronto, Ontario M5K
0A1
Contact: Tej Virk
Email: tej@akandacorp.com
Telephone: +44 (791) 274 1995
For more information about prospectus exemptions, contact your local
securities regulator. You can find contact information at www.securities-administrators.ca.
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|
|
|
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|
|
Form instructions:
|
|
1.
|
This form does not mandate the use of a specific font size or style but the font must be legible.
|
|
|
2.
|
The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs the form.
|
|
|
3.
|
The purchaser must sign this form. Each of the purchaser and the issuer or selling security holder must receive a copy of this
form signed by the purchaser. The issuer or selling security holder is required to keep a copy of this form for 8 years after the distribution.
|
Schedule
“B”
U.S.
ACCREDITED INVESTOR CERTIFICATE
|
TO:
|
AKANDA Corp. (the
“Issuer”)
|
|
|
|
|
RE:
|
Purchase of Common
Shares of the Issuer
|
The Subscriber hereby
represents and warrants (on its own behalf and on behalf of any beneficial purchaser for whom it is acting) to the Issuer (and further
acknowledges that the Company and its counsel are relying thereon), pursuant to the attached Subscription Agreement that it is correctly
and in all respects described by the category or categories set forth below directly under which the Subscriber or its authorized representative
has checked.
The Subscriber acknowledges
that upon execution of this Schedule "B" by the Subscriber, this Schedule "B" shall be incorporated into and form
a part of the Subscription Agreement.
(Capitalized terms
not specifically defined in this Schedule "B" have the meaning ascribed to them in the Subscription Agreement to which this
Schedule "B" is attached. All monetary references in this Schedule "B" are in United States Dollars.)
CHECK THE CATEGORY
OR CATEGORIES WHICH DESCRIBES THE SUBSCRIBER
|
¨
|
Any bank as defined in Section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Exchange Act; any insurance company as defined in Section 2(13) of the Act; any investment company registered under the 1940 Act or a business development company as defined in Section 2(a)(48) of the 1940 Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any Plan (as defined above under "Certain ERISA Considerations") within the meaning of ERISA if the investment decision is made by a Plan fiduciary that is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the Plan has total assets in excess of $5,000,000 or, if a self-directed Plan, with investment decisions made solely by persons that are accredited investors;
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¨
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Any private business development company as defined in Section 202(a)(22) of the Advisers Act;
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¨
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Any organization described in Section 501(c)(3) of the Code, corporation, or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
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¨
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Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
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¨
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Any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of his or her purchase exceeds $1,000,0001;
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1
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For purposes of calculating his or her net worth, an investor
may include equity in personal property, cash, short term investments, stock, securities and real estate, but must exclude the value
of his or her primary residence. Indebtedness secured by a primary residence may also be excluded up to the fair market value of the
primary residence, while any excess above the fair market value of the primary residence should be considered a liability and deducted
from net worth. Equity in other real estate and in any personal property should be based on the fair market value of such property minus
any debt secured by such property.
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¨
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Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
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¨
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Any trust with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii);
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¨
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Any entity in which all of the equity owners are accredited investors;
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¨
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A person who holds one of the following licenses in good standing: General Securities Representative license (Series 7), the Private Securities Offerings Representative license (Series 82), or the Investment Adviser Representative license (Series 65);
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¨
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A “family office,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (17 CFR 275.202(a)(11)(G)-1): (i) with assets under management in excess of $5,000,000, (ii) that is not formed for the specific purpose of acquiring the securities offered, and (iii) whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment; and
|
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|
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|
¨
|
A “family client,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (17 CFR 275.202(a)(11)(G)-1)), of a family office meeting the requirements in paragraph (16) above and whose prospective investment in the issuer is directed by such family office pursuant to the immediately preceding clause.
|
Dated as of _________________________, 201_
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|
Print name of Subscriber
|
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By:
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|
Signature
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Print name of Signatory (if different from Subscriber)
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Title
|
SCHEDULE “C”
WIRE INSTRUCTIONS
For all trust accounts the Beneficiary Name
and Address is as follows:
Dentons Canada LLP in Trust
77 King Street West, Suite 400
Toronto, ON M5K 0A1
Please reference "Akanda Corp.".
If being wired from within Canada in CAD or
USD or in CAD from the U.S.
|
Bank of Montreal – CAD
|
Bank of Montreal - USD
|
|
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|
|
1 First Canadian Place
|
1 First Canadian Place
|
|
Toronto, ON M5X 1A3
|
Toronto,ON
M5X 1A3
|
|
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|
|
Account #[*]
|
Account #[*]
|
|
Transit #[*]
|
Transit #[*]
|
|
SWIFT Code: [*]
|
SWIFT Code: [*]
|
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|
|
If being wired internationally from anywhere other than the U.S.
|
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|
Bank of Montreal – CAD
|
Bank of Montreal - USD
|
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Internal Banking H.O.
|
Internal Banking H.O.
|
|
Montreal, QC
|
Montreal, QC
|
|
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Account #[*]
|
Account #[*]
|
|
Transit #[*]
|
Transit #[*]-001
|
|
SWIFT Code: [*]
|
SWIFT Code: [*]
|
|
If coming from the U.S. in USD
|
|
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|
Correspondent Bank:
|
Wells Fargo Bank N.A. (formerly known as Wachovia Bank N.A.)
|
|
|
New York, New York
|
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|
ABA #[*]
|
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|
SWIFT Code: [*]
|
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Account With:
|
Bank of Montreal
|
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|
SWIFT Code: [*]
|
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|
International Banking H.O. Montreal
|
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Account #[*]
|
Exhibit 10.6
/RA/65218.1/65871948.5
Service
agreement
Dated 2
June 2021
Canmart Limited
(Company)
Halo Labs Inc.
(Guarantor)
Tejinder Virk
(Executive)
Contents
|
1
|
Interpretation
|
1
|
|
|
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|
2
|
Employment
|
5
|
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|
3
|
Conditions to employment
|
6
|
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|
4
|
Fundamental terms and warranties
|
6
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5
|
Appointment as a director
|
7
|
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|
6
|
Duties
|
8
|
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|
7
|
Place of work
|
9
|
|
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8
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Hours of work
|
9
|
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|
9
|
Salary
|
9
|
|
|
|
|
|
10
|
Pension
|
10
|
|
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|
11
|
Expenses
|
10
|
|
|
|
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|
12
|
Incentive payments & bonus
|
10
|
|
|
|
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|
13
|
Shares
|
11
|
|
|
|
|
|
14
|
Other benefits and paid leave
|
12
|
|
|
|
|
|
15
|
Training
|
13
|
|
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|
16
|
Holidays
|
13
|
|
|
|
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|
17
|
Incapacity
|
14
|
|
|
|
|
|
18
|
Outside interests
|
15
|
|
|
|
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|
19
|
Confidential information
|
16
|
|
|
|
|
|
20
|
Intellectual property
|
17
|
|
|
|
|
|
21
|
Payment in lieu of notice
|
18
|
|
|
|
|
|
22
|
Termination without notice
|
19
|
|
|
|
|
|
23
|
Garden leave
|
20
|
|
|
|
|
|
24
|
Obligations upon termination
|
21
|
|
|
|
|
|
25
|
Post-termination restrictions
|
22
|
|
|
|
|
|
26
|
Disciplinary and grievance procedures
|
24
|
|
|
|
|
|
27
|
Change of Control
|
25
|
|
|
|
|
|
28
|
Guarantee
|
26
|
|
|
|
|
|
29
|
Data protection
|
26
|
|
|
|
|
|
30
|
Collective agreements
|
26
|
|
|
|
|
|
31
|
Notices
|
26
|
|
32
|
General
|
27
|
|
|
|
|
|
33
|
Entire agreement
|
27
|
|
|
|
|
|
34
|
Counterparts
|
27
|
|
|
|
|
|
35
|
Third party rights
|
27
|
|
|
|
|
|
36
|
Governing law
|
27
|
|
|
|
|
|
37
|
Jurisdiction
|
28
|
|
This agreement is dated
|
2 June 2021
|
Between
|
|
(1)
|
Canmart Ltd a company incorporated and registered in England and Wales with registered company number
11741517 and whose registered office is at Units 1a/1b Learoyd Road, New Romney, Kent TN28 8XU (the Company);
|
|
|
(2)
|
Halo Labs Inc. a company incorporated in Canada whose registered office is
77 King Street West, Suite 400, Toronto-Dominion Centre, Toronto, Ontario, Canada (the Guarantor); and
|
|
|
(3)
|
Tejinder Virk of 39 Landau, 72 Farm Lane, London SW6 1QA (the Executive).
|
It is agreed:
|
|
1.1
|
In this agreement the following terms and expressions shall have the following meanings:
|
Appointment means the employment
of the Executive by the Company on the terms of this agreement.
Board means the board of directors
of the Company and any committees duly constituted by the board.
Capacity means as agent, consultant,
director, the holder of any office, employee, worker, owner, partner, Shareholder or in any other capacity.
Cash Shell Company means any undertaking (including
a special purpose acquisition company) (a) which is listed/quoted or becomes listed/quoted on a Recognised Investment Exchange and (b)
of which the Company is or becomes a wholly-owned subsidiary, but excluding for the avoidance of doubt Halo Labs Inc.
Control means in relation to a body corporate,
the power of a person to secure that the affairs of the body corporate are conducted in accordance with the wishes of that person:
|
|
(a)
|
by means of the holding of shares, or the possession of voting power, in or in relation
to that or any other body corporate; or
|
|
|
(b)
|
as a result of any powers conferred by the articles of association or any other document
regulating that or any other body corporate.
|
Change of Control occurs if a person (whether alone
or together with any person acting in concert with that person) who controls any body corporate ceases to do so or if another person acquires
Control of it.
Commencement Date means such date as agreed by the
parties in writing.
Competitor means a business concern which is, or
intends to be, in competition with any Restricted Business.
Confidential Information means information of
a confidential nature (in any form) concerning the business, affairs and/or finances of the Company or any Group Company or their
respective customers, clients, suppliers, agents, distributors, investors and shareholders which the Executive receives, obtains,
creates or develops at any time by reason of or in connection with the Executive's service with the Company or any Group Company
(whether or not marked as confidential). This includes: trade secrets; technical information, data, research and development;
customer, client and supplier lists, contact details of customers, clients and suppliers and individuals within those organisations;
inventions and patent applications in the course of preparation and all other Intellectual Property Rights; financial projections,
target details and accounts; details of funding and resource allocation; fee levels, pricing policies, commissions and commission
charges; budgets, forecasts, reports, records and corporate and business plans; planned or potential products and services;
marketing and advertising plans, requirements and materials, marketing surveys and research reports; market share and pricing
statistics; disputes (whether existing, threatened or prior), settlement discussions and terms; details of employees, workers,
officers and consultants including their roles and responsibilities, remuneration, benefits and organisational structures, legally
privileged material; computer software and passwords.
Copies means copies or records of any Confidential
Information in whatever form (including in written, oral, visual or electronic form or on any magnetic or optical disk or memory and wherever
located) including extracts, analysis, studies, plans, compilations or any other way of representing or recording and recalling information
which contains, reflects or is derived or generated from Confidential Information.
Executive Equity has the meaning given to it in Clause
13.
Executive Equity Rights means the rights to be
granted to the Executive as set out and materially on the terms described in Schedule 1.
Garden Leave means any period during which the
Company has exercised its rights under Clause 23.
Group Company means any company which is from time
to time a subsidiary or holding company of the Company and any subsidiary of any holding company of the Company (and references to the
Group shall be construed accordingly). The words "subsidiary" and "holding company" have the meanings given
to them in section 1159 of the Companies Act 2006 and a person shall be treated, for the purposes only of the membership requirement contained
in subsections 1159(1)(b) and (c) of that Act, as a member of another company even if its shares in that other company are registered
in the name of: (i) another person (or its nominee), whether by way of security or in connection with the taking of security, or (ii)
a nominee.
Holiday Year means 1 January to 31 December or
such other period as the Company notifies the Executive in writing.
Incapacity means any sickness, injury or other
incapacity or medical disorder or condition which prevents the Executive from carrying out his duties.
Intellectual Property Rights means patents, rights
to Inventions, copyright and related rights, trade marks, trade names and domain names, rights in get-up, rights in goodwill or to sue
for passing off, unfair competition rights, rights in designs, rights in computer software, database rights, topography rights, rights
in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered
or unregistered and including all applications (or rights to apply) for, and renewals or extensions of, such rights and all similar or
equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world.
Invention means any invention, idea, discovery,
development, improvement or innovation, whether or not patentable or capable of registration, and whether or not recorded in any medium.
Investor means any person, firm, company or other
entity who or which is an investor in the Company or any Group Company at the Termination Date or who or which invested in the Company
or any Group Company at any time in the 12 months immediately preceding the Termination Date or with whom or which the Company or any
Group Company had negotiations or meaningful discussions regarding possible investment in the Company or any Group Company at any time
in the 12 months immediately preceding the Termination Date and with whom or which the Executive had material contact or material involvement
in the course of the Appointment.
Lender means any person, firm, company or other
entity who or which is a lender of funds to the Company or any Group Company at the Termination Date or who or which lent funds to the
Company or any Group Company at any time in the 12 months immediately preceding the Termination Date or with whom or which the Company
or any Group Company had negotiations or meaningful discussions regarding possible lending to the Company or any Group Company at any
time in the 12 months immediately preceding the Termination Date and with whom or which the Executive had material contact or material
involvement in the course of the Appointment.
Listing means the admission, approved by the Board,
of the entire issued share capital of the Company or a Cash Shell Company, or securities representing those shares (including without
limitation depositary interests, American depositary receipts, American depositary shares and/or other instruments) on a Recognised Investment
Exchange.
Long Stop Date means the date falling 12 months from
the date of this agreement.
Personal Data means personal data about or relating
to the Executive including his name, date of birth, home address, telephone number, driver's licence number, passport number, family information
(such as marital status and dependant details), emergency contact information, education and training details (such as qualifications
and professional expertise), employment details (such as employment status, employee type, performance and evaluation information, work
phone number and email, intranet user log in and department and supervisor details), financial information (such as compensation, benefits,
bank account information and pensions information) and hiring information (such as CV, prior employment history and personal references).
Policies and Procedures means the policies and
procedures of the Company applicable to employees and officers of the Company as amended from time to time.
Prospective Customer means any firm, company or
person who, during the 12 months before the Termination Date, was in negotiations with the Company or any Group Company about becoming
a customer of the Company or any Group Company with whom the Executive had contact or material involvement or, in respect of the exercise
of his duties or responsibilities, about whom he became aware or informed to a material extent in the course of the Appointment.
Qualifying Equity Finance means a bona fide
transaction (or series of transactions, provided that the type of share issued and the price paid per share is consistent across the
series of transactions), approved by the Board, with the principal purpose of raising capital, pursuant to which the Company (or a
Cash Shell Company) issues equity shares (but excluding any equity shares issued on conversion of any convertible securities or any
equity securities issued to Halo, Inc) with an aggregate subscription price of not less than £10,000,000.
Recognised Investment Exchange means NASDAQ, the
New York Stock Exchange, the Official List of the United Kingdom Listing Authority, the AIM Market operated by the London Stock Exchange
Group Plc, the Toronto Stock Exchange, the NEO Exchange or the TSX Venture Exchange or any other recognised investment exchange (as defined
in section 285 of the Financial Services and Markets Act 2000).
Regulatory Requirements means all legal and regulatory
obligations, codes of practice and recommendations and similar which apply to the Executive, the Company or any Group Company, including:
|
|
(a)
|
in relation to transactions in securities, related party transactions and inside
information (including any share dealing policy of the Company);
|
|
|
(b)
|
pursuant to the Financial Services and Markets Act 2000 and the Criminal Justice Act
1993; and
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|
|
(c)
|
any other laws, rules and regulations of, or applicable to companies admitted to, a Recognised Investment
Exchange on which the Company (or a Cash Shell Company) is Listed,
|
Restricted Business means those parts of the business
of the Company and any Group Company with which the Executive was involved to a material extent in the 12 months before the Termination
Date.
Restricted Customer means any firm, company or person
who, during the 12 months before the Termination Date, was a customer of or in the habit of dealing with the Company or any Group Company
with whom the Executive had contact or material involvement or, in respect of the exercise of his duties or responsibilities, about whom
he became aware or informed to a material extent in the course of the Appointment.
Restricted Person means anyone employed or engaged
by the Company or any Group Company with whom the Executive dealt in the 12 months before the Termination Date in the course of the Appointment.
Restricted Supplier means any person, firm or company
which at any time during the 12 months prior to the Termination Date was a supplier of any goods, products or services (other than utilities
and goods or services supplied for administrative purposes) to the Company or any Group Company and with whom or which the Executive had
personal dealings during that period other than in a de minimis way and where such entities remain suppliers of the Company and/or the
Group Company at or immediately before the Termination Date.
Shareholder means holding an investment by way of
shares or other securities of over 5% of the total issued share capital of any company, other than a Cash Shell Company, whether or not
it is listed or dealt in on a recognised stock exchange.
Termination Date means the date on which the Executive's
employment with the Company terminates however caused.
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1.2
|
The headings in this agreement are inserted for convenience only and shall not affect
its construction.
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1.3
|
A reference to a particular law is a reference to it as it is in force for the time being taking account
of any amendment, extension or re-enactment and includes any subordinate legislation for the time being in force made under it.
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1.4
|
Unless the context otherwise requires:
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1.4.1
|
a reference to one gender shall include a reference to the other genders; and
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1.4.2
|
words in the singular include the plural and in the plural include the singular.
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1.5
|
References to a "person" include any individual, company, any other body corporate, partnership
or unincorporated association (whether or not having separate legal personality).
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1.6
|
The words "including", "include", "in particular", "for
example" and words of similar effect shall not limit the general effect of the words that precede them.
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2.1
|
The Executive agrees to serve the Company as Chief Executive on and subject to the terms and conditions
of this agreement. It is envisaged that the Company will be subject to a reverse takeover and there will be a Listing. Accordingly, the
terms of this agreement may require amendments to comply with any applicable Regulatory Requirements and if so, the Executive will be
paid a cash sum equivalent to any amounts (including benefits) that he is entitled to under this agreement that are not included in the
amended agreement.
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2.2
|
The Executive's employment will commence on the Commencement Date and shall continue, subject to the remaining
terms of this agreement, until terminated by either party giving the other not less than 6 months prior written notice, save that the
Company can only give notice after 18 months following the Commencement Date (except that this limitation shall not apply in respect of
termination rights under Clause 22.1(a), (c) or (g)). If the Company does give notice sooner, the amount of Basic Salary and contractual
benefits that the Executive would otherwise have been entitled to up to the first day on which termination could have been effective in
accordance with this clause will be paid to the Executive as a lump sum within 28 days of the Termination Date. For the avoidance of doubt,
nothing in this Clause 2.2 shall prevent or limit the Company's right to terminate this agreement without notice and without payment for
any Basic Salary and contractual benefits for any reason that falls within Clause 22.1(a), (c) or (g).
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2.3
|
No period of employment with the Company or any other employer counts towards the period of continuous
employment between the Executive and the Company which therefore will begin on the Commencement Date
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2.4
|
The parties acknowledge and agree that the Company intends to pursue a Listing, either directly or via
a Cash Shell Company, and that as part of that process the Company's advisers (including its brokers) may require certain terms of this
Agreement to be varied, amended or deleted. The parties agree that they will act reasonably in agreeing any such variations, amendments
or deletions and the Executive agrees that (without limitation) the following provisions, amendments or variations, if required or reasonably
requested by the Company (on the advice of its brokers) pursuant to such Listing, will be acceptable:
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(a)
|
any lock-in and/or orderly market restrictions on market-standard terms (where, in respect of the length
of any such restriction, "market-standard" means no longer than two years in respect of each of any lock-in and any orderly
market restriction);
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(b)
|
the Executive ceasing to be entitled to any or all of the Executive Equity Rights; and
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(c)
|
a vesting, or reverse vesting, period of up to four years and otherwise on market-standard
terms,
|
and the Executive agrees that he will take all action reasonably
necessary to give effect to any such amendments, variations or deletions. For the avoidance of doubt, under no circumstances shall the
Executive be required to surrender or otherwise lose the ownership of whole or any part of the Executive Equity pursuant to this Clause
2.4.
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3
|
Conditions to employment
|
Conditions Precedent
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3.1
|
The Executive's employment under this agreement is conditional upon:
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|
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(a)
|
receipt by the Company of such references, pre-employment background checks and medical
checks as it considers necessary or appropriate; and
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(b)
|
the results of each reference and check being satisfactory to the Company in its
absolute discretion.
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Conditions Subsequent
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3.2
|
The Company shall take appropriate professional advice as to the best way in which to achieve the proposed
Listing of the business operated or proposed to be operated by it. If, following such advice, the Board decides that it would be in the
best interests of the Company and its members as a whole to achieve a Listing via a Cash Shall Company then, before the Long Stop Date,
the Company will:
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(a)
|
establish or acquire or be acquired by a Cash Shell Company;
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(b)
|
in respect thereof and subject always to Clause 2.4, grant the Executive the Executive
Equity; and
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(c)
|
transfer his engagement as Chief Executive to the Cash Shell Company,
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(together, the Conditions Subsequent).
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3.3
|
In the event that the Conditions Subsequent have not been satisfied by the Long Stop Date and such non-satisfaction
is predominantly or primarily the result of either or both of (a) some action or inaction by or on behalf of Halo and/or (b) another factor
or factors beyond the reasonable control of the Executive, the parties shall, in good faith, use reasonable endeavours to grant equity
interests in the Guarantor (or the Company if it is directly subject to a Listing) to the Executive that give the Executive an approximately
equivalent monetary valuation as would have been held by him in a Cash Shell Company that held the businesses of Cannahealth, Canmart
and Bophelo only, pursuant to the terms of this Agreement.
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4
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Fundamental terms and warranties
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4.1
|
The Executive represents and warrants to the Company that (in each case as a fundamental
term of this agreement):
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|
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(a)
|
the Executive is not subject to any restrictions which prevent the Executive from
holding office as a director;
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(b)
|
by entering into this agreement or fully performing any of the Executive's obligations under it, the Executive
will not be in breach of any court order or any express or implied terms of any contract or other obligation binding on the Executive;
and
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(c)
|
the Executive has not used or disclosed to the Company or any Group Company any confidential
information belonging to any previous employer or any other person; and
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(d)
|
the Executive has the right to work in the United Kingdom and, if his right to work
in the United Kingdom is time limited, the Executive’s visa permits him to be employed by the Company and carry out his duties under
this agreement (without hindrance).
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4.2
|
The Executive must notify the Company immediately of any change to the Executive's immigration status and
must produce to the Company the documents proving the Executive's right to work within five working days of any request to do so. If the
Executive has time limited immigration permission which is due to expire at any time during the Executive's employment, the Executive's
ongoing employment will be subject to the Company being satisfied that the Executive has submitted an application to extend the Executive's
United Kingdom immigration permission prior to the date it is due to expire and that the application has not been rejected.
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4.3
|
Notwithstanding (and without prejudice to) any other provision of this agreement, the Company may terminate
this agreement summarily if the Executive is in breach of any of the terms and/or warranties in this Clause 4.
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5
|
Appointment as a director
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|
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5.1
|
The Executive will be appointed as a director of the Company subject to the remaining
provisions of this agreement and the Company's articles of association.
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5.2
|
The Executive will not be entitled to any director's or other fees from the Company or any Group Company
or to any fees in respect of any office the Executive may hold as nominee or representative.
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5.3
|
The Executive's appointment as a director of the Company or any Group Company, at any time, is a term of
the Executive's employment. If the Executive ceases for any reason (except as provided in Clause 22.1(a)) to be a director, the Executive's
employment under this agreement will continue in such other position as the Company may reasonably require and all provisions of this
agreement not relating to the Executive's directorship will continue to apply. The Executive agrees that in such circumstances any such
termination of office will not be in repudiation of this agreement and the Executive will have no claims in respect of such cessation
of office.
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|
|
5.4
|
The Executive will at all times:
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|
|
(a)
|
comply with the articles of association of the Company and any Group Company of which
the Executive is a director;
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|
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(b)
|
abide by all statutory, fiduciary and common-law duties to any Company and Group
Company of which the Executive is a director;
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|
|
(c)
|
comply with all rules regarding conduct as an officer and executive under the Companies
Act 2006; and
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|
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(d)
|
not do anything that would cause the Executive to be disqualified from acting as
a director.
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|
5.5
|
The Executive must disclose to the Company, on reasonable request, any information which the Company requires
in order to enable it to fulfil its obligations under any Regulatory Requirements and the Executive shall endeavour to ensure that this
information is kept up to date at all times.
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5.6
|
Except with the prior approval of the Board, the Executive shall not resign as a director
of the Company or any Group Company.
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6.1
|
The Executive acknowledges that he will be a fiduciary in a position of seniority and trust.
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|
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6.2
|
At all times during the course of employment the Executive will:
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|
|
(a)
|
faithfully and diligently serve the Company and the Group and exercise such powers and perform such duties
as may from time to time be assigned to the Executive by the Board or perform such other duties as the Company may reasonably require;
|
|
|
(b)
|
devote the whole of the Executive's working time, attention and abilities to the
business and affairs of the Company and the Group;
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|
|
(c)
|
comply with all reasonable directions of and regulations made by the Company and
the Board;
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|
|
(d)
|
promptly make such reports to the Board in connection with the affairs of the Company and of any Group
Company on such matters and at such times as are reasonably required, and otherwise keep the Board fully informed of all matters relating
to the business and affairs of the Company and the Group;
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|
|
(e)
|
immediately upon becoming aware, report:
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|
|
(i)
|
any wrongdoing (including the Executive's own wrongdoing) whether committed, contemplated or discussed
by any person employed or engaged by the Company or any Group Company irrespective of whether this would or may involve self-incrimination;
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|
|
(ii)
|
any plans or proposals or discussions by any person employed or engaged by the Company or any Group Company
to leave the employment or engagement of the Company or Group Company, whether alone or in concert with any other person and whether to
join a competitor or any other business; and
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|
|
(iii)
|
any misuse of Confidential Information by any person (including the Executive) irrespective of whether
this would or may involve self-incrimination;
|
|
|
(f)
|
use all reasonable endeavours to promote, protect, develop and extend the business
of the Company and Group Companies;
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|
|
(g)
|
comply with all Policies and Procedures;
|
|
|
(h)
|
comply with all Regulatory Requirements and promptly provide the Company with all information that it requires
or may require to comply with the Regulatory Requirements; and
|
|
|
(i)
|
offer, promise or provide any bribe, inducement or reward to any third party in order
to gain any commercial, contractual, regulatory or personal advantage;
|
|
|
(ii)
|
receive or accept any bribe, inducement or reward from any third party in order to gain any commercial,
contractual, regulatory or personal advantage; or
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|
|
(iii)
|
receive any gifts, goods, service, rebates or commission from any third party other
than in accordance with Company policy from time to time in force.
|
|
|
6.3
|
The Executive agrees and accepts that:
|
|
|
(a)
|
the Policies and Procedures do not form part of this agreement or the terms of the Executive's employment
and the Company may amend the Policies and Procedures at any time; and
|
|
|
(b)
|
a breach of the Regulatory Requirements may lead to civil or criminal liability for the Executive, action
being taken against the Executive by any relevant regulatory authority and/or disciplinary action by the Company up to and including summary
dismissal if the Executive's conduct falls within the categories in Clause 22.1.
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|
|
7.1
|
The normal place of work of the Executive is London (or such other place as agreed by the parties) or
any other place as the Company may reasonably require for the proper performance and exercise of the Executive's duties.
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|
|
7.2
|
The Executive will be required to travel in appropriate circumstances on the business
of the Company and the Group (within the United Kingdom and/or abroad).
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|
|
8.1
|
The Executive's normal hours of work are from 8.30am to 5:30pm Monday to Friday, inclusive of one hour
for lunch daily, and such additional hours as may be necessary for the proper performance of the Executive's duties. The Executive is
not entitled to any further remuneration for additional hours outside normal office hours.
|
|
|
8.2
|
The parties agree that the nature of the Executive's position is such that the Executive's working time
cannot be measured and, accordingly, the Executive's employment falls within the scope of regulation 20 of the Working Time Regulations
1998.
|
|
|
9.1
|
The Executive will be paid an annual salary of £500,000 (Basic Salary)
subject to applicable deductions as required by law including for tax and national insurance.
|
|
|
9.2
|
The Basic Salary will be paid in equal monthly instalments (or pro rata where the Executive is only employed
during part of a month) in arrears. For convenience, payment will usually be slightly in advance of the end of the calendar month to which
the payment relates.
|
|
|
9.3
|
The Executive authorises the Company to deduct (and retain) from the Basic Salary, or any other sum due
to the Executive at any time, any sum due to the Company or any Group Company from the Executive.
|
The Company will comply with the
employer pension duties in accordance with Part 1 of the Pension Act 2008.
Subject to any Company policy in operation from time to
time and to production of VAT receipts or other appropriate evidence to the reasonable satisfaction of the Company, the Company will reimburse
(or procure the reimbursement of) all reasonable expenses wholly, properly and necessarily incurred by the Executive in the performance
of the Executive's duties.
|
|
12
|
Incentive payments & bonus
|
|
|
12.1
|
Subject to Clause 12.7, on a Listing, the Executive shall be entitled to receive an incentive payment
of £250,000, which shall be paid on or around the payroll in the subsequent month following the Listing.
|
|
|
12.2
|
Subject to Clause 12.7, on completion of a Qualifying Equity Finance, the Executive shall be entitled to
receive an incentive payment of £250,000, which shall be paid on or around the payroll in the month following receipt by the Company
of the Qualifying Equity Finance.
|
|
|
12.3
|
The Executive is entitled to participate in the Company's bonus scheme with an annual
bonus opportunity of:
|
|
|
(a)
|
up to 100% of Basic Salary based on meeting achievable KPIs as determined by the Board using its reasonable
discretion on or around the beginning of each financial year; and
|
|
|
(b)
|
an additional bonus opportunity based on achievable stretch targets which is to be
determined by the Board using its reasonable discretion.
|
|
|
12.4
|
The Board may award any such bonus in cash, equity or such other instrument or arrangement with the Company
undertaking that it will act reasonably in making any such award in a way which is tax efficient and cost effective for the Executive.
|
|
|
12.5
|
Any bonus made pursuant to Clause 12.3 may, at the Board's absolute discretion, be reduced pro rata by
reference to any period for which the Executive has been absent from work for any reason during the period to which the bonus relates.
|
|
|
12.6
|
The Executive will not be entitled to compensation for loss of bonus (whether pursuant to this Clause 12
or otherwise) on termination of employment. Payment of a bonus in one year will not entitle the Executive to a bonus in any other year.
|
|
|
12.7
|
Payment of any incentive payment or bonus under this Clause 12 will be conditional on:
|
|
|
(a)
|
notice not having been served by the Executive;
|
|
|
(b)
|
the Executive not being the subject of a disciplinary investigation which could result in the Executive's
dismissal for gross misconduct (in which case payment of any incentive or bonus will be postponed pending the final outcome of that disciplinary
procedure save where the procedure results in dismissal in which case no incentive or bonus shall be payable); and/or
|
|
|
(c)
|
the Executive not having committed a repudiatory breach of this agreement;
|
in each case, as at the payment date.
|
|
12.8
|
If any payment or other obligation under this agreement or any related benefit or remuneration plan does
not comply with any applicable Regulatory Requirement, the Company may in its sole discretion amend the terms of the payment or other
obligation (including by reducing, revoking, cancelling or recovering any payment or award) to make it compliant.
|
|
|
12.9
|
Any payments under this Clause 12 will be subject to applicable deductions for tax and National Insurance
(excluding employer National Insurance contributions) and will not be pensionable.
|
|
|
13.1
|
If the Board considers it likely that a Cash Shell Company will acquire Control of the Company, the Company
shall procure that the Executive is granted an award of an equity interest in the Cash Shell Company (which could be a subscription/award
of shares or share options, depending on the taxation implications for both the Company and the Executive, with the Company undertaking
that it will act reasonably in procuring the offer of an incentive structure which is tax efficient and cost effective for the Executive
provided there are no adverse consequences for the Company or the Cash Shell Company) (the Executive Equity).
|
|
|
13.2
|
The Executive Equity is intended to represent 10% of the issued share capital of the Cash Shell Company
before the Cash Shell Company acquires the Company or any other company or business, and/or issues equity to participants in a placing
or public offering to occur on or around the date of Listing, when, pursuant to each of such events, the percentage equity interest held
by the Executive will be diluted in accordance with the terms of such transactions.
|
|
|
13.3
|
Subject always to Clause 2.4, the Executive Equity will be subject to monthly vesting (or reverse vesting
if shares are awarded) over a three year period, with a one year vesting cliff (33.3% vesting 12 months after date of grant of the award),
and will be subject to customary good leaver, intermediate leaver and bad leaver conditions.
|
|
|
13.4
|
In the event that there is a Change of Control of the Company or Cash Shell Company (other than as part
of the fundraising on or around the date of Listing or an internal re-organisation) after the date falling 12 months after the date of
the grant of Executive Equity and before the end of the three year vesting period (or such other period as required in accordance with
Clause 2.4), and the Executive is an employee of the Company (or the Cash Shell Company as the case may be) at such time, it is agreed that vesting
of the Executive Equity will automatically be accelerated immediately prior to such Change of Control.
|
|
|
13.5
|
The Executive's participation in the Executive Equity shall be determined by the
applicable rules (or other documents) of the scheme to be implemented.
|
|
|
13.6
|
In the event a Cash Shell Company does not acquire Control of the Company, the Company
and the Executive will both act in good faith to agree an alternative incentive arrangement to that referred to in Clause 13.1 above and,
if applicable, Clause 3.3.
|
|
|
14
|
Other benefits and paid leave
|
|
|
14.1
|
The Company will endeavour to put in place a private medical insurance scheme as soon as reasonably practicable
after the Commencement Date. The Executive, his spouse and dependents shall be entitled to participate in such scheme.
|
|
|
14.2
|
The Executive's rights and entitlements and the Company's obligations to pay premiums
for the private medical insurance scheme shall be subject always to:
|
|
|
(a)
|
the rules and terms of such scheme from time to time in force;
|
|
|
(b)
|
the Company's absolute discretion to change scheme and/or scheme provider and/or to
discontinue providing the benefit at any time;
|
|
|
(c)
|
the Executive satisfying any underwriting or other requirements of the relevant scheme
provider; and
|
|
|
(d)
|
the Executive co-operating with the Company and the relevant scheme provider when
making any claim.
|
|
|
14.3
|
The Executive agrees that:
|
|
|
(a)
|
the Company shall have no obligation to pursue any claim for benefits on behalf of the Executive or the
Executive's spouse or dependants or any other beneficiaries or potential beneficiaries if it is not accepted by the scheme provider;
|
|
|
(b)
|
the Company will have no liability to the Executive or the Executive's spouse or dependants for failure
or refusal by the scheme provider for whatever reason to pay benefits or for cessation of benefits on the termination of the Executive's
employment and the Company is entitled to terminate the Executive's employment notwithstanding the fact that the Executive may lose entitlement
to benefits under these arrangements as a result;
|
|
|
(c)
|
The Executive is not contractually entitled to any benefit he receives which is not expressly referred
to in this agreement (whether payment of insurance scheme premiums or otherwise).
|
|
|
14.4
|
The Executive may be eligible to take the following types of paid leave, subject to any statutory eligibility
requirements or conditions and the Company's rules applicable to each type of leave in force from time to time:
|
|
|
(a)
|
statutory paternity leave;
|
|
|
(b)
|
statutory adoption leave;
|
|
|
(c)
|
shared parental leave; and
|
|
|
(d)
|
parental bereavement leave.
|
|
|
14.5
|
The Company will pay up to a total of £30,000 towards the Executive's legal and tax fees he reasonably
incurs through his appointed professional advisors and which arises directly from the corporate restructuring referred to in this agreement.
Any such payment will be made directly to his appointed advisers subject to production of satisfactory invoices confirming the fees incurred
and shall exclude any success fee or uplift on standard hourly rates.
|
In addition to general training the Company provides during
the Executive's induction and throughout his employment, the Company will specify certain mandatory training modules from time to time.
These cover matters that are essential for working for the Company, or for the Executive's role. The subject matter will vary from time
to time and the Company will update the Executive on the requirements. Details of the current compliance training that is mandatory for
all employees are available on the intranet.
|
|
16.1
|
The Executive will be entitled to 30 days' paid holiday in each Holiday Year in addition to the usual public
holidays in England and Wales. The first 28 days of holiday (including any public holidays) taken in any Holiday Year will be the
Executive's statutory holiday for the purpose of both the Working Time Regulations 1998 and Clause 16.6 below.
|
|
|
16.2
|
If the Executive's employment commences or terminates part way through a Holiday Year, the entitlement
of the Executive during that Holiday Year shall be calculated on a pro rata basis rounded up to the nearest half day.
|
|
|
16.3
|
Holidays shall be taken at such time or times as shall be approved in advance by the Company. The Company
may require the Executive to take holiday on particular dates.
|
|
|
16.4
|
The Executive will be entitled to carry over up to 5 days' holiday at the end of each Holiday Year provided
that the Executive uses that holiday by 31 March in the following Holiday Year (all other holiday remaining at the end of the Holiday
Year will lapse). Any carried over holiday not used by that date will lapse.
|
|
|
16.5
|
The Executive shall have no entitlement to any payment in lieu of accrued but untaken holiday except on
termination of the Executive's employment. Subject to Clause 16.6, the amount of any payment in lieu will be 1/260th of the Executive’s
Basic Salary for each untaken day of holiday entitlement for the Holiday Year in which termination takes place.
|
|
|
(a)
|
the Company has terminated or would have been entitled to terminate the Executive's
employment under Clause 22; or
|
|
|
(b)
|
the Executive terminates in breach of this agreement,
|
any payment due under Clause 16.5 will be limited to the
statutory entitlement of the Executive under the Working Time Regulations 1998 (and any holiday (including public holidays) taken shall
be deemed first to have been taken in satisfaction of that statutory entitlement as set out in Clause 16.1).
|
|
16.7
|
If on termination of the Executive's employment the Executive has taken in excess of his accrued holiday
entitlement, the Company shall be entitled to recover from the Executive, by way of deduction from any payments due to the Executive or
otherwise, one day's pay calculated at 1/260th of the Basic Salary of the Executive for each excess day.
|
|
|
16.8
|
If either party has served notice to terminate the Executive's employment, the Company may require the
Executive to take any accrued but unused holiday entitlement during the notice period. Any accrued but unused holiday entitlement shall
be deemed to be taken during any period of Garden Leave.
|
|
|
16.9
|
During any continuous period of absence due to Incapacity of one month or more the Executive shall not
accrue holiday under this contract and the entitlement of the Executive under Clause 16.1 for the Holiday Year(s) in which such absence
takes place shall be reduced pro rata save that it shall not fall below the entitlement of the Executive under the Working Time Regulations
1998.
|
|
|
17.1
|
If the Executive is absent from work due to Incapacity, the Executive shall notify
the Company of the reason for the absence as soon as possible on the first day of absence.
|
|
|
17.2
|
Immediately following the Executive's return to work after a period of absence due to Incapacity of seven
days or less the Executive must complete a self-certification form. For periods of absence of more than seven consecutive days the Executive
must produce a doctor's fit note verifying that the absence is due to Incapacity.
|
|
|
17.3
|
Subject to complying with the Company’s absence requirements above and to the remaining provisions
of this Clause 17, the Executive shall be entitled to receive full Basic Salary and contractual benefits during any periods of absence
due to Incapacity up to a maximum of 12 weeks in aggregate in any rolling 52-week period. Any such payments shall be inclusive of any
statutory sick pay. The Executive's qualifying days for statutory sick pay purposes are Monday to Friday.
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|
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17.4
|
The Executive agrees to consent to medical examinations (at the Company's expense) by a doctor or clinic
nominated by the Company should the Company so require. The Executive agrees that any report produced in connection with any such examination
may be disclosed to the Company and the Company may discuss the contents of the report with the relevant doctor.
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17.5
|
If the Incapacity is or appears to be occasioned by actionable negligence, nuisance or breach of any statutory
duty on the part of a third party in respect of which damages are or may be recoverable, the Executive shall immediately notify the Company
of that fact and of any claim, settlement or judgment made or awarded in connection with it and provide all relevant particulars that
the Company may reasonably require. The Executive shall, if required by the Company, co-operate in any related legal proceedings and refund
to the Company that part of any damages or compensation recovered by the Executive relating to the loss of earnings for the period of
the Incapacity as the Company may reasonably determine less any costs borne by the Executive in connection with the recovery of such damages
or compensation, provided that the amount to be refunded to the Company shall not exceed the total amount paid to the Executive by the
Company in respect of the period of Incapacity.
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17.6
|
The Company is entitled to terminate the Executive's employment under the terms of this agreement notwithstanding
that any such termination would or might cause the Executive to forfeit any entitlement to sick pay or other benefits.
|
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|
17.7
|
The payment of the Executive's Basic Salary and other contractual benefits during
absence due to Incapacity is conditional on:
|
|
|
(a)
|
notice not having been served by either party;
|
|
|
(b)
|
the Executive not being the subject of a disciplinary investigation which could result
in the Executive's dismissal for gross misconduct; and
|
|
|
(c)
|
the Executive not being under a performance improvement plan.
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18.1
|
Subject to Clause 18.2, the Executive shall not at any time during employment (including
during any period of notice) save with the prior written approval of the Company:
|
|
|
(a)
|
be directly or indirectly engaged, concerned or have any financial interest in any Capacity in any other
business, trade, profession or occupation (or the setting up of any business, trade, profession or occupation) other than that of the
Company and the Group, whether paid or unpaid; or
|
|
|
(b)
|
hold any directorship (or other office) of any company other than that of the Company
and any Group Company, whether paid or unpaid.
|
|
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18.2
|
Notwithstanding Clause 18.1, the Executive:
|
|
|
(a)
|
may hold an investment by way of shares or other securities of not more than 5% of the total issued share
capital of any company (whether or not it is listed or dealt in on a recognised stock exchange) provided that such company does not carry
on (or propose to carry on) any business similar to or competitive with any business for the time being carried on by the Company or any
Group Company;
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(b)
|
has disclosed to the Company the external interests and activities listed in schedule 2 including the Executive's
Capacity with regard to each such interest and activity. The Company consents to the Executive continuing these activities on the strict
condition that it reserves the right to require (at any time) the Executive to cease any or all of such interests or activities to the
extent that, in the opinion of the Company, they interfere, may be likely to interfere or could be perceived to interfere with the discharge
of the Executive's obligations to the Company or Group or create or may be likely to create a conflict of interest or perceived conflict
of interest; and
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|
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(c)
|
may engage in external interests and activities provided that such companies do not carry on (or propose
to carry on) any business similar to or competitive with any business for the time being carried on by the Company or any Group Company
and such interests or activities do not interfere with the Executive's performance of his duties for the Company, and any board level
appointments shall require prior written approval of the governance committee of the Company, not to be unreasonably withheld, and subject
to being permitted by the rules of any applicable regulatory framework.
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|
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18.3
|
Without prejudice to the Executive's obligations above, the Executive must promptly disclose to the Company
any matter relating to the Executive's spouse, civil partner, partner, children, parents or other immediate family and/or any entity whose
affairs the Executive or any such person controls which may (or may be perceived to) interfere, conflict or compete with the proper performance
of the obligations of the Executive under this agreement.
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19
|
Confidential information
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19.1
|
Without prejudice to the Executive's common law duties, the Executive shall not (except in the proper course
of the Executive's duties, as authorised or required by law or as authorised in advance by the Company), either during the Executive's
employment or at any time after termination of employment (howsoever arising):
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(a)
|
use any Confidential Information;
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|
(b)
|
make or use any Copies; or
|
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|
(c)
|
disclose any Confidential Information to any person whatsoever.
|
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|
19.2
|
The Executive shall be responsible for protecting the confidentiality of the Confidential
Information and shall:
|
|
|
(a)
|
use best endeavours to prevent the use or communication of any Confidential Information by any person
(except in the proper course of that person’s duties, as required by law or as authorised in advance by the Company); and
|
|
|
(b)
|
inform the Company immediately upon becoming aware, or suspecting, that any unauthorised person knows,
has access to, has been provided with or has used any Confidential Information.
|
|
|
19.3
|
All Confidential Information and Copies are and shall remain at all times the property of the Company
and on termination of the Executive's employment (or at the request of the Company at any time during employment), the Executive shall:
|
|
|
(a)
|
hand over all Copies to such person as is nominated by the Company;
|
|
|
(b)
|
irretrievably delete any Confidential Information (including any Copies) stored on any magnetic or optical
disk or memory, including personal computer networks, personal email accounts or personal accounts on websites, and all matter derived
from such sources which is in the Executive's possession or under the Executive's control; and
|
|
|
(c)
|
on the request of the Company, provide a signed statement that the Executive has complied fully with all
obligations under this Clause 19.3 together with such evidence of compliance as the Company may reasonably request .
|
|
|
19.4
|
Clause 19 shall not apply to any Confidential Information which the Executive can
demonstrate:
|
|
|
(a)
|
is already in the public domain at the time of disclosure;
|
|
|
(b)
|
is identifiable without requiring significant expenditure of time, skill or money; and
|
|
|
(c)
|
came into the public domain other than by reason of or as a direct or indirect result
of the disclosure by the Executive of any Confidential Information.
|
|
|
19.5
|
Nothing in this Clause 19 shall prevent the Executive from:
|
|
|
(a)
|
making a protected disclosure within the meaning of Part 4A of the Employment Rights Act 1996 (this includes
protected disclosures made about matters previously disclosed to another recipient);
|
|
|
(b)
|
making a disclosure to a regulator regarding any misconduct, wrongdoing or serious
breach of a Regulatory Requirement;
|
|
|
(c)
|
reporting a criminal offence to the police or a law enforcement agency; or
|
|
|
(d)
|
co-operating with the police or a law enforcement agency regarding any criminal investigation or prosecution
or with a regulator regarding any investigation by that regulator.
|
|
|
20.1
|
All Intellectual Property Rights made, discovered, originated, produced or developed by the Executive during
the course of employment with the Company (whether or not during working hours or using the premises or resources of the Company or the
Group) shall immediately be disclosed in writing to the Company by the Executive and shall automatically, on creation, vest absolutely
in the Company or such Group Company as the Company may nominate for that purpose to the fullest extent permitted by law.
|
|
|
(a)
|
acknowledges for the purposes of section 39 of the Patents Act 1977 that because of the nature of the Executive's
duties, and the particular responsibilities arising from those duties, the Executive has, and at all times during employment will have,
a special obligation to further the interests of the business of the Company and the Group;
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|
|
(b)
|
undertakes to promptly, whenever requested by the Company, and in any event upon the termination of employment,
deliver up to the Company all such Intellectual Property Rights and all related correspondence, documents, papers and records and all
copies of any such Intellectual Property Rights in the Executive's possession or control;
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|
|
(c)
|
undertakes to hold upon trust for the benefit of the Company (or its nominee) all Intellectual Property
Rights in respect of all Intellectual Property Rights made, originated or developed by the Executive during employment by the Company
(whether or not during working hours or using the premises or resources of the Company or the Group) to the extent that they do no vest
automatically in the Company, until the same are vested absolutely in the Company (or its nominee);
|
|
|
(d)
|
assigns absolutely with full title guarantee by way of present assignment of present and future rights,
all Intellectual Property Rights made, originated or developed by the Executive in the course of employment (whether or not during working
hours or using the premises or resources of the Company or the Group);
|
|
|
(e)
|
acknowledges that, other than as required by law, no further remuneration or compensation other than that
set out in this agreement is or may become due to the Executive in respect of the performance of the Executive's
obligations under this Clause 20;
|
|
|
(f)
|
undertakes, at the reasonable expense of the Company, to execute all such documents, make such applications,
give such assistance and do all such acts and things as may in the opinion of the Company be necessary or desirable to vest, register
or obtain any Intellectual Property in the name of the Company (or its nominee), and otherwise to protect and maintain any Intellectual
Property Rights made, originated or developed by the Executive and all related Intellectual Property Rights;
|
|
|
(g)
|
waives any moral rights (as provided for by Chapter IV of the Copyright Designs & Patents Act 1988
(the 1988 Act) or any similar provisions of law in any jurisdiction) in any Intellectual Property Rights created, made, originated,
developed or produced by the Executive in the course of employment (whether or not during working hours or using the premises or resources
of the Company or the Group) and agrees to grant all necessary consents and further agrees not to institute, support, maintain or permit
any action or claim to the effect that any treatment, exploitation or use of such Intellectual Property Rights infringes the Executive's
moral rights, including the right to be identified, the right of integrity and the right against false attribution provided for in the
1988 Act;
|
|
|
(h)
|
will not, except in the proper performance of the Executive's duties, disclose any Intellectual Property
Rights (or any related correspondence, documents, papers and records and copies) belonging to the Company (or its nominee) without the
prior written consent of the Company; and
|
|
|
(i)
|
will give all necessary assistance to the Company (or its nominee) to enable the
Company (or its nominee) to enforce its Intellectual Property Rights against third parties and/or to defend claims for infringement of
third party Intellectual Property Rights.
|
|
|
20.3
|
The Executive irrevocably appoints the Company to be the Executive's attorney in the Executive's name and
on the Executive's behalf to execute and/or sign all such instruments, and/or do all such things and generally to use the Executive's
name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this Clause 20. With respect to any
third party, a certificate in writing signed by any director of the Company or the company secretary of the Company that any instrument
or act falls within the authority conferred by this Clause 20.3 shall be conclusive evidence that such is the case.
|
|
|
21
|
Payment in lieu of notice
|
|
|
21.1
|
Notwithstanding any other provision of this agreement, the Company may, in its sole and absolute discretion,
terminate the Executive's employment under this agreement summarily by giving the Executive written notice that it is exercising its discretion
under this Clause 21.1. In such circumstances the Company shall pay the Executive his Basic Salary and contractual benefits in lieu of
the notice period referred to in Clause 2.2 or any unexpired part of it. Payment will be made subject to such deductions as are required
by law, including for tax and national insurance. The Company's right to make a payment under this Clause 21.1 does not give the Executive
any right to demand such payment.
|
|
|
21.2
|
The Executive shall not be entitled to any payment in lieu of notice if the Company
would otherwise have been entitled to terminate the Executive's employment without notice in accordance with Clause 22 and the Company shall be entitled
to recover from the Executive any payment in lieu of notice already made.
|
|
|
22
|
Termination without notice
|
|
|
22.1
|
The Company may terminate the Executive's employment with immediate effect without notice (and with no
liability to make any further payment to the Executive) if the Executive:
|
|
|
(a)
|
is disqualified from acting as a director;
|
|
|
(b)
|
commits, in the reasonable opinion of the Board, an act of gross misconduct;
|
|
|
(c)
|
commits, in the reasonable opinion of the Board, any serious or repeated breach or failure to observe
of any of the provisions of this agreement or the Policies and Procedures or the Regulatory Requirements or any anti-bribery and corruption
policies and the Executive has previously been given written notice of such and a reasonable opportunity to improve or comply as the case
may be;
|
|
|
(d)
|
refuses to comply with any reasonable and lawful direction of the Board;
|
|
|
(e)
|
is declared bankrupt or makes any arrangement with or for the benefit of his creditors or has a county
court administration order made against the Executive under the County Court Act 1984;
|
|
|
(f)
|
is convicted of any criminal offence (other than an offence under any road traffic
legislation in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed);
|
|
|
(g)
|
is guilty of fraud or dishonesty or acts in any manner which, in the reasonable opinion of the Board, brings
or is likely to bring the Executive, the Company or any Group Company into disrepute or is materially adverse to the interests of the
Company or any Group Company (in each case whether or not in the course of employment); or
|
|
|
(h)
|
ceases to hold any qualification, approval, registration or authorisation required
for the proper performance of the Executive's duties.
|
|
|
22.2
|
The rights of the Company under Clause 22.1 are without prejudice to any other rights that it may have
at law to terminate the Executive's employment or to accept any breach of this agreement by the Executive as having brought the agreement
to an end. Any delay by the Company in exercising any right to terminate shall not constitute a waiver of that right.
|
|
|
22.3
|
If the Executive's employment is terminated at any time by reason of any reconstruction or amalgamation
of the Company or any Group Company, whether by winding up or otherwise, and the Executive is offered employment with any concern or undertaking
involved in or resulting from the reconstruction or amalgamation on terms which (considered in their entirety) are no less favourable
to any material extent than the terms of this agreement, the Executive shall have no claim against the Company, any Group Company or the
undertaking arising out of or in connection with such termination.
|
|
|
22.4
|
This Clause 22.4 applies if the Executive subscribes for or is awarded shares in the Company or any Group
Company or participates in any share option, restricted share, restricted share unit, long term incentive, carried interest or co-invest,
or any other form of profit sharing, incentive, bonus or equity plan or arrangement (each an Incentive) or may do so. Upon termination
of the Executive's employment (whether lawful or unlawful), the Executive's rights (if any) in respect of each Incentive shall be solely determined
by the applicable rules or other documents governing each Incentive and the Executive hereby irrevocably waives any other claims or rights
in respect of the loss of any rights or benefits under or in respect of any Incentive granted or not yet granted to the Executive (including
any loss relating to the lapse of, or the Executive's ineligibility to exercise, any share options, the value of any shares, the operation
of any compulsory transfer provisions or the operation of any vesting criteria).
|
|
|
23.1
|
Following service of notice to terminate the Executive's employment by either party, or if the Executive
purports to terminate his employment in breach of contract and/or without serving the period of notice required by Clause 2.2, the Company
may in its absolute discretion place the Executive on garden leave for the whole or part of the Executive's notice period (Garden Leave).
|
|
|
23.2
|
During any period of Garden Leave the Company:
|
|
|
(a)
|
shall be under no obligation to provide any work to the Executive and may revoke any
powers he holds on behalf of the Company or any Group Company;
|
|
|
(b)
|
may exclude the Executive from any premises of the Company or any Group Company;
|
|
|
(c)
|
may require the Executive not to contact or deal with (or attempt to contact or deal with) any officer,
employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser, investor or other business contact of the
Company or any Group Company;
|
|
|
(d)
|
may require the Executive to resign as a director of the Company or any Group Company;
|
|
|
(e)
|
may cease to provide the Executive with access to the Company and Group Company information
systems;
|
|
|
(f)
|
may appoint another person(s) to perform the Executive's responsibilities jointly
with the Executive or in the Executive's place; and/or
|
|
|
(g)
|
may require the Executive to take any accrued holiday due to the Executive.
|
|
|
23.3
|
During any period of Garden Leave the Executive:
|
|
|
(a)
|
will continue to receive Basic Salary and all contractual benefits including the incentives in Clauses
12.1 and 12.2 in the usual way and subject to the terms of any benefit arrangement;
|
|
|
(b)
|
will remain an employee of the Company and bound by the terms of this agreement (including
his fiduciary duties and duties of good faith and fidelity); and
|
|
|
(c)
|
must ensure that the Board knows where the Executive will be and how the Executive can be contacted during
each working day (except during any periods taken as holiday in the usual way);
|
|
|
23.4
|
The Executive agrees that he shall have no claim against the Company in respect of
any action set out in this Clause 23.
|
|
|
24
|
Obligations upon termination
|
|
|
24.1
|
On termination of the Executive's employment (however arising) or, if the Company so requires, at any
time following the service of notice by either party or purported notice of termination by the Executive, the Executive shall:
|
|
|
(a)
|
resign immediately from any directorship held by him in or on behalf of the Company or any Group Company
and from any other offices he may hold as nominee or representative of the Company or any Group Company;
|
|
|
(b)
|
immediately deliver to the Company all property of the Company or any Group Company or any of its or their
respective customers, clients, suppliers, investors and other business contacts (including documents, books, materials, records, correspondence,
papers and information on whatever media and wherever located relating to the business or affairs of the Company or any Group Company
or their respective customers, clients, investors, suppliers and other business contacts), which is in his possession or under his control
and he/ shall not retain any Copies;
|
|
|
(c)
|
irretrievably delete any information relating to the business or affairs of the Company or any Group Company
stored on any magnetic or optical disk or memory, including personal computer networks, personal email accounts or personal accounts on
websites, and all matter derived from such sources which is in his possession or under his control;
|
|
|
(d)
|
deliver to the Company on request any computer or other device in his possession or
control to allow the Company to remove all Confidential Information and any software of the Company; and
|
|
|
(e)
|
on the request of the Company, provide a signed statement that he has complied fully
with his obligations under this Clause 24.1 together with such reasonable evidence of compliance as the Company may require.
|
|
|
24.2
|
The Executive hereby irrevocably appoints the Company to be his attorney to appoint any director of the
Company as his attorney to execute such instrument or do any such thing and generally to use his name for the purpose of giving effect
to and providing to the Company or its nominee the full benefit of Clause 24.1(a).
|
|
|
24.3
|
The obligations in Clause 24.1 shall not be affected by the fact that any document or device may include
the Executive's Personal Data. It shall be the Executive's responsibility to notify the Company of any Personal Data that may exist so
that the Company can make proper arrangements for its disposal.
|
|
|
24.4
|
The Executive will, on the Company's reasonable request, co-operate with and assist the Company or any
Group Company in any internal investigation, administrative, regulatory, quasi-judicial proceedings or any threatened or actual litigation
concerning it or them. The Company will only make such a request where the Executive has in his possession or knowledge any facts or other
matters which the Company or any Group Company reasonably considers is relevant to such process or legal proceedings. This assistance
may include giving statements/affidavits, meeting with the Company or any Group Company's legal and other professional advisers, attending
any legal hearing and giving evidence. The Company or relevant Group Company will pay the Executive's reasonable expenses and loss of
income incurred in providing such assistance provided that the Executive notifies the Company or relevant Group Company of the amount of any expenses or
anticipated loss of income in advance.
|
|
|
25
|
Post-termination restrictions
|
|
|
25.1
|
In order to protect the Confidential Information and business connections of the Company and each Group
Company to which he has access as a result of the Appointment , the Executive covenants with the Company (for itself and as trustee and
agent for each Group Company) that he shall not:
|
|
|
25.1.1
|
for 12 months after the Termination Date, solicit or endeavour to entice away from the Company or any
Group Company the business or custom of a Restricted Customer with a view to providing goods or services to that Restricted Customer in
competition with any Restricted Business;
|
|
|
25.1.2
|
for 12 months after the Termination Date in the course of any business concern which is in competition,
or intends to compete, with the Company or any Group Company, offer to employ or engage or otherwise endeavour to entice away from the
Company or any Group Company any Restricted Person who could damage the interests of the Company or any Group Company as a result of any
such employment, engagement or enticement;
|
|
|
25.1.3
|
for 12 months after the Termination Date in the course of any business concern which is in competition,
or which intends to compete, with any Restricted Business, employ or engage or otherwise facilitate the employment or engagement of any
Restricted Person who could damage the interests of the Company or any Group Company as a result of that employment or engagement, whether
or not such person would be in breach of contract as a result of such employment or engagement;
|
|
|
25.1.4
|
for six months after the Termination Date, be involved in any Capacity with any business
concern which is (or intends to be) in competition with any Restricted Business;
|
|
|
25.1.5
|
for 12 months after the Termination Date, be involved with the provision of goods or services to (or otherwise
have any business dealings with) any Restricted Customer or Prospective Customer in the course of any business concern which is in competition
with any Restricted Business;
|
|
|
25.1.6
|
for 12 months after the Termination Date damage (or attempt to do so) any relationship
between the Company or any Group Company and the Restricted Supplier; or
|
|
|
25.1.7
|
at any time after the Termination Date, represent himself as connected with the Company or any Group Company
in any capacity, other than as a former employee, director or shareholder, or use any registered names or trading names associated with
the Company or any Group Company.
|
|
|
25.1.8
|
at any time after the Termination Date, make any comments or statements of any nature that are derogatory
to or disparaging of, or have the effect of lowering the reputation of the Company or any Group Company or any of its or their directors,
officers, employees or agents; and/or take part in any conduct which may bring into disrepute the Company, any Group Company or any of
its or their directors, officers, employees or agents.
|
|
|
25.2
|
None of the restrictions in Clause 25.1 shall prevent the Executive
from:
|
|
|
25.2.1
|
being engaged or concerned in any business concern insofar as the Executive's duties or work shall relate
solely to geographical areas where the business concern is not in competition with any Restricted Business; or
|
|
|
25.2.2
|
being engaged or concerned in any business concern, provided that the Executive's duties or work shall
relate solely to services or activities of a kind with which the Executive was not concerned to a material extent in the 12 months before
the Termination Date.
|
|
|
25.3
|
The restrictions imposed on the Executive by this Clause 25
apply to him acting:
|
25.3.1 directly or indirectly; and
|
|
25.3.2
|
on his own behalf or on behalf of, or in conjunction with, any
firm, company or person.
|
|
|
25.4
|
Subject to Clause 25.12, the Executive agrees that the Board may review the Prospective Customer, Restricted
Business, Restricted Customer, Restricted Person and Restricted Supplier definitions and revise, delete and amend these (to include but
not be limited to adding new customers, persons and suppliers or deleting or revising named customers, persons and suppliers) from time
to time.
|
|
|
25.5
|
The periods for which the restrictions in Clause 25 apply shall be reduced by any
period that the Executive spends on Garden Leave immediately before the Termination Date.
|
|
|
25.6
|
If the Executive receives an offer to be involved in a business concern in any Capacity during the Appointment,
or before the expiry of the last of the covenants in this Clause 25, the Executive shall give the person making the offer a copy of this
Clause 25 and shall tell the Company the identity of that person as soon as possible after accepting the offer.
|
|
|
25.7
|
This Clause 25.7 applies if, at any time during the Executive's employment, two or more Restricted Persons
have left their employment, appointment or engagement with the Company and have subsequently performed work for a Competitor. Where this
clause applies, the Executive will not, at any time during the six months following the last date on which any of those Restricted Persons
were employed or engaged by the Company, be employed or engaged in any way by the Competitor if the Executive would perform work for or
on behalf of the Competitor that is competitive with the Restricted Business.
|
|
|
25.8
|
The Executive has had the opportunity to take legal advice on the restrictions in
this Clause 25.
|
|
|
25.9
|
Each of the restrictions in this Clause 25 is intended to be separate and severable. If any of the restrictions
shall be held to be void but would be valid if part of their wording were deleted, such restriction shall apply with such deletion as
may be necessary to make it valid or effective.
|
|
|
25.10
|
If the Executive's employment is transferred to any firm, company, person or entity other than a Group
Company (the "New Employer") pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006, the Executive
will, if required, enter into an agreement with the New Employer containing post-termination restrictions corresponding to those restrictions
in this Clause 25, protecting the Confidential Information, trade secrets and business connections of the New Employer.
|
|
|
25.11
|
The Executive will, at the request and expense of the Company, enter into a separate
agreement with any Group Company in which he agrees to be bound by restrictions corresponding to those restrictions in this Clause 25 (or
such of those restrictions as may be appropriate) in relation to that Group Company.
|
|
|
25.12
|
No variation of this Clause 25 will be effective unless it is in writing and signed by the parties.
|
|
|
25.13
|
The Executive covenants with the Company (for itself and as trustee and agent for
each Group Company) that he shall not for 12 months after the Termination Date:
|
|
|
25.13.1
|
interfere or take such steps as may be likely to interfere with the continuance of investment or funding
to the Company (or the terms relating to such investment or funding) from any Investor or Lender; or
|
|
|
25.13.2
|
seek to damage the relationship between any Investor or Lender and the Company.
|
|
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26
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Disciplinary and grievance procedures
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26.1
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The Executive is subject to the disciplinary and grievance procedures of the Company, copies of which are
available on the Company's intranet. These procedures do not form part of this agreement or the terms and conditions of the Executive's
employment.
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26.2
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The Executive should refer:
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(a)
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any appeal the Executive wishes to make against a disciplinary sanction/decision to
a member of the Board (or such other person as the Company may specify from time to time); or
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(b)
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any grievance the Executive wishes to raise to a member of the Board (or such other
person as the Company may specify from time to time),
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in accordance with the Company's disciplinary and grievance
procedures.
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26.3
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The Company may suspend the Executive from any or all of his duties during any period in which the Company
is investigating any disciplinary matter involving the Executive or until the conclusion of any disciplinary procedure (including any
appeal). During any period of suspension:
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(a)
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subject to Clause 12.5, the Executive will continue to receive Basic Salary and all
contractual benefits in the usual way;
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(b)
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the Company may suspend the Executive's access to the Company's and Group's systems
and internal communications;
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(c)
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the Company may require the Executive to return temporarily any Company or Group IT equipment and communication
devices (including any smartphones, tablets, laptops and hard drives);
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(d)
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the Executive shall remain an employee of the Company and bound by the terms of this
agreement;
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(e)
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the Executive shall ensure that the Company knows where he will be and how he can
be contacted during each working day (except during any periods taken as holiday in the usual way);
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(f)
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the Company may exclude the Executive from his place of work or any other premises
of the Company or any Group Company; and
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(g)
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the Company may require the Executive not to contact or deal with (or attempt to contact or deal with)
any officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the
Company or any Group Company.
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27.1
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In the event that there is a Change of Control of the Company or the Cash Shell Company (other than as
part of the Listing, the fundraising on or around the date of Listing or an internal re-organisation) and, within 365 days of the Change
of Control, the Appointment is terminated by the Company (other than where the Company is entitled to terminate the Appointment without
notice or payment in lieu of notice in accordance with Clause 22.1) the Company shall, within one month of the date of the Termination
Date, pay or provide the Prescribed Sum to him as provided by this Clause.
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27.2
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The Prescribed Sum shall be an amount equal to one year's Basic Salary in accordance
with Clause 9.1 as adjusted in accordance with Clause 27.3.
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27.3
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If the Company or the Cash Shell Company (as the case may be) terminates the Appointment by giving a period
of notice whether under Clause 2.2 or otherwise, or terminates the Appointment under Clause 21, the Prescribed Sum shall be reduced pro
rata by the number of complete months of service for which the Executive remains employed following notice being given to him or shall
be reduced by the amount paid to the Executive under Clause 21.
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27.4
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The payment or provision of the Prescribed Sum shall be conditional upon and in consideration
of:
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(a)
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the Executive having complied with Clause 24; and
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(b)
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the Executive having complied with and continuing to comply with his obligations relating to confidentiality
and intellectual property in Clauses 19 and 20 respectively.
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27.5
|
For the avoidance of doubt, the payment or provision of the Prescribed Sum shall
not affect the Executive's entitlement as at the Termination Date to any of the following:
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(a)
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any accrued but unpaid Basic Salary;
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(b)
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any payment in lieu of accrued but unused holiday; or
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(c)
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the reimbursement of his expenses, provided that all claims for reimbursement are
submitted within four weeks of the Termination Date.
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27.6
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To the extent that the Prescribed Sum is damages (which is not admitted), the parties agree that the terms
of this Clause 27 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the Appointment in
the circumstances described and does not constitute a penalty.
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28.1
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The Guarantor guarantees to the Executive that, if the Company does not comply with its obligations to
pay any amount due to the Executive under this agreement (Guaranteed Amounts), the Guarantor shall pay on demand the Guaranteed
Amounts to the Executive.
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28.2
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The Guarantor as principal obligor and as a separate and independent obligation and liability from its
obligations under Clause 28.1 agrees to indemnify and keep indemnified the Executive in full and on demand from and against all and any
losses, costs and expenses suffered or incurred by the Executive arising out of, or in connection with, any failure of the Company to
pay the Guaranteed Amounts except where the Company's failure to pay the Guaranteed Amounts results from the Executive's failure to comply
with his obligations under this agreement.
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28.3
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The liability of the Guarantor under this Clause shall not be reduced, discharged or otherwise adversely
affected by any act, omission, matter or thing which would not have discharged or affected the liability of the Guarantor had it been
a principal obligor instead of a guarantor.
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28.4
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All sums payable by the Guarantor under this agreement shall be paid in full to the Executive in the currency
in which the Guaranteed Amounts are payable, free and clear of any deductions or withholdings of any kind, except for those as required
under the terms of this agreement or by any law binding on the Guarantor.
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28.5
|
The Guarantor represents and warrants to the Executive that it is has all requisite
power and authority, and has taken all necessary action, to enable it to enter into, deliver and perform its obligations under this agreement.
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29.1
|
The Company will collect and process Personal Data in accordance with the data privacy notice which
is annexed to this agreement and which is also available on the Company intranet. The Executive shall sign and date the privacy notice
and return it to the Company within five working days of the date of this agreement.
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29.2
|
The Executive shall comply with the Policies and Procedures in relation to privacy and data protection
when handling personal data in the course of employment including personal data relating to any employee, worker, contractor, customer,
client, supplier, agent or other contact of the Company or any Group Company.
|
There is no collective agreement
applicable to the Company or to the Executive's employment with the Company.
|
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31.1
|
A notice given to a party under this agreement shall be in writing in the English language and signed by
or on behalf of the party giving it. It shall be delivered by hand or sent to the party at the address given in this agreement or as otherwise
notified in writing to the other party.
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31.2
|
Any such notice shall be deemed to have been received:
|
|
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(a)
|
if delivered by hand, at the time the notice is left at the address or given to the
addressee;
|
|
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(b)
|
in the case of pre-paid first class UK post or other next working day delivery service,
at 9.00 a.m. on the second business day after posting or at the time recorded by the delivery service;
|
|
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(c)
|
in the case of email, at the time of transmission.
|
|
|
31.3
|
A notice shall have effect from the earlier of its actual or deemed receipt by the
addressee. For the purpose of calculating deemed receipt:
|
|
|
(a)
|
all references to time are to local time in the place of deemed receipt; and
|
|
|
(b)
|
if deemed receipt would occur on a Saturday or Sunday or a public holiday when banks are not open for business,
deemed receipt is at 9.00 a.m. on the next business day.
|
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31.4
|
This Clause does not apply to the service of any proceedings or other documents in
any legal action.
|
|
|
32.1
|
No variation of this agreement shall be effective unless it is in writing and signed
by the parties (or their authorised representatives).
|
This agreement contains the entire and only agreement between
the parties, and both parties acknowledge that, on entering into this agreement, they have not relied on any written or oral representation
or undertaking other than as expressly stated in this agreement, and that this agreement supersedes any previous contract or arrangement
between the parties.
This agreement may be executed in any number of counterparts,
each of which, when executed, shall be an original, and all the counterparts together shall constitute one and the same instrument.
Except as expressly provided elsewhere
in this agreement, no person other than the Executive and the Company or any Group Company shall have any rights under the Contracts (Rights
of Third Parties) Act 1999 to enforce any term of this agreement.
This agreement and any dispute or
claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall
be governed by and construed in accordance with the law of England and Wales.
Each party irrevocably agrees that the courts of England
and Wales shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this agreement or its
subject matter or formation (including non-contractual disputes or claims).
|
EXECUTED as a DEED by Tejinder Virk
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/s/ ILLEGIBLE
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at
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on 2021 2 June 2021
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before the following witness:
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Witness Signature:
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/s/ Mouhssine Sebbar
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Full name:
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MOUHSSINE SEBBAR
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Address:
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245 West Hampstead
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NW6 1XN
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EXECUTED as a DEED for and on behalf of Canmart Ltd
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/s/ ILLEGIBLE
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at
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Director/Authorised Signatory
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on 2021 2 June 2021
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before the following witness:
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Witness Signature:
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/s/ Mouhssine Sebbar
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Full name:
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MOUHSSINE SEBBAR
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Address:
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245 West Hampstead
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NW6 1XN
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EXECUTED as a DEED for and on behalf of Halo Labs Inc
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/s/ ILLEGIBLE
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at
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Director/Authorised Signatory
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on 2021 2 June 2021
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before the following witness:
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Witness Signature:
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/s/ Mouhssine Sebbar
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Full name:
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MOUHSSINE SEBBAR
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Address:
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245 West Hampstead
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NW6 1XN
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Schedule 1
Executive Equity Rights
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|
•
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Board seat for so long as the Executive is appointed as the Chief Executive of the Company
|
|
|
•
|
Up to 5% of the options available for grant pursuant to a share option pool to be created which constitutes,
in aggregate, 15% of the fully diluted share capital of the Company (i.e. up to 0.75% of the aggregate fully diluted equity), subject
always to approval by a remuneration or compensation committee to be established by the Company
|
|
|
•
|
Market standard pre-emption rights on a new issuance of shares for cash in the Company except where
such rights are not held by another minority shareholder of the Company with an equivalent percentage shareholding to the Executive or
greater
|
|
|
•
|
Tag rights (on a fully diluted basis) except where such rights are not held by another minority shareholder
of the Company with an equivalent percentage shareholding to the Executive or greater
|
|
|
•
|
Prior to a Listing, a right of consent in respect of the following matters:
|
|
|
o
|
passing any resolution or presenting any petition for the Company's winding up
or administration (unless the Company is insolvent)
|
|
|
o
|
proposing any amendment to the Articles of Association of the Company that would prejudice the rights
of the shares held by the Executive, other than with respect to administrative matters or approved by the Board (acting reasonably) in
contemplation of a Listing
|
|
|
o
|
reducing the capital of the Company or undertaking a purchase by the Company of
any of its own shares
|
|
|
o
|
changing the Company's accounting reference date or accounting standards falling
outside of either UK GAAP, IAS or IFRS
|
|
|
o
|
transferring the whole or any material part of the assets
or undertaking of the Company
|
|
|
•
|
Information rights, on and subject to the same terms as agreed with other shareholders
of the Company with an equivalent percentage shareholding to the Executive
|
Schedule 2
Outside Interests
Windy Apple Ventures Limited – Board Advisor, soon to be Non-Executive
Director
Exhibit 10.7
CONTRACT
OF EMPLOYMENT
Between
NewCo
(“Employer”
or “Company” or “NewCo”)
and
Dr. Aslihan Akkar-Schenkl
(“Employee”)
§
1 Commencement of the Employment Relationship
The employment relationship begins effectively
as of October 1, 2021, subject to the condition precedent that NewCo is established and that the termination of any employment agreement
with the former employer is effective, and is made for an indefinite period of time. In the event that the condition precedent is not
met by October 1, 2021, the employment contract begins effectively as of the date of the occurrence of the conditions precedent. The Employee
and the Employer shall cooperate and work diligently to ensure the establishment of NewCo.
§
2 Place of Work
Place of work is Munich,- Germany.
§
3 Activities
3.1
The Employee shall be employed as Managing Director,
Europe. The Employee’s business title will be President, Akanda Corp. A brief description of the Employees duties are set out in
Annexure 1 to this Agreement.
3.2
Notwithstanding the above, the Employer is entitled,
if necessary, to assign other equivalent tasks to the Employee which correspond to her educational background and abilities. This reservation
also applies to a transfer to another work place. In each case of assignment or transfer, the interests of both parties must be taken
into consideration appropriately.
3.3
The Employee acknowledges that it is a requirement
of the position that the Employee may be requested by the Employer to travel regularly to work with other members of the Employer’s
management team and advisors, including without limitation, travel to Toronto, Ontario, Maseru, Kingdom of Lesotho„ London, United
Kingdom, Johannesburg, South Africa and other locations where the Employer or its related companies may operate from time to time. When
undertaking business class travel on behalf of the Employer, the Employee may book business class travel for flights and first class rail
travel, where such class of travel is available.
§
4 Working Time
4.1
The Employee’s regular weekly working time
without breaks currently amounts to 40 hours.
4.2
The beginning and the end of the daily working
time and breaks shall be determined by the Employer.
4.3
The Employee undertakes to work overtime as well
as on Sundays and public holidays to the extent permissible by law (currently regulated by the German Working Hours Act).
§
5 Remuneration
5.1
As remuneration for her work, the Employee shall
receive an annual gross salary of
EUR 154,000.00
(in words: One Hundred Fifty Four Thousand Euros),
which shall be paid in 12 equal instalments of
EUR 12,833.33 gross each.
In addition, a fixed annual bonus of EUR 46,000.00
will be paid. The bonus payout takes place every twelve months in January of each year, with each 12 month measurement period commencing
on 1 January and ending on 31 December of each year. Should the Employee have completed less than 12 months of service prior to the first
12 month period ending 31 December, then the fixed annual bonus shall be pro-rated in accordance with the duration of service in that
12 month measurement period.
5.2
Remuneration shall be due on the last calendar
day of each month and transferred in cash to a German account to be named by the Employee by no later than the 5th calendar day of the
following month.
5.3
Salary claims shall neither be pledged nor assigned.
In case of attachment of salary, the company is entitled to deduct the specific processing fee.
5.4
Other employees or third parties shall not be
given knowledge of the amount and composition of the remuneration by the Employee. However, the Employee acknowledges that the Employer’s
affiliated company is a listed issuer and details of her compensation, including any equity-based compensation provided in connection
with this Agreement or under any other arrangement with the Employer or its affiliated companies, will be required to be disclosed under
applicable securities laws.
5.5
Until such time that NewCo is formed and properly
registered with German authorities in such a manner to facilitate the processing and payment of remuneration in accordance with applicable
regulations and tax requirements, the Employee shall prepare and submit a tax invoice; which shall include all basic remuneration due
to the Employee as well as any applicable statutory social security and retirement funding deductions, to the Employer (or it’s
designated nominee) by no later than the 25th of each month.
5.6
For the duration of this contract, the Employer
shall grant the Employee a subsidy for health insurance in the amount of the employer’s contribution as it would have been if the
Employee had been obliged to take out health insurance, but not exceeding half of the amount which the Employee has to spend on her health
insurance.
§
6 Inability to attend work
6.1
The Employer shall, without undue delay, be notified
of any inability of the Employee to attend work, indicating the reason and the anticipated duration. The same applies if the duration
of the inability to attend work is extended.
6.2
Any incapacity for work due to sickness shall
be immediately, however, no later than by the beginning of work on the relevant working day, be reported to the superior, indicating the
reason and anticipated duration. In case that the incapacity for work exceeds three calendar days, the Employee shall furthermore submit
a medical certificate on the inability to work and its anticipated duration before the end of the third calendar day. These obligations
to notify and submit a certificate will also apply after the end of any continued payment of remuneration during illness.
6.3
The Employer is entitled at any time to request
earlier submission of the medical certificate.
6.4
If the incapacity for work exceeds the period
indicated in the certificate, notwithstanding the duration of incapacity for work and also after the period of sick pay, the Employee
shall immediately notify the Employer of the continued incapacity for work and submit a new medical certificate, or the payment slip from
the health insurance company.
6.5
In the event of a temporary prevention of the
Employee’s activities clue to illness, incapacity or other circumstances for which she is not responsible, the Employee shall be
entitled to the difference between net remuneration and payments from his statutory and/or private health insurance for a period of three
months.
6.6
The Employee subrogates herewith all claims for
compensation to the Employer in the amount of the abovementioned payments to which the Employee is entitled as a result of the third-party
event that caused the work inability.
6.7
If the Employee dies during the term of the employment
contract, her dependants are jointly entitled to continued payment of her fixed salary for the month of death and the two following months.
The dependants shall agree among themselves what percentage of the Employee’s monthly salary they are entitled to. If the Employer
is not notified by all the dependants in agreement to whose attention the maximum of three months’ salary is to be paid for the
benefit of all the dependants, the Employer shall be entitled to deposit the payments with the depository of the competent local court
or to pay them into the escrow account of a lawyer or a notary public with discharging effect.
§
7 Insurances
7.1
The Employee is entitled to take out a D&O
insurance policy for herself in Germany with a current insured sum of EUR 5.000.000,- (Five Million Euro) per claim and year. She will
pay the insurance premiums initially herself and then invoices them to the Employer. The Employer safeguards that the amount of the insured
sum is checked at regular intervals to ensure that it is appropriate. The D&O insurance also covers all claims against the Employee
after she has left the company, as long as these claims have not yet become time-barred. The insurance shall also cover or become part
of an insurance encompassing any activity of the Employee as a member of a governing body of affiliated companies outside of Germany.
7.2
The Employer shall take out legal expenses insurance
for the Employee, which shall include at least criminal law protection, as well as legal protection against financial loss and legal protection
for the employment contract. The policyholder is the Employee. The insurance obligation ends when the Employee leaves the company.
7.3
The Employer shall insure the Employee against
accidents within the usual scope, but at least in the amount of € 250,000.00 in case of disability and € 150,000.00 in case
of accidental death. The persons entitled to benefit from the insurance in the event of disability are the Employee, in the event of death
the persons named by her, in the absence of such a provision or if the named persons are deceased, the heirs of the Employee. Coverage
is provided for accidents of any kind, regardless of whether they are work-related or private. The insurance shall expire on the date
of termination of this contract.
§
8 Liability and Discharge of the Employee
8.1
The Employee shall be liable to the Employer only
for compensation for such damage as is caused by gross negligence or willful misconduct. Article 43, section 3, sentence 3 GmbHG remains
unaffected.
8.2
In the event of a breach of such duties which
are imposed on the Employee for the protection of the company’s creditors, the limitation of liability pursuant to subsection 1
shall cease to apply upon the opening of the company’s insolvency proceedings or their rejection for lack of assets.
8.3
All claims of the Employer against the Employee
shall become statute-barred after two years, unless the breach of duty of the Employee consists in the fact that she participated in the
disbursement of tied capital of the GmbH to shareholders contrary to section 43, subsection 3 GmbHG. The limitation of liability due to
intent remains unaffected.
8.4
Deviating from the distribution of the burden
of proof according to the case law of the Federal Court of Justice (BGH), the Employer bears the full burden of presentation and proof
for all preconditions for a claim, following general principles.
8.5
The Employee has a claim against the Employer
for discharge. If the discharge is refused, the Employee shall be informed of the reasons for this refusal in writing by the general meeting.
§
9 Term and Termination
9.1
The first 6 (six) months of the employment agreement
shall be agreed as probationary period, at most for the duration of this six months, the employment relationship may be terminated with
a notice period of 2 (two) weeks.
9.2
After the probationary period, the employment
relationship may be terminated by either party with three months’ notice to the end of the quarter.
9.3
The right to termination without notice for a
compelling reason shall remain unaffected (Sec. 626 BGB (German Civil Code)).
9.4
Any notice of termination requires the written
form.
9.5
The Employer may release the Employee from the
duty to work if there is a factual ground (including, without limitation, notice of termination by the Employee or the Employer, shortage
of orders, misconduct by the Employee, a risk of the Employee to join a competitor company). Remaining days of vacation are set off against
an irrevocably determined release period. After such set-off, the remuneration that remains to be payable to the Employee is subject to
deduction of what the Employee saves by not performing the employment hereunder or what the Employee acquires by using her services for
other purposes or what the Employee maliciously fails to acquire.
9.6
The employment relationship shall end without
requiring notice of termination when the Employee reaches the regular retirement age for old-age pension. It terminates before that date
upon expiry of the month in which the Employee begins receiving a statutory pension provider determines that the Employee is entitled
to a pension based on complete inability to engage in gainful activities, then the employment terminates upon the expiry of the day prior
to the commencement of the pension payments. If the pension based on complete inability to engage in gainful activities will be accorded
only for a temporary period, the employment will suspend as of the expiry of the day preceding the commencement of the pension payments
until expiry of the day until which the temporary pension is authorized, but no later than until expiry of the day in which the employment
terminates.
§
10 Reimbursement of Travelling Costs
The Employer shall reimburse the Employee for
documented travel expenses that the Employee incurs in the context of performing her duties, at least up to the amount of the German tax
law guidelines as amended from time to time or in accordance with the internal guidelines and policies of the Employer, as amended by
the Employer from time to time.
§
11 Holiday
11.1
The Employee is entitled to annual recreational
leave of 30 working days per calendar year based on 5 working days per calendar week (the statutory vacation entitlement comprises 20
days per calendar year, the additional voluntary vacation comprises 10 vacation days per calendar year). Employee taken vacation days
are primarily deducted from the statutory vacation days. Once all statutory vacation days have been taken, vacation days are deducted
from the voluntarily granted vacation days.
The vacation entitlement will be adapted accordingly
if the Employee regularly works more or less than five days per week.
11.2
Vacation shall be taken in agreement with the
superior and, as far as possible, on consecutive days. The entire vacation must be taken in the current calendar year. Vacation can only
be carried forward to the next calendar year if justified by urgent operational reasons or personal reasons of the employee. Vacation
entitlements so carried forward shall expire if not taken within the first three months of the following year (carry-forward period).
If the Employee is unable to take the carried forward vacation during the carry-forward period due to incapacity for work due to sickness,
the vacation entitlements shall continue to exist, however, only up to the amount of the statutory vacation entitlement (including additional
vacation for severely disabled persons). In such case, the statutory vacation entitlement shall expire 15 months after the end of the
calendar year, in which the vacation entitlement arose, at the latest.
11.3
The Employer always grants the statutory minimum
vacation first (and, if applicable, statutory additional vacation, such as under the laws regarding severely disabled persons). If the
employment relationship is terminated, any compensation for vacation shall only be paid up to the amount of the statutory minimum vacation.
§
12 Side-Line Employment
12.1
The Employee may not take up any paid or unpaid
secondary activity unless the Employee prior notifies the secondary activity in text form. The Employer shall give its approval, if so
required, if and as far as the intended secondary activity is not in conflict with the timing of the Employee’s duties hereunder
and does not affect any other legitimate interests of the Employer. The Company shall be notified in text-form prior to the beginning
of any additional occupation.
12.2
Any lectures and publications of the Employee,
insofar as they concern her scope of duties or the company’s general area of interests, require the management’s consent.
§
13 Confidentiality, Return of Property,
13.1
The Employee agrees to keep confidential all trade
and business secrets (“Secrets”). Furthermore, the Employee agrees to keep confidential all business matters that a superior
has designated as confidential or that are obviously of a confidential nature (“Confidential Matters”).
13.2
The duty of confidentiality also applies to employees
of the Employer as far as they are not entitled to learn about the Secret or Confidential Matters by reason of their position.
13.3
The duty of confidentiality also applies to Secrets
and Confidential Matters of other companies of the group. The same applies to Secrets and Confidential Matters of companies that are economically
or organizationally associated with the Employer.
13.4
The Employee’s duty of confidentiality survives
the termination of this Employment Agreement. As far as the post-contractual duty of confidentiality hinders the occupational advancement
of the Employee inadequately, she is entitled to be released from this duty by the Employer.
13.5
The betrayal of trade and business secrets is
a criminal offence and can be punished with imprisonment of up to three years or by payment of a fine. Furthermore, the infringement of
the duty to confidentiality can justify the termination of the employment and / or claims for damages of the Employer.
13.6
Any kind of business items and business records,
including personal notes and (electronically) copies respectively concerning business affairs and activities must only be used for business
purposes. There are to be carefully retained and handed over at any time to the Employer at its request and upon the termination of the
employment in the absence of such request. The Employee has no rights of retention.
§
14 Inventions Assignment
14.1
The Employee transfers to the Employer the exclusive,
perpetual, worldwide and unlimited right of use and exploitation of all results produced by the Employee during the term of this Employment
Agreement whether on or off duty as long as such results are associated with the Employee’s contractual duties and capable of being
protected by intellectual property law, design patent law, utility patent law, trademark law or other law.
14.2
The Employee’s transfer of rights under
section 12.1 above includes, without limitation, permission of adaptation and licensing.
14.3
The Employee waives all other rights arising to
the Employee as creator of or other holder of proprietary rights to work results, in particular the right of having the Employee named
as the author of a work result, the right of adaptation and the right of making a work accessible to the public.
14.4
The Employee’s grant and waiver of rights
under this section 12.1 is fully settled by the remuneration payable in accordance with this employment agreement.
14.5
The German Employee Inventions Act and Section
69b German Copyright Act remain unaffected.
§
15 Collecting, Processing and Use of Personal Data
15.1
The Employer is authorized to collect process
and use her personal data of the Employee for the purpose of establishing, implementing and terminating the employment relationship.
15.2
The Employer is authorized to the transfer the
Employee’s personal data by the Employer to third parties, for purposes in the framework of this employment relationship and in
accordance with applicable laws.
15.3
Other statutory rights of the Employer for the
collecting, processing and use of personal data shall remain unaffected.
§
16 IT Clause, Forbidden private use of Internet
16.1
The parties undertake to strictly adhere to the
provisions of the copyright law.
16.2
The Employer informs the Employee of the following:
To comply with the requirements under data protection
law it is necessary that the connection data to the internet be recorded and controlled. This also extends to the private use of the internet
connection, i.e. also to privately received e-mails.
In this context, it is explicitly pointed out
to the Employee that, for the purpose of data protection and security, spam filters and virus scanners are or may be used.
It can therefore not be ruled out that such filter
mechanisms sort out e-mails (also of a private nature) even though they neither classify as spam nor contain viruses. The Employee also
gives its consent hereto.
This is expressly not an authorization to use
the internet and business email account privately; private use is forbidden.
§
17 Non-Competition, Non-Solicitation
17.1
During the term of this Employment Agreement,
the Employee is prohibited from working on a self-employed or employed basis or otherwise for any business that is in direct or indirect
competition with the Employer. Likewise, during the term of this Employment Agreement, the Employee is prohibited from forming, acquiring
or directly or indirectly participating in such companies. The Employee may hold any shares or other securities of any competitor that
is listed on any securities exchange or recognized securities market anywhere to the extent that she does not hold more than 1 of the
share capital.
17.2
During the term of her employment relationship
and following the end of this employment relationship, the Employee may not, whether in person or through others, whether directly or
indirectly, — for the benefit of another employer — poach staff from the Employer. She may also not cause any staff of the
Employer to terminate their employment contracts with the Employer.
§
18 Forfeiture of Claims
18.1
Forfeiture clauses are not applicable to claims
based on the Minimum Wage Act. The respective statutory limitations periods will apply instead.
Accordingly, forfeiture clauses do not apply to
liability caused by premeditation or gross negligence. The before said applies accordingly to all claims which cannot be subject to forfeiture
clauses.
18.2
All other claims that result from or in connection
with the Agreement should be claimed in text form by the contractors within 3 months after the claim has emerged and the claimant has
known about the claim circumstances or should have known about them without gross negligence. Otherwise, the claim will expire.
§
19 Certificate of good conduct
The Employee is obliged to present to the Employer
a current certificate of good conduct (not older than 3 months) no later than at the beginning of the contractual commencement date.
§
20 Policy
The Employee is obliged to act in compliance with
all policies of the Employer and / or of the affiliated entities with the Employer and / or of the mother company of the Employer that
may be applicable to her employment agreement.
§
21 Miscellaneous
21.1
Amendments and/or supplements to this Agreement
as well as collateral agreements require the written form in order to be effective. This shall also apply to the cancellation of this
written form requirement. This shall not apply to amendments due to verbal individual agreements.
21.2
If individual current or future provisions of
this Agreement are or become ineffective, entirely or in part, the remaining provisions shall remain unaffected. In such case, the parties
shall replace the ineffective provision with a new provision that comes as close as possible to the economic intent of the ineffective
provision.
21.3
If any claims are commenced by third parties against
the Employee arising out of non-compete or other agreements that would preclude him from carrying out her obligations under this Agreement,
the Employee shall be solely liable to such third parties, and shall pay her own costs and expenses in relation to such claims, provided
that the Employee shall have no liability to the Employer for damages or other losses resulting from such claims by third parties.
21.4
This Agreement is made in English language only
and the Employee expressly acknowledges and confirms it understand all provisions.
21.5
This Agreement shall be governed by the laws of
the Federal Republic of Germany. Any disputes under or in connection with this Agreement (including those regarding it validity) shall
be exclusively settled in the labour courts. The labour court in Munich shall have first instance jurisdiction.
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SIGNATURES
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September 28, 2021, Johannesburg
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Date, Place
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NewCo
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Employer
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September 23, 2021, Munich
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Date, Place
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/s/ Aslihan Akkar-Schenkl
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Employee / Dr. Aslihan Akkar-Schenkl
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Annexure 1
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JOB OVERVIEW
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COMPANY
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NewCo TBD
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JOB TITLE
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President, Akanda Corp.
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GENERAL
DESCRIPTION
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The Employee shall serve as, and the hold the title of, President:
Akanda Corp.
The position of President: Akanda Corp. is a senior executive position
and the Employee shall fulfil a variety of duties commensurate with that role, and as shall be determined by the Chief Executive Officer
from time-to-time.
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JOB LOCATION
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Munich, Germany
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EMPLOYEE
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Dr. Aslihan Akkar-Schenkl
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REPORTS TO
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The Group Chief Executive Officer - Tejinder Virk
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EMPLOYMENT TYPE
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Full time
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RESPONSIBILITIES
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● Ensuring that Lesotho medical
cannabis products are compliant and EU GMP quality standards (or equivalent depending on jurisdiction), either through direct company
efforts or via third party processing, for commercial sale in all possible international markets.
● Working with the Lesotho
government to create a framework for medical cannabis product registrations domestically and associated dispensation.
● Leading implementation of
Global Compliance Management at corporate level including all sites.
● Lead and implementation of
Corporate Quality Management as well as responsible for ground operations in Quality Assurance at all sites, which includes arranging
internal and external audits by relevant government authorities/representatives
● Attend to the incorporation
of Akanda Deutschland GmbH (including company formation and registration, opening of bank accounts and other matters necessary for the
formation of a new company in Germany), and be appointed Managing Director and hold related responsibility at operational, financial and
strategic levels.
● Oversee
Akanda Deutschland GmbH hiring of local staff and consultants; the positioning of Akanda’s brands and establishing medical programmes
with the clinics.
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● Develop
and manage Akanda Deutschland GmbH occasional public communications and media engagements, in coordination with global communications
strategy.
● Serve
as a member of the Akanda group’s strategic management committee overseeing global mergers and acquisitions, new Global Product
development and geographic expansion, spanning all business lines including pharmaceutical, medical and wellness such as Consumer Healthcare;
for example - pharmaceutical cannabis lines, medical cannabis, Cosmeceuticals with Cannabinoids.
● Oversight
of any scientific, research and development activities, as well as intellectual property portfolio establishment and management for market
exclusivity in strategic relevant markets activities at the company.
● Global
supply chain oversight.
● Serve
as the head of global medical and pharmaceutical operations.
● Serve
as the head of Legal & Regulatory affairs.
● Bridge
external and internal Legal affairs with the CEO and the Board of Directors.
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Exhibit
10.8
INDEMNITY AGREEMENT
DATED effective as of the day of
August, 2021.
BETWEEN:
Akanda Corp. a corporation
incorporated under the Business Corporations Act (Ontario) (hereinafter called the "Corporation")
– and –
[●]
(hereinafter called the "Indemnified
Party")
WHEREAS Section 136(1)
of the Business Corporations Act (Ontario) (the "Act"), under which the Corporation is continued, provides that
a corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or another individual
who acts or acted at the corporation’s request as a director or officer, or an individual acting in a similar capacity, of another
entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred
by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved
because of that association with the corporation or other entity.
AND WHEREAS in addition,
Section 136(2) of the Act provides that a corporation may advance money to a director, officer or other individual for the costs, charges
and expenses of a proceeding referred to in subsection (1), but the individual shall repay the money if the individual does not fulfil
the conditions set out in subsection (3).
AND WHEREAS in addition,
Section 136(3) of the Act provides that a corporation shall not indemnify an individual under subsection (1) unless the individual acted
honestly and in good faith with a view to the best interests of the corporation or, as the case may be, to the best interests of the other
entity for which the individual acted as a director or officer or in a similar capacity at the corporation’s request.
AND WHEREAS in addition,
Section 136(4) of the Act provides that in addition to the conditions set out in subsection (3), if the matter is a criminal or administrative
action or proceeding that is enforced by a monetary penalty, the corporation shall not indemnify an individual under subsection (1) unless
the individual had reasonable grounds for believing that the individual’s conduct was lawful.
AND WHEREAS in addition,
Section 136(4.1) of the Act provides that a corporation may, with the approval of a court, indemnify an individual referred to in subsection
(1), or advance moneys under subsection (2), in respect of an action by or on behalf of the corporation or other entity to obtain a judgment
in its favour, to which the individual is made a party because of the individual’s association with the corporation or other entity
as described in subsection (1), against all costs, charges and expenses reasonably incurred by the individual in connection with such
action, if the individual fulfils the conditions set out in subsection (3).
AND WHEREAS in addition,
Section 136(4.2) of the Act provides despite subsection (1), an individual referred to in that subsection is entitled to indemnity from
the corporation in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defence of
any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual’s
association with the corporation or other entity as described in subsection (1), if the individual seeking an indemnity, (a) was not judged
by a court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done;
and (b) fulfils the conditions set out in subsections (3) and (4).
AND WHEREAS in addition,
Section 136(4.3) of the Act empowers a corporation to purchase and maintain insurance for the benefit of any such persons referred to
in subsection 124(1) of the Act against any liability incurred by him (a) in his capacity as a director or officer of the corporation;
or (b) in his capacity as a director or officer of another body corporate when he acts or acted in that capacity at the corporation's
request.
AND WHEREAS the Corporation
desires to have the Indemnified Party serve or continue to serve as a director or officer of the Corporation, or as a director or officer
of any subsidiary or affiliate of the Corporation or any entity of which the Corporation is or was a shareholder or creditor (each an
"Affiliate") of which he has been or is serving, or will serve at the request of the Corporation, free from undue concern
for unpredictable, inappropriate or unreasonable claims for damages by reason of his being, or having been, a director or officer of the
Corporation or a director of officer of an Affiliate or by reason of his decisions or actions on their behalf.
AND WHEREAS the Indemnified
Party is willing to serve, or to continue to serve, or to take on additional service for, the Corporation or the Affiliates in such aforesaid
capacities on the condition that he be indemnified as provided for herein.
NOW THEREFORE, IN CONSIDERATION
OF the premises and mutual covenants herein contained, and in consideration of the sum of One ($1.00) Dollar paid by the Indemnified
Party to the Corporation (the receipt of which is hereby acknowledged) and the Indemnified Party acting and/or agreeing to continue to
act as a director and/or officer of the Corporation or as a director and/or officer of an Affiliate, the Corporation and the Indemnified
Party do hereby covenant and agree as follows:
The Indemnified Party agrees
to serve or continue to serve as a director or officer of the Corporation or as a director or officer of an Affiliate (in the case of
an officer of the Corporation or Affiliate officer, at the will of the Corporation or Affiliate, as applicable, or under a separate contract,
if any such contract exists or shall hereafter exist), honestly and in good faith with a view to the best interests of the Corporation
or an Affiliate so long as he is duly elected and qualified in accordance with the provisions of the Act, the by-laws or any other governing
documents of the Corporation or Affiliate, as applicable, provided, however, that (i) the Indemnified Party may at any time and for any
reason resign from such position (subject to any contractual obligations which the Indemnified Party shall have assumed apart from this
Agreement), and (ii) neither the Corporation nor any Affiliate shall have any obligation under this Agreement to continue the Indemnified
Party in any such position.
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(a)
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To the full extent allowed by law, the Corporation agrees to indemnify and save harmless the Indemnified
Party, his estate, executors, administrators, legal representatives and lawful heirs, from and against any and all costs, charges or expenses
(including, but not limited to, an amount paid to settle any action or to satisfy any judgment, legal fees on a solicitor and client basis,
other professional fees, out-of-pocket expenses for attending proceedings including discoveries, trials, hearings and meetings, and any
amount for which he is liable by reason of any statutory provision whether civil, criminal or otherwise) (collectively, hereinafter referred
to as "Costs, Charges and Expenses"), suffered or incurred by the Indemnified Party, his estate, executors, administrators,
legal representatives and lawful heirs, directly or indirectly, as a result or by reason of the Indemnified Party being or having been
a director or officer of the Corporation or Affiliate or by reason of any action taken by the Indemnified Party in his capacity as a director
or officer of the Corporation or Affiliate, provided that such costs, charges or expenses were not suffered or incurred as a result of
the Indemnified Party's own fraud, dishonesty, wilful neglect or wilful default.
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(b)
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In addition to and without limitation of Section 2(a) of this Agreement, the Corporation agrees:
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(i)
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except in respect of an action by or on behalf of the Corporation or an Affiliate to procure a judgment
in its favour, to indemnify the Indemnified Party, his estate, executors, administrators, legal representatives and lawful heirs, from
and against all Costs, Charges and Expenses reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding
to which he is made a party (including actions, proceedings, investigations, inquiries or hearings in which the Indemnified Party is compelled
by the authorities or requested by the Corporation or Affiliate to participate, whether or not charges have been laid against the Corporation,
Affiliate or Indemnified Party), by reason of being or having been a director or officer of the Corporation or Affiliate, if:
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(A)
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he acted honestly and in good faith with a view to the best interests of the Corporation or the Affiliate,
as the case may be; and
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(B)
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in the case of a criminal or administrative action, proceeding, investigation, inquiry or hearing that
is enforced by monetary penalty, he had reasonable grounds for believing that his conduct was lawful;
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(ii)
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to indemnify the Indemnified Party and his estate, executors, administrators, legal representatives and
lawful heirs from and against all Costs, Charges and Expenses of any action by or on behalf of the Corporation or Affiliate to procure
a judgment in its favour, to which he is made a party by reason of being or having been a director or officer of the Corporation or Affiliate,
if the Indemnified Party has fulfilled the conditions set forth in Subsections 2(b)(i)(A) and (B) of this Agreement and if the Corporation
or the Affiliate, as the case may be, obtains the approval of the Court (as defined in the Act) to grant such indemnity;
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(iii)
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in the event that the approval of the Court is required to effect any indemnification granted hereunder,
the Corporation agrees to make application for and use its best effort to obtain the Court's approval to such indemnification provided
that the Indemnified Party has fulfilled the conditions set forth in Subsections 2(b)(i)(A) and (B) of this Agreement;
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(iv)
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in addition to and without limitation of Subsections 2(b)(i) and (ii) of this Agreement, to indemnify
the Indemnified Party and his estate, executors, administrators, legal representatives and lawful heirs against all Costs, Charges and
Expenses reasonably incurred by him in respect of the defence of any actual or threatened civil, criminal or administrative action or
proceeding to which he is made a party or threatened to be made a party, (including actions, proceedings, investigations, inquiries or
hearings in which the Indemnified Party is compelled by the authorities or requested by the Corporation or Affiliate to participate, whether
or not charges have been laid against the Corporation, Affiliate or Indemnified Party), by reason of being or having been a director or
officer of the Corporation or Affiliate if the Indemnified Party:
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(A)
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was substantially successful on the merits in his defence of the action, proceeding, investigation, inquiry
or hearing;
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(B)
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fulfils the conditions set out in Subsections 2(b)(i) (A) and (B) of this Agreement; and
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(C)
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is fairly and reasonably entitled to indemnity; and
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(v)
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for the purposes of this Agreement including, without limitation, Section 2 hereof, the termination of any such civil, criminal or administrative action, proceeding, investigation, inquiry or hearing, by judgment, order, settlement, conviction or similar or other result, shall not, of itself, create a presumption either that the Indemnified Party did not act honestly or in good faith with a view to the best interests of the Corporation or Affiliate or that, in the case of a criminal or administrative action, proceeding, investigation, inquiry or hearing that is enforced by a monetary penalty, the Indemnified Party did not have reasonable grounds for believing that his conduct was lawful.
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(c)
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The intention of this Agreement is to provide the Indemnified Party indemnification to the fullest extent
permitted by law and without limiting the generality of the foregoing and notwithstanding anything contained herein:
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(i)
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nothing in this Agreement shall be interpreted, by implication or otherwise, in limitation of the scope
of the indemnification provided in Subsections 2(a) and (b) hereof; and
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(ii)
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Subsection 2(b) is intended to provide indemnification to the Indemnified Party that is not specifically
prohibited by a court of competent jurisdiction and to the fullest extent permitted by the Act, as applicable, and, in the event that
the Act, as applicable, is amended to permit a broader scope of indemnification (including, without limitation, the deletion or limiting
of one or more of the provisos to the applicability of indemnification), Subsection 2(b) shall be deemed to be amended concurrently with
the amendment to the Act, as applicable, so as to provide such broader indemnification.
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All Costs, Charges and Expenses
reasonably incurred by the Indemnified Party and covered hereunder shall, if requested by the Indemnified Party within a reasonable time,
be paid by the Corporation immediately, with the understanding and agreement being herein made that, in the event it is ultimately determined
as provided hereunder that the Indemnified Party was not entitled to be so indemnified, or was not entitled to be fully so indemnified,
the Indemnified Party shall indemnify and hold harmless the Corporation, and pay to the Corporation forthwith after such ultimate determination,
such amount or the appropriate portion thereof, so paid. In the event of dispute, the Corporation or Indemnified Party, at the Corporation's
expense, shall make application to the Court to approve the indemnity.
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4.
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Other Rights and Remedies
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Indemnification and immediate
payment of incurred Costs, Charges and Expenses as provided by this Agreement shall not be deemed to derogate from or exclude any other
rights to which the Indemnified Party may be entitled under any provision of the Act or otherwise at law, the articles or by-laws or other
governing documents of the Corporation or Affiliate, this Agreement, any vote of shareholders, unitholders or partners, as the case may
be, of the Corporation or Affiliate, or otherwise, both as to matters arising out of his capacity as a director or officer of the Corporation
or Affiliate, or as to matters arising out of another capacity with the Corporation or Affiliate while being a director or officer of
the Corporation or Affiliate, and shall continue after the Indemnified Party has ceased to be a director or officer of the Corporation
or Affiliate.
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5.
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Limitation of Actions and Release of Claims
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No legal action shall be brought
and no cause of action shall be asserted by or on behalf of the Corporation against the Indemnified Party, his estate, executors, administrators,
legal representatives or lawful heirs after the expiration of two years from the date the Indemnified Party ceased (for any reason) to
be a director or officer of the Corporation or Affiliate and the Corporation agrees that any claim or cause of action of the Corporation
shall be extinguished and the Indemnified Party, his estate, executors, administrators, legal representatives and lawful heirs deemed
released therefrom absolutely unless asserted by the commencement of legal action in a court of competent jurisdiction within such two-year
period.
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6.
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No Presumption as to Absence of Good Faith
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(a)
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In respect of any claim for indemnification pursuant to this Agreement, the Indemnified Party shall be
presumed to have acted honestly and in good faith and with a view to the best interests of the Corporation or Affiliate, as applicable,
and in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, to have had reasonable grounds
for believing that his conduct was lawful, unless proven otherwise.
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(b)
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Determination of any civil, criminal or administrative action or proceeding by judgment, order, settlement
or conviction, or upon a plea of "nolo contendere" or its equivalent, shall not, of itself, create any presumption for
the purposes of this Agreement that the Indemnified Party did not act honestly and in good faith with a view to the best interests of
the Corporation or Affiliate, as applicable, and in the case of a criminal or administrative action or proceeding that is enforced by
monetary penalty, that he did not have reasonable grounds for believing that his conduct was lawful, unless the judgment or order of the
court shall specifically find otherwise.
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The Indemnified Party agrees
to give notice to the Corporation as soon as is reasonably practical after being served with any statement of claim, writ, notice of motion,
indictment or other document commencing or continuing any civil, criminal or administrative action, proceeding, investigation, inquiry
or hearing to which the Indemnified Party, is a party, whether or not charges have been laid against the Corporation, an Affiliate or
the Indemnified Party, by reason of being or having been a director or officer of the Corporation or Affiliate and the Corporation agrees
to give notice to the Indemnified Party in writing as soon as is reasonably practical after:
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(a)
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being served with any such statement of claim, writ, notice of motion, indictment or other document commencing
or continuing any civil, criminal or administrative action, proceeding, investigation, inquiry or hearing to which the Indemnified Party
is a party; whether or not charges have been laid against the Corporation, an Affiliate or the Indemnified Party, or
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(b)
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receiving notice of any such civil, criminal or administrative action, proceeding, investigation, inquiry
or hearing to which the Indemnified Party is a party, whether or not charges have been laid against the Corporation, an Affiliate or the
Indemnified Party,
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provided, however, that the failure of the Indemnified
Party to give such notice to the Corporation shall not adversely affect the Indemnified Party's rights under this Agreement except to
the extent that the Corporation or Affiliate shall have been materially prejudiced as a direct result of such failure.
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8.
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Right to Retain Counsel
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The Corporation agrees to
promptly retain counsel who shall be reasonably satisfactory to the Indemnified Party to represent the Indemnified Party.
In any such matter the Indemnified
Party shall have the right to retain other counsel to act on his behalf, provided that the fees and disbursements of such other counsel
shall be paid by the Indemnified Party unless:
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(a)
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the Indemnified Party and the Corporation shall have mutually agreed to the retention of such other counsel,
or
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(b)
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the parties to any such civil, criminal or administrative action, proceeding, investigation, inquiry or hearing (including any added third, or interpleaded parties) include the Corporation and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them (including the availability of different defences) in which event the Corporation and Affiliate, jointly and severally agree to pay the fees and disbursements of such counsel.
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9.
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Investigation by Corporation and Affiliate
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The Corporation and/or Affiliate
may conduct any investigation it considers appropriate of any proceedings, including discoveries, trials, hearings and meetings, and will
pay all costs of that investigation.
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10.
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Indemnified Party to Cooperate
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The Indemnified Party agrees
to give the Corporation and Affiliate such information and cooperation as the Corporation and Affiliate may reasonably require from time
to time in respect of all matters hereunder.
The parties will act reasonably
in pursuing the settlement of any Proceeding. The Corporation and/or an Affiliate may not negotiate or effect a settlement of claims against
the Indemnified Party without the consent of the Indemnified Party, acting reasonably. The Indemnified Party may negotiate and effect
a settlement without the consent of the Corporation and/or an Affiliate but the Corporation and/or an Affiliate will not be liable for
indemnification under this Agreement with respect to any settlement negotiated without its prior written consent, which consent will not
be unreasonably withheld or delayed.
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(a)
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The Corporation agrees to purchase and maintain or cause to be purchased and maintained, while the Indemnified
Party remains a director or officer of the Corporation or an Affiliate and for a minimum of six years thereafter, insurance for the benefit
of the Indemnified Party against any liability incurred by him in his capacity as a director and/or officer of the Corporation or Affiliate
on terms no less favourable in terms of coverage and amounts, to the extent permitted by law and available on reasonable commercial terms,
than such insurance maintained by the Corporation or any other entity on the Corporation's behalf on the date hereof; provided that such
insurance shall not apply where the liability relates to his failure to act honestly and in good faith with a view to the best interests
of the Corporation or Affiliate, as the case may be.
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(b)
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The Corporation agrees to provide evidence to the Indemnified Party on an annual basis (on the anniversary
date of this Agreement) during the term for which the Corporation is obligated to maintain such insurance under the terms hereof, that
it has the insurance required under the terms of this Agreement and that it has paid the applicable premium(s) for such insurance and
shall, upon request of the Indemnified Party, provide the Indemnified Party with a copy of the relevant insurance policy within 14 days
of such request. If the Indemnified Party is not provided with evidence that the Corporation has such insurance or that it has paid the
applicable premium, the Indemnified Party shall be entitled to purchase the required insurance and the Corporation agrees to indemnify
and save harmless the Indemnified Party, his estate, executors, administrators and lawful heirs for all expenses incurred by or on behalf
of the Indemnified Party to obtain such insurance coverage.
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(c)
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In the event an insurable event occurs, the Indemnified Party will be indemnified promptly as agreed hereto
regardless of whether the Corporation has received the insurance proceeds. The Indemnified Party is entitled to full indemnification as
agreed hereto notwithstanding any deductible amounts or policy limits contained in any such insurance policy.
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All disputes, disagreements,
controversies or claims arising out of or relating to this Agreement, including, without limitation, with respect to its formation, execution,
validity, application, interpretation, performance, breach, termination or enforcement will be determined by arbitration before a single
arbitrator under the Arbitration Act, 1991 (Ontario). The arbitrator will determine, based on the outcome of the arbitration, the
breakdown between the Corporation and/or Affiliate and the Indemnified Party of the costs for conducting the arbitration.
The Corporation agrees to
reimburse the Indemnified Party for the net amount of tax payable by the Indemnified Party under the taxing laws of any jurisdiction provided
that such net taxes payable are directly a result of the payment or reimbursement of the Costs, Charges and Expenses under this Agreement,
including this clause, constituting a taxable benefit to the Indemnified Party.
This Agreement shall be effective
as and from the first day that the Indemnified Party became or becomes a director and/or officer of the Corporation or commenced or commences
to serve as an officer or director of an Affiliate.
Unless otherwise permitted
by this Agreement, all notices or other communications to be given hereunder shall be delivered by hand, courier, ordinary prepaid mail,
facsimile or electronic mail; and, if delivered by hand, shall be deemed to have been given on the delivery date, if delivered by ordinary
prepaid mail shall be deemed to have been given on the fifth day following the delivery date and, if sent by facsimile or electronic mail,
on the date of transmission if sent before 5:00 p.m. (local time where the notice is received) on a business day or, if such day is not
a business day, on the first business day following the date of transmission:
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(a)
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if to the Indemnified Party, at:
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[●]
[●]
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(b)
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if to the Corporation, at:
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Akanda Corp.
77 King Street West, Suite 400
Toronto, ON M5K 0A1
Attention: Chief Executive Officer
Email:
or to such other address as
each party may from time to time notify the other of in writing.
If the Corporation receives
notice from any other source of any matter which the Indemnified Party would otherwise be obligated hereunder to give notice of to the
Corporation, then the Indemnified Party shall be relieved of his obligation hereunder to give notice to the Corporation, provided the
Corporation has not suffered any material damage from the failure of the Indemnified Party to give notice as herein required.
If any provision or provisions
of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
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(a)
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the validity, legality and enforceability of the remaining provisions of this Agreement (including, without
limitation, all portions of any paragraph of this Agreement containing such provisions held to be invalid, illegal or unenforceable, that
are not of themselves in whole invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and
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(b)
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to the fullest possible extent, the provisions of this Agreement (including, without limitations, all
portions of any paragraphs of this Agreement containing any such provisions held to be invalid, illegal or unenforceable, that are not
of themselves in whole invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision
which is held to be invalid, illegal or unenforceable.
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The parties hereto agree that
this agreement shall be construed and enforced in accordance with the laws in force in the Province of Ontario.
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19.
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Modification and Waiver
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No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
This Agreement shall supersede
and replace any and all prior agreements (except any written agreement of employment between the Corporation and the Indemnified Party,
which shall remain in full force and effect, except to the extent augmented or amended hereby), between the parties hereto respecting
the matters set forth herein, and shall constitute the entire agreement between the parties hereto in respect of the matters set forth
herein.
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21.
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Successors and Assigns
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This Agreement shall be binding
upon and enure to the benefit of the Corporation and their respective successors and assigns and to the Indemnified Party and his estate,
executors, administrators, legal representatives and lawful heirs.
This Agreement may be executed
and delivered by the parties in one or more counterparts, each of which when so executed and delivered will be an original, and those
counterparts will together constitute one and the same instrument.
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23.
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Successor Legislation
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Any references herein to any
enactment shall be deemed to be references to such enactment as the same may be amended or replaced from time to time and, in the event
that the Corporation is continued, incorporated, amalgamated, arranged under or otherwise becomes governed by an enactment other than
the Act, then all references herein to the Act shall be deemed to be references to such enactment as the same may be amended or replaced
from time to time.
IN WITNESS WHEREOF
the parties hereto have executed this Agreement as at the date first above written.
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AKANDA CORP.
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Per:
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Name:
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Title:
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Chief Executive Officer
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[●]
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Signature Page – Akanda Corp.
(D&O Indemnity)
Exhibit 10.9
OFF-TAKE AGREEMENT
THIS
OFF-TAKE AGREEMENT (this “Agreement”), dated 3rd August 2020, (the “Effective Date”)
is made and entered into by and between Medcan Ltd,a company incorporate in the Republic of Malta with registration number C 73431
(“Medcan”) and Bophelo Bio Science and Wellness Pty Ltd, a company incorporated in the Kingdom of Lesotho with the
registration number 2018/62924 (“BOPHELO”), both of whom are hereinafter collectively referred to as the “Parties”
and any one of which shall be referred to as a “Party” as the context may require. This Agreement shall apply
to each and every delivery and sale of Bulk Extract (defined in “DEFINITIONS” below) by BOPHELO to Medcan and shall constitute
the entire agreement between the Parties with respect to the purchase and sale of Bulk Biomass.
DEFINITIONS:
In this Agreement,
unless the context clearly indicates a contrary intention, the following expressions shall bear the following meanings and related expressions
shall bear corresponding meanings:
“Bophelo’s
nominated account” – [Account Name - Bophelo Bio Science & Wellness; Account No. - l l 990043908; Nedbank Mafeteng
Branch; Branch Code - 390461; Swift Code - NEDLLSMX], or such other bank account as BOPHELO may nominate on written notice of not
less than 7 days to Medcan;
“Bulk Biomass” – means both
Flower and Trimmings, each of various grades (of potency, strains and other qualities) to be purchased by Medcan hereunder;
“business day” – means any day other
than a Saturday, Sunday or official public holiday in Lesotho;
“Commencement
of Bulk Biomass Processing” – means the commencement of drying, trimming, and processing operations;
“Cultivation
Facility” – mean the greenhouses, hoop-houses and/or other indoor or outdoor cannabis cultivation facilities
designed, built and operated by BOPHELO for the cultivation of cannabis and production of cannabis crops by or on behalf of BOPHELO
in compliance with such standards for the cultivation and collection of cannabis crops as may be imposed in terms of the
requirements of the various markets to which the products produced by BOP HELO are to be exported (the relevant standards
hereinafter collectively referred to as “Agricultural Practices Standards” );
“EFT”
– electronic funds transfer, being a transfer of funds between bank accounts on the internet (free of set off, bank charges
levied by the paying party’s bank or deductions of any nature whatever);
“Flower” – dried
cannabis flower harvested from female cannabis plants, packed in 1 kilogram bags ready for sale;
“Prime
Rate” – the rate of interest publicly quoted by Nedbank Lesotho, from time to time, as being its prime rate of
interest (expressed as a nominal annual compounded monthly in arrear rate), calculated on a 365 day
a year basis, irrespective of whether or not the year is a leap year and prima facie proved, in the event of there being a dispute
in relation thereto, by a certificate signed by any manager of the aforesaid bank (whose appointment, qualification or authority
need not be proved);
“Property”
– the land situated at Ts'akholo, Mafeteng, Kingdom of Lesotho and having the GPS co-ordinates latitude 29°39’
46.28”S and longitude 27°9’ 36.01”E;
“Specified
Volume” – 10,000 kilograms of Bulk Biomass;
“Trimmings” – any
extraneous plant matter harvested as a by-product of trimming cannabis flower, packed in 1 kilogram bags available for sale;
Where any term is defined
within the context of any particular clause of this Agreement, the term so defined, unless it is clear from the clause in question that
the term so defined has limited application to the relevant clause, shall bear the meaning ascribed to it in terms of the particular clause
for all purposes in terms of this Agreement, notwithstanding that the term has not been defined in this Definitions clause.
RECITALS:
WHEREAS, Medcan is a private limited liability company with registered address at Level 4, the Penthouse, Suite 2, Ewropa
Business Centre, Triq Dun Karm, Birkirkara, BKR 9034, Malta and with the objects of the company
including, inter alia, the importation, preparation and distribution of marijuana for medical use by patients in Malta and to this end,
Medcan intends on importing the Bulk Biomass purchased from BOPHELO under this Agreement;
WHEREAS, BOPHELO
holds a Prohibited Drug Operator license authorizing it to engage in the business of cannabis cultivation, manufacturing of cannabis products
and export of cannabis and cannabis products, and is in good standing with all relevant and necessary local and national licensing authorities
in the Kingdom of Lesotho;
NOW, THEREFORE,
in consideration of the foregoing recitals, which said recitals are incorporated herein by this reference, and the mutual covenants
and conditions hereinafter contained, the Parties agree as follows:
BOPHELO agrees
to sell, and Medcan agrees to buy Bulk Biomass that BOPHELO produces from the cannabis cultivated on the initial 5 hectares of the Property
in the Cultivation Facility;
l. Contract Term: The term of this Agreement shall, subject to any termination in terms of section 8, be for a period commencing
on the Effective Date and ending on the date being the earlier of (i) the date on which Medcan has purchased the full Specified Volume
from BOPHELO; or (ii) the 7th anniversary of the
Effective Date (“the Final Date”).
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2.1
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BOPHELO agrees to deliver to Medcan
the Specified Volume, unless otherwise agreed in writing by both Parties, of Bulk Biomass each week,
beginning one (1) week after Commencement of Bulk Biomass Processing (the “First Delivery
Date”). BOPHELO shall thereafter give Medcan not less than 5 days’written notice
in advance each time that a delivery will be ready for collection in terms of section 2.2.
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2.2
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The Bulk Biomass shall be delivered Ex Works (as
such term is defined in INCOTERMS 2010) and Medcan will take delivery of the Bulk Biomass
Ex Works subsequent to customs clearance in a port in Malta (“Clearance”)
and BOPHELO will, procure the transport of the Bulk Biomass by a cannabis transport operator
licensed as such in terms of the Drugs of Abuse Act, 2008 of Lesotho to an international
airport in Lesotho or South Africa, or a seaport in South Africa (each such location, a “Port”)
as agreed upon by both Parties and shall take such steps as may be required for clearing
the Bulk Biomass for export, subject to Medcan having, with at least 30 (thirty) days advance
notice, provided (i) correct and comprehensive instructions to BOPHELO as regards any requirements
(including, but not limited to approved strains, packing and labelling specifications and
correct licenses in respect of the country of import) which the Bulk Biomass or any particular
Batch (as such term is defined in section 2.4) need to comply with; and (ii) a copy of all
relevant documentation, including specifically documentary proof of the country of import's
consent to importation as required for purposes of BOPHELO obtaining the relevant export
permit, in order to enable the Batch to be legally and validly exported via the designated
Port to the port of destination. Notwithstanding anything herein contained, BOPHELO shall
not incur any liability of any nature whatsoever, whether to Medcan or any third party, for
any failure to have the Bulk Biomass or any particular Batch cleared for export due to incorrect
instructions having been provided to BOPHELO by Medcan willingly and knowingly in this regard
or the Bulk Biomass or any particular Batch not meeting the legal requirements for import
and Clearance and Medcan hereby indemnifies and holds BOPHELO harmless against any claim
made against BOPHELO in this regard. Medcan shall be responsible for (i) all other tasks
through clearing the Bulk Biomass through customs in the importing country; and (ii) receiving
and transporting the Bulk Biomass after it has been so transported for Clearance. Medcan
may perform the foregoing actions, or appoint a properly licensed third party to do so on
Medcan’s behalf. All Bulk Biomass will be free and clear of any liens, claims and encumbrances.
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2.3
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Notwithstanding the terms of delivery being Ex Works, BOPHELO agrees
to pay an amount equal to 50% of the actual costs incurred by Medcan in the process of landing a Batch
at the import destination, including, inter alia, transport costs, export and import duties,
customs and handling fees, but excluding costs of insurance (“landing costs”), provided
that BOPHELO’s contribution to landing costs shall never exceed an amount equal to 5% of the
total amount paid by Medcan to BOPHELO for the Batch in terms of section 6.l. BOPHELO shall pay such
costs to Medcan upon presentation of an invoice setting forth the costs incurred as line items and
shall, if so required by BOPHELO, furnish documentary proof of the costs so incurred.
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2.4
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Risk of loss of the Bulk Biomass shall pass to Medcan
upon completion of delivery, namely, Clearance, by BOPHELO Ex Works at the Extraction Facility.
Title to and ownership of the Bulk Biomass shall pass from BOPHELO to Medcan against payment
by Medcan to BOPHELO in terms of section 6. BOPHELO will deliver each batch of Bulk Biomass
with a Certificate of Analysis, including residual, pesticide and potency results, from an
independent, properly licensed and credentialed cannabis analytical testing laboratory (“Compliant
Laboratory”) in Lesotho or South Africa (a “COA”), indicating that
each batch of Bulk Extract meets the Specifications (as such term is defined below). All
Bulk Biomass packaged under the same COA is hereinafter referred to as a “Batch”.
Medcan shall at any time and from time to time, at its cost, be entitled to submit the Bulk
Biomass to any compliant laboratory outside Lesotho or South Africa for analysis.
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2.5
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If BOPHELO has notified Medcan in accordance with section 2.1 that a Batch is ready
for delivery and Medcan has for any reason whatsoever (other than Medcan’s legitimate rejection of the relevant Batch in accordance
with the provisions of section 3(b)) failed to take delivery of such Batch Ex Works within 15 days from the date of the notice contemplated
in section 2.1, Medcan shall be liable to make payment to BOPHELO for such Batch in accordance with the provisions of section 6 as if
Medcan had taken title to and delivery thereof. BOPHELO shall, at Medcan’s risk, store such Batch in a secured, temperature-controlled
storage area for Clearance, provided that –
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2.5.1
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if Medcan fails to make payment for the relevant batch within the 15 day period aforementioned,
BOPHELO shall be entitled to dispose of or destroy the Batch as it deems fit;
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2.5.2
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if Medcan has made payment to BOPHELO for the relevant Batch, but has failed to accept
delivery thereof within a period of 6 months from the date of the notice contemplated in section 2.1, BOPHELO shall be entitled to dispose
of or destroy the Batch as it deems fit, and BOPHELO shall,
if it has sold any Batch as contemplated above, pay to Medcan the proceeds received from such sale, less reasonable storage costs and
any costs incurred by BOPHELO in the course of selling and delivering the relevant Batch to the purchaser in question. BOPHELO shall
promptly return any payments made by Medcan for such Batches as are subsequently found at delivery not to be accompanied by a valid COA,
or for which the accompanying COA indicates a failure to satisfy the Specifications.
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2.6
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If by the Final Date Medcan has not purchased the total Specified
Volume from BOPHELO under this Agreement, Medcan undertakes to pay to BOPHELO within 7 business days of the Final Date an amount equal to Z calculated in accordance with the following formula –
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Z = (A-B) x P
where
Z represents the amount payable;
A represents the Specified Volume;
B represents the actual volume of Bulk
Biomass which Medcan has purchased from Bophelo as at the Final Date; and
P represents the then prevailing market
rate per gram of Bulk Biomass as determined in accordance with section 6.1.
For the avoidance
of doubt it is recorded that if sufficient Bulk Biomass has not been produced to meet the Specified Volume by the Final Date, save where
such failure is as a result of a breach or negligence by BOPHELO of this Agreement, BOPHELO shall have no liability of any nature whatsoever
arising from such failure and Medcan hereby indemnifies and holds BOPHELO harmless against any claim made against BOPHELO in this regard.
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2.7
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As holder of the Prohibited Drug Operator license under the
Drugs of Abuse Act, 2008, BOPHELO shall be responsible to procure and import all cannabis seeds required for purposes of cultivating
cannabis at the Cultivation Facility. Medcan shall at all times and from time to time during the term of this Agreement give BOPHELO
written instructions as to the strains of the seeds to be purchased by BOPHELO for this purpose. BOPHELO shall not incur any liability
of any nature whatsoever, whether to Medcan or any third party, if it has procured seeds on the instructions of Medcan and such seeds
turn out to be seeds of a strain(/s) of cannabis plant not permitted under the import authorisations of the territories to which Medcan
intends to sell the Bulk Biomass produced from plants cultivated from the seeds. Medcan hereby indemnifies and holds BOPHELO harmless
against any claim made against BOPHELO in this regard and all loss and damages which BOPHELO may suffer as a result of Medcan having
provided incorrect instructions for the seeds to be procured and imported by BOPHELO.
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3. Packaging of Bulk Biomass:
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(a)
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BOPHELO will deliver Bulk Biomass to Medcan in containers complying with the applicable Agricultural
Practices Standards (“Containers”) or as otherwise agreed in writing between the Parties; BOPHELO shall not
co-mingle different Batches in the same Containers. BOPHELO will pre-fill each Container with up to 1000 grams of Bulk Biomass,
before further packaging each Batch in accordance with the applicable Agricultural Practices Standards for delivery to Medcan. Each
Batch will be packaged, labelled, marked and shipped in its own set of Containers, segregated from other Batches, in a commercially
reasonable manner, and in accordance with the applicable Agricultural Practices Standards and all applicable laws, rules and
regulations of the importing territory timely identified to BOPHELO by Medcan in writing. Medcan shall be responsible for
communicating to BOPHELO, in writing, all requirements and specifications with which a Batch needs to comply in order to ensure it
is cleared for export and is capable of being imported to the relevant importing territory. BOPHELO shall not incur any liability of
any nature whatsoever, whether to Medcan or any third party, for any failure to have a Batch cleared for export due to incorrect
requirements and/or specifications having been communicated to BOPHELO by Medcan in this regard and a Batch accordingly not meeting
the legal requirements for importation into the importing territory, and Medcan hereby indemnifies and holds BOPHELO harmless
against any claim made against BOPHELO in this regard. BOPHELO will weigh each empty Container independently before filling and
include the exact weight of the empty Container on its label.
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(b)
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All Bulk Biomass supplied by BOPHELO is subject to
Medcan’s inspection and acceptance or rejection at the Cultivation Facility prior to BOPHELO’s
delivery Ex Works. A Compliant Laboratory shall conduct an inspection of each Batch before
it is loaded into the relevant transport vehicle. If this inspection
reveals that the Batches being delivered do not conform to the requirements set forth in
sections 2, 3 or 4, Medcan will forthwith advise BOPHELO of such non-compliance in writing
and shall be entitled to reject any Batch which it considers non-compliant. If a batch is
rejected, BOPHELO shall at its election be entitled to remediate such Batch or otherwise
dispose of it as it deems fit. Any Batch so rejected (and not remediated) shall be retained
by BOPHELO and excluded for purposes of determining the weight of the relevant delivery
made. All Bulk Biomass shall be weighed upon delivery, prior to being loaded on the relevant
vehicle for transport, and the weight (hereinafter “the Delivery Weight”)
shall be recorded, a copy of which recording shall be given to BOPHELO and an original shall
be retained by Medcan. For the sake of clarity, the Parties agree that the weight of the
empty Containers will not be included in the weight of the Bulk Biomass.
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4.
Procured Cannabis Specifications: BOPHELO shall ensure that all Bulk Extract delivered to Medcan complies with the Specifications
set forth in subparagraphs (a) and (b) of this section 4 as follows:
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(a)
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The levels of residual
pesticide, microbes, foreign material, mycotoxins, heavy metals and other impermissible chemicals
in each Batch must be at or below the maximum levels set forth in the applicable Agricultural
Practices Standards of the importing territory identified by Medcan, as the same may be amended
from time-to-time by agreement in writing between the Parties (“Chemical Specifications”).
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(b)
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Each Batch must provide a total THC
concentration at least twelve percent (12%) (its “Total THC Concentration”).
Total THC Concentration shall be verified be ensuring that each one gram of Bulk Extract
would yield a combined total of at least 120 milligrams of THC and THCA, using the following
formula: Total THC Concentration (mg/g) = (THCA concentration (mg/g) x 0.877) + THC concentration
(mg/g) (“Potency Specifications”, and together with the Chemical Specifications,
the "Specifications").
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5.
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Pricing and Payment Terms:
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5.1
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Medcan will pay BOPHELO prevailing market rates (the “Price”) calculated on the basis of a Price per gram based on the Delivery Weight, which Price shall be payable
upon delivery of the Bulk Biomass Ex Works as set forth in section 2. The Price for each Batch shall
be determined as follows –
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a)
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the Price shall always be determined on the basis that Medcan shall seek to sell the
Batch at the highest value achievable in the market, the average price for Bulk Biomass for 2020 and 2021 will be $3.00 USD per gram;
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b)
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within 3 days of the date of the notice from BOPHELO as contemplated in section 2.1,
the Parties shall endeavour to agree on the Price for the relevant Batch, and shall record such price in writing between them;
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c)
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if the Parties fail to agree on the Price in the period contemplated in section 6.1(b), the Price (always
subject to the principle in section 6.1(a)) shall be obtained from referencing the price per gram for such product as reflected in the
most as published by Canaccord Genuity Group Inc (“Cannacord”); provided that if Canaccord no longer publishes such report
or index publicly and the parties are unable to instruct Canaccord to prepare or provide such a report for their specific purpose, the
Price shall be equal to the average of the wholesale price per gram as applied by the 5 biggest international cannabis trading companies
by market capitalisation (“average wholesale price”). If for any reason the parties are unable to obtain the necessary information
to determine the average wholesale price at any point in time, the parties agree that the price will be determined by an independent expert
in international cannabis trading (“the expert”), such expert to be a person as nominated by the head of the cannabis practice
cluster of the firm of Aird & Berlis LLP, Toronto. The expert shall be instructed to determine the average wholesale price based on
his/her industry knowledge and expertise and such information as he/she is able to obtain in respect of the current market and to provide
his/her determination within 5 days of being requested to do so. The expert's determination shall be final and binding on the parties.
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5.2
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Such payment shall be made by Medcan by way of EFT to BOPHELO's nominated account
forthwith against presentation by BOPHELO of the relevant invoice to Medcan, which invoice shall be presented to Medcan upon delivery
of the relevant Batch Ex Works.
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5.3
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Notwithstanding the aforegoing, the parties agree that to the extent that Medcan,
or any of Medcan's associates or subsidiaries, sells a Batch at a price which is more than the Price paid to BOPHELO in terms of section
6.1 in respect of such Batch, Medcan shall forthwith pay to BOPHELO the difference between the price paid by Medcan in terms of section
6.1 and the actual price at which the Batch has been sold by Medcan, the principle being that Medcan is not entitled to the benefit of
any margin on the sale by Medcan of any Batch. Medcan shall at the end of each 3 months for the term of this Agreement provide to BOPHELO
a certificate from Medcan’s auditors confirming the prices at which all Batches obtained from BOPHELO were sold by Medcan.
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6. National and Local
Cannabis Taxes, Fees and Regulations: BOPHELO shall collect, pay and remit any and all local and national cannabis-related fees (including
but not limited to licensing, renewal and inspection fees due pursuant to the Drugs of Abuse Act of 2008, the Medicines Control and Medical
Devices Control Bill 2018 Act No. 5, and the Drugs of Abuse (Cannabis) Regulations, 2018 Act (collectively, the “Acts”))
and any applicable taxes that are owed on the cannabis and cannabis products cultivated, manufactured, sold and exported by BOPHELO,
or are instituted by the Kingdom of Lesotho at any time. Furthermore, the Parties agree to comply with the Acts and all applicable regulations
set forth by the relevant local and national agencies, including but not limited to the Kingdom of Lesotho’s Ministry of Health
and Social Welfare and the Lesotho Narcotics Bureau.
7. Termination Rights:
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(a)
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Notwithstanding section 1 of this Agreement, Medcan may terminate this Agreement,
subject to any applicable notice and cure periods set forth below, immediately upon delivery of written notice by Medcan to BOPHELO:
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(1)
in the event of an order for the liquidation of BOPHELO, whether voluntarily or involuntarily winding-up of BOPHELO or the placing of
BOPHELO under judicial management or administration and such order has not been dismissed or rescinded within 120 business days after
granting thereof, or the execution by BOPHELO of an assignment for the benefit of its creditors generally;
(2)
for the loss or suspension of BOPHELO’s national and/or local licenses to cultivate, store, supply and/or export cannabis for a period
of more than 60 consecutive days, provided that such loss or suspension has not been occasioned by a breach by Medcan of its obligations
under this Agreement; or
(3)
for the occurrence of a material breach of this Agreement by BOPHELO that remains uncured for 60 days after the date of receipt by BOPHELO
of written notice of the alleged breach, provided that such breach has not been occasioned by a breach by Medcan of its obligations under
this Agreement,
in
each instance without prejudice to Medcan’s right to claim damages from BOPHELO, provided however, that where a termination
arising from BOPHELO’s loss of licensure is occasioned by Medcan’s breach of this Agreement as described in section 8(a)(2),
Medcan shall have no remedy.
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(b)
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Notwithstanding section 1 of this Agreement, BOPHELO may terminate this Agreement, subject to any
applicable notice and cure periods set forth below, immediately upon delivery of written notice by BOPHELO to Medcan:
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(1) for the
passing of an extraordinary resolution for the dissolution of the Medcan, in accordance with the Companies Act, Chapter 386 of the laws
of Malta, an involuntary bankruptcy filing against Medcan that has not been dismissed 120 business days after filing, or the execution
by Medcan of an assignment for benefit of creditors;
(2)
for the loss or suspension of any of Medcan’s applicable licenses required to perform its obligations under this Agreement for
a period of more than 60 consecutive days; and
(3) for the occurrence of a breach of this Agreement, by Medcan that remains uncured for 60 days after the date of receipt by Medcan of written notice of the alleged breach, provided that such breach has not been occasioned by a breach by BOPHELO of its obligations under this Agreement,
in
each instance without prejudice to BOPHELO’s right to claim damages from Medcan. If consequent
upon an unremedied breach by Medcan, BOPHELO elects to terminate this Agreement, BOPHELO shall be entitled to require Medcan, which
shall be obliged to pay to BOPHELO, as a genuine pre-estimate of the liquidated damages which BOPHELO shall be deemed to have
suffered as a result of Medcan’S breach and without prejudice to BOPHELO’S right to recover from Medcan the actual
damages suffered by BOPHELO as a result thereof and its other rights in law or in terms of this Agreement, an amount equal to D as
calculated in accordance with the following forrnula -
D = (A-B)
x P
where
D represents the amount payable;
A represents the Specified Volume;
B represents the actual volume of Bulk Biomass which Medcan
has purchased from BOPHELO at the date on which the breach occurs; and
P represents the then prevailing Price
per gram of Bulk Extract as determined in accordance with section 6.1.
Notwithstanding
the aforegoing, the Parties agree that all amounts which BOPHELO realises from selling any stock of Bulk Biomass in its possession as
at the date of termination less the costs incurred in respect thereof, shall be set off against D.
8. Effect of Termination or Expiration.
All amounts then due and
payable by Medcan to BOPHELO or by BOPHELO to Medcan will be accelerated and immediately become due upon termination or expiration, unless
such termination results from the other's breach of this Agreement and the delivery of payment is at issue as a result of such breach.
9. Warranties.
Medcan hereby warrants to BOPHELO that Medcan –
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9.1
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is and will for the duration of this Agreement remain duly registered with all
such regulatory authorities and or bodies and is and will remain in possession for the duration of this Agreement of all such licenses
and other regulatory approvals, as may be required for Medcan to lawfully perform all aspects falling within or being implicit in the
scope of its obligations in terms hereof, including its ability to lawfully purchase the Bulk Biomass from BOPHELO in terms hereof;
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9.2
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will not act in breach of any law or regulation which it is required to comply with
in performing its obligations in terms hereof;
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9.3
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is duly incorporated and validly exists as a company in accordance with the laws
of Malta;
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9.4
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has the power to enter into, deliver and perform, and has taken
all necessary action to authorise its entry into, delivery and performance of, this Agreement and that its entry into, delivery and performance
of this Agreement does not contravene or conflict with any of its constitutional documents nor any law or regulation or judicial or administrative order which applies to Medcan.
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BOPHELO hereby warrants to Medcan that BOPHELO –
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9.5
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is and will for the duration of this Agreement remain duly registered
with all such regulatory authorities and or bodies and is and will remain in possession for the duration of this Agreement of all such
licenses and other regulatory approvals, as may be required for BOPHELO to lawfully perform all aspects falling within or being implicit
in the scope of its obligations in terms hereof, including its ability to lawfully supply the Bulk Extract to Medcan in terms hereof,
including delivery of the Bulk Extract Ex Works for Clearance;
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9.6
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will not act in breach of any law or regulation which it is required to comply with
in performing its obligations in terms hereof;
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9.7
|
is duly incorporated and validly exists as a company in accordance with the laws
of the Kingdom of Lesotho;
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9.8
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has the power to enter into, deliver and perform, and has taken all necessary action
to authorise its entry into, delivery and performance of, this Agreement and that its entry into, delivery and performance of this Agreement
do not contravene or conflict with any of its constitutional documents nor any law or regulation or judicial or administrative order which
applies to BOPHELO.
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10. Miscellaneous.
a) Time is of the
Essence.
The Parties acknowledge and agree that
time is of the essence in performing the obligations set forth in this Agreement.
b) Mediation and
Arbitration.
For the purposes of
this section l0(b) a “dispute” shall mean any dispute which arises between the Parties in connection with -
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i.
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the formation or existence;
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iii.
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the interpretation or application of the provisions;
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iv.
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the Parties’ respective rights and obligations in terms
of or arising out of the conclusion, breach or termination;
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v.
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the validity, enforceability, rectification, termination or cancellation, whether in whole or in part;
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vi.
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any documents furnished by the Parties pursuant to the provisions,
of this Agreement or which relates in any way to any matter affecting the interests of the Parties in terms of this Agreement. Save
for those provisions in this Agreement which provide for their own remedies, the Parties agree that any dispute shall, unless resolved
amongst the Parties to the dispute, be referred to and be determined by arbitration.
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While the Parties
shall attempt amicable conflict resolution and negotiation, the Parties hereto submit to the exclusive jurisdiction of the Malta Arbitration
Centre, of Palazzo Laparelli, 33 South Street, Valletta, VLT 1100, Malta, should such amicable solutions prove fruitless.
The Parties hereby confirm that any dispute,
matter or interpretation of the Malta Arbitration Centre shall be final and binding on the Parties and that the arbitral award shall be
final and binding and have the effect of a court order.
The arbitration shall
be heard by an arbitration tribunal which shall consist of 3 arbitrators and in accordance with the procedure laid out in the Malta Arbitration
Act, Chapter 387 of the laws of Malta.
c) Governing Law.
This Agreement and
all rights and obligations hereunder, including matters of validity and performance shall be governed and construed in accordance with
the Laws of Malta.
d) Amendments.
These terms cannot be
amended, modified or changed in any manner, except by a written amendment designated as such and signed by an authorized
representative of each Party hereto.
e) Independent
Contractor.
The relationship between
Medcan and BOPHELO is that of independent contractors. Nothing contained herein shall be construed to create a principal-agent or employer-employee
relationship between the Parties. Neither Party shall represent to others that it is the agent of the other.
(1)
The Parties choose domicilium citandi et executandi (“Domicilium”) for all purposes of the giving of any notice, the
payment of any sum, the serving of any process and for any other purpose arising from this Agreement, as follows
BOPHELO:
T’ sakholo, Ha-Mojela
Mafeteng
District
Kingdom of Lesotho
Attorneys for BOPHELO
Ira Epstein
Fluxmans Inc
30 Jellicoe Avenue, Rosebank
Johannesburg,
South Africa
iepstein@fluxrnans.com
MEDCAN:
Level 4, the Penthouse, Suite 2,
Ewropa Business Centre
Triq Dun Karm
Attorneys for Medcan:
Dr. Jonathan Corrieri
Level 4, the Penthouse, Suite 2,
Ewropa Business Centre
Triq Dun Karm
Birkirkara
BKR 9034
Malta
Jonathan@corriericilia.com
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(2)
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Each of the Parties shall be entitled from time to time, by written notice to the other, to vary its domicilium
to any other physical address and/or its email address.
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(3)
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Any notice given and any payment made by any Party (“the sender”) to the other (“the
addressee”) shall be in writing and if -
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(i)
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delivered by hand during the normal business hours of the addressee at the addressee’s domicilium
for the time being shall be presumed to have been received by the addressee at the time of delivery;
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(ii)
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delivered by way
of courier service shall be presumed to have been received by the addressee on the 7th
business day following the date on which the courier service was placed in possession
of such notice;
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(4)
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Any notice given by the sender to the addressee which is transmitted by email to the
addressee at the addressee’s email address, for the time being shall be presumed to have been received by the addressee when (i) the email
enters an information system designated or used
for that purpose by the addressee and is capable of being retrieved by the addressee; and (ii) the sender has received a return email
from the addressee of the email acknowledging receipt by the addressee of that email (it being the responsibility of the sender of that
email to obtain such acknowledgment).
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(5)
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Notwithstanding
anything to the contrary contained in this section 10(f), written notice or other communication actually
received by a party shall be adequate written notice or communication to it notwithstanding that the notice was not sent or delivered
to its chosen address or email address.
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In the event that
any one or more of these provisions is held invalid, illegal or unenforceable in any respect by a court with jurisdiction, the validity,
legality and enforceability of the remaining provisions contained herein shall not be in any way impaired thereby. In the event the provisions
of any such applicable law may be waived, they are hereby waived by BOPHELO and Medcan to the full extent permitted by law, and these
terms shall be deemed to be valid, binding and enforceable.
h) Waiver.
No
omission or delay by either party at any time to enforce any right or remedy reserved to it, or to require performance of any of the
terms, covenants or provisions hereof at any time designated, shall be a waiver of any such right or remedy to which either Party is
entitled, nor shall it in any way affect the right of either Party to enforce such provisions thereafter. No waiver of any rights or
obligations shall be effective unless in writing and signed by an officer or other authorized representative of the Party holding
such rights or to whom such obligations are owed, and any such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.
i) Survival.
All
terms that by their nature would be intended to survive expiration or termination of this Agreement shall so survive, and in
particular, it is expressly agreed by the Parties that the obligations regarding confidentiality shall so survive.
j) No Third-Party
Beneficiaries.
All of these terms are for the sole and exclusive benefit
of the Parties.
k) Interpretation.
The Parties agree
that the rule of construction that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation
of these terms. Each Party has had the opportunity to consult the legal counsel of its choice. Unless otherwise required by the context
in which the term appears, the words include, includes and including will be deemed to be followed by the phrase “without limitation”
and will not be construed to mean that the examples given are an exclusive list of the topics covered. All defined terms apply to both
singular and plural forms, and all references to any gender include all other genders. The captions are for convenience only, and in no
way limit or amplify the provisions hereof.
l) Integration.
These terms constitute
the entire agreement between the Parties in respect of the subject matter hereof and shall replace and supersede all prior and/or contemporaneous
agreements, negotiations or representations between the Parties with respect to the subject matter hereof, whether written or oral. To
the extent there is any inconsistency between these terms and any invoice or similar document produced by Medcan, these terms shall govern.
No subsequent acceptance, acknowledgment or other document submitted by one Party to the other shall vary these terms unless confirmed
in writing by the other Party.
m) Interest.
Any amount falling
due for payment by Medcan to BOPHELO in terms of this Agreement shall bear interest at the prime rate, calculated from the due date
for payment (or, in the case of any amount payable by way of damages, with effect from the date upon which those damages are sustained)
to the actual date of payment thereof, both dates inclusive.
n) Confidentiality.
The
Parties acknowledge that, as a result of this agreement, information not generally available to members of the public and/or of a
proprietary, confidential or commercially-sensitive nature (“Confidential Information”) may or will be disclosed
to either Party. Accordingly, the Parties irrevocably and unconditionally undertake to maintain all and any Confidential Information
disclosed to and/or obtained in the strictest confidence and not at any time to disclose any such Confidential Information to any
person whatsoever, including (without limitation) to professional advisers, consultants, employees, servants or agents.
This OFF-TAKE AGREEMENT is entered
into on this 3rd day of August, 2020.
In WITNESS WHEREOF, the parties have set their hands on the date above
written.
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BOPHELO:
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/s/ Louisa Mojela
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Bophelo
Bio Science and Wellness Pty Ltd
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By:
Louisa Mojela
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Title:
Director
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MEDCAN:
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/s/ Dr. Jonathan Corrieri and /s/ Mr. Michael
Zammit Taboona
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Medcan
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By:
Dr. Jonathan Corrieri and Mr. Michael Zammit Taboona
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Title:
“A” Class Director and “C” Class Director
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Exhibit 10.10
Bophelo - Cantourage
SERVICE, REFINEMENT AND DISTRIBUTION
AGREEMENT
between
represented by its CEO Philip Schetter
Heinrich-Mann-Str. 12, 14532 Kleinmachnow,
Germany
- hereinafter “CANTOURAGE”
-
and
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2.
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Bophelo Bio Science and Wellness (Pty) Ltd
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represented by its Chief Financial
Officer & Director Trevor Scott
Khoabane Mojela, Ha Mojela, Ts’Akholo,
Mafeteng, Lesotho
- hereinafter “BOPHELO”
-
The terms “CANTOURAGE” and “BOPHELO”
include the respective affiliated companies of CANTOURAGE or BOPHELO pursuant to Sections 15 AktG et seqq. [Aktiengesetz - Stock Corporations
Act]. Those companies in which CANTOURAGE holds a share of at least 50 % are also deemed to be affiliated companies of CANTOURAGE.
CANTOURAGE and BOPHELO are hereinafter
respectively designated individually as “Party” and together as “Parties”.
Bophelo - Cantourage
TABLE OF CONTENTS
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PREAMBLE
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4
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1.
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Definitions
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4
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2.
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SCOPE of the AGREEMENT
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7
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3.
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Term and termination
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7
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4.
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Title and risk of loss
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8
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5.
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SERVICES
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8
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6.
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CONSIGNMENT STOCK
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8
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7.
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REFINEMENT
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9
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8.
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BRANDS, LABELLING
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9
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9.
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Distribution, sales activities
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9
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10.
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Order Fulfilment
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10
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11.
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Deliveries
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10
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12.
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PRICE, INVOICES
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10
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13.
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Release of CONTRACTUAL PRODUCT
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11
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14.
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Quality; Inspection
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11
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15.
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Warranty
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11
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16.
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Analysis costs
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12
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17.
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RECALL
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12
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18.
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Product liability
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13
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19.
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Insurance
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13
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20.
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Change management
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13
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21.
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Obsolescence
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13
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22.
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Provision of materials and assistance by CANTOURAGE
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13
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23.
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Intellectual property
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13
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24.
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CERTIFICATIONS, PERMISSIONS
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13
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25.
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Rights of third parties
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14
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26.
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Duties to inform; Inspection rights
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14
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27.
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Alliance Committee
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14
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28.
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Export/Import regulations
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14
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29.
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Confidentiality
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16
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Bophelo - Cantourage
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30.
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FORM
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16
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31.
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Applicable law
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17
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32.
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VENUE
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17
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33.
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Integral parts of the AGREEMENT
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17
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34.
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Final provisions
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18
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Bophelo - Cantourage
PREAMBLE
Whereas
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(A)
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CANTOURAGE is a Manufacturer and Pharmacy Wholesaler of cannabis
for medicinal use.
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(B)
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BOPHELO is a producer/cultivator of medicinal cannabis incorporated in the Kingdom of Lesotho with the registration number 2018/62924.
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(C)
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The Parties intend to establish a cooperation which enables BOPHELO with CANTOURAGE’s assistance to market its products within
the European Union, especially within Germany;
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Now, the Parties agree to enter into the following
SERVICE, REFINEMENT
AND DISTRIBUTION AGREEMENT
Headings are for reference purposes
only and shall in no way define, limit, construe or describe the scope or extent of an article.
The Annexes are integral part of
this Agreement and a reference to this Agreement shall always be interpreted as including the Annexes.
Unless the context otherwise requires
words importing one gender include all other genders and words incorporating a verb include the respective noun and the single include
the plural, and vice versa.
For the purpose of this Agreement,
the Parties agree on the meaning of the following definitions:
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1.1
|
“AGREEMENT” means this Agreement including its Annexes.
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1.2
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“ALLIANCE COMMITTEE” shall have the meaning described in Clause 25.
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1.3
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“AVERAGE SELLING PRICE” means the average of the weighted SELLING PRICES over the RELEVANT PERIOD.
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1.4
|
“BACKGROUND RIGHTS” means all intellectual property rights (in particular industrial property rights, copyrights and comparable
rights, including know-how) held by BOPHELO which are necessary for the manufacture of END PRODUCTS.
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1.5
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“CONFIDENTIAL INFORMATION” means all information disclosed (whether in writing, orally or by another means and whether
directly or indirectly) with respect to the subject matter hereof by one Party (the “DISCLOSING PARTY”) to the other Party
(the “RECEIVING PARTY”) whether before or after the date of this AGREEMENT including, without limitation, information relating
to the DISCLOSING PARTY’s products, operations, processes, plans or
intentions, product information, know-how, design rights, trade secrets, market opportunities and business affairs.
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Bophelo - Cantourage
|
|
1.6
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“CONSIGNMENT STOCK” means the stock of CONTRACTUAL PRODUCTS and END PRODUCTS established and maintained by CANTOURAGE
for BOPHELO.
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1.7
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“CONSUMER” is any end user of the END PRODUCTS.
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1.8
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“CONTRACTUAL PRODUCTS” means the products specified in ANNEX 2.
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1.9
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“DEFECT” means any deviation of a CONTRACTUAL PRODUCT from the agreed quality.
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1.10
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“DELIVERY” means the delivery of CONTRACTUAL PRODUCTS in accordance with Incoterms® 2020 DAP at the first port of
entry in Germany.
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1.11
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“DISTRIBUTOR” means any third party which is supplied with END PRODUCTS and not a CONSUMER.
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1.12
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“END PRODUCTS” means all CONTRACTUAL PRODUCTS which have been successfully REFINED by CANTOURAGE.
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1.13
|
“FORECAST” shall mean, with respect to any twelve (12) month period, a rolling projection or estimate of the demand for
CONTRACTUAL PRODUCTS during such twelve month period which is updated and amended by CANTOURAGE on a quarterly basis, which approximates,
as nearly as possible, based on information available at the relevant time to CANTOURAGE. For the avoidance of doubt, it is possible that
the amount of CONTRACTUAL PRODUCTS in any given month can equal a zero.
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1.14
|
“FORCE MAJEURE” means any unforeseeable and exceptional occurrence, cause or condition beyond the respective PARTY’s
reasonable control and shall include fire; explosion; flood; earthquake; tsunami; extreme adverse weather conditions; act of God; riot;
war or threat of war; civil commotion; pandemic; change in approval or applicable law; regulation or directive having the force of law;
non-availability, interruptions to or shortage of electricity, fuel or raw materials; failure of a Party’s supplier to supply or
manufacturer to manufacture due to any event or circumstance which would constitute FORCE MAJEURE under this Agreement; and strike, labour
dispute or lock-out. However no occurence, cause or condition shall be considered to be an event of Force Majeure if
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(i)
|
and to the extent the Party seeking to invoke the Force Majeure has caused or contributed to the applicable occurence, cause or condition
by its fault or negligence or has failed to use commercially reasonable efforts to prevent or remedy or mitigate the risks resulting from
such occurence, cause or condition, and so far as possible and within a reasonable time period, remove it;
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|
(ii)
|
the occurence, cause or condition is the result of a breach of any applicable law by the Party seeking to invoke the Force Majeure;
or
|
Bophelo - Cantourage
|
|
(iii)
|
the occurence, cause or condition was caused by a lack of funds or other financial cause.
|
|
|
1.15
|
“FOREGROUND RIGHTS” means all intellectual property rights conceived or developed by either Party or its employees or
agents during the term of, and in connection with, the respective Party’s performance under this Agreement.
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1.16
|
“GACP” means the “Guideline on good agricultural and collection practice for starting materials of herbal origin”
(EMEA/HMPC/246816/2005) issued by the European Medicines Agency, as being amended from time to time.
|
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1.17
|
“MINIMUM PURCHASE PRICE” means the minimum price to be paid by CANTOURAGE to BOPHELO for the CONTRACTUAL PRODUCTS as further
specified in ANNEX 3.
|
|
|
1.18
|
“MINIMUM QUANTITY” means the minimum quantity of CONTRACTUAL PRODUCTS and END PRODUCTS stored in the CONSIGNMENT STOCK
which shall be determined by the Parties from time to time.
|
|
|
1.19
|
“PRICE” means the SELLING PRICE and/or PURCHASE PRICE and/or RAP SERVICE PRICE and/or RAP PLUS SERVICE PRICE and/or AVERAGE
SELLING PRICE and/or MINIMUM PURCHASE PRICE as the case may require.
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|
|
1.20
|
“PURCHASE PRICE” means the price for the sale of CONTRACTUAL PRODUCTS by BOPHELO to CANTOURAGE calculated as specified
in ANNEX 3.
|
|
|
1.21
|
“RELEVANT PERIOD” means a period of every month, the first RELEVANT PERIOD starts on first sale of END PRODUCTS at the
date of payment for the END PRODUCTS.
|
|
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1.22
|
“REFINE” or “REFINEMENT” means CANTOURAGE’s activities with regard to the conversion of CONTRACTUAL
PRODUCTS into END PRODUCTS as specified in ANNEX 1.
|
|
|
1.23
|
“SELLING PRICE” means the prices for the sale of END PRODUCTS by CANTOURAGE to DISTRIBUTORS as specified in ANNEX 3 and
amended by the Parties from time to time.
|
|
|
1.24
|
“RAP SERVICES” means the mandatory services to be provided by CANTOURAGE as specified in ANNEX 1.
|
|
|
1.25
|
“RAP PLUS SERVICES” means the optional services to be provided by CANTOURAGE as specified in ANNEX 6 and to the extent
these services have been ordered by BOPHELO and accepted by CANTOURAGE.
|
|
|
1.26
|
“RAP SERVICE PRICE” means the price to be paid by BOPHELO to CANTOURAGE for the RAP SERVICES as specified in ANNEX 3.
|
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|
1.27
|
“RAP PLUS SERVICE PRICE” means the price to be paid by BOPHELO to CANTOURAGE for the RAP PLUS SERVICES as specified in
ANNEX 3.
|
Bophelo - Cantourage
|
|
1.28
|
“TERRITORY” means the territory of the European Union, especially of the Federal Republic of Germany.
|
|
|
2.
|
SCOPE of the AGREEMENT
|
|
|
2.1
|
The object of the AGREEMENT is the provision of the RAP SERVICES, and if agreed, the RAP PLUS SERVICES by CANTOURAGE to BOPHELO, the
REFINEMENT of CONTRACTUAL PRODUCTS by CANTOURAGE for BOPHELO, and distribution of END PRODUCTS within the TERRITORY.
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|
|
2.2.1
|
CANTOURAGE shall provide the RAP SERVICES and RAP PLUS SERVICES
to BOPHELO,
|
|
|
2.2.2
|
BOPHELO shall deliver CONTRACTUAL PRODUCTS to the CONSIGNMENT
STOCK,
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|
2.2.3
|
CANTOURAGE shall REFINE certain quantities of CONTRACTUAL PRODUCTS within the CONSIGNMENT STOCK,
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|
2.2.4
|
CANTOURAGE shall market and distribute END PRODUCTS within the
TERRITORY.
|
|
|
3.1
|
This AGREEMENT comes into effect upon signature of both Parties and its initial term shall be 5 years. The term shall be extended
each time for further period of 1 years unless the AGREEMENT has been duly terminated prior to the expiration of the term.
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|
|
3.2
|
The notice period for a termination by CANTOURAGE is 60 days and for a termination by BOPHELO 60 days.
|
|
|
3.3
|
BOPHELO can terminate the AGREEMENT before the initial term expires. CANTOURAGE is not allowed to terminate the AGREEMENT before the
initial term expires.
|
|
|
3.4
|
The right of termination for good cause remains unaffected. Good cause shall be, inter alia, if (i) CANTOURAGE does not dutifully
provide the RAP SERVICES; or (ii) the REFINEMENT is not carried out in accordance with applicable law; or (iii) the END PRODUCTS
do not conform to specifications as set out in ANNEX 5 for reasons not referring to the CONTRACTUAL PRODUCT. BOPHELO has to notify CANTOURAGE
in writing and provide 30 days to remedy the situation. Afterwards if the situation is not remedied, BOPHELO can terminate the AGREEMENT
with immediate effect subject to all further requirements for a termination for good cause as stipulated by applicable law.
|
|
|
3.5
|
The termination notice has to be in writing.
|
Bophelo - Cantourage
|
|
4.
|
Title and risk of loss
|
|
|
4.1
|
Upon DELIVERY, CANTOURAGE shall become the sole owner of the CONTRACTUAL PRODUCTS. CANTOURAGE shall keep all CONTRACTUAL PRODUCTS
derived therefrom free of liens, security interests and encumbrances.
|
|
|
4.2
|
Upon DELIVERY, CANTOURAGE will assume the risk of loss of the CONTRACTUAL PRODUCTS. CANTOURAGE assumes the risk of loss of all END
PRODUCTS. CANTOURAGE shall maintain an adequate insurance up to an amount of minimum EUR 1,500,000 to cover such potential losses.
|
|
|
5.1
|
During the term of this AGREEMENT, CANTOURAGE shall provide to BOPHELO the RAP SERVICES and RAP PLUS SERVICES in accordance with the
due diligence of a professional expert.
|
|
|
5.2
|
The provision of RAP PLUS SERVICES is conditional upon BOPHELO and CANTOURAGE entering into a separate service agreement further detailing
the respective obligations of either Party.
|
|
|
6.1
|
BOPHELO shall be responsible for the DELIVERY of the CONTRACTUAL PRODUCTS . BOPHELO shall not pay for taxes and duties for the importation.
|
|
|
6.2
|
CANTOURAGE shall inform BOPHELO in due course whenever the quantity of CONTRACTUAL PRODUCTS and END PRODUCTS stored in the CONSIGNMENT
STOCK falls below the MINIMUM QUANTITY.
|
|
|
6.3
|
CANTOURAGE shall provide to BOPHELO a FORECAST for the period beginning on 1 January 2022 or beginning no later then three weeks
of recieving the expansion of the narcotics license which ever is the later.
|
No later than ten (10) days
prior to the first day of each subsequent calendar quarter, CANTOURAGE shall deliver to BOPHELO a FORECAST for the period beginning with
the first day of such calendar quarter. FORECASTS are subject to RAP PLUS SERVICES and for informational purposes only. They do not create
any binding obligations on behalf of either PARTY; provided, however, that BOPHELO shall not be required to manufacture and sell to CANTOURAGE
any quantity of CONTRACTUAL PRODUCTS that is unreasonably disproportionate to any FORECAST for the period covered by such FORECAST.
|
|
6.4
|
Upon expiration or termination of this AGREEMENT without cause, CANTOURAGE shall destroy and dispose all remaining CONTRACTUAL PRODUCTS
and END PRODUCTS from the CONSIGNMENT STOCK. BOPHELO shall bear all reasonable costs and expense incurred by CANTOURAGE for the distruction
or disposal up to a maximum amount equaling an average cost
of EUR 0,20 per gram. For each destroyed and disposed END PRODUCT, BOPHELO shall pay to CANTOURAGE the difference between the agreed PURCHASE
PRICE and the AVERAGE SELLING PRICE plus statutory value added tax (if applicable).
|
Bophelo - Cantourage
|
|
6.5
|
Upon termination of this AGREEMENT for cause, CANTOURAGE shall destroy and dispose all remaining CONTRACTUAL PRODUCTS and END PRODUCTS
from the CONSIGNMENT STOCK at costs and expense of CANTOURAGE. For each detroyed and disposed END PRODUCT, BOPHELO shall pay to CANTOURAGE
only the costs of REFINEMENT.
|
|
|
7.1
|
CANTOURAGE shall REFINE CONTRACTUAL PRODUCTS, which are stored in the CONSIGNMENT STOCK on behalf of BOPHELO in such quantities as
CANTOURAGE considers reasonably necessary in order to meet DISTRIBUTOR’s demands for END PRODUCTS.
|
|
|
7.2
|
The specifications of the END PRODUCTS are set out in ANNEX 5.
|
|
|
7.3
|
CANTOURAGE shall within 7 days after receiving the testing results for the END PRODUCTS report to BOPHELO on the REFINEMENT results
and provide BOPHELO with the respective CoA (Certificate of analysis).
|
|
|
7.4
|
CANTOURAGE shall ensure in its contractual relationship with the DISTRIBUTOR that the ownership of the END PRODUCTS shall only transfer
to the DISTRIBUTOR once the SELLING PRICE is paid in full to CANTOURAGE.
|
CANTOURAGE shall distribute and
sell the END PRODUCTS with the brands and labelling specified in ANNEX 7.
|
|
9.
|
Distribution, sales activities
|
|
|
9.1
|
CANTOURAGE shall use commercially reasonable efforts to market, distribute and promote the END PRODUCTS within the TERRITORY within
the scope of RAP PLUS SERVICES described under ANNEX 6. CANTOURAGE is obliged to make sure that the DISTRIBUTOR has all the required approvals,
permits and licences to handle the END PRODUCTS.
|
|
|
9.2
|
The PARTIES shall agree on an ANNUAL MARKETING PLAN that will include at least the sales forecasts and extent of the RAP PLUS SERVICES.
The ANNUAL MARKETING PLAN is subject to RAP PLUS SERVICES and can be amended from time to time by a mutual agreement of the PARTIES.
|
Bophelo - Cantourage
|
|
10.1
|
Upon respective orders of DISTRIBUTORS, CANTOURAGE shall deliver the ordered END PRODUCTS from the CONSIGNMEMT STOCK to the respective
DISTRIBUTOR.
|
|
|
10.2
|
For each delivery of END PRODUCTS to the respective DISTRIBUTOR, CANTOURAGE shall invoice to the respective DISTRIBUTORS the respective
SELLING PRICE plus statutory value added tax and costs and expenses.
|
|
|
10.3
|
In the event a DISTRIBUTOR fails to pay invoiced amounts in a timely manner, CANTOURAGE shall submit at least two payment reminder
notices to the respective DISTRIBUTOR and take commercially reasonable measures to enforce the claim at their own costs.
|
BOPHELO shall effect DELIVERY of
CONTRACTUAL PRODUCTS in a timely manner as agreed between BOPHELO and CANTOURAGE from time to time.
|
|
12.1
|
For RAP SERVICES and RAP PLUS SERVICES, BOPHELO shall pay to CANTOURAGE the PRICES at the dates specified in ANNEX 3 plus statutory
value added tax (if applicable).
|
|
|
12.2
|
For each END PRODUCT delivered to and paid by a DISTRIBUTOR, BOPHELO shall invoice CANTOURAGE and CANTOURAGE shall pay to BOPHELO
the MINIMUM PURCHASE PRICE plus statutory value added tax (if applicable). For the avoidance of doubt, the MINIMUM PURCHASE PRICE and
the PURCHASE PRICE shall not become payable to the extent CANTOURAGE has not received payment of the SELLING PRICE for the respective
END PRODUCTS.
|
For each CONTRACTUAL PRODUCT that
cannot be refined into an END PRODUCT due to loss of the CONTRACTUAL PRODUCT, BOPHELO shall invoice CANTOURAGE and CANTOURAGE shall pay
to BOPHELO the cost price. The same applies in case of loss of the END PRODUCT.
|
|
12.3
|
CANTOURAGE shall not be obliged to make payment if the delivered CONTRACTUAL PRODUCTS contains a DEFECT.
|
|
|
12.4
|
CANTOURAGE has to calculate the PURCHASE PRICE within 14 days following the end of each RELEVANT PERIOD and notify it to BOPHELO.
In case the PURCHASE PRICE exceeds the MINIMUM PURCHASE PRICE, BOPHELO shall invoice the PURCHASE PRICE minus the already paid MINIMUM
PURCHASE PRICE plus statutory value added tax (if applicable).
|
|
|
12.5
|
All PRICES are to be paid in Euro and payable within 14 days after receipt of a respective invoice. Either Party may invoice a PRICE
as soon as the PRICE has become payable.
|
Bophelo - Cantourage
|
|
12.6
|
CANTOURAGE shall be entitled to request an adjustment of PRICES if market conditions require a PRICE adjustment.
|
|
|
13.
|
Release of CONTRACTUAL PRODUCT
|
|
|
13.1
|
Prior to the first DELIVERY, CANTOURAGE will audit BOPHELO with regard to its GACP compliance, BOPHELO shall only deliver CONTRACTUAL
PRODUCT which has been produced with same production equipment, production materials and production processes at the same production place
as audited by CANTOURAGE.
|
|
|
13.2
|
Prior to the first DELIVERY, BOPHELO shall, at the request of CANTOURAGE, produce proof of the conformity of the CONTRACTUAL PRODUCTS
with the agreed specification (ANNEX 2) by submitting a CoA (Certificate of analysis) by an independent third party.
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|
|
13.3
|
Each change in the production equipment, the production materials, location or processes used for the production of CONTRACTUAL PRODUCTS
(including the production equipment, production materials, location or processes of sub-contractors and sub-suppliers) shall require a
new sign-off. BOPHELO shall inform CANTOURAGE of any forthcoming or impending changes at the earliest possible date. In addition, the
provisions of Clause 19 apply.
|
|
|
14.1
|
Prior to DELIVERY, BOPHELO shall inspect the quality of the CONTRACTUAL PRODUCTS and ensure that no CONTRACTUAL PRODUCTS containing
a DEFECT are delivered. In addition, BOPHELO shall send CoA (Certificate of analysis) by an independent third party for each delivered
batch to CANTOURAGE.
|
|
|
14.2
|
CANTOURAGE shall test samples of each shipment of CONTRACTUAL PRODUCTS in due course. The time limit for notifying evident DEFECTS
or any DEFECTS discovered shall be three weeks as from DELIVERY or discovery of the DEFECT.
|
|
|
15.1
|
Each CONTRACTUAL PRODUCT delivered must have the following quality:
|
|
|
15.1.1
|
The CONTRACTUAL PRODUCT must conform with the specification agreed in this AGREEMENT.
|
|
|
15.1.2
|
The CONTRACTUAL PRODUCT must conform with the quality of the Certificate of Analysis delivered by BOPHELO.
|
|
|
15.2
|
With regard to each DEFECT, CANTOURAGE shall be entitled to the statutory warranty rights.
|
|
|
15.3
|
In deviation from the statutory provisions, CANTOURAGE may, in respect of any CONTRACTUAL PRODUCT containing a DEFECT, at any time
request to send back or destroy the CONTRACTUAL PRODUCT at costs of BOPHELO.
|
Bophelo - Cantourage
Without prejudice to all further
claims, CANTOURAGE shall be entitled for each CONTRACTUAL PRODUCT containing a DEFECT to claim fifty (50) % of the effective analysis
costs incurred in connection with the analysis and elimination of the DEFECT and its consequences. BOPHELO shall be enabled to challenge
such test with a retest. If the retest does not confirm the adverse result brought by the previous test, CANTOURAGE will bear hundred
(100) % of the cost of the retest. If the retest does confirm the adverse result brought by the previous test, BOPHELO will bear hundred
(100) % of the cost of both the previous test and the retest. Parties commit to revisit in good faith this provision in case the practicalities
of the first twelve (12) months of shipments prove to make this stipulation an unexpected burden to any of the Parties.
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|
17.1
|
CANTOURAGE shall be entitled to recall END PRODUCTS supplied to DISTRIBUTORS if such a recall is necessary under applicable law.
|
|
|
17.2
|
In case of a recall caused by the CONTRACTUAL PRODUCTS, BOPHELO shall, without prejudice to all further claims by CANTOURAGE, indemnify
CANTOURAGE for the reasonable costs of all measures taken by CANTOURAGE to eliminate or minimise the risks which have arisen for CANTOURAGE,
unless the recall has arisen out of any breach of the AGREEMENT by CANTOURAGE or any negligence in the sale or promotion of the END PRODUCTS.
These include in particular the following measures:
|
|
|
17.2.1
|
the notification of known or the public notification of unknown owners of the products;
|
|
|
17.2.2
|
the removal and transport - including packaging, insurance, temporary storage and customs duties - of the products from the owner
to CANTOURAGE or to the nearest suitable location at which the fault in the products can be rectified, the products disposed of, destroyed,
temporarily stored or replaced;
|
|
|
17.2.3
|
the disposal or destruction of the products;
|
|
|
17.2.4
|
the examination of products which demonstrably belong to any series containing a DEFECT at the premises of the owner or at the nearest
suitable location.
|
|
|
17.3
|
In case a recall is caused by the REFINEMENT or as a condition in the END PRODUCT and not caused by the CONTRACTUAL PRODUCT, CANTOURAGE
shall, without prejudice to all further claims by BOPHELO, indemnify BOPHELO for the reasonable costs of all measures taken by BOPHELO
to eliminate or minimise the risks, which have arisen for BOPHELO.
|
Bophelo - Cantourage
|
|
18.1
|
Should any product liability claims be asserted against CANTOURAGE which are based on a fault or DEFECT in a CONTRACTUAL PRODUCT,
BOPHELO shall indemnify CANTOURAGE from these claims and from all costs incurred by CANTOURAGE by reason of the claims asserted, including
any costs of legal defence and costs for corrective measures to mitigate the risk.
|
|
|
18.2
|
Should any product liability claims be asserted against BOPHELO which are based on a fault in an END PRODUCT or caused by REFINEMENT,
CANTOURAGE shall indemnify BOPHELO from these claims and from all costs incurred by BOPHELO by reason of the claims asserted, including
any costs of legal defence and costs for corrective measures to mitigate the risk.
|
Either Party shall be obliged to
maintain business liability insurance and extended product liability insurance with coverage of at least EUR 1 (one) million per claim
for damage.
In case of a change in regulation
affecting the distribution of END PRODUCTS within the TERRITORY, the PARTIES shall mutually agree on necessary measures.
PARTIES shall inform each other
at the earliest possible date of any anticipated or impending restrictions concerning manufacture or delivery of the CONTRACTUAL PRODUCTS
or END PRODUCTS.
|
|
22.
|
Provision of materials and assistance by CANTOURAGE
|
CANTOURAGE shall only be obliged
to provide such services, assistance and cooperation if and to the extent explicitly provided in this AGREEMENT.
|
|
23.
|
Intellectual property
|
Any FOREGROUND RIGHTS created by
CANTOURAGE shall be deemed the sole property of CANTOURAGE as they relate exclusively to the END PRODUCTS.
|
|
24.
|
CERTIFICATIONS, PERMISSIONS
|
The Parties
agree that CANTOURAGE alone shall be the sole owner of all certifications or permissions regarding the END PRODUCTS in so far as these
relate exclusively to the END PRODUCTS and the TERRITORY.
Bophelo - Cantourage
|
|
25.
|
Rights of third parties
|
|
|
25.1
|
BOPHELO shall be liable for ensuring that no rights of third parties are infringed through the manufacture and supply of CONTRACTUAL
PRODUCTS.
|
|
|
25.2
|
CANTOURAGE shall be liable for ensuring that no rights of third parties are infringed through the manufacture and supply of END PRODUCTS.
|
|
|
26.
|
Duties to inform; Inspection rights
|
|
|
26.1
|
BOPHELO shall without undue delay provide to CANTOURAGE the information required by applicable law relating to the manufacture and
supply of CONTRACTUAL PRODUCTS and also in regard to compliance with the duties of BOPHELO agreed in this AGREEMENT.
|
|
|
26.2
|
BOPHELO shall be obliged to inform CANTOURAGE at the earliest possible date of pending or announced changes in the manufacturing location
and process, statutory provisions, in particular applicable accident prevention, occupational safety, environment and similar provisions,
the applicable technical standards and the latest recognised rules of science and technology in so far as these concern or may concern
the CONTRACTUAL PRODUCTS.
|
|
|
26.3
|
Each Party shall be entitled to check the other Party’s compliance with the obligations agreed in this AGREEMENT (Audit). The
audit is to be announced with a reasonable period of advance notice and to be carried out within the usual business hours of the Party.
|
|
|
26.4
|
BOPHELO shall retain all information, documents and data concerning the manufacture and supply of CONTRACTUAL PRODUCTS for a period
of at least [10] years from the manufacture of the last CONTRACTUAL PRODUCT and deliver the same to CANTOURAGE if required by applicable
law.
|
The Parties shall establish an ALLIANCE
COMMITTEE that shall manage the fulfilment of this AGREEMENT, in particular, but not limited to the regulatory matters, supply arrangements,
adoption and implementation of the ANNUAL MARKETING PLAN etc. The ALLIANCE COMMITTEE shall consist of at least one member of each Party
and shall meet at least once a month by teleconference or more regularly as required to fulfil the AGREEMENT.
|
|
28.
|
Export/Import regulations
|
|
|
28.1
|
BOPHELO must comply at its own cost and expense with all export control, customs and foreign trade regulations applicable in the export
countries for the CONTRACTUAL PRODUCTS and obtain all necessary
permits unless CANTOURAGE or any third party are obliged to apply for such permits.
|
Bophelo - Cantourage
|
|
28.2
|
CANTOURAGE must comply at its own cost and expense with all import, customs and foreign trade regulations applicable in Germany and
obtain all necessary permits in Germany. CANTOURAGE shall be solely liable for any damage in case CANTOURAGE does not obtain all necessary
import permits.
|
|
|
28.3
|
BOPHELO must provide CANTOURAGE in writing as early as possible with all information and data which CANTOURAGE requires for the application
of the import permits - especially the Certificate of Analysis.
|
|
|
28.4
|
BOPHELO must provide CANTOURAGE in writing upon DELIVERY with all information and data which CANTOURAGE requires for the import /
customs clearance. With each shipment, BOPHELO must send the following documents:
|
|
|
•
|
Certificate of Analysis
|
|
|
•
|
Delivery Note with the actual amount of CONTRACTUAL PRODUCT
declared
|
|
|
•
|
Pro Forma Invoice with the actual amount of CONTRACTUAL PRODUCT
declared
|
|
|
28.5
|
In the case of any changes in the origin and/or of features of the products or services sold to CANTOURAGE and/or the relevant regulations,
BOPHELO must update the information specified in Clause 26.2 or any further information which may have become necessary as early as possible
but no later than two (2) weeks following the date when these changes came into force and in any event prior to the planned DELIVERY
date. BOPHELO shall be liable for all expenses and/or damage suffered by CANTOURAGE by reason of any incorrectness or inaccuracy of the
information provided by the supplier unless BOPHELO was not responsible for the breach of duty.
|
|
|
28.6
|
Neither Party shall be obliged to perform this Agreement if and in so far as relevant regulations, embargos or any other sanctions
preclude their performance.
|
|
|
28.7
|
BOPHELO guarantees the security of its own supply chain and observes corresponding legal requirements. BOPHELO undertakes at the request
of CANTOURAGE to provide corresponding proof through certificates or declarations.
|
|
|
28.8
|
Neither Party shall be responsible for any failure of or delay in performance hereunder which may be due, in whole or in part to any
event of FORCE MAJEURE. The Party claiming the existence of a FORCE MAJEURE event shall use commercially reasonable efforts to resume
performance under this AGREEMENT as soon as possible, and if it has not performed under this AGREEMENT due to a FORCE MAJEURE event for
more than thirty (30) days, the other Party may terminate this AGREEMENT without further cost or liability in addition to any other applicable
termination rights.
|
Bophelo - Cantourage
|
|
29.1
|
During the term of this AGREEMENT and after termination or expiration of this AGREEMENT for any reason, the RECEIVING PARTY:
|
|
|
29.1.1
|
shall keep the CONFIDENTIAL INFORMATION confidential;
|
|
|
29.1.2
|
may not disclose the CONFIDENTIAL INFORMATION to another person except with the prior written consent of the DISCLOSING PARTY or in
accordance with Clause 27.2 and 27.3; and
|
|
|
29.1.3
|
may not use the CONFIDENTIAL INFORMATION for a purpose other than the performance of its obligations under this AGREEMENT.
|
|
|
29.2
|
During the term of this Agreement or thereafter the RECEIVING PARTY may disclose the CONFIDENTIAL INFORMATION to its employees, sub-contractors
and customers only to the extent that it is reasonably necessary for the purposes of this AGREEMENT.
|
|
|
29.3
|
The RECEIVING PARTY shall ensure that each recipient is made aware of and complies with all the RECEIVING PARTY’s obligations
of confidentiality under this AGREEMENT as if the recipient was a party to this AGREEMENT.
|
|
|
29.4
|
Clause 27.1 to 27.3 do not apply to CONFIDENTIAL INFORMATION which:
|
|
|
29.4.1
|
is at the date of this AGREEMENT or at any time after the date of this AGREEMENT comes into the public domain other than due to breach
of this AGREEMENT by the RECEIVING PARTY;
|
|
|
29.4.2
|
to the extent such information has to be disclosed by the RECEIVING PARTY to public authorities or courts pursuant to statute or applicable
law rules;
|
|
|
29.4.3
|
can be shown by the RECEIVING PARTY to have been known by the RECEIVING PARTY before disclosure by the DISCLOSING PARTY to the RECEIVING
PARTY; or
|
|
|
29.4.4
|
subsequently comes lawfully into the possession of the RECEIVING PARTY from another source not under obligation of confidentiality
to the DISCLOSING PARTY.
|
|
|
30.1
|
BOPHELO shall make any legally relevant statement, declaration or notice under this AGREEMENT to Cantourage GmbH, Schloßstr.
112, 12163 Berlin, Germany in text form.
|
|
|
30.2
|
CANTOURAGE
shall make any legally relevant statement, declaration or notice under this AGREEMENT to
BOPHELO Khoabane Mojela, Ha Mojela, Ts’Akholo, Mafeteng, Lesotho and in parallel to
vidya@akandacorp.com in text form.
|
Bophelo - Cantourage
This AGREEMENT and the performance of the
same shall be governed exclusively by the law of the Federal Republic of Germany (to the exclusion of its conflict of law provisions).
The application of the United Nations Convention on Contracts for the International Sale of Goods (CISG) is excluded.
|
|
32.1
|
The exclusive court venue for all disputes arising from or in connection with this AGREEMENT shall be Hamburg, Germany.
|
|
|
32.2
|
CANTOURAGE has the right to sue BOPHELO also at its place of general jurisdiction.
|
|
|
33.
|
Integral parts of the AGREEMENT
|
|
|
33.1
|
Integral parts of this AGREEMENT are:
|
Annex 1: RAP SERVICES
Annex 2: CONTRACTUAL PRODUCTS
Annex 3: PRICES
Annex 4: Quality Assurance Agreement
Annex 5: END PRODUCTS
Annex 6: RAP PLUS SERVICES
Annex 7: Brands, Labelling
|
|
33.2
|
In the case of ambiguities or inconsistencies, the integral parts of the AGREEMENT shall apply in the following order of precedence:
|
|
|
33.2.1
|
Prior-ranking, the text of this AGREEMENT shall apply; thereafter the Annexes in the order of their numbering.
|
|
|
33.2.2
|
Provisions of higher rank shall have precedence in the case of inconsistencies with provisions of lower rank.
|
|
|
33.2.3
|
Terms and conditions deviating from this AGREEMENT shall have no validity unless the Parties have agreed the deviation in a contractual
document signed by both sides with express reference to the contrary provisions of this AGREEMENT.
|
|
|
33.2.4
|
Should inconsistencies or ambiguities arise which cannot be unequivocally dispelled through the foregoing order of priority, BOPHELO
shall be obliged to inform CANTOURAGE in writing without delay.
|
Bophelo - Cantourage
|
|
34.1
|
No ancillary agreements have been made.
|
|
|
34.2
|
In so far as any earlier agreements between the Parties exist in regard to the CONTRACTUAL PRODUCTS and their supply, these agreements
lose their validity upon signature to this AGREEMENT.
|
|
|
34.3
|
General terms and conditions of either Party shall not apply even if a Party has referred to such terms and conditions.
|
|
|
34.4
|
This AGREEMENT is executed in duplicate. Each Party hereto receives one signed copy.
|
|
|
34.5
|
Any amendments or supplements need to be made in written form in order to be effective. This also applies for the revocation or amendment
of the requirement of the written form.
|
|
|
34.6
|
Should individual provisions of this AGREEMENT be or become ineffective or incapable of performance, either in whole or in part, or
should this AGREEMENT contain any gap in its provisions, the effectiveness of the remaining provisions shall not be thereby affected.
In place of the ineffective provision or provision incapable of performance or for the purpose of filling any gap in the contractual provisions,
such arrangement shall be deemed to be agreed as most closely reflects that which the Parties hereto intended or, in accordance with the
intent and purpose of the AGREEMENT, would have intended had they given consideration to the point.
|
|
Berlin, the
9/15/2021
|
|
Johannesburg, the 9/15/2021
|
|
|
|
|
|
|
|
|
|
/s/ Patrick Hoffman
|
|
/s/ Trevor Scott
|
|
Cantourage GmbH
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
Bophelo - Cantourage
ANNEX
1
(RAP SERVICES and REFINEMENT)
Initial setup to secure an initial Import
Permit
Paper Audit:
Checking the following documents and comparing
them with own specifications to decide whether BOPHELO; is eligible for the program or not:
|
|
•
|
valid cultivation license
|
|
|
•
|
representative certificates of analysis (CoAs)
|
|
|
•
|
self-disclosure about products
|
|
|
•
|
basic statement on the use of pesticides and fertilizers
|
Audit by Cantourage:
|
|
•
|
Auditing BOPHELO; on site to check the conformity of BOPHELO; with the GACP guidelines (in certain cases with support of qualified
third-party experts)
|
|
|
•
|
Using checklists, which are based on the WHO guidelines on good agricultural and collection practices (GACP) for medicinal plants:
|
|
|
|
|
|
|
▪
|
Quality assurance
|
|
|
▪
|
Propagation
|
|
|
▪
|
Cultivation
|
|
|
▪
|
Harvest
|
|
|
▪
|
Primary processing
|
|
|
▪
|
Packaging
|
Product Definition:
|
|
•
|
Definition and check of the product quality in consideration of the DAB monography (e.g. heavy metals, microbiology, pesticides)
|
|
|
•
|
Working with the guidelines that are also specified by the European medicinal book for herbals & drugs
|
|
|
•
|
Checking in the German market whether END PRODUCT name may be used or not and checking the END PRODUCT names for trademark violations
|
Registration:
|
|
•
|
Inclusion of BOPHELO; in the narcotic license and manufacturing authorization
|
|
|
•
|
Narcotic registration of all necessary third parties (e.g. logistic providers)
|
|
|
•
|
Expanding Cantourage’s BTM-license to include the END PRODUCTS
|
Bophelo - Cantourage
Product Registration:
Registration of various END PRODUCTS including
the product central number (PZN) at the “Informationsstelle für Arzneispezialitäten” (IFA).
Import Permit:
|
|
•
|
Applying the Import Permit “Einfuhrgenehmigung” at the “Bundesopiumstelle”
|
|
|
•
|
Sending the 2 originals to BOPHELO
|
Export Permit:
|
|
•
|
Helping BOPHELO; with the application and the fulfillment of the export if necessary
|
Manufacturing Process
Import Management:
|
|
•
|
Arranging a pickup at a German airport
|
|
|
•
|
Fulfillment of all relevant aspects for customs clearance
|
|
|
•
|
Responsibility for the CONTRACTUAL PRODUCTS from the German Airport on
|
|
|
•
|
Carrying and shipping under GDP conditions, which means that the temperature is between 15-25 degrees, the shipment is always safe &
secure and also traceable at any time
|
Quality Management:
As part of the quality management of Cantourage,
the following procedures take place with every import:
|
|
•
|
Incoming goods inspection (transport documentation e.g. temperature)
|
|
|
•
|
Comparing quantities with delivery note
|
|
|
•
|
Taking a representative sample
|
|
|
•
|
Carrying out a quality control of the sample
|
|
|
•
|
Checking the client’s certificate of analysis (CoA) with the DAB monography
|
|
|
•
|
prompt identification of any defects in accordance with the Agreement
|
Batch Labeling:
|
|
•
|
Creating a label that is conform with the European drug law consisting two parts (product-specific level and presentation of the analysis
certificate)
|
|
|
•
|
In other European countries, the label is created in coordination with local representatives of the individual states
|
Bophelo - Cantourage
Testing and Release:
After the CONTRACTUAL PRODUCT is transformed
to END PRODUCTS, it will be tested and released by Cantourage before it can be sold:
|
|
•
|
Taking a representative sample
|
|
|
•
|
Carrying out the quality control
|
|
|
•
|
Releasing batch if all quality assurance parameters match
|
|
|
•
|
taking all other steps to ensure compliance with EU GMP standards
|
Order & fulfillment
Storage of CONTRACTUAL PRODUCTS and END
PRODUCTS:
The CONTRACTUAL PRODUCTS and END PRODUCTS
are always stored in an anesthetic warehouse under GMP conditions and the requirements of the relevant German and EU guidelines:
|
|
•
|
Temperature is between 15-25 degrees
|
|
|
•
|
Humidity and air quality are continuously monitored
|
|
|
•
|
Product is always kept safe & secure
|
|
|
•
|
Product is stored on one or more pallets in an assigned storage location
|
Order Management & Fulfillment:
To ensure that all processes run smoothly,
Cantourage is setting up an own module in a proven virtual Enterprise resource planning system (ERP system) for BOPHELO:
|
|
•
|
Introducing all CONTRACTUAL PRODUCTS and END PRODUCTS into the system
|
|
|
•
|
Handling the entire order acceptance via phone, fax, email and the shop with an experienced team of salespeople
|
|
|
•
|
Introducing the entire DISTRIBUTOR data into the ERP in order to do the shipping and the billing with BOPHELO; and our logistic providers
|
|
|
•
|
Shipping the END PRODUCT within the TERRITORY under GDP conditions
|
|
|
•
|
Fulfilling the entire narcotic documentation within the shipping process
|
Return handling & reclamation:
Cantourage does the return handling &
reclamation. Within the process, each complaint is first checked and assessed by Cantourage’s quality assurance.
|
|
•
|
Fulfilling a detailed determination and an evaluation of the cause
|
|
|
•
|
Tracking the process and e.g. testing a batch if necessary
|
|
|
•
|
Taking care of the narcotic documentation and the physical transport management within the reclamation process
|
|
|
•
|
Fulfilling any payments of refunds that might be required
|
Bophelo - Cantourage
Payment Fulfillment:
|
|
•
|
Fulfilling the cash flow management including the posting of the receivable
|
|
|
•
|
Checking and posting of incoming payments for the individual orders
|
|
|
•
|
Sending out payment reminders within the reminder management when the payment target is exceeded
|
|
|
•
|
CANTOURAGE will undertake all necessary measures to ensure payments due for the delivery of END PRODUCTS are paid on time and in full
|
Documentation:
|
|
•
|
Providing monthly KPIs to BOPHELO;
|
|
|
•
|
Summarizing the sales and presenting them in Euro amounts and product quantities
|
|
|
•
|
Documenting the inventories (incoming and outgoing goods), as well as the gross margin analysis
|
|
|
•
|
Sharing monthly documentation with the client, in order to discuss future approaches.
|
Product Transformation:
Transforming the CONTRACTUAL PRODUCTS into
an END PRODUCT by an EU GMP compliant manufacturer in accordance with the relevant EU guidelines thereby producing EU GMP compliant product
that can be sold as such in Germany and will be palatable and appealing to consumers. The activities CANTOURAGE will undertake to do this
include but are not limited to:
|
|
•
|
Post treatment (if necessary)
|
|
|
•
|
Labeling according to defined manufacturing regulations
|
In the course of the REFINEMENT there will
be trimming and drying losses as well as retentions and testing provisions that will not be included into the END PRODUCT. Cantourage
will keep a record of these losses and retentions, but also of the yield, and will disclose them to BOPHELO; immediately after the REFINEMENT
process.
CANTOURAGE will make the best endeavors to
sell the trimming loses and any profits will be split between the 2 parties as per a normal sale of product outlined in this contract.
At all times, BOPHELO owns the trimming losses and has the right to request CANTOURAGE ship such product to another party at BOPHELOS’s
cost.
Bophelo - Cantourage
ANNEX 2
(CONTRACTUAL PRODUCTS)
The CONTRACTUAL PRODUCTS must comply with
the following parameters and specification:
|
Test Parameter
|
Test Method
|
Specification
|
|
Appearance
|
Organoleptic
|
Dried plant material, branches of Cannabis flowers
|
|
|
|
(untrimmed) and smaller leaves, without larger leaves
|
|
Colour
|
Organoleptic
|
Green, grey-green or brown-green
|
|
Odour
|
Organoleptic
|
Characteristic for Cannabis
|
|
Identity
of present Cannabis flowers
|
Macroscopic
|
Presence of female
flowers according to DAB-Monograph “Cannabis flos” Identity test A:
|
|
|
|
|
|
|
|
The female
blossoms are either whole or have fallen into individual pieces. The bracts and flowers stand closely together and the entire
flower forms a strongly clinched panicle of approximately 1 to 5 cm in length and width, with the dark green bracts protruding somewhat.
The light brown to brown pistil and cicatrices are together up to 1 cm in length. The tepals are green to light green and, like the
bracts, densely covered in yellow-white hairs and covered in resin. The crumbled drug contains fragments of the peduncles, bracts
and panicle segments as well as individual flowers and floral organs. The individual flowers are approximately 5 to 10 mm
in length, sometimes with short petioles, and consist of a hood-like, green to light green tepal, the female ovaries of 1 to 2 mm
in size, which may contain a small brown ovule, and a brown pistil with 2 long, thin cicatrices. The bract fragments are dark
green to green, the peduncles light green. The bracts and all floral organs, apart from the tepals, are more or less densely
covered in glandular hairs sticky with excreted resin.
|
|
Health
|
Organoleptic
|
No visible sign of diseases or pest contamination
|
|
Foreign Material
|
Ph.Eur. 2.8.2
|
< 2 % (m/m)
|
|
Loss on Drying
|
Ph.Eur. 2.2.32
|
10-15 % (m/m)
|
|
Total Ash
|
Ph.Eur. 2.4.16
|
Max. 20 % (m/m)
|
|
Heavy Metals
|
Ph.Eur. 2.4.27
|
Lead: max. 5.0 ppm
|
|
|
|
Mercury: max. 0.1 ppm
|
|
|
|
Cadmium: max. 1.0 ppm
|
|
Pesticides
|
Ph.Eur. 2.8.13
|
Comply with Ph.Eur. 2.8.13
|
|
Microbiological Quality
|
Ph.Eur. 2.6.31
|
TAMC: max. 2.5 x 106 cfu/g
|
|
|
|
TYMC: max. 2.5 x 105 cfu/g
|
|
|
|
Bile-tolerant Gram negative bacteria: max. 104 cfu/g
|
|
|
|
Escherichia coli: absent in 1 g
|
|
|
|
Salmonella: absent in 25 g
|
|
|
|
Pseudomonas aeruginosa: absent in 1 g
|
|
|
|
Staphylococcus aureus: absent in 1 g
|
|
Total THC content
|
HPLC acc. to Ph.Eur. 2.2.29
|
Between 90% and
110% of the content separately agreed in text form for the specific product
|
|
Total CBD content
|
HPLC acc. to Ph.Eur. 2.2.29
|
Between 90% and
110% of the content separately agreed in text form for the specific product
|
Bophelo - Cantourage
ANNEX 3
(PRICES)
The price for the RAP SERVICE is 420.000
EUR and is payable as followed:
|
|
•
|
20.000 EUR, due 10 days after signing of this Agreement and receipt of a proper invoice
|
|
|
•
|
200.000 EUR, due 10 days after REFINEMENT and the first sale of END PRODUCTS to a DISTRIBUTOR
|
|
|
•
|
Upon IPO, Bophelo will issue 200,000 EUR of IPO stock to Cantourage. Stock will be held in escrow until first sale obligation
is met. Equity would vest immediately on that first sales event.
|
|
|
B.
|
RAP PLUS SERVICE PRICES
|
|
PLUS Service
|
One time fee
|
Recurring / monthly fee
|
|
Homepage
|
10.000 € (*)
|
500 €
|
|
Direct HCP access
|
10.000 € (*)
|
500 €
|
|
Listing at wholesales
|
7.500 € / wholesale (*)
|
150 € / wholesale
|
|
Info material
|
10.000
€ (*) / 20.000 € / 40.000 €
|
Printing costs
|
|
Pharma representatives
|
5.000 € / pharma rep
|
7.000 € / pharma rep
|
|
Press announcements
|
2.000 € + placement costs
|
-
|
|
Advertisements
|
Real costs + 15 %
|
-
|
|
Newsletter
|
1.750 €
|
Printing
and distribution costs
|
|
Education program
|
20.000 €
|
500 € / physician
|
|
Patient support
|
10.000 €
|
Printing costs
|
|
Social Media
|
1.500 €
|
1.000 €
|
|
Launch Event
|
15.000 €
|
-
|
(*) These PLUS Service are included in the
price of € 420.000 for the RAP Service.
The above given prices are rough estimates,
based on the experience of CANTOURAGE for a basis package. Each final price depends on the extent of a chosen service and the respective
service agreement.
Bophelo - Cantourage
The PURCHASE PRICE will be calculated as price
per gram of END PRODUCTS received by REFINEMENT of CONTRACTUAL PRODUCTS and consists out of a 70,0 % share of the AVERAGE SELLING PRICE.
It is calculated as followed:
AVERAGE SELLING PRICE
per gram x 70 %
PURCHASE PRICE and AVERAGE SELLING PRICE refer
to the resulting weight of END PRODUCTS.
The weight of END PRODUCTS as a basis for
the PURCHASE PRICE will be lower than the weight of CONTRACTUAL PRODUCTS, due to trimming and drying losses that occur during the REFINEMENT.
Moreover, CANTOURAGE must withhold a minimum quantity of refined CONTRACTUAL PRODUCTS for testing and retentions that will not be included
into the END PRODUCT.
The minimum PURCHASE PRICE that CANTOURAGE
has to pay to BOPHELO for CONTRACTUAL PRODUCTS is 2,80 EUR per gram of the END PRODUCT that was refined from the respective CONTRACTUAL
PRODUCT (“MINIMUM PURCHASE PRICE”).
The SELLING PRICE will be set by CANTOURAGE
in its own discretion.
Bophelo - Cantourage
ANNEX 4
-
QUALITY ASSURANCE AGREEMENT
Bophelo - Cantourage
Bophelo - Cantourage
QUALITY ASSURANCE AGREEMENT
Production and Quality
Control
of Medicinal Cannabis
Starting Material
(Version 01)
|
|
Heinrich-Mann-Str.12
|
|
|
|
14532 Kleinmachnow
|
|
|
|
Germany
|
|
– hereinafter referred
to as “Cantourage” –
|
and
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
|
Khoabane Mojela, Ha Mojela, Ts’Akholo, Mafeteng
|
|
|
Lesotho
|
– hereinafter referred
to as “BOPHELO” –
Bophelo - Cantourage
The parties to this Agreement consent that,
due to legal provisions, the quality of Medicinal Cannabis Starting Material must be assured. The corresponding provisions must be obeyed.
Against this background, the parties to this
Agreement conclude the following contract which is the basis for all shipments of Cannabis Materials from BOPHELO to Cantourage.
The following agreements relate to the quality
part of the business relations between Cantourage and BOPHELO. Arrangements on prices and other commercial terms are
reserved for a separate agreement.
Legal Background
Cultivation of Cannabis in the country of
origin must be done for medical purposes under governmental control according to articles 23 and 28 paragraph 1 of the Single Convention
on Narcotic Drugs from 1961. Both Germany and Lesotho signed the UN Single Convention on Narcotic Drugs.
BOPHELO owns a cultivation license
issued by the responsible authority of Lesotho. BOPHELO will undertake all measures to maintain this license. In the case BOPHELO’s
license will be suspended or withdrawn by the authority, this Quality Assurance Agreement is not or no longer executed.
Bophelo - Cantourage
Glossary
GACP
European “Guideline on Good Agricultural
and Collection Practice for Starting Materials of Herbal Origin” (Doc. Ref. EMEA/HMPC/246816/2005 (20 February 2006)).
Manufacture
All activities necessary to obtain the contracted
Medicinal Cannabis Material, including propagation, cultivation, harvest, post-harvest processing, packaging, quality control.
Manufacturing site
Location where BOPHELO carries out
all activities to cultivate and process the contracted Medicinal Cannabis Material as specified in Appendix 1 of this agreement. The cultivation
license is used for the following manufacturing site:
Bophelo Bio Science and Wellness
(Pty) Ltd
Ts’Akholo, Mafeteng
Lesotho
Production
see Manufacture
Bophelo - Cantourage
Until further notice, the provisions
of this Agreement apply to all Medicinal Cannabis MaterialsBOPHELO supplies and which are listed in Appendix (1) to this Agreement
together with the agreed specifications.
This Quality Assurance Agreement
outlines the responsibilities of Cantourage and BOPHELO with respect to the quality assurance of Medicinal Cannabis Materials
produced and supplied by BOPHELO. The responsibilities of Cantourage and BOPHELO are outlined in Appendix (2). Important
contact persons are listed in Appendix (3).
|
|
2
|
Supplier / manufacturer
|
In case of this agreement, BOPHELO
is the supplier and producer of the Medicinal Cannabis Materials.
BOPHELO has reported its
activities to the competent authority under the national requirements and is under survey of this authority.
|
|
3
|
Requirements to the production of Medicinal Cannabis Materials
|
|
|
3.1
|
BOPHELO is obliged to name the manufacturing site/s of the supplied Medicinal Cannabis Materials.
|
The manufacturing site is:
Bophelo Bio Science and Wellness
(Pty) Ltd
Ts’Akholo, Mafeteng
Lesotho
|
|
3.2
|
BOPHELO must inform Cantourage about any changes in the manufacturing site or manufacturing procedure that can affect
the quality and safety of the products prior to the first delivery of concerned products.
|
|
|
3.3
|
BOPHELO ensures that the requirements of the GACP guidelines are fulfilled. BOPHELO will undertake all measures to maintain
this GACP conformity.
|
|
|
3.4
|
BOPHELO must inform Cantourage about all substances used in the cultivation and processing of the Medicinal Cannabis
Material, especially about all used fertilizer and pesticides. All pesticides used must be approved for use on medicinal plants by both
local and European governments at application levels intended to meet established tolerance levels for the Cannabis.
|
|
|
3.5
|
BOPHELO ensures that the legislative limits for pesticides and heavy metals as well as the microbiological purity and all other
specifications as defined in Appendix (1) are kept (to be certified in the Certificate of Analysis).
|
|
|
3.6
|
BOPHELO is obliged to give all information about the Cannabis Material that is or could be necessary to fulfil statutory requirements
(e.g. import licence into the EU) or any information relevant for the European market as requested by Cantourage.
|
Bophelo - Cantourage
|
|
4.1
|
BOPHELO provides Cantourage with available stability data related to the contracted Cannabis Material. The primary packaging
material used for stability tests must be identical with the packaging material as defined in Appendix (4).
|
|
|
4.2
|
Cantourage considers all stability data provided by BOPHELO for the determination of shelf-life and storage conditions
for products for the European market.
|
|
|
5.1
|
In order to keep the quality of Medicinal Cannabis Materials and the integrity of individual containers, BOPHELO uses suitable
primary and transport packaging systems. Primary packaging materials are agreed between Cantourage and BOPHELO and defined
in Appendix (4).
|
|
|
5.2
|
BOPHELO will take all measures to avoid any mix-ups or cross-contaminations or microbial contamination during packaging and
labelling. Each single primary container is labelled at least with Material name, batch number, filling weight. Each single transport
container (shipping box) is also labelled at least with Material name, batch number, number of contained primary containers. Mix-ups of
different materials in one transport container should be avoided.
|
|
|
5.3
|
The following documents must be provided with each delivery:
|
|
|
-
|
Batch-specific Certificate of Analysis (CoA) showing which parameters have been checked in each batch (including found values and
specified limits) and which have been found on a statistical basis (skip lot testing);
|
|
|
-
|
Batch-specific Certificate of Manufacture (CoM) according to GACP;
|
|
|
-
|
a proper delivery note;
|
The delivery is not complete unless
all mentioned documents are available.
|
|
5.4
|
The relevant legal provisions on safety and transport must be observed. Relevant Import Permits must be applied and submitted by Cantourage.
Export permits must be applied and submitted by BOPHELO.
|
|
|
5.5
|
BOPHELO is responsible for the transport of the Medicinal Cannabis Materials from BOPHELO to Cantourage.
|
|
|
6.1
|
BOPHELO will proceed the quality control according to the agreed specifications and test procedures as defined in Appendix
(1) by using its own laboratory (in-house) and/or a third-party laboratory.
|
|
|
6.2
|
BOPHELO is responsible for testing the contracted products in accordance with approved validated or qualified methods and specifications
using calibrated equipment. BOPHELO is responsible for having a program for qualification, calibration, and preventive maintenance
of all analytical equipment.
|
|
|
6.3
|
BOPHELO must ensure that the third-party laboratory has been fully qualified via BOPHELO’s third-party qualification
process prior to performing such activities. BOPHELO shall, however, retain all obligations under this Agreement.
|
|
|
6.3
|
BOPHELO will inform Cantourage about changes in the testing procedures that can affect the quality and safety of the products prior to
the first delivery of concerned products.
|
Bophelo - Cantourage
|
|
7.1
|
Any visual flaws at incoming deliveries (e.g. outer packaging) are recorded on the delivery note and must be notified to BOPHELO.
The measures to be taken are agreed between BOPHELO and Cantourage on a case-by-case basis.
|
|
|
7.2
|
If any flaws are discovered afterwards, BOPHELO must be informed immediately. The measures to be taken are also agreed between
BOPHELO and Cantourage on a case-by-case basis.
|
|
|
7.3
|
Cantourage informs about hidden flaws as soon as they become known.
|
|
|
8
|
Quality Assurance System
|
|
|
8.1
|
The quality assurance system applied by BOPHELO bases on the guidelines of GACP and the relevant national legal stipulations.
|
|
|
8.2
|
BOPHELO will undertake all measures to maintain GACP certification issued by the competent authority.
|
|
|
8.3
|
BOPHELO allows Cantourage and its representatives or third persons authorised by Cantourage to perform audits
on site to check and evaluate the QA system (audit) and relevant rooms, procedures and equipment, and to look into all the documentations
that relate to the Medicinal Cannabis Materials to be supplied.
|
|
|
9
|
Deviations and Change Control
|
|
|
9.1
|
According to its Deviation SOP, BOPHELO categorizes events as Incidents, Deviations and Critical Deviations – depending
on the quality impact on the product and/or patient. BOPHELO will inform Cantourage about Deviations and Critical Deviations
from the specified and agreed manufacturing and testing procedures, product specifications and batch results (OOS) with regard to the
Medicinal Cannabis Materials in writing.
|
The deviation must be evaluated
by BOPHELO with regard to the impact on the product quality and impact on patient safety.
|
|
9.2
|
BOPHELO will inform Cantourage about changes in the manufacturing site, the testing location, the manufacturing and/or
testing procedure as well as the product specification/s of the Medicinal Cannabis Materials to Cantourage in writing. This relates
to changes that can affect the quality and safety of the products. BOPHELO must inform Cantourage about those changes prior
to the first delivery of concerned products.
|
|
|
10.1
|
All documents necessary to trace back quality and products of the contracted Medicinal Cannabis Materials should be stored at the
site of BOPHELO, for at least 5 years after releasing the batch.
|
|
|
10.2
|
The following documents must be provided with each delivery:
|
|
|
-
|
Batch-specific Certificate of Analysis (CoA) showing which parameters have been checked in each batch (including found values and
specified limits) and which have been found on a statistical basis (skip lot testing);
|
|
|
-
|
Batch-specific Certificate of Manufacture (CoM) according to GACP;
|
Bophelo - Cantourage
|
|
-
|
a proper delivery note.
|
|
11.1
|
BOPHELO and Cantourage mutually undertake to observe secrecy on each other’s know-how that became known to them
in the course of this Agreement. This also applies for a period of three years after the co-operation has ended.
|
|
11.2
|
The
obligation of confidentiality and of not using information does not apply if that information
|
|
|
a)
|
was already known to the other party before its disclosure under the Agreement and the other party declares this fact immediately,
or
|
|
|
b)
|
has become common property through publication or by other means, or
|
|
|
c)
|
becomes known to one of the parties without originated directly or indirectly from the other party.
|
|
|
d)
|
is made available to Authorities due to legal requirements.
|
|
|
12.1
|
This Agreement shall come into force and effect once signed by the both parties hereby. It shall be concluded for an indefinite period
and may be terminated with due observance of a notice period of six months.
|
|
|
12.2
|
The right for an extraordinary termination for good cause (e.g. invalidity of GACP conformity) is not affected.
|
|
|
12.3
|
Each termination must be effected in writing.
|
|
|
13.1
|
Amendments and addenda to this Agreement and its appendices shall be invalid unless made in writing.
|
|
|
13.2
|
Should a provision of this Agreement prove to be invalid either in part or in full or lose its validity at a later date, the validity
of the other provisions shall not be affected. Another appropriate provision shall apply in place of the invalid provision, insofar as
legally permissible, that comes closest in economic terms to what the parties wanted or would have wanted had they been aware of the invalidity
of the provision.
|
|
|
13.3
|
The defendant’s seat is determined as the place of jurisdiction according to the legal requirement.
|
|
|
13.4
|
All rights and obligations under this contract will also devolve upon the contract parties’ legal successors.
|
Bophelo - Cantourage
|
Berlin, 15/09/2021
|
|
Kleinmachnow, 14/09/2021
|
|
|
Place, date
|
|
Place, date
|
|
|
|
|
|
|
|
/s/ Patrick Hoffman
|
|
/s/ Constanze Pelzer
|
|
|
Signature
|
|
Signature
|
|
|
Cantourage GmbH
|
|
Cantourage GmbH
|
|
|
Managing Director
|
|
Qualified Person
|
|
|
|
|
|
|
|
Johannesburg, 15/09/2021
|
|
London, UK 15/09/2021
|
|
|
Place, date
|
|
Place, date
|
|
|
|
|
|
|
|
/s/ Trevor Scott
|
|
/s/ Dallas Dunkley
|
|
|
Signature
|
|
Signature
|
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
|
Managing Director
|
|
Quality Assurance Manager
|
|
Bophelo - Cantourage
Appendices:
|
|
(1)
|
List of Medicinal Cannabis Products, agreed specifications and test methods
|
|
|
(2)
|
Quality Responsibilities Table
|
|
|
(3)
|
List of Contact Persons
|
|
|
(4)
|
Quality of Primary Packaging Material
|
Bophelo - Cantourage
APPENDIX (1)
List of contracted
Medicinal Cannabis Products,
agreed specifications
and test methods
(Version 01)
To the
QUALITY ASSURANCE AGREEMENT
Production and Quality
Control
of Medicinal Cannabis Starting Materials
|
between
|
Cantourage GmbH
|
|
|
Heinrich-Mann-Str.12
|
|
|
14532 Kleinmachnow
|
|
|
Germany
|
– hereinafter referred
to as “Cantourage” –
|
and
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
|
Khoabane Mojela,
|
|
|
Ha Mojela, Ts’Akholo, Mafeteng,
|
|
|
Lesotho
|
– hereinafter referred
to as “BOPHELO” –
Bophelo - Cantourage
|
|
1.1.
|
List of contracted Medicinal Cannabis Products
|
Contracted Medicinal Cannabis Products are
GACP Cannabis Starting Materials of agreed genetics (Cannabis strains).
For each single contract product, an individual
specification sheet based on Annex 2 of the Supply Agreement is issued and signed by BOPHELO and submitted to Cantourage.
|
|
1.2.
|
List of agreed specifications and test methods
|
See Annex 2 of the Supply Agreement.
For each single contract product, an individual
specification sheet based on Annex 2 of the Supply Agreement is issued and signed by BOPHELO and submitted to Cantourage.
|
Version
|
|
Status
|
|
Changes of previous version
|
|
01
|
|
06 / 2020
|
|
---
|
Bophelo - Cantourage
APPENDIX (2)
Quality Responsibilities
Table
(Version 01)
To the
QUALITY ASSURANCE AGREEMENT
Production and Quality
Control
of Medicinal Cannabis Starting Materials
|
between
|
Cantourage GmbH
|
|
|
Heinrich-Mann-Str.12
|
|
|
14532 Kleinmachnow
|
|
|
Germany
|
– hereinafter referred
to as “Cantourage” –
|
and
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
|
Khoabane Mojela,
|
|
|
Ha Mojela, Ts’Akholo, Mafeteng,
|
|
|
Lesotho
|
– hereinafter referred
to as “BOPHELO” –
Bophelo - Cantourage
|
|
2.1.
|
Quality Responsibilities
|
|
|
Responsibilities
|
Cantourage
|
BOPHELO
|
|
1
|
Compliance Requirements
|
|
|
|
1.1
|
Implement
procedures and/or documented training to meet obligations under this Agreement.
|
|
x
|
|
1.2
|
Follow applicable current GACP and locally imposed requirements.
|
|
x
|
|
1.3
|
Cultivation, harvesting, drying, packaging, testing, storage in an environment meeting the applicable regulations, which is designed, constructed and maintained in a manner that a) permits the operation therein to be performed under clean, sanitary and orderly conditions; b) permits the effective cleaning of pertinent surfaces; and c) prevents the contamination of Medical Cannabis Starting Materials and the addition of extraneous material on Medical Cannabis Starting Materials.
|
|
x
|
|
1.4
|
Operate in compliance with applicable environmental, occupational health and safety laws and regulations.
|
|
x
|
|
1.5
|
Maintain a quality unit that is independent of production that fulfils both quality assurance and quality control responsibilities.
|
|
x
|
|
1.6
|
Involve the quality unit in all quality related matters and have them review and approve all quality critical related documents.
|
|
x
|
|
1.7
|
As it relates to this Quality Agreement, notify the other party of name changes, corporate reorganization, consolidation, merger or acquisition or sale of the party’s company. Notify other party of key personnel changes.
|
x
|
x
|
|
1.8
|
Maintain internal audit program (self-inspection).
|
x
|
x
|
|
1.9
|
Further Processing of the Cannabis Starting Material according GMP Guidelines to receive Medicinal Cannabis Products of a quality as defined by related monographs of the German and European Pharmacopoeia.
|
x
|
|
|
1.10
|
Preparation of Product Quality Review according to GMP with regard to any changes to the processes or analytical methods, results of stability monitoring, quality related returns (EU market), complaints, recalls, adequacy of corrective actions.
|
x
|
|
|
2
|
Right to Audit
|
|
|
|
2.1
|
Cantourage has the right to audit BOPHELO´s facilities and systems and review documents as they relate to the manufacture of Medical Cannabis Starting Materials. Such inspections and document review shall be conducted by Cantourage at a time, date and duration mutually agreeable to BOPHELO and Cantourage.
|
x
|
|
|
2.2
|
Cantourage retains the right to conduct reasonable “for cause” audits. Specific goals/scope of the audit, proposed dates and names of the auditors will be agreed upon mutually by Cantourage and BOPHELO.
|
x
|
|
|
2.3
|
Cantourage provides BOPHELO with a confidential audit report summarizing audit observations.
|
x
|
|
|
2.4
|
BOPHELO provides Cantourage with responses to all observations documented in the issued audit report in writing to Cantourage’ Quality Assurance within 30 days of receipt of the report.
|
|
x
|
Bophelo - Cantourage
|
|
Responsibilities
|
Cantourage
|
BOPHELO
|
|
3
|
Regulatory Inspections and Exchanges
|
|
|
|
3.1
|
Notifies Cantourage within three business days of the receipt of a Regulatory Authority inspection report, deficiency letter or written regulatory compliance observation, which contains any significant adverse findings that relate to Medical Cannabis Starting Materials or the facilities used to produce, test or warehouse Medical Cannabis Starting Materials sold to Cantourage. A significant adverse finding is herein defined as the following: conditions, practices, or processes that adversely affect or may potentially adversely affect product or service quality and/or the rights, safety or well- being of subjects/patients and/or quality and integrity of data, documentation, or other materials or information addressed in the inspection.
|
|
x
|
|
4
|
Complaints
|
|
|
|
4.1
|
Has written procedures in place to document, investigate, and respond to all quality related complaints.
|
x
|
x
|
|
4.2
|
Assists in investigations as reasonably requested by Cantourage for complaints associated with Medical Cannabis Starting Materials.
|
|
x
|
|
4.3
|
Retains complaint investigation records and evaluate trends and severity. Implement corrective and preventive actions as necessary.
|
|
x
|
|
4.4
|
Cantourage will evaluate all complaints and respond to the complaining side.
|
x
|
|
|
5
|
Qualification/Validation
|
|
|
|
5.1
|
Follows a written qualification master plan for the facilities, equipment/instruments, and computerized systems as appropriate.
|
|
x
|
|
5.2
|
Follows a written validation master plan for related production and testing steps.
|
|
x
|
|
5.3
|
Qualify all necessary all critical systems and equipment used for the manufacture and control of the contracted products.
|
|
x
|
|
5.4
|
Allow viewing the qualification/validation documentation during an onsite audit.
|
|
x
|
|
6
|
Documents and Records
|
|
|
|
6.1
|
Has a controlled system to initiate, review, revise, approve, obsolete and archive all manufacturing documentation. At a minimum, all production, control, and distribution records should be retained for at least 5 year after the release of the batch.
|
|
x
|
|
6.2
|
Has a written procedure for the review and approval of all batch documentation.
|
|
x
|
|
6.3
|
Maintain a document control system for specifications and test methods, including product labelling, packaging materials and other materials that would likely affect product quality.
|
|
x
|
Bophelo - Cantourage
|
|
Responsibilities
|
Cantourage
|
BOPHELO
|
|
6.4
|
Provide a complete Certificate of Analysis for the product,
containing “at minimum” the following information:
|
|
x
|
|
|
|
|
|
|
|
Name (variety) of the material,
|
|
|
|
|
Batch number,
|
|
|
|
|
Package size,
|
|
|
|
|
Manufacturing site,
|
|
|
|
|
Harvest date,
|
|
|
|
|
Package date,
|
|
|
|
|
Testing site,
|
|
|
|
|
Name of the test,
|
|
|
|
|
Specification limit,
|
|
|
|
|
Test result (as a numerical
value, unless designated Pass/Fail in the specification limit),
|
|
|
|
|
Testing date,
|
|
|
|
|
Quality Assurance/Control approval and date.
|
|
|
|
6.5
|
Provides confirmation that the
Medical Cannabis Starting Material was manufactured (cultivated, harvested, primary processed), packed and tested in accordance with
GACP requirements, and was tested in accordance with and meets agreed specification.
|
|
x
|
|
7
|
Change Control
|
|
7.1
|
Has established written procedures for
control of changes impacting the product.
|
x
|
x
|
|
7.2
|
Notifies Cantourage within a reasonable
time about changes that can affect the quality and safety of the products (called significant).
|
|
x
|
|
7.3
|
Has significant changes reviewed and approved by its quality unit.
|
|
x
|
|
8
|
Deviations/OOS
|
|
8.1
|
Has procedures for the identification,
investigation of deviations and Out-of-Specification (OOS) results that occur during the manufacture and testing of Medical Cannabis Starting Materials.
|
|
x
|
|
8.2
|
Documents and explains all deviation.
Investigates OOS results and critical deviations.
|
|
x
|
|
8.3
|
Notifies Cantourage within a reasonable
time about Major and Critical deviations. Deviations are categorized as Minor, Major and Critical (depending on the quality impact
on the product) according to BOPHELOs deviation SOP.
|
|
x
|
|
9
|
Production and In-Process Controls, Packaging and Labelling
|
|
9.1
|
Procures, tests as required, and
releases packaging and labelling materials used in manufacture of the contracted products.
|
|
x
|
|
9.2
|
Defines specifications for product
labelling and packaging materials and other materials that would likely affect product quality.
|
x
|
|
|
9.3
|
Establish and document specifications
for product labelling and packaging materials and other materials that would likely affect product quality.
|
|
x
|
|
9.4
|
Manufactures the contracted Cannabis
Starting Materials in a manner that prevents contamination by other materials including carryovers.
|
|
x
|
|
9.5
|
Records all production steps and related
in-process controls in a Batch Record.
|
|
x
|
|
9.6
|
Releases Medical Cannabis Starting Materials by its quality unit.
|
|
x
|
Bophelo - Cantourage
|
|
Responsibilities
|
Cantourage
|
BOPHELO
|
|
10
|
Storage and Distribution
|
|
10.1
|
Maintains storage facilities appropriate for conditions having no negative impact on the
quality and integrity of the Medicinal Cannabis Starting Materials. Maintain records of any critical storage conditions.
|
|
x
|
|
10.2
|
Has systems for controlling quarantined, rejected or recalled materials.
|
|
x
|
|
10.3
|
Notifies Cantourage in a timely manner in the case of finding a quality issue post release/shipment.
|
|
x
|
|
10.4
|
Organization and realization of transport of the contracted materials to the responsible custom site in Germany (Airport Berlin Tegel).
|
|
X
|
|
10.5
|
Organization and realization of transport of the contracted materials after customs clearance to the contracted storage partner in Germany.
|
x
|
|
|
11
|
Laboratory Controls
|
|
11.1
|
Has a written procedure for sample management, testing, approval, disposition, recording, storage, retention and disposal of laboratory data.
|
|
x
|
|
11.2
|
Retains samples of the Cannabis Starting Materials as required by regulatory agencies.
|
x
|
x
|
|
11.3
|
Has written procedures and appropriately document the preparation, use and management of
reagents, solutions, and standards for testing the Cannabis Starting Materials.
|
|
x
|
|
11.4
|
Defines release specifications for Medicinal Cannabis Starting Materials.
|
x
|
|
|
11.5
|
Responsible for having appropriate test procedures for Medical Cannabis Starting Materials.
|
|
x
|
|
11.6
|
Responsible for testing the contracted materials in accordance with approved validated or
qualified methods and specifications using calibrated equipment.
|
|
x
|
|
11.7
|
Responsible for the third party laboratory testing Medical Cannabis Starting Materials in
accordance with approved validated or qualified methods and specifications using calibrated equipment.
|
|
x
|
|
11.8
|
Responsible for having a program for qualification, calibration, and preventive maintenance of all analytical equipment.
|
|
x
|
|
11.9
|
Responsible for the third party laboratory having a program for qualification, calibration, and preventive maintenance of all analytical equipment.
|
|
x
|
|
11.10
|
Responsible for analytical method development, qualification and/or validation as appropriate.
|
|
x
|
|
12
|
Recalls
|
|
12.1
|
In the event that either Cantourage or BOPHELO determines an event or circumstances has
occurred relating to the manufacture, testing or stability of the contracted materials which may result in the need for a recall,
stock recovery or market withdrawal, BOPHELO and Cantourage shall consult with each other in a timely manner. The final decision to
recall products from the European market shall be made by Cantourage.
|
x
|
x
|
|
12.2
|
Notification of the recall or similar action to the competent authorities and customers in Europe.
|
x
|
|
|
12.3
|
Notification of the recall or similar action to the competent authorities and customers in Lesotho.
|
|
x
|
Bophelo - Cantourage
|
Version
|
Status
|
Changes of previous version
|
|
01
|
06 / 2020
|
---
|
Bophelo - Cantourage
APPENDIX (3)
List of Contact Persons
(Version 01)
To the
QUALITY ASSURANCE AGREEMENT
Production and Quality
Control
of Medicinal Cannabis
Starting Material
|
between
|
Cantourage GmbH
|
|
|
Heinrich-Mann-Str.12
|
|
|
14532 Kleinmachnow
|
|
|
Germany
|
– hereinafter referred
to as “Cantourage” –
|
and
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
|
Khoabane Mojela,
|
|
|
Ha Mojela, Ts’Akholo,
Mafeteng,
|
|
|
Lesotho
|
– hereinafter referred
to as “BOPHELO” –
Bophelo - Cantourage
|
|
3.1.
|
List of Contact Persons at Cantourage
|
|
Function
|
Name
|
Contact Data
|
|
Managing Director
|
Philip Schetter
|
schetter@cantourage.com
|
|
Qualified Person
|
Constanze Pelzer
|
pelzer@cantourage.com
|
|
Head of Quality Assurance
|
Constanze Pelzer
|
pelzer@cantourage.com
|
|
Head of Quality Control
|
Constanze Pelzer
|
pelzer@cantourage.com
|
|
Head of Sales
|
Bernhard Retzer
|
retzer@cantourage.com
|
|
|
3.2.
|
List of Contact Persons at BOPHELO
|
|
Function
|
Name
|
Contact Data
|
|
CEO
|
Tej Virk
|
tej@akandacorp.com
|
|
Quality Assurance Manager
|
Dallas Dunkley
|
dallas@akandacorp.com
|
|
CFO
|
Trevor Scott
|
trevor@akandacorp.com
|
|
Version
|
Status
|
Changes of previous version
|
|
01
|
06 / 2020
|
---
|
Bophelo - Cantourage
APPENDIX (4)
Quality of Primary
Packaging Material
(Version 01)
To the
QUALITY ASSURANCE AGREEMENT
Production and Quality
Control
of Medicinal Cannabis
Starting Material
|
between
|
Cantourage GmbH
|
|
|
Heinrich-Mann-Str.12
|
|
|
14532 Kleinmachnow
|
|
|
Germany
|
– hereinafter referred
to as “Cantourage” –
|
and
|
Bophelo Bio Science and Wellness (Pty) Ltd
|
|
|
Khoabane Mojela,
|
|
|
Ha Mojela, Ts’Akholo,
Mafeteng,
|
|
|
Lesotho
|
– hereinafter referred
to as “BOPHELO” –
Bophelo - Cantourage
4.1. Quality of Primary Packaging Material
Cannabis Starting Material
|
Part of Packaging System
|
Material
|
Quality
|
|
Aluminium Foil Bag
|
Aluminium composite film
(e.g. PET/ALU/PE)
|
The product touching layer consists of Polyethylene (PE) and
complies with Regulation (EU) 10/2011 incl. all changes and corrections.
|
|
Version
|
Status
|
Changes of previous version
|
|
01
|
06 / 2020
|
---
|
Bophelo - Cantourage
ANNEX 5
(END PRODUCTS)
Bulk Sizes
To be determined between both PARTIES following
the conclusion of the contract.
Specification
|
|
Method
|
Specification
|
|
Characteristics
|
DAB Cannabis flos (Characteristics)
|
Characteristic smell
|
|
Identity
|
|
appearance
|
DAB Cannabis flos (Identity A)
|
Comply with monograph
|
|
microscopy
|
DAB Cannabis flos (Identity B)
|
Comply with monograph
|
|
thin
layer chromatography
|
DAB Cannabis flos (Identity C), Ph.Eur. 2.2.27
|
Comply with monograph
|
|
Purity
|
|
Foreign material
|
DAB Cannabis flos / Ph.Eur. 2.8.2
|
Max. 2 % (m/m)
|
|
Loss on Drying
|
DAB Cannabis flos / Ph.Eur. 2.2.32
|
Max. 10 %
|
|
Pesticides
|
Ph.Eur. 2.8.13
|
Comply with Ph.Eur. 2.8.13
|
|
Absence of heavy metals
|
Ph.Eur. 2.4.27
|
|
|
Lead
|
|
Max. 5.0 ppm
|
|
Mercury
|
|
Max. 0.1 ppm
|
|
Cadmium
|
|
Max. 1.0 ppm
|
|
Aflatoxin B1
|
Ph.Eur. 2.8.18
|
≤ 2 ppb
|
|
Total Ash
|
Ph.Eur. 2.4.16
|
Max. 20 %
|
|
Microbiological purity
|
Ph.Eur. 2.6.31
|
Comply with Ph.Eur. 5.1.8 C
|
|
Total
aerobic microbial count (TAMC)
|
|
Max. 500.000 cfu/gram
|
|
Total
yeast and molds count (TYMC)
|
|
Max. 50.000 cfu/gram
|
|
Bile-
tolerant Gram negative bacteria
|
|
≤ 104 cfu/gram
|
|
E. coli
|
|
Absent in 1 g
|
|
Salmonella
|
|
Absent in 25 g
|
|
Related substance
|
DAB Cannabis flos / Ph.Eur. 2.2.29
|
|
|
Cannabinol (CBN)
|
|
≤ 1.0 %
|
|
Assay
|
|
Dronabinol (THC)
|
DAB Cannabis flos / Ph.Eur. 2.2.29
|
Depends on product (to be defined for each product)
|
|
Cannabidiol (CBD)
|
|
Depends on product (to be defined for each product)
|
Bophelo - Cantourage
ANNEX 6
(RAP PLUS SERVICES)
Homepage:
Creating a Homepage (English and German)
that complies the legal regulations of Germany and Europe.
Content:
|
|
-
|
Landing Page: Background picture or animation, Company Slogan, Logo
|
|
|
-
|
About: Company description, Company Backstory, Particularities
|
|
|
-
|
Team: Introductions of Board and Staff members
|
|
|
-
|
Product Information (not allowed for medical Cannabis, Extracts or substantives because of advertising ban – see DocCheck)
|
|
|
-
|
Press: latest Press releases, Contact information of PR manager
|
|
|
-
|
News: constant uploads of company and market news
|
|
|
-
|
FAQ: frequently asked questions
|
|
|
-
|
Contact us: Contact Data and possibility for visitors to leave a direct message.
|
|
|
-
|
Terms and Conditions (mandatory)
|
|
|
-
|
Privacy Policy (mandatory)
|
DocCheck:
Special section on the Homepage with
restricted access for physicians and pharmacists only. It provides detailed information about products for target audience.
Listing at Wholesales:
An alternative sales channel to direct sales
to pharmacies; in Germany. Cantourage will select appropriate wholesalers and will negotiate standard agreements with them. This includes
the terms of contract, translation of contracts, stockpiling, retour handling.
Pharma Representatives:
Selection and Employment of suitable Pharma
Representatives
|
|
-
|
Cantourage makes a suggestion of suitable representatives
|
|
|
-
|
Cantourage educates and guides those representatives about END
PRODUCTS and BOPHELO’s philosophy
|
Tasks of Pharma Representative:
|
|
-
|
Advice and support for physicians of relevant specialization
in a result-oriented manner
|
|
|
-
|
Specialization: General practitioner, Neurologists, pain therapists,
gastroenterologists, palliative care physicians
|
|
|
-
|
Taking care of opinion makers
|
|
|
-
|
Competent explanation and communication of complex medical matters
|
Bophelo - Cantourage
|
|
-
|
Well informed about product portfolio
|
|
|
-
|
Submission of samples and information material
|
|
|
-
|
Operating according to achievement of goals
|
|
|
-
|
Independent area management and building customer relationships
|
|
|
-
|
Implementation of specified communication and product strategies
and the further development of those
|
|
|
-
|
Evaluation of market data (observation of market and competitive
developments)
|
|
|
-
|
Participation in congresses, trainings, and further education
|
Qualification and Profile of our Pharma Representatives:
|
|
-
|
Certified pharmaceutical representative in accordance with §
75 AMG
|
|
|
-
|
Most of your Representatives have several years of experience
|
|
|
-
|
Already existing network of physicians and pharmacists
|
|
|
-
|
Marketing and sales-oriented way of thinking and working
|
|
|
-
|
Well-versed in common office software
|
|
|
-
|
Excellent command of German and English
|
Education Program:
Event for physicians and pharmacists about
medical cannabis
|
|
-
|
Elaborate education program
|
|
|
-
|
Placing products as one alternative treatment option
|
|
|
-
|
Case studies of patients and treatments
|
|
|
-
|
Being named as sponsor for a training event
|
|
|
-
|
Having a stand close to the event premises
|
Press announcements:
|
|
-
|
Drafting of press announcement in accordance with local law
and alignment with BOPHELO
|
|
|
-
|
Selection of targeted group of recipients (few hundreds to thousands)
of relevant press, especially in medicinal field.
|
|
|
-
|
Analysis of spread/success
|
|
|
-
|
Follow up on requests and alignment with BOPHELO (e.g. interviews,
stories on client company etc.)
|
|
|
-
|
Following announcements for additional products or similar updates
|
Press announcement in German and in English
and client national language
Bophelo - Cantourage
Info material:
Professional information material for physicians
and pharmacists on END PRODUCT details
|
|
-
|
Generating a small brochure with the necessary information about all END PRODUCTS
|
|
|
-
|
Generating a big brochure with all information and details about END PRODUCTS, company and other relevant information
|
|
|
-
|
Creating product flyers for physicians and pharmacists
|
|
|
-
|
Compilation of a welcome book
|
Newsletter:
Monthly newsletter on company and product news
|
|
-
|
Monthly newsletter with all company and product updates
|
|
|
-
|
Weekly newsletter with all company and product news
|
|
|
-
|
Translating existing Newsletter in German or English
|
Advertisement in Journals:
Spreading product and company information
through physician and pharmacist magazines and journals
Social Media:
|
|
-
|
Translating existing social media posts
|
|
|
-
|
Creating Post on existing accounts for
|
|
|
|
|
|
|
-
|
Creating Accounts “Europe”-Accounts on
|
|
|
|
|
|
|
▪
|
Uploading Posts monthly
|
Bophelo - Cantourage
Brand protection:
We register BOPHELO’s brands name and
protect it against misuse by third parties.
|
|
-
|
Protection of the company name in Germany
|
|
|
-
|
Protection of the company name throughout Europe
|
Release Event
|
|
-
|
Get together with important and influential guest of the German medical cannabis industry (high prescribers, pharmacists and influencers).
Cantourage organizes the whole event management incl. (location, invitations, entertainment program, drinks, snacks, etc.)
|
Bophelo - Cantourage
ANNEX 7
(BRANDS, LABELLING)
To be determined by Bophelo
following the conclusion of the contract.
Exhibit 10.11
Heads of Terms
Between:
Akand Corp. (“Akanda")
1a,1b Learoyd Road, New Romney, TN28 8XU, United Kingdom
Cellen Limited (“Cellen“ or “the Company”)
{insert address}
Bridge Loan Facility
These heads of terms set out the main terms and
conditions on and subject to which Akanda will provide Cellen with a line of credit subject to meeting the criteria set out herein (the
“Bridge Loan Facility”).
These heads of terms are not exhaustive, and it
is intended that the parties will enter into more detailed agreements, which will be negotiated in good faith following execution of these
heads of terms and as described herein, but these heads of terms are intended to be legally binding between the parties, save as expressly
set out herein.
The parties acknowledge that they have, on or
around 5 October 2021, entered into a conditional, non-binding agreement regarding the acquisition by Akanda of 100% of the issued and
outstanding share capital of Cellen (the “Proposed Acquisition”). The purpose of the Bridge Loan Facility is to assist
Cellen in funding its business expenses and working capital requirements in anticipation of the Proposed Acquisition. The parties’
obligations are now as set out in these heads of terms.
1. LINE OF CREDIT
Akanda will arrange to lend to Cellen the sum
of not more than US$500,000.00 in the form of a line of credit (the “LOC”) and on the following terms appropriate to
such a facility:
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a.
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The LOC to be made within 30 days of signature by all parties of these heads of terms (“Effective
Date”);
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b.
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Requests to draw down upon the LOC are to be made by Cellen in the form of a Drawdown Notice. Each Drawdown
Notice shall, at a minimum, have the minimum content:
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i.
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acknowledgement that the request is made pursuant to the Bridge Loan Facility as set out in these heads
of terms;
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ii.
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the proposed draw down date (minimum notice period of 2 (two) business days);
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iii.
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the proposed draw down amount in USD and GBP, including the applicable rate of exchange;
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iv.
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the bank details for which the proceeds of the proposed draw down should be credited;
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v.
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acknowledgement that the draw down is irrevocable; and
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vi.
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details of the person authorised to make the draw down request.
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c.
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Draw down requests should be made for operating expenses and working capital requirements in the ordinary
course of business for a period not exceeding more than 30 (thirty) days. Any draw down requests in relation to funding earmarked for
expenses or transactions out of the ordinary course of business; or for working capital requirements exceeding a 30 (thirty) day period
shall be made at the discretion of Akanda.
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d.
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The proceeds of the LOC shall not be used to make any payments to any director, officer, shareholder or
related party of Cellen without the prior approval of Akanda, acting in its sole discretion;
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e.
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Amounts borrowed under the Bridge Loan Facility shall bear interest at a rate of 5% per annum, compounded
on a monthly basis. Interest will be calculated and shall accrue on a monthly basis, and shall be based on the closing outstanding balance
of Bridge Loan Facility at the end of each month;
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f.
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Amounts borrowed under the Bridge Loan Facility are to be secured by a first charge and debenture on all
of the Company’s assets, and a first charge over the shares of the Company held by its existing shareholders;
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g.
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The total amount borrowed under the Bridge Loan Facility shall be repaid by no later than 31 December
2022;
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h.
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Akanda shall have the option to convert any amounts borrowed under the Bridge Loan Facility into ordinary
shares or preference shares of the Company at a valuation of the Company as determined by an independent firm of chartered accountants
as may be selected by Akanda.
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i.
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The parties will enter into a formal bridge loan facility agreement.
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2. CONDITIONS PRECEDENT
The obligations of the parties to implement the
Bridge Loan Facility are subject to:
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i.
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Cellen delivering to Akanda, copies of written resolutions of its board of directors, and its shareholders,
approving the Bridge Loan Facility;
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ii.
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Cellen delivering to Akanda, its latest management accounts including (but not limited to) a statement
of financial performance, a statement of financial position, a statement of cash flow, as well as a detailed month-by-month budget for
the period commencing 1 December 2021 through to 31 December 2022.
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3. COVENANTS
3.1 Conduct of Business
Cellen covenants to Akanda that, for the duration
of the period that it has borrowed under the Bridge Loan Facility, it shall conduct its business in the ordinary course, consistent with
past practice and shall use its commercially reasonable efforts to preserve its assets and the existing goodwill and contract of its customers,
suppliers, vendors, service providers, personnel and others having business relations with it.
Cellen further covenants to Akanda that it shall
not dispose of any major or significant part of its business, or significantly change its business strategy for the duration of the period
that it has borrowed under the Bridge Loan Facility.
3.2 Notice of Certain Events
Cellen covenants to Akanda that, for the duration
of the period that it has borrowed under the Bridge Loan Facility, it shall promptly notify Akanda in writing of any events, circumstances,
facts, or occurrences that would materially:
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i.
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affect the Company’s ability to repay amounts borrowed under the Bridge Loan Facility;
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ii.
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affect its valuation;
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iii.
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result in a change of shareholding exceeding 10% of the issued and outstanding share capital prior to
the commencement of any transaction resulting in a change of shareholding; and
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iv.
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affect the Company’s ability to operate.
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4. REPRESENTATIONS AND WARRANTIES
Cellen represents and warrants to Akanda as follows:
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i.
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it is a properly incorporated legal entity, validly existing and in good standing under the laws of England
and Wales;
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ii.
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it has proper standing and is able to enter into and perform its obligations under these heads of terms;
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iii.
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it is not aware of any litigation or claims, threatened or otherwise, that may be pending against it;
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iv.
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no consents or approvals from any applicable government authority are required in connection with the
execution and delivery of these heads of terms;
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v.
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there are no material factors, events, circumstances or happenings that would adversely affect Cellen’s
valuation, solvency and ability to undertake its operations that it has not disclosed to Akanda;
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vi.
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there are no secured borrowings which would affect Akanda’s ability to perfect its security as contemplated
in these heads of terms.
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5. CONFIDENTIALITY
The content of these heads of terms is confidential
to the parties. No party may disclose anything contained herein to any third-party, including the existence of this agreement, without
the express written consent of the other party.
6. COSTS
The parties will pay their own costs and expenses
incurred in connection with the Bridge Loan Facility whether or not it proceeds to Completion, including (without limitation) any costs
and expenses relating to the preparation and negotiation of these heads of terms and any other documents contemplated by them.
7. GOVERNING LAW AND JURISDICTION
These heads of terms and any dispute or claim
(including non-contractual disputes or claims) arising out of or in connection with them or their subject matter or formation shall be
governed by and construed in accordance with the law of England and Wales.
Akanda and Cellen irrevocably agree that the courts
of England and Wales shall have exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising
out of or in connection with these heads of terms or their subject matter or formation. The parties hereto further also irrevocably waive
any conflict of law or further legal procedures in the execution of any court order or settlement reached, in their country of residence
or operations.
These heads of terms may be executed in any
number of counterparts, each of which when executed and delivered shall constitute a duplicate original, but all counterparts together
shall constitute a single agreement.
Please sign and return the enclosed copy of these
heads of terms as soon as possible to confirm your agreement to the above.
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We confirm our agreement to the above heads of terms.
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Signed
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For and on behalf of Akanda Corp.
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Date
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Signed
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For and on behalf of Cellen Ltd.
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Date
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Exhibit 10.12
Service agreement
Dated: 24 January 2022
Canmart Limited
(Company)
Akanda Corp.
(Akanda)
Louisa Mojela
(Executive)
Contents
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1
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Interpretation
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1
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2
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Employment
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5
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3
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Conditions to employment
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6
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4
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Fundamental terms and warranties
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7
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5
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Duties
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7
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6
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Place of work
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8
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7
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Hours of work
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8
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8
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Salary
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9
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9
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Pension
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9
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10
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Expenses
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9
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11
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Incentive payments & bonus
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9
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12
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Shares
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11
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13
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Other benefits and paid leave
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11
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14
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Training
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12
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15
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Holidays
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12
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16
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Incapacity
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13
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17
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Outside interests
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14
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18
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Confidential information
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15
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19
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Intellectual property
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16
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20
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Payment in lieu of notice
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18
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21
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Termination without notice
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18
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22
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Garden leave
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19
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23
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Obligations upon termination
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20
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24
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Post-termination restrictions
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21
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25
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Disciplinary and grievance procedures
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23
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26
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Change of Control
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24
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27
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Data protection
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25
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28
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Collective agreements
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25
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29
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Notices
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25
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30
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General
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26
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31
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Entire agreement
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26
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32
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Counterparts
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26
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33
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Third party rights
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26
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34
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Governing law
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26
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35
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Jurisdiction
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26
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This agreement is dated 24 January 2022.
Between
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(1)
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Canmart Ltd a company incorporated and registered in England and Wales with registered company
number 11741517 and whose registered office is at Units 1a/1b Learoyd Road, New Romney, Kent TN28 8XU (the Company);
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(2)
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Akanda Corp. a company incorporated and registered in Ontario, Canada with a registered company
number 002854618 and whose registered office is 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Canada;
and
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(3)
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Louisa Mojela (the Executive).
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It is agreed:
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1.1
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In this agreement the following terms and expressions shall have the following meanings:
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Akanda
means Akanda Corporation, Registration number 002854618, Province of Ontario.
Appointment
means the employment of the Executive by the Company on the terms of this agreement.
Board
means the board of directors of the Company and any committees duly constituted by the board.
Capacity
means as agent, consultant, director, the holder of any office, employee, worker, owner, partner, Shareholder or in any other capacity.
Cash
Shell Company means any undertaking (including a special purpose acquisition company) (a) which is listed/quoted or becomes
listed/quoted on a Recognised Investment Exchange and (b) of which the Company is or becomes a wholly-owned subsidiary, but excluding
for the avoidance of doubt Halo Labs Inc.
Control
means in relation to a body corporate, the power of a person to secure that the affairs of the body corporate are conducted in accordance
with the wishes of that person:
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(a)
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by means of the holding of shares, or the possession of voting power, in or in relation to that or any
other body corporate; or
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(b)
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as a result of any powers conferred by the articles of association or any other document regulating that
or any other body corporate.
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Change
of Control occurs if a person (whether alone or together with any person acting in concert with that person) who controls any
body corporate ceases to do so or if another person acquires Control of it.
Commencement
Date means 1 July 2021.
Competitor
means a business concern which is, or intends to be, in competition with any Restricted Business.
Confidential
Information means information of a confidential nature (in any form) concerning the business, affairs and/or finances of
the Company or any Group Company or their respective customers, clients, suppliers, agents, distributors, investors and shareholders
which the Executive receives, obtains, creates or develops at any time by reason of or in connection with the Executive's service
with the Company or any Group Company (whether or not marked as confidential). This includes: trade secrets; technical information,
data, research and development; customer, client and supplier lists, contact details of customers, clients and suppliers and
individuals within those organisations; inventions and patent applications in the course of preparation and all other Intellectual
Property Rights; financial projections, target details and accounts; details of funding and resource allocation; fee levels, pricing
policies, commissions and commission charges; budgets, forecasts, reports, records and corporate and business plans; planned or
potential products and services; marketing and advertising plans, requirements and materials, marketing surveys and research
reports; market share and pricing statistics; disputes (whether existing, threatened or prior), settlement discussions and terms;
details of employees, workers, officers and consultants including their roles and responsibilities, remuneration, benefits and
organisational structures, legally privileged material; computer software and passwords.
Copies
means copies or records of any Confidential Information in whatever form (including in written, oral, visual or electronic form or on
any magnetic or optical disk or memory and wherever located) including extracts, analysis, studies, plans, compilations or any other way
of representing or recording and recalling information which contains, reflects or is derived or generated from Confidential Information.
Executive
Equity has the meaning given to it in Clause 12.
Executive
Equity Rights means the rights to be granted to the Executive as set out and materially on the terms described in Schedule
1.
Garden
Leave means any period during which the Company has exercised its rights under Clause 22.
Group
Company means any company which is from time to time a subsidiary or holding company of the Company and any subsidiary of any
holding company of the Company (and references to the Group shall be construed accordingly), including but not limited to Akanda.
The words "subsidiary" and "holding company" have the meanings given to them in section 1159 of the Companies Act
2006 and a person shall be treated, for the purposes only of the membership requirement contained in subsections 1159(1)(b) and (c) of
that Act, as a member of another company even if its shares in that other company are registered in the name of: (i) another person
(or its nominee), whether by way of security or in connection with the taking of security, or (ii) a nominee.
Halo
means Halo Labs, Inc. a company incorporated in Canada whose registered office is 77 King Street West, Suite 400, Toronto-Dominion
Centre, Toronto, Ontario, Canada.
Holiday
Year means 1 January to 31 December or such other period as the Company notifies the Executive in writing.
Incapacity
means any sickness, injury or other incapacity or medical disorder or condition which prevents the Executive from carrying out her duties.
Intellectual
Property Rights means patents, rights to Inventions, copyright and related rights, trade marks, trade names and domain names,
rights in get-up, rights in goodwill or to sue for passing off, unfair competition rights, rights in designs, rights in computer software,
database rights, topography rights, rights in confidential information (including know-how and trade secrets) and any other intellectual
property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals
or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the
future in any part of the world.
Invention
means any invention, idea, discovery, development, improvement or innovation, whether or not patentable or capable of registration, and
whether or not recorded in any medium.
Investor means
any person, firm, company or other entity who or which is an investor in the Company or any Group Company at the Termination Date or
who or which invested in the Company or any Group Company at any time in the 12 months immediately preceding the Termination Date or
with whom or which the Company or any Group Company had negotiations or meaningful discussions regarding possible investment in the
Company or any Group Company at any time in the 12 months immediately preceding the Termination Date and with whom or which the
Executive had material contact or material involvement in the course of the Appointment.
Lender
means any person, firm, company or other entity who or which is a lender of funds to the Company or any Group Company at the Termination
Date or who or which lent funds to the Company or any Group Company at any time in the 12 months immediately preceding the Termination
Date or with whom or which the Company or any Group Company had negotiations or meaningful discussions regarding possible lending to the
Company or any Group Company at any time in the 12 months immediately preceding the Termination Date and with whom or which the Executive
had material contact or material involvement in the course of the Appointment.
Listing
means the admission, approved by the Board, of the entire issued share capital of the Company or a Cash Shell Company, or securities representing
those shares (including without limitation depositary interests, American depositary receipts, American depositary shares and/or other
instruments) on a Recognised Investment Exchange.
Long
Stop Date means the date falling 12 months from the date of this agreement.
Personal
Data means personal data about or relating to the Executive including her name, date of birth, home address, telephone number,
driver's licence number, passport number, family information (such as marital status and dependant details), emergency contact information,
education and training details (such as qualifications and professional expertise), employment details (such as employment status, employee
type, performance and evaluation information, work phone number and email, intranet user log in and department and supervisor details),
financial information (such as compensation, benefits, bank account information and pensions information) and hiring information (such
as CV, prior employment history and personal references).
Policies
and Procedures means the policies and procedures of the Company applicable to employees and officers of the Company as amended
from time to time.
Prospective
Customer means any firm, company or person who, during the 12 months before the Termination Date, was in negotiations with
the Company or any Group Company about becoming a customer of the Company or any Group Company with whom the Executive had contact or
material involvement or, in respect of the exercise of her duties or responsibilities, about whom she became aware or informed to a material
extent in the course of the Appointment.
Qualifying
Equity Finance means a bona fide transaction (or series of transactions, provided that the type of share issued and the price
paid per share is consistent across the series of transactions), approved by the Board, with the principal purpose of raising capital,
pursuant to which the Company (or a Cash Shell Company) issues equity shares (but excluding any equity shares issued on conversion of
any convertible securities or any equity securities issued to Halo) with an aggregate subscription price of not less than £10,000,000.
Recognised
Investment Exchange means NASDAQ, the New York Stock Exchange, the Official List of the United Kingdom Listing Authority, the
AIM Market operated by the London Stock Exchange Group Plc, the Toronto Stock Exchange, the NEO Exchange or the TSX Venture Exchange or
any other recognised investment exchange (as defined in section 285 of the Financial Services and Markets Act 2000).
Regulatory
Requirements means all legal and regulatory obligations, codes of practice and recommendations and similar which apply to the
Executive, the Company or any Group Company, including:
|
|
(a)
|
in relation to transactions in securities, related party transactions and inside information (including
any share dealing policy of the Company);
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|
(b)
|
pursuant to the Financial Services and Markets Act 2000 and the Criminal Justice Act 1993; and
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(c)
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any other laws, rules and regulations of, or applicable to companies admitted to, a Recognised Investment
Exchange on which the Company (or a Cash Shell Company) is Listed,
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Restricted
Business means those parts of the business of the Company and any Group Company with which the Executive was involved to a
material extent in the 12 months before the Termination Date.
Restricted
Customer means any firm, company or person who, during the 12 months before the Termination Date, was a customer of or in the
habit of dealing with the Company or any Group Company with whom the Executive had contact or material involvement or, in respect of the
exercise of her duties or responsibilities, about whom she became aware or informed to a material extent in the course of the Appointment.
Restricted
Person means anyone employed or engaged by the Company or any Group Company with whom the Executive dealt in the 12 months
before the Termination Date in the course of the Appointment.
Restricted
Supplier means any person, firm or company which at any time during the 12 months prior to the Termination Date was a supplier
of any goods, products or services (other than utilities and goods or services supplied for administrative purposes) to the Company or
any Group Company and with whom or which the Executive had personal dealings during that period other than in a de minimis way and where
such entities remain suppliers of the Company and/or the Group Company at or immediately before the Termination Date.
Shareholder
means holding an investment by way of shares or other securities of over 5% of the total issued share capital of any company, other than
a Cash Shell Company, whether or not it is listed or dealt in on a recognised stock exchange.
Termination
Date means the date on which the Executive's employment with the Company terminates however caused.
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|
1.2
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The headings in this agreement are inserted for convenience only and shall not affect its construction.
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1.3
|
A reference to a particular law is a reference to it as it is in force for the time being taking account
of any amendment, extension or re-enactment and includes any subordinate legislation for the time being in force made under it.
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1.4
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Unless the context otherwise requires:
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1.4.1
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a reference to one gender shall include a reference to the other genders; and
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1.4.2
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words in the singular include the plural and in the plural include the singular.
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1.5
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References to a "person" include any individual, company, any other body corporate, partnership
or unincorporated association (whether or not having separate legal personality).
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1.6
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The words "including", "include", "in particular", "for example"
and words of similar effect shall not limit the general effect of the words that precede them.
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|
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2.1
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The Executive agrees to serve Akanda as Executive Chairperson subject to the terms and conditions of this
agreement. It is envisaged that the Company will be subject to a reverse takeover and there will be a Listing. Accordingly, the terms
of this agreement may require amendments to comply with any applicable Regulatory Requirements and if so, the Executive will be paid a
cash sum equivalent to any amounts (including benefits) that she is entitled to under this agreement that are not included in the amended
agreement.
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2.2
|
The Executive's employment will commence on the Commencement Date and shall continue, subject to the remaining
terms of this agreement, until terminated by either party giving the other not less than 6 months prior written notice, save that the
Company can only give notice after 18 months following the Commencement Date (except that this limitation shall not apply in respect of
termination rights under Clause 21.1(a), (c) or (g)). If the Company does give notice sooner, the amount of Basic Salary and contractual
benefits that the Executive would otherwise have been entitled to up to the first day on which termination could have been effective in
accordance with this clause will be paid to the Executive as a lump sum within 28 days of the Termination Date. For the avoidance of doubt,
nothing in this Clause 2.2 shall prevent or limit the Company's right to terminate this agreement without notice and without payment for
any Basic Salary and contractual benefits for any reason that falls within Clause 21.1(a), (c) or (g).
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2.3
|
No period of employment with the Company or any other employer counts towards the period of continuous
employment between the Executive and the Company which therefore will begin on the Commencement Date. Past service with any Group Company
will count towards any employment or service measurement period in respect of any leave benefit, Executive Equity and employee share ownership
incentive award that is issued under an approved employee share ownership incentive plan.
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|
2.4
|
The parties acknowledge and agree that the Company intends to pursue a Listing, either directly or via
a Cash Shell Company, and that as part of that process the Company's advisers (including its brokers) may require certain terms of this
Agreement to be varied, amended or deleted. The parties agree that they will act reasonably in agreeing any such variations, amendments
or deletions and the Executive agrees that (without limitation) the following provisions, amendments or variations, if required or reasonably
requested by the Company (on the advice of its brokers) pursuant to such Listing, will be acceptable:
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(a)
|
any lock-in and/or orderly market restrictions on market-standard terms (where, in respect of the length
of any such restriction, "market-standard" means no longer than two years in respect of each of any lock-in and any orderly
market restriction);
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(b)
|
the Executive ceasing to be entitled to any or all of the Executive Equity Rights; and
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(c)
|
a vesting, or reverse vesting, period of up to four years and otherwise on market-standard terms,
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and the Executive agrees that she will
take all action reasonably necessary to give effect to any such amendments, variations or deletions. For the avoidance of doubt, under
no circumstances shall the Executive be required to surrender or otherwise lose the ownership of whole or any part of the Executive Equity
pursuant to this Clause 2.4.
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|
3
|
Conditions to employment
|
|
|
3.1
|
The Company shall take appropriate professional advice as to the best way in which to achieve the proposed
Listing of the business operated or proposed to be operated by it. If, following such advice, the Board decides that it would be in the
best interests of the Company and its members as a whole to achieve a Listing via a Cash Shall Company then, before the Long Stop Date,
the Company will:
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(a)
|
establish or acquire or be acquired by a Cash Shell Company;
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(b)
|
in respect thereof and subject always to Clause 2.4, grant the Executive the Executive Equity; and
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(c)
|
at the Executive’s election and in her sole discretion, transfer her engagement as Executive Chairperson
to the Cash Shell Company,
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(together, the Conditions Subsequent).
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3.2
|
In the event that the Conditions Subsequent have not been satisfied by the Long Stop Date and such non-satisfaction
is predominantly or primarily the result of either or both of (a) some action or inaction by or on behalf of Halo and/or (b) another
factor or factors beyond the reasonable control of the Executive, the parties shall, in good faith, use reasonable
endeavours to grant equity interests in Halo (or the Company if it is directly subject to a Listing) to the Executive that give the Executive
an approximately equivalent monetary valuation as would have been held by her in a Cash Shell Company that held the businesses of Cannahealth,
Canmart and Bophelo only, pursuant to the terms of this Agreement.
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4
|
Fundamental terms and warranties
|
|
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4.1
|
The Executive represents and warrants to the Company that (in each case as a fundamental term of this
agreement):
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|
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(a)
|
the Executive is, to the best of her knowledge, not subject to any restrictions which prevent the Executive
from holding office as a director;
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(b)
|
by entering into this agreement or fully performing any of the Executive's obligations under it, the Executive
will not be in breach of any court order or any express or implied terms of any contract or other obligation binding on the Executive;
and
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(c)
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the Executive has not used or disclosed to the Company or any Group Company any confidential information
belonging to any previous employer or any other person.
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4.2
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Notwithstanding (and without prejudice to) any other provision of this agreement, the Company may terminate
this agreement summarily if the Executive is in breach of any of the terms and/or warranties in this Clause 4.
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5.1
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The Executive acknowledges that she will be a fiduciary in a position of seniority and trust.
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5.2
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At all times during the course of employment the Executive will:
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(a)
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faithfully and diligently serve Akanda, the Company and the Group, and exercise such powers and perform
such duties as may from time to time be assigned to the Executive by Akanda or the Board or perform such other duties as the Company may
reasonably require;
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(b)
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devote the whole of the Executive's working time, attention and abilities to the business and affairs
of Akanda, the Company and the Group;
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(c)
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comply with all reasonable directions of and regulations made by Akanda, the Company and the Board;
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(d)
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promptly make such reports to Akanda and the Board in connection with the affairs of Akanda, the Company
and of any Group Company on such matters and at such times as are reasonably required, and otherwise keep Akanda and the Board fully informed
of all matters relating to the business and affairs of Akanda, the Company and the Group;
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(e)
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immediately upon becoming aware, report:
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(i)
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any wrongdoing (including the Executive's own wrongdoing) whether committed, contemplated or discussed
by any person employed or engaged by Akanda, the Company or any Group Company irrespective of whether this would or may involve self-incrimination;
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(ii)
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any plans or proposals or discussions by any person employed or engaged by Akanda as a senior executive
or as a senior member of management of, the Company or any Group Company to leave the employment or engagement of the Company or Group
Company, whether alone or in concert with any other person and whether to join a competitor or any other business; and
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(iii)
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any misuse of Confidential Information by any person (including the Executive) irrespective of whether
this would or may involve self-incrimination;
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(f)
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use all reasonable endeavours to promote, protect, develop and extend the business of Akanda, the Company
and Group Companies;
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(g)
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comply with all Policies and Procedures;
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(h)
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comply with all Regulatory Requirements and promptly provide Akanda, the Company with all information
that it requires or may require to comply with the Regulatory Requirements; and
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(i)
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offer, promise or provide any bribe, inducement or reward to any third party in order to gain any commercial,
contractual, regulatory or personal advantage;
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(ii)
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receive or accept any bribe, inducement or reward from any third party in order to gain any commercial,
contractual, regulatory or personal advantage; or
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(iii)
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receive any gifts, goods, service, rebates or commission from any third party other than in accordance
with Akanda or Company policy from time to time in force.
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5.3
|
The Executive agrees and accepts that:
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(a)
|
the Policies and Procedures do not form part of this agreement or the terms of the Executive's employment
and the Company may amend the Policies and Procedures at any time; and
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(b)
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a breach of the Regulatory Requirements may lead to civil or criminal liability for the Executive, action
being taken against the Executive by any relevant regulatory authority and/or disciplinary action by the Company up to and including summary
dismissal if the Executive's conduct falls within the categories in Clause 21.1.
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6.1
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The normal place of work of the Executive is Lesotho and Johannesburg (or such other place as agreed by
the parties) or any other place as the Company may reasonably require for the proper performance and exercise of the Executive's duties.
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6.2
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The Executive will be required to travel in appropriate circumstances on the business of the Company and
the Group (to the United Kingdom, Malta and/or abroad).
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7.1
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The Executive's normal hours of work are from 8.30am to 5:30pm Monday to Friday, inclusive of one hour
for lunch daily, and such additional hours as may be necessary for the proper performance of the Executive's duties. The Executive is
not entitled to any further remuneration for additional hours outside normal office hours.
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7.2
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The parties agree that the nature of the Executive's position is such that the Executive's working time
cannot be measured and, accordingly, the Executive's employment falls within the scope of regulation 20 of the Working Time Regulations
1998.
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8.1
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The Executive will be paid an annual salary of £400,000 (Basic Salary) subject to applicable
deductions as required by any local laws including for tax and social security.
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8.2
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The Basic Salary will be paid in equal monthly instalments (or pro rata where the Executive is only employed
during part of a month) in arrears to the Executive's nominated bank account in Lesotho, or any other bank account in any location designated
by the Executive in her sole discretion. For convenience, payment will usually be slightly in advance of the end of the calendar month
to which the payment relates.
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8.3
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The Executive authorises the Company to deduct (and retain) from the Basic Salary, or any other sum due
to the Executive at any time, any mutually agreed sum due to the Company or any Group Company from the Executive.
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8.4
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Further to the Executive’s
Basic Salary, the Executive shall be entitled to a further amount of £100,000 per annum in deferred compensation (Deferred
Compensation); which shall be settled in arrears on the six-month anniversary of the Commencement Date. Deferred Compensation shall
be settled on behalf of the Company by Akanda through an issue of an equity award, which shall be comprised of Akanda common shares, share
options, or restricted share units or similar, or a combination thereof. Should Akanda be listed on a Recognised Investment Exchange,
then the equity awards due in terms of this clause shall be issued at the 30-day volume weighed average price of Akanda’s ruling
price of Akanda’s trading securities. In the event that Akanda is not listed on a Recognise dInvestment Exchange, then the equity
awards due in terms of this clause shall be issued at a price not less than the price per share achieved by Akanda in its most recent
financing, provided that such a financing is not for a gross total amount less than USD $1 million, The Deferred Compensation arrangement
is at the election of the Executive, who shall have the right, acting in her sole discretion, to convert the Deferred Compensation arrangement
to a Basic Salary to be settled by way of a cash payment.
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The Company will comply with the employer
pension duties in accordance with Part 1 of the Pension Act 2008.
Subject to any Company policy in operation
from time to time and to production of VAT receipts or other appropriate evidence to the reasonable satisfaction of the Company, the Company
will reimburse (or procure the reimbursement of) all reasonable expenses wholly, properly and necessarily incurred by the Executive in
the performance of the Executive's duties.
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11
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Incentive payments & bonus
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11.1
|
Subject to Clause 11.7, on a Listing, the Executive shall be entitled to receive an incentive payment
of £200,000, which shall be paid on or around the payroll in the subsequent month following the Listing.
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11.2
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Subject to Clause 11.7, on completion of a Qualifying Equity Finance, the Executive shall be entitled
to receive an incentive payment of £200,000, which shall be paid on or around the payroll in the month following receipt by the
Company of the Qualifying Equity Finance.
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11.3
|
Subject to Clause 11.7, on a
Listing and on Completion of the Qualifying Equity Finance, the Executive shall be entitled to receive a further amount of £100,000
in Deferred Compensation, to be settled on behalf of the Company by Akanda through an issue of an equity award, which shall be comprised
of Akanda common shares, share options, or restricted share units or similar, or a combination thereof. The settlement of the Deferred
Compensation contemplated in this clause 11.3 shall be made no later than six months following the payments made in terms of clause 11.1
and 11.2 of this Agreement. Equity awards due in terms of this clause shall be issued at the 30-day volume weighed average price of Akanda’s
ruling price of Akanda’s trading securities, The Deferred Compensation arrangement is at the election of the Executive, who shall
have the right, acting in her sole discretion, to convert the Deferred Compensation arrangement to an incentive payment be settled by
way of a cash payment.
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11.4
|
The Executive is entitled to participate in the Company's bonus scheme with an annual bonus opportunity
of:
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|
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(a)
|
up to 100% of Basic Salary based on meeting achievable KPIs as determined by the Board using its reasonable
discretion on or around the beginning of each financial year; and
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(b)
|
an additional bonus opportunity based on achievable stretch targets which is to be determined by the Board
using its reasonable discretion.
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11.5
|
The Board may award any such bonus in cash, equity or such other instrument or arrangement with the Company
undertaking that it will act reasonably in making any such award in a way which is tax efficient and cost effective for the Executive.
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11.6
|
Any bonus made pursuant to Clause 11.3 may, at the Board's absolute discretion, be reduced pro rata by
reference to any period for which the Executive has been absent from work for any reason during the period to which the bonus relates.
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11.7
|
Other than as provided in this clause, the Executive will not be entitled to compensation for loss of
bonus (whether pursuant to this Clause 11 or otherwise) on termination of employment. Payment of a bonus in one year will not entitle
the Executive to a bonus in any other year. Should the Executive’s employment be terminated for any reason other than as set out
in clause 21.1 of this Agreement, then the Executive shall be entitled to a partial bonus determined on a pro-rata basis with reference
to the number of months of service provided in the current financial year or bonus measurement period.
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11.8
|
Payment of any incentive payment or bonus under this Clause 11 will be conditional on:
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|
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(a)
|
notice not having been served by the Executive;
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|
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(b)
|
the Executive not being the subject of a disciplinary investigation which could result in the Executive's
dismissal for gross misconduct (in which case payment of any incentive or bonus will be postponed pending the final outcome of that disciplinary
procedure save where the procedure results in dismissal in which case no incentive or bonus shall be payable); and/or
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(c)
|
the Executive not having committed a repudiatory breach of this agreement;
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in each case, as at the payment date.
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11.9
|
If any payment or other obligation under this agreement or any related benefit or remuneration plan does
not comply with any applicable Regulatory Requirement, the Company may, by mutual agreement with the Executive, amend the terms of the
payment or other obligation (including by reducing, revoking, cancelling or recovering any payment or award) to make it compliant.
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11.10
|
Any payments under this Clause 11 will be subject to applicable deductions for tax and National Insurance
(excluding employer National Insurance contributions) and will not be pensionable.
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12.1
|
If the Board considers it likely that a Cash Shell Company will acquire Control of the Company, the Company
shall procure that the Executive is granted an award of an equity interest in the Cash Shell Company (which could be a subscription/award
of shares or share options, depending on the taxation implications for both the Company and the Executive, with the Company undertaking
that it will act reasonably in procuring the offer of an incentive structure at its own cost which is tax efficient and cost effective
for the Executive provided there are no adverse consequences for the Company or the Cash Shell Company) (the Executive Equity).
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12.2
|
The Executive Equity is intended to represent 10% of the issued share capital of the Cash Shell Company
before the Cash Shell Company acquires the Company or any other company or business, and/or issues equity to participants in a placing
or public offering to occur on or around the date of Listing, when, pursuant to each of such events, the percentage equity interest held
by the Executive will be diluted in accordance with the terms of such transactions.
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12.3
|
Subject always to Clause 2.4, the Executive Equity will be subject to monthly vesting (or reverse vesting
if shares are awarded) over a three year period, with a one year vesting cliff (33.3% vesting 12 months after date of grant of the award),
and will be subject to customary good leaver, intermediate leaver and bad leaver conditions.
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12.4
|
In the event that there is a
Change of Control of the Company or Cash Shell Company (other than as part of the fundraising on or around the date of Listing or an internal
re-organisation) after the date falling 12 months after the date of the
grant of Executive Equity and before the end of the three year vesting period (or such other period as required in accordance with
Clause 2.4), and the Executive is an employee of the Company (or the Cash Shell Company as the case may be) at such time, it is agreed
that vesting of the Executive Equity will automatically be accelerated immediately prior to such Change of Control.
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12.5
|
The Executive's participation in the Executive Equity shall be determined by the applicable rules (or
other documents) of the scheme to be implemented.
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12.6
|
In the event a Cash Shell Company does not acquire Control of the Company, the Company and the Executive
will both act in good faith to agree an alternative incentive arrangement to that referred to in Clause 12.1 above and, if applicable,
Clause 3.2.
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13
|
Other benefits and paid leave
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|
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13.1
|
The Company will endeavour to put in place a private medical insurance scheme as soon as reasonably practicable
after the Commencement Date. The Executive, her spouse and dependents shall be entitled to participate in such scheme.
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13.2
|
The Executive's rights and entitlements and the Company's obligations to pay premiums for the private
medical insurance scheme shall be subject always to:
|
|
|
(a)
|
the rules and terms of such scheme from time to time in force;
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|
|
(b)
|
the Company's absolute discretion to change scheme and/or scheme provider and/or to discontinue providing
the benefit at any time;
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(c)
|
the Executive satisfying any underwriting or other requirements of the relevant scheme provider; and
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|
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(d)
|
the Executive co-operating with the Company and the relevant scheme provider when making any claim.
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|
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13.3
|
The Executive agrees that:
|
|
|
(a)
|
the Company shall have no obligation to pursue any claim for benefits on behalf of the Executive or the
Executive's spouse or dependants or any other beneficiaries or potential beneficiaries if it is not accepted by the scheme provider;
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|
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(b)
|
the Company will have no liability to the Executive or the Executive's spouse or dependants for failure
or refusal by the scheme provider for whatever reason to pay benefits or for cessation of benefits on the termination of the Executive's
employment and the Company is entitled to terminate the Executive's employment notwithstanding the fact that the Executive may lose entitlement
to benefits under these arrangements as a result;
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|
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(c)
|
The Executive is not contractually entitled to any benefit she receives which is not expressly referred
to in this agreement (whether payment of insurance scheme premiums or otherwise).
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|
13.4
|
The Executive may be eligible to take the following types of paid leave, subject to any statutory eligibility
requirements or conditions and the Company's rules applicable to each type of leave in force from time to time:
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|
|
(a)
|
statutory maternity leave;
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|
(b)
|
family responsibility leave;
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|
|
(c)
|
statutory adoption leave;
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|
|
(d)
|
shared parental leave; and
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|
|
(e)
|
parental bereavement leave.
|
In addition to general training the
Company provides during the Executive's induction and throughout her employment, the Company will specify certain mandatory training modules
from time to time. These cover matters that are essential for working for the Company, or for the Executive's role. The subject
matter will vary from time to time and the Company will update the Executive on the requirements. Details of the current compliance
training that is mandatory for all employees are available on the intranet.
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|
15.1
|
The Executive will be entitled to 30 days' paid holiday in each Holiday Year in addition to the usual
public holidays in the Republic of South Africa and/or the Kingdom of Lesotho. The first 28 days of holiday (including any public holidays)
taken in any Holiday Year will be the Executive's statutory holiday for the purpose of both the Working Time Regulations 1998 and Clause 15.6
below
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|
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15.2
|
If the Executive's employment commences or terminates part way through a Holiday Year, the entitlement
of the Executive during that Holiday Year shall be calculated on a pro rata basis rounded up to the nearest half day.
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|
15.3
|
Holidays shall be taken at such time or times as shall be approved in advance by the Company. The Company
may require the Executive to take holiday on particular dates.
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|
|
15.4
|
The Executive will be entitled to carry over up to 5 days' holiday at the end of each Holiday Year provided
that the Executive uses that holiday by 31 March in the following Holiday Year (all other holiday remaining at the end of the Holiday
Year will lapse). Any carried over holiday not used by that date will lapse.
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|
|
15.5
|
The Executive shall have no entitlement to any payment in lieu of accrued but untaken holiday except on
termination of the Executive's employment. Subject to Clause 15.6, the amount of any payment in lieu will be 1/260th of the Executive’s
Basic Salary for each untaken day of holiday entitlement for the Holiday Year in which termination takes place.
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|
|
(a)
|
the Company has terminated or would have been entitled to terminate the Executive's employment under Clause 21;
or
|
|
|
(b)
|
the Executive terminates in breach of this agreement,
|
any payment due under Clause 15.5
will be limited to the statutory entitlement of the Executive under the Working Time Regulations 1998 (and any holiday (including public
holidays) taken shall be deemed first to have been taken in satisfaction of that statutory entitlement as set out in Clause 15.1).
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|
15.7
|
If on termination of the Executive's employment the Executive has taken in excess of her accrued holiday
entitlement, the Company shall be entitled to recover from the Executive, by way of deduction from any payments due to the Executive or
otherwise, one day's pay calculated at 1/260th of the Basic Salary of the Executive for each excess day.
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|
|
15.8
|
If either party has served notice to terminate the Executive's employment, the Company may require the
Executive to take any accrued but unused holiday entitlement during the notice period. Any accrued but unused holiday entitlement shall
be deemed to be taken during any period of Garden Leave.
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|
|
15.9
|
During any continuous period of absence due to Incapacity of one month or more the Executive shall not
accrue holiday under this contract and the entitlement of the Executive under Clause 15.1 for the Holiday Year(s) in which such
absence takes place shall be reduced pro rata save that it shall not fall below the entitlement of the Executive under the Working Time
Regulations 1998.
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|
|
16.1
|
If the Executive is absent from work due to Incapacity, the Executive shall notify the Company of the
reason for the absence as soon as possible on the first day of absence.
|
|
|
16.2
|
Immediately following the Executive's return to work after a period of absence due to Incapacity of seven
days or less the Executive must complete a self-certification form. For periods of absence of more than seven consecutive days the Executive
must produce a doctor's fit note verifying that the absence is due to Incapacity.
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|
|
16.3
|
Subject to complying with the Company’s absence requirements above and to the remaining provisions
of this Clause 16, the Executive shall be entitled to receive full Basic Salary and contractual benefits during any periods of absence
due to Incapacity up to a maximum of 12 weeks in aggregate in any rolling 52-week period. Any such payments shall be inclusive of any
statutory sick pay. The Executive's qualifying days for statutory sick pay purposes are Monday to Friday.
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|
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16.4
|
The Executive agrees to consent to medical examinations (at the Company's expense) by a doctor or clinic
nominated by the Company should the Company so require. The Executive agrees that any report produced in connection with any such examination
may be disclosed to the Company and the Company may discuss the contents of the report with the relevant doctor.
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16.5
|
If the Incapacity is or appears to be occasioned by actionable negligence, nuisance or breach of any statutory
duty on the part of a third party in respect of which damages are or may be recoverable, the Executive shall immediately notify the Company
of that fact and of any claim, settlement or judgment made or awarded in connection with it and provide all relevant particulars that
the Company may reasonably require. The Executive shall, if required by the Company, co-operate in any related legal proceedings and refund
to the Company that part of any damages or compensation recovered by the Executive relating to the loss of earnings for the period of
the Incapacity as the Company may reasonably determine less any costs borne by the Executive in connection with the recovery of such damages
or compensation, provided that the amount to be refunded to the Company shall not exceed the total amount paid to the Executive by the
Company in respect of the period of Incapacity.
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|
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16.6
|
The Company is entitled to terminate the Executive's employment under the terms of this agreement notwithstanding
that any such termination would or might cause the Executive to forfeit any entitlement to sick pay or other benefits.
|
|
|
16.7
|
The payment of the Executive's Basic Salary and other contractual benefits during absence due to Incapacity
is conditional on:
|
|
|
(a)
|
notice not having been served by either party;
|
|
|
(b)
|
the Executive not being the subject of a disciplinary investigation which could result in the Executive's
dismissal for gross misconduct; and
|
|
|
(c)
|
the Executive not being under a performance improvement plan.
|
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|
17.1
|
Subject to Clause 17.2,, the Executive shall not at any time during employment (including during
any period of notice) save for any existing arrangements as disclosed in Schedule 2 of this Agreement:
|
|
|
(a)
|
be directly or indirectly engaged, concerned or have any financial interest in any Capacity in any other
business, trade, profession or occupation (or the setting up of any business, trade, profession or occupation) other than that of the
Company and the Group, whether paid or unpaid; or
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|
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(b)
|
hold any directorship (or other office) of any company other than that of the Company and any Group Company,
whether paid or unpaid.
|
|
|
17.2
|
Notwithstanding Clause 17.1, the Executive:
|
|
|
(a)
|
save for any existing arrangements as disclosed in Schedule 2 of this Agreement, may hold an investment
by way of shares or other securities of not more than 5% of the total issued share capital of any company (whether or not it is listed
or dealt in on a recognised stock exchange) provided that such company does not carry on (or propose to carry on) any business similar
to or competitive with any business for the time being carried on by the Company or any Group Company;
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|
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(b)
|
has disclosed to the Company the external interests and activities listed in Schedule 2 including the
Executive's Capacity with regard to each such interest and activity. The Company consents to the Executive continuing these activities
on the strict condition that it reserves the right to require (at any time) the Executive to cease any or all of such interests or activities
to the extent that, in the opinion of the Company, they interfere, may be likely to interfere or could be perceived to interfere with
the discharge of the Executive's obligations to the Company or Group or create or may be likely to create a conflict of interest or perceived
conflict of interest; and
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|
|
(c)
|
may engage in external interests and activities provided that such companies do not carry on (or propose
to carry on) any business similar to or competitive with any business for the time being carried on by the Company or any Group Company
and such interests or activities do not interfere with the Executive's performance of her duties for the Company, and any board level
appointments shall require prior written approval of the governance committee of the Company, not to be unreasonably withheld, and subject
to being permitted by the rules of any applicable regulatory framework.
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17.3
|
Without prejudice to the Executive's obligations above, the Executive must promptly disclose to the Company
any matter relating to the Executive's spouse, civil partner, partner, children, parents or other immediate family and/or any entity whose
affairs the Executive or any such person controls which may (or may be perceived to) interfere, conflict or compete with the proper performance
of the obligations of the Executive under this agreement.
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18
|
Confidential information
|
|
|
18.1
|
Without prejudice to the Executive's common law duties, the Executive shall not (except in the proper
course of the Executive's duties, as authorised or required by law or as authorised in advance by the Company), either during the Executive's
employment or at any time after termination of employment (howsoever arising):
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|
|
(a)
|
use any Confidential Information;
|
|
|
(b)
|
make or use any Copies; or
|
|
|
(c)
|
disclose any Confidential Information to any person whatsoever.
|
|
|
18.2
|
The Executive shall be responsible for protecting the confidentiality of the Confidential Information
and shall:
|
|
|
(a)
|
use best endeavours to prevent the use or communication of any Confidential Information by any person
(except in the proper course of that person’s duties, as required by law or as authorised in advance by the Company); and
|
|
|
(b)
|
inform the Company immediately upon becoming aware, or suspecting, that any unauthorised person knows,
has access to, has been provided with or has used any Confidential Information.
|
|
|
18.3
|
All Confidential Information and Copies are and shall remain at all times the property of the Company
and on termination of the Executive's employment (or at the request of the Company at any time during employment), the Executive shall:
|
|
|
(a)
|
hand over all Copies to such person as is nominated by the Company;
|
|
|
(b)
|
irretrievably delete any Confidential Information (including any Copies) stored on any magnetic or optical
disk or memory, including personal computer networks, personal email accounts or personal accounts on websites, and all matter derived
from such sources which is in the Executive's possession or under the Executive's control; and
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|
|
(c)
|
on the request of the Company, provide a signed statement that the Executive has complied fully with all
obligations under this Clause 18.3 together with such evidence of compliance as the Company may reasonably request .
|
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|
18.4
|
Clause 18 shall not apply to any Confidential Information which the Executive can demonstrate:
|
|
|
(a)
|
is already in the public domain at the time of disclosure;
|
|
|
(b)
|
is identifiable without requiring significant expenditure of time, skill or money; and
|
|
|
(c)
|
came into the public domain other than by reason of or as a direct or indirect result of the disclosure
by the Executive of any Confidential Information.
|
|
|
18.5
|
Nothing in this Clause 18 shall prevent the Executive from:
|
|
|
(a)
|
making a protected disclosure within the meaning of Part 4A of the Employment Rights Act 1996 (this
includes protected disclosures made about matters previously disclosed to another recipient);
|
|
|
(b)
|
making a disclosure to a regulator regarding any misconduct, wrongdoing or serious breach of a Regulatory
Requirement;
|
|
|
(c)
|
reporting a criminal offence to the police or a law enforcement agency; or
|
|
|
(d)
|
co-operating with the police or a law enforcement agency regarding any criminal investigation or prosecution
or with a regulator regarding any investigation by that regulator.
|
|
|
19.1
|
All Intellectual Property Rights made, discovered, originated, produced or developed by the Executive
during the course of employment with the Company (whether or not during working hours or using the premises or resources of the Company
or the Group) shall immediately be disclosed in writing to the Company by the Executive and shall automatically, on creation, vest absolutely
in the Company or such Group Company as the Company may nominate for that purpose to the fullest extent permitted by law.
|
|
|
(a)
|
acknowledges for the purposes of section 39 of the Patents Act 1977 that because of the nature of the
Executive's duties, and the particular responsibilities arising from those duties, the Executive has, and at all times during employment
will have, a special obligation to further the interests of the business of the Company and the Group;
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(b)
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undertakes to promptly, whenever requested by the Company, and in any event upon the termination of employment,
deliver up to the Company all such Intellectual Property Rights and all related correspondence, documents, papers and records and all
copies of any such Intellectual Property Rights in the Executive's possession or control;
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(c)
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undertakes to hold upon trust for the benefit of the Company (or its nominee) all Intellectual Property
Rights in respect of all Intellectual Property Rights made, originated or developed by the Executive during employment by the Company
(whether or not during working hours or using the premises or resources of the Company or the Group) to the extent that they do no vest
automatically in the Company, until the same are vested absolutely in the Company (or its nominee);
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(d)
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assigns absolutely with full title guarantee by way of present assignment of present and future rights,
all Intellectual Property Rights made, originated or developed by the Executive in the course of employment (whether or not during working
hours or using the premises or resources of the Company or the Group);
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(e)
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acknowledges that, other than as required by law, no further remuneration or compensation other than that
set out in this agreement is or may become due to the Executive in respect of the performance of the Executive's obligations under this
Clause 19;
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(f)
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undertakes, at the reasonable expense of the Company, to execute all such documents, make such applications,
give such assistance and do all such acts and things as may in the opinion of the Company be necessary or desirable to vest, register
or obtain any Intellectual Property in the name of the Company (or its nominee), and otherwise to protect and maintain any Intellectual
Property Rights made, originated or developed by the Executive and all related Intellectual Property Rights;
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(g)
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waives any moral rights (as provided for by Chapter IV of the Copyright Designs & Patents Act
1988 (the 1988 Act) or any similar provisions of law in any jurisdiction) in any Intellectual Property Rights created, made, originated,
developed or produced by the Executive in the course of employment (whether or not during working hours or using the premises or resources
of the Company or the Group) and agrees to grant all necessary consents and further agrees not to institute, support, maintain or permit
any action or claim to the effect that any treatment, exploitation or use of such Intellectual Property Rights infringes the Executive's
moral rights, including the right to be identified, the right of integrity and the right against false attribution provided for in the
1988 Act;
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(h)
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will not, except in the proper performance of the Executive's duties, disclose any Intellectual Property
Rights (or any related correspondence, documents, papers and records and copies) belonging to the Company (or its nominee) without the
prior written consent of the Company; and
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(i)
|
will give all necessary assistance to the Company (or its nominee) to enable the Company (or its nominee)
to enforce its Intellectual Property Rights against third parties and/or to defend claims for infringement of third-party Intellectual
Property Rights.
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19.3
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The Executive irrevocably appoints the Company to be the Executive's attorney in the Executive's name
and on the Executive's behalf to execute and/or sign all such instruments, and/or do all such things and generally to use the Executive's
name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this Clause 19. With respect
to any third party, a certificate in writing signed by any director of the Company or the
company secretary of the Company that any instrument or act falls within the authority conferred by this Clause 19.3 shall be conclusive
evidence that such is the case.
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20
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Payment in lieu of notice
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20.1
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Notwithstanding any other provision of this agreement, the Company may, in its sole and absolute discretion,
terminate the Executive's employment under this agreement summarily by giving the Executive written notice that it is exercising its discretion
under this Clause 20.1. In such circumstances the Company shall pay the Executive her Basic Salary and contractual benefits in lieu
of the notice period referred to in Clause 2.2 or any unexpired part of it. Payment will be made subject to such deductions as are
required by law, including for tax and national insurance. The Company's right to make a payment under this Clause 20.1 does not
give the Executive any right to demand such payment.
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20.2
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The Executive shall not be entitled to any payment in lieu of notice if the Company would otherwise have
been entitled to terminate the Executive's employment without notice in accordance with Clause 21 and the Company shall be entitled
to recover from the Executive any payment in lieu of notice already made.
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21
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Termination without notice
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21.1
|
The Company may terminate the Executive's employment with immediate effect without notice (and with no
liability to make any further payment to the Executive) if the Executive:
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(a)
|
is disqualified from acting as a director;
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(b)
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commits, in the reasonable opinion of the Board, an act of gross misconduct;
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(c)
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commits, in the reasonable opinion of the Board, any serious or repeated breach or failure to observe
of any of the provisions of this agreement or the Policies and Procedures or the Regulatory Requirements or any anti-bribery and corruption
policies and the Executive has previously been given written notice of such and a reasonable opportunity to improve or comply as the case
may be;
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(d)
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refuses to comply with any reasonable and lawful direction of the Board;
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(e)
|
is declared bankrupt or makes any arrangement with or for the benefit of her creditors or has a county
court administration order made against the Executive under the County Court Act 1984;
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(f)
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is convicted of any criminal offence (other than an offence under any road traffic legislation in the
United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed);
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(g)
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is guilty of fraud or dishonesty or acts in any manner which, in the reasonable opinion of the Board,
brings or is likely to bring the Executive, the Company or any Group Company into disrepute or is materially adverse to the interests
of the Company or any Group Company (in each case whether or not in the course of employment); or
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(h)
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ceases to hold any qualification, approval, registration or authorisation required for the proper performance
of the Executive's duties.
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21.2
|
The rights of the Company under Clause 21.1 are without prejudice to any other rights that it may
have at law to terminate the Executive's employment or to accept any breach of this agreement by the Executive as having brought the agreement
to an end. Any delay by the Company in exercising any right to terminate shall not constitute a waiver of that right.
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21.3
|
If the Executive's employment is terminated at any time by reason of any reconstruction or amalgamation
of the Company or any Group Company, whether by winding up or otherwise, and the Executive is offered employment with any concern or undertaking
involved in or resulting from the reconstruction or amalgamation on terms which (considered in their entirety) are no less favourable
to any material extent than the terms of this agreement, the
Executive shall have no claim against the Company, any Group Company or the undertaking arising out of or in connection with such termination.
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21.4
|
This Clause 21.4 applies if the Executive subscribes for or is awarded shares in the Company or any
Group Company or participates in any share option, restricted share, restricted share unit, long term incentive, carried interest or co-invest,
or any other form of profit sharing, incentive, bonus or equity plan or arrangement (each an Incentive) or may do so. Upon termination
of the Executive's employment (whether lawful or unlawful), the Executive's rights (if any) in respect of each Incentive shall be solely
determined by the applicable rules or other documents governing each Incentive and the Executive hereby irrevocably waives any other
claims or rights in respect of the loss of any rights or benefits under or in respect of any Incentive granted or not yet granted to the
Executive (including any loss relating to the lapse of, or the Executive's ineligibility to exercise, any share options, the value of
any shares, the operation of any compulsory transfer provisions or the operation of any vesting criteria).
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22.1
|
Following service of notice to terminate the Executive's employment by either party, or if the Executive
purports to terminate her employment in breach of contract and/or without serving the period of notice required by Clause 2.2, the
Company may in its absolute discretion place the Executive on garden leave for the whole or part of the Executive's notice period (Garden
Leave).
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22.2
|
During any period of Garden Leave the Company:
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(a)
|
shall be under no obligation to provide any work to the Executive and may revoke any powers she holds
on behalf of the Company or any Group Company;
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(b)
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may exclude the Executive from any premises of the Company or any Group Company;
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(c)
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may require the Executive not to contact or deal with (or attempt to contact or deal with) any officer,
employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser, investor or other business contact of the
Company or any Group Company;
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(d)
|
may require the Executive to resign as a director of the Company or any Group Company;
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(e)
|
may cease to provide the Executive with access to the Company and Group Company information systems;
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(f)
|
may appoint another person(s) to perform the Executive's responsibilities jointly with the Executive
or in the Executive's place; and/or
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(g)
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may require the Executive to take any accrued holiday due to the Executive.
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22.3
|
During any period of Garden Leave the Executive:
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(a)
|
will continue to receive Basic Salary and all contractual benefits including the incentives in Clauses
11.1 and 11.2 in the usual way and subject to the terms of any benefit arrangement;
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(b)
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will remain an employee of the Company and bound by the terms of this agreement (including her fiduciary
duties and duties of good faith and fidelity); and
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(c)
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must ensure that the Board knows where the Executive will be and how the Executive can be contacted during
each working day (except during any periods taken as holiday in the usual way);
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22.4
|
The Executive agrees that she shall have no claim against the Company in respect of any action set out
in this Clause 22.
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23
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Obligations upon termination
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23.1
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On termination of the Executive's employment (however arising) or, if the Company so requires, at any
time following the service of notice by either party or purported notice of termination by the Executive, the Executive shall:
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(a)
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resign immediately from any directorship held by her in or on behalf of the Company or any Group Company
and from any other offices she may hold as nominee or representative of the Company or any Group Company, save for any directorship held
by her in Bophelo Bioscience & Wellness Pty. Ltd ("Bophelo"), which shall continue subject to the articles of association
of Bophelo, and save for any trusteeship in any environmental, social and governance related trust (the “ESG Trust”)
formed to hold investments in Akanda or elsewhere for the purposes of advancing the interests of the beneficiaries of the ESG Trust
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(b)
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immediately deliver to the Company all property of the Company or any Group Company or any of its or their
respective customers, clients, suppliers, investors and other business contacts (including documents, books, materials, records, correspondence,
papers and information on whatever media and wherever located relating to the business or affairs of the Company or any Group Company
or their respective customers, clients, investors, suppliers and other business contacts), which is in her possession or under her control
and she/ shall not retain any Copies;
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(c)
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irretrievably delete any information relating to the business or affairs of the Company or any Group Company
stored on any magnetic or optical disk or memory, including personal computer networks, personal email accounts or personal accounts on
websites, and all matter derived from such sources which is in her possession or under her control;
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(d)
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deliver to the Company on request any computer or other device in her possession or control to allow the
Company to remove all Confidential Information and any software of the Company; and
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(e)
|
on the request of the Company, provide a signed statement that she has complied fully with her obligations
under this Clause 23.1 together with such reasonable evidence of compliance as the Company may require.
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23.2
|
The Executive hereby irrevocably appoints the Company to be her attorney to appoint any director of the
Company as her attorney to execute such instrument or do any such thing and generally to use her name for the purpose of giving effect
to and providing to the Company or its nominee the full benefit of Clause 23.1(a).
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23.3
|
The obligations in Clause 23.1 shall not be affected by the fact that any document or device may
include the Executive's Personal Data. It shall be the Executive's responsibility to notify the Company of any Personal Data that may
exist so that the Company can make proper arrangements for its disposal.
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23.4
|
The Executive will, on the Company's reasonable request, co-operate with and assist the Company or any
Group Company in any internal investigation, administrative, regulatory, quasi-judicial proceedings or any threatened or actual litigation
concerning it or them. The Company will only make such a request where the Executive has in her possession or knowledge any facts or other
matters which the Company or any Group Company reasonably considers is relevant to such process or legal proceedings. This assistance
may include giving statements/affidavits, meeting with the Company or any Group Company's legal and other professional advisers, attending
any legal hearing and giving evidence. The Company or relevant Group Company will pay the Executive's reasonable expenses and loss of
income incurred in providing such assistance provided that the Executive notifies the Company or relevant Group Company of the amount
of any expenses or anticipated loss of income in advance.
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24
|
Post-termination restrictions
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24.1
|
In order to protect the Confidential Information and business connections of the Company and each Group
Company to which she has access as a result of the Appointment , the Executive covenants with the Company (for itself and as trustee and
agent for each Group Company) that she shall not:
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24.1.1
|
for 12 months after the Termination Date, solicit or endeavour to entice away from the Company or any
Group Company the business or custom of a Restricted Customer with a view to providing goods or services to that Restricted Customer in
competition with any Restricted Business;
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24.1.2
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for 12 months after the Termination Date in the course of any business concern which is in competition,
or intends to compete, with the Company or any Group Company, offer to employ or engage or otherwise endeavour to entice away from the
Company or any Group Company any Restricted Person who could damage the interests of the Company or any Group Company as a result of any
such employment, engagement or enticement;
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24.1.3
|
for 12 months after the Termination Date in the course of any business concern which is in competition,
or which intends to compete, with any Restricted Business, employ or engage or otherwise facilitate the employment or engagement of any
Restricted Person who could damage the interests of the Company or any Group Company as a result of that employment or engagement, whether
or not such person would be in breach of contract as a result of such employment or engagement;
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24.1.4
|
for six months after the Termination Date, be involved in any Capacity with any business concern which
is (or intends to be) in competition with any Restricted Business;
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24.1.5
|
for 12 months after the Termination Date, be involved with the provision of goods or services to (or otherwise
have any business dealings with) any Restricted Customer or Prospective Customer in the course of any business concern which is in competition
with any Restricted Business;
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24.1.6
|
for 12 months after the Termination Date damage (or attempt to do so) any relationship between the Company
or any Group Company and the Restricted Supplier; or
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|
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24.1.7
|
at any time after the Termination Date, represent herself as connected with the Company or any Group Company
in any capacity, other than as a former employee, director or shareholder, or use any registered names or trading names associated with
the Company or any Group Company.
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24.1.8
|
at any time after the Termination Date, make any comments or statements of any nature that are derogatory
to or disparaging of, or have the effect of lowering the reputation of the Company or any Group Company or any of its or their directors,
officers, employees or agents; and/or take part in any conduct which may bring into disrepute the Company, any Group Company or any of
its or their directors, officers, employees or agents.
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24.2
|
None of the restrictions in Clause 24.1 shall prevent the Executive from:
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24.2.1
|
being engaged or concerned in any business concern insofar as the Executive's duties or work shall relate
solely to geographical areas where the business concern is not in competition with any Restricted Business; or
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24.2.2
|
being engaged or concerned in any business concern, provided that the Executive's duties or work shall
relate solely to services or activities of a kind with which the Executive was not concerned to a material extent in the 12 months before
the Termination Date.
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24.3
|
The restrictions imposed on the Executive by this Clause 24 apply to her acting:
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24.3.1
|
directly or indirectly; and
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24.3.2
|
on her own behalf or on behalf of, or in conjunction with, any firm, company or person.
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24.4
|
Subject to Clause 24.12, the Executive agrees that the Board may review the Prospective Customer, Restricted
Business, Restricted Customer, Restricted Person and Restricted Supplier definitions and revise, delete and amend these (to include but
not be limited to adding new customers, persons and suppliers or deleting or revising named customers, persons and suppliers) from time
to time.
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24.5
|
The periods for which the restrictions in Clause 24 apply shall be reduced by any period that the Executive
spends on Garden Leave immediately before the Termination Date.
|
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24.6
|
If the Executive receives an offer to be involved in a business concern in any Capacity during the Appointment,
or before the expiry of the last of the covenants in this Clause 24, the Executive shall give the person making the offer a copy of this
Clause 24 and shall tell the Company the identity of that person as soon as possible after accepting the offer.
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24.7
|
This Clause 24.7 applies if, at any time during the Executive's employment, two or more Restricted Persons
have left their employment, appointment or engagement with the Company and have subsequently performed work for a Competitor. Where this
clause applies, the Executive will not, at any time during the six months following the last date on which any of those Restricted Persons
were employed or engaged by the Company, be employed or engaged in any way by the Competitor if the Executive would perform work for or
on behalf of the Competitor that is competitive with the Restricted Business.
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24.8
|
The Executive has had the opportunity to take legal advice on the restrictions in this Clause 24.
|
|
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24.9
|
Each of the restrictions in this Clause 24 is intended to be separate and severable. If any of the restrictions
shall be held to be void but would be valid if part of their wording were deleted, such restriction shall apply with such deletion as
may be necessary to make it valid or effective.
|
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24.10
|
If the Executive's employment is transferred to any firm, company, person or entity other than a Group
Company (the "New Employer") pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006, the Executive
will, if required, enter into an agreement with the New Employer containing post-termination restrictions corresponding to those restrictions
in this Clause 24, protecting the Confidential Information, trade secrets and business connections of the New Employer.
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24.11
|
The Executive will, at the request and expense of the Company, enter into a separate agreement with any
Group Company in which she agrees to be bound by restrictions corresponding to those restrictions in this Clause 24 (or such of those
restrictions as may be appropriate) in relation to that Group Company.
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24.12
|
No variation of this Clause 24 will be effective unless it is in writing and signed by the parties.
|
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24.13
|
The Executive covenants with the Company (for itself and as trustee and agent for each Group Company)
that she shall not for 12 months after the Termination Date:
|
|
|
24.13.1
|
interfere or take such steps as may be likely to interfere with the continuance of investment or funding
to the Company (or the terms relating to such investment or funding) from any Investor or Lender; or
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|
|
24.13.2
|
seek to damage the relationship between any Investor or Lender and the Company.
|
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|
25
|
Disciplinary and grievance procedures
|
|
|
25.1
|
The Executive is subject to the disciplinary and grievance procedures of the Company, copies of which
are available on the Company's intranet. These procedures do not form part of this agreement or the terms and conditions of the Executive's
employment.
|
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25.2
|
The Executive should refer:
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|
|
(a)
|
any appeal the Executive wishes to make against a disciplinary sanction/decision to a member of the Board
(or such other person as the Company may specify from time to time); or
|
|
|
(b)
|
any grievance the Executive wishes to raise to a member of the Board (or such other person as the Company
may specify from time to time),
|
in accordance with the Company's disciplinary
and grievance procedures.
|
|
25.3
|
The Company may suspend the Executive from any or all of her duties during any period in which the Company
is investigating any disciplinary matter involving the Executive or until the conclusion of any disciplinary procedure (including any
appeal). During any period of suspension:
|
|
|
(a)
|
subject to Clause 11.5, the Executive will continue to receive Basic Salary and all contractual benefits
in the usual way;
|
|
|
(b)
|
the Company may suspend the Executive's access to the Company's and Group's systems and internal communications;
|
|
|
(c)
|
the Company may require the Executive to return temporarily any Company or Group IT equipment and communication
devices (including any smartphones, tablets, laptops and hard drives);
|
|
|
(d)
|
the Executive shall remain an employee of the Company and bound by the terms of this agreement;
|
|
|
(e)
|
the Executive shall ensure that the Company knows where she will be and how she can be contacted during
each working day (except during any periods taken as holiday in the usual way);
|
|
|
(f)
|
the Company may exclude the Executive from her place of work or any other premises of the Company or any
Group Company; and
|
|
|
(g)
|
the Company may require the Executive not to contact or deal with (or attempt to contact or deal with)
any officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the
Company or any Group Company.
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|
|
26.1
|
In the event that there is a Change of Control of the Company or the Cash Shell Company (other than as
part of the Listing, the fundraising on or around the date of Listing or an internal re-organisation) and, within 365 days of the Change
of Control, the Appointment is terminated by the Company (other than where the Company is entitled to terminate the Appointment without
notice or payment in lieu of notice in accordance with Clause 21.1) the Company shall, within one month of the date of the Termination
Date, pay or provide the Prescribed Sum to her as provided by this Clause.
|
|
|
26.2
|
The Prescribed Sum shall be an amount equal to one year's Basic Salary in accordance with Clause
8.1 as adjusted in accordance with Clause 26.3.
|
|
|
26.3
|
If the Company or the Cash Shell Company (as the case may be) terminates the Appointment by giving a period
of notice whether under Clause 2.2 or otherwise, or terminates the Appointment under Clause 20, the Prescribed Sum shall be reduced pro
rata by the number of complete months of service for which the Executive remains employed following notice being given to her or shall
be reduced by the amount paid to the Executive under Clause 20.
|
|
|
26.4
|
The payment or provision of the Prescribed Sum shall be conditional upon and in consideration of:
|
|
|
(a)
|
the Executive having complied with Clause 23; and
|
|
|
(b)
|
the Executive having complied with and continuing to comply with her obligations relating to confidentiality
and intellectual property in Clauses 18 and 19 respectively.
|
|
|
26.5
|
For the avoidance of doubt, the payment or provision of the Prescribed Sum shall not affect the Executive's
entitlement as at the Termination Date to any of the following:
|
|
|
(a)
|
any accrued but unpaid Basic Salary;
|
|
|
(b)
|
any payment in lieu of accrued but unused holiday; or
|
|
|
(c)
|
the reimbursement of her expenses, provided that all claims for reimbursement are submitted within four
weeks of the Termination Date.
|
|
|
26.6
|
To the extent that the Prescribed Sum is damages (which is not admitted), the parties agree that the terms
of this Clause 26 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the Appointment in
the circumstances described and does not constitute a penalty.
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|
|
27.1
|
The Company will collect and process Personal Data in accordance with the data privacy notice which is
annexed to this agreement and which is also available on the Company intranet. The Executive shall sign and date the privacy notice and
return it to the Company within five working days of the date of this agreement.
|
|
|
27.2
|
The Executive shall comply with the Policies and Procedures in relation to privacy and data protection
when handling personal data in the course of employment including personal data relating to any employee, worker, contractor, customer,
client, supplier, agent or other contact of the Company or any Group Company.
|
There is no collective agreement applicable
to the Company or to the Executive's employment with the Company.
|
|
29.1
|
A notice given to a party under this agreement shall be in writing in the English language and signed
by or on behalf of the party giving it. It shall be delivered by hand or sent to the party at the address given in this agreement or as
otherwise notified in writing to the other party.
|
|
|
29.2
|
Any such notice shall be deemed to have been received:
|
|
|
(a)
|
if delivered by hand, at the time the notice is left at the address or given to the addressee;
|
|
|
(b)
|
in the case of pre-paid first class UK post or other next working day delivery service, at 9.00 a.m. on
the second business day after posting or at the time recorded by the delivery service;
|
|
|
(c)
|
in the case of email, at the time of transmission.
|
|
|
29.3
|
A notice shall have effect from the earlier of its actual or deemed receipt by the addressee. For the
purpose of calculating deemed receipt:
|
|
|
(a)
|
all references to time are to local time in the place of deemed receipt; and
|
|
|
(b)
|
if deemed receipt would occur on a Saturday or Sunday or a public holiday when banks are not open for
business, deemed receipt is at 9.00 a.m. on the next business day.
|
|
|
29.4
|
This Clause does not apply to the service of any proceedings or other documents in any legal action.
|
|
|
30.1
|
No variation of this agreement shall be effective unless it is in writing and signed by the parties (or
their authorised representatives).
|
This agreement contains the entire and
only agreement between the parties, and both parties acknowledge that, on entering into this agreement, they have not relied on any written
or oral representation or undertaking other than as expressly stated in this agreement, and that this agreement supersedes any previous
contract or arrangement between the parties.
This agreement may be executed in any
number of counterparts, each of which, when executed, shall be an original, and all the counterparts together shall constitute one and
the same instrument.
Except as expressly provided elsewhere
in this agreement, no person other than the Executive and the Company or any Group Company shall have any rights under the Contracts (Rights
of Third Parties) Act 1999 to enforce any term of this agreement.
This agreement and any dispute or claim
arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed
by and construed in accordance with the law of England and Wales.
Each party irrevocably agrees that the
courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this
agreement or its subject matter or formation (including non-contractual disputes or claims).
|
EXECUTED
as a DEED by Louisa Mojela
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at
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on 2022
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before the following witness:
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Witness Signature:
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Full name:
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Address:
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EXECUTED as a DEED for and on behalf of
Canmart Ltd
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at
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Director/Authorised Signatory
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on 2022
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before the following witness:
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EXECUTED as a DEED for and on behalf of
Akanda Corp.
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at
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Director/Authorised Signatory
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on 2022
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before the following witness:
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Witness Signature:
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Full name:
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Address:
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Schedule 1
Executive Equity Rights
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Board seat for so long as the Executive is appointed as the Executive Chairperson of the Company
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Up to 5% of the options available for grant pursuant to a share option pool to be created which constitutes,
in aggregate, 15% (or, in relation to the maximum number of share options, such other amount as may be decided by the Board, subject always
to applicable laws) of the fully diluted share capital of the Company (i.e. up to 0.75% of the aggregate fully diluted equity), subject
always to approval by a remuneration or compensation committee to be established by the Company
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Market standard pre-emption rights on a new issuance of shares for cash in the Company except where
such rights are not held by another minority shareholder of the Company with an equivalent percentage shareholding to the Executive or
greater
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Tag rights (on a fully diluted basis) except where such rights are not held by another minority shareholder
of the Company with an equivalent percentage shareholding to the Executive or greater
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Prior to a Listing, a right of consent in respect of the following matters:
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o
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passing any resolution or presenting any petition for the Company's winding up or administration (unless
the Company is insolvent)
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o
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proposing any amendment to the Articles of Association of the Company that would prejudice the rights
of the shares held by the Executive, other than with respect to administrative matters or approved by the Board (acting reasonably) in
contemplation of a Listing
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reducing the capital of the Company or undertaking a purchase by the Company of any of its own shares
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changing the Company's accounting reference date or accounting standards falling outside of either
UK GAAP, IAS or IFRS
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transferring the whole or any material part of the assets or undertaking of the Company
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Information rights, on and subject to the same terms as agreed with other shareholders of the Company
with an equivalent percentage shareholding to the Executive
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Schedule 2
Outside Interests
Mophuthi Matsoso Development Trust – Founder
and Trustee
WIPHOLD – Founder and Executive Chairman
Boiketlo Biomed Pty Ltd – Founder, Executive
Director and Shareholder
Boiketlo Property Development Pty Ltd Founder,
Executive Director and Shareholder
Exhibit 10.13
Service
agreement
Dated:
24 January 2022
Canmart Limited
(Company)
Akanda Corp.
(Akanda)
Trevor Scott
(Executive)
Contents
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1
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Interpretation
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1
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2
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Employment
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5
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3
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Conditions to employment
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6
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4
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Fundamental terms and warranties
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6
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5
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Duties
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7
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6
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Place of work
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8
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7
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Hours of work
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8
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8
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Salary
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8
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9
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Pension
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9
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10
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Expenses
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9
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11
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Incentive payments& bonus
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9
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12
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Shares
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10
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13
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Other benefits and paid leave
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11
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14
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Training
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12
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15
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Holidays
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12
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16
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Incapacity
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13
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17
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Outside interests
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14
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18
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Confidential information
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15
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19
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Intellectual property
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16
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20
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Payment in lieu of notice
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17
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21
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Termination without notice
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18
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22
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Garden leave
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19
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23
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Obligations upon termination
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20
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24
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Post-termination restrictions
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21
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25
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Disciplinary and grievance procedures
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23
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26
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Change of Control
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24
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27
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Data protection
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24
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28
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Collective agreements
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25
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29
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Notices
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25
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30
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General
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31
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Entire agreement
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32
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Counterparts
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26
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33
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Third party rights
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26
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34
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Governing law
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35
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Jurisdiction
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This agreement is dated 24 January 2022.
Between
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(1)
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Canmart Ltd a company incorporated and registered in England and Wales with registered company
number 11741517 and whose registered office is at Units 1a/1b Learoyd Road, New Romney, Kent TN28 8XU (the Company);
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(2)
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Akanda Corp. a company incorporated and registered in Ontario, Canada with a registered company number
002854618 and whose registered office is 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Canada; and
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(3)
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Trevor Scott (the Executive).
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It is agreed:
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1.1
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In this agreement the following terms and expressions shall have the following meanings:
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Akanda
means Akanda Corporation, Registration number 002854618, Province of Ontario
Appointment
means the employment of the Executive by the Company on the terms of this agreement.
Board
means the board of directors of the Company and any committees duly constituted by the board.
Capacity
means as agent, consultant, director, the holder of any office, employee, worker, owner, partner, Shareholder or in any other capacity.
Cash
Shell Company means Akanda or any undertaking (including a special purpose acquisition company) (a) which is listed/quoted
or becomes listed/quoted on a Recognised Investment Exchange and (b) of which the Company is or becomes a wholly-owned subsidiary,
but excluding for the avoidance of doubt Halo Labs Inc.
Control
means in relation to a body corporate, the power of a person to secure that the affairs of the body corporate are conducted in accordance
with the wishes of that person:
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(a)
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by means of the holding of shares, or the possession of voting power, in or in relation to that or any
other body corporate; or
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(b)
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as a result of any powers conferred by the articles of association or any other document regulating that
or any other body corporate.
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Change
of Control occurs if a person (whether alone or together with any person acting in concert with that person) who controls any
body corporate ceases to do so or if another person acquires Control of it.
Commencement
Date means 1 July 2021.
Competitor
means a business concern which is, or intends to be, in competition with any Restricted Business.
Confidential
Information means information of a confidential nature (in any form) concerning the business, affairs and/or finances of
the Company or any Group Company or their respective customers, clients, suppliers, agents, distributors, investors and shareholders
which the Executive receives, obtains, creates or develops at any time by reason of or in connection with the Executive's service
with the Company or any Group Company (whether or not marked as confidential). This includes: trade secrets; technical information,
data, research and development; customer, client and supplier lists, contact details of customers, clients and suppliers and
individuals within those organisations; inventions and patent applications in the course of preparation and all other Intellectual
Property Rights; financial projections, target details and accounts; details of funding and resource allocation; fee levels, pricing
policies, commissions and commission charges; budgets, forecasts, reports, records and corporate and business plans; planned or
potential products and services; marketing and advertising plans, requirements and materials, marketing surveys and research
reports; market share and pricing statistics; disputes (whether existing, threatened or prior), settlement discussions and terms;
details of employees, workers, officers and consultants including their roles and responsibilities, remuneration, benefits and
organisational structures, legally privileged material; computer software and passwords.
Copies
means copies or records of any Confidential Information in whatever form (including in written, oral, visual or electronic form or on
any magnetic or optical disk or memory and wherever located) including extracts, analysis, studies, plans, compilations or any other way
of representing or recording and recalling information which contains, reflects or is derived or generated from Confidential Information.
Executive
Equity has the meaning given to it in Clause 12.
Executive
Equity Rights means the rights to be granted to the Executive as set out and materially on the terms described in Schedule
1.
Garden
Leave means any period during which the Company has exercised its rights under Clause 22.
Group
Company means any company which is from time to time a subsidiary or holding company of the Company and any subsidiary of any
holding company of the Company (and references to the Group shall be construed accordingly), including but not limited to Akanda.
The words "subsidiary" and "holding company" have the meanings given to them in section 1159 of the Companies Act
2006 and a person shall be treated, for the purposes only of the membership requirement contained in subsections 1159(1)(b) and (c) of
that Act, as a member of another company even if its shares in that other company are registered in the name of: (i) another person
(or its nominee), whether by way of security or in connection with the taking of security, or (ii) a nominee.
Halo
means Halo Labs, Inc. a company incorporated in Canada whose registered office is 77 King Street West, Suite 400, Toronto-Dominion
Centre, Toronto, Ontario, Canada.
Holiday
Year means 1 January to 31 December or such other period as the Company notifies the Executive in writing.
Incapacity
means any sickness, injury or other incapacity or medical disorder or condition which prevents the Executive from carrying out his duties.
Intellectual
Property Rights means patents, rights to Inventions, copyright and related rights, trade marks, trade names and domain names,
rights in get-up, rights in goodwill or to sue for passing off, unfair competition rights, rights in designs, rights in computer software,
database rights, topography rights, rights in confidential information (including know-how and trade secrets) and any other intellectual
property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals
or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the
future in any part of the world.
Invention
means any invention, idea, discovery, development, improvement or innovation, whether or not patentable or capable of registration, and
whether or not recorded in any medium.
Investor means
any person, firm, company or other entity who or which is an investor in the Company or any Group Company at the Termination Date or
who or which invested in the Company or any Group Company at any time in the 12 months immediately preceding the Termination Date or
with whom or which the Company or any Group Company had negotiations or meaningful discussions regarding possible investment in the
Company or any Group Company at any time in the 12 months immediately preceding the Termination Date and with whom or which the
Executive had material contact or material involvement in the course of the Appointment.
Lender
means any person, firm, company or other entity who or which is a lender of funds to the Company or any Group Company at the Termination
Date or who or which lent funds to the Company or any Group Company at any time in the 12 months immediately preceding the Termination
Date or with whom or which the Company or any Group Company had negotiations or meaningful discussions regarding possible lending to the
Company or any Group Company at any time in the 12 months immediately preceding the Termination Date and with whom or which the Executive
had material contact or material involvement in the course of the Appointment.
Listing
means the admission, approved by the Board, of the entire issued share capital of the Company or a Cash Shell Company, or securities representing
those shares (including without limitation depositary interests, American depositary receipts, American depositary shares and/or other
instruments) on a Recognised Investment Exchange.
Long
Stop Date means the date falling 12 months from the date of this agreement.
Personal
Data means personal data about or relating to the Executive including his name, date of birth, home address, telephone number,
driver's licence number, passport number, family information (such as marital status and dependant details), emergency contact information,
education and training details (such as qualifications and professional expertise), employment details (such as employment status, employee
type, performance and evaluation information, work phone number and email, intranet user log in and department and supervisor details),
financial information (such as compensation, benefits, bank account information and pensions information) and hiring information (such
as CV, prior employment history and personal references).
Policies
and Procedures means the policies and procedures of the Company applicable to employees and officers of the Company as amended
from time to time.
Prospective
Customer means any firm, company or person who, during the 12 months before the Termination Date, was in negotiations with
the Company or any Group Company about becoming a customer of the Company or any Group Company with whom the Executive had contact or
material involvement or, in respect of the exercise of his duties or responsibilities, about whom he became aware or informed to a material
extent in the course of the Appointment.
Recognised
Investment Exchange means NASDAQ, the New York Stock Exchange, the Official List of the United Kingdom Listing Authority, the
AIM Market operated by the London Stock Exchange Group Plc, the Toronto Stock Exchange, the NEO Exchange or the TSX Venture Exchange or
any other recognised investment exchange (as defined in section 285 of the Financial Services and Markets Act 2000).
Regulatory
Requirements means all legal and regulatory obligations, codes of practice and recommendations and similar which apply to the
Executive, the Company or any Group Company, including:
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(a)
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in relation to transactions in securities, related party transactions and inside information (including
any share dealing policy of the Company);
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(b)
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pursuant to the Financial Services and Markets Act 2000 and the Criminal Justice Act 1993; and
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(c)
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any other laws, rules and regulations of, or applicable to companies admitted to, a Recognised Investment
Exchange on which the Company (or a Cash Shell Company) is Listed,
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Restricted
Business means those parts of the business of the Company and any Group Company with which the Executive was involved to a
material extent in the 12 months before the Termination Date.
Restricted
Customer means any firm, company or person who, during the 12 months before the Termination Date, was a customer of or in the
habit of dealing with the Company or any Group Company with whom the Executive had contact or material involvement or, in respect of the
exercise of his duties or responsibilities, about whom he became aware or informed to a material extent in the course of the Appointment.
Restricted
Person means anyone employed or engaged by the Company or any Group Company with whom the Executive dealt in the 12 months
before the Termination Date in the course of the Appointment.
Restricted
Supplier means any person, firm or company which at any time during the 12 months prior to the Termination Date was a supplier
of any goods, products or services (other than utilities and goods or services supplied for administrative purposes) to the Company or
any Group Company and with whom or which the Executive had personal dealings during that period other than in a de minimis way and where
such entities remain suppliers of the Company and/or the Group Company at or immediately before the Termination Date.
Shareholder
means holding an investment by way of shares or other securities of over 5% of the total issued share capital of any company, other than
a Cash Shell Company, whether or not it is listed or dealt in on a recognised stock exchange.
Termination
Date means the date on which the Executive's employment with the Company terminates however caused.
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1.2
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The headings in this agreement are inserted for convenience only and shall not affect its construction.
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1.3
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A reference to a particular law is a reference to it as it is in force for the time being taking account
of any amendment, extension or re-enactment and includes any subordinate legislation for the time being in force made under it.
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1.4
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Unless the context otherwise requires:
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1.4.1
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a reference to one gender shall include a reference to the other genders; and
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1.4.2
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words in the singular include the plural and, in the plural, include the singular.
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1.5
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References to a "person" include any individual, company, any other body corporate, partnership
or unincorporated association (whether or not having separate legal personality).
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1.6
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The words "including", "include", "in particular", "for example"
and words of similar effect shall not limit the general effect of the words that precede them.
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2.1
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The Executive agrees to be employed by the Company and shall serve Akanda as its Chief Financial Officer
subject to the terms and conditions of this agreement. It is envisaged that the Company will be subject to a reverse takeover by Akanda
and there will be a Listing of Akanda. Accordingly, the terms of this agreement may require amendments to comply with any applicable Regulatory
Requirements and if so, the Executive will be paid a cash sum equivalent to any amounts (including benefits) that he is entitled to under
this agreement that are not included in the amended agreement.
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2.2
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The Executive's employment will commence on the Commencement Date and shall continue, subject to the remaining
terms of this agreement, until terminated by either party giving the other not less than 6 months prior written notice, save that the
Company can only give notice after 18 months following the Commencement Date (except that this
limitation shall not apply in respect of termination rights under Clause 21.1(a), (c) or (g)). If the Company does give notice sooner,
the amount of Basic Salary and contractual benefits that the Executive would otherwise have been entitled to up to the first day on which
termination could have been effective in accordance with this clause will be paid to the Executive as a lump sum within 28 days of the
Termination Date. For the avoidance of doubt, nothing in this Clause 2.2 shall prevent or limit the Company's right to terminate this
agreement without notice and without payment for any Basic Salary and contractual benefits for any reason that falls within Clause 21.1(a),
(c) or (g).
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2.3
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No period of employment with the Company or any other employer counts towards the period of continuous
employment between the Executive and the Company which therefore will begin on the Commencement Date. Past service with any Group Company
will count towards any employment or service measurement period in respect of any leave benefit, Executive Equity and employee share ownership
incentive award that is issued under an approved employee share ownership plan .
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2.4
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The parties acknowledge and agree that the Company intends to pursue a Listing, either directly or via
a Cash Shell Company, and that as part of that process the Company's advisers (including its brokers) may require certain terms of this
Agreement to be varied, amended or deleted. The parties agree that they will act reasonably in agreeing any such variations, amendments
or deletions and the Executive agrees that (without limitation) the following provisions, amendments or variations, if required or reasonably
requested by the Company (on the advice of its brokers) pursuant to such Listing, will be acceptable:
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(a)
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any lock-in and/or orderly market restrictions on market-standard terms (where, in respect of the length
of any such restriction, "market-standard" means no longer than two years in respect of each of any lock-in and any orderly
market restriction);
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(b)
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the Executive ceasing to be entitled to any or all of the Executive Equity Rights; and
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(c)
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a vesting, or reverse vesting, period of up to four years and otherwise on market-standard terms,
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and the Executive agrees that he will
take all action reasonably necessary to give effect to any such amendments, variations or deletions. For the avoidance of doubt, under
no circumstances shall the Executive be required to surrender or otherwise lose the ownership of whole or any part of the Executive Equity
pursuant to this Clause 2.4.
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3
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Conditions to employment
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3.1
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The Company shall take appropriate professional advice as to the best way in which to achieve the proposed
Listing of the business operated or proposed to be operated by it. If, following such advice, the Board decides that it would be in the
best interests of the Company and its members as a whole to achieve a Listing via a Cash Shall Company then, before the Long Stop Date,
the Company will:
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(a)
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establish or acquire or be acquired by a Cash Shell Company;
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(b)
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in respect thereof and subject always to Clause 2.4, grant the Executive the Executive Equity; and
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(c)
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at the Executive’s election and in his sole discretion, transfer his engagement as Chief Financial
Officer to the Cash Shell Company or any other Group Company, For the avoidance of doubt, and upon such a transfer, any benefits, leave
entitlements, equity awards, compensation, salary or employment related benefit accruing to the Executive under this Agreement shall similarly
be transferred to the Cash Shell Company or any other Group Company.
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(together, the Conditions Subsequent).
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3.2
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In the event that the Conditions Subsequent have not been satisfied by the Long Stop Date and such non-satisfaction
is predominantly or primarily the result of either or both of (a) some action or inaction by or on behalf of Halo and/or (b) another
factor or factors beyond the reasonable control of the Executive, the parties shall, in good faith, use reasonable endeavours to grant
equity interests in Halo (or the Company if it is directly subject to a Listing) to the Executive that give the Executive an approximately
equivalent monetary valuation as would have been held by him in a Cash Shell Company that held the businesses of Cannahealth, Canmart
and Bophelo only, pursuant to the terms of this Agreement.
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4
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Fundamental terms and warranties
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4.1
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The Executive represents and warrants to the Company that (in each case as a fundamental term of this
agreement):
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(a)
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the Executive is, to the best of his knowledge, not subject to any restrictions which prevent the Executive
from holding office as a director;
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(b)
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by entering into this agreement or fully performing any of the Executive's obligations under it, the Executive
will not be in breach of any court order or any express or implied terms of any contract or other obligation binding on the Executive;
and
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(c)
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the Executive has not used or disclosed to the Company or any Group Company any confidential information
belonging to any previous employer or any other person.
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4.2
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Notwithstanding (and without prejudice to) any other provision of this agreement, the Company may terminate
this agreement summarily if the Executive is in breach of any of the terms and/or warranties in this Clause 4.
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5.1
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The Executive acknowledges that he will be a fiduciary in a position of seniority and trust.
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5.2
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At all times during the course of employment the Executive will:
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(a)
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faithfully and diligently serve Akanda, the Company and the Group, and exercise such powers and perform
such duties as may from time to time be assigned to the Executive by Akanda or the Board or perform such other duties as the Company may
reasonably require;
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(b)
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devote the whole of the Executive's working time, attention and abilities to the business and affairs
of Akanda, the Company and the Group;
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(c)
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comply with all reasonable directions of and regulations made by Akanda, the Company and the Board;
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(d)
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promptly make such reports to Akanda and the Board in connection with the affairs of Akanda, the Company
and of any Group Company on such matters and at such times as are reasonably required, and otherwise keep Akanda and the Board fully informed
of all matters relating to the business and affairs of Akanda, the Company and the Group;
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(e)
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immediately upon becoming aware, report:
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(i)
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any wrongdoing (including the Executive's own wrongdoing) whether committed, contemplated or discussed
by any person employed or engaged by Akanda, the Company or any Group Company irrespective of whether this would or may involve self-incrimination;
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(ii)
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any plans or proposals or discussions by any person employed or engaged by Akanda, as a senior
executive or as a senior member of management of the Company or any Group Company to leave the employment or engagement of the
Company or Group Company, whether alone or in concert
with any other person and whether to join a competitor or any other business; and
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(iii)
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any misuse of Confidential Information by any person (including the Executive) irrespective of whether
this would or may involve self-incrimination;
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(f)
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use all reasonable endeavours to promote, protect, develop and extend the business of Akanda, the Company
and Group Companies;
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(g)
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comply with all Policies and Procedures;
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(h)
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comply with all Regulatory Requirements and promptly provide Akanda, the Company with all information
that it requires or may require to comply with the Regulatory Requirements; and
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(i)
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offer, promise or provide any bribe, inducement or reward to any third party in order to gain any commercial,
contractual, regulatory or personal advantage;
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(ii)
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receive or accept any bribe, inducement or reward from any third party in order to gain any commercial,
contractual, regulatory or personal advantage; or
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(iii)
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receive any gifts, goods, service, rebates or commission from any third party other than in accordance
with Akanda or Company policy from time to time in force.
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5.3
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The Executive agrees and accepts that:
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(a)
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the Policies and Procedures do not form part of this agreement or the terms of the Executive's employment
and the Company may amend the Policies and Procedures at any time; and
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(b)
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a breach of the Regulatory Requirements may lead to civil or criminal liability for the Executive, action
being taken against the Executive by any relevant regulatory authority and/or disciplinary action by the Company up to and including summary
dismissal if the Executive's conduct falls within the categories in Clause 21.1.
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|
6.1
|
The normal place of work of the Executive is South Africa (or such other place as agreed by the parties)
or any other place as the Company may reasonably require for the proper performance and exercise of the Executive's duties.
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|
|
6.2
|
The Executive will be required to travel in appropriate circumstances on the business of the Company and
the Group (to the United Kingdom, Malta and/or abroad).
|
|
|
7.1
|
The Executive's normal hours of work are from 8.30am to 5:30pm Monday to Friday, inclusive of one hour
for lunch daily, and such additional hours as may be necessary for the proper performance of the Executive's duties. The Executive is
not entitled to any further remuneration for additional hours outside normal office hours.
|
|
|
7.2
|
The parties agree that the nature of the Executive's position is such that the Executive's working time
cannot be measured and, accordingly, the Executive's employment falls within the scope of regulation 20 of the Working Time Regulations
1998.
|
|
|
8.1
|
The Executive will be paid an annual salary of £250,000 (Basic Salary) subject to applicable
deductions as required by any local laws applicable to the Company including for tax and social security.
|
|
|
8.2
|
The Basic Salary will be paid in equal monthly instalments (or pro rata where the Executive is only employed
during part of a month) in arrears to the Executive's nominated bank account in the United Kingdom, or any other bank account in any location
designated by the Executive in his sole discretion . For convenience, payment will usually be slightly in advance of the end of the calendar
month to which the payment relates.
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|
|
8.3
|
The Executive authorises the Company to deduct (and retain) from the Basic Salary, or any other sum due
to the Executive at any time, any sum due to the Company or any Group Company from the Executive.
|
The Company will comply with the employer
pension duties in accordance with Part 1 of the Pension Act 2008.
Subject to any Company policy in operation
from time to time and to production of VAT receipts or other appropriate evidence to the reasonable satisfaction of the Company, the Company
will reimburse (or procure the reimbursement of) all reasonable expenses wholly, properly and necessarily incurred by the Executive in
the performance of the Executive's duties.
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|
11
|
Incentive payments & bonus
|
|
|
11.1
|
Subject to Clause 11.7, on a Listing, the Executive shall be entitled to receive an incentive payment
of £150,000, which shall be paid on or around the payroll in the subsequent month following the Listing.
|
|
|
11.2
|
Subject to Clause 11.7, on completion of the Listing , the Executive shall be entitled to receive an incentive
payment of £150,000, which shall be paid on or around the payroll in the month following receipt by the Company of the Qualifying
Equity Finance.
|
|
|
11.3
|
The Executive is entitled to participate in the Company's bonus scheme with an annual bonus opportunity
of:
|
|
|
(a)
|
up to 100% of Basic Salary based on meeting achievable KPIs as determined by the Board using its reasonable
discretion on or around the beginning of each financial year; and
|
|
|
(b)
|
an additional bonus opportunity based on achievable stretch targets which is to be determined by the Board
using its reasonable discretion.
|
|
|
11.4
|
The Board may award any such bonus in cash, equity or such other instrument or arrangement with the Company
undertaking that it will act reasonably in making any such award in a way which is tax efficient and cost effective for the Executive.
|
|
|
11.5
|
Any bonus made pursuant to Clause 11.3 may, at the Board's absolute discretion, be reduced pro rata by
reference to any period for which the Executive has been absent from work for any reason during the period to which the bonus relates.
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|
|
11.6
|
Other than as provided in this clause, the Executive will not be entitled to compensation for loss of
bonus (whether pursuant to this Clause 11 or otherwise) on termination of employment. Payment of a bonus in one year will not entitle
the Executive to a bonus in any other year. Should the Executive’s employment be terminated for any reason other than as set out
in clause 21.1 of this Agreement, then the Executive shall be entitled to a partial bonus determined on a pro-rata basis with reference
to the number of months of service provided in the current financial year or bonus measurement period
|
|
|
11.7
|
Payment of any incentive payment or bonus under this Clause 11 will be conditional on:
|
|
|
(a)
|
notice not having been served by the Executive;
|
|
|
(b)
|
the Executive not being the subject of a disciplinary investigation which could result in the Executive's
dismissal for gross misconduct (in which case payment of any incentive or bonus will be postponed pending the final outcome of that disciplinary
procedure save where the procedure results in dismissal in which case no incentive or bonus shall be payable); and/or
|
|
|
(c)
|
the Executive not having committed a repudiatory breach of this agreement;
|
in each case, as at the payment date.
|
|
11.8
|
If any payment or other obligation under this agreement or any related benefit or remuneration plan does
not comply with any applicable Regulatory Requirement, the Company may, by mutual agreement with the Executive, amend the terms of the
payment or other obligation (including by reducing, revoking, cancelling or recovering any payment or award) to make it compliant.
|
|
|
11.9
|
Any payments under this Clause 11 will be subject to applicable deductions for tax and National Insurance
(excluding employer National Insurance contributions) and will not be pensionable.
|
|
|
12.1
|
The Company shall procure that the Executive is granted, through an employee share ownership scheme or
otherwise, an award of an equity interest in the Cash Shell Company (which could be a subscription/award of shares/award of restricted
share units or share options, depending on the taxation implications for both the Company and the Executive, with the Company undertaking
that it will act reasonably in procuring the offer of an incentive structure at its own cost which is tax efficient and cost effective
for the Executive provided there are no adverse consequences for the Company or the Cash Shell Company) (the Executive Equity).
|
|
|
12.2
|
The Executive Equity is intended to represent 500,000 common shares in the issued share capital of the
Cash Shell Company before the Cash Shell Company acquires the Company or any other company or business, and/or issues equity to participants
in a placing or public offering to occur on or around the date of Listing, when, pursuant to each of such events, the percentage equity
interest held by the Executive will be diluted in accordance with the terms of such transactions.
|
|
|
12.3
|
Subject always to Clause 2.4, the Executive Equity will be subject to monthly vesting (or reverse vesting
if shares are awarded) over a three year period, with a one year vesting cliff (33.3% vesting 12 months after date of grant of the award),
and will be subject to customary good leaver, intermediate leaver and bad leaver conditions.
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|
|
12.4
|
In the event that there is a
Change of Control of the Company or Cash Shell Company (other than as part of the fundraising on or around the date of Listing or an internal
re-organisation) after the date falling 12 months after the date of the
grant of Executive Equity and before the end of the three year vesting period (or such other period as required in accordance with
Clause 2.4), and the Executive is an employee of the Company (or the Cash Shell Company as the case may be) at such time, it is agreed
that vesting of the Executive Equity will automatically be accelerated immediately prior to such Change of Control.
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|
|
12.5
|
The Executive's participation in the Executive Equity shall be determined by the applicable rules (or
other documents) of the scheme to be implemented.
|
In the event a Cash Shell Company does not acquire
Control of the Company, the Company and the Executive will both act in good faith to agree an alternative incentive arrangement to that
referred to in Clause 12.1 above and, if applicable, Clause 3.2.
|
|
13
|
Other benefits and paid leave
|
|
|
13.1
|
The Company will endeavour to put in place a private medical insurance scheme as soon as reasonably practicable
after the Commencement Date. The Executive, his spouse and dependents shall be entitled to participate in such scheme.
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|
|
13.2
|
The Executive's rights and entitlements and the Company's obligations to pay premiums for the private
medical insurance scheme shall be subject always to:
|
|
|
(a)
|
the rules and terms of such scheme from time to time in force;
|
|
|
(b)
|
the Company's absolute discretion to change scheme and/or scheme provider and/or to discontinue providing
the benefit at any time;
|
|
|
(c)
|
the Executive satisfying any underwriting or other requirements of the relevant scheme provider; and
|
|
|
(d)
|
the Executive co-operating with the Company and the relevant scheme provider when making any claim.
|
|
|
13.3
|
The Executive agrees that:
|
|
|
(a)
|
the Company shall have no obligation to pursue any claim for benefits on behalf of the Executive or the
Executive's spouse or dependants or any other beneficiaries or potential beneficiaries if it is not accepted by the scheme provider;
|
|
|
(b)
|
the Company will have no liability to the Executive or the Executive's spouse or dependants for failure
or refusal by the scheme provider for whatever reason to pay benefits or for cessation of benefits on the termination of the Executive's
employment and the Company is entitled to terminate the Executive's employment notwithstanding the fact that the Executive may lose entitlement
to benefits under these arrangements as a result;
|
|
|
(c)
|
The Executive is not contractually entitled to any benefit he receives which is not expressly referred
to in this agreement (whether payment of insurance scheme premiums or otherwise).
|
|
|
13.4
|
The Executive may be eligible to take the following types of paid leave, subject to any statutory eligibility
requirements or conditions and the Company's rules applicable to each type of leave in force from time to time:
|
|
|
(a)
|
statutory paternity leave;
|
|
|
(b)
|
family responsibility leave;
|
|
|
(c)
|
statutory adoption leave;
|
|
|
(d)
|
shared parental leave; and
|
|
|
(e)
|
parental bereavement leave.
|
In addition to general training the
Company provides during the Executive's induction and throughout his employment, the Company will specify certain mandatory training modules
from time to time. These cover matters that are essential for working for the Company, or for the Executive's role. The subject
matter will vary from time to time and the Company will update the Executive on the requirements. Details of the current compliance
training that is mandatory for all employees are available on the intranet. The Company acknowledges that the Executive may hold one or
more professional designations that require mandatory continuing professional development. The Executive shall be entitled to undertake
at least 40 hours of continuing professional development training at the expense of the Company.
|
|
15.1
|
The Executive will be entitled to 30 days' paid holiday in each Holiday Year in addition to the usual
public holidays in the Republic of South Africa. The first 28 days of holiday (including any public holidays) taken in any Holiday
Year will be the Executive's statutory holiday for the purpose of both the Working Time Regulations 1998 and Clause 15.6 below.
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|
|
15.2
|
If the Executive's employment commences or terminates part way through a Holiday Year, the entitlement
of the Executive during that Holiday Year shall be calculated on a pro rata basis rounded up to the nearest half day.
|
|
|
15.3
|
Holidays shall be taken at such time or times as shall be approved in advance by the Company. The Company
may require the Executive to take holiday on particular dates.
|
|
|
15.4
|
The Executive will be entitled to carry over up to 5 days' holiday at the end of each Holiday Year provided
that the Executive uses that holiday by 31 March in the following Holiday Year (all other holiday remaining at the end of the Holiday
Year will lapse). Any carried over holiday not used by that date will lapse.
|
|
|
15.5
|
The Executive shall have no entitlement to any payment in lieu of accrued but untaken holiday except on
termination of the Executive's employment. Subject to Clause 15.6, the amount of any payment in lieu will be 1/260th of the Executive’s
Basic Salary for each untaken day of holiday entitlement for the Holiday Year in which termination takes place.
|
|
|
(a)
|
the Company has terminated or would have been entitled to terminate the Executive's employment under Clause 21;
or
|
|
|
(b)
|
the Executive terminates in breach of this agreement,
|
any payment due under Clause 15.5
will be limited to the statutory entitlement of the Executive under the Working Time Regulations 1998 (and any holiday (including public
holidays) taken shall be deemed first to have been taken in satisfaction of that statutory entitlement as set out in Clause 15.1).
|
|
15.7
|
If on termination of the Executive's employment the Executive has taken in excess of his accrued holiday
entitlement, the Company shall be entitled to recover from the Executive, by way of deduction from any payments due to the Executive or
otherwise, one day's pay calculated at 1/260th of the Basic Salary of the Executive for each excess day.
|
|
|
15.8
|
If either party has served notice to terminate the Executive's employment, the Company may require the
Executive to take any accrued but unused holiday entitlement during the notice period. Any accrued but unused holiday entitlement shall
be deemed to be taken during any period of Garden Leave.
|
|
|
15.9
|
During any continuous period of absence due to Incapacity of one month or more the Executive shall not
accrue holiday under this contract and the entitlement of the Executive under Clause 15.1 for the Holiday Year(s) in which such absence takes
place shall be reduced pro rata save that it shall not fall below the entitlement of the Executive under the Working Time Regulations
1998.
|
|
|
16.1
|
If the Executive is absent from work due to Incapacity, the Executive shall notify the Company of the
reason for the absence as soon as possible on the first day of absence.
|
|
|
16.2
|
Immediately following the Executive's return to work after a period of absence due to Incapacity of seven
days or less the Executive must complete a self-certification form. For periods of absence of more than seven consecutive days the Executive
must produce a doctor's fit note verifying that the absence is due to Incapacity.
|
|
|
16.3
|
Subject to complying with the Company’s absence requirements above and to the remaining provisions
of this Clause 16, the Executive shall be entitled to receive full Basic Salary and contractual benefits during any periods of absence
due to Incapacity up to a maximum of 12 weeks in aggregate in any rolling 52-week period. Any such payments shall be inclusive of any
statutory sick pay. The Executive's qualifying days for statutory sick pay purposes are Monday to Friday.
|
|
|
16.4
|
The Executive agrees to consent to medical examinations (at the Company's expense) by a doctor or clinic
nominated by the Company should the Company so require. The Executive agrees that any report produced in connection with any such examination
may be disclosed to the Company and the Company may discuss the contents of the report with the relevant doctor.
|
|
|
16.5
|
If the Incapacity is or appears to be occasioned by actionable negligence, nuisance or breach of any statutory
duty on the part of a third party in respect of which damages are or may be recoverable, the Executive shall immediately notify the Company
of that fact and of any claim, settlement or judgment made or awarded in connection with it and provide all relevant particulars that
the Company may reasonably require. The Executive shall, if required by the Company, co-operate in any related legal proceedings and refund
to the Company that part of any damages or compensation recovered by the Executive relating to the loss of earnings for the period of
the Incapacity as the Company may reasonably determine less any costs borne by the Executive in connection with the recovery of such damages
or compensation, provided that the amount to be refunded to the Company shall not exceed the total amount paid to the Executive by the
Company in respect of the period of Incapacity.
|
|
|
16.6
|
The Company is entitled to terminate the Executive's employment under the terms of this agreement notwithstanding
that any such termination would or might cause the Executive to forfeit any entitlement to sick pay or other benefits.
|
|
|
16.7
|
The payment of the Executive's Basic Salary and other contractual benefits during absence due to Incapacity
is conditional on:
|
|
|
(a)
|
notice not having been served by either party;
|
|
|
(b)
|
the Executive not being the subject of a disciplinary investigation which could result in the Executive's
dismissal for gross misconduct; and
|
|
|
(c)
|
the Executive not being under a performance improvement plan.
|
|
|
17.1
|
Subject to Clause 17.2, the Executive shall not at any time during employment (including during any
period of notice) save for any existing arrangements as disclosed in Schedule 2 of this Agreement :
|
|
|
(a)
|
be directly or indirectly engaged, concerned or have any financial interest in any Capacity in any other
business, trade, profession or occupation (or the setting up of any business, trade, profession or occupation) other than that
of the Company and the Group, whether paid or unpaid; or
|
|
|
(b)
|
hold any directorship (or other office) of any company other than that of the Company and any Group Company,
whether paid or unpaid.
|
|
|
17.2
|
Notwithstanding Clause 17.1, the Executive:
|
|
|
(a)
|
save for any existing arrangements as disclosed in Schedule 2 of this Agreement, may hold an investment
by way of shares or other securities of not more than 5% of the total issued share capital of any company (whether or not it is listed
or dealt in on a recognised stock exchange) provided that such company does not carry on (or propose to carry on) any business similar
to or competitive with any business for the time being carried on by the Company or any Group Company;
|
|
|
(b)
|
has disclosed to the Company the external interests and activities listed in schedule 2 including the
Executive's Capacity with regard to each such interest and activity. The Company consents to the Executive continuing these activities
on the strict condition that it reserves the right to require (at any time) the Executive to cease any or all of such interests or activities
to the extent that, in the opinion of the Company, they interfere, may be likely to interfere or could be perceived to interfere with
the discharge of the Executive's obligations to the Company or Group or create or may be likely to create a conflict of interest or perceived
conflict of interest; and
|
|
|
(c)
|
may engage in external interests and activities provided that such companies do not carry on (or propose
to carry on) any business similar to or competitive with any business for the time being carried on by the Company or any Group Company
and such interests or activities do not interfere with the Executive's performance of his duties for the Company, and any board level
appointments shall require prior written approval of the governance committee of the Company, not to be unreasonably withheld, and subject
to being permitted by the rules of any applicable regulatory framework.
|
|
17.3
|
Without prejudice to the Executive's obligations above, the Executive must promptly disclose to the Company
any matter relating to the Executive's spouse, civil partner, partner, children, parents or other immediate family and/or any entity whose
affairs the Executive or any such person controls which may (or may be perceived to) interfere, conflict or compete with the proper performance
of the obligations of the Executive under this agreement.
|
|
18
|
Confidential information
|
|
18.1
|
Without prejudice to the Executive's common law duties, the Executive shall not (except in the proper
course of the Executive's duties, as authorised or required by law or as authorised in advance by the Company), either during the Executive's
employment or at any time after termination of employment (howsoever arising):
|
|
|
(a)
|
use any Confidential Information;
|
|
|
(b)
|
make or use any Copies; or
|
|
|
(c)
|
disclose any Confidential Information to any person whatsoever.
|
|
18.2
|
The Executive shall be responsible for protecting the confidentiality of the Confidential Information
and shall:
|
|
|
(a)
|
use best endeavours to prevent the use or communication of any Confidential Information by any person
(except in the proper course of that person’s duties, as required by law or as authorised in advance by the Company); and
|
|
|
(b)
|
inform the Company immediately upon becoming aware, or suspecting, that any unauthorised person knows,
has access to, has been provided with or has used any Confidential Information.
|
|
18.3
|
All Confidential Information and Copies are and shall remain at all times the property of the Company
and on termination of the Executive's employment (or at the request of the Company at any time during employment), the Executive shall:
|
|
|
(a)
|
hand over all Copies to such person as is nominated by the Company;
|
|
|
(b)
|
irretrievably delete any Confidential Information (including any Copies) stored on any magnetic or optical
disk or memory, including personal computer networks, personal email accounts or personal accounts on websites, and all matter derived
from such sources which is in the Executive's possession or under the Executive's control; and
|
|
|
(c)
|
on the request of the Company, provide a signed statement that the Executive has complied fully with all
obligations under this Clause 18.3 together with such evidence of compliance as the Company may reasonably request .
|
|
18.4
|
Clause 18 shall not apply to any Confidential Information which the Executive can demonstrate:
|
|
|
(a)
|
is already in the public domain at the time of disclosure;
|
|
|
(b)
|
is identifiable without requiring significant expenditure of time, skill or money; and
|
|
|
(c)
|
came into the public domain other than by reason of or as a direct or indirect result of the disclosure
by the Executive of any Confidential Information.
|
|
18.5
|
Nothing in this Clause 18 shall prevent the Executive from:
|
|
|
(a)
|
making a protected disclosure within the meaning of Part 4A of the Employment Rights Act 1996 (this
includes protected disclosures made about matters previously disclosed to another recipient);
|
|
|
(b)
|
making a disclosure to a regulator regarding any misconduct, wrongdoing or serious breach of a Regulatory
Requirement;
|
|
|
(c)
|
reporting a criminal offence to the police or a law enforcement agency; or
|
|
|
(d)
|
co-operating with the police or a law enforcement agency regarding any criminal investigation or prosecution
or with a regulator regarding any investigation by that regulator.
|
|
19.1
|
All Intellectual Property Rights made, discovered, originated, produced or developed by the Executive
during the course of employment with the Company (whether or not during working hours or using the premises or resources of the Company
or the Group) shall immediately be disclosed in writing to the Company by the Executive and shall automatically, on creation, vest absolutely
in the Company or such Group Company as the Company may nominate for that purpose to the fullest extent permitted by law.
|
|
|
(a)
|
acknowledges for the purposes of section 39 of the Patents Act 1977 that because of the nature of the
Executive's duties, and the particular responsibilities arising from those duties, the Executive has, and at all times during employment
will have, a special obligation to further the interests of the business of the Company and the Group;
|
|
|
(b)
|
undertakes to promptly, whenever requested by the Company, and in any event upon the termination of employment,
deliver up to the Company all such Intellectual Property Rights and all related correspondence, documents, papers and records and all
copies of any such Intellectual Property Rights in the Executive's possession or control;
|
|
|
(c)
|
undertakes to hold upon trust for the benefit of the Company (or its nominee) all Intellectual Property
Rights in respect of all Intellectual Property Rights made, originated or developed by the Executive during employment by the Company
(whether or not during working hours or using the premises or resources of the Company or the Group) to the extent that they do no vest
automatically in the Company, until the same are vested absolutely in the Company (or its nominee);
|
|
|
(d)
|
assigns absolutely with full title guarantee by way of present assignment of present and future rights,
all Intellectual Property Rights made, originated or developed by the Executive in the course of employment (whether or not during working
hours or using the premises or resources of the Company or the Group);
|
|
|
(e)
|
acknowledges that, other than as required by law, no further remuneration or compensation other than that
set out in this agreement is or may become due to the Executive in respect of the performance of the Executive's obligations under this
Clause 19;
|
|
|
(f)
|
undertakes, at the reasonable expense of the Company, to execute all such documents, make such applications,
give such assistance and do all such acts and things as may in the opinion of the Company be necessary or desirable to vest, register
or obtain any Intellectual Property in the name of the Company (or its nominee), and otherwise to protect and maintain any Intellectual
Property Rights made, originated or developed by the Executive and all related Intellectual Property Rights;
|
|
|
(g)
|
waives any moral rights (as provided for by Chapter IV of the Copyright Designs & Patents Act
1988 (the 1988 Act) or any similar provisions of law in any jurisdiction) in any Intellectual Property Rights created, made, originated,
developed or produced by the Executive in the course of employment (whether or not during working hours or using the premises or resources
of the Company or the Group) and agrees to grant all necessary consents and further agrees not to institute, support, maintain or permit
any action or claim to the effect that any treatment, exploitation or use of such Intellectual Property Rights infringes the Executive's
moral rights, including the right to be identified, the right of integrity and the right against false attribution provided for in the
1988 Act;
|
|
|
(h)
|
will not, except in the proper performance of the Executive's duties, disclose any Intellectual Property
Rights (or any related correspondence, documents, papers and records and copies) belonging to the Company (or its nominee) without the
prior written consent of the Company; and
|
|
|
(i)
|
will give all necessary assistance to the Company (or its nominee) to enable the Company (or its nominee)
to enforce its Intellectual Property Rights against third parties and/or to defend claims for infringement of third party Intellectual
Property Rights.
|
|
19.3
|
The Executive irrevocably appoints the Company to be the Executive's attorney in the Executive's name
and on the Executive's behalf to execute and/or sign all such instruments, and/or do all such things and generally to use the Executive's
name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this Clause 19. With respect
to any third party, a certificate in writing signed by any director of the Company or the company secretary of the Company that any instrument
or act falls within the authority conferred by this Clause 19.3 shall be conclusive evidence that such is the case.
|
|
20
|
Payment in lieu of notice
|
|
20.1
|
Notwithstanding any other provision of this agreement, the Company may, in its sole and absolute discretion,
terminate the Executive's employment under this agreement summarily by giving the Executive written notice that it is exercising its discretion
under this Clause 20.1. In such circumstances the Company shall pay the Executive his Basic Salary and contractual benefits in lieu
of the notice period referred to in Clause 2.2 or any unexpired part of it. Payment will be made subject to such deductions as are
required by law, including for tax and national insurance. The Company's right to make a payment under this Clause 20.1 does not
give the Executive any right to demand such payment.
|
|
20.2
|
The Executive shall not be entitled to any payment in lieu of notice if the Company would otherwise have
been entitled to terminate the Executive's employment without notice in accordance with Clause 21 and the Company shall be entitled
to recover from the Executive any payment in lieu of notice already made.
|
|
21
|
Termination without notice
|
|
21.1
|
The Company may terminate the Executive's employment with immediate effect without notice (and with no
liability to make any further payment to the Executive) if the Executive:
|
|
|
(a)
|
is disqualified from acting as a director;
|
|
|
(b)
|
commits, in the reasonable opinion of the Board, an act of gross misconduct;
|
|
|
(c)
|
commits, in the reasonable opinion of the Board, any serious or repeated breach or failure to observe
of any of the provisions of this agreement or the Policies and Procedures or the Regulatory Requirements or any anti-bribery and corruption
policies and the Executive has previously been given written notice of such and a reasonable opportunity to improve or comply as the case
may be;
|
|
|
(d)
|
refuses to comply with any reasonable and lawful direction of the Board;
|
|
|
(e)
|
is declared bankrupt or makes any arrangement with or for the benefit of his creditors or has a county
court administration order made against the Executive under the County Court Act 1984;
|
|
|
(f)
|
is convicted of any criminal offence (other than an offence under any road traffic legislation in the
United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed);
|
|
|
(g)
|
is guilty of fraud or dishonesty or acts in any manner which, in the reasonable opinion of the Board,
brings or is likely to bring the Executive, the Company or any Group Company into disrepute or is materially adverse to the interests
of the Company or any Group Company (in each case whether or not in the course of employment); or
|
|
|
(h)
|
ceases to hold any qualification, approval, registration or authorisation required for the proper performance
of the Executive's duties.
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21.2
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The rights of the Company under Clause 21.1 are without prejudice to any other rights that it may
have at law to terminate the Executive's employment or to accept any breach of this agreement by the Executive as having brought the agreement
to an end. Any delay by the Company in exercising any right to terminate shall not constitute a waiver of that right.
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21.3
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If the Executive's employment is terminated at any time by reason of any reconstruction or amalgamation
of the Company or any Group Company, whether by winding up or otherwise, and the Executive is offered employment with any concern or undertaking
involved in or resulting from the reconstruction or amalgamation on terms which (considered in their entirety) are no less favourable
to any material extent than the terms of this agreement, the Executive shall have no claim against the Company, any Group Company or the
undertaking arising out of or in connection with such termination.
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21.4
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This Clause 21.4 applies if the Executive subscribes for or is awarded shares in the Company or any
Group Company or participates in any share option, restricted share, restricted share unit, long term incentive, carried interest or co-invest,
or any other form of profit sharing, incentive, bonus or equity plan or arrangement (each an Incentive) or may do so. Upon termination
of the Executive's employment (whether lawful or unlawful), the Executive's rights (if any) in respect of each Incentive shall be solely
determined by the applicable rules or other documents governing each Incentive and the Executive hereby irrevocably waives any other
claims or rights in respect of the loss of any rights or benefits under or in respect of any Incentive granted or not yet granted to the
Executive (including any loss relating to the lapse of, or the Executive's ineligibility to exercise, any share options, the value of
any shares, the operation of any compulsory transfer provisions or the operation of any vesting criteria).
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22.1
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Following service of notice to terminate the Executive's employment by either party, or if the Executive
purports to terminate his employment in breach of contract and/or without serving the period of notice required by Clause 2.2, the
Company may in its absolute discretion place the Executive on garden leave for the whole or part of the Executive's notice period (Garden
Leave).
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22.2
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During any period of Garden Leave the Company:
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(a)
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shall be under no obligation to provide any work to the Executive and may revoke any powers he holds on
behalf of the Company or any Group Company;
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(b)
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may exclude the Executive from any premises of the Company or any Group Company;
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(c)
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may require the Executive not to contact or deal with (or attempt to contact or deal with) any officer,
employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser, investor or other business contact of the
Company or any Group Company;
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(d)
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may require the Executive to resign as a director of the Company or any Group Company;
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(e)
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may cease to provide the Executive with access to the Company and Group Company information systems;
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(f)
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may appoint another person(s) to perform the Executive's responsibilities jointly with the Executive
or in the Executive's place; and/or
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(g)
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may require the Executive to take any accrued holiday due to the Executive.
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22.3
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During any period of Garden Leave the Executive:
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(a)
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will continue to receive Basic Salary and all contractual benefits including the incentives in Clauses
11.1 and 11.2 in the usual way and subject to the terms of any benefit arrangement;
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(b)
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will remain an employee of the Company and bound by the terms of this agreement (including his fiduciary
duties and duties of good faith and fidelity); and
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(c)
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must ensure that the Board knows where the Executive will be and how the Executive can be contacted during
each working day (except during any periods taken as holiday in the usual way);
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22.4
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The Executive agrees that he shall have no claim against the Company in respect of any action set out
in this Clause 22.
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23
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Obligations upon termination
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23.1
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On termination of the Executive's employment (however arising) or, if the Company so requires, at any
time following the service of notice by either party or purported notice of termination by the Executive, the Executive shall:
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(a)
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resign immediately from any directorship held by him in or on behalf of the Company or any Group Company
and from any other offices he may hold as nominee or representative of the Company or any Group Company, save for any directorship held
by him in Bophelo Bioscience & Wellness Pty. Ltd ("Bophelo"), which shall continue subject to the articles of association
of Bophelo;
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(b)
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immediately deliver to the Company all property of the Company or any Group Company or any of its or their
respective customers, clients, suppliers, investors and other business contacts (including documents, books, materials, records, correspondence,
papers and information on whatever media and wherever located relating to the business or affairs of the Company or any Group Company
or their respective customers, clients, investors, suppliers and other business contacts), which is in his possession or under his control
and he/ shall not retain any Copies;
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(c)
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irretrievably delete any information relating to the business or affairs of the Company or any Group Company
stored on any magnetic or optical disk or memory, including personal computer networks, personal email accounts or personal accounts on
websites, and all matter derived from such sources which is in his possession or under his control;
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(d)
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deliver to the Company on request any computer or other device in his possession or control to allow the
Company to remove all Confidential Information and any software of the Company; and
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(e)
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on the request of the Company, provide a signed statement that he has complied fully with his obligations
under this Clause 23.1 together with such reasonable evidence of compliance as the Company may require.
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23.2
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The Executive hereby irrevocably appoints the Company to be his attorney to appoint any director of the
Company as his attorney to execute such instrument or do any such thing and generally to use his name for the purpose of giving effect
to and providing to the Company or its nominee the full benefit of Clause 23.1(a).
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23.3
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The obligations in Clause 23.1 shall not be affected by the fact that any document or device may
include the Executive's Personal Data. It shall be the Executive's responsibility to notify the Company of any Personal Data that may
exist so that the Company can make proper arrangements for its disposal.
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23.4
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The Executive will, on the Company's reasonable request, co-operate with and assist the Company or any
Group Company in any internal investigation, administrative, regulatory, quasi-judicial proceedings or any threatened or actual litigation
concerning it or them. The Company will only make such a request where the Executive has in his possession or knowledge any facts or other
matters which the Company or any Group Company reasonably considers is relevant to such process or legal proceedings. This assistance
may include giving statements/affidavits, meeting with the Company or any Group Company's legal and other professional advisers, attending
any legal hearing and giving evidence. The Company or relevant Group Company will pay the Executive's reasonable expenses and loss of
income incurred in providing such assistance provided that the Executive notifies the Company or relevant Group Company of the amount
of any expenses or anticipated loss of income in advance.
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24
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Post-termination restrictions
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24.1
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In order to protect the Confidential Information and business connections of the Company and each Group
Company to which he has access as a result of the Appointment , the Executive covenants with the Company (for itself and as trustee and
agent for each Group Company) that he shall not:
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24.1.1
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for 12 months after the Termination Date, solicit or endeavour to entice away from the Company or any
Group Company the business or custom of a Restricted Customer with a view to providing goods or services to that Restricted Customer in
competition with any Restricted Business;
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24.1.2
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for 12 months after the Termination Date in the course of any business concern which is in competition,
or intends to compete, with the Company or any Group Company, offer to employ or engage or otherwise endeavour to entice away from the
Company or any Group Company any Restricted Person who could damage the interests of the Company or any Group Company as a result of any
such employment, engagement or enticement;
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24.1.3
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for 12 months after the Termination Date in the course of any business concern which is in competition,
or which intends to compete, with any Restricted Business, employ or engage or otherwise facilitate the employment or engagement of any
Restricted Person who could damage the interests of the Company or any Group Company as a result of that employment or engagement, whether
or not such person would be in breach of contract as a result of such employment or engagement;
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24.1.4
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for six months after the Termination Date, be involved in any Capacity with any business concern which
is (or intends to be) in competition with any Restricted Business;
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24.1.5
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for 12 months after the Termination Date, be involved with the provision of goods or services to (or otherwise
have any business dealings with) any Restricted Customer or Prospective Customer in the course of any business concern which is in competition
with any Restricted Business;
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24.1.6
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for 12 months after the Termination Date damage (or attempt to do so) any relationship between the Company
or any Group Company and the Restricted Supplier; or
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24.1.7
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at any time after the Termination Date, represent himself as connected with the Company or any Group Company
in any capacity, other than as a former employee, director or shareholder, or use any registered names or trading names associated with
the Company or any Group Company.
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24.1.8
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at any time after the Termination Date, make any comments or statements of any nature that are derogatory
to or disparaging of, or have the effect of lowering the reputation of the Company or any Group Company or any of its or their directors,
officers, employees or agents; and/or take part in any conduct which may bring into disrepute the Company, any Group Company or any of
its or their directors, officers, employees or agents.
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24.2
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None of the restrictions in Clause 24.1 shall prevent the Executive from:
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24.2.1
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being engaged or concerned in any business concern insofar as the Executive's duties or work shall relate
solely to geographical areas where the business concern is not in competition with any Restricted Business; or
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24.2.2
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being engaged or concerned in any business concern, provided that the Executive's duties or work shall
relate solely to services or activities of a kind with which the Executive was not concerned to a material extent in the 12 months before
the Termination Date.
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24.3
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The restrictions imposed on the Executive by this Clause 24 apply to him acting:
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24.3.1
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directly or indirectly; and
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24.3.2
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on his own behalf or on behalf of, or in conjunction with, any firm, company or person.
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24.4
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Subject to Clause 24.12, the Executive agrees that the Board may review the Prospective Customer, Restricted
Business, Restricted Customer, Restricted Person and Restricted Supplier definitions and revise, delete and amend these (to include but
not be limited to adding new customers, persons and suppliers or deleting or revising named customers, persons and suppliers) from time
to time.
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24.5
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The periods for which the restrictions in Clause 24 apply shall be reduced by any period that the Executive
spends on Garden Leave immediately before the Termination Date.
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24.6
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If the Executive receives an offer to be involved in a business concern in any Capacity during the Appointment,
or before the expiry of the last of the covenants in this Clause 24, the Executive shall give the person making the offer a copy of this
Clause 24 and shall tell the Company the identity of that person as soon as possible after accepting the offer.
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24.7
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This Clause 24.7 applies if, at any time during the Executive's employment, two or more Restricted Persons
have left their employment, appointment or engagement with the Company and have subsequently performed work for a Competitor. Where this
clause applies, the Executive will not, at any time during the six months following the last date on which any of those Restricted Persons
were employed or engaged by the Company, be employed or engaged in any way by the Competitor if the Executive would perform work for or
on behalf of the Competitor that is competitive with the Restricted Business.
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24.8
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The Executive has had the opportunity to take legal advice on the restrictions in this Clause 24.
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24.9
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Each of the restrictions in this Clause 24 is intended to be separate and severable. If any of the restrictions
shall be held to be void but would be valid if part of their wording were deleted, such restriction shall apply with such deletion as
may be necessary to make it valid or effective.
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24.10
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If the Executive's employment is transferred to any firm, company, person or entity other than a Group
Company (the "New Employer") pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006, the Executive
will, if required, enter into an agreement with the New Employer containing post-termination restrictions corresponding to those restrictions
in this Clause 24, protecting the Confidential Information, trade secrets and business connections of the New Employer.
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24.11
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The Executive will, at the request and expense of the Company, enter into a separate agreement with any
Group Company in which he agrees to be bound by restrictions corresponding to those restrictions in this Clause 24 (or such of those restrictions
as may be appropriate) in relation to that Group Company.
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24.12
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No variation of this Clause 24 will be effective unless it is in writing and signed by the parties.
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24.13
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The Executive covenants with the Company (for itself and as trustee and agent for each Group Company)
that he shall not for 12 months after the Termination Date:
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24.13.1
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interfere or take such steps as may be likely to interfere with the continuance of investment or funding
to the Company (or the terms relating to such investment or funding) from any Investor or Lender; or
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24.13.2
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seek to damage the relationship between any Investor or Lender and the Company.
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25
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Disciplinary and grievance procedures
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25.1
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The Executive is subject to the disciplinary and grievance procedures of the Company, copies of which
are available on the Company's intranet. These procedures do not form part of this agreement or the terms and conditions of the Executive's
employment.
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25.2
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The Executive should refer:
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(a)
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any appeal the Executive wishes to make against a disciplinary sanction/decision to a member of the Board
(or such other person as the Company may specify from time to time); or
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(b)
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any grievance the Executive wishes to raise to a member of the Board (or such other person as the Company
may specify from time to time),
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in accordance with the Company's disciplinary
and grievance procedures.
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25.3
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The Company may suspend the Executive from any or all of his duties during any period in which the Company
is investigating any disciplinary matter involving the Executive or until the conclusion of any disciplinary procedure (including any
appeal). During any period of suspension:
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(a)
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subject to Clause 11.5, the Executive will continue to receive Basic Salary and all contractual benefits
in the usual way;
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(b)
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the Company may suspend the Executive's access to the Company's and Group's systems and internal communications;
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(c)
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the Company may require the Executive to return temporarily any Company or Group IT equipment and communication
devices (including any smartphones, tablets, laptops and hard drives);
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(d)
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the Executive shall remain an employee of the Company and bound by the terms of this agreement;
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(e)
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the Executive shall ensure that the Company knows where he will be and how he can be contacted during
each working day (except during any periods taken as holiday in the usual way);
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(f)
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the Company may exclude the Executive from his place of work or any other premises of the Company or any
Group Company; and
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(g)
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the Company may require the Executive not to contact or deal with (or attempt to contact or deal with)
any officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the
Company or any Group Company.
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26.1
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In the event that there is a Change of Control of the Company or the Cash Shell Company (other than as
part of the Listing, the fundraising on or around the date of Listing or an internal re-organisation) and, within 365 days of the Change
of Control, the Appointment is terminated by the Company (other than where the Company is entitled to terminate the Appointment without
notice or payment in lieu of notice in accordance with Clause 21.1) the Company shall, within one month of the date of the Termination
Date, pay or provide the Prescribed Sum to him as provided by this Clause.
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26.2
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The Prescribed Sum shall be an amount equal to one year's Basic Salary in accordance with Clause
8.1 as adjusted in accordance with Clause 26.3.
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26.3
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If the Company or the Cash Shell Company (as the case may be) terminates the Appointment by giving a period
of notice whether under Clause 2.2 or otherwise, or terminates the Appointment under Clause 20, the Prescribed Sum shall be reduced pro
rata by the number of complete months of service for which the Executive remains employed following notice being given to him or shall
be reduced by the amount paid to the Executive under Clause 20.
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26.4
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The payment or provision of the Prescribed Sum shall be conditional upon and in consideration of:
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(a)
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the Executive having complied with Clause 23; and
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(b)
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the Executive having complied with and continuing to comply with his obligations relating to confidentiality
and intellectual property in Clauses 18 and 19 respectively.
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26.5
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For the avoidance of doubt, the payment or provision of the Prescribed Sum shall not affect the Executive's
entitlement as at the Termination Date to any of the following:
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(a)
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any accrued but unpaid Basic Salary;
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(b)
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any payment in lieu of accrued but unused holiday; or
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(c)
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the reimbursement of his expenses, provided that all claims for reimbursement are submitted within four
weeks of the Termination Date.
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26.6
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To the extent that the Prescribed Sum is damages (which is not admitted), the parties agree that the terms
of this Clause 26 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the Appointment in
the circumstances described and does not constitute a penalty.
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27.1
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The Company will collect and process Personal Data in accordance with the data privacy notice which is
annexed to this agreement and which is also available on the Company intranet. The Executive shall sign and date the privacy notice and
return it to the Company within five working days of the date of this agreement.
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27.2
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The Executive shall comply with the Policies and Procedures in relation to privacy and data protection
when handling personal data in the course of employment including personal data relating to any employee, worker, contractor, customer,
client, supplier, agent or other contact of the Company or any Group Company.
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There is no collective agreement applicable
to the Company or to the Executive's employment with the Company.
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29.1
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A notice given to a party under this agreement shall be in writing in the English language and signed
by or on behalf of the party giving it. It shall be delivered by hand or sent to the party at the address given in this agreement or as
otherwise notified in writing to the other party.
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29.2
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Any such notice shall be deemed to have been received:
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(a)
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if delivered by hand, at the time the notice is left at the address or given to the addressee;
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(b)
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in the case of pre-paid first class UK post or other next working day delivery service, at 9.00 a.m. on
the second business day after posting or at the time recorded by the delivery service;
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(c)
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in the case of email, at the time of transmission.
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29.3
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A notice shall have effect from the earlier of its actual or deemed receipt by the addressee. For the
purpose of calculating deemed receipt:
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(a)
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all references to time are to local time in the place of deemed receipt; and
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(b)
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if deemed receipt would occur on a Saturday or Sunday or a public holiday when banks are not open for
business, deemed receipt is at 9.00 a.m. on the next business day.
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29.4
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This Clause does not apply to the service of any proceedings or other documents in any legal action.
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30.1
|
No variation of this agreement shall be effective unless it is in writing and signed by the parties (or
their authorised representatives).
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This agreement contains the entire and
only agreement between the parties, and both parties acknowledge that, on entering into this agreement, they have not relied on any written
or oral representation or undertaking other than as expressly stated in this agreement, and that this agreement supersedes any previous
contract or arrangement between the parties.
This agreement may be executed in any
number of counterparts, each of which, when executed, shall be an original, and all the counterparts together shall constitute one and
the same instrument.
Except as expressly provided elsewhere
in this agreement, no person other than the Executive and the Company or any Group Company shall have any rights under the Contracts (Rights
of Third Parties) Act 1999 to enforce any term of this agreement.
This agreement and any dispute or claim
arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed
by and construed in accordance with the law of England and Wales.
Each party irrevocably agrees that the
courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this
agreement or its subject matter or formation (including non-contractual disputes or claims).
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EXECUTED as a DEED by Trevor Scott
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at
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on 2022
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before the following witness:
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Witness Signature:
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Full name:
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Address:
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EXECUTED as a DEED for and on behalf of
Akanda Corp.
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at
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Director/Authorised Signatory
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on 2022
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before the following witness:
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Witness Signature:
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Full name:
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Address:
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EXECUTED as a DEED for and on behalf of
Canmart Ltd
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at
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Director/Authorised Signatory
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on 2022
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before the following witness:
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Witness Signature:
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Full name:
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Address:
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Schedule 1
Executive Equity Rights
Not applicable
Schedule 2
Outside Interests
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1.
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Director and shareholder of Bearingway Limited.
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2.
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Director and shareholder of Mokwele Incorporated.
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3.
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Advisor to Stallion Group.
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Exhibit 14.1
CODE OF BUSINESS
CONDUCT
AND
ETHICS
(Adopted as of November 14, 2021)
T A B L E O F C O N T E N T S
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1 Introduction
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2
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1.1 Purpose
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2
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1.2 Responsibilities And Behaviors
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2
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1.3 Supervisory Responsibility
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2
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1.4 Seeking Help And Information
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3
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1.5 Reporting Violations Or Suspected Violations
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3
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1.6 Investigating Reports
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3
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1.7 Policy Against Retaliation
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3
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1.8 Waivers Of Code
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4
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1.9 Monitoring Compliance And Enforcement In General
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4
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2 CONFLICTS OF INTEREST
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4
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2.1 Identifying Potential Conflicts Of Interest
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4
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2.2 Disclosing Conflicts Of Interest
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6
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2.3 Resolving Conflicts Of Interest
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6
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3 BUSINESS ENTERTAINMENT, MEALS, AND GIFTS
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6
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4 CONFIDENTIAL INFORMATION
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7
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5 COMPETITION AND FAIR DEALING
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7
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5.1 Relationships With Customers
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8
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5.2 Relationships With Suppliers
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8
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5.3 Relationships With Competitors
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8
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6 PROTECTION AND USE OF COMPANY ASSETS
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8
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7 COMPANY RECORDS
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9
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8 POLITICAL CONTRIBUTIONS AND ACTIVITIES
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9
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9 COMPLIANCE WITH LAWS
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10
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9.1 Anti - Bribery
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10
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9.2 Export Control
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11
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9.3 Antitrust
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11
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9.4 Insider Trading
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12
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10 ACCURACY OF FINANCIAL REPORTS
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13
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11 PUBLIC COMMUNICATIONS
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13
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12 CONCLUSION
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14
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1
Introduction
1.1
Purpose
This Code of Business Conduct and Ethics (“Code”)
of Akanda Corp. (the “Company”) contains general guidelines for conducting the business of the Company consistent with
the highest standards of business ethics. In many cases, the Company has adopted specific written policies to implement various provisions
of this Code. To the extent this Code or those policies require a higher standard than required by commercial practice or applicable laws,
we adhere to the higher standard.
This Code applies to all of our directors, officers
and employees. Except where otherwise noted, all persons covered by this Code are referred to as “Company employees” or simply
“employees.”
1.2
Responsibilities And Behaviors
The Company is committed to the highest ethical
standards in the conduct of its business and therefore the integrity of each employee, officer, and director is of paramount importance.
All employees, officers, and directors are accountable for their actions and must conduct themselves with the utmost integrity. As part
of conducting business ethically, employees, officers, and directors must conduct business in strict observance of all applicable federal,
state, and local laws and regulations as set forth by those bodies that regulate the Company’s business, and those that regulate
public companies, such as the Securities and Exchange Commission. Persons who act unethically or violate this Code and supplementing written
policies may be subject to disciplinary action, up to and including termination or removal, and, if applicable, referral to the appropriate
authorities for prosecution.
As a representative of the Company, your responsibility
is to act ethically and with the highest level of integrity. Employees who violate the law or this Code may expose themselves to substantial
civil damages, criminal fines and prison. The Company may also face substantial fines and penalties, and many incur damage to its reputation
and standing in the community. If you are unclear about the appropriate response to a particular situation, it is your responsibility
to use all the resources available to you to seek guidance. One point should be clear: each employee, officer and director are individually
responsible for his or her own actions.
1.3
Supervisory Responsibility
It is incumbent upon supervisors to take every
opportunity to model behaviors consistent with our core values and this Code. If you are a supervisor, you are expected to demonstrate
the highest standards of ethical conduct by encouraging open and honest discussions of the ethical, legal, and regulatory implications
of business decisions, and by creating an open and supportive environment where your employees are comfortable asking questions, raising
concerns and reporting misconduct. You should also ensure that everyone under your supervision clearly understands the legal and ethical
expectations of the Company, including all aspects of the Code, policies and applicable laws. You must also work with the Human Resources
department when you become aware of any suspected violations of this Code.
1.4
Seeking Help And Information
This Code is not intended to be a comprehensive
rulebook and cannot address every situation that you may face. If you feel uncomfortable about a situation or have any doubts about whether
it is consistent with the Company’s ethical standards, seek help. We encourage you to contact your supervisor for help first. If
your supervisor cannot answer your question or if you do not feel comfortable contacting your supervisor, contact the Chief Financial
Officer or send an inquiry through the Company website.
1.5
Reporting Violations Or Suspected Violations
The Company is committed to establishing and maintaining
an effective process for employees, officers, and directors to report, and for the Company to respond to and correct, any type of misconduct.
All employees, officers, and directors have a continuing responsibility and duty to report any known or suspected violation of this Code,
including any violation of the laws, rules, regulations or policies that apply to the Company. If you know of or suspect a violation of
this Code, immediately report the conduct to your supervisor, or the Company’s Chief Financial Officer. Your supervisor or the Chief
Financial Officer will contact the proper legal counsel, who will work with you and your supervisor to investigate your concern. If you
do not feel comfortable reporting the conduct to your supervisor or you do not get a satisfactory response, you may contact the proper
legal counsel directly.
While providing your identity may assist the Company
in addressing your questions or concerns, please note that if you choose, you may remain anonymous and will not be required to reveal
your identity.
1.6
Investigating Reports
All reports of known or suspected violations will
be handled sensitively and with discretion. Your supervisor, the Chief Financial Officer and the Company will protect your confidentiality
to the extent possible, consistent with law and the Company’s need to investigate your concern. During an investigation of suspected
violations, you are required to cooperate fully in the investigation, and must take certain steps to do so. You must be honest and forthcoming
at all times during an investigation, must provide investigators with full, accurate, timely, and truthful information, and must not interfere
or obstruct the investigation. You may not discuss an investigation with others unless authorized to do so. Failure to take any of these
steps during an investigation is a violation of this Code.
Any person accused of violating this Code will
be given an opportunity to present his or her version of the events prior to any determination that a violation has occurred, or any Company
decision regarding the appropriate discipline.
1.7
Policy Against Retaliation
The Company prohibits retaliation against an
employee who, in good faith, seeks help or reports known or suspected violations. If you report an actual or suspected violation by
another, you will not be subject to discipline or retaliation of any kind for making a report in good faith. Any reprisal or
retaliation against an employee because the employee, in good faith, sought help or filed a report will be subject to disciplinary
action, including potential termination of employment.
1.8
Waivers Of Code
Only the entire Board of Directors may waive provisions
of this Code for employees (unless legally required). Any waiver of this Code for our directors, executive officers or principal financial
officers may be made only by our Board of Directors or an appropriate committee of our Board of Directors and will be disclosed to the
public as required by law or the rules of The Nasdaq Capital Market.
1.9
Monitoring Compliance And Enforcement In General
The Company’s management, under the supervision
of its Board of Directors or a committee thereof or, in the case of accounting, internal accounting controls, auditing or securities law
matters, the Audit Committee, shall take reasonable steps from time to time to (i) monitor compliance with the Code, and (ii) when appropriate,
impose and enforce appropriate disciplinary measures for violations of the Code.
Disciplinary measures for violations of the Code
will be determined in the Company’s sole discretion and may include, but are not limited to, counseling, oral or written reprimands,
warnings, probation or suspension with or without pay, demotions, reductions in salary, termination of employment or service, and restitution.
The Company’s management shall periodically
report to the Board of Directors or a committee thereof on these compliance efforts including, without limitation, periodic reporting
of alleged violations of the Code and the actions taken with respect to any such violation.
2
CONFLICTS OF INTEREST
2.1
Identifying Potential Conflicts Of Interest
The Company’s reputation may be impaired
by conflicting relationships or activities. A conflict of interest can occur when an employee’s private interest interferes, or
reasonably appears to interfere, with the interests of the Company. You must conduct your outside associations and personal business,
financial, and other relationships in a manner that avoids any conflict of interest, or appearance of a conflict of interest, between
yourself and the Company. You must avoid any private interest that influences your ability to act in the interests of the Company or that
makes it difficult to perform your work objectively and effectively. The term “outside association” includes any affiliation,
association, interest, relationship, or employment that you have with anyone other than the Company. Further, you must not give the appearance
of Company representation in any of your personal affairs.
It is impractical to conceive and set forth rules
that cover every situation in which a conflict of interest may arise. The following is not an exhaustive list of problem areas, but rather
a guide in applying the Company’s basic conflict of interest policy to any situation.
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Employment Relationships. A conflict of interest may arise when you or a member of your immediate
family holds a position as an employee, officer or director of an entity with which the Company has or is likely to have a business relationship,
or with which the Company competes or is likely to compete. No employee or officer should accept employment with any entity that is a
customer, supplier or competitor of the Company. You must also report when a family member has a relationship with an entity with which
the Company has or is likely to have a business relationship or with which the Company competes or is likely to compete.
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Improper Personal Benefits. You may not obtain any improper personal benefits or favors because
of your position with the Company.
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Financial Interests. You should not have a financial interest (ownership or otherwise) in any company
that is a customer, supplier or competitor of the Company, unless pre-approved by the proper legal counsel. Generally, a significant financial
interest will not be permitted except in exceptional circumstances. Significant financial interest means (i) ownership of greater than
1% of the equity of a customer, supplier or competitor or (ii) an investment in a customer, supplier or competitor that represents more
than 5% of the total assets of the employee making the investment.
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Corporate Opportunities. You are prohibited from taking advantage of an opportunity to engage in
a business activity in which the Company has an actual interest or a reasonable expectation of an interest.
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Use of Company Assets. You are prohibited from using Company assets to pursue personal interests.
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Loans or Other Financial Transactions. You should not obtain loans or guarantees of personal obligations
from, or enter into any other personal financial transaction with, the Company or any company that is a customer, supplier or competitor
of the Company. This guideline does not prohibit arms-length transactions with banks, brokerage firms or other financial institutions.
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Service on Boards and Committees. You should not serve on a board of directors or trustees or on
a committee of any entity (whether profit or not-for-profit) whose interests reasonably would be expected to conflict with those of the
Company.
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Actions of Family Members. The actions of family members outside the workplace may also give rise
to the conflicts of interest described above because they may influence an employee’s objectivity in making decisions on behalf
of the Company. For purposes of this Code, “family members” include your spouse or life-partner, parents, children and siblings,
whether by blood, marriage or adoption, and anyone residing in your home.
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2.2
Disclosing Conflicts Of Interest
While it is incumbent on each employee to act
in a manner at all times that is in the best interests of the Company, and avoid conflicts of interest, the Company recognizes that from
time to time, situations may occur in which a conflict or appearance of a conflict of interest is unavoidable. The Company requires that
employees disclose any situations that reasonably would be expected to give rise to a conflict of interest. If you suspect that you have
a conflict of interest, or something that others could reasonably perceive as a conflict of interest, you must report it to the Company.
If you are an employee, you must report it to the Vice President of your department, the Chief Financial Officer, or the proper legal
counsel. If you are an officer or director, you must report the matter to the proper legal counsel or to the Audit Committee. If you are
an employee, your Vice President or the Chief Financial Officer will coordinate with the proper legal counsel to review the matter and
resolve it as necessary.
2.3
Resolving Conflicts Of Interest
When a conflict or appearance of a conflict of
interest occurs, or is reasonably likely to occur, the Company is committed to resolving the situation in a way that protects the best
interests of the Company. Such resolution can take many forms, such as requiring the employee to recuse himself or herself from participating
in a particular matter, reassigning duties, or additional measures designed to ensure that the best interests of the Company are not compromised
by the conflict of interest. In all cases, conflicts of interest must be handled in an ethical manner; meaning they must be fully disclosed
and considered prior to being resolved. The Chief Financial Officer or the proper legal counsel, as applicable, will handle all questions
of conflicts of interest, including coordinating with the Audit Committee as necessary. Conflicts may be permitted only after full disclosure
has been made, the Company (or the Audit Committee, as appropriate) has given prior written approval, and the employee has agreed to adhere
to any safeguards put into place to ensure that the best interests of the Company are fully protected in the situation in question. Conflicts
of interest resulting from a violation of this Code may also be subject to discipline.
3
BUSINESS ENTERTAINMENT, MEALS, AND GIFTS
The Company recognizes that occasional
exchanges of business courtesies between vendors, suppliers, and our employees, such as entertainment, meals, or gifts, can be
helpful in building and maintaining business relationships. However, you should exercise extreme caution when accepting offers of
entertainment, meals or gifts, as regular or excessive entertainment, meals or gifts can easily create a conflict or appearance of a
conflict of interest, and irreparably damage your reputation and the reputation of the Company. Generally, entertainment and gifts
must have a clear business purpose and should benefit the Company by building trust and goodwill in the business relationship.
Participating in entertainment such as meals, sports events, golf outings, and celebration functions, etc. with our business
partners is acceptable provided the entertainment with the same partner is infrequent, in good taste, in moderation, and not
extravagant. Similarly, gifts should be of only nominal value (generally less than $100), infrequent, in good taste, in moderation,
and not extravagant. Efforts should also be made so that even when a clear business purpose has been established, the costs for the
entertainment or meals are shared, or reciprocated when appropriate and possible. In no event should you ever solicit offers of
entertainment, meals or gifts, and similarly, you must never accept entertainment, meals or gifts if there is no clear business
purpose, or if such acceptance would create or appear to create a conflict of interest.
Attending supplier sponsored conferences, seminars,
and entertainment events where air travel, hotel, or other accommodations are provided, creates more serious concerns. Your participation
in events where the sponsor provides both business and entertainment activities are acceptable when your participation is important to
the business of the Company. You should not attend these events if it does not serve a significant business purpose for the Company or
could cause, or appear to cause, you to favor that supplier over others. If you are invited by suppliers to attend conferences, seminars,
or entertainment events where the supplier pays for air travel or other accommodations, you must obtain prior approval from an appropriate
senior executive.
Likewise, when interacting with customers and
vendors, you are expected to adhere to the policies and procedures established by those entities concerning meals, entertainment and gifts.
If you receive an offer for entertainment or meals
that do not accord with these standards, you should politely decline. Similarly, gifts that do not accord with these standards should
be returned, with an explanation that the Company’s standards do not permit the employee to retain the gift. The Company, as well
as the employee’s supervisor, may also put additional limits and policies in place with respect to entertainment, meals and gifts,
including appropriate documentation and notice and approval requirements.
4
CONFIDENTIAL INFORMATION
Employees have access to a variety of confidential
information as a result of their relationship with the Company. Confidential information includes but is not limited to all non-public
information of the Company, or its customers or suppliers, and personally identifiable information of employees, or persons associated
with the Company’s business partners. You must safeguard all confidential information of the Company or third parties with which
the Company conducts business, except when disclosure is authorized or legally mandated. Your obligation to protect confidential information
continues after you leave the Company. Unauthorized disclosure of confidential information could cause competitive harm to the Company
or its business partners and could result in legal liability to you and the Company.
Any questions or concerns regarding whether disclosure
of Company information is legally mandated should be promptly referred to the Chief Executive Office of Chief Financial Officer.
5
COMPETITION AND FAIR DEALING
All employees should endeavor to deal fairly with
fellow employees and with the Company’s customers, suppliers and competitors. Employees should not take unfair advantage of anyone
through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.
5.1
Relationships With Customers
Our business success depends upon our ability
to foster lasting customer relationships. The Company is committed to dealing with customers fairly, honestly, and with integrity. Specifically,
you should keep the following guidelines in mind when dealing with customers:
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Information we supply to customers should be accurate and complete to the best of our knowledge. Employees
should not deliberately misrepresent information to customers.
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Employees should not refuse to sell the Company’s products or services simply because a customer
is buying products or services from another supplier.
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Customer entertainment should not exceed reasonable and customary business practice.
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Employees should not provide entertainment or
other benefits that could be viewed as an inducement to, or a reward for, customer purchase decisions.
5.2
Relationships With Suppliers
The Company deals fairly and honestly with its
suppliers. This means that our relationships with suppliers are based on price, quality, service and reputation, among other factors.
Employees dealing with suppliers should carefully guard their objectivity. Specifically, you should not accept or solicit any personal
benefit from a supplier or potential supplier that might compromise, or appear to compromise, your objective assessment of the supplier’s
products and prices.
5.3
Relationships With Competitors
The Company is committed to free and open competition
in the marketplace. You should avoid actions that would be contrary to laws governing competitive practices in the marketplace, including
federal and state antitrust laws. Such actions include misappropriation and/or misuse of a competitor’s confidential information
or making false statements about the competitor’s business and business practices. For a further discussion of appropriate and inappropriate
business conduct with competitors, see “Compliance with Laws: Antitrust” below.
6
PROTECTION AND USE OF COMPANY ASSETS
Employees should protect the Company’s assets
and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Company’s
profitability. The use of Company funds or assets for any unlawful or improper purpose is prohibited.
To ensure the protection and proper use of the
Company’s assets, you should:
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Exercise reasonable care to prevent theft, damage or misuse of Company property.
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Report the actual or suspected theft, damage or misuse of Company property to a supervisor.
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Use the Company’s telephone system, other electronic communication services, written materials and
other property for business-related purposes.
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Safeguard all electronic programs, data, communications and written materials from inadvertent access
by others.
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Use Company property only for legitimate business purposes, as authorized in connection with your job
responsibilities.
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You should also be aware that Company property
includes all data and communications transmitted or received to or by, or contained in, the Company’s electronic or telephonic systems.
Company property also includes all written communications. Employees and other users of this property should have no expectation of privacy
with respect to these communications and data. To the extent permitted by law, the Company has the ability, and reserves the right, to
monitor all electronic and telephonic communication. These communications may also be subject to disclosure to law enforcement or government
officials.
7
COMPANY RECORDS
Accurate and reliable records are crucial to our
business. Our records are the basis of our earnings statements, financial reports and other disclosures to the public and guide our business
decision-making and strategic planning. Company records include booking information, payroll, timecards, travel and expense reports, e-mails,
accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary
course of our business.
All Company records must be complete, accurate
and reliable in all material respects. Undisclosed or unrecorded funds, payments or receipts are inconsistent with our business practices
and are prohibited. You are also responsible for understanding and complying with record keeping policies as established by the Company
from time to time. Ask your supervisor if you have any questions.
8
POLITICAL CONTRIBUTIONS AND ACTIVITIES
The Company encourages its employees to participate
in the political process as individuals and on their own time. However, federal and state contribution and lobbying laws severely limit
the contributions the Company can make to political parties or candidates. It is Company policy that Company funds or assets are not be
used to make a political contribution to any political party or candidate, unless prior approval has been given by the proper legal counsel.
The following guidelines are intended to ensure
that any political activity you pursue complies with this policy:
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Contribution of Funds. You may contribute your personal funds to political parties or candidates.
The Company will not reimburse you for personal political contributions.
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Volunteer Activities. You may participate in volunteer political activities during non-work time.
You may not participate in political activities during work time.
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Use of Company Facilities. The Company’s facilities should not be used for political activities
(including fundraisers or other activities related to running for office). The Company may make its facilities available for limited political
functions, including speeches by government officials and political candidates, with the approval of the proper legal counsel.
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Use of Company Name. When you participate in political affairs, you should be careful to make it
clear that your views and actions are your own, and not made on behalf of the Company. For instance, Company letterhead should not be
used to send out personal letters in connection with political activities.
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These guidelines are intended to ensure that any
political activity you pursue is done voluntarily and on your own resources and time. Please contact the Chief Financial Officer if you
have any questions about this policy.
9
COMPLIANCE WITH LAWS
Each employee has an obligation to comply with
all laws, rules and regulations applicable to the Company. These include, without limitation, laws covering bribery and kickbacks, copyrights,
trademarks and trade secrets, information privacy, insider trading, illegal political contributions, antitrust prohibitions, foreign corrupt
practices, offering or receiving gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety,
false or misleading financial information or misuse of corporate assets. You are expected to understand and comply with all laws, rules
and regulations that apply to your job position. If any doubt exists about whether a course of action is lawful, you should seek advice
from your supervisor or the Chief Financial Officer, which will contact the proper legal counsel, if necessary.
9.1
Anti - Bribery
The Company’s anti-bribery prohibition is
simple: No employee, officer or director may offer a bribe nor receive a bribe, under any circumstances. The Company maintains an Anti-Bribery
Policy, which contains other prohibitions and requirements, for example: reporting of red flag events, restricting hiring of foreign agents
and reporting of any violations of the Company’s Anti-Bribery Policy.
If there are any questions regarding the Company’s
Anti-Bribery Policy, you should contact the Chief Financial Officer.
9.2
Export Control
Various government agencies maintain lists that
identify individuals or entities barred or restricted from entering into certain types of transactions. The Company must ensure that the
Company does not engage in a transaction with a barred entity or person. All employees have an obligation to notify the Company’s
Chief Financial Officer if any person with whom they are engaging on behalf of the Company are identified on any of these lists. If in
doubt, contact the legal department or Chief Financial Officer for more information on screening to ensure compliance.
Similarly, various countries are subject to comprehensive
Canadian economic sanctions and trade embargoes, and the Company is prohibited from engaging in transactions that result in any goods,
technology or monies being diverted to any customer or end user in such countries. From time to time Canada also has limited sanctions
pertaining to other countries (e.g. Russia, Syria and Libya), so it is important to check if any party to a proposed Company transaction
is from a country for which Canada has imposed complete embargoes or partial sanctions. When in doubt, discuss any potential transaction
with the Legal department.
9.3
Antitrust
Antitrust laws of Canada and other countries are
designed to protect consumers and competitors against unfair business practices and to promote and preserve competition. Our policy is
to compete vigorously and ethically while complying with all antitrust, monopoly, competition or cartel laws in all countries, states
or localities in which the Company conducts business.
In general, U.S. antitrust laws forbid agreements
or actions “in restraint of trade.” All employees should be familiar with the general principles of the U.S. antitrust laws.
The following is a summary of actions that are violations of U.S. antitrust laws:
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Price Fixing. The Company may not agree with its competitors to raise, lower or stabilize prices
or any element of price, including discounts and credit terms.
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Limitation of Supply. The Company may not agree with its competitors to limit its production or
restrict the supply of its services.
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Allocation of Business. The Company may not agree with its competitors to divide or allocate markets,
territories or customers.
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Boycott. The Company may not agree with its competitors to refuse to sell or purchase products
from third parties. In addition, the Company may not prevent a customer from purchasing or using non-Company products or services.
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Tying. The Company may not require a customer to purchase a product that it does not want as a
condition to the sale of a different product that the customer does wish to purchase.
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Employees should exercise caution in
meetings with competitors. Any meeting with a competitor may give rise to the appearance of impropriety. As a result, if you are
required to meet with a competitor for any reason, you should obtain the prior approval of the Chief Executive Officer, who will
contact the proper legal counsel, if necessary. You should try to meet with competitors in a closely monitored and controlled
environment for a limited period of time. The contents of your meeting should be fully documented. Specifically, you should avoid
any communications with a competitor regarding:
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Allocation of sales territories;
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Profits and profit margins;
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Supplier’s terms and conditions;
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Product or service offerings;
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Terms and conditions of sale;
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Facilities or capabilities;
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Bids for a particular contract or program;
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Selection, retention or quality of customers; or
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Distribution methods or channels.
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Employees should also be cautious when attending
meetings of professional organizations and trade associations at which competitors are present. Attending meetings of professional organizations
and trade associations is both legal and proper, if such meetings have a legitimate business purpose. At such meetings, you should not
discuss pricing policy or other competitive terms, plans for new or expanded facilities or any other proprietary or competitively sensitive
information.
Violations of antitrust laws carry severe consequences
and may expose the Company and employees to substantial civil damages, criminal fines and, in the case of individuals, prison terms. Whenever
any doubt exists as to the legality of a particular action or arrangement, it is your responsibility to contact the Chief Executive Officer
or Chief Financial Officer, who will contact the proper legal counsel promptly for assistance, approval and review.
9.4
Insider Trading
The laws against insider trading are specific
and complex. The Company also maintains extensive policies concerning insider trading designed to help the Company and an employee comply
with the laws on insider trading. Employees are responsible for reading and complying with these policies. As a guideline, employees are
prohibited from trading in the stock or other securities of the Company while in possession of material, nonpublic information about the
Company. In addition, Company employees are prohibited from recommending, “tipping” or suggesting that anyone else buy or
sell stock or other securities of the Company on the basis of material, nonpublic information. Company employees who obtain material nonpublic
information about another company in the course of their employment are prohibited from trading in the stock or securities of the other
company while in possession of such information or “tipping” others to trade on the basis of such information. Violation of
insider trading laws can result in severe fines and criminal penalties, as well as disciplinary action by the Company, up to and including
termination of employment.
Information is “non-public” if it
has not been made generally available to the public by means of a press release or other means of widespread distribution. Information
is “material” if a reasonable investor would consider it important in a decision to buy, hold or sell stock or other securities.
As a rule of thumb, any information that would affect the value of stock or other securities should be considered material. Examples of
information that is generally considered “material” include:
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Financial results or forecasts, or any information that indicates a company’s financial results
may exceed or fall short of forecasts or expectations;
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Important new products or services;
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Pending or contemplated acquisitions or dispositions, including mergers, tender offers or joint venture
proposals;
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Possible management changes or changes of control;
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Pending or contemplated public or private sales of debt or equity securities;
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Acquisition or loss of a significant customer or contract;
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Significant write-offs;
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Initiation or settlement of significant litigation; and
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Changes in the Company’s auditors or a notification from its auditors that the Company may no longer
rely on the auditor’s report.
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Any questions about information you may possess
or about any dealings you have had in the Company’s securities should be promptly brought to the attention of the Chief Financial
Officer.
10
ACCURACY OF FINANCIAL REPORTS
As a public company we are subject to various
securities laws, regulations and reporting obligations. Both U.S. federal law and our policies require the disclosure of accurate and
complete information regarding the Company’s business, financial condition and results of operations. Inaccurate, incomplete or
untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.
Employees working in financial, public relations
and legal roles have a special responsibility to ensure that all of our financial disclosures are full, fair, accurate, timely and understandable.
If you work in such a capacity, you are expected to understand and strictly comply with generally accepted accounting principles and all
standards, laws and regulations for accounting and financial reporting of transactions, estimates and forecasts.
11
PUBLIC COMMUNICATIONS
The Company places a high value on its
credibility and reputation in the community. What is written or said about the Company in the news media and investment community
directly impacts our reputation, positively or negatively. Our policy is to provide timely, accurate and complete information in
response to public requests (media, analysts, etc.), consistent with our obligations to maintain the confidentiality of competitive
and proprietary information and to prevent selective disclosure of market-sensitive financial data. In addition, the Company is
required to periodically make public certain information about itself, and file regular reports concerning its financial and
operational performance. The Company also from time to time may choose to issue information of interest to its shareholders or the
general public. The Company is committed to ensuring that its communications are truthful, meaningful, consistent, and in compliance
with all laws.
To ensure compliance with its standards and its
legal obligations, the Company limits the persons who may speak on behalf of the Company and has extensive procedures in place to review
and approve all public communications. You should direct all news media or other public requests for information regarding the Company
to the Company’s media relations personnel. The media relations personnel will work with you and the appropriate Company departments
to evaluate and coordinate a response to the request. Only persons designated by the Company to speak on its behalf are authorized to
disclose information about the Company. Similarly, even when designated as authorized to speak for the Company, an employee should never
disseminate any information that has not been pre-approved for release.
Company employees who regularly interact with
the media, the securities market, investors or the general public also have a special responsibility to understand and comply with specific
laws regarding disclosure, including but not limited to Regulation Fair Disclosure. Contact the Chief Financial Officer if you have any
questions about the scope or application of the laws applicable to your job responsibilities, including Regulation FD.
12
CONCLUSION
This Code of Business Conduct and Ethics contains
general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If you are faced
with making a challenging decision regarding a particular situation, you are not alone. There are many resources available to help resolve
ethical questions or concerns. If you have any questions, you may contact:
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Your immediate supervisor;
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Other supervisors or management personnel;
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The Human Resources department;
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Chief Financial Officer
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We expect all Company employees to adhere to these
standards.
CERTIFICATION
The undersigned hereby acknowledges
receipt of Akanda Corp.’s Code of Business Conduct and Ethics (the “Code”), and certifies that the undersigned
has read, understands and will comply with the Code.
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Date:___________________, 20___
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Signature
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Print Name
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Title
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One signed copy of this certificate should be
sent to:
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Akanda Corp.
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via email: trevor@akandacorp.com
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Exhibit
14.2
WHISTLEBLOWER
POLICY
PROCEDURES FOR RECEIPT OF COMPLAINTS AND SUBMISSIONS
RELATING TO ILLEGAL OR UNETHICAL CONDUCT
(Adopted as of 14 November 2021)
INTRODUCTION
Akanda Corp. (the “Company”)
expects directors, officers, employees and key consultants (being, those who are engaged in an employee-like capacity) (collectively,
“Personnel”) of the Company to take all responsible steps to prevent violations of its Code of Business Conduct and
Ethics (the “Code”), to identify and raise potential issues before they lead to problems, and to seek additional guidance
when necessary.
These Procedures are designed to provide
an atmosphere of open communication for compliance issues and to ensure that Personnel acting in good faith have the means to report actual
or potential violations and to reassure Personnel that they should be able to raise genuine concerns without fear of reprisals, even if
they turn out to be mistaken.
REPORTING RESPONSIBILITY
If any Personnel observe or become aware
of an actual or potential violation of the Code or of any applicable law or regulation (including securities laws and regulations), whether
committed by Personnel or by others associated with the Company (for example, external parties with whom the Company has contracted),
it is his/her responsibility to promptly report the circumstances as outlined herein and to cooperate with any investigation by the Company.
It is also the responsibility of Personnel
who have concerns regarding questionable accounting, internal financial controls or auditing matters to report such concerns in accordance
with the procedures outlined herein.
Examples of issues to be reported are
set out in Schedule “A” to these Procedures.
NO RETALIATION AND ACTING IN GOOD FAITH
The Company prohibits Personnel from
retaliating or taking adverse action against anyone for raising suspected conduct violations or helping to resolve a conduct concern.
Any individual who has been found to have engaged in retaliation against any of the Company’s Personnel for raising, in good faith,
a conduct concern or for participating in the investigation of such a concern may be subject to discipline, up to and including termination
of employment or other business relationship. If any individual believes that he or she has been subjected to such retaliation, that person
is encouraged to report the situation as soon as possible to one of the people identified in the “Reporting Procedures” section
below.
Anyone filing a complaint concerning
a violation or suspected violation of the Code, or reporting concerns relating to accounting and auditing matters must be acting in good
faith and have reasonable grounds for believing the information disclosed indicates a violation of the Code. Any allegations that prove
not to be substantiated and which prove to have been made maliciously or knowingly to be false will be viewed as a serious disciplinary
offense, and may be subject to legal and civil action in addition to employment review.
REPORTING PROCEDURES
For assistance with compliance matters
or clarification as to the way to report actual or potential compliance infractions, Personnel should contact the Chief Financial Officer
or the Chair of the Audit Committee of the Board of Directors of the Company (the “Audit Committee”).
All Compliance matters
Personnel
or External parties with direct knowledge of the violation or fraud concern may submit reports of alleged violations of this Code in
writing on a confidential basis to the Chair of the Audit Committee through submitting a Fraud Alert Email via email to the Chair of
the Audit Committee at charles@akandacorp.com.
In reporting any actual or potential
violation of the Code, an individual should provide, to the extent possible, such relevant documents to support the allegations being
made, such as e-mails, handwritten notes, photographs, or physical evidence.
Any report of actual or potential violation
of the Code should include, at a minimum the following information:
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the names of the parties involved.
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any witnesses to the incident(s).
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the location, date, and time of the incident(s).
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details about the incident (behaviour and/or words used).
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any additional details that would help with an investigation.
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Violations or suspected violations
may be submitted on a confidential basis by the complainant or may be submitted anonymously.
COMPLIANCE OFFICER
As at the date hereof, the Company’s
Compliance Officer can be contacted as outlined below:
Trevor Scott (interim Compliance Officer)
Tel: +27 83 380 8040
E-mail: trevor@akandacorp.com
Any future changes to the Compliance
Officer can be found on the Company’s website and anonymous ways to report any Company violations.
The Compliance Officer shall report
to the Audit Committee as frequently as such Compliance Officer deems appropriate, but in any event no less frequently than on a quarterly
basis at the quarterly meeting of the Audit Committee called to approve interim and annual financial statements of the Company.
The Compliance Officer will
keep any reported violations confidential and that the identity of employees making complaints or submissions shall be kept
confidential and shall only be communicated to the Chair of the Audit Committee.
HANDLING OF REPORTED VIOLATIONS
Upon receipt of a report from the
Chair of the Audit Committee, or the Compliance Officer, the Audit Committee (as applicable) shall discuss the report and take such steps
as that committee of the Company’s Board of Directors (the “Board”) may deem appropriate. At a minimum, the Audit
Committee, as applicable, should initiate an investigation of the alleged violation(s). Additional steps could include, if appropriate:
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Advising the alleged subject of the report; and
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Considering a review and revisions to workplace procedures to prevent any future
violations of the Code.
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Reports
of violations or suspected violations will be kept confidential to the extent possible, consistent with the need to conduct an adequate
investigation.
The Compliance
Officer or Chair of the Audit Committee (as applicable) shall retain a record of a complaint or submission received for a period of six
years following resolution of the complaint or submission.
Any complaint
about a member of the Audit Committee shall be considered by the Board, with the person accused recused from any discussion in connection
with the complaint.
INVESTIGATION OF REPORTED VIOLATIONS
Following the receipt of any complaints
submitted hereunder, the Audit Committee, will investigate each matter so reported and recommend corrective disciplinary actions to the
Board, if appropriate, up to and including termination of employment.
At a minimum, investigations will:
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be undertaken promptly and diligently, and be as thorough as
necessary, given the circumstances.
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be fair and impartial, providing both the complainant and respondent equal treatment
in evaluating the allegations.
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be sensitive to the interests of all parties involved and maintain
confidentiality.
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be focused on finding facts and evidence, including interviews of the complainant,
respondent, and any witnesses.
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incorporate, where appropriate, any need or request from the complainant or respondent
for assistance during the investigation process.
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SCHEDULE ‘A’
Examples of Matters to be Reported
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Fraud, theft and other criminal activity
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Accounting irregularities, Financial Statement
Disclosure issues
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Non-compliance with Internal Accounting Controls
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Workplace violence, related to an executive
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Substance abuse, related to an executive
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Discrimination, bullying and harassment, related
to an executive
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Falsification of company records
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Release of proprietary information
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Safety/security violations
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Malicious property damage
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Violations of securities laws (including insider
trading)
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Breaches of other applicable laws (environmental,
employment, health and safety laws)
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CERTIFICATION
The undersigned hereby acknowledges receipt of
Akanda Corp.’s Whistleblower Policy (the “Policy”), and certifies that the undersigned has read and understands
the Policy.
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Date:___________, 20_____
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Signature
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Print Name
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Title
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One signed copy of this certificate should be sent to:
Akanda Corp. 1a, 1b Learoyd Road
New Romney TN28 8XU, United Kingdom
Exhibit 14.3
RELATED PARTY TRANSACTIONS
POLICY
(Adopted as of 14 November, 2021)
PURPOSE
At Akanda Corp. (the “Company”)
we aim to lead by example. We set high standards for our people at all levels and strive to meet them consistently. Our sound business
principles and practices foster our commitment to ethical behavior, accountability and transparency. We expect our directors, officers
and employees to avoid conflicts of interest, that is, any activity that interferes with the performance of their duties or that might
deprive us of their undivided loyalty in business dealings. Conflicts of interest can come up in various ways, even in situations where
the transaction may benefit the Company and our stockholders and thus make it unclear whether a conflict even exists. This Related Party
Transactions Policy (this “Policy”) deals specifically with those situations where the Company (including any of our
subsidiaries) is a party to a transaction with a “Related Party” (as defined below). A Related Party is a party whose
material interest in a transaction could be an actual or potential conflict of interest, or at least create the appearance of such a conflict.
Although our Code of Business Conduct and Ethics addresses this issue generally, we have adopted this Policy to formalize our procedures
for the identification, review, and consideration and approval of the Audit Committee of our Board of Directors (the “Audit Committee”)
of any transactions involving the Company and a Related Party. This Policy has been approved by our Board of Directors (“Board”).
The Audit Committee may recommend future amendments to this Policy for consideration by our Board as our business evolves.
PERSONS COVERED BY
THIS POLICY
This Policy is applicable to
all members of our Board and director nominees, each of our executive officers and any person the Company knows to own an interest in
the voting power of the Company that gives them significant influence over the Company (each, a “significant stockholder”).
Any direct or indirect beneficial owner of more than 5% of any class of the Company’s voting securities is deemed to be a significant
stockholder.
APPROVAL AUTHORITY
Our “Approval Authority”
will be our Audit Committee. In a situation where a member of our Audit Committee is a Related Party in the proposed transaction, the
other members of the Audit Committee or, if requested by the Audit Committee, our Board will be the Approval Authority.
WHO IS A RELATED
PARTY?
You are a Related Party if you
are:
1. a
person who is, or at any time since the beginning of our last fiscal year was, a director or executive officer of the Company or a nominee
to become a director;
2. a
significant stockholder;
3. an
immediate family member of a director, director nominee, executive officer or significant stockholder. This includes a person’s
spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other
than domestic employees or tenant) who share such person’s home; or
4. entities
controlled by a director, director nominee, executive officer or significant stockholder or in which a director, director nominee, executive
officer or significant stockholder has a greater than 10% beneficial interest.
WHAT TYPES OF TRANSACTIONS
ARE COVERED BY THIS POLICY?
Any transaction, arrangement
or relationship (including any indebtedness or guarantee of indebtedness, or any series of similar transactions, arrangements or relationships)
that:
1. the
Company or any of its subsidiaries is or will be a participant;
2. any
Related Party has or will have a direct or indirect material interest; and
3. the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year (or the reduced threshold based on
Smaller Reporting Company status, if applicable).
Any transaction that meets
the above criteria is referred to as a “Related Party Transaction.”
IDENTIFYING RELATED
PARTIES
We have established a process
to identify any Related Party to assist us in enforcing this Policy.
Directors and Executive Officers
Our finance team or compliance
or legal department will collect, at least annually, the following information from each of our directors and executive officers (typically
in the annual Directors’ and Officers’ Questionnaire):
1. A
list of all entities in which they serve as a director or executive officer, or in which they have 10% or greater beneficial ownership
interest.
2. A
list of all their immediate family members, and for each immediate family member listed:
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whether they are (a) an executive officer of any entity, or (b) employed by the Company’s independent auditor (or an affiliate,
member firm or other entity associated with our independent auditor), and if so, the name of their employer and job title or a brief job
description; and
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all entities in which they serve as a director or in which they are a significant stockholder.
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This list also will include
the name of each charitable or non-profit organization for which each director, executive officer and any immediate family member is a
major fundraiser or otherwise serves as a director or trustee, or in a similar capacity.
Directors and executive officers
are expected to notify our finance team or compliance or legal department of any updates to the list of Related Parties, including updates
to their employment and relationships with charitable organizations.
Significant Stockholders
When the Company learns that
a person has become a significant stockholder, our finance team or compliance or legal department will examine relevant filings with the
U.S. Securities and Exchange Commission (“SEC”) (to the extent such information is available) to determine (a) if the
person is an individual, the same information requested of directors and executive officers under this Policy, and (b) if the person is
a firm, corporation or other entity, a list of principals or executive officers of such firm, corporation or entity.
APPROVAL PROCESS
Advance Approval
Any transaction the Company
intends to undertake with a Related Party, irrespective of the amounts involved (unless the transaction is subject to standing pre-approval
as provided below or pursuant to a resolution adopted by the Approval Authority), must be submitted to our Compliance Officer for his
or her determination of the approvals required under this Policy. The Compliance Officer will refer to the Approval Authority any Related
Party Transaction, and any other transaction he or she determines should be considered for evaluation by the Approval Authority, consistent
with the purpose of this Policy. The Compliance Officer may do so irrespective of any pre-approval or other technical exemption from this
Policy.
The legal or compliance department
or finance team will provide the Approval Authority with all relevant information available about the proposed transaction, including:
1. the
Related Party’s relationship to the Company and interest in the transaction;
2. the
material facts of the proposed transaction, including the anticipated aggregate dollar value of the transaction or, in the case of indebtedness,
the largest amount of principal outstanding at any time during the current fiscal year plus all amounts of interest payable on it during
the fiscal year;
3. the rationale for the proposed transaction; and
4. any
other relevant information with respect to the proposed transaction.
In deciding whether to approve
a proposed transaction, the Approval Authority may take into account any relevant information and considerations, including the impact
on a director’s independence if the Related Party is a director, their immediate family member or an entity with which a director
is affiliated. The Approval Authority may impose such conditions as it deems appropriate on the Company or on the Related Party in connection
with approving the proposed transaction.
The Approval Authority will
convey the decision, including any conditions imposed on the transaction, to our Compliance Officer, who then will convey the decision
to the appropriate people within the Company.
Review of Ongoing Transactions
At least annually, the Approval
Authority will review any previously approved or ratified transactions with Related Parties that remain ongoing, and that have a remaining
term of more than six months and remaining amounts payable to or receivable from us of more than $120,000 during the fiscal year (or the
reduced threshold based on Smaller Reporting Company status, if applicable). Based on all relevant facts and circumstances, the Approval
Authority will determine whether it is in the best interests of the Company and its stockholders to continue, modify or terminate the
transaction.
Ratification
Members of our finance team
will produce quarterly reports of any amounts paid or payable to, or received or receivable from, any Related Party. These reports will
be provided (a) to our legal or compliance department and used to determine whether there are any Related Party Transactions or other
transactions with Related Parties that were not previously approved or previously ratified under this Policy, and (b) to our Compliance
Officer for appropriate reporting in our periodic reports.
If the Compliance Officer learns
of a transaction with a Related Party that required but did not receive approval or ratification under this Policy, he or she will promptly
submit the transaction to the Approval Authority. The Approval Authority will undertake the review described above. Based on the conclusions
reached, the Approval Authority will evaluate all options, including but not limited to ratification, amendment or termination of the
transaction with the Related Party, and determine whether disciplinary action is appropriate.
A transaction with a Related
Party entered into without pre-approval of the Approval Authority will not be deemed to violate this Policy, or be invalid or unenforceable,
provided that the transaction is brought to the Approval Authority as promptly as reasonably practical after it is entered into, or after
it becomes reasonably apparent that the transaction is covered by this Policy.
Standing Pre-Approval for Certain Related Party Transactions
Unless there are special or
unusual benefits to the Related Party in a proposed transaction, the following categories of Related Party Transactions do not need to
be presented to the Approval Authority for review and approval under this Policy:
1. Employment
of executive officers: Any employment by us of an executive officer if:
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the executive officer is a “named executive officer” whose compensation must be reported in
our proxy statement; or
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the executive officer is not an immediate family member of another executive officer or director, the
related compensation would be reported in our proxy if the executive officer were a “named executive officer,” and the Company’s
Board;
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2. Director
compensation: Any compensation paid to a director (in such capacity) if the compensation is required to be reported in our proxy
statement;
3. Transactions where all stockholders receive proportional benefits: Any transaction in which the Related Party’s interest
arises solely from the ownership of our capital shares and all holders of our capital shares receive the same benefit on a pro rata basis
(e.g., dividends);
4. Ordinary-course expenses, advances and reimbursements: Ordinary-course business travel and expenses, advances and reimbursements;
and
5. Indemnification: Indemnification payments and other payments made pursuant to (a) directors and officers insurance policies,
(b) our formation document or charter (as may be amended and/or restated from time to time), and/or (c) any other policy or agreement
approved by the Board.
Exhibit 21.1
LIST OF SUBSIDIARIES OF AKANDA CORP.
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Subsidiary
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Jurisdiction
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Bophelo Bio Science and Wellness (Pty) Limited
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Kingdom of Lesotho
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Bophelo Holdings Limited
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England and Wales
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Canmart Limited
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England and Wales
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Cannahealth Limited
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Malta
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Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors of
Akanda Corp.
Bophelo Bio Science and Wellness (Pty) Limited
Bophelp Holdings Limited
Canmart Limited
Cannaheath Limited
We consent to the inclusion in the Form F-1 Registration
Statement of Akanda Corp. (the “Company”) our report dated November 18, 2021 relating to our audit of statement of financial
position as of July 16, 2021, and statements of operations, shareholders’ equity and cash flows for the period from July 16, 2021
(inception) through to August 31, 2021.
We consent to the inclusion in the Form F-1 Registration
Statement of Bophelo Bio Science and Wellness (Pty) Limited our report dated November 18, 2021 relating to our audit of the statements
of financial position as of December 31, 2020 and December 31, 2019 and statements of operations, shareholders’ equity and cash
flows for the period from January 01, 2020 through December 31, 2020 and January 01, 2019 through December 31, 2019.
We consent to the inclusion in the Form F-1 Registration
Statement of Bophelo Holdings Limited our report dated November 18, 2021 relating to our audit of the statement of financial position
as of August 4, 2021, and statements of operations, shareholder’s equity and cash flows for the period from August 4, 2021 (inception)
through August 31, 2021.
We consent to the inclusion in the Form F-1 Registration
Statement of Canmart Limited our report dated November 18, 2021 relating to our audit of the statements of financial position as of December
31, 2020 and December 31, 20219, and statements of operations, shareholders’ equity and cash flows for the period from January 01,
2020 through December 31, 2020 and January 01, 2019 through December 31, 2019.
We consent to the inclusion in the Form F-1 Registration
Statement of Cannaheath Limited. our report dated November 18, 2021 relating to our audit of the statement of financial position as of
December 31, 2020, and statements of operations, shareholder’s equity and cash flows for the period from July 01, 2020 (inception)
through December 31, 2020.
We also consent to the reference to us under the
caption “Experts” in the Registration Statement.
/s/ BF Borgers CPA PC
Certified Public Accountants
Lakewood, Colorado
January 31, 2022
Exhibit 99.1
AKANDA CORP.
1a, 1b Learovd Road
New Romney TN28 8XU, United Kingdom
January 31, 2022
Via EDGAR
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
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Re:
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Akanda Corp.
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Registration Statement on Form F-1
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Request for Waiver and Representation under Item 8.A.4 of Form 20-F
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Ladies and Gentlemen:
The undersigned, Akanda Corp., a company formed
under the laws of the Province of Ontario, Canada (the “Company”), is submitting this letter via EDGAR to the U.S. Securities
and Exchange Commission (the “Commission”) in connection with the Company’s registration statement on Form F-1 filed
on the date hereof (the “Registration Statement”), relating to a proposed initial public offering and listing in the United
States of the Company’s common shares.
The Company has included in the Registration Statement
prepared in accordance with the International Financial Reporting Standards, the following financial statements:
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audited financial statements of Akanda Corp. as of August 31, 2021 and for the period from July 16, 2021
(inception) to August 31, 2021;
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audited financial statements of Cannahealth Limited as of December 31, 2020 and for the period from July
1, 2020 (inception) to December 31, 2020;
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audited financial statements of Bophelo Holdings Ltd. as of August 31, 2021 and for the period from August
4, 2021 (inception) to August 31, 2021;
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audited financial statements of Bophelo Bioscience and Wellness (PTY) Ltd. for the fiscal years ended
December 31, 2020 and 2019;
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audited financial statements of Canmart Ltd. for the fiscal years ended December 31, 2020 and 2019;
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unaudited interim consolidated financial statements and pro forma consolidated financial statements of
Akanda Corp. as of September 30, 2021.
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unaudited financial statements of Cannahealth Limited as of September 30, 2021;
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unaudited financial statements of Bophelo Holdings Ltd. as of September 30, 2021;
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unaudited financial statements of Bophelo Bioscience and Wellness (PTY) Ltd. as of September 30, 2021;
and
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unaudited financial statements of Canmart Ltd. as of September 30, 2021.
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The Company respectfully requested that the Commission
waive the requirement of Item 8.A.4 of Form 20-F (the “Waiver Request”), which states that in the case of a company’s
initial public offering, the registration statement on Form F-1 must contain audited financial statements of a date not older than 12
months from the date of the filing (the “12-Month Requirement”).
The Company is submitting this Waiver Request
pursuant to Instruction 2 to Item 8.A.4 of Form 20-F, which provides that the Commission will waive the 12-Month Requirement “in
cases where the company is able to represent adequately to us that it is not required to comply with this requirement in any other jurisdiction
outside the United States and that complying with this requirement is impracticable or involves undue hardship.” In addition, in
International Reporting and Disclosure Issues in the Division of Corporation Finance, dated November 1, 2004 (available on the Commission’s
website at http://www.sec.gov/divisions/corpfin/internatl/cfirdissues1104.htm), at Section III. B. c), staff of the Commission notes that:
“the instruction indicates that
the staff will waive the 12-month requirement where it is not applicable in the registrant’s other filing jurisdictions and is impracticable
or involves undue hardship. As a result, we expect that the vast majority of IPOs will be subject only to the 15-month rule. The only
times that we anticipate audited financial statements will be filed under the 12-month rule are when the registrant must comply with the
rule in another jurisdiction, or when those audited financial statements are otherwise readily available.”
In connection with the Waiver Request, the Company
represents to the Commission that:
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The Company is not currently a public reporting company in any jurisdiction.
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The Company is not required by any jurisdiction outside the United States to prepare consolidated financial statements audited under any generally accepted auditing standards for any interim period.
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Full compliance with Item 8.A.4 of Form 20-F at present is impracticable and involves undue hardship for the Company.
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The Company does not anticipate that its audited financial statements for the year ended December 31, 2021 will be available until April 2022.
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In no event will the Company seek effectiveness of its registration statement on Form F-1 if its audited financial statements are older than 15 months at the time of the Company’s initial public offering.
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The Company has filed this letter as an exhibit
to the Registration Statement pursuant to Instruction 2 to Item 8.A.4 of Form 20-F.
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Sincerely,
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AKANDA CORP.
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By:
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/s/ Tejinder Virk
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Name:
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Tejinder Virk
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Title:
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Chief Executive Officer and Director
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Exhibit 99.2
05 October 2021
Non-Binding Acquisition Proposal for Cellen
Life Sciences Limited
Dear Mr. Eric Bystrom,
This term sheet (this “Term Sheet”)
summarizes certain terms and conditions for the non-binding proposed acquisition (the “Transaction”) of 100% ownership of
Cellen Life Sciences Limited (the “Target” or “Cellen”), by Akanda Corp. (“Purchaser”).
The Transaction is expected to proceed on a friendly
basis with the approval of the board of directors of Purchaser and the shareholders of Target. Indicative terms of the Transaction, subject
to due diligence, are set out in the attached Schedule A.
The existence of this Term Sheet and the terms
herein are to be kept strictly confidential. All currency figures below are denoted in British Pound Sterling (GBP).
The implementation of this Term Sheet and the
completion of the Transaction are subject to the following conditions:
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(a)
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the negotiation and entering into by Purchaser and Target of mutually satisfactory definitive agreements
in respect of the Transaction (the "Definitive Agreements") providing for the definitive terms and conditions upon which the
Transaction will be completed, which are anticipated to reflect the indicative terms and conditions set out in Schedule A as well as customary
representations, warranties, covenants, closing conditions and indemnification which are mutually acceptable to the parties. The Definitive
Agreements, upon execution, shall supersede this Term Sheet in its entirety;
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(b)
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receipt of the approval of the board of directors of Purchaser and the Target for the Transaction and
the Definitive Agreements;
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(c)
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receipt of all required third party and regulatory approvals for the Transaction;
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(d)
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completion of audited annual financial statements for Target;
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(e)
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confirmation that Target does not have any debt, other than payables incurred as a result of operating
activities; and
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(f)
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satisfactory completion of a detailed due diligence investigations by Purchaser in accordance with Section 4.
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STRICTLY PRIVATE & CONFIDENTIAL
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1 | P a g e
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From the date hereof until the Termination Date
(defined below) (the "Exclusivity Period"), Target agrees to negotiate exclusively and in good faith with Purchaser with a view
to settling the Definitive Agreements as soon as possible. Target agrees that, during the Exclusivity Period, neither it nor any of its
respective owners, affiliates, representatives, officers, managers, members, employees, advisors or agents will, directly or indirectly,
make, solicit or initiate inquiries from, or the submission of proposals or offers from, any other person relating to any acquisition,
sale, lease, license or other disposition of the assets or equity of Target or any of its subsidiaries or participate in any discussions
or negotiations regarding, or furnish to any other person any further information with respect to, or otherwise co-operate in any way
with, or assist or participate in or facilitate, any effort or attempt by any person to do or seek to do any of the foregoing and, to
the extent any such discussions or negotiations have occurred with third parties prior to the date hereof, they shall be terminated immediately.
The entry into this Term Sheet and the terms herein
are confidential. The Definitive Agreements will govern the public disclosure rights and obligations of the parties following the signing
of the Definitive Agreements.
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4.
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Due Diligence; Access and Cooperation
|
Target covenants and agrees that during the Exclusivity
Period and subject to the Confidentiality and Non-Circumvention provisions set forth herein, Purchaser, through its employees and representatives,
shall be entitled to make such reasonable investigation of the Target as Purchaser reasonably deems necessary, with such reasonable investigation
to include the examination of the books, records, financial condition and prospects of the Target. Any such investigation shall be conducted
at reasonable times and under reasonable circumstances, and Purchaser and Target shall cooperate fully with each other in connection therewith.
In order for Purchaser to have a full opportunity to make such investigation and examination, Target agrees to make available, and to
cause each of its respective subsidiaries and affiliates to make available, to representatives of Purchaser all such information and copies
of such documents concerning the Target and its affairs as such representatives reasonably request, and to permit such representatives
access to their respective properties during business hours upon reasonable prior notice and to use commercially reasonable efforts to
cause their respective members, managers, employees, agents, consultants, and representatives to cooperate fully with such representatives
in connection with such investigations and examinations.
|
STRICTLY PRIVATE & CONFIDENTIAL
|
2 | P a g e
|
|
5.
|
Confidentiality; Non Circumvention
|
Each of Purchaser and Target:
|
|
(a)
|
acknowledges that information that is non-public, confidential, and proprietary in nature will be provided
to it. Each of Purchaser and Target (and any of their respective directors, officers, managers, members, affiliates, representatives,
agents, and employees) will keep such information confidential and will not, except as otherwise provided below, disclose such information
or use such information for any purpose other than for the evaluation and consummation of the Transaction. The foregoing will not apply
to information that: (i) becomes generally available to the public absent any breach of the foregoing; (ii) was available on
a non-confidential basis to a party prior to its disclosure pursuant to this Term Sheet; or (iii) becomes available on a non-confidential
basis from a third party who is not bound to keep such information confidential;
|
|
|
(b)
|
agrees that it will not make any public disclosure of the existence of this Term Sheet, any of its terms
or that the parties are engaged in discussions with respect to the Transaction without first advising the other party and obtaining the
written consent of the other party to the proposed disclosure, unless such disclosure is required by applicable law, regulation or the
rules and policies of any securities regulatory authority having jurisdiction, in which event the party contemplating disclosure
will inform the other party of, and obtain its consent to, the form and content of such disclosure, which consent will not be unreasonably
withheld or delayed;
|
|
|
(c)
|
agrees that immediately upon request, or upon any discontinuance of activities by any party that results
in the Transaction not being consummated, it will return to the other party all of its confidential information; and
|
|
|
(e)
|
the provisions of this Section 5 shall explicitly survive: 1) expiration or termination of this Term
Sheet; 2) the return of Confidential Information to Target; and 3) the conclusion of any discussions regarding the Transaction contemplated
herein.
|
Each of the parties hereto shall be responsible
for their own expenses incurred in connection with this Term Sheet, the Definitive Agreements and the Transaction.
|
7.
|
Non-Binding Obligation; Termination
|
Except with respect to Section 2 (Exclusivity),
Section 3 (Announcement); Section 4 (Due Diligence; Access and Cooperation), Section 5 (Confidentiality; Non-Circumvention),
Section 6 (Expenses), Section 7 (Non-Binding Obligation; Termination), Section 8 (Governing Law; Attornment), Section 9
(Assignment; No Third-Party Beneficiaries), and Section 10 (Execution; Entire Agreement), which are intended to be, and are, legally
binding provisions between the parties, the terms and conditions of this Term Sheet and all of the rights and obligations of the parties
contained herein shall be non-binding upon and unenforceable.
|
STRICTLY PRIVATE & CONFIDENTIAL
|
3 | P a g e
|
For greater certainty, Section 1 of this Term Sheet and the attached
Schedule A are intended to describe the basis upon which the parties will attempt to negotiate the Definitive Agreements in connection
with the Transaction and do not, nor are they intended to, constitute binding obligations.
This Term Sheet will terminate and be of no further
force and effect upon the earlier of: (a) on written notice by Target to Purchaser or by Purchaser to Target at any time after 120
days following the date that this Term Sheet is accepted by Target; (b) the date on which the Definitive Agreements are entered into;
or (c) such other date as may be mutually agreed between Purchaser and Target in writing (the "Termination Date"). Notwithstanding
the foregoing, Section 5 (Confidentiality; Non-Circumvention), Section 6 (Expenses) and Section 8 (Governing Law; Attornment)
shall survive the termination of this Term Sheet and the termination of this Term Sheet shall not affect any rights any party has with
respect to the breach of this Term Sheet by another party prior to such termination.
|
8.
|
Governing Law; Attornment
|
This Term Sheet will be governed by and construed
in accordance with the laws of the province of Ontario, Canada.
|
9.
|
Assignment; No Third-Party Beneficiaries
|
No party shall be entitled to assign its rights
and obligations hereunder without the prior written consent of the other party. Except as specifically set forth or referred to herein,
nothing herein is intended or will be construed to confer upon any person or entity other than the parties and their successors or assigns,
any rights or remedies under or by reason of this Term Sheet.
|
10.
|
Execution; Entire Agreement
|
This Term Sheet may be executed in one or more
counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same document.
This Term Sheet incorporates the entire agreement between the parties with respect to the subject matter of this Term Sheet and may not
be amended or modified except in writing.
The Term Sheet does not address all of the terms
of the proposed transaction, which will be addressed in the Definitive Agreements.
<
Signatures on next page>
|
STRICTLY PRIVATE & CONFIDENTIAL
|
4 | P a g e
|
If the foregoing accurately reflects the terms
and conditions of our agreement, would you kindly indicate your acceptance hereof by signing and returning by 12h00 (GMT) , 6 August 2021.
Truly yours,
|
Akanda Corp.
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name: Tejinder Virk
|
|
|
|
|
|
Title: Chief Executive Officer & Director
|
|
The undersigned agrees and accepts the terms of
this Term Sheet.
|
Cellen Life Sciences Limited
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
Title:
|
|
|
STRICTLY PRIVATE & CONFIDENTIAL
|
5 | P a g e
|
SCHEDULE A
The principal terms are as follows:
|
Structure:
|
The Purchaser intends to list on a U.S. stock
exchange within the next 6 months, and is in the process of selecting a syndicate of NASD broker dealers.
The business of Cellen would be complementary
to the Purchaser which would (and subject to the satisfaction of the conditions described in this Term Sheet, at the closing of the Transaction),
seek to acquire all of the outstanding and issued Cellen ordinary shares (the “Transaction”).
The acquisition of 100% of the outstanding and
issued ordinary shares of the Target (the "Sale Equity"), for the consideration set forth below shall be pursuant to Definitive
Agreements containing representations, warranties, covenants, conditions and indemnities customary for a transaction of this type. Except
as otherwise set forth in the schedules to the Definitive Agreements, Purchaser shall acquire the Sale Equity free and clear of all encumbrances.
Whether the Transaction is structured as one or more asset purchases, equity purchases or mergers will be mutually determined by the parties
based upon tax, accounting, securities, legal and other considerations.
|
|
Subject of the Acquisition:
|
100% of the outstanding and issued ordinary shares
in the Target.
|
|
Consideration:
|
Total purchase consideration for the Sale Equity shall be settled through an issue of common shares in the Purchaser, with a post-listing value of GBP 10 million, subject to customary lock-up and leak out arrangements, as required.
|
|
Audit Fee expenses:
|
Purchaser shall arrange for, and cover the cost of, the Target’s annual financial statements being prepared in accordance with International financial Reporting Standards and audited by the Purchaser’s UK registered auditor responsible for the audit of it’s UK based subsidiaries. Such audit fee expenses shall be held over by the Purchaser on loan account with the target. These costs shall be limited to no more than $20,000. The loan account shall have no fixed terms of repayment for the first six months following disbursement by the Purchaser. Thereafter, the loan account shall become immediately due and payable.
|
|
STRICTLY PRIVATE & CONFIDENTIAL
|
6 | P a g e
|
|
Bridge
Financing:
|
The Purchaser and the Target shall, in good faith, enter into negotiations concerning commercial terms for a Bridge Financing Facility (“the Bridge Loan”) to the amount of between GBP 300,000 and GBP 500,000 for the purposes of assisting the funding of the Target’s working capital requirements prior to the completion of the Transaction. The Bridge Loan shall be subject to the completion and entering into of separate definitive agreements governing the Bridge Loan.
|
|
Closing
Conditions:
|
The Transaction will be subject to standard closing conditions for transactions of this nature, including, among other things, (i) accuracy of representations and warranties and compliance with covenants and obligations, (ii) the absence of litigation, restraining orders, injunctions or other legal restraints, except as otherwise set forth in the schedules to the Definitive Agreements, (iii) receipt of required regulatory and third party consents, officers' and secretary's certificates; (iv) non-competition agreements from certain personnel of the Target covering various jurisdictions, as appropriate and to the extent necessary, for two years following the Closing Date; (v) employment agreements for key personnel of Target, (vii) evidence that the Sale Equity is free and clear of all encumbrance, except as otherwise set forth in the schedules to the Definitive Agreements, and (vi) other customary closing documentation. At the Closing Date, the Target shall have satisfied all of its outstanding debt, except for such liabilities assumed by the Purchaser and will have a reasonable level of working capital, to be reasonably negotiated by the parties.
|
|
STRICTLY PRIVATE & CONFIDENTIAL
|
7 | P a g e
|
Exhibit 99.3
Memorandum
of Understanding
Memorandum of Understanding
Between
Akanda Corp.
With registered office at 77 King Street West,
Suite 400, Toronto, Ontario M5K 0A1
(hereafter: Akanda)
and
Cellen Life Sciences Limited
With
registered office at Cms Cameron Mckenna Nabarro Olswang LLP Cannon Place, 78 Cannon Street, London, United Kingdom, EC4N 6AF
(hereafter: Cellen)
Effective Date: October 1, 2021
This Memorandum of Understanding (“MOU”) sets the terms
and understanding between Akanda or its nominees and Cellen to establish a formal working relationship to optimize in medical cannabis
supply chain activities and pursue opportunities in this regard within the territory of UK.
Background
Akanda and Cellen are established leaders in the international medical
cannabis space. Akanda is a cannabis cultivation, manufacturing, and distribution company with operations in the United Kingdom and the
Kingdom of Lesotho. Cellen is a cannabis telehealth, research and medical brands company with operations in the United Kingdom. Cellen
is a medical cannabis supplier to Project Twenty21, a large-scale medical cannabis observational study in the United Kingdom. Cellen also
owns and operates digital pain clinic: Leva Clinic, which is licensed and regulated by the Care Quality Commission (‘CQC’)
in the United Kingdom. Akanda is in the process of consolidating 100% ownership in CanMart Ltd, which has licenses in place with the Home
Office and MHRA, allowing for the importation, manufacturing and distribution of medical cannabis within the United Kingdom.
Purpose
This MOU is to establish a formal working relationship to optimize
medical cannabis supply chain activities across Cellen and Akanda business interests, to consistently increase supply and choice for patients
in the United Kingdom.
The above goals will be accomplished by undertaking the following activities:
|
|
-
|
Akanda identifying third party suppliers of medical cannabis products to be prescribed through Leva clinic, under mutually agreed
upon brands;
|
|
|
-
|
Akanda group employed GMC registered consultants to prioritize patients of Leva Clinic for medical cannabis;
|
|
|
-
|
Cellen to integrate CanMart into their systems for seamless fulfillment of medical cannabis prescriptions for patients;
|
|
|
-
|
Collaboration on new product development and manufacturing processes, which could include third party vendors;
|
CONFIDENTIAL
|
|
-
|
Publicly recognizing the existence of this MOU through media and discussions with third party vendors;
|
|
|
-
|
Akanda and Cellen to jointly pursue distribution and branding opportunities within the United Kingdom market area; and
|
|
|
-
|
Akanda and Cellen to share knowledge and relationship resources to further the businesses of both parties.
|
Reporting
The successful undertaking of this MOU will be evaluated by Tej Virk,
CEO of Akanda and Eric Bystrom, CEO of Cellen. Evaluation of goals will be checked on monthly basis, at a mutually agreed upon meeting
time.
Funding
This MOU is not a formal commitment of funds of by either Akanda or
Cellen.
Duration
This MOU is at-will and may be modified by mutual consent, in writing,
of authorized officials from Akanda and Cellen. This MOU shall become effective upon signature by the authorized officials from the Akanda
and Cellen and will remain in force and effect until modified or terminated by any one of the partners by mutual consent. In the absence
of mutual agreement by the authorized officials from Akanda and Cellen to extend the duration period, this MOU shall end on October 1,
2022.
Contact Information
Tej Virk
Akanda Corp
CEO & Director
Address: 39 Landau, 72 Farm Lane, SW6 1QA, London, United Kingdom
Telephone: +44 (0) 7912 741995
E-mail: tej@akandacorp.com
Eric Bystrom
Cellen Life Sciences Ltd
CEO
Address: 1 Shorrolds Rod, Flat 8, SW6 7TR
Telephone: +44 (0) 7931 331100
E-mail: eric@cellenhealth.com
IN WITNESS
WHEREOF the Akanda and Cellen have signed this MOU as of the Effective Date.
|
|
|
|
Name: Tej Virk
|
|
|
Title: CEO & Director of Akanda Corp
|
|
|
|
|
|
Name: Eric Bystrom
|
|
|
Title: CEO of Cellen Life Sciences Ltd
|
|
CONFIDENTIAL
Exhibit 99.4
Consent of Director Nominee
The undersigned hereby consents to being named in the registration
statement on Form F-1 and in all subsequent amendments and post-effective amendments or supplements thereto and in any registration
statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended (collectively, the “Registration Statement”), of Akanda Corp., a corporation formed under the laws of the Province
of Ontario, Canada (the “Company”), as an individual to become a director of the Company and to the inclusion of her biographical
and other information in the Registration Statement. The undersigned also hereby consents to being named in any registration statement
on Form S-8 filed by the Company that incorporates by references the prospectus forming part of the Registration Statement.
|
|
/s/ Gila Jones
|
|
|
Name: Gila Jones
|
|
|
Date: January 31, 2022
|
Exhibit 99.5
Consent of Director Nominee
The undersigned hereby consents to being named in the registration
statement on Form F-1 and in all subsequent amendments and post-effective amendments or supplements thereto and in any registration
statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended (collectively, the “Registration Statement”), of Akanda Corp., a corporation formed under the laws of the Province
of Ontario, Canada (the “Company”), as an individual to become a director of the Company and to the inclusion of her biographical
and other information in the Registration Statement. The undersigned also hereby consents to being named in any registration statement
on Form S-8 filed by the Company that incorporates by references the prospectus forming part of the Registration Statement.
|
|
/s/ Gugu Dingaan
|
|
|
Name: Gugu Dingaan
|
|
|
Date: January 31, 2022
|
EX-FILING FEES
Calculation of Filing Fee Tables
F-1
(Form Type)
Akanda
Corp.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward
Securities
|
|
|
Security Type
|
|
Security
Class
Title
|
|
Fee
Calculation
or Carry
Forward Rule
|
|
Amount
Registered
|
|
Proposed
Maximum
Offering Price
Per Unit
|
|
Maximum
Aggregate
Offering Price
|
|
Fee Rate
|
|
Amount of
Registration Fee
|
|
Carry
Forward
Form Type
|
|
Carry
Forward
File Number
|
|
Carry
Forward
Initial
effective date
|
|
Filing Fee
Previously Paid
In Connection
with Unsold
Securities
to be Carried
Forward
|
|
|
Newly Registered Securities
|
|
Fees to Be Paid
|
|
Equity
|
|
Common
Shares(1)(2)
|
|
457(o)
|
|
|
|
|
|
|
|
$
|
27,600,000
|
(3)
|
|
.0000927
|
|
$
|
2,558.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees to Be Paid
|
|
Other
|
|
Purchase Warrants
|
|
457(g)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees to Be Paid
|
|
Equity
|
|
Common Shares(2)(5)
|
|
457(g)
|
|
|
322,000
|
|
$
|
7.50
|
(6)
|
$
|
2,415,000
|
|
|
.0000927
|
|
$
|
223.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Previously Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carry Forward Securities
|
|
Carry Forward Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Offering Amounts
|
|
$
|
30,015,000
|
|
|
|
|
$
|
2,782.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees Previously Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fee Offsets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Fee Due
|
|
|
|
|
|
|
|
$
|
2,782.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes the Common Shares that the underwriters have the option
to purchase to cover any over-allotments.
|
|
|
(2)
|
Pursuant to Rule 416 under the Securities Act of 1933, as
amended (the “Securities Act”), there is also being registered hereby such indeterminate number of additional Common Shares
of the Registrant as may be issued or issuable because of stock splits, stock dividends, stock distributions, and similar transactions.
|
|
|
(3)
|
Estimated solely for the purpose of calculating the amount of
the registration fee pursuant to Rule 457(o) under the Securities Act.
|
|
|
(4)
|
No fee required pursuant to Rule 457(g) under the Securities
Act.
|
|
|
(5)
|
Represents Common Shares underlying one or more warrants (the
“Representative’s Warrants”) issuable to the representative of the several underwriters to purchase up to an aggregate
of 7% of the Common Shares sold in the offering at an exercise price equal to 125% of the public offering price. The Representative’s
Warrants will be exercisable upon issuance, will have a cashless exercise provision and will terminate five years from the commencement
of sales of the public offering.
|
|
|
(6)
|
As estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price per share of the Representative’s
Warrants is $7.50 (125% of $6.00).
|
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