ARTICLE 1 INTERPRETATION

ARTICLE 2 PURCHASE AND SALE

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

ARTICLE 4 CONDITIONS

ARTICLE 5 POST-CLOSING COVENANTS

ARTICLE 6 INDEMNIFICATION

ARTICLE 7 GENERAL MATTERS

The Shareholder is the legal and beneficial owner of 100 Common Shares of the Corporation, representing all of the issued and outstanding shares of the Corporation (the “Purchased Shares”);

the Purchaser wishes to purchase and the Shareholder wishes to sell to the Purchaser the Purchased Shares, subject to the terms and conditions set forth herein;

immediately following the Closing Time, the Purchaser shall capitalize the Corporation and cause the Corporation to pay to the Syndicate, the Loan Agreements Purchase Price, and the Syndicate shall, among other things, disclaim their rights in and to the Loan Agreements and the Participation Agreements, subject to the terms and condition set forth herein.

Definitions

“Affiliate” has the meaning set forth in National Instrument 45-106 Prospectus and Registration Exemptions;

“Agreement” means this agreement, and all appendices attached to this agreement, in each case as they may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this agreement and unless otherwise indicated, references to Articles and sections are to Articles and sections in this Agreement;

“Applicable Laws” means, in respect of any Person, property, transaction, event or course of conduct, all applicable laws, statutes, regulations, rules, by-laws, ordinances, protocols, practices, regulatory policies, codes, guidelines, official directives, orders, rulings, judgments and decrees of any Governmental Authority, and all conditions, restrictions or requirements imposed by the terms of, or applicably by reason of, any permits, approvals, review processes of any Governmental Authority or any filings with respect to any work under any Contract including, without limitation, any applicable building permits;

“Approvals” means approvals, certificates, authorizations, Consents, filings, permits, grants, licences, notifications, privileges, registrations, rights, orders, judgments, rulings, directives, ordinances, decrees, registrations and filings;

“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the Province of Alberta or the Province of Ontario;

“Claim” means any actual or threatened civil, criminal, administrative, regulatory, arbitral or investigative inquiry, action, suit, investigation or proceeding and any claim or demand resulting therefrom or any other claim or demand of whatever nature or kind;

“Closing” means the completion of the purchase and sale of the Purchased Shares pursuant to this Agreement at the Closing Time;

“Closing Date” means December 29, 2020;

“Closing Time” means 10:00am, EST, on the Closing Date;

“Common Shares” means common shares in the capital of Corporation;

“Confidential Information” has the meaning ascribed to it in Section 7.2;

“Consents” means, collectively, all of the consents, permissions or approvals of:

any Governmental Authority;

any Person pursuant to or in connection with any Contract, required in connection with the transactions contemplated by this Agreement;

“Contracts” means any contract, agreement, commitment, lease or other binding instrument, whether written or oral;

“Corporation’s Knowledge” means the actual knowledge of the signatory and [***], [***], [***] and [***] as the officers, directors or trustees, as the case may be, of such corporation or trust having the relevant knowledge together with the knowledge which they would have had if they made inquiries and investigations into the relevant matter that a reasonably prudent individual would have made in similar circumstances;

“Direct Claim” means a Claim which originates pursuant to this Agreement and does not involve a Third Party Claim;

“Encumbrance” means any security interest, lien, charge, pledge, encumbrance, mortgage, hypothec, adverse claim or title retention agreement, preferential right, trust arrangement, contractual right of set-off or other security agreement or arrangement of any nature or kind whatsoever;

“Governmental Authority” means any:

federal, provincial, state, regional, municipal, local or other government, domestic or foreign;

governmental or quasi-governmental authority of any nature including any agency, branch, department, commission, board, court or tribunal;

body exercising any administrative, executive, judicial, legislative, police, regulatory, expropriation or taxing authority, domestic or foreign; or

self-regulatory organization or stock exchange having jurisdiction in the relevant circumstances;

“Indemnified Party” means a Person whom the Shareholder or the Purchaser, as the case may be, is required to indemnify under Article 6;

“Indemnifying Party” means, in relation to an Indemnified Party, a Party to this Agreement that is required to indemnify such Indemnified Party under Article 6;

“Loan Agreements” means, collectively, the agreements set forth in Appendix A;

“Loan Agreements Purchase Price” means the sum of $58,875,000.00;

“Loan Unenforceability Event” has the meaning ascribed to it in Section 6.7;

“Loss” means any loss, injury, liability, damage, cost, expense (including reasonable legal and consulting fees and disbursements), or deficiency of any kind or nature, suffered or incurred by an Indemnified Party, in connection with any Claim made by it hereunder, including in respect of any proceeding, assessment, judgment, settlement or compromise relating thereto;

“Material Adverse Change” means any event or change that:

is, or is reasonably likely to be, materially adverse to a Person, its financial condition or its results of operations, or

prevents, or would reasonably be likely to prevent, consummation of the transaction of purchase and sale provided for hereunder;

“Notice of Claim” has the meaning ascribed to it in Section 6.3;

“Participation Agreements” means, collectively, the Participation Agreements listed in Appendix A hereto;

“Party” means a party to this Agreement and any reference to a Party includes its successors and permitted assigns and “Parties” means every Party;

“Person” means any individual, sole proprietorship, partnership, limited partnership, joint venture, syndicate, body corporate with or without share capital, unincorporated association or trust and, where the context requires, any of the foregoing when acting as trustee, executor, administrator or other legal representative;

“Purchase Price” has the meaning ascribed to it in Section 2.2;

“Purchased Shares” has the meaning ascribed to it in the preamble to this Agreement;

“Quit Claim Agreement” means the quit claim agreement between the Corporation and each member of the Syndicate dated the Closing Date in the form attached hereto as Appendix B;

“Subsidiary” means, with respect to any Person, a Person that is controlled directly or indirectly by another Person and includes a subsidiary of that subsidiary and, for purposes of this definition, a Person controls a second Person if:

the 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 Person to elect a majority of the directors of the second Person, unless the Person beneficially owns or exercises control or direction over voting securities only to secure an obligation;

the second Person is a partnership, the Person beneficially owns or exercises control or direction over more than fifty percent (50%) of the interests in the partnership; or

the second Person is a limited partnership, the Person is the general partner of the limited partnership or the control Person of the general partner;

“Tax” and “Taxes” means all taxes, assessments, reassessments, charges, dues, duties, rates, fees, imposts, levies and similar charges of any kind lawfully levied, assessed or imposed by any Governmental Authority, including all income taxes (including any tax on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings or profits), windfall profits taxes, gross receipts taxes, withholding or similar taxes, branch taxes, net worth taxes, surtaxes, production taxes, sales taxes, use taxes, ad valorem taxes, value added taxes, excise taxes, goods and services tax, harmonized sales tax, capital taxes, stamp taxes, premium taxes, property taxes, land transfer taxes, mining taxes, environmental taxes, franchise taxes, licence taxes, health taxes, payroll taxes, employment taxes, severance taxes, social security premiums, employment insurance or compensation premiums, Canada or Quebec Pension Plan premiums, workers’ compensation premiums, mandatory pension and other social fund taxes or premiums, alternative or add-on minimum taxes, custom duties or other governmental taxes, assessments, charges, dues, duties, rates, fees, imposts, levies and similar charges of any kind whatsoever imposed by any Governmental Authority in respect of the relevant entity, together with any interest, penalties or additions thereto and any interest in respect of such penalties or additions;

“Tax Act” means the Income Tax Act (Canada) and the regulations promulgated thereunder, as amended;

“Tax Returns” means all returns, reports, declarations, elections, information statements and forms, including any schedules thereto, required by any Governmental Authority to be made, prepared or filed in respect of Taxes by the relevant entity;

“Third Party” means a Person that is not a Party;

“Third Party Claim” means a Claim by an Indemnified Party which originates by reason of a Person (other than such Indemnified Party) making a claim against the Indemnified Party; and

“Zenabis” means Zenabis Investments Ltd. as the borrower and Zenabis Global Inc. as the guarantor under the Loan Agreements.

Interpretation

Headings and Table of Contents. The inclusion of headings and a table of contents is for convenience of reference only and shall not affect the construction or interpretation hereof.

Gender and Number. Except where the context requires otherwise, words importing the singular include the plural and vice versa and words importing gender include all genders.

Including. Where the word “including” or “includes” is used, it means including or includes “without limitation”.

Material. Where the term “material” or “materially” is used, it shall be construed, measured or assessed on the basis of whether the matter would materially affect a Party or would prevent or significantly impede the purchase or sale of the Purchased Shares or the completion of the other transactions contemplated by this Agreement.

No Strict Construction. The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party proposing any such language.

Statutory References. A reference to a statute includes all rules and regulations made pursuant to such statute and, unless expressly provided otherwise, the provisions of any statute, rule or regulation which amends, supplements or supersedes any such statute, rule or regulation.

Currency. Except where expressly provided otherwise herein, all amounts are stated and shall be paid in Canadian dollars.

Time Periods. Except where expressly provided otherwise herein, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the following Business Day if the last day of the period is not a Business Day.

Entire Agreement

Severability

Amendments, Waivers, Investigations

Governing Law

Paramountcy

Agreement to Purchase and Sell

Purchase Price

Location and Time of the Closing

By the Shareholder

Validity. The Shareholder has full power and authority to execute and deliver this Agreement and the other documents to be delivered hereunder and to perform the terms and conditions hereof.

Enforceability against the Shareholder. This Agreement is a legal, valid and binding obligation of the Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and remedies and to general principles of equity.

Right to Sell Purchased Shares. The Shareholder is the sole legal owner of all of the Purchased Shares registered in the name of the Shareholder and the sole beneficial owner of such Purchased Shares, with good and marketable title thereto, free and clear of all Encumbrances. No third party has any right or option in respect of the Purchased Shares that could affect the ability of the Shareholder to transfer good and marketable title to the Purchased Shares to the Purchaser free and clear of all Encumbrances. The Shareholder is not a party to any shareholder agreement, voting trust agreement or any other agreement or instrument which in any way limits or restricts the transfer to the Purchaser any of the Purchased Shares, except for share transfer restrictions contained in the articles of the Corporation. At or prior to the Closing Time, all such restrictions will have been complied with or terminated by the director resolution approving the transfer.

Non-Contravention. The execution, delivery and performance of this Agreement and the performance of the obligations under this Agreement by the Shareholder, and the completion by the Shareholder of the transactions contemplated by this Agreement, do not and will not:

contravene any provision of the constating documents of the Shareholder;

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit to which the Shareholder is a party or by which the Shareholder is bound or subject or of which the Shareholder is a beneficiary;

contravene the Loan Agreements; or

contravene any Applicable Law;

Approvals. No authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person is required in connection with the execution, delivery or performance of this Agreement by the Shareholder for the purchase of any of the Purchased Shares.

Residency. The Shareholder is not a non-resident of Canada for the purpose of the Income Tax Act (Canada).

Brokers’ Fees. The Shareholder has no liability or obligation to pay any fees or commissions to any financial advisor, broker, finder or agent with respect to the transactions contemplated by this Agreement nor has it granted any right of first refusal or commitment to engage any such Person in connection with any future transaction.

Termination of the Participation Agreements and Quit Claim Agreement. The termination of the Participation Agreements by the execution of the Quit Claim Agreement will not:

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit, including, without limitation, the Loan Agreements and each security document entered into in connection with such Loan Agreements; or

require the authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person.

By the Shareholder regarding the Corporation

Incorporation and Existence. The Corporation is incorporated, organized and is validly existing under the laws of its incorporation, and is registered, licensed or qualified to carry on business in each jurisdiction in which the character of its properties and assets owned or leased or the nature of its business makes such registration, licensing or qualification necessary.

Corporate Power. The Corporation has the corporate power and capacity to carry on its business as it is currently conducted, to own or lease its property and assets.

Capitalization.

The Corporation is authorized to issue an unlimited number of Common Shares, of which there are 100 Common Shares outstanding as at the date hereof, all of which are legally and beneficially owned and controlled by the Shareholder.

all of the shares of the Corporation have been validly issued and are outstanding as fully paid and non-assessable shares;

there are no options, warrants, purchase rights, subscription rights, conversion privileges, exchange rights, pre-emptive rights or other rights, agreements or commitments of a similar nature to which the Corporation is bound relating to the outstanding or unissued share capital of the Corporation or obligating the Corporation to issue any shares of, or other equity interest in, the Corporation or securities or obligations of any kind convertible into or exchangeable for any shares of the Corporation, nor are there any outstanding stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or any other attribute of the Corporation;

there are no outstanding bonds, debentures or other evidences of indebtedness of the Corporation having the right to vote (or that are convertible for, exercisable into or exchangeable for securities having the right to vote) on any matter on which the holders of shares may vote; and

there are no outstanding contractual obligations of the Corporation to repurchase, redeem or otherwise acquire any outstanding shares of the Corporation or any agreements or other arrangements regarding the voting or disposition of any outstanding shares of the Corporation. The Corporation has no Subsidiaries, nor is the Corporation a party to any joint venture, partnership or similar business arrangement with any other Person.

Non-Contravention. The execution, delivery and performance of this Agreement and the performance of the obligations under this Agreement by the Corporation, and the completion by the Corporation of the transactions contemplated by this Agreement, do not and will not:

contravene any provision of the constating documents of the Corporation;

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit to which the Corporation is a party or by which the Corporation is bound or subject or of which the Corporation is a beneficiary;

give rise to any right of termination or acceleration of indebtedness by any Person, or cause any third party indebtedness owing by the Corporation to become due and payable before its stated maturity or cause any available credit to cease to be available;

result in the imposition of, give rise to or trigger any claim upon any of the assets of the Corporation, or restrict, hinder, impair or limit the ability of the Corporation to carry on the Corporation’s business;

contravene the Loan Agreements;

create any Encumbrance upon any of the assets of the Corporation; or

contravene any Applicable Law.

Approvals. No authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person is required in connection with the execution, delivery or performance of this Agreement by the Corporation for the purchase of any of the Purchased Shares.

Indebtedness. The Corporation does not have any outstanding bonds, debentures, notes, mortgages, direct, indirect or contingent liabilities or long term liabilities or any other indebtedness.

Liabilities and Guarantees. Since its incorporation, the Corporation has no outstanding liabilities (whether absolute, contingent, accrued or otherwise), and is not a party to or bound by any agreement of guarantee, support, indemnification or assumption, comfort letter, or other agreement or commitment of a similar nature with respect to the obligations, liabilities (whether absolute, contingent, accrued or otherwise) or indebtedness of any Person.

Contracts. Correct and complete copies of all Contracts entered into by the Corporation, together with all amendments thereto have been provided to the Purchaser and are listed in Appendix A hereto. Other than the Contracts set forth in Appendix A hereto, the Corporation has not entered into any other Contracts since the date of its incorporation.

Loan Agreements.

Each Loan Agreement is a valid and binding obligation of each party thereto that is enforceable against such parties in accordance with their respective terms.

Each security document granted in respect of the Loan Agreements creates a valid, first ranking (save for the Atholville property), security interest in favour of the Corporation in the collateral described therein that is personal property, and is sufficient to create a valid security interest in favour of the Corporation in the collateral described therein to secure the payment and performance of the obligations described therein as being secured thereby, subject, in each case, to applicable bankruptcy, insolvency, reorganization, or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and remedies and to general principles of equity.

The Corporation has done no act to release Zenabis or the Guarantors (as that term is defined in Appendix A) from any covenants pursuant to the Loan Agreements or any other security granted to the Corporation.

The Corporation holds and will continue to hold good and marketable, registered and documentary title to the Loan Agreements and is the sole legal owner, and the Syndicate are the sole beneficial owners, of the Loan Agreements, free and clear of all Encumbrances.

No Claims have been made by or on behalf of the Corporation under any title insurance policies, if any, relating to the Loan Agreements and the Corporation has no knowledge of any matter that would impair or diminish the coverage of any such policies.

The loan statement in respect of the Loan Agreements attached hereto as Appendix C is a true and accurate account of the amounts outstanding under the Loan Agreements as of the date of the Closing Date.

None of Zenabis or any Guarantor has made any Claim, defense, set-off or counterclaim against the Corporation as lender under the Loan Agreements or otherwise and the Corporation is not aware of any present facts that would give rise to any such Claim, defense, set off or counter claim or otherwise (including, without limiting the generality of the foregoing, under the Loan Agreements).

The Loan Agreements constitute all of the loan documents evidencing the indebtedness of Zenabis to the Corporation and the Syndicate (including, without limitation, the security therefor) and all material correspondence relating to the exercise or preservation of the Corporation’s rights and remedies under the Loan Agreements. True copies of all of the Loan Agreements, including all amendments thereto, have been delivered by the Corporation to the Purchaser.

No Breach of Loan Agreements. Other than as set out in Schedule 3.2(j), there is currently no material violation or breach of or default of any of the Loan Agreements.

Other Indebtedness. To the Corporation’s Knowledge, Schedule 3.2(k) is a true and accurate account of the funded indebtedness owing by Zenabis to third parties as at December 27, 2020.

Assets. Other than the Loan Agreements and the Corporation’s Contracts, the Corporation does not have any assets, nor has it had any other assets since the date of its incorporation.

Taxes.

The Corporation has at no time since its date of incorporation earned any income and, as a result, it has never had a liability for any Taxes.

With respect to the Corporation, there are:

no Taxes due and payable by it;

no Taxes or other amounts required by Applicable Laws to be withheld by it; and

no amounts on account of sales or transfer taxes, including goods and services, harmonized sales and provincial or territorial sales taxes, required by Applicable Laws to be collected by it.

There are no disputes, proceedings, investigations, audits, assessments, reassessments or claims now pending or, to the Corporation’ Knowledge, threatened against the Corporation that propose to assess material Taxes. There are no liens, upon any of the assets or properties of the Corporation, for taxes that have not been paid by the Corporation.

No claim has ever been made by or is expected from any Governmental Authority against the Corporation in a jurisdiction in which the Corporation does not file a Tax Return that it is or may be subject to taxation in that jurisdiction.

Since incorporation, the only activity carried on by the Corporation was acting as agent and nominee for the Syndicate and the Corporation has had no income for purposes of the Tax Act and has not otherwise had any other activity or held any other property.

No Default. The Corporation is not in violation or material breach of, or material default under, and there exists no event, condition or occurrence which, with notice or passage of time or both, would constitute a material default under, or give rise to any termination rights under, any provision of Contract, lease, licence or permit to which the Corporation is a party or by which it is bound or is subject or of which it is a beneficiary.

Compliance with Laws.

The Corporation is in compliance with all Applicable Laws in all material respects; and

the Corporation is in compliance with all internal policies or codes of conduct in all respects and no breaches of such policies or codes of conduct have been reported to, nor have any waivers of compliance with such policies or codes of conduct been granted by the Corporation.

Non-Arm’s Length Transactions.

the Corporation has not made any payment or loan to, or borrowed any monies from or is otherwise indebted to, any officer, director, employee or shareholder of the Corporation, nor to any Person not dealing at arm’s length (within the meaning of the Tax Act) with the Corporation, or any of its Affiliates; and

except for contracts of employment, contractor agreements, the Corporation is not a party to any contract, lending arrangement, pledge of security or other agreement or commercial arrangement with any shareholder, Affiliate or non-arm’s length party.

Litigation and Other Proceedings. With regard to the Corporation:

there are no proceedings against or involving the Corporation (whether in progress or threatened); no event has occurred which could reasonably be expected to give rise to any proceedings; no Person has made any written or verbal threat to the Corporation to commence or revive any proceeding; and there is no order, decree, injunction, rule, award or order of any court, government department, commission, agency, arbitrator or similar body outstanding against the Corporation; and

the Corporation has not received any opinion or memorandum or legal advice from legal counsel retained by it to the effect that the Corporation is exposed, from a legal standpoint, to any liability.

Corporate Records. With regard to the Corporation: (i) the corporate records and minute books of the Corporation are complete and accurate in all material respects, and contain copies of minutes of all meetings of directors and committees thereof and shareholders or holders of other ownership interests held since their respective dates of incorporation or formation, and all such meetings were duly called and held; and (ii) the share certificate books, registers of shareholders or holders of other ownership interests, registers of transfers and registers of directors of the Corporation are complete and accurate in all material respects.

Zenabis.

Other than in Schedule 3.2(j), neither Zenabis nor any of the Guarantors are in violation or breach of or in default of any of the Loan Agreements;

to the Corporation’s Knowledge, other than Schedule 3.2(j), neither Zenabis nor any of the Guarantors are in violation or breach of or in default of its BMO Credit Facility; and

to the Corporation’s Knowledge, there is no material undisclosed information in respect of Zenabis or any of the Guarantors relevant to the transaction hereunder or the Loan Agreements and their status.

Brokers’ Fees. The Corporation has no liability or obligation to pay any fees or commissions to any financial advisor, broker, finder or agent with respect to the transactions contemplated by this Agreement nor has it granted any right of first refusal or commitment to engage any such Person in connection with any future transaction.

Material Facts. This Agreement does not contain any untrue statement of a material fact or omit to state a material fact that would cause the statements contained therein or herein to be misleading in light of the circumstances under which they were made.

Representations of the Purchaser

Incorporation and Existence. The Purchaser is incorporated, organized and is validly existing under the laws of its incorporation, and is registered, licensed or qualified to carry on business in each jurisdiction in which the character of its properties and assets owned or leased or the nature of its business makes such registration, licensing or qualification necessary.

Enforceability against the Purchaser. This Agreement is a legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and remedies and to general principles of equity.

Non-Contravention. The execution, delivery and performance of this Agreement and the performance of the obligations under this Agreement by the Purchaser, and the completion by the Purchaser of the transactions contemplated by this Agreement, do not and will not:

contravene any provision of the constating documents of the Purchaser;

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit to which the Purchaser is a party or by which the Purchaser is bound or subject or of which the Purchaser is a beneficiary;

give rise to any right of termination or acceleration of indebtedness by any Person, or cause any third party indebtedness owing by the Purchaser to become due and payable before its stated maturity or cause any available credit to cease to be available;

result in the imposition of, give rise to or trigger any claim upon any of the assets of the Purchaser, or restrict, hinder, impair or limit the ability of the Purchaser to carry on the business of the Corporation;

create any Encumbrance upon any of the assets of the Purchaser; or

contravene any Applicable Law.

Approvals. No authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person is required in connection with the execution, delivery or performance of this Agreement by the Purchaser for the purchase of any of the Purchased Shares.

Brokers’ Fees. The Purchaser has no liability or obligation to pay any fees or commissions to any financial advisor, broker, finder or agent with respect to the transactions contemplated by this Agreement nor has it granted any right of first refusal or commitment to engage any such Person in connection with any future transaction.

Survival of Representations, Warranties and Covenants

the representations and warranties contained in Section 3.1(a) to (d) and Sections 3.2(a) to 3.2(e), 3.3(a) to (d) shall survive for the maximum amount of time under Applicable Laws, and a claim in respect of the breach thereof may be brought at any time after the Closing;

the representations and warranties contained in Section 3.2(m) in respect of any Taxes arising in or in respect of a period shall survive until the date which is 45 days after the relevant Governmental Authority is no longer entitled to assess or reassess liability for Taxes against the applicable Party for that period, having regard without limitation to any waivers given by the relevant Party in respect of such period, except to the extent that any intentional misrepresentation has been made or any fraud has been committed by the Purchaser or the Corporation in filing a Tax Return or in supplying information for the purposes of any Applicable Law imposing Tax on the Purchaser or the Corporation, as applicable; and

all other representations and warranties shall terminate at the expiration of 24 months following the Closing.

Conditions for the Benefit of the Purchaser

The obligation of the Purchaser to complete the purchase of the Purchased Shares and the other transactions contemplated by this Agreement is subject to satisfaction, at or prior to the Closing Time, of each of the following conditions:

Delivery of Share Certificates. The Shareholder shall have delivered to the Purchaser the share certificate(s) representing the Purchased Shares duly endorsed in blank for transfer or accompanied by duly signed share transfer forms.

Certificates of Status. The Shareholder shall have delivered to the Purchaser a certificate of status or its equivalent issued by the relevant Governmental Authority with respect to the Corporation.

[***] Purchase Agreement. An executed copy of the share purchase agreement with respect to all of the issued and outstanding shares of [***] and all documents ancillary thereto shall be have been delivered to the Purchaser.

Undertaking. An executed undertaking of the Corporation and the Syndicate shall have been delivered to the Purchaser regarding the filing of outstanding Tax filings.

Deliveries. Certified copies of:

the constating documents and by-laws of the Corporation; and

the resolutions of the board of directors of the Corporation authorizing this Agreement and the transactions contemplated hereby,

Representations and Warranties. The representations and warranties of the Shareholder made in or pursuant to this Agreement shall be true and correct at the Closing Time as if made at and as of the Closing Time; the covenants and agreements contained in this Agreement to be performed by the Shareholder at or prior to the Closing Time shall have been performed in all respects.

No Action to Restrain. No action or proceeding shall be pending or threatened by any Person to restrain or prohibit:

the purchase and sale of the Purchased Shares pursuant to this Agreement; or

the Purchaser from carrying on the business of the Corporation as is being carried on as at the date of this Agreement.

Change in Law. No Applicable Laws shall have been enacted the effect of which will be to prevent the completion of the transactions contemplated by this Agreement.

Loan Agreements. The Loan Agreements as listed in Appendix A shall not be further amended and are in full force and effect.

Legal Opinion. The Purchaser shall have received a legal opinion from counsel to the Shareholder, in form and substance satisfactory to the Purchaser, acting reasonably.

The conditions contained in this Section 4.1 are for the exclusive benefit of the Purchaser and may be waived in whole or in part by the Purchaser in writing at any time.

Conditions for the Benefit of the Shareholder

The obligation of the Shareholder to complete the sale of the Purchased Shares and the other transactions contemplated by this Agreement is subject to the fulfillment or performance, at or before the Closing Time, of each of the following conditions:

Payments. The Shareholder shall have received the Purchase Price payable pursuant to Section 2.1 and the payments required pursuant to the Escrow Agreement shall have been deposited to escrow on those terms.

Delivery of Resolutions. The resolutions of the directors of the Purchaser authorizing the entry into this Agreement shall have been delivered to the Shareholder, in form and substance satisfactory to the Shareholder, acting reasonably.

Representations and Warranties. The representations and warranties of the Purchaser made in or pursuant to this Agreement shall be true and correct at the Closing Time as if made at and as of the Closing Time; the covenants and agreements contained in this Agreement to be performed by the Purchaser at or prior to the Closing Time shall have been performed.

The conditions contained in this Section 4.2 are for the exclusive benefit of the Shareholder and may be waived in whole or in part by the Shareholder in writing at any time.

Notice of Breach

cause any of its representations or warranties contained herein to be untrue or incorrect on the Closing Date;

result in its failure to comply with or satisfy any covenant or agreement contained herein prior to the Closing Date;

any Material Adverse Change in the business of the Corporation; or

result in the failure to satisfy any of the conditions in the other party’s favour contained in Section 4.1 or 4.2, as applicable.

Post-Closing Covenants

the Purchaser shall capitalize the Corporation by making a contribution to the Corporation in an amount that is not less than the Loan Agreements Purchase Price;

the Purchaser shall cause the Corporation to and the Corporation shall wire the Purchase Price and the Loan Agreements Purchase Price, as applicable, in accordance with the directions and wire instructions attached hereto as Appendix D;

upon receipt of the payment identified in Section 5.1(b) in full, each member of the Syndicate shall release from escrow the agreements to terminate and quit-claim their respective rights in and to the Participation Agreements and the Loan Agreements, in accordance with the Quit Claim Agreement; and

the payment of $744,528.23, representing fees and interest payable to the Corporation pursuant to the Loan Agreements up to and including the Closing Date for the calendar month of December 2020, whether paid in cash or some other form of consideration and whether received in a going concern capacity, an insolvency proceeding or other context, whether for debt forgiveness, payment, compromise or otherwise, to be paid within 2 Business Days of receipt of same by the Purchaser from Zenabis in accordance with the wire instructions attached hereto as Appendix D. The Purchaser further covenants that it shall not and shall not permit the Corporation to forgive or otherwise waive the rights to receive the above payments except for consideration and where payment of such amounts are not specifically separated in any payment arrangement such amounts shall be calculated on a percentage basis of the payment amounts regardless of form relative to the amount then owing to the Corporation multiplied by the amount received by the Corporation.

Indemnification by the Shareholder

any Loss of the Purchaser as a result of any breach of representation or warranty of the Shareholder contained in this Agreement with respect to the Corporation or in any certificate or document delivered pursuant to or contemplated by this Agreement;

any Loss of the Purchaser as a result of any breach or any non-fulfilment of any covenant or agreement on the part of the Shareholder contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement; and

all claims, demands, costs and expenses, including reasonable legal expenses, in respect of the foregoing.

Indemnification by the Purchaser

any Loss of any Shareholder as a result of any breach of representation or warranty by the Purchaser contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement;

any Loss of any Shareholder as a result of any breach or any non-fulfilment of any covenant or agreement on the part of the Purchaser contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement; and

all claims, demands, costs and expenses, including reasonable legal expenses, in respect of the foregoing.

Notice of Claim

the factual basis for the Claim, and any provisions of the Agreement, or of any Applicable Laws, relied upon; and

the amount of the Claim, or, if an amount is not determinable, an approximate and reasonable estimate of the potential Claim.

Direct Claims

Third Party Claims

With respect to any Third Party Claim, the Indemnifying Party shall have the right, at its own expense, to participate in or assume control of the negotiation, settlement or defence of the Third Party Claim and, in such event, the Indemnifying Party shall reimburse the Indemnified Party for all of the Indemnified Party’s out-of-pocket expenses as a result of such participation or assumption. If the Indemnifying Party elects to assume such control, the Indemnified Party shall have the right to participate in the negotiation, settlement or defence of such Third Party Claim at its own expense and shall have the right to disagree on reasonable grounds with the selection and retention of legal counsel, in which case legal counsel satisfactory to both the Indemnifying Party and the Indemnified Party shall be retained by the Indemnifying Party.

If the Indemnifying Party, having elected to assume control as contemplated in Section 6.5(a), thereafter fails to defend such Third Party Claim within a reasonable time, the Indemnified Party shall be entitled to assume such control and the Indemnifying Party shall be bound by the results obtained by the Indemnified Party with respect to such Third Party Claim.

In the event that any Third Party Claim is of a nature such that the Indemnified Party is required by Applicable Laws to make a payment to any Third Party with respect to such Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Indemnified Party may make such payment and the Indemnifying Party shall, forthwith after demand by the Indemnified Party, reimburse the Indemnified Party for any such payment.

Except in the circumstances contemplated by Sections 6.5(b), whether or not the Indemnifying Party assumes control of the negotiation, settlement or defence of any Third Party Claim, the Indemnified Party shall not negotiate, settle, compromise or pay any Third Party Claim except with the prior written consent of the Indemnifying Party (which consent shall not be unreasonably delayed or withheld).

The Indemnified Party shall not permit any right of appeal in respect of any Third Party Claim to terminate without giving the Indemnifying Party notice thereof and an opportunity to contest such Third Party Claim.

The Parties shall use their commercially reasonable efforts to cooperate with each other with respect to Third Party Claims, shall keep each other advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available) and shall each designate a representative who will keep himself or herself informed about and be prepared to discuss the Third Party Claim with his or her counterpart and with legal counsel at all reasonable times.

Notwithstanding anything to the contrary contained herein, the Indemnifying Party shall not settle any Third Party Claim without the consent of the Indemnified Party unless the settlement includes a complete release of the Indemnified Party with respect to the claim.

Notwithstanding anything to the contrary herein, if the Indemnifying Party:

is not entitled to assume the investigation and defence of a Third Party Claim under this Agreement;

does not elect to assume the investigation and defence of a Third Party Claim;

assumes the investigation and defence of a Third Party Claim but fails to diligently pursue such defence; or

the Indemnified Party reasonably concludes that the Third Party Claim is not being defended to its satisfaction, acting reasonably, the Indemnified Party has the right (but not the obligation), to undertake the defence of the Third Party Claim.

In the case where the Indemnifying Party fails to diligently pursue the defence of the Third Party Claim or the Indemnified Party reasonably concludes that the Third Party Claim is not being defended to its satisfaction, acting reasonably, the Indemnified Party may not assume the defence of the Third Party Claim unless the Indemnified Party gives the Indemnifying Party written demand to diligently pursue the defence and the Indemnifying Party fails to do so within 10 days after receipt of the demand, or such shorter period as may be required to respond to any deadline imposed by a court, arbitrator or other tribunal or Governmental Authority.

Subrogation

Enforceability of Loan Agreements

require the Shareholder to promptly repay the Purchase Price and the Loan Agreements Purchase Price to the Purchaser, and contemporaneously with such payment, the Purchaser shall deliver, or cause to be delivered, the Purchased Shares to the Shareholder, duly endorsed in blank for transfer or accompanied by duly signed share transfer forms; or

retain ownership of the Purchased Shares and require the Syndicate to act as its nominee and bare trustee in accordance with the Quit Claim Agreement.

Limitation of Liability

in no event shall a Party be liable for indirect or consequential, exemplary, punitive or special damages (including without limitation, loss of profits, loss of opportunity, loss of business, loss of reputation and loss of financing) relating to this Agreement or any other any agreement, instrument or document executed in connection with this Agreement even if such Party has been advised of the possibility of such damages in advance and whether such losses arise in, under or pursuant to contract, tort, common law, equity, statute or otherwise.

No Party shall be entitled to duplication of recovery by reason of the state of facts giving rise to Losses.

The maximum aggregate liability of a Party for indemnification pursuant to this Article 6 will not exceed the sum of the Purchase Price and the Loan Agreements Purchase Price.

The limitations set forth in this Section 6.8 shall not apply with respect to:

Losses which result from a breach by a Party of its obligations of confidentiality hereunder;

Losses for Taxes that are payable by the Corporation but unpaid prior to the Closing Date; and

any portion of Losses that resulted primarily and directly from the fraud or the wilful misconduct of a Party or its officers, directors, employees, agents, affiliates, representatives, successors or assigns.

Public Statements

Confidentiality

an Affiliate of a party to this Agreement, directors, officers, or employees of a party to this Agreement or an Affiliate to a party to this Agreement, as long as they in turn are required to treat the Confidential Information as confidential on terms substantially the same as those set out in this Section 7.2;

accountants, professional advisers and bankers and other lenders, whether current or prospective, as long as they are subject to statutory professional secrecy rules or similar legal concepts under Applicable Laws or, in turn, are required to treat the Confidential Information as confidential on terms substantially the same as those set out in this Section 7.2;

any Governmental Authority having jurisdiction over a party to this Agreement, to the extent legally required, and then only after, to the extent permitted by law, informing the other parties thereof and, to the extent possible, with sufficient notice in advance to permit the other parties to seek a protective order or other remedy;

any Person to the extent required by any Applicable Laws, judicial process or the rules and regulations of any recognized stock exchange and then only subject to prior consultation with the other Parties;

any intended assignee of the rights and interests of a party under this Agreement or to a Person intending to acquire an interest in a party to this Agreement as long as the intended assignee or acquirer in turn is required by that party to treat the Confidential Information as confidential in favour of the other parties on terms substantially the same as those set out in this Section 7.2; or

the extent that the Confidential Information is in or lawfully comes into the public domain other than by breach of this Section 7.2.

Non-Circumvention

Expenses

Notices

To the Purchaser:

To the Shareholder and the [***] Members of the Syndicate:

To [***]:

Time of Essence

Further Assurances

Counterparts and Electronic Signatures

Enurement

Assignment

ARTICLE 1 INTERPRETATION

ARTICLE 2 PURCHASE AND SALE

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

ARTICLE 4 CONDITIONS

ARTICLE 5 POST-CLOSING COVENANTS

ARTICLE 6 INDEMNIFICATION

ARTICLE 7 GENERAL MATTERS

The Shareholder is the legal and beneficial owner of 100 Common Shares of the Corporation, representing all of the issued and outstanding shares of the Corporation (the “Purchased Shares”); and

the Purchaser wishes to purchase and the Shareholder wishes to sell to the Purchaser the Purchased Shares, subject to the terms and conditions set forth herein.

Definitions

“265 Share Purchase Agreement” means the share purchase agreement dated December 29, 2020 between Sundial Growers Inc., 2657408 Ontario Inc., [***], [***], [***], [***] And [***];

“Affiliate” has the meaning set forth in National Instrument 45-106 Prospectus and Registration Exemptions;

“Agreement” means this agreement, and all appendices attached to this agreement, in each case as they may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this agreement and unless otherwise indicated, references to Articles and sections are to Articles and sections in this Agreement;

“Applicable Laws” means, in respect of any Person, property, transaction, event or course of conduct, all applicable laws, statutes, regulations, rules, by-laws, ordinances, protocols, practices, regulatory policies, codes, guidelines, official directives, orders, rulings, judgments and decrees of any Governmental Authority, and all conditions, restrictions or requirements imposed by the terms of, or applicably by reason of, any permits, approvals, review processes of any Governmental Authority or any filings with respect to any work under any Contract including, without limitation, any applicable building permits;

“Approvals” means approvals, certificates, authorizations, Consents, filings, permits, grants, licences, notifications, privileges, registrations, rights, orders, judgments, rulings, directives, ordinances, decrees, registrations and filings;

“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the Province of Alberta or the Province of Ontario;

“Claim” means any actual or threatened civil, criminal, administrative, regulatory, arbitral or investigative inquiry, action, suit, investigation or proceeding and any claim or demand resulting therefrom or any other claim or demand of whatever nature or kind;

“Closing” means the completion of the purchase and sale of the Purchased Shares pursuant to this Agreement at the Closing Time;

“Closing Date” has the meaning ascribed to such term in the 265 Share Purchase Agreement;

“Closing Time” has the meaning ascribed to such term in the 265 Share Purchase Agreement;

“Common Shares” means common shares in the capital of Corporation;

“Confidential Information” has the meaning ascribed to it in Section 7.2;

“Consents” means, collectively, all of the consents, permissions or approvals of:

any Governmental Authority;

any Person pursuant to or in connection with any Contract, required in connection with the transactions contemplated by this Agreement;

“Contracts” means any contract, agreement, commitment, lease or other binding instrument, whether written or oral;

“Corporation’s Knowledge” means the actual knowledge of the officers and directors of the Corporation together with the knowledge which they would have had if they made inquiries and investigations into the relevant matter that a reasonably prudent individual would have made in similar circumstances;

“Direct Claim” means a Claim which originates pursuant to this Agreement and does not involve a Third Party Claim;

“Encumbrance” means any security interest, lien, charge, pledge, encumbrance, mortgage, hypothec, adverse claim or title retention agreement, preferential right, trust arrangement, contractual right of set-off or other security agreement or arrangement of any nature or kind whatsoever;

“Governmental Authority” means any:

federal, provincial, state, regional, municipal, local or other government, domestic or foreign;

governmental or quasi-governmental authority of any nature including any agency, branch, department, commission, board, court or tribunal;

body exercising any administrative, executive, judicial, legislative, police, regulatory, expropriation or taxing authority, domestic or foreign; or

self-regulatory organization or stock exchange having jurisdiction in the relevant circumstances;

“Indemnified Party” means a Person whom the Shareholder or the Purchaser, as the case may be, is required to indemnify under Article 6;

“Indemnifying Party” means, in relation to an Indemnified Party, a Party to this Agreement that is required to indemnify such Indemnified Party under Article 6;

“Loan Agreements” has the meaning ascribed to such term in the 265 Share Purchase Agreement;

“Loss” means any loss, injury, liability, damage, cost, expense (including reasonable legal and consulting fees and disbursements), or deficiency of any kind or nature, suffered or incurred by an Indemnified Party, in connection with any Claim made by it hereunder, including in respect of any proceeding, assessment, judgment, settlement or compromise relating thereto;

“Material Adverse Change” means any event or change that:

is, or is reasonably likely to be, materially adverse to a Person, its financial condition or its results of operations, or

prevents, or would reasonably be likely to prevent, consummation of the transaction of purchase and sale provided for hereunder;

“Monitoring Agreement” means the Monitoring Agreement listed in Appendix A hereto;

“Notice of Claim” has the meaning ascribed to it in Section 7.4;

“Party” means a party to this Agreement and any reference to a Party includes its successors and permitted assigns and “Parties” means every Party;

“Person” means any individual, sole proprietorship, partnership, limited partnership, joint venture, syndicate, body corporate with or without share capital, unincorporated association or trust and, where the context requires, any of the foregoing when acting as trustee, executor, administrator or other legal representative;

“Purchase Price” has the meaning ascribed to it in Section 2.2;

“Purchased Shares” has the meaning ascribed to it in the preamble to this Agreement;

“Subsidiary” means, with respect to any Person, a Person that is controlled directly or indirectly by another Person and includes a subsidiary of that subsidiary and, for purposes of this definition, a Person controls a second Person if:

the 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 Person to elect a majority of the directors of the second Person, unless the Person beneficially owns or exercises control or direction over voting securities only to secure an obligation;

the second Person is a partnership, the Person beneficially owns or exercises control or direction over more than fifty percent (50%) of the interests in the partnership; or

the second Person is a limited partnership, the Person is the general partner of the limited partnership or the control Person of the general partner;

“Tax” and “Taxes” means all taxes, assessments, reassessments, charges, dues, duties, rates, fees, imposts, levies and similar charges of any kind lawfully levied, assessed or imposed by any Governmental Authority, including all income taxes (including any tax on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings or profits), windfall profits taxes, gross receipts taxes, withholding or similar taxes, branch taxes, net worth taxes, surtaxes, production taxes, sales taxes, use taxes, ad valorem taxes, value added taxes, excise taxes, goods and services tax, harmonized sales tax, capital taxes, stamp taxes, premium taxes, property taxes, land transfer taxes, mining taxes, environmental taxes, franchise taxes, licence taxes, health taxes, payroll taxes, employment taxes, severance taxes, social security premiums, employment insurance or compensation premiums, Canada or Quebec Pension Plan premiums, workers’ compensation premiums, mandatory pension and other social fund taxes or premiums, alternative or add-on minimum taxes, custom duties or other governmental taxes, assessments, charges, dues, duties, rates, fees, imposts, levies and similar charges of any kind whatsoever imposed by any Governmental Authority in respect of the relevant entity, together with any interest, penalties or additions thereto and any interest in respect of such penalties or additions;

“Tax Act” means the Income Tax Act (Canada) and the regulations promulgated thereunder, as amended;

“Tax Returns” means all returns, reports, declarations, elections, information statements and forms, including any schedules thereto, required by any Governmental Authority to be made, prepared or filed in respect of Taxes by the relevant entity;

“Third Party” means a Person that is not a Party;

“Third Party Claim” means a Claim by an Indemnified Party which originates by reason of a Person (other than such Indemnified Party) making a claim against the Indemnified Party; and

“Zenabis” means Zenabis Investments Ltd, as the borrower and Zenabis Global Inc. as the guarantor under the Loan Agreements.

Interpretation

Headings and Table of Contents. The inclusion of headings and a table of contents is for convenience of reference only and shall not affect the construction or interpretation hereof.

Gender and Number. Except where the context requires otherwise, words importing the singular include the plural and vice versa and words importing gender include all genders.

Including. Where the word “including” or “includes” is used, it means including or includes “without limitation”.

Material. Where the term “material” or “materially” is used, it shall be construed, measured or assessed on the basis of whether the matter would materially affect a Party or would prevent or significantly impede the purchase or sale of the Purchased Shares or the completion of the other transactions contemplated by this Agreement.

No Strict Construction. The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party proposing any such language.

Statutory References. A reference to a statute includes all rules and regulations made pursuant to such statute and, unless expressly provided otherwise, the provisions of any statute, rule or regulation which amends, supplements or supersedes any such statute, rule or regulation.

Currency. Except where expressly provided otherwise herein, all amounts are stated and shall be paid in Canadian dollars.

Time Periods. Except where expressly provided otherwise herein, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the following Business Day if the last day of the period is not a Business Day.

Entire Agreement

Severability

Amendments, Waivers, Investigations

Governing Law

Paramountcy

Agreement to Purchase and Sell

Purchase Price

Location and Time of the Closing

By the Shareholder

Validity. The Shareholder has full power and authority to execute and deliver this Agreement and the other documents to be delivered hereunder and to perform the terms and conditions hereof.

Enforceability against the Shareholder. This Agreement is a legal, valid and binding obligation of the Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and remedies and to general principles of equity.

Right to Sell Purchased Shares. The Shareholder is the sole legal owner of all of the Purchased Shares registered in the name of the Shareholder and the sole beneficial owner of such Purchased Shares, with good and marketable title thereto, free and clear of all Encumbrances. No third party has any right or option in respect of the Purchased Shares that could affect the ability of the Shareholder to transfer good and marketable title to the Purchased Shares to the Purchaser free and clear of all Encumbrances. The Shareholder is not a party to any shareholder agreement, voting trust agreement or any other agreement or instrument which in any way limits or restricts the transfer to the Purchaser any of the Purchased

Non-Contravention. The execution, delivery and performance of this Agreement and the performance of the obligations under this Agreement by the Shareholder, and the completion by the Shareholder of the transactions contemplated by this Agreement, do not and will not:

contravene any provision of the constating documents of the Shareholder;

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit to which the Shareholder is a party or by which the Shareholder is bound or subject or of which the Shareholder is a beneficiary;

contravene the Loan Agreements; or

contravene any Applicable Law;

Approvals. No authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person is required in connection with the execution, delivery or performance of this Agreement by the Shareholder for the purchase of any of the Purchased Shares.

Residency. The Shareholder is not a non-resident of Canada for the purpose of the Income Tax Act (Canada).

Brokers’ Fees. The Shareholder has no liability or obligation to pay any fees or commissions to any financial advisor, broker, finder or agent with respect to the transactions contemplated by this Agreement nor has it granted any right of first refusal or commitment to engage any such Person in connection with any future transaction.

By the Shareholder regarding the Corporation

Incorporation and Existence. The Corporation is incorporated, organized and is validly existing under the laws of its incorporation, and is registered, licensed or qualified to carry on business in each jurisdiction in which the character of its properties and assets owned or leased or the nature of its business makes such registration, licensing or qualification necessary.

Corporate Power. The Corporation has the corporate power and capacity to carry on its business as it is currently conducted, to own or lease its property and assets.

Capitalization.

The Corporation is authorized to issue an unlimited number of Common Shares, of which there are 100 Common Shares outstanding as at the date hereof, all of which are legally and beneficially owned and controlled by the Shareholder.

all of the shares of the Corporation have been validly issued and are outstanding as fully paid and non-assessable shares;

there are no options, warrants, purchase rights, subscription rights, conversion privileges, exchange rights, pre-emptive rights or other rights, agreements or commitments of a similar nature to which the Corporation is bound relating to the outstanding or unissued share capital of the Corporation or obligating the Corporation to issue any shares of, or other equity interest in, the Corporation or securities or obligations of any kind convertible into or exchangeable for any shares of the Corporation, nor are there any outstanding stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or any other attribute of the Corporation;

there are no outstanding bonds, debentures or other evidences of indebtedness of the Corporation having the right to vote (or that are convertible for, exercisable into or exchangeable for securities having the right to vote) on any matter on which the holders of shares may vote; and

there are no outstanding contractual obligations of the Corporation to repurchase, redeem or otherwise acquire any outstanding shares of the Corporation or any agreements or other arrangements regarding the voting or disposition of any outstanding shares of the Corporation. The Corporation has no Subsidiaries, nor is the Corporation a party to any joint venture, partnership or similar business arrangement with any other Person.

Non-Contravention. The execution, delivery and performance of this Agreement and the performance of the obligations under this Agreement by the Corporation, and the completion by the Corporation of the transactions contemplated by this Agreement, do not and will not:

contravene any provision of the constating documents of the Corporation;

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit to which the Corporation is a party or by which the Corporation is bound or subject or of which the Corporation is a beneficiary;

give rise to any right of termination or acceleration of indebtedness by any Person, or cause any third party indebtedness owing by the Corporation to become due and payable before its stated maturity or cause any available credit to cease to be available;

result in the imposition of, give rise to or trigger any claim upon any of the assets of the Corporation, or restrict, hinder, impair or limit the ability of the Corporation to carry on the Corporation’s business;

contravene the Loan Agreements;

create any Encumbrance upon any of the assets of the Corporation; or

contravene any Applicable Law.

Approvals. No authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person is required in connection with the execution, delivery or performance of this Agreement by the Corporation for the purchase of any of the Purchased Shares.

Indebtedness. The Corporation does not have any outstanding bonds, debentures, notes, mortgages, direct, indirect or contingent liabilities or long term liabilities or any other indebtedness.

Liabilities and Guarantees. Since its incorporation, the Corporation has no outstanding liabilities (whether absolute, contingent, accrued or otherwise), and is not a party to or bound by any agreement of guarantee, support, indemnification or assumption, comfort letter, or other agreement or commitment of a similar nature with respect to the obligations, liabilities (whether absolute, contingent, accrued or otherwise) or indebtedness of any Person, other than such obligations which will be repaid in full upon closing of the share purchase pursuant to the 265 Share Purchase Agreement.

Contracts. Correct and complete copies of all Contracts entered into by the Corporation, together with all amendments thereto have been provided to the Purchaser and are listed in Appendix B hereto. Other than the Contracts set forth in Appendix A and B hereto, the Corporation has not entered into any other Contracts since the date of its incorporation, other than such Contracts which will be terminated in full upon closing of the share purchase pursuant to the 265 Share Purchase Agreement.

Monitoring Agreement.

The Monitoring Agreement is a valid and binding obligation of each party thereto that is enforceable against such parties in accordance with their respective terms.

The Corporation has done no act to release Zenabis or the Guarantors (as that term is defined in Appendix A) from any covenants pursuant to the Monitoring Agreement.

$100,000, plus applicable taxes, is the total amount payable to the Corporation pursuant to the Monitoring Agreement to December 31, 2020.

No Breach of Monitoring Agreement. There has been no material violation or breach of or default of the Monitoring Agreement.

Assets. Other than the Loan Agreements and the Corporation’s Contracts, the Corporation does not have any assets, nor has it had any other assets since the date of its incorporation.

Taxes.

The Corporation has duly and timely made or prepared all Tax Returns required to be made or prepared by it, has duly and timely filed in the prescribed form all Tax Returns required to be filed by it with the appropriate Governmental Authority and has, in all material respects, completely and correctly reported all income and all other amounts or information required to be reported thereon.

The Corporation has:

duly and timely paid all Taxes due and payable by it other than those which are being or have been contested in good faith;

duly and timely withheld all Taxes and other amounts required by Applicable Laws to be withheld by it and has duly and timely remitted to the appropriate Governmental Authority such Taxes and other amounts required by Applicable Laws to be remitted by it; and

duly and timely collected all amounts on account of sales or transfer taxes, including goods and services, harmonized sales and provincial or territorial sales taxes, required by Applicable Laws to be collected by it and has duly and timely remitted to the appropriate Governmental Authority any such amounts required by Applicable Laws to be remitted by it.

There are no disputes, proceedings, investigations, audits, assessments, reassessments or claims now pending or, to the Corporation’ Knowledge, threatened against the Corporation that propose to assess material Taxes in addition to those reported in any Tax Returns filed with the appropriate Governmental Authority. There are no liens, upon any of the assets or properties of the Corporation, for taxes that have not been paid by the Corporation.

No claim has ever been made by or is expected from any Governmental Authority against the Corporation in a jurisdiction in which the Corporation does not file a Tax Return that it is or may be subject to taxation in that jurisdiction.

Since incorporation, the only activity carried on by the Corporation was acting as agent and nominee for the participating lenders and the Corporation has had no income for purposes of the Tax Act and has not otherwise had any other activity or held any other property.

No Default. The Corporation is not in violation or material breach of, or material default under, and there exists no event, condition or occurrence which, with notice or passage of time or both, would constitute a material default under, or give rise to any termination rights under, any provision of Contract, lease, licence or permit to which the Corporation is a party or by which it is bound or is subject or of which it is a beneficiary.

Compliance with Laws.

The Corporation is in compliance with all Applicable Laws in all material respects; and

the Corporation is in compliance with all internal policies or codes of conduct in all respects and no breaches of such policies or codes of conduct have been reported to, nor have any waivers of compliance with such policies or codes of conduct been granted by the Corporation.

Non-Arm’s Length Transactions.

the Corporation has not made any payment or loan to, or borrowed any monies from or is otherwise indebted to, any officer, director, employee or shareholder of the Corporation, nor to any Person not dealing at arm’s length (within the meaning of the Tax Act) with the Corporation, or any of its Affiliates other than participating lenders; and

except for contracts of employment, contractor agreements, the Corporation is not a party to any contract, lending arrangement, pledge of security or other agreement or commercial arrangement with any shareholder, Affiliate or non-arm’s length party other than participating lenders.

Litigation and Other Proceedings. With regard to the Corporation:

there are no proceedings against or involving the Corporation (whether in progress or threatened); no event has occurred which could reasonably be expected to give rise to any proceedings; no Person has made any written or verbal threat to the Corporation to commence or revive any proceeding; and there is no order, decree, injunction, rule, award or order of any court, government department, commission, agency, arbitrator or similar body outstanding against the Corporation; and

the Corporation has not received any opinion or memorandum or legal advice from legal counsel retained by it to the effect that the Corporation is exposed, from a legal standpoint, to any liability.

Corporate Records. With regard to the Corporation: (i) the corporate records and minute books of the Corporation are complete and accurate in all material respects, and contain copies of minutes of all meetings of directors and committees thereof and shareholders or holders of other ownership interests held since their respective dates of incorporation or formation, and all such meetings were duly called and held; and (ii) the share certificate books, registers of shareholders or holders of other ownership interests, registers of transfers and registers of directors of the Corporation are complete and accurate in all material respects.

Zenabis.

Other than as disclosed in the 265 Share Purchase Agreement, neither Zenabis nor any of the Guarantors are in violation or breach of or in default of any of the Loan Agreements;

to the Corporation’s Knowledge, other than as disclosed in the 265 Share Purchase Agreement, neither Zenabis nor any of the Guarantors are in violation or breach of or in default of its BMO Credit Facility; and

to the Corporation’s Knowledge, there is no material undisclosed information in respect of Zenabis or any of the Guarantors.

Brokers’ Fees. The Corporation has no liability or obligation to pay any fees or commissions to any financial advisor, broker, finder or agent with respect to the transactions contemplated by this Agreement nor has it granted any right of first refusal or commitment to engage any such Person in connection with any future transaction.

Material Facts. This Agreement does not contain any untrue statement of a material fact or omit to state a material fact that would cause the statements contained therein or herein to be misleading in light of the circumstances under which they were made.

Representations of the Purchaser

Incorporation and Existence. The Purchaser is incorporated, organized and is validly existing under the laws of its incorporation, and is registered, licensed or qualified to carry on business in each jurisdiction in which the character of its properties and assets owned or leased or the nature of its business makes such registration, licensing or qualification necessary.

Enforceability against the Purchaser. This Agreement is a legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and remedies and to general principles of equity.

Non-Contravention. The execution, delivery and performance of this Agreement and the performance of the obligations under this Agreement by the Purchaser, and the completion by the Purchaser of the transactions contemplated by this Agreement, do not and will not:

contravene any provision of the constating documents of the Purchaser;

result in a violation or breach of, or constitute a default (or an event, condition or occurrence which, with notice or passage of time or both, would constitute a default) under, or give rise to any termination rights, rights of first refusal or other buy-sell rights or the amendment, acceleration or cancellation of or change in any rights or obligations of any Person under, any provision of any contract, agreement, lease, licence, concession, franchise or permit to which the Purchaser is a party or by which the Purchaser is bound or subject or of which the Purchaser is a beneficiary;

give rise to any right of termination or acceleration of indebtedness by any Person, or cause any third party indebtedness owing by the Purchaser to become due and payable before its stated maturity or cause any available credit to cease to be available;

result in the imposition of, give rise to or trigger any claim upon any of the assets of the Purchaser, or restrict, hinder, impair or limit the ability of the Purchaser to carry on the business of the Corporation;

create any Encumbrance upon any of the assets of the Purchaser; or

contravene any Applicable Law.

Approvals. No authorization, Approval of, or filing with or notice to, any Governmental Authority, court or other Person is required in connection with the execution, delivery or performance of this Agreement by the Purchaser for the purchase of any of the Purchased Shares.

Brokers’ Fees. The Purchaser has no liability or obligation to pay any fees or commissions to any financial advisor, broker, finder or agent with respect to the transactions contemplated by this Agreement nor has it granted any right of first refusal or commitment to engage any such Person in connection with any future transaction.

Survival of Representations, Warranties and Covenants

the representations and warranties contained in Section 3.1(a) to (d) and Sections 3.2(a) to 3.2(e), 3.3(a) to (d) shall survive for the maximum amount of time under Applicable Laws, and a claim in respect of the breach thereof may be brought at any time after the Closing;

the representations and warranties contained in Section 3.2(l) in respect of any Taxes arising in or in respect of a period shall survive until the date which is 45 days after the relevant Governmental Authority is no longer entitled to assess or reassess liability for Taxes against the applicable Party for that period, having regard without limitation to any waivers given by the relevant Party in respect of such period, except to the extent that any intentional misrepresentation has been made or any fraud has been committed by the Purchaser or the Corporation in filing a Tax Return or in supplying information for the purposes of any Applicable Law imposing Tax on the Purchaser or the Corporation, as applicable; and

all other representations and warranties shall terminate at the expiration of 24 months following the Closing.

Conditions for the Benefit of the Purchaser

The obligation of the Purchaser to complete the purchase of the Purchased Shares and the other transactions contemplated by this Agreement is subject to satisfaction, at or prior to the Closing Time, of each of the following conditions:

Delivery of Share Certificates. The Shareholder shall have delivered to the Purchaser the virtual minute book and all related documents representing the Purchased Shares duly endorsed in blank for transfer or accompanied by duly signed share transfer forms.

Certificates of Status. The Shareholder shall have delivered to the Purchaser a certificate of status or its equivalent issued by the relevant Governmental Authority with respect to the Corporation.

Deliveries. Certified copies of:

the constating documents and by-laws of the Corporation; and

the resolutions of the board of directors of the Corporation authorizing this Agreement and the transactions contemplated hereby,

Representations and Warranties. The representations and warranties of the Shareholder made in or pursuant to this Agreement shall be true and correct at the Closing Time as if made at and as of the Closing Time; the covenants and agreements contained in this Agreement to be performed by the Shareholder at or prior to the Closing Time shall have been performed in all respects.

No Action to Restrain. No action or proceeding shall be pending or threatened by any Person to restrain or prohibit:

the purchase and sale of the Purchased Shares pursuant to this Agreement; or

the Purchaser from carrying on the business of the Corporation as is being carried on as at the date of this Agreement.

Change in Law. No Applicable Laws shall have been enacted the effect of which will be to prevent the completion of the transactions contemplated by this Agreement.

Monitoring Agreements. The Monitoring Agreements as listed in Appendix A shall not be further amended and are in full force and effect.

The conditions contained in this Section 4.1 are for the exclusive benefit of the Purchaser and may be waived in whole or in part by the Purchaser in writing at any time.

Conditions for the Benefit of the Shareholder

The obligation of the Shareholder to complete the sale of the Purchased Shares and the other transactions contemplated by this Agreement is subject to the fulfillment or performance, at or before the Closing Time, of each of the following conditions:

Payments. The Shareholder shall have received the Purchase Price payable pursuant to Section 2.1.

Delivery of Resolutions. The resolutions of the directors of the Purchaser authorizing the entry into this Agreement shall have been delivered to the Shareholder, in form and substance satisfactory to the Shareholder, acting reasonably.

Representations and Warranties. The representations and warranties of the Purchaser made in or pursuant to this Agreement shall be true and correct at the Closing Time as if made at and as of the Closing Time; the covenants and agreements contained in this Agreement to be performed by the Purchaser at or prior to the Closing Time shall have been performed.

The conditions contained in this Section 4.2 are for the exclusive benefit of the Shareholder and may be waived in whole or in part by the Shareholder in writing at any time.

Notice of Breach

cause any of its representations or warranties contained herein to be untrue or incorrect on the Closing Date;

result in its failure to comply with or satisfy any covenant or agreement contained herein prior to the Closing Date;

any Material Adverse Change in the business of the Corporation; or

result in the failure to satisfy any of the conditions in the other party’s favour contained in Section 4.1 or 4.2, as applicable.

Post-Closing Covenants

Indemnification by the Shareholder

any Loss of the Purchaser as a result of any breach of representation or warranty of the Shareholder contained in this Agreement with respect to the Corporation or in any certificate or document delivered pursuant to or contemplated by this Agreement;

any Loss of the Purchaser as a result of any breach or any non-fulfilment of any covenant or agreement on the part of the Shareholder contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement; and

all claims, demands, costs and expenses, including reasonable legal expenses, in respect of the foregoing,

Indemnification by the Shareholder for Contracts

any Loss of the Purchaser as a result of any obligation or liability of the Corporation arising from any Contract identified in Appendix B;

any Loss of the Purchaser as a result of any breach of representation or warranty of the Corporation contained in any Contract identified in Appendix B;

any Loss of the Purchaser as a result of any breach or any non-fulfilment of any covenant or agreement on the part of the Corporation contained any Contract identified in Appendix B or in any certificate or document delivered pursuant to or contemplated by such Contracts; and

all claims, demands, costs and expenses, including reasonable legal expenses, in respect of the foregoing.

Indemnification by the Purchaser

any Loss of any Shareholder as a result of any breach of representation or warranty by the Purchaser contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement;

any Loss of any Shareholder as a result of any breach or any non-fulfilment of any covenant or agreement on the part of the Purchaser contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement; and

all claims, demands, costs and expenses, including reasonable legal expenses, in respect of the foregoing.

Notice of Claim

the factual basis for the Claim, and any provisions of the Agreement, or of any Applicable Laws, relied upon; and

the amount of the Claim, or, if an amount is not determinable, an approximate and reasonable estimate of the potential Claim.

Direct Claims

Third Party Claims

With respect to any Third Party Claim, the Indemnifying Party shall have the right, at its own expense, to participate in or assume control of the negotiation, settlement or defence of the Third Party Claim and, in such event, the Indemnifying Party shall reimburse the Indemnified Party for all of the Indemnified Party’s out-of-pocket expenses as a result of such participation or assumption. If the Indemnifying Party elects to assume such control, the Indemnified Party shall have the right to participate in the negotiation, settlement or defence of such Third Party Claim at its own expense and shall have the right to disagree on reasonable grounds with the selection and retention of legal counsel, in which case legal counsel satisfactory to both the Indemnifying Party and the Indemnified Party shall be retained by the Indemnifying Party.

If the Indemnifying Party, having elected to assume control as contemplated in Section 6.6(a), thereafter fails to defend such Third Party Claim within a reasonable time, the Indemnified Party shall be entitled to assume such control and the Indemnifying Party shall be bound by the results obtained by the Indemnified Party with respect to such Third Party Claim.

In the event that any Third Party Claim is of a nature such that the Indemnified Party is required by Applicable Laws to make a payment to any Third Party with respect to such Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Indemnified Party may make such payment and the Indemnifying Party shall, forthwith after demand by the Indemnified Party, reimburse the Indemnified Party for any such payment.

Except in the circumstances contemplated by Sections 6.6(b), whether or not the Indemnifying Party assumes control of the negotiation, settlement or defence of any Third Party Claim, the Indemnified Party shall not negotiate, settle, compromise or pay any Third Party Claim except with the prior written consent of the Indemnifying Party (which consent shall not be unreasonably delayed or withheld).

The Indemnified Party shall not permit any right of appeal in respect of any Third Party Claim to terminate without giving the Indemnifying Party notice thereof and an opportunity to contest such Third Party Claim.

The Parties shall use their commercially reasonable efforts to cooperate with each other with respect to Third Party Claims, shall keep each other advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available) and shall each designate a representative who will keep himself or herself informed about and be prepared to discuss the Third Party Claim with his or her counterpart and with legal counsel at all reasonable times.

Notwithstanding anything to the contrary contained herein, the Indemnifying Party shall not settle any Third Party Claim without the consent of the Indemnified Party unless the settlement includes a complete release of the Indemnified Party with respect to the claim.

Notwithstanding anything to the contrary herein, if the Indemnifying Party:

is not entitled to assume the investigation and defence of a Third Party Claim under this Agreement;

does not elect to assume the investigation and defence of a Third Party Claim;

assumes the investigation and defence of a Third Party Claim but fails to diligently pursue such defence; or

the Indemnified Party reasonably concludes that the Third Party Claim is not being defended to its satisfaction, acting reasonably, the Indemnified Party has the right (but not the obligation), to undertake the defence of the Third Party Claim.

In the case where the Indemnifying Party fails to diligently pursue the defence of the Third Party Claim or the Indemnified Party reasonably concludes that the Third Party Claim is not being defended to its satisfaction, acting reasonably, the Indemnified Party may not assume the defence of the Third Party Claim unless the Indemnified Party gives the Indemnifying Party written demand to diligently pursue the defence and the Indemnifying Party fails to do so within 10 days after receipt of the demand, or such shorter period as may be required to respond to any deadline imposed by a court, arbitrator or other tribunal or Governmental Authority.

Subrogation

Limitation of Liability

in no event shall a Party be liable for indirect or consequential, exemplary, punitive or special damages (including without limitation, loss of profits, loss of opportunity, loss of business, loss of reputation and loss of financing) relating to this Agreement or any other any agreement, instrument or document executed in connection with this Agreement even if such Party has been advised of the possibility of such damages in advance and whether such losses arise in, under or pursuant to contract, tort, common law, equity, statute or otherwise.

No Party shall be entitled to duplication of recovery by reason of the state of facts giving rise to Losses.

The maximum aggregate liability of a Party for indemnification pursuant to this Article 6 will not exceed the sum of the Purchase Price, except in the case of a breach of Section 5.1 in which case the shall maximum aggregate liability shall also include the amount to be paid pursuant to Section 5.1.

The limitations set forth in this Section 6.8 shall not apply with respect to:

Section 6.2;

Losses which result from a breach by a Party of its obligations of confidentiality hereunder;

Losses for Taxes that are payable by the Corporation but unpaid prior to the Closing Date; and

any portion of Losses that resulted primarily and directly from the fraud or the wilful misconduct of a Party or its officers, directors, employees, agents, affiliates, representatives, successors or assigns.

Public Statements

Confidentiality

an Affiliate of a party to this Agreement, directors, officers, or employees of a party to this Agreement or an Affiliate to a party to this Agreement, as long as they in turn are required to treat the Confidential Information as confidential on terms substantially the same as those set out in this Section 7.2;

accountants, professional advisers and bankers and other lenders, whether current or prospective, as long as they are subject to statutory professional secrecy rules or similar legal concepts under Applicable Laws or, in turn, are required to treat the Confidential Information as confidential on terms substantially the same as those set out in this Section 7.2;

any Governmental Authority having jurisdiction over a party to this Agreement, to the extent legally required, and then only after, to the extent permitted by law, informing the other parties thereof and, to the extent possible, with sufficient notice in advance to permit the other parties to seek a protective order or other remedy;

any Person to the extent required by any Applicable Laws, judicial process or the rules and regulations of any recognized stock exchange and then only subject to prior consultation with the other Parties;

any intended assignee of the rights and interests of a party under this Agreement or to a Person intending to acquire an interest in a party to this Agreement as long as the intended assignee or acquirer in turn is required by that party to treat the Confidential Information as confidential in favour of the other parties on terms substantially the same as those set out in this Section 7.2; or

the extent that the Confidential Information is in or lawfully comes into the public domain other than by breach of this Section 7.2.

Non-Circumvention

Expenses

Notices

To the Purchaser:

To the Shareholder:

Time of Essence

Further Assurances

Counterparts and Electronic Signatures

Enurement

Assignment

ARTICLE 1 PRINCIPAL, INTEREST, PAYMENT, COMMITMENT FEE

1.1

Principal Amount and Advance

1.2

Interest and Standby Charge

1.3

Prepayment

1.4

Royalty

1.5

Repayments

1.6

Fees

1.7

Direction

1.8

Condition Precedent

ARTICLE 2 INTERPRETATION

2.1

Defined Terms

2.2

Interpretation

2.3

Governing Law

ARTICLE 3 SECURITY

3.1

Security

3.2

Exceptions as to Leases

3.3

Exception as to Contractual Rights

3.4

Intellectual Property

3.5

Charge Valid Irrespective of Advance of Money

3.6

Continuing Security

3.7

Defeasance and Discharge

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE GUARANTORS

4.1

Representations and Warranties

4.2

Survival of Representations and Warranties

ARTICLE 5 BOARD RIGHTS

5.1

Board Observer

ARTICLE 6 COVENANTS

6.1

General Covenants

6.2

Negative Covenants

6.3

Financial Covenants

6.4

Non-Compete

ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES

7.1

Events of Default

7.2

Consequences of an Event of Default

7.3

Enforcement

7.4

Disposition

7.5

Powers of Receiver

7.6

Application of Amounts

7.7

Care and Custody of Secured Property

7.8

Dealing with the Secured Property

7.9

Standards of Sale

8.1

Waiver

8.2

Other Security

8.3

No Merger or Novation

8.4

Power of Attorney

8.5

Licence

8.6

Environmental Indemnity

8.7

Holder May Remedy Default

8.8

Notices

8.9

Invalidity of any Provisions

8.10

Indemnification

8.11

Successors, Assigns and Participation, etc.

8.12

Expenses

8.13

Amendments

8.14

Counterparts

8.15

Paramountcy

Principal Amount and Advance

For value received, ZENABIS INVESTMENTS LTD. (the “Corporation”) having its head office at 3100 — 666 Burrard Street, Vancouver, BC V6C 2X8, shall pay to the order of 2657408 ONTARIO INC., as agent and nominee for the lenders who from time to time advance funds drawn pursuant to this Debenture (as agreed and allocated among them as they shall agree from time to time) (collectively the “Lender”) the amount of SIXTY MILLION SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS ($60,750,000) (the “Commitment”), or the aggregate principal amount drawn and outstanding from time to time pursuant to this Debenture, plus all accrued interest thereon in accordance with this Debenture on the Maturity Date, or such earlier date as the Obligations shall become due and payable hereunder, at the office of the Lender at 25 Sheppard Avenue West, Suite 1800, Toronto, ON M2N 6S6 or such other place as the Lender may designate.

The Commitment is available for Advance in three tranches, the first tranche is fully drawn and advanced in the amount of $25,000,000 (“tranche 1”) and the second tranche is fully drawn and advanced in the amount of $25,000,000 (“tranche 2”) and the third tranche is fully drawn and advanced in the amount of $7,000,000 (“tranche 3”), together with a capitalized amendment fee in the amount of $3,750,000 for an aggregate advance of $60,750,000.

Interest

From the date hereof, interest on the loan will be 14% per annum calculated and compounded monthly in arrears and payable on the first day of each month during which any Obligations are outstanding.

Interest on principal outstanding and unpaid from and after the Maturity Date or Maturity Date – Tranche 3, as applicable, will be 19% per annum, otherwise calculated and payable as set out in Section 1.2(a), and provided the charge and payment of such interest does not affect the rights or remedies of the Lender whatsoever.

Prepayment

Tranche 1 and Tranche 2: In the event any principal amount of tranche 1 or tranche 2 is paid to the Lender prior to the Maturity Date, then the Corporation will pay the Lender (or its nominee) any amount required so that the Lender will have received, as interest on tranche 1 and tranche 2, not less than 12 months of interest and fees from the date hereof.

Tranche 3: In the event any principal amount of tranche 3 is repaid to the Lender, whether voluntary or involuntary, prior to the Maturity Date, then the Corporation will pay the Lender (or its nominee) any amount required so that the Lender will have received, as interest on tranche 3, not less than 4 months of interest.

All repayment of principal amounts as to tranche 1 and tranche 2 paid to the Lender prior to the Maturity Date shall be and shall be deemed to be applied on a pro rata basis to each of tranche 1 and tranche 2.

All repayment of principal amounts as to tranche 3 paid to the Lender prior to the Maturity Date – Tranche 3 shall be and shall be deemed to be applied on tranche 3.

All prepaid amounts will be applied in the following order against: (1) legal fees; (2) interest; and (3) the Principal.

Any prepayment or repayment is without effect on the Warrants and Royalty rights granted pursuant to this Debenture.

Royalty

Royalty rights (the “Royalty”) are hereby granted to the Lender granted based on a declining royalty factor (initially set at 3.5%) applied to Net Cannabis Revenue (as defined hereafter), calculated and payable fiscal quarterly in arrears for a term of 8 years commencing on July 1, 2020, as may be extended by the terms of this section (the “Royalty Term”).

The Royalty will be calculated and paid within 30 days of the end of each fiscal quarter of the Corporation where the Net Cannabis Revenue exceeds $20,000,000 (the “Minimum Quarterly Revenue”);

A Royalty free period will be provided from the date hereof and ending on June 30, 2020, with the first payment of the Royalty to be calculated for the fiscal quarter commencing July 1, 2020;

Payments of the Royalty shall be calculated as a percentage of Net Cannabis Revenue in each fiscal quarter that payment is required to be paid based on: (i) 3.50% of the Net Cannabis Revenue in excess of the Minimum Quarterly Revenue where the Net Cannabis Revenue does not exceed $25,000,000; (ii) 3.00% of Net Cannabis Revenue in excess of the Minimum Quarterly Revenue where the Net Cannabis Revenue exceeds $25,000,000 but does not exceed $30,000,000; (iii) 2.50% of the Net Cannabis Revenue in excess of the Minimum Quarterly Revenue where the Net Cannabis Revenue exceeds $30,000,000 but does not exceed $37,500,000 and (iv) 2.00% of Net Cannabis Revenue in excess of the Minimum Quarterly Revenue where the Net Cannabis Revenue exceeds $37,500,000.

In the event that the Corporation has repaid to the Lender both: (i) the principal amount of tranche 3, together with all accrued interest (and fees payable) on tranche 3; and (ii) 50% of the principal amount of tranche 1 and tranche 2 (collectively, the “Trigger Payment”), on or before October 15, 2020 (the “Trigger Deadline”), then the Royalty will remain payable on Net Cannabis Revenue in excess of the Minimum Quarterly Revenue as described in Section 1.4(d) for the duration of the Royalty Term.

In the event that the Corporation has not made the Trigger Payment on or before the Trigger Deadline, then the Royalty shall be amended (the Royalty so amended, the “Amended Royalty”) such that it will be calculated and paid on all Net Cannabis Revenue as described in Section 1.4(g) for the duration of the Royalty Term. For greater certainty, the Amended Royalty will be paid by the Corporation to the Lender in the same manner as the Royalty as described in Section 1.4(b).

Payments of the Amended Royalty shall be calculated as a percentage of Net Cannabis Revenue in each fiscal quarter that payment is required to be paid based on: (i) 3.50% of the Net Cannabis Revenue where the Net Cannabis Revenue does not exceed $25,000,000; (ii) 3.00% of Net Cannabis Revenue where the Net Cannabis Revenue exceeds $25,000,000 but does not exceed $30,000,000; (iii) 2.50% of the Net Cannabis Revenue where the Net Cannabis Revenue exceeds $30,000,000 but does not exceed $37,500,000 and (iv) 2.00% of Net Cannabis Revenue where the Net Cannabis Revenue exceeds $37,500,000.

During the Royalty Term the Corporation is required to maintain minimum Debt Service Ratio of 1.2:1, with Debt Service Ratio being calculated inclusive of principal amortization payments, Interest and the Royalty or Amended Royalty, as applicable;

If the Corporation does not achieve the Minimum Quarterly Revenue and Debt Service Ratio requirement in any fiscal quarter, the Royalty or Amended Royalty, as applicable, shall not be payable as to that quarter, however, the Royalty Term will be extended by a fiscal quarter for each fiscal quarter of such deferred payment of the Royalty or Amended Royalty, as applicable.

Buy-out of the Royalty or Amended Royalty, as applicable, will be available after the earlier of: (i) repayment in full of the Loan; or, (ii) the Parent’s common shares trading above $1.00 for a continuous period of 30 days.The Corporation shall be entitled to buyout and terminate the Royalty or Amended Royalty, as applicable, on payment to the Lender of an amount equal to: (i) any unpaid Royalty or Amended Royalty, as applicable, in respect of its most recent fiscal quarter and (ii) the sum of the Royalty or Amended Royalty, as applicable, amount payable in respect of all subsequent fiscal quarters remaining during the Royalty Term, with the Royalty or Amended Royalty, as applicable, payable for each such subsequent fiscal quarter being calculated assuming the Corporation will meet the minimum Debt Service Ratio and Net Cannabis Revenue will be equal to the Net Cannabis Revenue for the Corporation’s most recently completed fiscal quarter.

Repayments

The Corporation will repay any then outstanding balance on the Maturity Date or the Maturity Date - Tranche 3 as applicable, by the Corporation paying the principal amount (or the balance thereof) together with any accrued and unpaid interest and expenses of the Lender of this Debenture to the Lender by certified cheque, bank draft or wire transfer in immediately available funds.

Principal on tranche 1 and tranche 2 will be repaid on the basis of straight-line amortization over 36 months beginning April 1, 2022. In addition, commencing the 1st day of April, 2020, and continuing on the 1st day of every month to and including March 1, 2022, a repayment shall be made to the Lender equal to the lesser of:

60% of the Corporation’s prior month positive Free Cash Flow, or

(i) Prior to December 31, 2020, such amount that would reduce the Corporation’s combined cash balance to $4,000,000; and

All repayment of principal amounts paid to the Lender as to tranche 1 and tranche 2 shall be applied on a pro rata basis to each of tranche 1 and tranche 2.

All repayment of principal amounts as to tranche 3 paid to the Lender on or after the Maturity Date – Tranche 3 shall be and shall be deemed to be applied on tranche 3.

Any payment not designated to tranche 3 will be applied to tranche 1 and tranche 2 pro rata.

In the event of the sale of the Delta, B.C. production facility, the proceeds will be directed and paid to repayment of tranche 3 regardless of the time of completion and available funds as to the Maturity Date – Tranche 3, as a prepayment of tranche 3.

The Parent will contribute and the Corporation shall apply the proceeds from the Parent’s Equity Financing, as defined below, in the following order by way of irrevocable directon from each of the Parent and the Corporation to AltaCorp Capital Inc. in form and substance satisfactory to the Lender, acting reasonably:

First, to pay any fees or expenses of the Parent or Corporation incurred in connection with the Parent’s Equity Financing, inclusive of all outstanding costs and expenses of the Lender, provided a detailed estimate of such fees and expenses is provided to the Lender prior to payment thereof;

Second, to prepay the amount owing by the Parent or the Corporation to any of the Parent’s or the Corporation’s senior or subordinate lenders or trade vendors who contribute capital to the Parent’s Equity Financing based upon their debt positions to the Parent’s Equity Financing, with such prepayments to each lender or trade vendor limited to the lesser of (A) the amount invested by such lenders or trade vendors in the Parent’s Equity Financing and (B) the amount owing to such lenders or trade vendors, provided the foregoing does not limit the amount invested in the Parent’s Equity Financing by such lenders or trade vendors in excess of the amounts owing to such lenders or trade vendors by the Parent or the Corporation;

Third, to pay the renewal fee on the remaining balance of tranche 3 after giving effect to Section 1.5(g)(v) below,

Fourth, to the operating account of the Corporation until such account has $6,000,000;

Fifth, until tranche 3 is repaid in full, to prepay debt by an amount calculated as follows:

75% to tranche 3;

25% to the Corporation’s vendor accounts payable balances, as agreed between the Corporation and the Lender; and

Sixth, to prepay tranche 1 and tranche 2 pro-rata.

Fees

Tranche 1 and Tranche 2: In respect of the recent extension of tranche 1, tranche 2 and tranche 3, the Corporation has fully paid the commitment fee payable to the Lender (or its nominee).

Tranche 3: In respect of tranche 3, a renewal fee equal to 5% of the remaining balance, if any, of tranche 3 following the repayment of tranche 3 pursuant to Section 1.5(g)(v).

The Corporation will pay a monitoring fee to the Lender of $100,000 per month, plus taxes, on the last day of each month pursuant to the Monitoring Agreement until the Profitability Date. After the Profitability Date, the monitoring fee will be reduced to $25,000 per month. If, following the Profitability Date, the Corporation provides management-prepared financial statements to the Lender showing negative EBDA, the monitoring fee shall return to $100,000 for all ensuing months until an additional Profitability Date is again achieved at which point, for greater certainty, the monitoring fee will be again reduced to $25,000 per month.

The Corporation will pay, for additional monitoring and administration, a fee in the amount of 0.5% of the principal of the Loan outstanding, on the last day of any month in which a Default occurs, such payment to be without effect on the rights or remedies of the Lender whatsoever.

General: The Corporation will pay on receipt of invoice the legal and due diligence fees, costs and expenses of the Lender relating to all matters for the Loan not paid to date, including without limitation additional fees for legal counsel to the participating lender on tranche 2 and tranche 3.

Direction

Condition Precedent

Defined Terms

“Advance” means an advance of the Loan by the Lender.

“Affiliate” means, in respect of any corporation, any Person which, directly or indirectly, controls or is controlled by or is under common control with the corporation; and for the purpose of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) means the power to direct, or cause to be directed, the management and policies of a corporation whether through the ownership of Voting Shares or by contract or otherwise.

“Amended Royalty” shall have the meaning ascribed to it in Section 1.4.

“Applicable Law” means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official directives, orders, judgments and decrees, of Governmental Bodies.

“Assignment of Insurance” means the collateral assignment of insurance provided by the Corporation and the Subsidiary Guarantors to the Lender as security for the Obligations.

“Board” means the board of directors of each of the Parent and the Corporation, as the context requires.

“Business Day” means any day other than Saturday, Sunday or a day on which chartered banks are closed for business in Toronto, Ontario or Vancouver, British Columbia.

“Capital Lease Obligations” means, as to any Person, the obligation of such Person to pay rent or other liquidated amounts under a lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under generally accepted accounting principles and, for purposes of this Debenture, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles.

“Change of Control” means the Corporation ceasing to be wholly owned by the Parent, or the Subsidiary Guarantors ceasing to be, directly or indirectly, wholly owned by the Corporation (or by the Subsidiary Guarantors that assume the obligations under this Debenture as contemplated by this Debenture) or its successor.

“Commitment” shall have the meaning in section 1.1.

“Common Shares” means the common shares in the capital of the Corporation, or its successors, as such shares exist on the date hereof, and all shares of the Corporation into which such shares may be subdivided, consolidated, converted or changed.

“Contingent Liabilities” of any Person at any time means the amount of all indebtedness and liabilities, contingent or otherwise, of any other Person at such time:

guaranteed, directly or indirectly, in any manner by the Person including: (A) by procuring the issue of letters of credit or letters of guarantee or other similar instruments for the benefit of that other Person; (B) by endorsement of bills of exchange (otherwise than for collection or deposit in the ordinary course of business); or (C) by the other Person assigning debts of the Person (whether or not represented by an instrument) with recourse to the Person;

in effect guaranteed, directly or indirectly, by the Person through an agreement, contingent or otherwise;

to purchase such indebtedness or liabilities or to advance or supply funds for the payment or purchase of such indebtedness or liabilities;

to purchase, sell or lease (as lessee or lessor) property, products, materials or supplies or to purchase or sell services in circumstances where it can reasonably be assumed that the purpose of such agreement was to provide funds to the other Person to enable the other Person to make payment of such indebtedness or liabilities or to provide goods or services to the other Person to enable it to satisfy other liabilities, regardless of the delivery or non-delivery of the property, products, materials or supplies or the provision or non-provision of the services, including take or pay or through put agreements; or

to make any loan, advance, capital contribution to or other investment in the other Person for the purpose of assuring a minimum equity, asset base, working capital or other balance sheet condition at any date or to provide funds for the payment of any liability, dividend or return of capital; or

secured by any Encumbrance upon property owned by the Person, even though the Person has not assumed or become liable for the payment of such indebtedness or liabilities, provided that, if the Person has not agreed to such assumption, such indebtedness shall be deemed to be an amount equal to the lesser of (A) the amount of such indebtedness and liabilities and (B) the book value of such property.

“Corporation” shall have the meaning ascribed to such term in Section 1.1.

“Debenture” means this debenture together with the schedules and exhibits hereto, as they may be amended from time to time.

“Debt Service Ratio” means the resulting number from the equation: (EBITDA - capital expenditures) / (interest payments + principal payments + Royalty payments), with each such amount for the referenced applicable period.

“Default” means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default.

“EBDA” means revenue (net of any value added and sales taxes) from all sources less variable production costs, fixed costs and interest costs. The calculation of EBDA will exclude any wholesale revenue, and associated costs, earned, or incurred, in relation to the existing prepaid agreements with Tilray and/or Starseed.

“EBITDA” means, with respect to the Corporation (on a consolidated basis), for any applicable period, an amount equal to earnings from operations before interest, income taxes, depreciation and amortization, calculated as follows:

net income of the Corporation for such period;

minus the sum of:

gain from extraordinary items for such period;

any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets by the Corporation (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities); and

any other non-cash gains which have been added in determining net income,

plus the sum of:

any provision for income taxes;

interest expense;

loss from extraordinary items for such period; and

the amount of non-cash charges (including depreciation and amortization for such period),

“Encumbrance” means any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, hypothec, levy, execution, seizure, attachment, garnishment, right of distress or other encumbrance in respect of property of any nature or kind whatsoever howsoever arising (whether consensual, statutory or arising by operation of law or otherwise) and includes arrangements known as sale and lease-back, sale and buy-back and sale with option to buy-back.

“Event of Default” has the meaning ascribed to such term in Section 7.1.

“Environmental Laws” means all applicable federal, provincial, state, municipal or local laws, statutes, regulations or ordinances relating to the environment, occupational safety, health, product liability and transportation.