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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 20-F
 
 
 
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
        
    
    
to
                    
OR
 
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from
                    
to
                    
Commission file number:
001-40892
 
 
The Very Good Food Company Inc.
(Exact name of Registrant as specified in its charter)
 
 
Not Applicable
(Translation of Registrant’s name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
2748 Rupert Street, Vancouver, British Columbia, Canada M4W 3P4
(Address of principal executive offices)
Matthew Hall, Interim Chief Executive Officer; Tel: (855)
526-9254
2748 Rupert Street, Vancouver, British Columbia, Canada M4W 3P4
(Name, Telephone,
E-mail,
and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common Shares
  
VGFC
  
The Nasdaq Stock Market LLC
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
118,498,464 common shares as of December
 31, 2021
Indicate by check mark whether Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒
If this report is an annual or transition report, indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes
  ☐    No  ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated Filer  ☐
   Accelerated Filer  ☐   
Non-accelerated Filer  ☒
  
                
  
Emerging growth
                
company  ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☐
           International Financial Reporting Standards as issued    Other  ☐
            by the International Accounting Standards Board  ☒     
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item Registrant has elected to follow.    Item 17  ☐    Item 18  ☐
If this is an annual report, indicate by check mark whether Registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes  ☐    No  ☒
 
 
 
EXPLANATORY NOTE
This Annual Report on Form
20-F
for the year ended December 31, 2021 (this “Annual Report”) of The Very Good Food Company Inc., a British Columbia company (the “Company”) consists of the following documents previously filed by the Company in accordance with applicable Canadian securities laws and have previously been filed on Form 6-K with the U.S. Securities and Exchange Commission (the “SEC”), and are incorporated by reference as exhibits to this Annual Report:
 
 
•
 
The Company’s Annual Information Form for the fiscal year ended December 31, 2021, incorporated herein by reference as Exhibit 99.1;
 
 
•
 
The Company’s audited annual consolidated financial statements for the years ended December 31, 2021 and 2020, including the report of the independent registered public accounting firm with respect thereto, attached as Exhibit 99.2 hereto;
 
 
•
 
The Company’s Management’s Discussion and Analysis for the years ended December 31, 2021 and 2020, attached hereto as Exhibit 99.3;
 
 
•
 
The Company’s audited annual consolidated financial statements for the years ended December 31, 2020 and 2019, together with the independent auditor’s report thereon and the notes thereto, attached hereto as Exhibit 99.4; and
 
 
•
 
The independent auditor’s report in respect of the Company’s audited annual consolidated financial statements for the year ended December 31, 2019 and the notes thereto as Exhibit 99.5;
 
 
•
 
The Company’s Management’s Discussion and Analysis for the years ended December 31, 2020 and 2019, attached hereto as Exhibit 99.6;
 
 
•
 
The Company’s Statement of Executive Compensation for the year ended December 31, 2021, incorporated herein by reference as Exhibit 99.7; and
 
 
•
 
The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for three months ended March 31, 2022 and 2021 (“Q1 2022 MD&A”), incorporated herein by reference as Exhibit 99.8.
Set forth below is a cross-reference table to the applicable sections of Form
20-F:
 
I
TEM
 N
UMBER
  
C
ROSS
R
EFERENCE
TO
F
ORM
20-
F
  
E
XHIBIT
  
P
AGES
Part I
Item 1
  
Identity of Directors, Senior Management and Advisers
  
N/A
  
Item 2
  
Offer Statistics and Expected Timetable
  
N/A
  
Item 3
  
Key Information
  
  
  
A. Reserved
  
N/A
  
  
B. Capitalization and indebtedness
  
N/A
  
  
C. Reasons for the offer and use of proceeds
  
N/A
  
  
D. Risk factors
  
99.1
99.8
  
19-42
4, 17-19
Item 4
  
Information on the Company
  
  
  
A. History and development of the company
  
99.1
99.3
99.8
  
6-18
3-12, 21
4-8
  
B. Business overview
  
99.1
99.3
99.8
  
7-12,
14-17
13
4-8
  
C. Organizational structure
  
99.1
  8.1
  
6
  
D. Property, plant and equipment
  
99.1
99.3
99.8
  
8-13, 14
7-11
4-8
Item 4A
  
Unresolved Staff Comments
  
N/A
  
Item 5
  
Operating and Financial Review and Prospectus
(1)
  
  
  
A. Operating results
  
99.1
99.3
  
14-17
13-17
  
B. Liquidity and capital resources
  
99.3
  
5, 17, 18, 21, 24- 26
  
C. Research and development, patents and licenses, etc.
  
99.1
  
10, 11, 18
 
1
  
D. Trend information
  
99.1
99.3
  
8-16
4-12
  
E. Critical Accounting Estimates
  
99.3
  
27-29
Item 6
  
Directors, Senior Management and Employees
  
  
  
A. Directors and senior management
  
99.1
99.8
  
52-56
7
  
B. Compensation
  
99.7
  
1-9
  
C. Board practices
  
99.1
99.7
  
51, 54-57
2-10
  
D. Employees
  
99.1
  
17
  
E. Share ownership
  
99.7
  
9, 10
Item 7
  
Major Shareholders and Related Party Transactions
  
  
  
A. Major shareholders
  
99.1
99.7
  
46
10
  
B. Related party transactions
  
99.3
99.8
  
27
20
  
C. Interests of experts and counsel
  
N/A
  
Item 8
  
Financial Information
  
  
  
A. Consolidated statements and other financial information
  
99.1
99.2
99.4
99.5
  
43
  
B. Significant changes
  
99.8
  
Item 9
  
The Offer and Listing
  
  
  
A. Offer and listing details
  
99.3
  
4
  
B. Plan of distribution
  
N/A
  
  
C. Markets
  
99.3
  
4
  
D. Selling shareholders
  
N/A
  
  
E. Dilution
  
N/A
  
  
F. Expenses of the issue
  
N/A
  
Item 10
  
Additional Information
  
  
  
A. Share capital
  
N/A
  
  
B. Memorandum and articles of association
  
2.2
  
  
C. Material contracts
  
99.1
  
59-60
  
D. Exchange controls
  
99.1
  
46
  
E. Taxation
  
99.1
  
47-53
  
F. Dividends and paying agents
  
N/A
  
  
G. Statement by experts
  
N/A
  
  
H. Documents on display
  
99.1
  
18
  
I. Subsidiary information
  
N/A
  
Item 11
  
Quantitative and Qualitative Disclosures About Market Risk
(1)
  
99.3
  
24-26
Item 12
  
Description of Securities Other than Equity Securities
  
N/A
  
Part II
Item 13
  
Defaults, Dividend Arrearages and Delinquencies
  
N/A
  
Item 14
  
Material Modifications to the Rights of Security Holders and Use of Proceeds
  
99.8
  
16
Item 15
  
Controls and Procedures
(2) (3)
  
99.3
12.1
13.1
  
29
Item 16
  
Reserved
  
N/A
  
Item 16A
  
Audit Committee Financial Expert
  
99.1
  
55, 56
Item 16B
  
Code of Ethics
  
99.1
  
19
Item 16C
  
Principal Accountant Fees and Services
  
99.1
  
56
Item 16D
  
Exemptions from the Listing Standards for Audit Committees
  
N/A
  
Item 16E
  
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
N/A
  
Item 16F
  
Change in Registrant’s Certifying Accountant
  
N/A
  
Item 16G
  
Corporate Governance
  
99.1
  
54-55
Item 16H
  
Mine Safety Disclosure
  
N/A
  
Item 16I
  
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
  
N/A
  
 
2
Part III
Item 17
  
Financial Statements
  
99.2
99.4
99.5
  
Item 18
  
Financial Statements
  
99.2
99.4
99.5
  
Notes:
 
(1)
See also the Company’s Q1 2022 MD&A, incorporated herein by reference as Exhibit 99.8.
(2)
This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by SEC rules for newly public companies.
(3)
See also “Disclosure Controls and Procedures” below.
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported to senior management, including the Chief Executive Officer (“
CEO
”) and the Chief Financial Officer (“
CFO
”), on a timely basis so that appropriate decisions can be made regarding public disclosure. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under applicable securities laws, including under the U.S. Securities Exchange Act of 1934, as amended (the “
U.S. Exchange Act
”), is recorded, processed, summarized and reported within the time periods specified by applicable securities laws, including within the time periods specified in the rules and forms of the SEC, and include controls and procedures designed to ensure that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under applicable securities laws is accumulated and communicated to the Company’s management, including its certifying officers, namely the CEO and CFO, as appropriate to allow timely decisions regarding public disclosure. An evaluation of the design of the Company’s disclosure controls and procedures, as defined in Rule
13a-15(e)
and Rule
15d-15(e)
under the U.S. Exchange Act, was carried out under the supervision of the CEO and CFO and with the participation of the Company’s management. Based on that evaluation, the CEO and CFO have concluded that the design and operation of these controls were not effective as of December 31, 2021 as a result of (1) the material weakness described in “Internal Controls Over Financial Reporting” of the Management’s Discussion and Analysis for the years ended December 31, 2021 and 2020, which is attached hereto as Exhibit 99.3 and (2) the inability to timely file this Annual Report.
There can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s regulatory filings.
ITEM 19. EXHIBITS
 
1.1
  
1.2
  
2.1
  
2.2
  
4.1
  
4.2
  
4.3
  
 
3
4.4
  
4.5
  
4.6
  
8.1
  
12.1
  
13.1
  
15.1
  
99.1
  
99.2
  
99.3
  
99.4
  
99.5
  
99.6
  
99.7
  
99.8
  
101.INS
  
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*
101.SCH
  
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
  
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
  
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
  
Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
  
Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104
  
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
*
Filed herewith.
^
Certain portions of this exhibit have been redacted pursuant to the Instructions as to Exhibits of Form 20-F, including the omission of schedules to such exhibits. The Company agrees to furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.
 
4
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
 
 
  
  
  
THE VERY GOOD FOOD COMPANY INC.
 
DATED: May 2
6
, 2022
  
  
  
 
By:
 
 
/s/ Dela Salem
 
  
  
  
  
 
     Dela Salem
     Interim Co-Chief Executive Officer
 
5

Exhibit 2.1

 

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ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS#
Number
ZQ00000000
THE VERY GOOD FOOD C.
Shares
* * 000000 ******************
* * * 000000 ***************** ****
000000 **************** *****
000000 *************** ******
000000 **************
INCORPORATED UNDER THE BRITISH COLUMBIA BUSINESS CORPORATIONS ACT
THIS CERTIFIES THAT
** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. MR. Alexander David SAMPLE Sample **** Mr. Alexander David &Sample MRS. **** Mr. Alexander SAMPLE David Sample **** Mr. Alexander & David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander MR. David Sample SAMPLE **** Mr. Alexander David Sample **** &Mr. Alexander MRS. David Sample SAMPLE **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample
CUSIP 88340B109 ISIN CA88340B1094
SEE REVERSE FOR CERTAIN DEFINITIONS
IS THE REGISTERED HOLDER OF
**000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares*** *000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****0 00000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****00 ***ZERO HUNDRED THOUSAND 0000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****000 000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****0000 00**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****00000 0**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****000000
ZERO HUNDRED AND ZERO*** **Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****000000* *Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****000000** Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares
****000000**Shares****000000**Shares****000000**Shares****000000**S
FULLY PAID AND NON-ASSESSABLE COMMON SHARES WITHOUT PAR VALUE IN THE CAPITAL OF
The Very Good Food Company Inc.
in the Authorized share structure of the above named Company subject to the Articles of the Company transferable on the Central Securities Register of the Company by the registered holder in person or by attorney duly authorized in writing upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and Registrar of the Company.
IN WITNESS WHEREOF the Company has caused this certificate to be signed on its behalf by the facsimile signatures of its duly authorized officers, at Vancouver, British Columbia.
Dated: DD-MMM-YYYY
COUNTERSIGNED AND REGISTERED     COUNTERSIGNED AND REGISTERED
Chief Executive Officer    COMPUTERSHARE TRUST COMPANY, N.A. COMPUTERSHARE INVESTOR SERVICES INC.
(CANTON, MA, JERSEY CITY, NJ AND    OR (VANCOUVER) (TORONTO)
LOUISVILLE, KY)     TRANSFER AGENT AND REGISTRAR
TRANSFER AGENT AND REGISTRAR    
Chief Research and    By By
Development Officer    Authorized Officer Authorized Officer
The shares represented by this certificate are transferable at the offices of Computershare Investor Services Inc. in Vancouver, BC and Toronto, ON or at the offices of Computershare Trust Company, N.A. in Canton, MA, Jersey City, NJ and Louisville, KY.
SECURITY INSTRICTIONS ON REVERSE

Exhibit 2.2

DESCRIPTION OF SECURITIES

REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT

As of December 31, 2021, The Very Good Food Company Inc. (“we”, “us”, “our”, or the “Company”) had the following securities registered pursuant to Section 12(b) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”):

 

Title of class

   

Trading symbol

   

Name of exchange on which registered

Common Shares    VGFC    The Nasdaq Stock Market LLC

In October 2021, the Common Shares were registered under Section 12(b) of the Exchange Act and were approved for listing for trading on The Nasdaq Stock Market LLC (“Nasdaq”) under the trading symbol “VGFC”. The Common Shares are also traded on the TSX Venture Exchange under the trading symbol VERY.V, as well as on the Frankfurt Stock Exchange under the trading symbol OSI.

The following description sets forth certain general terms and provisions of the Common Shares. For additional information, you should read our articles of incorporation (“Articles”), which are available electronically on the website of the SEC at www.sec.gov as exhibit 1.1 to our Annual Report on Form 20-F for the year ended December 31, 2021 (the “Annual Report”). Capitalized terms used but not defined herein have the meanings given to them in the Annual Report.

Description of Our Common Shares

The Company is authorized to issue an unlimited number of Common Shares. As of December 31, 2021, there were 118,498,464 Common Shares issued and outstanding. Each Common Share carries the right to one vote. Holders of Common Shares are entitled to receive any dividends declared by the board of directors of the Corporation in respect of the Common Shares. In the event of the liquidation, dissolution or winding-up of the Corporation, holders of Common Shares are also entitled to receive, on a pro rata basis, the remaining property and assets of the Corporation available for distribution after payment of all its liabilities.

Description of Our Articles

Set out below is a description of our Articles and of the applicable provisions of the British Columbia Business Corporation Act (“BCBCA”) (as currently in effect) related to our Articles.

Incorporation

The Very Good Food Company Inc. is organized under the BCBCA. The Company’s British Columbia incorporation number is BC1101780.

Objects and Purposes of our Company

Our Articles do not contain and are not required to contain a description of our objects and purposes. There is no restriction contained in our Articles of the business that we may carry on.

Voting on Certain Proposal, Arrangement, Contract or Compensation by Directors

Our Articles restrict our directors’ power to vote on a proposal, arrangement, or contract in which the directors are materially interested, but do not restrict our directors’ power to: (a) to vote with regard to compensation payable to themselves or any other members of their body in the absence of an independent quorum; or (b) borrow money. Additionally, a director is not required to hold a share in our capital as qualification for his or her office but must be qualified as required by the BCBCA to become, act or continue to act as a director.

Share Rights

The holders of the Common Shares are entitled to receive notice of and to attend all annual and special meetings of the shareholders of the Company and to one vote in respect of each Common Share held at such meetings. Shareholders are also able to change the date of the annual general meeting by way of unanimous resolution. Dividends are subject to the rights if any, of shareholder holding shares with special rights as to dividends.

Procedures to Change the Rights of Shareholders

The rights, privileges, restrictions and conditions attaching to the Common Shares are contained in our Articles and such rights, privileges, restrictions and conditions may be changed by amending our Articles which can be done by either shareholders or directors.

The Articles may be amended by the shareholders to change the authorized share structure of the Company where applicable to (i) create one or more classes of shares; (ii) increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares; (iii) if the Company is authorized to issue shares of a class of shares with par value, (a) subject to section 74 of the BCBCA, decrease the par value of those shares; (b) increase the par value of those shares if none of the shares of that class of shares are allotted or issued; or (iv) change all or any of its unissued, or fully paid, shares with par value into shares without par value; (v) change all or any of its unissued shares without par value into shares with par value; (vi) eliminate any class or series of shares if none of the shares of that class or series of shares are allotted or issued (vii) alter the identifying name of any of its shares (viii) establish a maximum number of shares that the Company is authorized to issue out of any class or series for which no maximum is established; or (ix) otherwise alter its authorized share structure when required or permitted to do so by the BCBCA. Shareholders may amend the Articles to (i) create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or (ii) vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued as long as the affected class of shares consents by way of a separate resolution of those shareholders.

The Articles may be amended by the directors to change the authorized share structure of the Company where applicable to (i) create one or more series of shares and if no such shares of such a series are issued, to also attach special rights and restrictions to such series or to alter any such special rights and restrictions; (ii) subdivide all or any or its unissued, or fully paid issued, shares with par value into shares of small par value; (iii) subdivide all or any of its unissued, or fully paid issued, shares without par value; (iv) consolidate all or any of its unissued or fully paid issued, shares with par value into shares of larger par value; or (v) consolidate all or any of its unissued, or fully paid issued, shares without par value.

Meetings

Each director holds office until our next annual general meeting or until his or her office is earlier vacated in accordance with the provisions of the BCBCA. A director appointed or elected to fill a vacancy on our Board also holds office until our next annual general meeting.

Annual meetings of our shareholders must be held at such time in each year not more than fifteen (15) months after the last annual meeting, as the Board may determine. Pursuant to our Articles, notice of the time and place of a meeting of shareholders must be sent not less than twenty-one (21) days before the meeting so long as the Company is a public Company, otherwise, 10 days.

The directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons invited by the directors are entitled to attend any meeting of shareholders. This person is not considered part of the quorum or entitled to vote at the meeting, unless that person is a shareholder or proxy holder entitled to vote at the meeting.

Under our Articles, the quorum for the transaction of business at a meeting of our shareholders is one person present and entitled to vote at the meeting that holds hold at least five (5) percent of the issued shares entitled to be voted at the meeting. The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the vote cast on the resolution.

Shareholder Proposals and Advance Notice Procedures

Under the BCBCA, qualified shareholders holding at least one percent (1%) of our issued voting shares may make proposals for matters to be considered at the annual general meeting of shareholders. Such proposals must be sent to us in advance of any proposed meeting by delivering a timely written notice in proper form to our registered office in accordance with the requirements of the BCBCA. The notice must include information on the business the shareholder intends to bring before the meeting. To be a qualified shareholder, a shareholder must currently be and have been a registered or beneficial owner of at least one share of the Company for at least two years before the date of signing the proposal.

Limitations on Ownership of Securities

Except as provided in the Investment Canada Act (Canada) (See Market for Common Shares – Exchange Controls located in exhibit 99.1 of the Annual Report), there are no limitations specific to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or British Columbia, or in our Articles.

Change in Control

There are no provisions in our Articles that would have the effect of delaying, deferring or preventing a change in control of us, and that would operate only with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries.

Ownership Threshold

Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed. Securities legislation in Canada requires that we disclose in our management information circular for our annual meeting and certain other disclosure documents filed by us under such legislation, holders who beneficially own more than ten (10) percent of our issued and outstanding Common Shares.

Exhibit 4.1

[***] = CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED AND/OR IS THE TYPE OF INFORMATION THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL, AND HAS BEEN MARKED WITH “[***]” TO INDICATE WHERE OMISSIONS HAVE BEEN MADE.

INDUSTRIAL LEASE

 

LANDLORD:    MPW PROPERTIES PARTNERSHIP
TENANT:    THE VERY GOOD FOOD COMPANY INC.
INDEMNIFIER:    N/A
PREMISES:    2748 Rupert Street, Vancouver 2758
   Rupert Street, Vancouver 2762 Rupert
   Street, Vancouver 2768 Rupert Street,
   Vancouver Collectively referred to as a
   portion of Rupert I
   2774 Rupert Street, Vancouver
   2788 Rupert Street, Vancouver
   Collectively referred to as Rupert II
DATE:    (to be inserted prior to execution)

 

TABLE OF CONTENTS

 

ARTICLE 1 BASIC TERMS, DEFINITIONS AND INTERPRETATION

      4  

1.1

    Basic Terms      4  

1.2

    Definitions      6  

1.3

    Schedules      6  

ARTICLE 2 DEMISE AND TERM

      6  

2.1

    Demise      6  

ARTICLE 3 RENT AND OTHER PAYMENTS

      6  

3.1

    Annual Basic Rent and Additional Rent      6  

3.2

    Operating Costs and Taxes      6  

3.3

    Tenant’s Taxes      7  

3.4

    Utilities      7  

3.5

    Post-Dated Cheques or Pre-Authorized Withdrawal      7  

3.6

    Irregular Periods      7  

3.7

    Deposit      7  

3.8

    Net Lease      7  

3.9

    Management Fee      7  

ARTICLE 4 TENANT’S OPERATING COVENANTS

      7  

4.1

    Use of Premises      7  

4.2

    Signs      8  

4.3

    Parking and Obstruction of Roads      8  

4.4

    Rubbish      8  

4.5

    Compliance with Laws      8  

4.6

    Rules and Regulations      8  

4.7

    Vacate on Termination      8  

ARTICLE 5 HAZARDOUS SUBSTANCES

      9  

5.1

    Hazardous Substances      9  

5.2

    Hazardous Substances Property of Tenant      9  

5.3

    Removal of Hazardous Substances      9  

5.4

    Notice of Hazardous Substances      9  

5.5

    Restoration After Contamination      9  

5.6

    Records      9  

5.7

    Cleanup Plans      9  

5.8

    Indemnity to Landlord      10  

ARTICLE 6 TENANT’S REPAIRS AND ALTERATIONS

      10  

6.1

    Repair      10  

6.2

    Repair on Notice      11  

6.3

    Business and Trade Fixtures      11  

6.4

    Alterations and Additions      11  

6.5

    Liens      12  

ARTICLE 7 INSURANCE/INDEMNIFICATION

      12  

7.1

    Tenant’s Insurance      12  

7.2

    Landlord’s Insurance      13  

7.3

    Indemnify Landlord      13  

7.4

    Damage or Injury      13  

7.5

    Tenant Responsible for Damages      14  

ARTICLE 8 DISPOSITIONS

      14  

8.1

    Assignment and Subletting      14  

8.2

    Tenant’s Charges      15  

8.3

    Subordination      15  

8.4

    Attornment      15  

8.5

    Estoppel Certificate      15  

8.6

    Exhibit Premises      15  

ARTICLE 9 LANDLORD’S COVENANTS

      15  

9.1

    Quiet Enjoyment      15  

9.2

    Common Areas      15  

9.3

    Repair      16  

9.4

    Maintenance of Common Areas      16  

9.5

    Payment of Taxes      16  

9.6

    Parking      16  

 

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ARTICLE 10 DEFAULT

      16  

10.1

    Re-entry on Default      16  

10.2

    Waiver with Respect to Re-entry      17  

10.3

    Sale and Reletting      17  

10.4

    Termination      17  

10.5

    Distress      17  

10.6

    Payments by Landlord Regarded as Rent      17  

10.7

    Landlord’s Expenses Enforcing Lease      17  

10.8

    Remedies Cumulative      18  

10.9

    No Waiver      18  

10.10

    Interest      18  

ARTICLE 11 DAMAGE AND DESTRUCTION/EXPROPRIATION

      18  

11.1

    Damage and Destruction      18  

11.2

    Expropriation      19  

ARTICLE 12 MISCELLANEOUS

      19  

12.1

    No Warranties      19  

12.2

    Notices      19  

12.3

    Overholding      19  

12.4

    Inability to Perform      20  

12.5

    Joint and Several Liability      20  

12.6

    Continuation of Obligations      20  

12.7

    Assignment by Landlord      20  

12.8

    Registration of Lease      20  

ARTICLE 13 INTERPRETATION

      20  

13.1

    Interpretation      20  

SCHEDULE A PLAN OF PREMISES

      A-1  

SCHEDULE B DEFINITIONS

      B-1  

SCHEDULE C SPECIAL PROVISIONS

      C-1  

SCHEDULE D RULES AND REGULATIONS

      D-1  

 

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INDUSTRIAL LEASE

THIS LEASE dated for reference November 10, 2020 is made and entered into by the Landlord and the Tenant named herein who, in consideration of the rents and covenants herein contained, agree as follows:

ARTICLE 1

BASIC TERMS, DEFINITIONS AND INTERPRETATION

1.1 Basic Terms.

The basic terms of this Lease are as follows:

 

(a)    (i)    Landlord:    MPW Properties Partnership
   (ii)    Address of Landlord:    [***Redacted – Personally Identifying Information***]
   (iii)    Fax:    [***Redacted – Personally Identifying Information***]
   (iv)    Email:    [***Redacted – Personally Identifying Information***]
(b)    (i)    Tenant:    The Very Good Food Company Inc.
   (ii)    Address of Tenant:    [***Redacted – Personally Identifying Information***]
   (iii)    Fax:    [***Redacted – Personally Identifying Information***]
   (iv)    Email:    [***Redacted – Personally Identifying Information***]
(c)    Floor Area of Premises:    Rupert I - Approximately 33,907 square feet
         in total as described in Schedule A and subject
         to a re-measurement within one (1) year of the
         Commencement Date. Proportionate Share
         and Rent subject to adjustment in the event of
         a change of area as a result of the
         remeasurement.
         Rupert II - Approximately 11,964 square feet
         in total as described in Schedule A and subject
         to a re-measurement within one (1) year of the
         Commencement Date. Proportionate Share
         and Rent subject to adjustment in the event of
         a change of area as a result of the
         remeasurement.
(d)    Term:    Ten (10) Years
(e)    Commencement Date:    June 1st, 2021
(f)    Annual Basic Rent:    As follows:
   Rupert I:   

 

Rental Period (Year)    Per Square Foot     

Annual Basic

Rent

     

Monthly

Instalments

  

Year 1 - 2

    $ 20.00      $ 678,140.00      $ 56,511.67  

Year 3 - 4

    $ 22.00      $ 745,954.00      $ 62,162.83  

Year 5 - 7

    $ 23.00      $ 779,861.00      $ 64,988.42  

Year 8 - 9

    $ 24.00      $ 813,768.00      $ 67,814.00  

Year 10

    $ 25.00      $ 847,675.00      $ 70,639.58  
Rupert II:           Annual Basic      Monthly  
Rental Period (Year)    Per Square Foot      Rent      Instalments  

Year 1 - 2

    $ 17.00      $ 203,388.00      $ 16,949.00  

Year 3 - 4

    $ 18.00      $ 215,352.00      $ 17,946.00  

Year 5 - 7

    $ 19.00      $ 227,316.00      $ 18,943.00  

 

4

Year 8 - 9

     
 $  20.00
  
      $  239,280.00      $   19,940.00  

Year 10

    $ 21.00      $ 251,244.00      $ 20,937.00  

 

(g)    Security Deposit:    $222,248.73, inclusive of GST
(h)    Proportionate Share:    73.57% of Rupert I
         100% of Rupert II
(i)    Management Fee:    5% of Annual Basic Rent per annum
(j)    Permitted Use:    The Leased Premises shall be used only for the
         purpose of a Food Production Facility and any
         ancillary uses permitted under the CD-1 (249)
         zoning as prescribed by the City of Vancouver.
(k)    Option to Extend:    Two (2) Five (5) Year Terms
(l)    Fixturing Period:    As defined in Schedule C
(m)    (i)    Indemnifier:    N/A
   (ii)    Address of Indemnifier:    N/A
   (iii)    Fax:    N/A

The foregoing Basic Terms are agreed to by the parties and each reference in this Lease to any of the Basic Terms will be construed to include the foregoing provisions and all of the additional applicable sections of this Lease where such Basic Terms are more fully set forth.

 

5

1.2 Definitions.

The Landlord and the Tenant agree that, in this Lease, the words or phrases set out in Schedule B will, unless there is something in the context inconsistent therewith, have the meanings set out in Schedule B.

1.3 Schedules.

The schedules attached to this Lease are incorporated into and form an integral part of this Lease and are as follows:

Schedule A - Plan of Premises

Schedule B - Definitions

Schedule C - Special Provisions

Schedule D - Rules and Regulations

ARTICLE 2

DEMISE AND TERM

2.1 Demise.

The Landlord hereby leases the Premises to the Tenant and the Tenant leases the Premises from the Landlord, subject to the terms and conditions set out in this Lease, for the Term. The Tenant acknowledges that it is leasing the Premises from the Landlord on an “as is” basis, and that the Landlord will not be required to perform any work or provide any materials or services in respect of the Premises whatsoever except as expressly provided herein. The Landlord represents and warrants to the Tenant that it is the Beneficial Owner of the Land on behalf of the bare trustee who holds legal title to the Land. The bare trustee has full knowledge of the terms of this Lease and has directed the Landlord to enter into this Lease. The Lease Premises area will be subject to re-measurement by the Landlord’s surveyor to the BOMA Industrial standard within one (1) year of the Commencement Date. The Leasable area and Tenant’s Proportionate Share will be adjusted based on this re-measurement retroactively back to the Commencement Date. Notwithstanding the foregoing in no event shall the Tenant be responsible for any increases to the Rentable Areas in excess of five (5%) percent of the 33,907 sq. ft. for Rupert I and 11,964 sq. ft. for Rupert II.

ARTICLE 3

RENT AND OTHER PAYMENTS

3.1 Annual Basic Rent and Additional Rent.

Commencing on the Commencement Date, the Tenant will pay to the Landlord or as the Landlord may in writing direct, in lawful money of Canada without any abatement, set-off, compensation or deduction whatsoever, the aggregate of:

 

  (a)

Annual Basic Rent for each Lease Year, payable in advance in equal consecutive monthly instalments on the first day of each month in each year of the Term;

 

  (b)

the Tenant’s Proportionate Share of Operating Costs and Taxes, payable in accordance with Section 3.2;

 

  (c)

the cost of all utilities consumed on the Premises, in accordance with Section 3.4.

Rent will be payable at the Landlord’s address specified in Section 1.1(a)(ii) or at such other place as the Landlord may from time to time direct in writing. The Landlord may, at its option, apply all sums received from or due to the Tenant against any amounts due and payable under this Lease in such manner as the Landlord sees fit.

3.2 Operating Costs and Taxes.

Additional Rent (including, without limitation, Operating Costs and Taxes) payable by the Tenant will be estimated by the Landlord for such period as is designated by the Landlord from time to time. Subject to Section 9.5, the Tenant will pay the Landlord the estimated amount in monthly instalments in advance on the first day of each calendar month during the designated period. Within a reasonable period of time following the designated period the Landlord will furnish to the Tenant a statement setting out the Operating Costs and Taxes for such period and the Tenant’s Proportionate Share thereof. If the amount payable by the Tenant as shown on any such statement is greater or less than the aggregate of amounts paid by the Tenant under this Section 3.2, the proper adjusting credit or payment will be made between the parties within 14 days after delivery of the statement. Any credit made by the Landlord or payment made by the Tenant and accepted by the Landlord in respect of any adjustment made hereunder, will be without prejudice to the Landlord’s or Tenant’s right to claim a readjustment provided such claim is made within 12 months from the date of delivery of the statement referred to in this Section 3.2. Notwithstanding the foregoing, whenever in the Landlord’s reasonable opinion, any item of Operating Costs or Taxes properly applies to a particular tenant within the Complex, the Landlord may allocate

 

6

such item of Operating Costs or Taxes to such tenant. The Tenant will pay any amount so allocated by the Landlord to the Tenant upon demand.

3.3 Tenant’s Taxes.

The Tenant will promptly pay the Tenant’s Taxes as they become due. The Tenant will provide to the Landlord, upon request, the official receipt for each payment made by the Tenant in respect of the Tenant’s Taxes.

3.4 Utilities.

The Tenant will pay promptly for all electricity, gas, other fuel, water, telephone and other utilities consumed on the Premises as separately billed by the supplying utility to the Tenant. All utilities will be separately metered wherever possible.

3.5 Post-Dated Cheques or Pre-Authorized Withdrawal.

The Tenant will provide the Landlord with a series of 12 post-dated cheques for monthly Annual Basic Rent and Additional Rent on the Commencement Date and on each yearly anniversary thereafter during the Term and any extension or renewal thereof. If requested by the Landlord, the Tenant will instead supply the Landlord with an automatic debiting authorization by which payments in respect of the monthly instalments due under this Lease are automatically deducted from the Tenant’s bank account and credited to the Landlord’s bank account.

3.6 Irregular Periods.

If, for any reason, it becomes necessary to calculate Annual Basic Rent or Additional Rent for irregular periods, an appropriate pro rata adjustment will be made on a daily basis in order to compute such rent for such irregular periods, unless otherwise expressly set out in this Lease.

3.7 Deposit.

The Landlord acknowledges receipt from the Tenant of a deposit of the amount set out in Section 1.1(g), which a portion is to be applied to the 1st month’s basic and additional rent due and the balance is to be held as security for the due and proper performance by the Tenant of all of the terms, covenants and conditions of this Lease, including the payment of all Rent due hereunder. At the expiration of the Term, any portion of the Deposit that remains outstanding and unapplied by the Landlord shall be repaid by the Landlord to the Tenant within 60 days of the expiration of the Term. Notwithstanding the foregoing, if the Tenant fails to execute and deliver this Lease within 10 days of receipt from the Landlord or fails to take possession of the Premises by the Commencement Date, the Landlord may, at its sole option, terminate this Lease, whereupon the Deposit shall be retained by the Landlord as liquidated damages on account of the Tenant’s default and not as a penalty.

3.8 Net Lease.

This Lease will be absolutely net to the Landlord such that, without limitation, except as specifically set out in this Lease, all costs, expenses and obligations of every kind and nature whatsoever relating to the Premises, whether or not referred to in this Lease and whether or not of a kind now existing or within the contemplation of the parties hereto, will be paid by the Tenant.

3.9 Management Fee.

The Tenant will pay to the Landlord as Additional Rent monthly in advance on each day fixed for payment of monthly Annual Basic Rent a sum which is equal to five percent (5%) of the monthly Annual Basic Rent as a management fee for the management services of the Landlord.

ARTICLE 4

TENANT’S OPERATING COVENANTS

4.1 Use of Premises.

The Tenant will not:

 

  (a)

use the Premises nor allow the Premises to be used for any purpose other than that specified in Section 1.1 (j) without the prior written consent of the Landlord, such consent not to be unreasonably withheld;

 

  (b)

commit or suffer to be committed any waste upon the Premises;

 

  (c)

use, exercise, or carry on, or permit or suffer to be used, exercised or carried on, in, upon or about the Premises, or any part thereof, any noxious, illegal, noisome or offensive act, trade, business, occupation or calling, nor do or permit to be done on the Premises anything which damages the Complex or injures the business of the Tenant or other tenants of the Complex,

 

7

  nor keep, sell, use handle or dispose of any merchandise, goods or things which are objectionable, or by which the Premises or any part thereof may be damaged;

 

  (d)

do or permit to be done any act, matter or thing whatsoever in or upon the Premises, or any part thereof, which may result in nuisance, grievance, damage or disturbance to any other tenants in the Complex or to any occupiers or owners of any other lands or premises or to the holders of any registered easement, right of way or other encumbrance charging the whole or part of the Complex; or

 

  (e)

permit any sale by auction or any fire sale, bankruptcy sale, moving sale, going-out-of business sale or bulk sale to be held upon the Premises or any part thereof, other than annual warehouse sales in the ordinary course of business.

In any of the foregoing events, the Tenant will forthwith remedy the same and if not so remedied, the Landlord may, after 15 days’ notice to the Tenant of such event, correct such situation at the Tenant’s expense, without prejudice to any other remedy available to the Landlord.

4.2 Signs.

The Tenant will not, at any time, affix or exhibit or permit to be affixed or exhibited upon any part of the Premises any sign, except a sign or signs that have been approved in writing by the Landlord (such approval not to be unreasonably withheld) and which comply at all times with the requirements of any lawful authority having jurisdiction over signs, provided that if any such sign no longer complies with the terms of the approval given by the Landlord or the requirements of any lawful authority having jurisdiction over signs then the Landlord, after giving the Tenant 30 days’ notice, may remove any such sign at the Tenant’s expense and the costs of such removal will be paid by the Tenant to the Landlord forthwith.

4.3 Parking and Obstruction of Roads.

The Tenant will not permit any vehicles owned by or under the control of the Tenant to park in any area designated by the Landlord for the use of any other person or cause an obstruction on any roadways in or about the Complex and will obey all reasonable rules and regulations made with respect to parking and operation of vehicles on the Complex. The Tenant will use its commercially reasonable efforts to ensure that all persons doing business with the Tenant do not, and do not permit any vehicles to, park in such areas or cause such obstructions and that they comply with all such rules and regulations. The Tenant acknowledges that the Landlord may remove any motor vehicle of the Tenant, its employees, agents, customers or invitees parked in areas reserved for the use of any other person or obstructing any roadway and the Tenant will pay the cost of any such removal to the Landlord on demand.

4.4 Rubbish.

The Tenant will keep the Premises and any loading areas used by the Tenant clean and tidy and in good order and will not permit waste or garbage to be placed or accumulate outside of the Premises. The Tenant will dispose of waste or garbage in the manner designated by the Landlord from time to time. The Tenant will not leave or permit to be left or stack or permit to be stacked any material on the Complex, other than in the Premises.

4.5 Compliance with Laws.

The Tenant will do, observe and perform all of its obligations and all matters and things necessary or expedient to be done, observed or performed by the Tenant by virtue of any law, statute, by-law, ordinance, regulation or lawful requirements of any governmental authority or any public utility lawfully acting under statutory authority. The Tenant will immediately advise the Landlord of the presence of and will do all things reasonably necessary to remove any dangerous condition from time to time existing on the Premises.

4.6 Rules and Regulations.

The Tenant will observe and perform, and will cause its employees, agents, invitees and others over whom the Tenant can reasonably be expected to exercise control to observe and perform, the Rules and Regulations attached hereto as Schedule D and such other reasonable rules and regulations or amendments as may be made from time to time by the Landlord. In the event of any conflict between a provision of this Lease and any of the Rules and Regulations, the provision of this Lease will govern.

4.7 Vacate on Termination.

At the termination of this Lease, whether by the passage of time or otherwise, the Tenant will vacate and deliver up possession of the Premises in the condition required by this Lease and will inform the Landlord of all combinations of locks, safes and vaults, if any, in the Premises.

 

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ARTICLE 5

HAZARDOUS SUBSTANCES

5.1 Hazardous Substances.

The Tenant will not bring or permit to be brought into the Premises, and will not use in any way, or permit the use of the Premises or any part thereof to either directly or indirectly prepare, produce, use, generate, manufacture, refine, treat, transport, store, maintain, handle, dispose of, transfer, process, release or permit any other dealing with, any Hazardous Substances unless it has received the prior written consent of the Landlord, which may be arbitrarily withheld. Any substance which the Landlord permits the Tenant to treat, store, transfer or dispose of will be dealt with in strict compliance with all applicable laws and environmental permits. The Tenant will not release nor permit the release of any Hazardous Substances into any soil, water courses, culverts, drains or sewers except in accordance with all applicable laws and environmental permits. At its own cost, risk and expense, the Tenant will comply with all applicable laws and environmental permits from time to time in force regulating any dealing with Hazardous Substances by the Tenant to which the Landlord has consented.

5.2 Hazardous Substances Property of Tenant.

If any Hazardous Substance is brought onto the Premises or created upon the Premises during the Term or any extension or renewal thereof, such Hazardous Substance will be the sole and exclusive property of the Tenant and not of the Landlord, notwithstanding the degree of affixation of the Hazardous Substances or the goods containing the Hazardous Substances to the Premises and notwithstanding the expiry or sooner termination of this Lease.

5.3 Removal of Hazardous Substances.

On or before the expiry or sooner termination of this Lease, the Tenant will remove all Hazardous Substances which have been brought onto or created upon the Premises during the Term or any extension or renewal thereof, whether by the Tenant or any other person, other than the Landlord, including without limitation any Hazardous Substances which may have been released or deposited into the soil.

5.4 Notice of Hazardous Substances.

The Tenant will advise the Landlord forthwith after becoming aware of any release of any Hazardous Substances on the Premises or any other part of the Complex or any adjacent property and will provide the Landlord with all information, notices, reports and other documents it has regarding such release and the remediation steps being undertaken by the Tenant with respect to the release or as may reasonably be required by the Landlord of the Tenant.

5.5 Restoration After Contamination.

If the presence of any Hazardous Substance or any other substance brought onto the Premises by the Tenant results in any contamination of the Premises or the Complex, the Tenant will promptly take all actions at its sole risk and expense as are necessary to return the Premises and the Complex to the condition existing prior to the introduction of any such Hazardous Substance or other substance on the Premises or the Complex.

5.6 Records.

The Landlord may at any time and from time to time, on five days’ prior written notice to the Tenant, have the Premises, any records reasonably considered to be relevant for the purpose of identifying the existence, nature and extent of any Hazardous Substance on the Premises and the Tenant’s use, storage and disposal of such Hazardous Substance, inspected by a duly qualified independent environmental auditor, and the Tenant agrees to cooperate with the auditor in its performance of each such inspection. In exercising such right of inspection, neither the Landlord nor its auditor will unreasonably interfere with the Tenant’s use and occupation of the Premises. If the auditor, acting reasonably, determines following any such inspection that further testing or investigation is required in order to monitor the Tenant’s compliance with all applicable law relating to the use, storage and disposal of any Hazardous Substance, the Landlord may at its option require the Tenant, at the Tenant’s expense, to arrange for such testing or investigation or may make such arrangements itself, in which case the Landlord’s reasonable costs of any such testing or investigation will be paid by the Tenant to the Landlord within 30 days after receipt of any invoice on account thereof.

5.7 Cleanup Plans.

If any government authority requires the clean up of any Hazardous Substance held, released, spilled, abandoned or placed upon the Premises or the Complex or any other lands or released, spilled, leaked, pumped, poured, emitted, emptied, discharged, injected, escaped, leached, disposed or dumped into the environment by the Tenant in the course of the Tenant’s business or as a result of the Tenant’s use or occupancy of the Premises, the Tenant will, at its own risk and expense:

 

  (a)

prepare all necessary studies, plans and proposals and submit them for approval;

 

9

  (b)

provide all bonds and other security required by any governmental authority;

 

  (c)

carry out the work required and keep the Landlord fully informed; and

 

  (d)

provide to the Landlord full information with respect to proposed plans and comply with the Landlord’s reasonable requirements with respect to such plans.

The Tenant further agrees that if the Landlord determines, acting reasonably, that the Complex, the Landlord or the Landlord’s reputation is placed in any jeopardy by the requirements for any such work, the Landlord may itself undertake such work or any part thereof at the reasonable cost and expense of the Tenant which cost will be paid by the Tenant within 30 days after receipt of an invoice on account thereof.

5.8 Indemnity to Landlord.

The Tenant will indemnify and save harmless the Landlord

and its shareholders, directors, officers, employees, agents, successors, and assigns from any and all liabilities, actions, damages, claims, remediation cost recovery claims, losses (including, without limitation, diminution in value), costs, orders, fines, penalties, and expenses whatsoever (including any and all environmental or statutory liability for remediation, all legal and consultants’ fees and expenses and the cost of remediation of the Premises and any adjacent property) arising from or in connection with (i) any breach of or non-compliance with the provisions of this Article 5 by the Tenant; or (ii) any release or alleged release of any Hazardous Substances at or from the Premises related to or as a result of the use and occupation of the Premises or any act or omission of the Tenant or any person for whom it is in law responsible. The indemnification obligation of the Tenant pursuant to this Section 5.8 will survive the expiry or earlier termination of this Lease.

5.9 Indemnity to Tenant.

The Landlord will indemnify and save harmless the Tenant and its shareholders, directors, officers, employees, agents, subtenants, successors, and permitted assigns from any and all liabilities, actions, damages, claims, remediation cost recovery claims, losses (including, without limitation, lost profits and any other losses arising directly or indirectly from any interruption to or disruption of the Tenant’s use and occupation of the Premises or the Tenant’s business conducted on the Premises), costs, orders, fines, penalties, and expenses whatsoever (including any and all environmental or statutory liability for remediation, all legal and consultants’ fees and expenses and the cost of remediation of the Premises and any adjacent property) arising from or in connection with presence of any Hazardous Substances in, on, at, or under the Premises or any release or alleged release of any Hazardous Substances at or from the Premises prior to or after the commencement of the Term, but excluding any Hazardous Substances brought onto or released at or from the Premises by the Tenant or any person for whom the Tenant is at law responsible. The indemnification obligation of the Landlord pursuant to this Section 5.9 will survive the expiry or earlier termination of this Lease

5.10 Conditions Prior to Possession by Tenant

The Landlord and Tenant hereby agree that the Tenant will not be responsible for any environmental liability that existed in the Leased Premises prior to the Possession Date. The Landlord will complete an environmental assessment report to ascertain the condition of the Lease Premises as of the Possession Date. The Tenant will be responsible for any environmental liability or condition caused by, related to or arising out of the use or occupation of the Leased Premises by the Tenant and its contractors, invitees, licensees, employees, assignees and subtenants and other any person for whom the Tenant is responsible in law after the Possession Date.

ARTICLE 6

TENANT’S REPAIRS AND ALTERATIONS

6.1 Repair.

The Tenant will examine the Premises before taking possession of them and such taking of possession will be conclusive evidence as against the Tenant that at the Commencement Date the Premises were in good order and repair, except for any material defects of a structural nature in the Roof, foundations, exterior walls or floor of the Building existing as at the Commencement Date and in respect of which the Tenant gives written notice to the Landlord not later than 30 days after the Commencement Date. Excepting only the repair of such defects, reasonable wear and tear and repairs for which the Landlord is responsible under this Lease, the Tenant will, at its own expense, repair and maintain the Premises and all equipment, fixtures and improvements (including all electrical, plumbing and sprinkler equipment and all heating, ventilating and air-conditioning equipment exclusively serving the Premises) in a first class condition. At the end or sooner termination of the Term or any extension or renewal thereof the Tenant will deliver to the Landlord the Premises repaired and maintained in the condition required by this Section 6.1, and this obligation will survive the expiration or earlier termination of the Term or any extension thereof.

 

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6.2 Repair on Notice.

Upon 24 hours’ prior written notice (except in any emergency when no notice is required), the Landlord and its duly authorized agents or nominees may, with or without workers and others, enter upon the Premises for the purpose of examining the state of repair, condition and use thereof, and in every case the Tenant will cooperate with and assist the Landlord in such entry and examination and upon notice in writing of any defect or want of repair being given by the Landlord the Tenant will cause the same to be repaired, as required by Section 6.1, within 30 days from the date of the giving of such notice by the Landlord. In exercising the foregoing rights the Landlord will make reasonable efforts to minimize any disruption of the Tenant’s business. If the Tenant, at any time, defaults in the performance or observance of any of the covenants in this Lease for or relating to the repair or maintenance of the Premises or any part thereof and such default continues for 15 days after notice in writing from the Landlord of default in respect of repair or maintenance of the Premises, then the Tenant will permit the landlord and its duly authorized agents and nominees, with or without workers and others, and without prejudice to the Landlord’s right of re-entry, to enter into and upon the Premises and repair and maintain the same at the expense of the Tenant and the Tenant will afford the Landlord all aid and facilities in doing or causing the same to be done, and will repay to the Landlord on demand all costs and expenses in respect of such repairs and maintenance as aforesaid.

6.3 Business and Trade Fixtures.

The Tenant may install its usual business and trade fixtures, provided that:

 

  (a)

the installation does not damage the Premises; and

 

  (b)

the Tenant has, if requested by the Landlord, submitted plans and specifications for such business and trade fixtures to the Landlord and obtained its prior written consent thereto, which consent will not be unreasonably withheld.

All business and trade fixtures owned or installed by the Tenant in or on the Premises will remain the property of the Tenant and will be removed by the Tenant at the expiration of the Term or any renewal thereof or at the sooner termination thereof, provided that:

 

  (c)

the Tenant at its expense will repair any damage to the Premises caused by such removal; and

 

  (d)

the Tenant is not in default under any covenant or agreement contained in this Lease at the time of such removal.

If the Tenant is in default as contemplated in Section 6.3(d) above, the Landlord may elect to require the Tenant to remove all or any part of the business and trade fixtures owned or installed by or on behalf of the Tenant at the expiration or termination of the Term or any renewal thereof, in which event such removal will be done at the Tenant’s expense and the Tenant will at its expense, repair any damage to the Premises caused by the removal. If the Tenant does not remove its business and trade fixtures forthwith after written demand by the Landlord or if the Landlord makes no such demand, such property will, if the Landlord elects, be deemed to become the Landlord’s property without compensation to the Tenant or the Landlord may remove the same and the cost of such removal will be paid by the Tenant forthwith to the Landlord on written demand, provided that the Landlord will not be responsible for any loss or damage to such property as a result of the removal.

6.4 Alterations and Additions.

The Tenant will not make any change to the Premises where the costs of such alterations are greater than $20,000.00 or such alterations are subject to a building permit or similar application without having first submitted plans and specifications of the proposed change to the Landlord and having obtained the prior written consent of the Landlord to the proposed change, such consent not to be unreasonably withheld. All work will be done in a good and workmanlike manner, at such times, in such manner and by contractors or workers as the Landlord, acting reasonably, may approve in writing. The Tenant will reimburse the Landlord on demand for all reasonable costs and expenses incurred by the Landlord in the review and approval of any plans and specifications by the Landlord’s architects and engineers. The Tenant will obtain and pay for all required building and occupancy permits in respect of its work. The Tenant will, at its own cost and expense, take out any additional insurance coverage reasonably required by the Landlord to protect the respective interests of the Landlord and the Tenant during all periods when any such work is being performed. Any and all installations, alterations, additions, partitions, improvements or fixtures other than the Tenant’s business and trade fixtures in or upon the Premises, whether placed there by the Tenant or the Landlord will, immediately upon such placement, become and remain the property of the Landlord without compensation to the Tenant. Notwithstanding anything contained in this Lease, the Landlord will not be obligated to repair, maintain, replace or insure such installations, alterations, additions, partitions and fixtures or anything in the nature of a leasehold improvement made or installed by or on behalf of the Tenant and the Landlord may require the Tenant, at the Tenant’s cost, to remove any or all installations, alterations, additions, partitions, improvements or fixtures made or installed by or on behalf of the Tenant hereunder or under the provisions of any previous lease of the Premises to the Tenant at the expiry or earlier termination of the Term or any extension or renewal thereof and the Tenant will, at its sole expense,

 

11

restore the Premises to the condition in which they were prior to such alterations, installations, additions, improvements, partitioning and fixturing.

6.5 Liens.

If any claim of lien is filed against the Complex by any person claiming against the Tenant, the Tenant will take all necessary steps to have the claim of lien cancelled and discharged from title to the Complex within 30 days of the date the Tenant has knowledge of such filing and the Tenant will indemnify and save the Landlord harmless from any and all loss, cost, expense, damage and liability relating to such claim of lien. The Landlord, in addition to any other right or remedy, will have the right, but will not be obligated, to discharge any claim of lien filed against the Complex by paying the amount claimed to be due or by procuring a discharge of such lien by posting security in the appropriate court and in any such event the Landlord may, if it so elects, expedite the prosecution of any action for the enforcement of such claim of lien by the lien claimant and pay the amount of the judgement, if any, in favour of the lien claimant with interest and costs. In any such event, the Tenant will forthwith pay to and reimburse the Landlord for all money expended by the Landlord and all costs and expenses incurred by the Landlord.

ARTICLE 7

INSURANCE/INDEMNIFICATION

7.1 Tenant’s Insurance.

 

  (a)

The Tenant will, at its sole cost, during any period that the Tenant occupies the Premises, take out and maintain in full force and effect, the following:

 

  (i)

“all risks” insurance (or its equivalent), including earthquake, flood and sewer backup perils, upon all merchandise, stock-in-trade, furniture, fixtures, equipment, leasehold improvements and other property of every kind and description located at the Complex, owned by the Tenant or for which the Tenant is responsible or legally liable, in an amount at least equal to the full insurable value thereof, calculated on a full replacement cost basis;

 

  (ii)

“comprehensive form” boiler and machinery insurance (or its equivalent) upon any boilers, pressure vessels or mechanical equipment located at the Premises in such amount as the Landlord may reasonably require from time to time;

 

  (iii)

automobile liability insurance to a limit of liability of not less than $2,000,000.00 in any one accident, covering all licensed motor vehicles owned by the Tenant and used in connection with its business carried on, in and from the Premises;

 

  (iv)

commercial bodily injury and property damage liability insurance (or its equivalent) applying to the operations of the Tenant carried on, in and from the Premises and which will include, without limitation, personal injury liability, product liability, contractual liability, non-owned automobile liability, protective liability and Tenant’s legal liability with respect to the occupancy by the Tenant of the Premises; and such insurance will be written for an amount of not less than $5,000,000.00;

 

  (v)

business interruption insurance (or its equivalent) for a minimum period of 12 months in the amount which will reimburse the Tenant for direct or indirect loss of earnings and extra expenses attributable to all perils insured against under Section 7.1(a)(i) or attributable to prevention of access to the Premises or Building due to any such perils; and

 

  (vi)

any other form or forms of insurance as the Landlord or the Landlord’s Mortgagees may reasonably require from time to time in amounts and for perils against which a prudent tenant would protect itself in similar circumstances.

 

  (b)

All policies of insurance referred to in this Section 7.1 will include the following provisions:

 

  (i)

all property damage policies will contain a waiver of any subrogation rights which the Tenant’s insurer(s) may have against the Landlord and against those for whom the Landlord is, in law, responsible, whether any insured loss or damage is caused by the act, omission or negligence of the Landlord or by those for whose acts the Landlord is, in law, responsible or otherwise;

 

  (ii)

all policies of liability insurance will name the Landlord and any persons or corporations designated by the Landlord and having an interest in the Complex as additional insureds and provide that each person, firm or corporation insured under such policies will be insured in the same manner and to the same extent as if separate policies had been issued to each; and

 

12

  (iii)

all policies will contain an undertaking by the insurers to notify the Landlord and the Landlord’s Mortgagees, in writing, not less than 30 days prior to any cancellation or other termination of any policy.

 

  (c)

All policies of insurance referred to in this Section 7.1 will be underwritten by insurers acceptable to the Landlord and on policy forms satisfactory to the Landlord. The Tenant will deliver to the Landlord certificates of insurance as soon as possible after the placing of each policy and thereafter upon request. Whenever required by the Landlord, the Tenant will provide the Landlord with evidence that all premiums for all insurance policies have been paid.

 

  (d)

The Tenant will not do or permit anything to be done upon the Premises which might cause any policy of insurance against loss or damage to the Premises or against legal liability for damage to persons or property caused by the ownership, maintenance, use or occupancy of the Premises, or by reason of the conduct of any business carried on thereon, to be invalidated, and, for such purpose, upon receipt of notice in writing from any insurer of the Premises requiring the execution of works or a discontinuance of any operations in order to correct such situation, the Tenant will immediately comply with the notice.

 

  (e)

The Tenant will not do or permit anything to be done or exist upon the Premises that would cause an increase in the cost of the Landlord’s insurance or subject any such insurance to cancellation. The Tenant will pay to the Landlord, on demand, the amount of any such increase of cost due to the Tenant’s breach of this Section 7.1(e).

 

  (f)

If the Tenant fails to take out or keep in force any insurance coverage referred to in this Section 7.1, or if any such insurance is not approved by the Landlord and the Landlord’s Mortgagees, and the Tenant does not correct the situation within 72 hours after written notice by the Landlord setting forth the Landlord’s objections, the Landlord, without assuming any obligation in connection therewith, may effect such insurance coverage and recover all costs and premiums incurred in effecting such insurance coverage from the Tenant.

7.2 Landlord’s Insurance.

Except as may be otherwise provided in this Lease and to the extent that such insurance coverage is available at a reasonable cost acceptable to the Landlord, the Landlord will take out and maintain in force insurance as the Landlord as a prudent owner deems appropriate including, without limitation, fire insurance with extended coverage on the Building (other than the machinery, equipment, furniture, trade fixtures and property of tenants therein) to the full insurable value thereof, liability insurance and, at the Landlord’s option, insurance against loss of rental income and earthquake insurance in respect of the Building. Notwithstanding any contribution by the Tenant to any insurance costs as provided for herein, no insurable interest will be conferred upon the Tenant under policies carried by the Landlord.

7.3 Indemnify Landlord.

The Tenant will indemnify and save the Landlord harmless from and against any actions or causes of action, damages, costs, loss or expenses of whatever kind which the Landlord may sustain, incur or be put to by reason of or arising out of this Lease, or any act or omission of the Tenant or any persons for whom the Tenant is, at law, responsible, or from the use or occupation of the Premises in whole or in part and without limiting the generality of the foregoing, from the non-observance or non-performance by the Tenant, or any persons for whom the Tenant is, at law, responsible, of any of the obligations imposed under the provisions of any laws, ordinances, regulations or requirements of any federal, provincial, municipal or other authorities, or any of the covenants and agreements contained in this Lease and such liability to indemnify and save harmless will survive any termination of this Lease, and the expiry of the Term or any extension or renewal thereof, notwithstanding anything in this Lease to the contrary.

7.4 Damage or Injury.

Except to the extent attributable to the gross negligence or wilful misconduct of the Landlord or those for whom it is responsible in law, the Landlord will not be liable for any personal injury, death or property loss or damage sustained by the Tenant, or its employees, agents, assignees, subtenants, licensees or those doing business with it in the Premises or anywhere in the Complex, and the Tenant hereby releases the Landlord and its directors, officers, shareholders, agents and employees from all claims for damages or other expenses arising out of such personal injury, death or property loss or damage and will indemnify the Landlord and its directors, officers, shareholders, agents and employees against all actions or liabilities arising out of such personal injury, death or property damage or loss. Notwithstanding the foregoing, in no event will the Landlord be liable for any personal injury, death or property loss or damage sustained by the Tenant or its employees, agents, assignees, subtenants, licensees or invitees in the Premises or anywhere in the Complex caused by theft or breakage or by steam, water, rain, snow, Hazardous Substances or any other materials or substances which may leak into, issue or flow from any part of the Complex or any adjacent or neighbouring lands and premises or from the water, steam or drainage pipes or plumbing works of the same or from any place, or any loss or damage caused by or attributable to the condition or arrangements of any electric or other wiring or any damage caused by anything done or omitted to

 

13

be done by any other tenant or occupant of the Complex, and the Tenant will indemnify the Landlord against all actions or liabilities arising out of such personal injury, death or property damage or loss.

7.5 Tenant Responsible for Damages.

Without limiting any other provision of this Lease, the Tenant acknowledges and agrees that it will be solely responsible, at its own cost, for repairing any and all damage, including without limitation replacement of broken windows, caused to the Complex by the Tenant, its employees, agents, contractors, customers, invitees or other persons for whom the Tenant is responsible at law. The Landlord, at its sole option, may elect to repair any such damage which occurs and will be entitled to recover all costs incurred in completing such repairs from the Tenant. The Tenant will pay to the Landlord the cost of such repairs forthwith upon demand by the Landlord and the Landlord will have the same remedies available to it if the Tenant fails to pay such amounts as it has for rent in arrears.

ARTICLE 8

DISPOSITIONS

8.1 Assignment and Subletting.

 

  (a)

The Tenant will not assign this Lease, nor sublet the Premises or any part thereof, nor part with or share possession of all or any part of the Premises, without the prior written consent of the Landlord, such consent not to be unreasonably withheld.

 

  (b)

If the Tenant wishes to assign, sublet or part with or share possession of all or any part of the Premises, or to transfer this Lease in any other manner, in whole or in part, or to transfer any estate or interest in this Lease or the Premises, then the Tenant will give prior written notice to the Landlord, specifying the proposed assignee, transferee, subtenant or occupier and provide to the Landlord such information on the nature of the business of the proposed assignee, transferee, subtenant or occupier and its financial responsibility and standing as the Landlord may reasonably require and the terms and conditions of the proposed assignment, transfer, sublease or change in possession and will deliver to the Landlord a copy of the assignment, transfer or sublease intended to be executed by the Tenant and the assignee, transferee or subtenant. Within 30 days after receipt of such notice, the Landlord will notify the Tenant in writing whether it consents or does not consent to the assignment, transfer, subletting or parting with or sharing possession as the case may be.

 

  (c)

No assignment, transfer, subletting or parting with or sharing possession will:

 

  (i)

in any manner release the Tenant from its obligations for the payment of the Rent and the observance and performance of the covenants, terms and conditions of this Lease; or

 

  (ii)

be made to any person, firm, partnership or corporation carrying on any business which the Landlord is obliged to restrict by reason of any other lease or contract relating to any other premises in the Complex.

 

  (d)

The Tenant will, at the request of the Landlord, require any assignee of the interest of the Tenant under this Lease or any subtenant of the Tenant, at the time of such assignment, to enter into a written agreement with the Landlord in which the assignee or subtenant covenants and agrees with the Landlord to observe and perform all of the covenants, agreements, provisos, terms and conditions of this Lease (as they pertain to the portion of the Premises in question), provided that if the Tenant fails to require the assignee or subtenant to enter into such a written agreement the Landlord may refuse to grant its consent to the assignment or sublet. Without in any way restricting the generality of the Landlord’s right to refuse to consent to an assignment or subletting, the Landlord may refuse to grant its consent to an assignment or subletting if this Lease is not in good standing.

 

  (e)

The Tenant will pay or reimburse to the Landlord upon demand all reasonable solicitors’ fees and all other costs, charges, and expenses reasonably incurred by the Landlord in connection with the Tenant’s request for consent to any assignment, subletting or parting with or sharing of possession.

 

  (f)

The Tenant shall provide Notice to the Landlord but not be required to seek or obtain the Landlord’s prior consent for any assignment or subletting to any other entity under it’s common control; an affiliate (as defined in the BC Business Corporations Act); a partnership of which the Tenant is a partner; a bona fide purchaser of all or substantially of all the Tenant’s assets, business or undertaking (whether such sale takes place via a share sale or asset sale); or a company formed as a result of a corporate reorganization. All other assignments or subleases shall require the Landlord’s prior written consent, not to be unreasonably withheld, delayed or

 

14

  conditioned. In all cases, no assignment or subletting shall in any manner release the Tenant from its obligations under the Lease.

8.2 Tenant’s Charges.

The Tenant will:

 

  (a)

not mortgage or charge its leasehold interest in the Premises or its fixtures, chattels, furniture or equipment, without the Landlord’s consent; and

 

  (b)

pay all money owed by it under any security agreement or other charge registered or filed against the Complex, and immediately upon making all of the payments thereunder, obtain a memorandum of satisfaction or other appropriate document of discharge and register the same at its own expense in the proper land title office or other appropriate office of public record as the Landlord may require to discharge the same from the title to the Complex.

8.3 Subordination.

This Lease is and will be subject, subordinate and postponed to all mortgages, including any debentures and any deeds of trust and mortgages securing bonds and all indentures supplemental thereto (collectively called the “Mortgages”) which may now or hereafter charge the Complex or any part thereof and to all renewals, modifications, consolidations, replacements and extensions of the Mortgages, without execution of any document other than this Lease. Without limiting the generality of the foregoing, the Tenant agrees to execute promptly any document in confirmation of such subordination, postponement and priority which the Landlord may request, provided that, upon request by the Tenant, the Landlord will arrange for the holder of the applicable Mortgage to execute a non-disturbance agreement in favour of the Tenant.

8.4 Attornment.

Whenever required by any of the Landlord’s Mortgagees under any of the Mortgages the Tenant will attorn to and become a tenant or licensee of such Landlord’s Mortgagee or a tenant of any purchaser from such Landlord’s Mortgagee in the event of an exercise by such Landlord’s Mortgagees of the power of sale in any of the Mortgages set out, for the then unexpired residue of the Term on all of the terms and conditions of this Lease.

8.5 Estoppel Certificate.

Each party will, at any time and from time to time, upon ten days’ prior written notice from the other party, execute and deliver to the requesting party (or if requested by the Landlord, to the Landlord’s Mortgagees or a prospective purchaser of all or part of the Complex, a statement in writing as to the then status of this Lease, including as to whether it is in full force and effect, is modified or unmodified, confirming the Rent payable hereunder and the state of accounts between the Landlord and the Tenant, the existence or non-existence of defaults, and any other matters pertaining to this Lease as reasonably required by the requesting party.

8.6 Exhibit Premises.

The Landlord may, on reasonable notice to the Tenant, enter and exhibit the Premises to prospective tenants or subtenants during the six month period prior to the expiry of the Term or any extension thereof, and to the Landlord’s Mortgagees or prospective mortgagees or purchasers at any time during the Term or any extension thereof. The Landlord will make reasonable efforts to minimize any disruption of the Tenant’s business caused thereby.

ARTICLE 9

LANDLORD’S COVENANTS

9.1 Quiet Enjoyment.

If the Tenant pays the Rent and performs the covenants contained in this Lease, the Tenant will be entitled to quiet enjoyment of the Premises, subject to the rights of owners or occupiers of the easements and rights-of-way, if any, now or hereafter registered against title to the Complex.

9.2 Common Areas.

The Landlord will permit the Tenant and its employees and invitees to have the use in common with all others entitled thereto of the common loading areas and facilities, roadways and garbage areas of the Complex and all other common areas and common facilities that are a part of the Complex, subject to any parking restrictions set out in this Lease.

 

15

9.3 Repair.

Subject to Section 11.1, the Landlord will repair, reasonable wear and tear excepted, the Roof, foundations, sub -floors and outer walls of the Building and the mechanical and electrical works included within the Complex for use in common by the tenants of the Complex, and the cost thereof (except for costs associated with mechanical and electrical works and the roof membrane) will not form a part of Operating Costs.

9.4 Maintenance of Common Areas.

The Landlord will maintain all common areas within the Complex, and the cost of all such maintenance will form a part of Operating Costs.

9.5 Payment of Taxes.

Subject to the Tenant’s obligation to pay its Proportionate Share of Taxes, the Landlord will pay the Taxes in respect of the Complex. If the Landlord is obligated to pay Taxes in advance for or during the year or other period in which the Taxes are or are to become due, the Landlord may establish a reserve from which to pay the Taxes when due, and if it does so, the Tenant will, notwithstanding Section 3.2, pay its Proportionate Share of Taxes in equal monthly instalments in advance on the first day of each month, in amounts sufficient to fund such reserve so as to enable the Landlord to pay the Tenant’s Proportionate Share of Taxes in advance, when due.

9.6 Parking.

Subject to Section 4.3, the Tenant, its customers and others having legitimate business with the Tenant may, without charge, use the parking areas of the Property shown on Schedule A attached hereto and no other parking areas, for the purpose only of parking not more than 60 motor vehicles and the Tenant acknowledges that such parking areas will be used at the sole risk of the Tenant. The Landlord reserves the right to designate other parking areas for the exclusive use of visitors to and particular tenants of the Complex.

9.7 Compliance with Laws.

The Landlord will do, observe, and perform all of its obligations and all matters and things necessary or expedient to be done, observed, or performed by the Landlord by virtue of any law, statute, bylaw, ordinance, regulation, or lawful requirements of any government authority or any public utility lawfully acting under statutory authority, and all demands and notices in pursuance of them and in any manner or degree affecting the exercise or fulfilment of any right or obligation arising under or as a result of this Lease and affecting the Premises and the use of them by the Tenant.

ARTICLE 10

DEFAULT

10.1 Re-entry on Default.

If at any time during the Term or any extension or renewal thereof:

 

  (a)

any payments of the Rent or any part thereof, are not paid within five days after written notice from the Landlord that they are overdue;

 

  (b)

the Tenant breaches or fails to observe or perform any covenant, agreement, stipulation, proviso, condition, rule or regulation contained in this Lease and the breach, non-observance or non-performance continues for 30 days after written notice thereof to the Tenant (or such longer period as may be reasonably necessary in the circumstances in order to rectify such breach or failure);

 

  (c)

the Premises are abandoned;

 

  (d)

the Term or any extension thereof or any of the goods and chattels of the Tenant is seized or taken in attachment by any creditor of the Tenant;

 

  (e)

the Tenant becomes bankrupt or insolvent or takes the benefit of any statute at the time in force for bankrupt or insolvent debtors; or

 

  (f)

the Tenant assigns, sublets or parts with possession of all or any part of the Premises without the Landlord’s consent as herein required,

then:

 

  (i)

the Landlord, in addition to any other remedy available to it, may re-enter and take possession immediately of the Premises or any part thereof in the name of the whole by force if necessary, without any previous notice of intention to re-enter and may remove

 

16

  all persons and property from the Premises and may use such force and assistance in removing such persons and property as the Landlord may deem advisable to recover at once full and exclusive possession of the Premises and such re-entry will not operate as a waiver or satisfaction in whole or in part of any right, claim or demand arising out of or connected with any breach, non-observance or non-performance of any covenant or agreement by the Tenant; and

 

  (ii)

in the event of a default under Section 10.1(e), the next three months’ Annual Basic Rent and Additional Rent (to be determined at rates estimated by the Landlord acting reasonably) and any additional amounts owing under the Lease will immediately become due and payable and will be recoverable by the Landlord as if it were Rent in arrears, but the Tenant will remain liable under this Lease;

10.2 Waiver with Respect to Re-entry

The Tenant hereby waives any present or future requirement that notice of the Landlord’s intention to re-enter be served or that the Landlord commence legal proceedings in order to re-enter.

10.3 Sale and Reletting.

Upon the Landlord becoming entitled to re-enter the Premises under any of the provisions of this Lease, the Landlord, in addition to all other rights and remedies, may enter the Premises as the agent of the Tenant either by force or otherwise, without being liable for any prosecution therefor and relet the Premises as the agent of the Tenant, and receive all rent therefor. The Landlord may also, as agent of the Tenant, take possession of any business and trade fixtures of the Tenant and any goods and property whatsoever on the Premises, sell them at public or private sale without notice and apply the proceeds of such sale and any rent derived from reletting the Premises, after deducting its costs of conducting such sale and its costs of reletting, in payment of the Rent due under this Lease, and the Tenant will be liable to the Landlord for any deficiency.

10.4 Termination.

Upon the Landlord becoming entitled to re-enter upon the Premises under any of the provisions of this Lease, the Landlord, in addition to all other rights and remedies, may immediately terminate this Lease by giving notice in writing addressed to the Tenant of its intention so to do. Upon such termination Rent will be computed, apportioned and paid in full to the date of such termination, the Tenant will pay any other amounts for which it is liable pursuant to Section 10.7, the Tenant will forthwith deliver up possession of the Premises to the Landlord and the Landlord may re-enter and take possession of the Premises.

10.5 Distress.

Whensoever the Landlord is entitled to levy distress against the goods and chattels of the Tenant it may use such force as it deems necessary for that purpose and for gaining admission to the Premises without being liable for any action in respect thereof or for any loss or damage occasioned thereby and the Tenant hereby expressly releases the Landlord from all actions, proceedings, claims or demands whatsoever for or on account of or in respect of any such forcible entry or any loss or damage sustained by the Tenant in connection therewith.

10.6 Payments by Landlord Regarded as Rent.

If the Tenant fails to observe or perform any of the covenants or obligations of the Tenant under or in respect of this Lease, the Landlord may at its discretion perform any of such covenants or obligations or any part thereof and for such purpose may do such things as may be necessary and may enter upon the Premises to do such things and all costs and expenses incurred and expenditures made by or on behalf of the Landlord will be paid by the Tenant to the Landlord on demand. If the Tenant fails to pay, the Landlord may add such charges to the Rent and recover the same by all remedies available to the Landlord for the recovery of Rent in arrears, provided that if the Landlord commences or completes the performance of any of such covenants or obligations or any part thereof, the Landlord will not be obliged to complete such performance or causing to be performed or be later obligated to do so again. If the Landlord suffers or incurs any damage, loss, cost or expense whatsoever for which the Tenant is in any way liable hereunder, by reason of any failure of the Tenant to observe or comply with any of the covenants or agreements of the Tenant contained in this Lease, then in every such case the amount of any such damage, loss, cost or expense will be due and payable by the Tenant to the Landlord on demand and the Landlord may at its option add the cost or amount of any such damage, loss, cost or expense to the Rent hereby reserved and any such amount will immediately be due and payable as Rent and recoverable by the Landlord by all remedies available to the Landlord for the recovery of Rent in arrears.

10.7 Landlord’s Expenses Enforcing Lease.

If it is necessary for the Landlord to retain the services of any person for the purpose of assisting the Landlord in enforcing any of its rights under this Lease or otherwise available at law, the Landlord may collect from the Tenant the cost of all such services including, but not limited to, all legal fees and disbursements in connection

 

17

with all necessary court proceedings at trial or on appeal on a solicitor and own client basis, as if the same were Rent in arrears.

10.8 Remedies Cumulative.

No remedy conferred upon or reserved to the Landlord under this Lease, by statute or otherwise, will be considered exclusive of any other remedy, but the same will be cumulative and in addition to every other remedy available to the Landlord and all such remedies and powers of the Landlord may be exercised concurrently and from time to time and as often as the Landlord deems expedient.

10.9 No Waiver.

 

  (a)

The failure of the Landlord to exercise any right or option in connection with any breach or violation of any term, covenant or condition herein contained will not be deemed to be a waiver or relinquishment of such term, covenant, or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of the Rent or any portion hereunder by the Landlord will not be deemed to be a waiver of a preceding breach by the Tenant of any term, covenant or condition of this Lease other than the failure of the Tenant to pay the particular amount of the Rent so accepted, regardless of the Landlord’s knowledge of such preceding breach at the time of acceptance of such amount of the Rent.

 

  (b)

The acceptance of any of the Rent from, or the performance of any obligation under this Lease by, a person other than the Tenant will not be construed as an admission by the Landlord of any right, title or interest of such person as a subtenant, assignee, transferee or otherwise in the place of the Tenant.

 

  (c)

The acceptance by the Landlord of a part payment of any money required to be paid under this Lease will not constitute waiver or release of the right of the Landlord to payment in full of such money.

10.10 Interest.

Interest on any money due to the Landlord under this Lease will be paid by the Tenant and will accrue at the rate of 1% per month, such rate of interest to be calculated and compounded monthly, not in advance, from the respective date upon which any such money becomes due to the Landlord.

ARTICLE 11

DAMAGE AND DESTRUCTION/EXPROPRIATION

11.1 Damage and Destruction.

 

  (a)

If all or any part of the Premises is damaged by fire or other casualty and all or a portion of the Premises is rendered unusable by the Tenant, then Rent will abate, in the proportion that that part of the Premises which is rendered unusable bears to the whole of the Premises from and after the date of the damage and such abatement will continue until the Landlord has completed its repairs under Section 11.1(b) or until this Lease terminates, whichever occurs first .

 

  (b)

Except as provided in Section 11.1(c) hereof, if the Premises are damaged by fire or other casualty insured against by the Landlord, the damage to the Premises will be repaired by the Landlord at its expense except that repairs to installations, alterations, additions, partitions, improvements and fixtures made by or on behalf of the Tenant or any previous tenant or occupant of the Premises or any part thereof will be performed by the Tenant or, at the option of the Landlord, will be performed by the Landlord at the expense of the Tenant. All repairs which the Landlord is required to make under this Section 11.1(b) will be made with due diligence, provided that the Landlord will not be liable to the Tenant for any loss or damage suffered by the Tenant as a result of any delay which may arise by reason of adjustment of insurance on the part of the Landlord or on account of labour troubles or any other cause beyond the Landlord’s control.

 

  (c)

Notwithstanding the foregoing, the Landlord will have no obligation to repair, reconstruct or restore the Premises or the Building if any of the following occurs:

 

  (i)

the Building is damaged by fire or other casualty to the extent that it cannot reasonably be repaired or rebuilt within 180 days after the occurrence of such damage;

 

  (ii)

the holder of any mortgage or security agreement encumbering the Complex elects not to permit the insurance proceeds payable upon damage to or destruction of the Building or Premises to be used for such repair, reconstruction or restoration;

 

18

  (iii)

the damage or destruction is not fully covered by insurance maintained by the Landlord or for the Landlord’s benefit;

 

  (iv)

the damage or destruction occurs during the last 24 months of the initial Term or any extension or renewal thereof; or

 

  (v)

the Tenant has abandoned the Premises.

If the Landlord decides not to restore the Building, the Landlord will, within 90 days after the happening of such fire or other casualty, give to the Tenant a notice in writing of such decision and the Term and any extension thereof will expire forthwith and the Tenant will vacate the Premises and surrender them to the Landlord. If the Building is damaged to the extent set out above and the Landlord does not give notice of a decision not to restore, the Landlord will diligently proceed to repair the Building to the extent set out in Section 11.1(b). Upon the termination of this Lease by the Landlord as provided in this Section 11.1(c), the Tenant’s liability for the Rent will cease as of the day following the fire or casualty.

11.2 Expropriation.

If the whole or any portion of the Complex containing the Premises will be acquired or condemned by an authority having the power for such acquisition or condemnation then the Term and any extension thereof will cease from the date of entry by such authority. Nothing in this Lease will prevent the Landlord or the Tenant or both from recovering damages from such authority for the value of their respective interests or for such other damages and expenses allowed by law.

ARTICLE 12

MISCELLANEOUS

It is hereby agreed by the Landlord and the Tenant as follows:

12.1 No Warranties.

No representations, warranties, agreements or conditions have been made to or for the Tenant other than those expressed herein, and no agreement collateral to this Lease will be binding upon the Landlord unless it is made in writing and duly executed on behalf of the Landlord.

12.2 Notices.

Any notice, request, demand, direction, or statement required or permitted under this Lease to the Tenant or the Landlord will be sufficiently given if delivered, sent by electronic transmission or mailed in British Columbia by double registered mail postage prepaid, to the addresses as set out below. Any notice will be deemed to have been given on the date delivered or if mailed as aforesaid, on the sixth day after it was mailed or if by electronic transmission, on the date the recipient acknowledges receipt in writing to the sender. The Landlord or the Tenant may at any time give written notice to the other of a change of address for notices, after which the altered address will be the address of such party for notices. During any interruption of postal service, notice shall be delivered or sent electronically. Notices are to be sent as follows:

To the Landlord:

Attention: President and CEO

[***Redacted – Personally Identifying Information***]

Fax: [***Redacted – Personally Identifying Information***]

Email: [***Redacted – Personally Identifying Information***]

To the Tenant:

To be provided

12.3 Overholding.

If the Tenant holds over after the expiration of the Term or any extension thereof and the Landlord accepts Rent or any portion thereof, the new tenancy thereby created will be deemed a monthly tenancy and not a yearly tenancy and will be subject to the covenants and conditions contained in this Lease insofar as they are applicable to a monthly tenancy, except that the monthly instalments of Annual Basic Rent will be 150% of the monthly instalments of Annual Basic Rent payable for the last month of the Term or any extension thereof and, in addition, the Tenant will be liable for all costs, expenses, losses and damages resulting or arising from the failure of the Tenant to deliver up possession of the Premises to the Landlord.

 

19

12.4 Inability to Perform.

Whenever and to the extent that Landlord is unable to fulfil, or is delayed or restricted in the fulfilment of any obligation under this Lease by reason of being unable to obtain the material, goods, equipment, service, utility or labour required to enable it to fulfil any such obligation or by reason of any statute, law or order-in -council or any regulation or order passed or made pursuant thereto or by reason of the order or direction of any administrator, controller or board, or any governmental department or officer or other authority, or by reason of not being able to obtain any permission or authority required thereby, or by reason of any other cause beyond its control whether of the foregoing character or not, the Landlord may extend the time for fulfilment of such obligation by a time equal to the duration of such delay or restriction, and the Tenant will not be entitled to compensation for any inconvenience, nuisance or discomfort or damage thereby occasioned, and will not be entitled to terminate this Lease.

12.5 Joint and Several Liability.

If the Tenant is more than one person, all covenants, liabilities and obligations of the Tenant set out in this Lease are joint and several.

12.6 Continuation of Obligations.

This Lease and the obligations of the Tenant under it will continue in full force and effect notwithstanding any change in the person or persons comprising the Landlord.

12.7 Assignment by Landlord.

If there is a sale, lease or other disposition by the Landlord of the Complex or any part thereof, or the assignment by the Landlord of this Lease or any interest of the Landlord hereunder, and to the extent that the purchaser or assignee assumes the covenants and obligations of the Landlord hereunder, the Landlord will, thereupon and without further agreement, be relieved of all further liability with respect to its covenants and obligations.

12.8 Registration of Lease.

The Landlord will not be obligated to execute or deliver this Lease in form registrable under the Land Title Act (British Columbia) or any other statute and the Tenant will not register this Lease or any claim based thereon; provided, however, that the Tenant may, at its sole expense, register a short form of this lease in a form acceptable to the Landlord, acting reasonably, and which does not disclose the financial terms hereof. All costs and expenses in connection with such registration and any plans required for registration will be paid by the Tenant.

12.1 Schedules.

The Schedules attached to this Lease are hereby incorporated and form part of this Lease.

ARTICLE 13

INTERPRETATION

13.1 Interpretation.

The parties agree that:

 

  (a)

This Lease will be construed in accordance with, and governed by, the laws of British Columbia.

 

  (b)

All of the provisions of this Lease are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate provision hereof.

 

  (c)

If any provision or provisions of this Lease is found to be illegal or not enforceable it or they will be considered separate and severable from this Lease and its remaining provisions will remain in force and be binding upon the parties hereto as though the said provision or provisions had never been included.

 

  (d)

Time is of the essence of this Lease.

 

  (e)

The headings of the Articles and Sections in this Lease are inserted for convenience only and in no way define, limit, construe or describe the scope or intent of such Articles or Sections nor in any way affect this Lease.

 

  (f)

This Lease will extend to, be binding upon and enure to the benefit of the Landlord and the Tenant and their respective heirs, executors, administrators, successors and permitted assigns.

 

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  (g)

This Lease sets out the entire agreement between the parties with respect to the subject matter of this Lease and will not be modified, amended or waived except by an instrument in writing duly executed and delivered by the parties or by their successors and permitted assigns.

IN WITNESS WHEREOF the parties hereto have duly executed and delivered this Lease as of the day and year first above written.

 

By the Landlord:

     By the Tenant:
By:  

/s/ Marvin Haasen

     By:  

/s/ Mitchell Scott

  Authorized Signatory       Authorized Signatory
By:  

 

     By:  

/s/ Kamini Hitkari

  Authorized Signatory       Authorized Signatory

 

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SCHEDULE A

PLAN OF PREMISES

RUPERT I

[Omitted pursuant to Instruction 19 of Form 20-F]

RUPERT II

[Omitted pursuant to Instruction 19 of Form 20-F]

 

A-1

SCHEDULE B

DEFINITIONS

 

(a)

“Additional Rent” means all sums, other than Annual Basic Rent, payable by the Tenant to the Landlord under this Lease, whether or not designated as Additional Rent;

 

(b)

“Annual Basic Rent” means the annual basic rent set out in Section 1.1(f);

 

(c)

“Beneficial Owner” means MPW Properties Partnership on behalf of the Bare Trustees; Vanac Development Corp and Madison Development Corp.;

 

(d)

“Building” means all buildings and improvements erected or to be erected on the Land;

 

(e)

“Commencement Date” means the date set out in Section 1.1(e);

 

(f)

“Complex” means the Land and the Building;

 

(g)

“Floor Area” means the area (expressed in square feet) of any rentable area in the Complex measured from the exterior of all exterior walls, doors and windows and from the centre line of all internal walls separating any premises from adjoining premises, all without deduction for columns or projections necessary to the Building;

 

(h)

“Goods and Services Tax” means all sales, goods and services, value-added or other taxes assessed or imposed on the Tenant or the Landlord, whether or not in existence on the Commencement Date, in respect of the Rent payable to the Landlord by the Tenant under this Lease, the rental of the Premises by the Landlord to the Tenant or the provision of any goods, services or utilities whatsoever by the Landlord to the Tenant under this Lease;

 

(i)

“Gross Leasable Area” means, whether referring to the whole Building or any portion thereof, the total, from time to time, of the Floor Area of all leasable premises in the Complex or in such portion, including the Premises, as the case may be;

 

(j)

“Hazardous Substance” means any contaminant, pollutant, dangerous or potentially dangerous or noxious or toxic substance, hazardous waste, flammable or explosive or radioactive material, urea formaldehyde foam insulation, asbestos, PCBs and substances or any other materials declared or defined to be hazardous, toxic, contaminants or pollutants, or which at any time during the Term are regulated as a threat or are capable of posing a threat to public health or the environment under or pursuant to, any applicable laws, regulations, requirements or guidelines in British Columbia, including any applicable laws, regulations, requirements or guidelines of the Government of Canada, the Government of British Columbia or the City of Vancouver or of any other lawful governmental authority having jurisdiction;

 

(k)

“Land” means the lands legally described as Parcel Identifier: 007-998-953 and 007-999-011 and a portion of 007-999-054.

 

(l)

“Landlord’s Mortgagees” means the mortgagees, debenture holders and trustees on behalf of a mortgagee holding Mortgages;

 

(m)

“Lease Year” means, in the case of the first Lease Year, the period beginning on the Commencement Date and ending 12 months from the last day of the calendar month in which the Commencement Date occurs (except that if the Commencement Date occurs on the first day of a calendar month, the first Lease Year will terminate on the day prior to the first anniversary of the Commencement Date) and, in the case of each subsequent Lease Year, will mean each 12 month period after the first Lease Year;

 

(n)

“Mortgages” has the meaning set out in Section 8.3;

 

(o)

“Operating Costs” means all costs and expenses incurred by the Landlord in the operation, maintenance, repair and replacement of the Complex in each Lease Year, including without limitation, the cost of providing cleaning, garbage removal, supervisory and maintenance services; the cost of hot and cold water, electricity, telephone and other utilities and services in respect of the common areas of the Complex; the cost of heating, cooling and ventilating all space both rentable and non-rentable; the cost of providing janitorial service (if any); the cost of all repairs and replacements to the Complex; the cost of snow clearance, security and supervision, the cost of repairing and restriping parking areas and roadways; the cost of landscaping and maintaining any landscaped areas on the Complex; the cost of all insurance maintained by the Landlord in respect of the Complex or any part thereof; accounting costs incurred in connection with maintenance and operation including computations required for the imposition of charges to tenants and audit charges for the reporting of charges hereunder; the amount of that portion of salaries, wages and fringe benefits paid to employees which is attributable to the operation and maintenance of the Complex and amounts paid to independent contractors for any services in connection with such operation and maintenance; and depreciation on all fixtures, equipment and

 

B-1

  facilities which require periodic replacement at rates determined by the Landlord in accordance with generally accepted accounting principles.

Notwithstanding the foregoing, the following costs will be excluded from Operating Costs:

 

  (i)

payments of principal and interest under any mortgages on the Complex and any costs associated with any further mortgages or refinancing of the Complex;

 

  (ii)

corporate, income, profits or excess profit taxes assessed on the income of the Landlord and any other taxes assessed or levied on the Landlord, including any corporation capital tax payable by the Landlord;

 

  (iii)

real estate commissions in connection with the sale of the Complex or parts thereof and leasing commissions with respect to leases of any part of the Complex;

 

  (iv)

costs associated with structural repairs and replacements, being repairs and replacements in respect of the Roof (excluding roof membrane), foundations, sub-floors and outer walls of the Building; and

 

  (v)

costs which are considered to be capital expenses in accordance with generally accepted accounting principles. For greater clarity, in no event will the Landlord charge the Tenant depreciation, amortization or interest in respect of a capital expense, except that the Landlord may charge depreciation in respect of any costs incurred by the Landlord in connection with the replacement of the heating, ventilation and air-conditioning equipment exclusively serving the Premises;

and the following recoveries will be deducted from Operating Costs:

 

  (vi)

any loss or damage to all or any part of the Complex or personal injury for which the Landlord is insured under the terms of this Lease, to the extent of the insurance proceeds actually received;

 

  (vii)

costs which are recovered by the Landlord by claiming under any existing warranties in favour of the Landlord.

 

(p)

“Premises” means the premises set out in Schedule A and having the Floor Area set out in Section 1.1(c);

 

(q)

“Proportionate Share” means the proportion that the Floor Area of the Premises bears to the Gross Leasable Area of all premises within the Complex designated for lease to tenants, whether leased or not, and expressed as a percentage in Section 1.1(h);

 

(r)

“Rent” means, collectively, Annual Basic Rent and Additional Rent;

 

(s)

“Roof” means the roof of the Building including the roof membrane, insulation and deck and all structural components of the roof;

 

(t)

“Taxes” means the total of all taxes, local improvements or similar rates, duties, assessments and/or charges, municipal realty taxes, water taxes, school taxes, or any other taxes, rates, duties, assessments both general or special or any rate, duty, assessment, charge or tax levied, charged or assessed in lieu thereof now or at any time hereafter levied or imposed upon or in respect of the Complex or any part thereof and capital taxes payable by the Landlord based in whole or in part on the capital employed by the Landlord in the Complex, by any governmental authority whether federal, provincial, municipal or otherwise, together with all costs and expenses (including legal and other professional fees and interest and penalties on deferred payments) incurred by the Landlord in good faith contesting or appealing any such taxes, levies, rates, assessments or charges levied in lieu thereof, but excluding Tenant’s Taxes;

 

(u)

“Tenant’s Taxes” means all taxes, license and permit fees, rates, duties and assessments imposed or levied by any lawful authority covering any period during the Term and any renewal thereof and relating to or in respect of the business of the Tenant or relating to or in respect of personal property and all business and trade fixtures, machinery and equipment, cabinet work, furniture and movable partitions owned or installed by the Tenant at the expense of the Tenant or being the property of the Tenant, or relating to or in respect of improvements to the Premises built, made or installed by the Tenant, on behalf of the Tenant or at the Tenant’s request whether any such taxes are payable by law by the Tenant or by the Landlord and whether such taxes are included by the taxing authority in the taxes, licenses, rates, duties and assessments imposed or levied on or with respect to the Premises and Goods and Services Tax; and

 

(v)

“Term” means the term of this Lease set out in Section 1.1(d), commencing on the Commencement Date.

 

B-2

SCHEDULE C

SPECIAL PROVISIONS

 

1.

Option to Extend

If the Tenant performs all the Tenant’s covenants and is not in default under any of the terms of this Lease then the Tenant, on giving written notice to the Landlord not earlier than twelve (12) months, and not later than nine

(9) months prior to the last day of the Term, will have the right to extend the Term of this Lease for two (2) further periods of five (5) years upon the same terms and conditions as contained in this Lease, except the Annual Basic Rent, any free rent periods, leasehold improvement allowances or other inducements and this option to extend. The extension term will commence on the day immediately succeeding the last day of the Term and will end at midnight on the day immediately preceding the 5th anniversary of the first day of the extension term, unless sooner terminated in accordance with the provisions of this Lease. The Annual Basic Rent during the extension terms will be at the then current market rental rate for the Premises including all leasehold improvements thereto, provided that the Tenant will not be entitled to, nor will the Annual Basic Rent be reduced to take account of, any cash payment, leasehold improvement allowance, rent free period or other inducement, and provided further that in no event will the Annual Basic Rent payable during each year of the extension term be less than the amount paid by the Tenant during the last year of the Term. Failing agreement by the parties on such current market rental rate by six (6) months before the expiry of the Term, the current market rental rate will be determined by arbitration, based on the criteria set out above, by one arbitrator under the Arbitration Act (British Columbia), and amendments thereto, or any like statute in effect from time to time, and the decision of such arbitrator will be final and binding upon the parties. The costs of the arbitration will be borne equally by the parties. Except as otherwise provided for herein, the provisions of the Arbitration Act will apply. Until the Annual Basic Rent has been determined as provided, the Tenant will continue to pay the monthly instalments of Annual Basic Rent payable before the commencement of the extension term and, upon the determination being made, the Tenant will make the appropriate adjustment payment, if any, to the Landlord together with interest thereon from the commencement of the extension term until the date of payment at the prime rate of interest declared to the Landlord by the main branch in Vancouver, British Columbia of Canadian Imperial Bank of Commerce, at 12:00 noon on each day, as the annual rate of interest used by such bank as a reference rate for commercial loans in Canadian dollars and commonly referred to by such bank as its “prime rate” plus 2% per annum.

 

2.

Free Basic Rent:

The Tenant shall have a Basic Free Rent period of Two (2) months from the Commencement Date for 2758,2762, 2768 Rupert and 2774, 2788 Rupert. During this period the Tenant shall pay to the landlord its Proportionate Share of Operating Costs and Property Taxes and any separate utilities and/or operating costs directly attributable to the Leased Premises.

The Tenant shall have a Basic Free Rent period of Three (3) months from the Commencement Date for 2748 Rupert. During this period the Tenant shall pay to the landlord its Proportionate Share of Operating Costs and Property Taxes and any separate utilities and/or operating costs directly attributable to the Leased Premises.

 

3.

Tenant Allowance

The Landlord shall pay the Tenant an allowance of $331,695.00 (plus GST). The Allowance shall be paid to the Tenant upon the last of the following to occur:

 

  a)

Receipt by the Landlord from the Tenant of paid invoices from the Tenant’s contractor(s) for leasehold improvements provided to the Premises;

 

  b)

Completion of the Tenant’s leasehold improvement work;

 

  c)

Receipt by the Landlord of a copy of the Lease duly executed by the Tenant;

 

  d)

Occupancy and other finaled permits for the Premises obtained by the Tenant and the Tenant not being in default of the terms and conditions of this Lease.

 

  e)

Receipt by the Landlord from the Tenant a statutory declaration as to the non-existence of any claims of builders’ liens against the Premises and no such liens having been filed as a result of the Tenant’s improvements.

 

4.

Parking

The Tenant shall be provided, at no cost to the Tenant, 60 non -transferable parking passes for staff parking on the Lands, a designated area will be provided for visitor parking for all tenants at no additional charge. Additional parking passes can be obtained if available and would be charged at $55 per month plus applicable taxes.

 

C-1

5.

Pylon Sign

The Tenant will have the right to have a panel on the pylon sign panel. The Tenant will pay the Landlord $300 per month for signage rental for the first year of the Lease Term. Signage rental is subject to increases for additional area of display and annual adjustments.

 

6.

Fixturing Period

The Tenant will be granted a three (3) month fixturing period from the Possession Date . This will vary by area in accordance with the chart included in this Article. No Basic Rent, Operating Expenses or Property Taxes shall be payable by the Tenant during this period. The Tenant will remain responsible for utilities costs. Should the Landlord be delayed in obtaining vacant possession from the previous tenant that results in a delay to the Possession Date, the Commencement Date will be adjusted by an equal number of days of the delay.

 

Unit    Area    Possession Date    Commencement Date
       
2748 Rupert    6,339 Square Feet    March 1, 2021    June 1, 2021
       
2758/2762/2768 Rupert*    25,314 Square Feet    January 11, 2021    April 12, 2021
       
2774/2788 Rupert – Phase I*    8880 Square Feet    January 11, 2021    April 12, 2021
       
2774/2788 Rupert – Phase II*    3,066 Square Feet    February 16, 2021    May 16, 2021

 

*

For the purposes of Rent Steps, Lease Anniversary calculations, Lease Expiration and Notice Provisions the Lease Commencement Date for all areas will be June 1, 2021. The Landlord will prepare a rent statement on a per diem basis for all amounts owing by the Tenant for occupancy after the expiration of the Fixturing Period of any spaces prior to June 1, 2021.

 

7.

Early Termination Clause

The Landlord will have the right, at any time after the 78th month of the Term including any further extension or renewal thereof, to terminate this Lease on 18 months’ written notice (the “Termination Notice”) to the Tenant, for any reason. For clarity the Termination cannot be effective sooner than the end of 96th month from the Commencement Date.

The Tenant estimates that it will spend up to $2,500,000 to complete the improvements described below (the “Tenant Improvements”). The actual bona fide, out-of-pocket third party costs incurred by the Tenant in order to complete the Tenant Improvements are referred to herein as the “Tenant Costs” and for purposes of this section will be capped at $2,500,000 and will be amortized over 10 years on a straight line basis.

In the event the Landlord exercises its right to terminate the Lease pursuant to this Section and the Lease terminates effective after the end of the seventh lease year, the Landlord will reimburse the Tenant an amount equal to the unamortized Tenant Costs in the year in which the Lease terminates multiplied by the percentage set out across from such year in the table below:

 

Lease Year in Which

Termination Date

Occurs

   

Percentage of

Unamortized TI

Costs

8    30%
9    20%
10    10%

Within 30 days of opening for business, the Tenant will provide to the Landlord documentation and receipts that confirm the actual amount of the Tenant Costs and evidence that such costs have been paid. The Tenant acknowledges and agrees that in no event will more than $2,500,000 of Tenant Costs be amortized pursuant to this section in order to calculate any amount to be reimbursed by the Landlord to the Tenant. For greater certainty, in the event the Tenant Costs are less than $2,500,000, the lesser amount will be used for purposes of such calculation.

Tenant Improvements:

[***]

 

8.

Equipment List

[***]

 

C-2

SCHEDULE D

RULES AND REGULATIONS

 

1.

The Tenant will not burn trash or garbage in or about the Premises or Land. The Tenant will keep the Premises free of rubbish and debris, will provide sufficient receptacles for waste and, if applicable, will leave desks, counter tops and like furniture clear for janitorial service. All garbage, refuse, cartons, packing material and debris will be placed in the type of container and will be left in a place for collection, specified by the Landlord.

 

2.

Plumbing fixtures and facilities will not be used for any purpose other than that for which they were constructed and no foreign substances of any kind will be thrown therein.

 

3.

The Tenant will use, at the Tenant’s cost, such pest, rodent, bug and vermin exterminator as the Landlord may direct and at such intervals as the Landlord may require provided however that such pest, rodent, bug and vermin exterminator shall, whenever possible, be accredited by the British Columbia SPCA’s AnimalKind progam and use only such methods as are generally considered to be humane. The Tenant will notify the Landlord immediately of any such problem.

 

4.

The Tenant will not permit any objectionable odours to be produced upon or emanate from the Premises.

 

5.

At end of the Term, the Tenant will return to the Landlord all keys or access cards related to the Premises.

 

6.

The Tenant will not mark, paint, drill into or in any way deface the Premises or the Building of which they form a part, without the prior written consent of the Landlord.

 

7.

The Tenant will, if applicable, keep any display windows well lighted during normal business hours.

 

8.

The Tenant will not install or attach anything to the outside walls, windows or entrances of the Premises except such signs as may be permitted by the Lease. The Tenant will not paint such outside walls.

 

9.

No loudspeakers, televisions, radios, phonographs or other sound devices will be used in a manner so as to be seen or heard outside the Premises.

 

10.

The Tenant will not keep or display any merchandise or advertising on the common areas of the Complex, conduct business on such common areas, obstruct or injure such common areas or distribute any handbills or other advertising matter in automobiles parked on the Land.

 

11.

The Tenant will, upon written notice from the Landlord, within five (5) days, furnish the Landlord with the current Provincial license numbers of any vehicles owned or used by employees of the Tenant.

 

12.

All entrance doors in the Premises will be left locked by the Tenant when the Premises are not in use.

 

13.

The Tenant will not perform any acts or carry on any practice which may injure the Complex or be a nuisance to any other tenants.

 

14.

Any hand trucks, carryalls or similar appliances used for delivery or receipt of merchandise or equipment will be equipped with rubber tires, and such other safeguards as the Landlord reasonably requires.

 

15.

Floors will not be overloaded. Warehouse floor loading will not exceed the maximum load permitted by the Building specifications, namely 300 pounds per square foot.

 

16.

The Tenant will, under no circumstances, store any items, materials or pallets outside of its Premises. Cost of removing such items will be borne solely by the Tenant.

 

17.

Freight, furniture, business equipment, merchandise and bulky matter will be ordinarily delivered to and removed from the Premises only in elevators designated by the Landlord for freight use and through service entrances and corridors.

 

18.

Canvassing, soliciting and peddling in the Complex is prohibited and the Tenant will cooperate to prevent same.

 

19.

Tenants shall not allow pets into the Premises or onto the Lands.

 

D-1

Exhibit 4.2

[***] = CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED AND/OR IS THE TYPE OF INFORMATION THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL, AND HAS BEEN MARKED WITH “[***]” TO INDICATE WHERE OMISSIONS HAVE BEEN MADE.

 

 

LOAN AGREEMENT

DATED AS OF JUNE 7, 2021

BETWEEN

WAYGAR CAPITAL INC.,

AS AGENT FOR

NINEPOINT CANADIAN SENIOR DEBT MASTER FUND L.P.

AS LENDER

AND

THE VERY GOOD FOOD COMPANY INC.

AS BORROWER

AND

THE GUARANTORS PARTY HERETO

 

 

TABLE OF CONTENTS

 

SECTION 1 – AMOUNT AND TERMS OF CREDIT

      1  

1.1

   Loans      1  

1.2

   Term and Prepayment      2  

1.3

   Use of Proceeds      2  

1.4

   Obligations      2  

1.5

   Interest      2  

1.6

   Cash Management System      3  

1.7

   Fees      3  

1.8

   Receipt of Payments      4  

1.9

   Application and Allocation of Payments      4  

1.10

   Accounting      4  

1.11

   Indemnity      4  

1.12

   Borrowing Base      5  

1.13

   Increase in Maximum Amount in respect of the Revolving Credit Loan      5  

SECTION 2 – CONDITIONS PRECEDENT

      5  

2.1

   Conditions to the Initial Loans      5  

2.2

   Further Conditions to the Loans      6  

2.3

   Warrants      7  

SECTION 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS

      7  

3.1

   Corporate Existence; Compliance with Law      7  

3.2

   Executive Offices; Corporate or Other Names      8  

3.3

   Corporate Power; Authorization; Enforceable Obligations      8  

3.4

   Financial Statements and Projections; Books and Records      8  

3.5

   Material Adverse Change      8  

3.6

   Real Estate; Property      9  

3.7

   Ventures, Subsidiaries and Affiliates; Outstanding Shares and Indebtedness      9  

3.8

   Government Regulations      9  

3.9

   Taxes; Charges      9  

3.10

   Payment of Obligations      10  

3.11

   Pension Plans      10  

3.12

   Litigation      11  

3.13

   Intellectual Property      11  

3.14

   Full Disclosure/Know Your Customer      12  

3.15

   Environmental Matters      12  

3.16

   Insurance      12  

3.17

   Bank Accounts      13  

3.18

   Accounts and Inventory      13  

3.19

   Conduct of Business      13  

3.20

   Material Contracts      13  

3.21

   Further Assurances      13  

3.22

   Default      14  

3.23

   Anti-Corruption; Anti-Money Laundering      14  

SECTION 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES

      14  

4.1

   Reports and Information      14  

4.2

   Notices      15  

SECTION 5 – FINANCIAL AND NEGATIVE COVENANTS

      16  

5.1

   Financial Covenants      16  

5.2

   Negative Covenants      17  

SECTION 6 – LENDER’S RIGHTS

      19  

6.1

   Lender’s Rights      19  

 

- i -

SECTION 7 – EVENTS OF DEFAULT, RIGHTS AND REMEDIES

      21  

7.1

   Events of Default      21  

7.2

   Remedies      23  

7.3

   Waivers by Credit Parties      24  

7.4

   Proceeds      24  

SECTION 8 – MISCELLANEOUS

      24  

8.1

   Complete Agreement; Modification of Agreement      24  

8.2

   Expenses      25  

8.3

   Non-North American Equipment      25  

8.4

   No Waiver      25  

8.5

   Severability; Section Titles      25  

8.6

   Authorized Signature      26  

8.7

   Notices      26  

8.8

   Counterparts      26  

8.9

   Assignments      26  

8.10

   Time of the Essence      27  

8.11

   Governing Law      27  

8.12

   Submission to Jurisdiction; Waiver of Jury Trial      27  

8.13

   Press Releases      27  

8.14

   Reinstatement      28  

8.15

   Illegality      28  

8.16

   Set Off and Survival      28  

8.17

   Increased Costs      28  

8.18

   Conflict      29  

8.19

   Interpretation      29  

SECTION 9 – SPECIAL PROVISIONS

      30  

9.1

   Interest Act (Canada)      30  

9.2

   Excess Resulting from Exchange Rate Change      30  

9.3

   Judgment Currency      30  

INDEX OF EXHIBITS AND SCHEDULES

 

Schedule A:    Definitions
Schedule B:    Lender’s and Borrower’s Addresses for Notices
Schedule C:    Cash Management System
Schedule D:    Fees
Schedule E:    Schedule of Documents
Schedule F:    Material Contracts
Disclosure Schedule (3.2):    Corporate Names
Disclosure Schedule (3.6):    Real Estate; Property
Disclosure Schedule (3.7):    Shares; Affiliates
Disclosure Schedule (3.9):    Taxes
Disclosure Schedule (3.11):    Pension Plans
Disclosure Schedule (3.12):    Litigation
Disclosure Schedule (3.13):    Intellectual Property
Disclosure Schedule (3.15):    Environmental Matters
Disclosure Schedule (3.16):    Insurance
Disclosure Schedule (5.2(b)):    Indebtedness
Disclosure Schedule (5.2(e)):    Liens
Exhibit A:    Form of Notice of Advance
Exhibit B:    Other Required Reports and Information
Exhibit C:    Form of Borrowing Base Certificate
Exhibit D:    Form of Compliance Certificate

 

- ii -

THIS LOAN AGREEMENT is dated as of June 7, 2021 and agreed to by and between The Very Good Food Company Inc. (“Borrower”), each other Credit Party executing this Agreement, and Waygar Capital Inc., as agent for Ninepoint Canadian Senior Debt Master Fund L.P. (“Lender”).

RECITALS:

 

A.

Borrower desires to obtain the Loans and other financial accommodations from Lender and Lender is willing to provide the Loans and accommodations all in accordance with the terms of this Agreement;

 

B.

Capitalized terms used herein shall have the meanings assigned to them in Schedule A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Schedule A shall govern; and

 

C.

All schedules, attachments, addenda and exhibits hereto, or expressly identified in this Agreement, are incorporated herein by reference, and taken together with this Agreement, constitute but a single agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and other good and valuable consideration, the parties hereto agree as follows:

SECTION 1 – AMOUNT AND TERMS OF CREDIT

 

1.1

Loans

 

  (a)

Subject to the terms and conditions of this Agreement, from the Closing Date and until the Commitment Termination Date: (i) Lender agrees to make available advances (each, a “Revolving Credit Advance”) in $ based upon the Canadian Dollar Interest Rate or US$ based upon the US Dollar Interest Rate, in an aggregate outstanding amount not to exceed the Borrowing Availability for the Revolving Credit Loan; and (ii) Lender agrees to make available advances (each, a “Term Loan Advance”) in $ based upon the Canadian Dollar Interest Rate or US$ based upon the US Dollar Interest Rate, in an aggregate outstanding amount not to exceed the Borrowing Availability for the Term Loan. Advances under the Revolving Credit Loan shall be capable of being repaid and re-borrowed, subject to the terms and conditions hereof. Advances under the Term Loan shall not be permitted to be repaid and reborrowed, and any repayment under the Term Loan shall permanently reduce the Maximum Amount of the Term Loan available hereunder.

 

  (b)

Borrower shall request each Advance by written notice to Lender substantially in the form of Exhibit A (each a “Notice of Advance”) given no later than 1:00 p.m. (Toronto time) two (2) Business Days prior to the Business Day of the proposed advance and within two (2) Business Days of the delivery of the documents and information provided for in Section 4.1(a) Lender shall be fully protected under this Agreement in relying upon, and shall be entitled to rely upon: (i) any Notice of Advance believed by Lender to be genuine; and (ii) the assumption that the Persons making electronic requests or executing and delivering a Notice of Advance were duly authorized, unless the responsible individual acting thereon for Lender shall have actual knowledge to the contrary. As an accommodation to Borrower, Lender may permit telephonic (which shall, promptly upon request be confirmed in writing by Borrower), electronic, or email requests for an Advance and electronic transmittal of instructions, authorizations, agreements or reports to Lender by Borrower. Unless Borrower specifically directs Lender in writing not to accept or act upon telephonic or electronic communications from Borrower, Lender shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of Lender’s honouring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to

  Lender by Borrower, and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it.

 

  (c)

In making any Loan hereunder Lender shall be entitled to rely upon the most recent Borrowing Base Certificate delivered to Lender by Borrower and other information available to Lender.

 

1.2

Term and Prepayment

 

  (a)

Upon the Commitment Termination Date, the obligation of Lender to make Advances and extend other credit hereunder shall immediately terminate and Borrower shall pay to Lender in full, in cash: (i) all outstanding Advances and all accrued but unpaid interest thereon; (ii) an amount sufficient to enable Lender to hold cash collateral as may be required, solely to the extent of any Obligations remaining outstanding after repayment; and (iii) all other non-contingent Obligations due to Lender.

 

  (b)

If the Revolving Credit Loan shall at any time exceed the Borrowing Availability applicable to the Revolving Credit Loan, or the Term Loan shall at any time exceed the Borrowing Availability applicable to the Term Loan, then Borrower shall immediately repay the applicable Loan in the amount of such excess.

 

  (c)

Borrower shall have the right, at any time upon fifteen (15) days’ prior written notice to Lender to: (i) terminate voluntarily Borrower’s right to receive or benefit from, and Lender’s obligation to make Advances; and (ii) prepay all of the Obligations. Following receipt of such notice by Lender, the effective date of termination of the Loans specified in such notice shall be deemed to be the Commitment Termination Date. If Borrower exercises its right of termination and prepayment, or if Lender’s obligation to make Loans is terminated for any reason prior to the Maturity Date then in effect (including as a result of the occurrence of a Default), Borrower shall pay to Lender the applicable Prepayment Fee.

 

1.3

Use of Proceeds

Borrower shall use the proceeds of the Loans: (i) for working capital; (ii) in the case of the Term Loan, to support the purchase of Equipment; and (iii) for other permitted general corporate purposes (including, for certainty, for the purposes of making acquisitions permitted under Section 5.2(a)).

 

1.4

Obligations

The Loans and all of the other Obligations of Borrower to Lender shall constitute one general obligation of Borrower secured by all of the Collateral.

 

1.5

Interest

 

  (a)

Borrower shall pay interest to Lender on the aggregate outstanding Advances at a rate equal to the Canadian Dollar Interest Rate or the US Dollar Interest Rate, as applicable per annum (the “Revolving Credit Rate”), and, on the outstanding balance of the Term Loan at a rate equal to the Canadian Dollar Interest Rate or the US Dollar Interest Rate, as applicable per annum (the “Term Loan Rate”). All computations of interest shall be made by Lender on the basis of a three hundred and sixty-five (365) or three hundred and sixty-six (366), as applicable, day year, in each case for the actual number of days occurring in the period for which such interest or fee is payable and shall be calculated daily and compounded (if unpaid) in arrears on the last day of each calendar month.

 

  (b)

Each determination by Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. In no event will Lender charge interest at a rate that

 

- 2 -

  exceeds the highest rate of interest permissible under any Applicable Law that a court of competent jurisdiction shall, in a final determination, deem applicable.

 

  (c)

Interest shall be payable on the Advances: (i) in arrears for the preceding calendar month on the last Business Day of each calendar month; (ii) on the Commitment Termination Date; and (iii) if any interest accrues or remains payable after the Commitment Termination Date, upon demand by Lender.

 

  (d)

Effective upon the occurrence of any Event of Default and for so long as any Event of Default shall be continuing, the Revolving Credit Rate and the Term Loan Rate shall in the discretion of Lender be increased by five percentage points (5%) per annum (such increased rate, the “Default Rate”), and all outstanding Obligations, including unpaid interest, shall continue to accrue interest from the date of such Event of Default at the Default Rate applicable to such Obligations.

 

  (e)

If any interest or any other payment (including Unused Line Fees and Collateral Monitoring Fees) to Lender under this Agreement becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension.

 

  (f)

The Borrower hereby acknowledges and confirms that it understands the conversion formulas and how to calculate any annual rate of interest contemplated in this Section and any and all fees due and payable under this Agreement. Lender agrees that promptly upon request by the Borrower from time to time it will assist the Borrower in calculating the effective annual rate of interest required to be disclosed pursuant to section 4 of the Interest Act (Canada).

 

  (g)

Notwithstanding any provision of this Agreement and any other Loan Document, in no event shall the aggregate “interest” (as defined in Section 347 of the Criminal Code (Canada)) payable under any Loan Document exceed the effective annual rate of interest on the “credit advanced” (as defined in that section) under any Loan Document lawfully permitted by that section, nor shall the interest payable under any Loan Document exceed the rate of interest which may be lawfully charged by any other Applicable Laws having application to interest payable under any Loan Document, and, if any payment, collection or demand pursuant to any Loan Document in respect of “interest” (as defined in that section) or under any such other Applicable Laws is determined to be contrary to the provisions of that section or such other Applicable Laws, such payment, collection or demand shall be deemed to have been made by mutual mistake of Borrower and Lender and the amount of such payment or collection shall be refunded to Borrower. For the purpose of this Agreement, and to the extent permitted by Applicable Law, the effective annual rate of interest shall be determined in accordance with generally accepted actuarial practices and principles over the term of the facilities hereunder and, in the event of dispute, a certificate of a Fellow of the Canadian Institute of Actuaries appointed by the Lender will be prima facie evidence of such rate.

 

1.6

Cash Management System

On or prior to the Closing Date and until the Termination Date, Borrower will establish and maintain the cash management system described in Schedule C. All payments in respect of the Collateral shall be made to or deposited in the Blocked Accounts described in Schedule C in accordance with the terms thereof.

 

1.7

Fees

Borrower agrees to pay to Lender the Fees set forth in Schedule D on the dates noted therein.

 

- 3 -

1.8

Receipt of Payments

Borrower shall make each payment under this Agreement (not otherwise made pursuant to Section 1.9) without set-off, counterclaim or deduction and free and clear of all Taxes on the day when due in lawful money of Canada in immediately available funds to the Blocked Accounts. If Borrower shall be required by Applicable Law to deduct or withhold any Taxes from any payment to Lender under any Loan Document, then the amount payable to Lender shall be increased so that, after making all required deductions and withholdings, Lender receives an amount equal to that which it would have received had no such deductions and withholdings been made. For purposes of computing interest and Fees, all payments shall be deemed received by Lender one (1) Business Day following receipt of immediately available funds in the Blocked Accounts.

 

1.9

Application and Allocation of Payments

Borrower irrevocably agrees that Lender shall have the continuing and exclusive right to apply any and all payments against the then due and payable Obligations in such order as Lender may deem advisable. Lender is authorized to, and at its option may (without prior notice or precondition and at any time or times), but shall not be obligated to, make or cause to be made Revolving Credit Advances on behalf of Borrower, for: (a) payment of all Fees, expenses, indemnities, charges, costs, principal, interest, or other Obligations owing by Borrower under this Agreement or any of the other Loan Documents; (b) the payment, performance or satisfaction of any of Borrower’s obligations with respect to preservation of the Collateral; or (c) any premium in whole or in part required in respect of any of the policies of insurance required by this Agreement, even if the making of any such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, and Borrower agrees to repay immediately, in cash, any amount by which the Revolving Credit Loan exceeds the Borrowing Availability.

 

1.10

Accounting

Lender is authorized to record on its books and records the date and amount of each Loan and each payment of principal thereof and such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Lender shall provide Borrower on a monthly basis a statement and accounting of such recordations but any failure on the part of Lender to keep any such recordation (or any errors therein) or to send a statement thereof to Borrower shall not in any manner affect the obligation of Borrower to repay any of the Obligations. Except to the extent that Borrower shall, within thirty (30) days after such statement and accounting is sent, notify Lender in writing of any objection Borrower may have thereto (stating with particularity the basis for such objection), such statement and accounting shall be deemed final, binding and conclusive upon Borrower, absent manifest error.

 

1.11

Indemnity

Borrower and each other Credit Party executing this Agreement jointly and severally agree to indemnify and hold Lender and its Affiliates, and their respective employees, officers, directors, professional advisors and agents (each, an “Indemnified Person”), harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses of any kind or nature whatsoever (including legal fees and disbursements and other costs of investigation or defence, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or with respect to the execution, delivery, enforcement, performance or administration of, or in any other way arising out of or relating to, this Agreement and the other Loan Documents or any other documents or transactions contemplated by or referred to herein or therein and any actions or failures to act with respect to any of the foregoing, including any and all product liabilities, Environmental Liabilities, Taxes and legal costs and expenses arising out of or incurred in connection with any dispute between or among any parties to any of the Loan Documents (collectively, “Indemnified Liabilities”), except to the extent that any such Indemnified Liability is finally determined by a court of competent jurisdiction to have resulted solely from such Indemnified Person’s gross negligence or wilful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY CREDIT PARTY, ANY SUCCESSOR, ASSIGNEE OR

 

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THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

 

1.12

Borrowing Base

The Borrowing Base shall be determined by Lender (including the eligibility of Accounts and Inventory) based on the most recent Borrowing Base Certificate delivered to Lender in accordance with Section 4.1(a).

 

1.13

Increase in Maximum Amount in respect of the Revolving Credit Loan

The Borrower may, at any time and from time to time, increase the Maximum Amount in respect of the Revolving Credit Loan on not less than thirty (30) days’ advance written notice (the “Increase Notice”). The right to increase the Maximum Amount in respect of the Revolving Credit Loan shall be subject to the following:

 

  (a)

the Lender shall have received an executed Increase Notice, which Increase Notice shall set forth the amount of the proposed increase in the Maximum Amount in respect of the Revolving Credit Loan, not less than thirty (30) days’ in advance of the date on which the increase to the Maximum Amount is proposed to take effect;

 

  (b)

the amount of the proposed increase in the Maximum Amount in respect of the Revolving Credit Loan is not less than $5,000,000 (or the remaining amount of the Maximum Amount in respect of the Revolving Credit Loan, if the same is less than $5,000,000); and

 

  (c)

no Default or Event of Default shall have occurred and be continuing and the Borrower shall have delivered to the Agent an officer’s certificate confirming the same and otherwise confirming (i) its corporate authorization to make such increase, (ii) that all representations and warranties made by each of the Credit Parties in or pursuant to the Agreement and the other Loan Documents are true and correct in all material respects on and as of the date thereof as if made on and as of such date and (iii) that no consents, approvals or authorizations are required for such increase (except as have been unconditionally obtained and are in full force and effect, unamended); each as at the effective date of such increase.

SECTION 2 – CONDITIONS PRECEDENT

 

2.1

Conditions to the Initial Loans

Lender shall not be obligated to make any of the Loans or to perform any other action hereunder, until the following conditions have been satisfied in a manner satisfactory to Lender in its sole discretion, or waived in writing by Lender:

 

  (a)

the Loan Documents to be delivered on or before the Closing Date shall have been duly executed and delivered by the appropriate parties, all as set forth in the Schedule of Documents (Schedule E);

 

  (b)

Lender shall have received and shall be satisfied with such estoppel letters, landlord (in a form and substance acceptable to Lender in its sole discretion), mortgagee, processor and bailee or third party distributor waivers and such other consents (including consents from Governmental Authorities) as Lender may require in its discretion, provided that any such

 

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  estoppel letter or waivers where Lender has taken an Availability Reserve shall not be a condition precedent to the making of any of the Loans;

 

  (c)

Lender shall have received and shall be satisfied with such subordination and intercreditor agreements as Lender may require in its discretion;

 

  (d)

the insurance policies provided for in Section 3.16 shall be in full force and effect, together with appropriate evidence showing loss payable or additional insured clauses or endorsements in favour of Lender as required under such Section;

 

  (e)

Lender shall have received an opinion of counsel to each of the Credit Parties (including a standard enforceability opinion) with respect to each Loan Document to which such Credit Party is a party, in form and substance satisfactory to Lender, acting reasonably;

 

  (f)

Lender (and where applicable, Lender’s counsel) shall have completed and be satisfied with the results of all business, environmental and legal due diligence;

 

  (g)

Lender shall have received, and be satisfied with, the results of Credit Parties’ Equipment appraisal conducted by an appraisal firm acceptable to Lender;

 

  (h)

Lender shall have been provided with, and be satisfied with, its review of Credit Parties’ documents regarding its corporate and capital structure, Material Contracts and debt instruments;

 

  (i)

Lender shall have reviewed and be satisfied with Credit Parties’ customers’ contracts, and, if requested by Lender, the purchase orders relating thereto;

 

  (j)

Lender shall have completed and be satisfied with the results of the background and reference checks on Credit Parties’, and senior management of the Credit Parties; and

 

  (k)

Lender shall have received, and same shall continue to be valid and current, certified copies of all the constating documents, by-laws and resolutions of the directors (or partners, members or shareholders as required by Lender) authorizing the Loan Documents, and certificates of incumbency, for Borrower and each other Credit Party.

 

2.2

Further Conditions to the Loans

Lender shall not be obligated to fund any Loan (including the initial Loans), if, as of the date thereof:

 

  (a)

any representation or warranty by any Credit Party contained herein or in any of the other Loan Documents shall be untrue or incorrect as of such date, except to the extent that any such representation or warranty is expressly stated to relate to a specific earlier date, in which case, such representation and warranty shall be true and correct as of such earlier date;

 

  (b)

any event or circumstance, which has had or reasonably could be expected to have a Material Adverse Effect, shall have occurred since the date of the most recent Financial Statement delivered pursuant to Section 4.1;

 

  (c)

any Default shall have occurred and be continuing or would result after giving effect to such Loan;

 

  (d)

Lender shall have received a Borrowing Base Certificate in form an substance reasonably satisfactory to the Lender; and

 

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  (e)

after giving effect to such Loan, the Revolving Credit Loan would exceed the Borrowing Availability applicable to the Revolving Credit Loan, or the Term Loan would exceed the Borrowing Availability applicable to the Term Loan.

The request and acceptance by Borrower of the proceeds of any Loan shall be deemed to constitute, as of the date of such request and the date of such acceptance: (i) a representation and warranty by Borrower that the conditions in this Section 2.2 have been satisfied; and (ii) a restatement by Borrower of each of the representations and warranties made by it in each Loan Document and a reaffirmation by Borrower of the granting and continuance of Lender’s Liens pursuant to the Loan Documents.

 

2.3

Warrants

The Borrower will continue to use its reasonable commercial efforts to obtain TSX Venture Exchange approval (“TSXV Approval”) to grant to the Lender common share purchase warrants, in a form satisfactory to the Lender, to acquire 225,000 common shares in the capital of the Borrower for a period of 60 months, with an exercise price equal to 25% above the closing price as of the business day prior to the Closing Date. Upon receipt of TSXV Approval, the Borrower shall promptly deliver a certificate representing the aforementioned warrants to the Lender, together with such certificates and opinions regarding the same as the Lender may reasonably require. The Lender represents that it is an “accredited investor” as such term is defined in the National Instrument 45-106, Prospectus Exemption and satisfies the criteria under paragraph (m) thereunder.

SECTION 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS

To induce Lender to enter into this Agreement and to make the Loans, Borrower and each other Credit Party executing this Agreement represent and warrant to Lender (each of which representations and warranties shall survive the execution and delivery of this Agreement), and promise to and agree with Lender at all times until the Termination Date as follows:

 

3.1

Corporate Existence; Compliance with Law

Each Credit Party:

 

  (a)

is, as of the Closing Date, and will continue to be: (i) a corporation, partnership or limited liability company, as applicable, duly organized, validly existing, duly qualified or registered and in good standing under the Applicable Laws of the jurisdiction of its incorporation or formation; (ii) duly qualified to do business and in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect; and (iii) in compliance with all Requirements of Law, including without limitation, Applicable Laws relating to food safety and the prevention of money laundering and terrorist financing and Contractual Obligations, except to the extent failure to comply therewith could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;

 

  (b)

has and will continue to have: (i) the requisite power and authority and the legal right to execute, deliver and perform its obligations under the Loan Documents to which it is a party, and to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore or proposed to be conducted; and (ii) all licenses, permits, franchises, rights, powers, consents or approvals from or by all Persons or Governmental Authorities having jurisdiction over such Credit Party which are necessary or appropriate for the conduct of its business; and

 

  (c)

is not an “insolvent person” as such term is defined in the BIA.

 

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3.2

Executive Offices; Corporate or Other Names

The location of each Credit Party’s chief executive office, corporate offices, warehouses, other locations of Collateral and locations where records with respect to Collateral are kept (including, in each case, the county of such locations, to the extent applicable) are as set forth in Disclosure Schedule (3.2) and, except as set forth in such Disclosure Schedule, such locations have not changed during the preceding twelve (12) months. As of the Closing Date, during the prior five years, except as set forth in Disclosure Schedule (3.2), no Credit Party has been known as or conducted business in any other name (including trade or business names).

 

3.3

Corporate Power; Authorization; Enforceable Obligations

The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party, and the creation by such Credit Party of all Liens provided for herein and therein: (a) are and will continue to be within such Credit Party’s power and authority; (b) have been and will continue to be duly authorized by all necessary or proper action; (c) are not and will not be in violation of any Requirement of Law or Contractual Obligation of such Credit Party; (d) do not and will not result in the creation or imposition of any Lien (other than in favour of Lender) upon any of the Collateral; and (e) do not and will not require the consent or approval of any Governmental Authority or any other Person that has not been obtained. As of the Closing Date, each Loan Document shall have been duly executed and delivered on behalf of each Credit Party thereto, and each such Loan Document upon such execution and delivery shall be and will continue to be a legal, valid and binding obligation of such Credit Party, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar Applicable Laws affecting creditors’ rights generally.

 

3.4

Financial Statements and Projections; Books and Records

 

  (a)

The Financial Statements delivered by Borrower to Lender for its most recently ended Fiscal Year and Fiscal Quarter, are true, correct and complete and reflect fairly and accurately the financial condition of Borrower as of the date of each such Financial Statement in accordance with GAAP. The Projections most recently delivered by Borrower to Lender have been prepared in good faith, with care and diligence and use assumptions that are reasonable under the circumstances at the time such Projections were prepared and as of the date delivered to Lender and all such assumptions are disclosed in the Projections; and

 

  (b)

each of Borrower and the other Credit Parties shall keep adequate Books and Records with respect to the Collateral and its business activities in which proper entries, reflecting all consolidated and consolidating financial transactions, and payments and credits received on, and all other dealings with, the Collateral, shall be made in accordance with GAAP and all Requirements of Law and on a basis consistent with the Financial Statements.

 

3.5

Material Adverse Change

Between the date of the most recent audited Financial Statements delivered to Lender for each Credit Party and the Closing Date: (a) no Credit Party has incurred any obligations, contingent or non-contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Projections delivered prior to the Closing Date and which could, alone or in the aggregate, reasonably be expected to have a Material Adverse Effect; (b) there has been no material deviation from such Projections; and (c) no events have occurred which alone or in the aggregate have had or could reasonably be expected to have a Material Adverse Effect. No Requirement of Law or Contractual Obligation of any Credit Party has or have had or could reasonably be expected to have a Material Adverse Effect. No Credit Party is in default, and to such Credit Party’s knowledge, no third party is in default, under or with respect to any of its Contractual Obligations, which alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect.

 

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3.6

Real Estate; Property

The real estate listed in Disclosure Schedule (3.6) constitutes, as of the Closing Date, all of the real property owned, leased, or used by each Credit Party in its business, and such Credit Party will not execute any material agreement or contract in respect of such real estate after the date of this Agreement without giving Lender prompt prior written notice thereof. Each Credit Party holds and will continue to hold good and marketable fee simple title to all of its owned real estate, and good and marketable title to all of its other properties and assets, and valid and insurable leasehold interests in all of its leases (both as lessor and lessee, sublessee or assignee), and none of the properties and assets of any Credit Party are or will be subject to any Liens, except Permitted Encumbrances. With respect to each of the premises identified in Disclosure Schedule (3.6) on or prior to the Closing Date a bailee, third party distributor, landlord or mortgagee waiver acceptable to Lender has been obtained except as expressly noted in Disclosure Schedule (3.6).

 

3.7

Ventures, Subsidiaries and Affiliates; Outstanding Shares and Indebtedness

Except as set forth in Disclosure Schedule (3.7), as of the Closing Date no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Shares of each Credit Party (including all rights to purchase, options, warrants or similar rights or agreements pursuant to which any Credit Party may be required to issue, sell, repurchase or redeem any of its Shares) as of the Closing Date are registered in the name of each of the Shareholders (and in the amounts) set forth on Disclosure Schedule (3.7). All outstanding Indebtedness of each Credit Party as of the Closing Date is described in Disclosure Schedule (5.2(b)). Each Credit Party will, upon forming any Subsidiary, promptly (and in any event within ten (10) Business Days) thereafter: (a) cause such Subsidiary to become a Credit Party hereunder and deliver all Loan Documents required to be delivered by a Credit Party hereunder; and (b) take all other actions required by Lender to perfect the Lender’s first priority Liens upon the Collateral.

 

3.8

Government Regulations

To the extent any Credit Party is subject to or regulated under any Applicable Law that restricts or limits such Person’s ability to incur Indebtedness, pledge its assets, or to perform its obligations under the Loan Documents, such Applicable Laws have been complied with. The making of the Loans, the application of the proceeds and repayment thereof, and the consummation of the transactions contemplated by the Loan Documents do not and will not violate any Requirement of Law.

 

3.9

Taxes; Charges

Except as disclosed on Disclosure Schedule (3.9) all tax returns, reports and statements required by any Governmental Authority to be filed by Borrower or any other Credit Party have, as of the Closing Date, been filed and will, until the Termination Date, be filed with the appropriate Governmental Authority and no tax Lien has been filed against any Credit Party or any Credit Party’s property. Proper and accurate amounts have been and will be withheld by Borrower and each other Credit Party from their respective past or present employees for all periods in complete compliance with all Requirements of Law and such withholdings have been and will be timely paid to the appropriate Governmental Authorities. Disclosure Schedule (3.9) sets forth as of the Closing Date those taxable years for which any Credit Party’s tax returns are currently being audited by the Canada Revenue Agency or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described on Disclosure Schedule (3.9), none of the Credit Parties nor their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements or agreement extending the period of assessment of any Charges); or (b) to each Credit Party’s knowledge, as a transferee.

 

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3.10 Payment of Obligations

Each Credit Party will pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its Charges and other obligations of whatever nature, except where the amount or validity thereof is at such time being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of such Credit Party and none of the Collateral is or could reasonably be expected to become subject to any Lien or forfeiture or loss as a result of such contest.

 

3.11

Pension Plans

 

  (a)

Disclosure Schedule (3.11) lists all Plans applicable to Borrower (other than, for greater certainty, Plans maintained by the Government of Canada or any Government of a Province of Canada to which Borrower is obligated to contribute under any Applicable Law).

 

  (b)

No Pension Event has occurred or is reasonably expected to occur. The aggregate amount of all normal contributions (as such term is defined for the purpose of the BIA) accruing due but not paid or remitted, all amounts withheld from employees and not paid or remitted and other amounts which might give rise to a Lien giving any priority under the BIA shall never exceed the Minimum Actionable Amount.

 

  (c)

In respect of the Plans and Benefit Arrangements:

 

  (i)

each member of the ERISA Group is in compliance with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans;

 

  (ii)

there has been no Prohibited Transaction with respect to any Benefit Arrangement which would reasonably be expected to have a Material Adverse Effect, and there has been no Prohibited Transaction with respect to any Plan or, to the best knowledge of any member of the ERISA Group, with respect to any Multiemployer Plan or any Multiple Employer Plan, which could result in any liability of any member of the ERISA Group;

 

  (iii)

each member of the ERISA Group has made when due any and all material payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Applicable Law pertaining thereto;

 

  (iv)

with respect to each Plan and Multiemployer Plan, each member of the ERISA Group (A) has materially fulfilled in all their obligations under the minimum funding standards of ERISA; (B) have not incurred any liability to the PBGC, and (C) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA;

 

  (v)

to the best of the knowledge of each member of the ERISA Group, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due;

 

  (vi)

no member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan;

 

  (vii)

no event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA (or, for plan years beginning after 2007, Section 303(k)(4)(A) of ERISA) has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 (or, for plan years

 

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  beginning after 2007, Section 206(g)(5) of ERISA) of ERISA has been made or is reasonably expected to be made to any Plan;

 

  (viii)

the aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in, and as of the date of, the most recent actuarial report for such Plan, does not exceed the aggregate fair market value of the assets of such Plan;

 

  (ix)

no member of the ERISA Group has incurred or reasonably expects to incur any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan;

 

  (x)

no Credit Party and no other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the best knowledge of each Credit Party, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA;

 

  (xi)

to the extent that any Benefit Arrangement is insured, each Credit Party and all other members of the ERISA Group have materially paid when due all premiums required to be paid for all periods;

 

  (xii)

to the extent that any Benefit Arrangement is funded other than with insurance, each Credit Party and all other members of the ERISA Group have made when due all contributions required to be paid for all periods, except for any failure to pay when due any contributions which would not reasonably be expected to have a Material Adverse Effect; and

 

  (xiii)

all Plans, Benefit Arrangements and Multiemployer Plans have been administered in compliance with their terms and Applicable Law, except for any such non-compliance which would not reasonably be expected to have a Material Adverse Effect.

 

3.12

Litigation

No Litigation is pending or, to the knowledge of any Credit Party, threatened against any Credit Party or against any Credit Party’s properties or revenues: (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby; (b) which could reasonably be expected to have a Material Adverse Effect; or (c) which is otherwise in an amount in excess of the Minimum Actionable Amount. Except as set forth on Disclosure Schedule (3.12), as of the Closing Date, there is no Litigation pending or threatened against any Credit Party which seeks damages in excess of the Minimum Actionable Amount or injunctive relief or alleges criminal misconduct of any Credit Party. Following the Closing Date, each Credit Party shall notify Lender promptly in writing upon learning of the existence, threat or commencement of any Litigation against any Credit Party or any Plan, in each case, if applicable, or any allegation of criminal misconduct against any Credit Party.

 

3.13

Intellectual Property

As of the Closing Date, all Material Intellectual Property owned or used by any Credit Party is listed, together with application or registration numbers, where applicable, in Disclosure Schedule (3.13). Each Credit Party owns, or is licensed to use, all Material Intellectual Property. Each Credit Party will maintain the patenting and registration of all Material Intellectual Property owned by it with the appropriate Governmental Authority and each Credit Party will promptly apply to patent or register, as the case may be, all new Material

 

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Intellectual Property developed by it and notify Lender in writing five (5) Business Days prior to filing any such new patent or registration.

 

3.14

Full Disclosure/Know Your Customer

No information contained in any Loan Document, the Financial Statements or any written statement furnished by or, to the knowledge of such Credit Party after due investigation, on behalf of any Credit Party, under any Loan Document or to induce Lender to execute the Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. Without limitation to any other term hereof, each Credit Party shall provide Lender with such documentation and other evidence as is determined necessary by Lender in or for it to be satisfied that it has complied and all times will comply with all “know your customer” requirements under all applicable Requirements of Law (including in connection with any change of laws or requirement or any proposed or actual assignment by Lender).

 

3.15

Environmental Matters

Except as set forth on Disclosure Schedule (3.15), as of the Closing Date: (a) each real property location owned, leased or occupied by or otherwise in the charge, management or control of each Credit Party (the “Real Property”) is maintained free of material contamination that is required by the applicable Environmental Laws to be removed, remediated or mitigated; (b) no Credit Party is subject to any Environmental Liabilities or, to any Credit Party’s knowledge, potential Environmental Liabilities, in excess of the Minimum Actionable Amount in the aggregate; (c) no notice has been received by any Credit Party identifying it as a “potentially responsible party” or otherwise identifying it as a potentially liable party or requesting information under the EPA or analogous federal or provincial Applicable Laws, in each case, to the extent applicable, and to the knowledge of any Credit Party, there are no facts, circumstances or conditions that may result in any Credit Party being identified as a “potentially responsible party” under the EPA or analogous federal or provincial Applicable Laws, in each case, to the extent applicable; and (d) each Credit Party has provided to Lender copies of all existing environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to each Real Property location. Each Credit Party: (i) shall comply in all material respects with all applicable Environmental Laws and environmental permits; (ii) shall notify Lender in writing within seven (7) Business Days if and when it becomes aware of any Release, on, at, in, under, above, to, from or about any of its Real Property; and (iii) shall promptly forward to Lender a copy of any order, notice, permit, application, or any communication or report received by it or any other Credit Party in connection with any such Release.

 

3.16

Insurance

As of the Closing Date, Disclosure Schedule (3.16) lists all insurance of any nature maintained for current occurrences by Borrower and each other Credit Party, as well as a summary of the terms of such insurance. Each Credit Party shall deliver to Lender originals or copies and endorsements to all of its and those of its Subsidiaries: (a) “All Risks” and business interruption insurance policies naming Lender as loss payee and additional insured; and (b) general liability and other liability policies naming Lender as an additional insured. All policies of insurance on real and personal property will be adequate in form, substance, scope and amount and will contain an endorsement, all in form and substance acceptable to Lender, showing loss payable to Lender (I.B.C. Form 3000 or equivalent) and extra expense and business interruption endorsements. Such endorsement, or an independent instrument furnished to Lender, will provide that the insurance companies will give Lender at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or cancelled and that no act or default of Borrower or any other Person shall affect the right of Lender to recover under such policy or policies of insurance in case of loss or damage. Each Credit Party shall direct all present and future insurers under its “All Risk” policies of insurance to pay all proceeds payable thereunder directly to Lender. If any insurance proceeds are paid by cheque, draft or other instrument payable to any Credit Party and Lender jointly, Lender may endorse such Credit Party’s name thereon and do such other things as Lender may deem advisable to reduce the same to cash. Lender reserves the right at any time, upon review of each Credit Party’s risk profile, to require additional forms and limits of insurance. Each Credit Party shall, on each anniversary of the Closing Date

 

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and from time to time at Lender’s request, deliver to Lender a report by a reputable insurance broker, satisfactory to Lender, with respect to such Credit Party’s insurance policies. Borrower will maintain all such insurance in effect during the term of this Agreement. Notwithstanding the foregoing, the Credit Parties shall have thirty (30) days after the Closing Date to fulfil any of the requirements set forth in this Section 3.16 in respect of any business interruption insurance policies.

 

3.17

Bank Accounts

Borrower and the other Credit Parties shall maintain deposit and/or other accounts, including the Blocked Accounts and Disbursement Accounts, with the Blocked Account Banks and will not have any other bank accounts without the prior consent of Lender.

 

3.18

Accounts and Inventory

As of the date of each Borrowing Base Certificate delivered to Lender, each Account listed thereon as an Eligible Account shall be an Eligible Account and all Inventory listed thereon as Eligible Inventory shall be Eligible Inventory. Borrower has not made, and will not make, any agreement with any Account Debtor for any extension of time for the payment of any Account, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance for prompt or early payment allowed by Borrower in the ordinary course of its business consistent with historical practice and as previously disclosed to Lender in writing. With respect to the Accounts pledged as collateral pursuant to any Loan Document: (a) the amounts shown on all invoices, statements and reports which may be delivered to Lender with respect thereto are actually and absolutely owing to the relevant Credit Party as indicated thereon and are not in any way contingent; (b) no payments have been or shall be made thereon except payments immediately delivered to the applicable accounts described in Schedule C or Lender as required hereunder; and (c) to Borrower’s knowledge, all Account Debtors have the capacity to contract. Borrower shall notify Lender promptly of any event or circumstance which, to Borrower’s knowledge would cause Lender to consider any then existing Account or Inventory as no longer constituting an Eligible Account or Eligible Inventory, as the case may be.

 

3.19

Conduct of Business

 

  (a)

Each Credit Party: (i) shall conduct its business substantially as now conducted or as otherwise permitted hereunder; (ii) shall at all times maintain, preserve and protect all of the Collateral and such Credit Party’s other property, used or useful in the conduct of its business and keep the same in good repair, working order and condition and make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and (iii) shall conduct all its business in accordance with all Hazard Analysis and Critical Control Point (“HACCP”) guidelines and principles and maintain a HACCP plan acceptable to Lender.

 

  (b)

The Borrower shall, at all time, remain listed on the TSX Venture Exchange of the Toronto Stock Exchange.

 

3.20

Material Contracts

All of the Material Contracts of the Credit Parties are described in Schedule F.

 

3.21

Further Assurances

At any time and from time to time, upon the written request of Lender and at the sole expense of Borrower, Borrower and each other Credit Party shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Lender may reasonably deem desirable: (a) to obtain the full benefits of this Agreement and the other Loan Documents; (b) to protect, preserve and

 

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maintain Lender’s rights in any Collateral; or (c) to enable Lender to exercise all or any of the rights and powers herein granted.

 

3.22

Default

No Default or Event of Default has occurred and is continuing.

 

3.23

Anti-Corruption; Anti-Money Laundering

 

  (a)

No Credit Party, any of its subsidiaries, any director, officer or employee of any Credit Party or any of its subsidiaries, nor any agent or representative of any Credit Party or any of its subsidiaries, is a Sanctioned Person or currently the subject or target of any Sanctions.

 

  (b)

The Credit Parties, each of their subsidiaries, and each of the Credit Parties and their subsidiaries’ respective directors, officers, employees, agents and representatives, is in compliance with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions. The Credit Parties shall at all times comply with the requirements of all Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions applicable to the Credit Parties and shall cause each of their respective subsidiaries to comply with the requirements of all Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions applicable to such Persons.

 

  (c)

The Credit Parties and their subsidiaries have instituted and will maintain in effect policies and procedures reasonably designed to ensure compliance by the Credit Parties, their subsidiaries, and their respective directors, officers, employees, agents and representatives with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions.

 

  (d)

The Credit Parties shall provide the Lender any information regarding the Credit Parties, and each of their respective owners, Affiliates, and subsidiaries necessary for the Lender to comply with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions; subject however, in the case of Affiliates, to Credit Parties’ ability to provide information applicable to them.

SECTION 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES

 

4.1

Reports and Information

From the Closing Date until the Termination Date, Borrower shall deliver to Lender:

 

  (a)

on the first Business Day of each month by 12.00 p.m. (Toronto time) on such day and on each other day a Notice of Advance is submitted (in accordance with the timeframes set out in Section 1.1(b) above), a Borrowing Base Certificate in the form of Exhibit C as of the close of business of the previous Business Day, detailing the calculation of the Borrowing Base (and making reference to the Availability Reserves determined by Lender based on the prior-delivered Borrowing Base Certificate, or, in respect of the first delivered Borrowing Base Certificate, that Availability Reserves determined by the Lender and provided to the Borrower not fewer than two (2) Business Days’ in advance), certified as true and correct by an Authorized Officer, together with an accounts receivable roll forward analysis in the form of Attachment 1 to Exhibit C, and all accounts receivable, accounts payable and inventory ledgers, subledgers, copies of bank account statements and other backup reporting as Lender may reasonably require, provided that: (i) Borrower shall provide a full Borrowing Base Certificate on or before the Closing Date, based on the financial information available to Borrower as at the Closing Date; (ii) Borrower shall provide a further full Borrowing Base Certificate, in form and substance reasonably satisfactory to

 

- 14 -

  Lender, within (10) days of the Closing Date; and (iii) thereafter, at any time prior to the date on which the first Revolving Credit Advance is made, each such Borrowing Base Certificate shall not be required to include (or be accompanied by) any figures, calculations or statements to the extent they relate solely to the calculation of the Revolving Credit Loan Borrowing Base;

 

  (b)

within thirty (30) days following the end of each Fiscal Month:

 

  (i)

its aged accounts payable listing by creditor, its aged accounts receivable listing by Account Debtor, its Inventory perpetual or physical listing and if requested by Lender, reconciliations of the aged accounts receivable listing by Account Debtor and the Inventory perpetual or physical listing (as the case may be) to Borrower’s trial balance and from the trial balance to the Financial Statements for such Fiscal Month, accompanied by supporting detail and documentation as Lender may request;

 

  (ii)

its trial balance for such Fiscal Month; and

 

  (iii)

its consolidated and consolidating Financial Statements for such Fiscal Month, which shall provide reporting on EBITDA for such month, comparisons to budget and actual results for the corresponding period during the prior Fiscal Year, both on a monthly and year-to-date basis;

 

  (c)

within forty five (45) days following the end of each Fiscal Quarter, a Compliance Certificate, together with a statement in the form of Attachment 1 to Exhibit D, showing the calculations used in determining compliance with the financial covenants hereunder, together with a projected statement of cash flows for the following 13 week period, prepared on a weekly basis;

 

  (d)

within one-hundred and twenty (120) days following the end of each Fiscal Year, the consolidated Financial Statements for such Fiscal Year audited without qualification by an independent qualified accounting firm acceptable to Lender, which shall provide comparisons to the prior Fiscal Year, together with any management letter that may be issued;

 

  (e)

within thirty (30) days following the end of each Fiscal Year (and thereafter, (i) at the request of the Borrower, but not more than once in any Fiscal Quarter, and (ii) upon the consummation of a Permitted Acquisition, subject to the timely approval of the Lender acting reasonably and in good faith), consolidated Projections, by month for the next Fiscal Year prepared by Borrower in a manner consistent with GAAP and accompanied by senior management’s discussion and analysis of such plan and prepared by Borrower in good faith, with care and diligence, and using assumptions which are reasonable under the circumstances at the time such Projections are delivered to Lender and disclosed therein when delivered (which Projections will be subject to the timely approval of the Lender acting reasonably and in good faith); and

 

  (f)

all the other reports and information set forth in Exhibit B in the time frames set forth therein, and such other reports as Lender may require from time to time.

 

4.2

Notices

Borrower shall advise Lender promptly, in reasonable detail, of:

 

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  (a)

any Lien, other than Permitted Encumbrances, attaching to or asserted against any of the Collateral or any occurrence causing a material loss or decline in value of any Collateral and the estimated (or actual, if available) amount of such loss or decline;

 

  (b)

any material change in the composition of the Collateral;

 

  (c)

the occurrence of any Default or other event which has had or could reasonably be expected to have a Material Adverse Effect. Borrower shall, upon request of Lender, furnish to Lender such other reports and information in connection with the affairs, business, financial condition, operations, prospects or management of Borrower or any other Credit Party or the Collateral as Lender may reasonably request, all in reasonable detail; and

 

  (d)

notice (including the nature of the event and, when known, any action taken or threatened by the U.S. Internal Revenue Service or the PBGC with respect thereto) of any of the following:

 

  (i)

any reportable event (as defined in Section 4043(c) of ERISA) with respect to any Credit Party or any other member of the ERISA Group (regardless of whether the obligation to report such reportable event to the PBGC has been waived);

 

  (ii)

any Prohibited Transaction which could subject any Credit Party or any other member of the ERISA Group to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in connection with any Plan, any Benefit Arrangement or any trust created thereunder;

 

  (iii)

any assertion of withdrawal liability with respect to any Multiemployer Plan;

 

  (iv)

any partial or complete withdrawal from a Multiemployer Plan by any Credit Party or any other member of the ERISA Group under Title IV of ERISA (or assertion thereof), where such withdrawal is likely to result in withdrawal liability;

 

  (v)

any cessation of operations by any Credit Party or any other member of the ERISA Group as described in Section 4062(e) of ERISA;

 

  (vi)

withdrawal by any Credit Party or any other member of the ERISA Group from a Multiple Employer Plan;

 

  (vii)

a failure by any Credit Party or any other member of the ERISA Group to make a payment to a Plan required to avoid imposition of a Lien under Section 302(f) of ERISA (or, for plan years beginning after 2007, Section 303(k)(4)(A) of ERISA);

 

  (viii)

the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA (or, for plan years beginning after 2007, Section 206(g)(5) of ERISA); or

 

  (ix)

any change in the actuarial assumptions or funding methods used for any Plan, where the effect of such change is to materially increase or reduce the unfunded benefit liability or obligation to make periodic contributions.

SECTION 5 – FINANCIAL AND NEGATIVE COVENANTS

 

5.1

Financial Covenants

Credit Parties shall maintain the following financial covenants:

 

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  (a)

as at the end of each Fiscal Quarter, EBITDA of not less than eighty percent (80%) of the projected EBITDA for such Fiscal Quarter as set out in the Projections delivered and approved pursuant to Section 4.1(e); and

 

  (b)

as at the end of each Fiscal Quarter, a Cash Coverage Ratio of not less than 2.50:1.00;

provided that, if, as at the end of any Fiscal Quarter, Borrower has satisfied the Cash Coverage Ratio covenant in Section 5.1(b) above, there shall not be deemed to be an Event of Default, regardless of whether Borrower has satisfied the EBITDA covenant in Section 5.1(a) above. For greater certainty, a breach of Section 5.1(b) above shall be an Event of Default regardless of whether Section 5.1(a) has been met.

 

5.2

Negative Covenants

Each Credit Party covenants to Lender that so long as this Agreement is in effect:

 

  (a)

such Credit Party shall not: (i) form any Subsidiary or merge with, amalgamate with, consolidate with, any other Person except in accordance with Section 3.7; (ii) complete any Acquisitions, other than Permitted Acquisitions; or (iii) except as provided in Section 5.2(c) below, make a loan or advance to any Person;

 

  (b)

such Credit Party shall not cancel any debt owing to it or create, incur, assume or permit to exist any Indebtedness, except:

 

  (i)

the Obligations;

 

  (ii)

Indebtedness existing as of the Closing Date set forth on Disclosure Schedule (5.2(b));

 

  (iii)

deferred taxes;

 

  (iv)

by endorsement of instruments or items of payment for deposit to the general account of such Credit Party;

 

  (v)

Guaranteed Indebtedness incurred for the benefit of Borrower if the primary obligation is permitted by this Agreement;

 

  (vi)

Indebtedness owing to another Credit Party;

 

  (vii)

Purchase Money Indebtedness in an amount not to exceed the maximum principal amount of $20,000,000 incurred in favour of Reiser (Canada) Co. and any Affiliate thereof;

 

  (viii)

Purchase Money Indebtedness incurred in favour of third parties other than Reiser (Canada) Co. or any Affiliate thereof in an aggregate amount not to exceed the maximum principal amount of $5,000,000;

 

  (ix)

Subordinated Debt not to exceed $10,000,000;

 

  (x)

credit card liabilities and any global payment transfer systems incurred after the Closing Date in an aggregate outstanding amount for all such Credit Parties combined not exceeding $1,000,000; and

 

  (xi)

Indebtedness from time to time consented to by the Lender in writing (subject to any conditions required by the Lender);

 

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  (c)

such Credit Party shall not enter into any lending, borrowing or other commercial transaction with any of its employees, directors, Affiliates other than any other Credit Party and other than loans or advances to employees in the ordinary course of business in an aggregate outstanding amount not exceeding the Minimum Actionable Amount;

 

  (d)

such Credit Party shall not make any changes in any of its business objectives, purposes, or operations which could reasonably be expected to adversely affect repayment of the Obligations or could reasonably be expected to have a Material Adverse Effect, or engage in any business other than that presently engaged in (or any business ancillary thereto) or proposed to be engaged in as set forth in the Projections delivered to Lender as of the Closing Date, except as permitted by Section 5.2(g) below, or amend its charter or by-laws or other organizational documents;

 

  (e)

such Credit Party shall not create or permit any Lien on any of its properties or assets, except for Permitted Encumbrances;

 

  (f)

such Credit Party shall not sell, transfer, convey, assign or otherwise dispose of any of its assets or properties, including its Accounts or any Shares or engage in any sale-leaseback, synthetic lease or similar transaction (provided, that the foregoing shall not in any event prohibit the disposition of (i) Inventory in the ordinary course of business, (ii) property between Credit Parties (provided the Lender’s Lien therein is not adversely impacted), (iii) worn-out, obsolete, surplus, or unnecessary Equipment which is not Eligible Equipment, (iv) dispositions of assets or properties the fair market value of which does not exceed $1,000,000 in the aggregate in any fiscal year and the net proceeds of which are (a) reinvested in the business of Credit Parties within sixty (60) days of receipt thereof or (b) applied as a permanent prepayment of the Term Loan (or if the Term Loan has been fully repaid, the Revolving Credit Loan) unless a Default or Event of Default has occurred and is continuing or (v) any assets or properties as consented to by the Lender from time to time);

 

  (g)

such Credit Party shall not change its name, chief executive office, corporate offices, warehouses or other Collateral locations, or location of its records concerning the Collateral, or acquire, lease or use any real estate after the Closing Date without such Person, in each instance, giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender’s Liens upon the Collateral;

 

  (h)

such Credit Party shall not establish or permit to exist any depository or other bank account of any kind with any financial institution (other than the accounts set forth on Attachment 1 to Schedule C) without Lender’s prior written consent;

 

  (i)

such Credit Party shall not make or permit any Restricted Payment other than a Permitted Restricted Payment;

 

  (j)

such Credit Party shall not cause or permit any member of the ERISA Group to:

 

  (i)

fail to satisfy the minimum funding requirements of ERISA and the Code with respect to any Plan;

 

  (ii)

request a minimum funding waiver from the U.S. Internal Revenue Service with respect to any Plan;

 

  (iii)

engage in a Prohibited Transaction with any Plan, Benefit Arrangement or Multiemployer Plan;

 

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  (iv)

permit the aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in the most recent actuarial report completed with respect to such Plan, to materially exceed, as of any actuarial valuation date, the fair market value of the assets of such Plan;

 

  (v)

fail to make when due any contribution to any Multiemployer Plan that any Credit Party or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Applicable Law pertaining thereto;

 

  (vi)

withdraw (completely or partially) from any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from any Multiple Employer Plan, where any such withdrawal is likely to result in a material liability of any Credit Party or any member of the ERISA Group;

 

  (vii)

terminate, or institute proceedings to terminate, any Plan, where such termination is likely to result in a material liability to any Credit Party or any member of the ERISA Group;

 

  (viii)

make any amendment to any Plan with respect to which security is required under Section 307 of ERISA (or, for plan years beginning after 2007, Section 206(g)(5) of ERISA); or

 

  (ix)

fail to give any and all material notices and make all material disclosures and governmental filings required under ERISA or the Code; and

 

  (k)

no Credit Party shall request any Loan, and each Credit Party shall not use, and shall ensure that its subsidiaries and Affiliates, and its or their respective directors, officers, employees and agents not use, the proceeds of any Loan, directly or indirectly; (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws; (ii) to fund, finance or facilitate any activities, business or transaction of or with any Sanctioned Person, or (iii) in any other manner that would result in the material violation of any Sanctions applicable to any party hereto.

SECTION 6 – LENDER’S RIGHTS

 

6.1

Lender’s Rights

 

  (a)

Lender may: (i) at any time provided notice is given to Borrower, in Lender’s own name, or, from and after the occurrence of and during the continuance of a Default or Event of Default, in the name of Borrower, communicate with Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral to verify to Lender’s satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper or other Collateral; and (ii) at any time with prior notice to Borrower or any other Credit Party, and at any time after the occurrence of and during the continuance of a Default or Event of Default, without such prior notice, notify Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper, Instruments, or other Collateral that the Collateral has been assigned to or is subject to Liens in favour of Lender and that payments shall be made directly to Lender. Upon the request of Lender, Borrower shall so notify such Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral. Upon the occurrence and during the continuance of an Event of Default, Borrower hereby constitutes Lender or Lender’s designee as Borrower’s legal attorney, agent and mandatary with power to endorse

 

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  Borrower’s name upon any notes, acceptance drafts, money orders or other evidences of payment or Collateral.

 

  (b)

Borrower shall remain liable under each Contract, Instrument and License to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and Lender shall have no obligation or liability whatsoever to any Person under any Contract, Instrument or License (between Borrower or any other Credit Party and any Person other than Lender) by reason of or arising out of the execution, delivery or performance of this Agreement or other Loan Documents, and Lender shall not be required or obligated in any manner: (i) to perform or fulfill any of the obligations of Borrower or the other Credit Parties; (ii) to make any payment or inquiry; or (iii) to take any action of any kind to collect, compromise or enforce any performance or the payment of any amounts which may have been assigned to it and/or which is the object of any Liens in favour or to which it may be entitled at any time or times under or pursuant to any Contract, Instrument or License.

 

  (c)

Borrower and each other Credit Party shall:

 

  (i)

provide Lender with access to each owned, leased, or controlled property during normal business hours upon reasonable (and in any event not less than 24 hours) prior notice to allow Lender to verify the existence, state and value of the Collateral, provided that if a Default or Event of Default shall have occurred and be continuing, no such notice shall be required;

 

  (ii)

provide access to any of its officers, employees and agents (provided that Borrower’s CFO shall be notified of any such communications and the nature thereof);

 

  (iii)

permit Lender and any of its officers, employees and agents to inspect, audit and make extracts and copies (or take originals if reasonably necessary) from all of Borrower’s and such Credit Party’s Books and Records; and

 

  (iv)

permit Lender to inspect, review, verify, evaluate and make physical verifications and appraisals of the Inventory and other Collateral in any manner and through any medium that Lender, acting reasonably, considers necessary or advisable (a “Field Examination”), and Borrower and such Credit Party agree to render to Lender, at Borrower’s and such Credit Party’s cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Without limiting the generality of the foregoing, Lender shall be entitled to conduct not more than four (4) Field Examinations per year in respect of each Credit Party Facility, two (2) property, plant and equipment appraisal in respect of each Credit Party Facility per year (which shall be required prior to any Advances based on In Place Appraised Value), and two (2) inventory appraisals per year, provided that there shall be no limit on the number of Field Examinations or inventory appraisals if an Event of Default has occurred and is continuing. For certainty, Borrower may, at its own expense, conduct a property, plant and equipment appraisal in respect of each of Credit Party Facility using a Lender-approved appraiser at any time from time to time for the purposes of determining the Borrowing Base.

 

  (d)

After the occurrence and during the continuance of a Default, Borrower, at its own expense, shall cause its auditors or any appraiser selected by Lender to deliver to Lender the results of any physical verifications of all or any portion of the Inventory made or observed by such auditors or appraisers when and if such verification is conducted. Lender shall be permitted to observe and consult with Borrower’s accountants or appraisers in the performance of these tasks.

 

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SECTION 7 – EVENTS OF DEFAULT, RIGHTS AND REMEDIES

 

7.1

Events of Default

The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an “Event of Default” hereunder which shall be deemed to be continuing unless and until waived in writing by Lender in accordance with Section 8.3:

 

  (a)

Borrower shall fail to make any payment in respect of any Obligations when due and payable or declared due and payable, provided that in the case of the failure to pay Obligations other than any principal amount under either Loan, such default continues for a period of three (3) Business Days; or

 

  (b)

(i) any default occurs in the observance or performance of any of the covenants or agreements contained in any of Sections 3.17, 4.1, 4.2, 5.1, or 5.2 of this Agreement, (ii) any reporting error or default occurs in the observance or performance of any of the covenants or agreements contained in Section 3.18 and such default shall continue for five (5) days or more after the occurrence thereof; or (iii) any default occurs in the observance or performance of any of the other covenants or agreements contained in any other Section of this Agreement or any other Loan Document to which any Credit Party and Lender are party and such default shall continue for fifteen (15) days or more after the occurrence thereof; or

 

  (c)

(A) any Material Contract terminates, expires or ceases to be legal, valid, binding and enforceable other than at the end of its term, or to the extent replaced by an agreement on terms not substantially less favourable to the Credit Party or (B) if a Credit Party breaches a Material Contract or (C) an event of default shall occur under any Contractual Obligation of Borrower or any other Credit Party (other than this Agreement and the other Loan Documents), and such breach or event of default under the foregoing clauses (B) and (C) either: (i) involves the failure by a Credit Party to make any payment (whether or not such payment is blocked pursuant to the terms of an intercreditor agreement or otherwise), whether of principal, interest or otherwise, and whether due by scheduled maturity, required prepayment, acceleration, demand or otherwise, in respect of any Indebtedness (other than the Obligations) of such Person in an aggregate amount exceeding the Minimum Actionable Amount or which results in the acceleration of any debt exceeding the Minimum Actionable Amount unless subject to a Permitted Contest; or (ii) causes (or permits any holder of such Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate amount exceeding the Minimum Actionable Amount to become due prior to its stated maturity or prior to its regularly scheduled date of payment; or

 

  (d)

any representation or warranty in this Agreement or any other Loan Document, or in any written statement pursuant hereto or thereto, or in any report, financial statement or certificate made or delivered to Lender by Borrower or any other Credit Party shall be untrue or incorrect as of the date when made or deemed made, regardless of whether such breach involves a representation or warranty with respect to a Credit Party that has not signed this Agreement, and such representation or warranty remains untrue or incorrect for a period of ten (10) days after the date on which such representation or warranty is initially made or deemed to be made; or

 

  (e)

there shall be commenced against Borrower or any other Credit Party any litigation seeking or effecting any seizure (whether in execution or otherwise), attachment, execution, distraint or similar process against all or any substantial part of its assets which remain unreleased or undismissed for thirty (30) consecutive days, unless within such thirty (30) days, any seizure or taking possession of any property of such Credit Party shall have occurred; or any creditor (other than Lender) takes possession of all or any substantial part

 

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  of the assets of Borrower or any other Credit Party; or any creditor (other than Lender) enforces or gives notice of its intention to enforce or gives prior notice with respect to the exercise of any of its hypothecary or other rights under any Liens granted to it by or over any assets of Borrower or any other Credit Party; or any custodian, receiver, interim receiver, liquidator, assignee, trustee, monitor, sequestrator or similar official is appointed in respect of Borrower or any other Credit Party or takes possession of all or any substantial part of the assets of Borrower or any other Credit Party or Borrower or any other Credit Party commits an “act of bankruptcy” (as defined under the relevant provisions of the BIA), becomes insolvent or shall have concealed, removed or permitted to be concealed or removed, any part of its property with intent to hinder, delay or defraud any of its creditors or make or suffer a transfer of any of its property or the incurring of an obligation which may be fraudulent, reviewable or the object of any proceedings under any applicable bankruptcy or insolvency legislation, creditor protection legislation or other similar Applicable Laws; or

 

  (f)

a petition, proposal, notice of intention to file a proposal, case or proceeding shall have been commenced involuntarily against Borrower or any other Credit Party in a court having competent jurisdiction seeking a declaration, judgment, decree, order or other relief: (i) under the BIA, CCAA or any other applicable federal, provincial, state or foreign bankruptcy or other Applicable Law providing for suspension of operations or reorganization of debts or relief of debtors, and seeking either (x) the appointment of a custodian, receiver, interim receiver, liquidator, assignee, trustee, monitor or sequestrator (or similar official) for such Person or of any substantial part of its properties, or (y) the reorganization or winding-up or liquidation of the affairs of any such Person, and such proposal, case or proceeding shall remain undismissed or unstayed for thirty (30) consecutive days or such court shall enter a declaration, judgment, decree or order granting the relief sought in such case or proceeding; or (ii) invalidating or denying any Person’s right, power, or competence to enter into or perform any of its obligations under any Loan Document or invalidating or denying the validity or enforceability of this Agreement or any other Loan Document or any action taken hereunder or thereunder; or

 

  (g)

Borrower or any other Credit Party shall: (i) commence any petition, proposal, notice of intention to file a proposal, case, proceeding or other action under any existing or future Applicable Law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, suspension of operations, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it or seeking appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for it or any substantial part of its properties; (ii) make a general assignment for the benefit of creditors; (iii) consent to or take any action in furtherance of, or, indicating its consent to, approval of, or acquiescence in, any of the acts set forth in paragraphs (e) or (f) of this Section 7.1 or clauses (i) or (ii) of this paragraph (g); or (iv) shall admit in writing its inability to, or shall be generally unable to, pay its debts as such debts become due; or

 

  (h)

a final judgment or judgments for the payment of money in excess of the Minimum Actionable Amount in the aggregate shall be rendered against Borrower or any other Credit Party, unless the same shall be: (i) fully covered by insurance and the issuer(s) of the applicable insurance policies shall have acknowledged full coverage in writing within fifteen (15) days of judgment; or (ii) vacated, stayed, bonded, paid or discharged within a period of fifteen (15) days from the date of such judgment, unless within such fifteen (15) days, any seizure or taking possession of the property of such Credit Party shall have occurred; or

 

  (i)

any other event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect; or

 

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  (j)

any material provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms, or any Lien granted, or intended by the Loan Documents to be granted, to Lender shall cease to be a valid and perfected Lien having the first priority (or a lesser priority if expressly permitted in the Loan Documents) in any of the Collateral (or any Credit Party shall so assert any of the foregoing); or

 

  (k)

a Change of Control shall have occurred; or

 

  (l)

a Pension Event shall have occurred that, in the opinion of Lender, could give rise to a Material Adverse Effect or could result in any Lien or any liability on the part of any Credit Party in either case in an aggregate amount exceeding the Minimum Actionable Amount.

 

7.2

Remedies

 

  (a)

If any Default shall have occurred and be continuing, then Lender may terminate or suspend its obligation to make further Advances and to incur additional other Obligations. In addition, if any Event of Default shall have occurred and be continuing, Lender may, without notice, take any one or more of the following actions: (i) declare all or any portion of the Obligations to be forthwith due and payable, whereupon such Obligations shall become and be due and payable; or (ii) exercise any rights and remedies provided to Lender under the Loan Documents or at law or equity, including all remedies provided under the PPSA; provided, that upon the occurrence of any Event of Default specified in Sections 7.1(e), 7.1(f) or 7.1(g), the Obligations shall become immediately due and payable (and any obligation of Lender to make further Loans, if not previously terminated, shall immediately be terminated) without declaration, notice or demand by Lender.

 

  (b)

Without limiting the generality of the foregoing, Borrower and each other Credit Party executing this Agreement expressly agrees that upon the occurrence of any Event of Default, Lender may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale, to the extent permitted by Applicable Law, to purchase for the benefit of Lender the whole or any part of said Collateral so sold, free of any right of equity of redemption, which right Borrower and each other Credit Party executing this Agreement hereby releases. Such sales may be adjourned or continued from time to time with or without notice. Lender shall have the right to conduct such sales on any Credit Party’s premises or elsewhere and shall have the right to use any Credit Party’s premises without rent or other charge for such sales or other action with respect to the Collateral for such time as Lender deems necessary or advisable.

 

  (c)

Upon the occurrence and during the continuance of an Event of Default and at Lender’s request, Borrower and each other Credit Party executing this Agreement further agrees to assemble the Collateral and make it available to Lender at places which Lender shall reasonably select, whether at its premises or elsewhere. Until Lender is able to effect a sale, lease, or other disposition of the Collateral, Lender shall have the right to complete, assemble, use or operate the Collateral or any part thereof, to the extent that Lender deems appropriate, for the purpose of preserving such Collateral or its value or for any other purpose. Lender shall have no obligation to any Credit Party to maintain or preserve the rights of any Credit Party as against third parties with respect to any Collateral while such Collateral is in the possession of Lender. Lender may, if it so elects, seek the appointment of a receiver or receiver manager to take possession of any Collateral and to enforce any of Lender’s remedies with respect thereto without prior notice or hearing. To the maximum extent permitted by Applicable Law, Borrower and each other Credit Party executing this

 

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  Agreement waives all claims, damages, and demands against Lender, its Affiliates, agents, and the officers and employees of any of them arising out of the repossession, retention or sale of any Collateral except such as are determined in a final judgment by a court of competent jurisdiction to have arisen solely out of the gross negligence or wilful misconduct of such Person. Borrower and each other Credit Party executing this Agreement agrees that ten (10) days prior notice by Lender to such Credit Party of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Borrower and each other Credit Party shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Lender is entitled.

 

  (d)

Lender’s rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Lender may have under any Loan Document or at law or in equity. Recourse to the Collateral shall not be required. All provisions of this Agreement are intended to be subject to all applicable mandatory provisions of Applicable Law that may be controlling and to be limited, to the extent necessary, so that they do not render this Agreement invalid or unenforceable, in whole or in part.

 

7.3

Waivers by Credit Parties

Except as otherwise provided for in this Agreement and to the fullest extent permitted by Applicable Law, Borrower and each other Credit Party executing this Agreement waives: (a) presentment, demand and protest, and notice of presentment, dishonour, intent to accelerate, acceleration, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents, commercial paper, Accounts, Contracts, Documents, Instruments, Chattel Paper and guarantees at any time held by Lender on which such Credit Party may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard; (b) all rights to notice and a hearing prior to Lender’s taking possession or control of, or to Lender’s replevy, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws. Borrower and each other Credit Party executing this Agreement acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the other Loan Documents and the transactions evidenced hereby and thereby and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not apply to the construction or interpretation of this Agreement.

 

7.4

Proceeds

The Proceeds of any sale, disposition or other realization upon any Collateral shall be applied by Lender upon receipt to the Obligations in such order as Lender may deem advisable in its sole discretion and after the indefeasible payment and satisfaction in full in cash of all of the Obligations, and after the payment by Lender of any other amount required by any provision of Applicable Law, the surplus, if any, shall be paid to Borrower or its representatives or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

SECTION 8 – MISCELLANEOUS

 

8.1

Complete Agreement; Modification of Agreement

This Agreement and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied). No Loan Document may be modified, altered or amended except by a written agreement signed by Lender and each other Credit Party that is a party to such Loan Document. Borrower and each other Credit Party executing this Agreement, or any other Loan Document shall have all duties and obligations under this Agreement and such other Loan Documents from the date of its execution and delivery, regardless of whether the initial Loan has been funded at that time.

 

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8.2

Expenses

Borrower agrees to pay or reimburse Lender for all reasonable out-of-pocket costs and expenses (including the fees and expenses of all counsel, advisors, consultants (including environmental and management consultants), field examiners, appraisers and auditors retained in connection therewith), incurred in connection with: (a) the preparation, negotiation, execution, delivery, performance and enforcement of the Loan Documents and the preservation of any rights thereunder; (b) collection, including deficiency collections; (c) the forwarding to Borrower or any other Person on behalf of Borrower by Lender of the proceeds of any Loan; (d) any amendment, waiver or other modification with respect to any Loan Document or advice in connection with the administration of the Loans or the rights thereunder; (e) any litigation, dispute, suit, proceeding or action (whether instituted by or between any combination of Lender, Borrower or any other Person), and an appeal or review thereof, in any way relating to the Collateral, any Loan Document, or any action taken or any other agreements to be executed or delivered in connection therewith, whether as a party, witness or otherwise; and (f) any effort to: (i) monitor the Loans; (ii) evaluate, observe or assess Borrower or any other Credit Party or the affairs of such Person; and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral. Without limiting the foregoing, Borrower will reimburse Lender for the costs (including reasonable out-of-pocket expenses plus applicable taxes) related to Field Examinations and inventory appraisals.

 

8.3

Non-North American Equipment

At any time from time to time prior to the Termination Date, the Borrower may request that the Lender agree to include Non-North American Equipment in the calculation of the Term Loan Borrowing Base and the Lender agrees that, if the inclusion of Non-North American Equipment in the Borrowing Base is determined by the Lender to be commercially reasonable, it shall negotiate in good faith with the Borrower an amendment to this Agreement (including, without limitation, the provisions hereof relating to the calculation of the Borrowing Base, the characteristics of Eligible Equipment, the Loan Documents required to effect Liens on such Non-North American Equipment and any other provision the Lender reasonably requires) on terms satisfactory to it to give effect to such request.

 

8.4

No Waiver

Neither Lender’s failure, at any time, to require strict performance by Borrower or any other Credit Party of any provision of any Loan Document, nor Lender’s failure to exercise, nor any delay in exercising, any right, power or privilege hereunder, shall operate as a waiver thereof or waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Any suspension or waiver of a Default or other provision under the Loan Documents shall not suspend, waive or affect any other Default or other provision under any Loan Document, and shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. None of the undertakings, indemnities, agreements, warranties, covenants and representations of Borrower or any other Credit Party to Lender contained in any Loan Document and no Default by Borrower or any other Credit Party under any Loan Document shall be deemed to have been suspended or waived by Lender, unless such waiver or suspension is by an instrument in writing signed by an officer or other authorized employee of Lender and directed to Borrower specifying such suspension or waiver (and then such waiver shall be effective only to the extent therein expressly set forth), and Lender shall not, by any act (other than execution of a formal written waiver), delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder.

 

8.5

Severability; Section Titles

Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of any Loan Document shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such Loan Document. Except as otherwise expressly provided for in the Loan Documents, no termination or

 

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cancellation (regardless of cause or procedure) of any financing arrangement under the Loan Documents shall in any way affect or impair the Obligations, duties, covenants, representations and warranties, indemnities, and liabilities of Borrower or any other Credit Party or the rights of Lender relating to any unpaid Obligation (due or not due, liquidated, contingent or unliquidated), or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is not required until after the Commitment Termination Date, all of which shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that all indemnity obligations of the Credit Parties under the Loan Documents shall survive the Termination Date. The Section titles contained in any Loan Document are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

 

8.6

Authorized Signature

Until Lender shall be notified in writing by Borrower or any other Credit Party to the contrary, the signature upon any document or instrument delivered pursuant hereto and believed by Lender or any of Lender’s officers, agents, or employees to be that of a Credit Party or of an officer of Borrower or such other Credit Party shall bind Borrower or such other Credit Party and be deemed to be the act of Borrower or such other Credit Party affixed pursuant to and in accordance with resolutions duly adopted by Borrower’s or such other Credit Party’s board of directors, and Lender shall be entitled to assume the authority of each signature and authority of the person whose signature it is or appears to be unless the person acting in reliance thereon shall have actual knowledge to the contrary.

 

8.7

Notices

Except as otherwise provided herein, whenever any notice, demand, request or other communication shall or may be given to or served upon any party by any other party, or whenever any party desires to give or serve upon any other party any communication with respect to this Agreement, each such communication shall be in writing and shall be deemed to have been validly served, given or delivered: (a) upon the earlier of actual receipt (or refusal thereof) and three (3) Business Days after deposit in the mail, registered or certified mail, return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by telecopy, e-mail or other electronic transmission (with such telecopy, e-mail promptly confirmed by delivery of a copy by personal delivery or mail as otherwise provided in this Section 8.7); (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when hand-delivered, all of which shall be addressed to the party to be notified and sent to the address indicated in Schedule B or to such other address as may be substituted by notice given as herein provided. Failure or delay in delivering copies of any such communication to any Person (other than Borrower or Lender) designated in Schedule B to receive copies shall in no way adversely affect the effectiveness of such communication.

 

8.8

Counterparts

This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered (including by a pdf attachment to an e-mail or by DocuSign or other similar electronic execution system) shall constitute an original, but all such counterparts when taken together shall constitute one and the same instrument.

 

8.9

Assignments

This Agreement shall be binding upon and inure to the benefit of Lender, the Credit Parties and their respective heirs, executors, administrators, other legal representatives, successors and assigns. Neither this Agreement nor any interest in this Agreement may be assigned by Borrower or any other Credit Party without the prior written consent of Lender. Lender may assign or transfer or grant participations in its rights or obligations under this Agreement in whole or in part at any time without notice to or consent of the Credit Parties. Lender may disclose to potential or actual transferees or assignees or participants, any information regarding the Credit Parties as Lender considers necessary and the Credit Parties consent to such disclosure.

 

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8.10

Time of the Essence

Time is of the essence for performance of the Obligations under the Loan Documents.

 

8.11

Governing Law

Except for Loan Documents expressed to be governed by the laws of another jurisdiction, the Loan Documents and the obligations arising under the Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the Province of British Columbia applicable to contracts made and performed in such province, without regard to the principles thereof regarding conflicts of laws, and any Applicable Laws.

 

8.12

Submission to Jurisdiction; Waiver of Jury Trial

 

  (a)

Borrower and each other Credit Party executing this Agreement hereby consent and agree that the courts located in British Columbia shall have exclusive jurisdiction to hear and determine any claims or disputes between Borrower and such Credit Party and Lender pertaining to this Agreement or any of the other Loan Documents or to any matter arising out of or related to this Agreement or any of the other Loan Documents; that nothing in this Agreement shall be deemed or operate to preclude Lender from bringing suit or taking other legal action in any other jurisdiction to collect the Obligations, to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favour of Lender. Borrower and each other Credit Party executing this Agreement expressly submit and consent in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower and such Credit Party hereby waive any objection which they may have based upon lack of personal jurisdiction, improper venue or forum non conveniens. Borrower and each other Credit Party executing this Agreement hereby waive personal service of the summons, complaint and other process issued in any such action or suit and agree that service of such summons, complaint and other process may be made by registered or certified mail addressed to Borrower or such Credit Party at the address set forth in Schedule B of this Agreement and that service so made shall be deemed completed upon the earlier of Borrower’s or such Credit Party’s actual receipt thereof (or refusal) or three (3) Business Days after deposit in the mail, proper postage prepaid.

 

  (b)

THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

 

8.13

Press Releases

Neither any Credit Party nor any of its Affiliates will in the future issue any press release or other public disclosure using the name of Waygar Capital Inc. or its affiliates or referring to this Agreement or the other Loan Documents without at least two (2) Business Days’ prior notice to Lender and without the prior written consent of Lender unless (and only to the extent that) such Credit Party or Affiliate is required to do so under Applicable Law and then, in any event, such Credit Party or Affiliate will consult with Lender before issuing such press release or other public disclosure. Each Credit Party consents to the publication (in the ordinary course) by Lender of customary advertising material relating to the financing transactions contemplated by this Agreement using such Credit Party’s name, product photographs, logos or trademarks. Such consent shall remain effective until revoked by such Credit Party in writing to Lender.

 

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8.14

Reinstatement

This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time payment of all or any part of the Obligations is rescinded or must otherwise be returned or restored by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower or any other Credit Party, or otherwise, all as though such payments had not been made.

 

8.15

Illegality

In the event that Lender determines that, in consequence of any change in any Requirement of Law or any policy applicable to it that it is illegal, unlawful or prohibited for it to make or continue to make any Loans or any other Obligations hereunder, it shall have the right to immediately terminate such Loans or other Obligations as it shall determine necessary or appropriate and to terminate any commitment to make or continue to make such Loans or other Obligations and/or to terminate its commitments hereunder and any of the Loan Documents as it shall determine necessary or appropriate.

 

8.16

Set Off and Survival

Without limitation to any other rights or remedies of Lender, Lender shall have the right at all times without notice to the Credit Parties (which notice is hereby waived to the maximum extent permitted by Applicable Law) to set off or apply against any Obligations now and hereafter owing (whether matured or contingent) any deposits at any time held by, or other indebtedness at any time owing by, Lender or any of its Affiliates to or for the credit or account of any Credit Party. All indemnities hereunder or under the other Loan Documents shall survive any termination of the Loan Documents unless expressly released in writing.

 

8.17

Increased Costs

If, by reason of: (a) any change in any Requirement of Law (including any change by way of imposition or increase of statutory reserves or other reserve requirements) or interpretation thereof; or (b) the compliance with any guideline or request from any government authority or other Person exercising control over lenders in Canada generally (whether or not having the force of law):

 

  (i)

Lender shall be subject to any Tax with respect to any Loan or a change shall result in the basis of taxation of any payment to Lender with respect to its obligation to make or continue any Loan; or

 

  (ii)

any reserve (including any imposed by the board of governors or any other applicable Governmental Authority), special deposits or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender shall be imposed or deemed applicable, or any other condition affecting Lender’s obligation to make any Loans, shall be imposed on Lender,

and as a result there shall be an increase in the cost to Lender of agreeing to make or making, funding or maintaining Loans (except to the extent already included in determination of the rate of interest), or there shall be a reduction in the amount receivable by Lender, then Lender shall promptly notify Borrower of such event, and Borrower shall, within five (5) Business Days following demand therefor, pay Lender the amount of such increased costs or reduced amounts.

If Lender determines that, because of circumstances described above or any other circumstances arising hereafter affecting such Lender the applicable interest rate will not adequately and fairly reflect the cost to Lender of funding Loans, then (A) Lender shall promptly notify Borrower of such event; and (B) Lender’s obligation to fund Loans, shall be immediately suspended, until each condition giving rise to such suspension no longer exists.

 

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Notwithstanding anything herein to the contrary, Borrower shall only be required to compensate Lender in respect of any such increased costs or reduction in the amount received or receivable by Lender to the extent Borrower has received a written request for such compensation within ninety (90) days after Lender has received actual notice of the occurrence of the relevant circumstance giving rise to such increased costs or reduction in the amount received or receivable by Lender.

 

8.18

Conflict

If any provision of this Agreement conflicts with and is incapable of being construed together with any other Loan Document, then the provisions of this Agreement shall prevail to the extent necessary to remove such conflict. If there is a representation, warranty, covenant, agreement or event of default contained in any Loan Document which is not contained herein, or vice versa, such additional provision shall not constitute a conflict.

 

8.19

Interpretation

 

  (a)

Any accounting term used in this Agreement or the other Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed, unless otherwise specifically provided therein, in accordance with GAAP consistently applied; provided, that all financial covenants and calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the Closing Date unless Borrower and Lender shall otherwise specifically agree in writing. That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing.

 

  (b)

All other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the PPSA. The words “herein,” “hereof” and “hereunder” or other words of similar import refer to this Agreement as a whole, including the exhibits and schedules thereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement.

 

  (c)

For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (i) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural; (ii) the term “or” is not exclusive; (iii) the term “including” (or any form thereof) shall not be limiting or exclusive; (iv) all references to statutes, acts and related regulations shall include any amendments of same and any successor statutes and regulations; (v) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof; (vi) the specification of any Lien as a Permitted Encumbrance shall not constitute any postponement or subordination (or agreement to do so) of Lender’s Liens; and (vii) all references to “$” dollars or amounts of currency shall unless otherwise expressly provided mean lawful currency of Canada.

 

  (d)

It is the express wish of the parties that this Agreement and any related documents be drawn up and executed in English. Il est la volonté expresse des parties que cette convention et tous les documents s’y rattachant soient redigés et signés en anglais.

 

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SECTION 9 – SPECIAL PROVISIONS

 

9.1

Interest Act (Canada)

For the purposes of this Agreement, whenever interest or a fee to be paid hereunder is to be calculated on the basis of a year of three hundred and sixty (360) days, or any other period of time that is less than a calendar year, the yearly rate of interest or the yearly fee to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by either three hundred and sixty (360) or such other period of time, as the case may be.

 

9.2

Excess Resulting from Exchange Rate Change

If at any time following one or more fluctuations in the exchange rate of the Canadian Dollar against the US Dollar (a) the Obligations exceed any limitations hereunder or (b) any part of the Obligations exceeds any limit set forth herein for such Obligations, Borrower shall within three (3) Business Days or, if an Event of Default has occurred and is continuing, immediately: (i) make the necessary payments or repayments to reduce such Obligations to an amount necessary to eliminate such excess; or (ii) maintain or cause to be maintained with Lender deposits in an amount equal to or greater than the amount of such excess, such deposits to be maintained in such form and upon such terms as are acceptable to Lender in its reasonable discretion. Without in any way limiting the foregoing provisions, Lender shall, weekly or more frequently in Lender’s sole discretion, make the necessary exchange rate calculations (based upon the rate of exchange established by Lender as at noon on the date of determination) to determine whether any such excess exists on such date.

 

9.3

Judgment Currency

If for the purpose of obtaining judgment in any court it is necessary to convert an amount due hereunder in the currency in which it is due (the “Original Currency”) into another currency (the “Second Currency”), the rate of exchange applied shall be that at which, in accordance with normal banking procedures, Lender could purchase in the Toronto foreign exchange market, the Original Currency with the Second Currency on the date two (2) Business Days preceding that on which judgment is given. Borrower agrees that its obligation in respect of any Original Currency due from it hereunder shall, notwithstanding any judgment or payment in such other currency, be discharged only to the extent that, on the Business Day following the date Lender receives payment of any sum so adjudged to be due hereunder in the Second Currency, Lender may, in accordance with normal banking procedures, purchase, in Toronto foreign exchange market, the Original Currency with the amount of the Second Currency so paid; and if the amount of the Original Currency so purchased or could have been so purchased is less than the amount originally due in the Original Currency, Borrower agrees as a separate obligation and notwithstanding any such payment or judgment to indemnify Lender against such loss. The term “rate of exchange” in this Section means the spot rate at which Lender, in accordance with normal practices, is able on the relevant date to purchase the Original Currency with the Second Currency, and includes any premium and costs of exchange payable in connection with such purchase.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

 

BORROWER:
THE VERY GOOD FOOD COMPANY INC.
Per:  

/s/ Kamini Hitkari

  Name:  

Kamini Hitkari

  Title:  

Chief Financial Officer and Corporate Secretary

GUARANTORS:
1218169 B.C. LTD.
Per:  

/s/ Mitchell Scott

  Name:  

Mitchell Scott

  Title:  

President, Chief Executive Officer and Corporate Secretary

1218158 B.C. LTD.
Per:  

/s/ Mitchell Scott

  Name:  

Mitchell Scott

  Title:  

President, Chief Executive Officer and Corporate Secretary

THE VERY GOOD BUTCHERS INC.
Per:  

/s/ Mitchell Scott

  Name:  

Mitchell Scott

  Title:  

President, Chief Executive Officer and Corporate Secretary

THE CULTURED NUT INC.
Per:  

/s/ Mitchell Scott

  Name:  

Mitchell Scott

  Title:  

President, Chief Executive Officer and Corporate Secretary

LLOYD-JAMES MARKETING INC.
Per:  

/s/ Mitchell Scott

  Name:  

Mitchell Scott

  Title:  

President, Chief Executive Officer and Corporate Secretary

VGFC HOLDINGS LLC
Per:  

/s/ Mitchell Scott

  Name:  

Mitchell Scott

  Title:  

Manager

LENDER:
WAYGAR CAPITAL INC., as agent for NINEPOINT CANADIAN SENIOR DEBT MASTER FUND L.P.
Per:  

/s/ Wayne R. Ehgoetz

  Name:  

Wayne R. Ehgoetz

  Title:  

President & CEO

SCHEDULE A

DEFINITIONS

Capitalized terms used in this Agreement and the other Loan Documents shall have (unless otherwise provided elsewhere in this Agreement or in the other Loan Documents) the following respective meanings:

“Account Debtor” shall mean any Person who is or may become obligated with respect to, or on account of, an Account.

“Accounts” shall mean all “accounts,” as such term is defined in the PPSA and includes any right of any Person to payment for goods sold or leased or for services rendered, whether or not it has been earned by performance, now owned or hereafter acquired by any Person, including: (a) all accounts receivable, other receivables, book debts and other forms of obligations whether arising out of goods sold or leased or services rendered or from any other transaction whatsoever (including any contract rights); (b) all of such Person’s rights in, to and under all purchase orders or receipts for goods or services; (c) all of such Person’s rights to any goods represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin, reclamation, stoppage in transit, repossession rights under any Applicable Law including those under Section 81.1 of the BIA, and rights to returned, claimed or repossessed goods); (d) all monies due or to become due to such Person under all purchase orders and contracts for the sale or lease of goods or the performance of services or both by such Person or in connection with any other transaction (whether or not yet earned by performance on the part of such Person), including the right to receive the proceeds of said purchase orders and contracts; and (e) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing.

“Activation Notice” shall have the meaning assigned it in Schedule C.

“Acquisition” shall mean, with respect to any Person, any purchase or other acquisition, regardless of how accomplished or effected (including any such purchase or other acquisition effected by way of amalgamation, merger, arrangement, business combination or other form of corporate reorganization or by way of purchase, lease or other acquisition arrangements), of (a) any other Person (including any purchase or acquisition of such number of the issued and outstanding securities of, or such portion of Shares in, such other Person) such that such other Person becomes a Subsidiary of the purchaser or of any of its Affiliates, (b) all or substantially all of the Property of any other Person, or (c) all or any material portion of all of any division, business, or operation or undertaking of any other Person as a going concern.

“Advances” shall mean, collectively, Revolving Credit Advances and Term Loan Advances, and “Advance” shall mean any Revolving Credit Advance or Term Loan Advance.

“Affiliate” shall mean, with respect to a Person: (a) each other Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Shares having ordinary voting power for the election of directors of such Person; (b) each other Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person; or (c) each of such Person’s officers, directors (or person having a similar function), joint venturers and partners. For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall mean this Agreement including all appendices, exhibits or schedules attached or otherwise identified thereto, restatements and modifications and supplements thereto, and any appendices, exhibits or schedules to any of the foregoing, each as in effect at the time such reference becomes operative; provided, that except as specifically set forth in this Agreement, any reference to the Disclosure Schedules to this Agreement shall be deemed a reference to the Disclosure Schedules as in effect on the Closing Date or in a written amendment thereto executed by Borrower and Lender.

 

Schedule A - 1

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to a Credit Party or any of their subsidiaries from time to time concerning or relating to bribery or corruption.

“Anti-Money Laundering Laws” means any and all laws, statutes, regulations or obligatory government orders, decrees, ordinances or rules applicable to a Credit Party related to terrorism financing or money laundering, including any applicable provision of the Patriot Act.

“Applicable Laws” means, with respect to any Person, property, transaction or event, all present or future statutes, regulations, rules, orders, codes, treaties, conventions, judgments, awards, determinations and decrees of any governmental, regulatory, state, municipal, fiscal or monetary body or court of competent jurisdiction, in each case, having the force of law in any applicable jurisdiction.

“Appraisal Fees” shall have the meaning assigned to it in Schedule D.

“Authorized Officer” shall mean the president, chief financial officer, chief executive officer or such other officer or signatory of Borrower (as may be appointed by corporate resolution, in writing) as is acceptable to Lender.

“Availability Reserves” shall have the meaning assigned to it in the definition of Borrowing Base.

“Benefit Arrangement” shall mean at any time an “employee benefit plan”, within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to by any member of the ERISA Group.

“BIA” shall mean the Bankruptcy and Insolvency Act (Canada), and any successor act or statute, as in effect from time to time or at any time.

“Blocked Account Banks” shall mean Royal Bank of Canada.

“Blocked Accounts” shall mean each of the bank accounts of the Borrower and each other Credit Party that will be established and maintained, at its sole expense, with the Blocked Account Banks into which the Borrower and each other Credit Party will promptly deposit, or direct, all proceeds or funds arising from its operations.

“Blocked Accounts Agreement” shall have the meaning assigned it in Schedule C.

“Books and Records” shall mean all books, records, board minutes, contracts, licenses, insurance policies, environmental audits, business plans, files, computer files, computer discs and other data and software storage and media devices, accounting books and records, financial statements (actual and pro forma), filings with Governmental Authorities and any and all records and instruments relating to the Collateral or Borrower’s or any other Credit Party’s business.

“Borrower” shall mean the Person identified as such in the preamble of this Agreement and includes its successors.

“Borrowing Availability” shall mean, at any time: (a) in the case of the Revolving Credit Loan, the lesser of: (i) the then current Maximum Amount applicable to the Revolving Credit Loan; and (ii) the Revolving Credit Loan Borrowing Base; and (b) in the case of the Term Loan, the lesser of: (i) the Maximum Amount applicable to the Term Loan; and (ii) the Term Loan Borrowing Base.

“Borrowing Base” shall mean at any time an amount equal to the sum at such time of:

 

  (a)

the lesser of:

 

  (i)

the sum of:

 

Schedule A - 2

  (A)

[***] of Eligible Accounts (other than Eligible Investment Grade or Insured Accounts) and [***] of Eligible Investment Grade or Insured Accounts, plus

 

  (B)

the sum of: (1) [***] of the Net Orderly Liquidation Value of Eligible Inventory; plus, (2) without duplication of any amounts advanced pursuant to Subsection (a)(i)(B)(1), [***] of the lower of sale price or cost of Eligible Inventory, up to a maximum amount of $3,000,000; and

 

  (ii)

the Maximum Amount applicable to the Revolving Credit Loan;

plus

 

  (b)

the lesser of:

 

  (i)

either: (A) [***] of the Net Orderly Liquidation Value of Eligible Equipment; or (B) after a Credit Party Facility has been completed and the Lender has agreed in writing, [***] of the In Place Appraised Value of the applicable Credit Party Facility (provided that, for certainty, any Equipment at the applicable Credit Party Facility shall no longer be considered Eligible Equipment for the purposes of this Subsection (b)(i)); and

 

  (ii)

the Maximum Amount applicable to the Term Loan,

less

 

  (c)

reserves (collectively, “Availability Reserves”), established by Lender from time to time in its good faith discretion, acting reasonably, for any amounts accrued or payable by the Credit Parties which under any Applicable Law, statute or regulation of any jurisdiction which may rank prior to or pari passu with any of Liens granted under the Loan Documents or otherwise in priority to any claim by Lender for payment or repayment of any amounts owing under this Agreement or the other Loan Documents, including, without limitation, (i) wages, salaries, commissions or other remuneration; (ii) vacation pay; (iii) Plan contributions; (iv) amounts required to be withheld from payments to employees or other Persons for federal and provincial income taxes, employee Canadian Pension Plan contributions and employee employment insurance premiums, additional amounts payable on account of employer Canada Pension Plan contributions and employer employment insurance premiums; (v) federal goods and services tax; (vi) provincial sales or other consumption taxes; (vii) Workers’ Compensation Board and Workplace Safety and Insurance Board premiums or similar premiums; (viii) real property taxes (except to the extent that any such taxes have been waived pursuant to settlement arrangements); (ix) rent, payments to warehouseman or bailees and other amounts due and payable in respect of the use of real property; (x) amounts payable for repair, storage, transportation or construction or other services which may give rise to a possessory or registerable Lien; (xi) claims which suppliers could assert pursuant to Section 81.1 or Section 81.2 of the Bankruptcy and Insolvency Act (Canada); (xii) WEPPA Claims; and (xii) a dilution reserve if the dilution rate in respect of Accounts is greater than 5%, with such dilution reserve being in an amount equal to the amount of dilution exceeding 5% until such time as that dilution is reduced, as determined by a Field Examination conducted by a third party acceptable to Lender.

“Borrowing Base Certificate” shall mean a certificate in the form of Exhibit C.

 

Schedule A - 3

“Business Day” shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in Toronto, Ontario or Vancouver, British Columbia.

“Canadian Dollar Interest Rate” shall mean 9.95% per annum.

“Canadian Dollars”, “CAD$” or “$” shall mean the lawful currency of Canada.

“Capital Expenditures” shall mean all payments or accruals (including Capital Lease Obligations) for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP.

“Capital Lease” shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise would be disclosed as such in a note to such balance sheet, other than, in the case of Borrower or any Credit Party, any such lease under which Borrower is the lessor.

“Capital Lease Obligation” shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet.

“Cash Coverage Ratio” shall mean the ratio of the following: (a) cash of the Credit Parties on hand as at the end of each Fiscal Quarter; to (b) (i) at the end of each Fiscal Quarter prior to the one (1) year anniversary of the Closing Date, Interest Expense of the Credit Parties during the most recent Fiscal Quarter multiplied by four (4), and (ii) at the end of each Fiscal Quarter from and after the one (1) year anniversary of the Closing Date, Interest Expense of the Credit Parties during for the immediately preceding four (4) Fiscal Quarter.

“CCAA” shall mean the Companies’ Creditors Arrangement Act (Canada) and any successor legislation thereto, as in effect from time to time or at any time.

“Change of Control” shall mean: (a) with respect to any Corporate Credit Party (other then the Borrower) on or after the Closing Date, any change to the legal or organizational structure of any Corporate Credit Party (other then the Borrower) or any change in the composition of its Shareholders as of the Closing Date shall occur which would result in the Borrower owning (directly or indirectly) less than 100% of any class of Shares of such Corporate Credit Party (other then the Borrower), or that any Person (or group of Persons acting in concert) shall otherwise acquire, directly or indirectly (including through Affiliates), the power to elect a majority of the board of directors of such Corporate Credit Party (other then the Borrower) or otherwise direct the management or affairs of such Corporate Credit Party (other then the Borrower) by obtaining proxies, entering into voting agreements or trusts, acquiring securities or otherwise; and (b) with respect to the Borrower, on or after the Closing Date, any change to the legal or organizational structure of the Borrower or any change in the composition of its Shareholders as of the Closing Date shall occur which would result in a Person owing 20% or more of any class of Shares of the Borrower, or that any Person (or group of Persons acting in concert) shall otherwise acquire, directly or indirectly (including through Affiliates), the power to elect a majority of the board of directors of the Borrower or otherwise direct the management or affairs of the Borrower by obtaining proxies, entering into voting agreements or trusts, acquiring securities or otherwise.

“Charges” shall mean all federal, provincial, state, county, city, municipal, local, foreign or other governmental or quasi-governmental taxes, levies, customs or other duties, assessments, charges, liens, and all additional charges, interest, penalties, expenses, claims or encumbrances upon or relating to: (a) the Collateral; (b) the Obligations; (c) the employees, payroll, income or gross receipts of any Credit Party; (d) the ownership or use of any assets by any Credit Party; or (e) any other aspect of any Credit Party’s business as well as any and all amounts at any time due and payable by any Credit Party to and/or in respect of any Plan (whether as a result of under-funding or otherwise).

 

Schedule A - 4

“Chattel Paper” shall mean a writing or writings which evidence both a monetary obligation and a security interest in or lease of specific goods, but a charter or other contract involving the use or hire of a vessel is not Chattel Paper. When a transaction is evidenced by both such a security agreement or a lease and by an instrument or a series of instruments, the group of writings then together constitutes Chattel Paper.

“Clearance Costs” shall mean any and all amounts in respect of the purchase and transportation of such Inventory or Equipment, as applicable, including duty, freight, brokerage fees, insurance and other similar costs, other than the purchase price.

“Closing Date” shall mean the Business Day on which the conditions precedent set forth in Section 2 – have been satisfied or waived in writing by Lender and the initial Loan has been made.

“Code” means the Internal Revenue Code of 1986 of the United States, as amended from time to time, and any successor statute and the rules and regulations promulgated thereunder.

“Collateral” shall mean all of the property and assets of each Credit Party, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest, including all of the following property in which it now has or at any time in the future may acquire any right, title or interest: all Accounts; all bank and deposit accounts and all funds on deposit therein; all cash and cash equivalents; all commodity contracts; all investments, Shares and Investment Property; all Inventory and Equipment; all Goods; all Chattel Paper, Documents and Instruments; all Books and Records; all Intangibles; and to the extent not otherwise included, all Proceeds and products of all and any of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing, but excluding in all events Hazardous Waste, together with any other collateral pledged to Lender or in respect of which Lender may acquire any Lien pursuant to each other Loan Document.

“Collateral Monitoring Fee” shall have the meaning assigned to it in Schedule D.

“Commitment Termination Date” shall mean the earlier of: (a) the Maturity Date; and (b) the date Lender’s obligation to advance funds, or otherwise extend or continue any credit hereunder is otherwise terminated pursuant to the terms hereof.

“Compliance Certificate” shall mean a certificate in the form of Exhibit D.

“Contracts” shall mean all the contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Person may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account.

“Contractual Obligation” shall mean as to any Person, any provision of any security issued by such Person or of any agreement, instrument, or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Copyright License” shall mean rights under any written agreement now owned or hereafter acquired by any Person granting the right to use any Copyright or Copyright registration.

“Copyrights” shall mean all of the following now owned or hereafter acquired by any Person: (a) all copyrights in any original work of authorship fixed in any tangible medium of expression, now known or later developed, all registrations and applications for registration of any such copyrights in the United States, Canada or any other country, including registrations, recordings and applications, and supplemental registrations, recordings, and applications in the United States Copyright Office or in the applicable office in Canada; and (b) all Proceeds of the foregoing, including license royalties and proceeds of infringement suits, the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all renewals and extensions thereof.

 

Schedule A - 5

“Credit Party Facilities” means, collectively, the Rupert Facility, the Patterson Facility and any of the Credit Parties’ other facilities from time to time.

“Credit Party” shall mean Borrower and each Guarantor.

“Default” shall mean the occurrence of any Event of Default or event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default.

“Default Rate” shall have the meaning assigned to it in Section 1.5(d).

“Disbursement Accounts” shall have the meaning assigned to it in Schedule C.

“Documents” shall mean all documents of title (as defined in PPSA), now owned or hereafter acquired by any Person, wherever located, including all bills of lading, dock warrants, dock receipts, warehouse receipts, and other documents of title, whether negotiable or non-negotiable.

“EBITDA” shall mean, for any period, the Net Income (Loss) for such period plus interest expense, unrealized foreign exchange losses, income tax expense, amortization expense, depreciation expense, and minus unrealized foreign exchange gains, for such period, determined in accordance with GAAP and to the extent included in the determination of such Net Income (Loss).

“Eligible Accounts” shall mean as at the date of determination, all Accounts of Credit Parties except any Account:

 

  (a)

that does not arise from the sale of goods or the performance of services by Borrower in the ordinary course of Borrower’s business;

 

  (b)

upon which: (i) Borrower’s right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever; or (ii) Borrower is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process;

 

  (c)

to the extent of any concessions, offsets, deductions, contras, returns, chargebacks or understandings with the Account Debtor therein that in any way could reasonably be expected to adversely affect the payment of, or the amount of, such Account;

 

  (d)

with respect to which an invoice, acceptable to Lender in form and substance, has not been sent to the account of the debtor;

 

  (e)

that is not owned by Borrower or is subject to any right, claim, or interest of another Person, other than Permitted Encumbrances which are in favour of Lender or have been subordinated on terms satisfactory to Lender to Liens in favour of Lender or which otherwise rank in priority behind the Liens in favour of Lender;

 

  (f)

that arises from a sale to or performance of services for an employee, Affiliate, Subsidiary or Shareholder of Borrower or any other Credit Party, or an entity which has common officers or directors with Borrower or any other Credit Party;

 

  (g)

that is the obligation of an Account Debtor that is the federal, state or provincial government or a political subdivision thereof, unless Lender has agreed to the contrary in writing;

 

  (h)

that is the obligation of an Account Debtor located other than in Canada or the continental United States unless such Account is supported by a letter of credit in which Lender has a first priority perfected security interest and Lien by possession or credit insurance acceptable to Lender (and naming Lender as loss payee);

 

Schedule A - 6

  (i)

that is the obligation of an Account Debtor to whom Borrower is or may become liable for goods sold or services rendered by the Account Debtor to Borrower, to the extent of Borrower’s liability to such Account Debtor;

 

  (j)

that arises with respect to goods which are delivered on a cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor may be conditional;

 

  (k)

that is an obligation for which the total unpaid Accounts, other than Eligible Investment Grade or Insured Accounts, of the Account Debtor exceed 10% of the aggregate of all gross Accounts as related to accounts receivable (excluding any inter-company accounts receivable), but only to the extent of such excess;

 

  (l)

that is not paid within sixty (60) days from its due date or ninety (90) days from its invoice date or that are Accounts of an Account Debtor if 25% or more of the Accounts owing from such Account Debtor remain unpaid within such time periods

 

  (m)

that has a due date of more than sixty (60) days from its invoice date;

 

  (n)

that is an obligation of an Account Debtor that has suspended business, made a general assignment for the benefit of creditors, is unable to pay its debts as they become due or as to which a petition has been filed (voluntary or involuntary) under any Applicable Law relating to bankruptcy, insolvency, reorganization or relief of debtors;

 

  (o)

that arises from any bill-and-hold or other sale of goods which remain in Borrower’s possession or under Borrower’s control;

 

  (p)

as to which Lender’s interest therein is not a first priority perfected security interest and Lien;

 

  (q)

to the extent that such Account exceeds any credit limit established by Lender in Lender’s good faith discretion;

 

  (r)

as to which any of Borrower’s representations or warranties pertaining to Accounts are untrue;

 

  (s)

that represents interest payments, late or finance charges, or service charges owing to Borrower;

 

  (t)

with respect to which the Account Debtor is located in any state of the United States or province of Canada which requires the filing of a Notice of Business Activities Report or registration or licensing to carry on business or similar report, registration or licensing in order to permit Borrower to seek judicial enforcement in such state of the United States or province of Canada of payment of such Account, unless Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or registration or licensing to carry on business or equivalent report, registration or licensing for the then current year unless such Account is supported by a letter of credit in which Lender has a first priority perfected security interest and Lien by possession or credit insurance acceptable to Lender (and naming Lender as loss payee); or

 

  (u)

that is not otherwise acceptable in the good faith discretion of Lender, provided, that Lender shall have the right to create and adjust eligibility standards and related reserves from time to time in its good faith discretion.

 

Schedule A - 7

“Eligible Equipment” shall mean as at the date of determination, all Equipment of Credit Parties which meets the following criteria:

 

  (a)

the applicable Credit Party has good title to such Equipment;

 

  (b)

the applicable Credit Party has the right to subject such Equipment to a Lien in favour of Lender; such Equipment is subject to a first priority perfected Lien in favour of Lender and is free and clear of all other Liens of any nature whatsoever, except for Permitted Encumbrances which do not have priority over the Lien in favour of Lender;

 

  (c)

the full purchase price for such equipment has been paid by the applicable Credit Party (unless such Equipment meets all of the criteria in paragraph (d)(ii) below);

 

  (d)

such Equipment is:

 

  (i)

located on a premises (A) owned by the applicable Credit Party which is subject to a first priority perfected Lien in favour of Lender, or (B) leased by the applicable Credit Party where (x) the lessor has delivered to Lender an landlord waiver acceptable to Lender or (y) a rent reserve with respect to such leased premises has been established by Lender; or

 

  (ii)

is in transit to a premises that meets the requirements of the foregoing Subsection (i) and:

 

  (A)

such Equipment is insured to Lender’s satisfaction with Lender as first loss payee and such insurance has been assigned to Lender to its satisfaction;

 

  (B)

such Equipment is supported by documentation acceptable to Lender (including but not limited to the original bill of lading and invoice and other documentation acceptable to Lender);

 

  (C)

any and all amounts in respect of the Clearance Costs for such Equipment, are either: (1) supported by a letter of credit acceptable to Lender, (2) paid for by Borrower and such payments have been verified by Lender, (3) subject to customary reserves in the Borrowing Base, taking into account the expected or anticipated Clearance Costs; or (4) or subject to such other arrangement that may be satisfactory to Lender and

 

  (D)

as to any portion of the purchase price not yet paid, reserved for in the Borrowing Base unless waivers of all repossession, revendication or similar rights of an unpaid supplier have been received to the satisfaction of Lender;

 

  (e)

such Equipment is in good working order and condition (ordinary wear and tear excepted) and is used or held for use by the applicable Credit Party in the ordinary course of business of the applicable Credit Party;

 

  (f)

such Equipment is not subject to any agreement (other than the Loan Documents) which restricts the ability of the applicable Credit Party to use, sell, transport or dispose of such Equipment or which restricts Lender’s ability to take possession of, sell or otherwise dispose of such equipment;

 

  (g)

either (i) an appraisal report in respect of such Equipment has been delivered to Lender setting forth the Net Orderly Liquidation Value thereof, or, (ii) in respect of Equipment that is substantially similar to existing Eligible Equipment (the “Similar Equipment”), a desktop

 

Schedule A - 8

  appraisal report based upon the capital list, specifications (including, as applicable, make, model, controls, capacity, options, attachments, power source) and quotes or invoices (including installation costs or an estimate) in respect of such Similar Equipment delivered by Borrower to Lender;

 

  (h)

such Equipment does not constitute “fixtures” under the Applicable Laws of the jurisdiction in which such Equipment is located; and

 

  (i)

if such Equipment is Non-North American Equipment, Lender shall have (i) consented in its sole discretion to the inclusion of such equipment in the Borrowing Base or (ii) amended this Agreement in accordance with Section 1.13.

“Eligible Inventory” shall mean as at the date of determination, all Inventory of Credit Parties, including Inventory covered by commercial letters of credit, that meets the following criteria:

 

  (a)

is not subject to any Liens other than Permitted Encumbrances which are in favour of Lender or have been subordinated on terms satisfactory to Lender to Liens in favour of Lender or which otherwise rank in priority behind the Liens in favour of Lender;

 

  (b)

is located on premises owned or operated by Borrower and referenced in Disclosure Schedule (3.6) or is located on premises with respect to which Lender has received a landlord, bailee, third party distributor or mortgagee letter acceptable in form and substance to Lender or, in the sole discretion of Lender, in respect of which Lender has established an appropriate reserve;

 

  (c)

is not in transit unless and subject to Lender’s discretion (i) title has been transferred to Borrower; (ii) the goods are in transit to Borrower’s premises; (iii) the goods are insured to Lender’s satisfaction with Lender as first loss payee and such insurance has been assigned to Lender to its satisfaction; (iv) the goods are supported by documentation acceptable to Lender (including but not limited to the original bill of lading and invoice and the documentation provided for in paragraph (d)); and (v) any and all amounts in respect of the Clearance Costs for such Inventory are either (A) supported by a letter of credit acceptable to Lender, (B) paid for by Borrower and such payments have been verified by Lender, (C) as to the Clearance Costs, reserved for in the Borrowing Base and, as to the purchase price, reserved for in the Borrowing Base unless waivers of all repossession, revendication or similar rights of an unpaid supplier have been received to the satisfaction of Lender or (D) or subject to such other arrangement that may be satisfactory to Lender;

 

  (d)

is not covered by a negotiable document of title, unless such document and evidence of acceptable insurance covering such Inventory has been delivered to Lender;

 

  (e)

is of good and merchantable quality, free from any defects and is not obsolete, unsalable, shopworn, damaged, unfit for further processing or of substandard quality, in Lender’s good faith credit judgment;

 

  (f)

does not consist of: (i) discontinued items; (ii) slow-moving or excess items; or (iii) used items held for resale;

 

  (g)

consists of raw materials or finished goods, provided that, at the Lender’s reasonable discretion, Eligible Inventory may also consist of unbranded or unprinted packaging materials which are the subject of an appraisal acceptable to the Lender;

 

  (h)

meets all standards imposed by any Governmental Authority, including with respect to its production, acquisition or importation (as the case may be);

 

Schedule A - 9

  (i)

is not placed by Borrower on consignment or held by Borrower on consignment from another Person;

 

  (j)

is not held for rental or lease by or on behalf of Borrower;

 

  (k)

does not meet or violate any warranty, representation or covenant contained in this Agreement or any other Loan Document;

 

  (l)

is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third parties;

 

  (m)

does not require the consent of any Person for the completion or manufacture, sale or other disposition of such Inventory by Lender and such completion, manufacture or sale does not constitute a breach or default under any contract or agreement to which Borrower is a party or to which such Inventory is or may become subject;

 

  (n)

is not subject to unpaid suppliers’ repossession rights;

 

  (o)

is in a location where the aggregate amount of Inventory that would otherwise be considered eligible, is at least $50,000; and

 

  (p)

is otherwise acceptable in the good faith discretion of Lender, provided that, Lender shall have the right to create and adjust eligibility standards and related reserves from time to time in its good faith discretion.

“Eligible Investment Grade or Insured Accounts” shall mean Eligible Accounts either: (a) payable by an Investment Grade Debtor; or (b) insured with an insurer which is acceptable to Lender on terms satisfactory to Lender in its sole discretion.

“EMA” shall mean the Environmental Management Act (British Columbia), the Environmental Protection Act (United States) and the similar Applicable Laws of Canada and any other province where any Collateral may be located, and any successor law or statute, as in effect from time to time or at any time.

“Environmental Laws” shall mean all federal, provincial, state, municipal and local Applicable Laws, statutes, ordinances, programs, permits, guidance, orders, decrees and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation).

“Environmental Liabilities” shall mean all liabilities, obligations, responsibilities, remedial actions, removal costs, losses, damages of whatever nature, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand of whatever nature by any Person and which relate to any health or safety condition regulated under any Environmental Law, environmental permits or in connection with any Release, threatened Release, or the presence of a Hazardous Material.

“Equipment” shall mean all “equipment” as defined in the PPSA and, in any event, shall include tangible or corporeal property other than Inventory, now or hereafter acquired by any Person, wherever located, including any and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible or corporeal personal or movable property (other than Inventory) of every kind and description which may be now or hereafter used in such Person’s operations or which are owned by such Person or in which such Person may have an interest, and all parts, accessories and accessions thereto and substitutions and replacements therefor.

 

Schedule A - 10

“Equivalent Amount” shall mean the amount of US$ or any other currency to which any amount in $ is equivalent as determined by Lender based on the rate of exchange available to it as determined at noon (Toronto time) on the date of determination.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

“ERISA Group” shall mean, at any time, the Credit Parties and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with any Credit Party, are treated as a single employer under Section 414 of the Code.

“Event of Default” shall have the meaning assigned to it in Section 7.1.

“Facility Fee” shall have the meaning assigned to it in Schedule D.

“Fees” shall mean the fees due to Lender as set forth in Schedule D.

“Field Examination” shall have the meaning assigned to it in Section 6.1(c).

“Field Examination Fees” shall have the meaning assigned to it in Schedule D.

“Financial Statements” shall mean for any Person, the income statement, balance sheet and statement of cash flows of such Person, prepared in accordance with GAAP.

“Fiscal Month” shall mean a monthly accounting period of Borrower or of a Credit Party, as applicable.

“Fiscal Quarter” shall mean each three (3) month accounting period of Borrower or of a Credit Party, as applicable.

“Fiscal Year” shall mean the twelve (12) month period of Borrower ending December 31 of each year. Subsequent changes of the fiscal year of Borrower shall not change the term “Fiscal Year” unless Lender shall consent in writing to such change.

“FSA” shall mean the British Columbia Financial Services Authority and any Person succeeding to the functions thereof and includes any other public authority empowered or created by the PBSA.

“GAAP” shall mean in relation to any Person at any time, (a) the Accounting Standards for Private Enterprises or (b) International Financial Reporting Standards for Public Companies, as applicable, in each case, as approved by the Accounting Standards Board of Canada or its successor, applied on a basis consistent with the most recent financial statements of such Person (except for changes approved by the auditors of such Person).

“Goods” shall mean all “goods,” as such term is defined in the PPSA and, in any event, includes all things which are movable at the time Lender’s Liens attach thereto (other than money, Documents, Instruments, Accounts, Chattel Paper and Intangibles) as well as all fixtures, standing timber which is to be cut, the unborn young of animals and growing crops, all now owned or hereafter acquired by any Person, wherever located, including Equipment, Inventory and all other tangible or corporeal personal or movable property.

“Goodwill” shall mean all goodwill, trade secrets, proprietary or confidential information, technical information, procedures, formulae, quality control standards, designs, operating and training manuals, customer lists, and distribution agreements, now owned or hereafter acquired by any Person.

 

Schedule A - 11

“Governmental Authority” shall mean any nation or government, any state, provincial or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guarantee” shall mean any guarantee or any other agreement to perform all or any portion of the Obligations on behalf of Borrower or any other Credit Party, in favour of, and in form and substance satisfactory to, Lender, together with all amendments, modifications and supplements thereto and restatements and replacements thereof, and shall refer to such Guarantee as the same may be in effect at the time such reference becomes operative.

“Guaranteed Indebtedness” shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation (“primary obligations”) of any other Person (the “primary obligor”) in any manner, including any obligation or arrangement of such guaranteeing Person (whether or not contingent): (a) to purchase or repurchase any such primary obligation; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) to indemnify the owner of such primary obligation against loss in respect thereof.

“Guarantor” shall mean each Person which executes a Guarantee in favour of Lender in connection or as required by this Agreement. As of the Closing date, the Guarantors are 1218169 B.C. Ltd., 1218158 B.C. Ltd., The Very Good Butchers Inc., The Cultured Nut Inc., Lloyd-James Marketing Group Inc. and VGFC Holdings LLC.

“Hazardous Material” shall mean any substance, material or waste which is regulated by or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance which is: (a) defined as a “solid waste,” “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “pollutant,” “contaminant,” “hazardous constituent,” “special waste,” “toxic substance” or other similar term or phrase under any Environmental Laws; (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB’s); or (c) any radioactive substance.

“Hazardous Waste” shall include any Hazardous Material as well as any other substance, material or waste which is now or may hereafter be classified as hazardous (or similarly classified) under any applicable legislation.

“In Place Appraised Value” means, in respect of each Credit Party Facility, the fair market value from a Lender-approved appraiser performed in accordance with the guidelines established by the Uniform Standards of Professional Appraisal Practices.

“Increase Notice” shall have the meaning assigned to such terms in Section 1.13.

“Indebtedness” of any Person shall mean: (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business and not more than forty five (45) days past due); (b) all obligations evidenced by notes, bonds, debentures or similar instruments; (c) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (d) all Capital Lease Obligations; (e) all Guaranteed Indebtedness; (f) all Indebtedness referred to in clauses (a), (b), (c), (d) or (e) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract

 

Schedule A - 12

rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (g) the Obligations.

“Indemnified Liabilities” and “Indemnified Person” shall have the meaning assigned to such terms in Section 1.11.

“Instruments” shall mean all “instruments,” as defined in the PPSA and, in any event, includes all negotiable instruments (including all bills of exchange and promissory notes), all certificated securities or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is, in the ordinary course of business, transferred by delivery with any necessary endorsement or assignment, now owned or hereafter acquired by any Person, wherever located, including all certificated securities and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

“Intangibles” shall mean all “intangibles” as defined in the PPSA and, in any event, includes intangible or incorporeal property, real or personal, moveable or immovable now owned or hereafter acquired by any Person, including all right, title and interest which such Person may now or hereafter have in or under any Contract, Intellectual Property, interests in partnerships, joint ventures and other business associations, permits, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials, Books and Records, Goodwill (including the Goodwill associated with any Intellectual Property), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal or movable property, real or immovable property, tangible rights or intangible rights, corporeal or incorporeal rights, all liability, life, key-person, and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit accounts, rights to receive tax refunds and other payments and rights of indemnification.

“Intellectual Property” shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets and customer lists.

“Interest Expense” means, for any reference period and with respect to the Credit Parties, total interest expense (including that portion attributable to capitalized interest and capital leases in accordance with GAAP), premium payments, debt discount, fees, charges and related expenses with respect to all outstanding Indebtedness of the Credit Parties, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptances, in each case paid in cash during such period.

“Inventory” shall mean all “inventory,” as such term is defined in the PPSA, now or hereafter owned or acquired by any Person, wherever located, including all inventory, merchandise, goods and other personal property which are held by or on behalf of such Person for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Person’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies.

“Investment Grade Debtor” shall mean an Account Debtor of Borrower whose long-term unsecured and unsubordinated indebtedness has been rated as follows by 2 of the 3 rating agencies (or their respective successors) below:

 

  (a)    S&P:    ≥ BBB-
  (b)    Moody’s:    ≥ Baa3
  (c)    DBRS:    ≥ BBB-

 

Schedule A - 13

“Investment Property” shall mean all investment property now or hereafter acquired by any Person, wherever located and includes securities (whether or not certificated), securities entitlement, securities account, commodity contract or commodity account.

“Lender” shall mean Waygar Capital Inc., as agent for Ninepoint Canadian Senior Debt Master Fund L.P. and, if at any time Lender shall decide to assign or syndicate all or any of the Obligations, such term shall include such assignee or such other members of the syndicate.

“License” shall mean any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Person.

“Lien” shall mean, whether based on common law, statute or contract, whether choate or inchoate, whether or not crystallized or fixed, whether or not for amounts due or accruing due: (a) any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, deemed trust, requirement to pay, easement, reservation, exception, encroachment, privilege, title exception, garnishment right, prior claim or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the PPSA or comparable law of any jurisdiction); and (b) any rights of repossession or similar right of an unpaid supplier.

“Litigation” shall mean any claim, lawsuit, litigation, investigation or proceeding of, or before, any arbitrator or Governmental Authority.

“Loan Documents” shall mean this Agreement, each Guarantee, the Blocked Accounts Agreement, and the other documents and instruments listed in Schedule E, and all security agreements, hypothecs, mortgages and all other documents, instruments, certificates, and notices at any time delivered by any Person (other than Lender and its affiliates) in connection with any of the foregoing.

“Loans” shall mean the Revolving Credit Loan and the Term Loan.

“Material Adverse Effect” shall mean a material adverse effect on: (a) the business, assets, operations, prospects or financial or other condition of Borrower or any other Credit Party or the industry within which Borrower or any other Credit Party operates; (b) Borrower’s or any other Credit Party’s ability to pay or perform the Obligations under the Loan Documents to which such Credit Party is a party in accordance with the terms thereof; (c) the Collateral or any realization thereof or Lender’s Liens on the Collateral or the priority of any such Lien; or (d) Lender’s rights and remedies under this Agreement and the other Loan Documents.

“Material Contract” shall mean any agreement to which any Credit Party is party that constitutes a guarantee in excess of the Minimum Actionable Amount or otherwise provides for any Lien on such Credit Party’s property (other than Permitted Encumbrances), is essential to a Credit Party’s ability to carry on business as currently conducted (including without limitation, take or pay contracts and product licenses) or the breach or termination of which could otherwise give rise to a Material Adverse Effect.

“Material Intellectual Property” means, in respect of each Credit Party, all Intellectual Property owned or licensed by such Credit Party necessary to conduct its business as currently conducted, except for such Intellectual Property the failure of which to own or license could not reasonably be expected to have a Material Adverse Effect.

“Maturity Date” shall mean, unless extended to a later date in the sole, unfettered discretion of Lender following a written request by Borrower (and subject to an extension fee), June 7, 2023, subject to an option to extend such date for a further twelve (12) months, on terms and conditions to be mutually agreed to in writing by Borrower and Lender.

 

Schedule A - 14

“Maximum Amount” shall mean: (a) in respect of the Revolving Credit Loan, $5,000,000 as of the Closing Date, and thereafter as such amount may be increased pursuant to Section 1.13 up to (but not to exceed) $20,000,000 or the Equivalent Amount thereof in US$; (b) in respect of the Term Loan, $50,000,000 or the Equivalent Amount thereof in US$.

“Minimum Actionable Amount” shall mean $1,000,000 or the Equivalent Amount thereof in US$.

“Miscellaneous Fees” shall have the meaning assigned to it in Schedule D.

“Multiemployer Plan” shall mean a Plan which is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA and to which the ERISA Group or any of them is then making or accruing an obligation to make contributions or, within the preceding five (5) Plan years, has made or had an obligation to make such contributions.

“Multiple Employer Plan” shall mean a Plan which has two (2) or more contributing sponsors (including the ERISA Group or any of them) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA.

“Net Income (Loss)” shall mean for any period, the aggregate net income (or loss) after taxes for such period, determined in accordance with GAAP.

“Net Orderly Liquidation Value” shall mean the net proceeds that could be expected from an orderly professionally managed liquidation sale of the Inventory or Equipment, as applicable, and expressed as a percentage of the cost of such Inventory or Equipment, from a Lender-approved appraiser performed in accordance with the guidelines established by the Uniform Standards of Professional Appraisal Practices.

“Non-North American Equipment” means any Equipment located outside of the United States and Canada.

“Notice of Advance” shall have the meaning assigned to it in Section 1.1(b).

“Obligations” shall mean all loans, advances, debts, expense reimbursement, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower and any other Credit Party to Lender, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, whether arising under any of the Loan Documents or under any other agreement between Borrower, such Credit Party and Lender, and all covenants and duties regarding such amounts. This term includes all principal, interest, Fees, Charges, expenses, legal fees and any other sum chargeable to Borrower under any of the Loan Documents, and all principal and interest due in respect of the Loans and all obligations and liabilities of any Guarantor under any Guarantee.

“OFAC” shall mean the United States Department of Treasury Office of Foreign Assets Control.

“Operating Lease” shall mean any lease of property (excluding rentals of office, retail or other space) which, in accordance with GAAP, shall be reflected as an operating lease in the financial statements of a Person.

“Patent License” shall mean rights under any written agreement now owned or hereafter acquired by any Person granting any right with respect to any invention on which a Patent is in existence.

“Patents” shall mean all of the following in which any Person now holds or hereafter acquires any interest: (a) all patents and letters patent of the United States, Canada or any other country, all registrations and recordings thereof, and all applications for patents and letters patent of the United States, Canada or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, Canada or any province, state or

 

Schedule A - 15

territory thereof, or any other country; and (b) all reissues, continuations, continuations-in-part or extensions thereof.

“Patterson Facility” means the facility located at and about 220 S. 1st Street, Patterson, California.

“PBGC” means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

“PBSA” shall mean the Pension Benefits Standards Act (British Columbia) and the similar Applicable Laws of any other province or territory of Canada, as in effect from time to time or at any time.

“Pension Event” shall mean: (a) the existence of any unfunded liability or windup or withdrawal liability, including contingent withdrawal or windup liability, or any solvency deficiency in respect of any Plan; (b) the whole or partial termination or windup of any Plan or occurrence of any act, event or circumstance which could give rise to the whole or partial termination or windup of any Plan; (c) the failure to make any contribution or remittance in respect of any Plan when due; (d) the failure to file any report, actuarial valuation, return, statement or other document, when due, in respect of any Plan; (e) the existence of any Lien except in respect of current contribution amounts not due in connection with any Plan; or (f) the establishment or commencement to contribute to any Plan not in existence on the date thereof.

“Permitted Acquisition” means any Acquisition which meets the following criteria:

 

  (a)

Lender shall receive at least fifteen (15) days prior written notice of such Acquisition, which notice shall include a description of such proposed Acquisition;

 

  (b)

at the time of the Acquisition there exists no Default or Event of Default and there shall exist no Default or Event of Default resulting from the completion of the Acquisition;

 

  (c)

Borrower shall have provided a Compliance Certificate demonstrating the financial covenants required to be met pursuant to both Section 5.1(a) (taking into account any revised projections delivered and approved in accordance with Section 4.1(e)) and Section 5.1(b) have been met and will continue to be met, on a pro forma basis, after the completion of such Acquisition;

 

  (d)

the aggregate amount of the consideration paid in respect of such Acquisition (inclusive of the value of all cash paid or payable, Indebtedness assumed and Shares issued) is not more than $100,000,000 (or the Equivalent Amount thereof in any other currency other than Canadian Dollars), unless Lender has consented in writing to the amount of consideration to be paid, which consent will not be unreasonably withheld or delayed;

 

  (e)

Lender shall have received copies of any business, financial, accounting, tax and legal and environmental due diligence prepared by the Borrower with respect to the target of such Acquisition, and shall be satisfied with the same, acting reasonably and without delay in the review thereof;

 

  (f)

if any owned real property is acquired in connection with such Acquisition, Lender shall have received copies of any real property due diligence prepared by or on behalf of the Borrower with respect to such real property, and shall be satisfied with the same, acting reasonably and without delay in the review thereof;

 

  (g)

the business subject to such Acquisition shall have its primary operations in Canada or the United States of America and shall be in a business similar, ancillary or reasonably related to the business of the Borrower, provided that if such Acquisition shall have its primary operations outside of Canada or the United States of America and meet all of the other requirements of this Agreement to constitute a Permitted Acquisition, such Acquisition shall

 

Schedule A - 16

  be permitted, but the Accounts and Inventory acquired in such Acquisition or generated by the target thereof may, in Lender’s reasonable discretion, not be considered Eligible Accounts or Eligible Inventory until Lender has received satisfactory legal advice concerning the treatment of Accounts and Inventory in applicable jurisdictions and, if reasonably required by Lender, Lender and Borrower have agreed, in good faith, to any required amendments to the definitions of Eligible Accounts or Eligible Inventory to address the treatment of Accounts and Inventory in such applicable jurisdictions;

 

  (e)

the applicable Credit Party shall promptly (and in any event within ten (10) Business Days) thereafter: (a) cause any Persons acquired as part of such Acquisition to become a Credit Party hereunder and deliver all Loan Documents required to be delivered by a Credit Party hereunder (including all of the documentation required for a Credit Party listed on Schedule E hereto); and (b) take all other actions required by Lender to perfect Lender’s first priority Liens upon the Collateral, unless Lender has, in its discretion agreed in writing to allow Indebtedness and Liens in respect of such Indebtedness to remain outstanding in respect of such Acquisition, on terms and conditions acceptable to Lender; and

 

  (f)

on or prior to the date of the Acquisition, Lender shall receive copies of the acquisition agreement and such other material agreements related to the Acquisition as may be reasonably requested by Lender.

“Permitted Contest” means action taken by or on behalf of a Credit Party in good faith by appropriate proceedings diligently pursued to contest any claim, provided that:

 

  (a)

the Credit Party in respect of which the claim being contested is relevant has established reasonable reserves therefor if and to the extent required by GAAP;

 

  (b)

proceeding with such contest does not have, and could not reasonably be expected to have, a Material Adverse Effect; and

 

  (c)

proceeding with such contest will not create a material risk of sale, forfeiture or loss of, or interference with the use or operation of, a material part of the Collateral.

“Permitted Encumbrances” shall mean (provided same shall not constitute any agreement by Lender to subordinate any of its Liens to same) the following encumbrances:

 

  (a)

any Lien created by, or arising under a statute or regulation or common law (in contrast with Liens voluntarily granted) in connection with, without limiting the foregoing, workers’ compensation, employment insurance, employers’ health tax or other social security or statutory obligations that secure amounts that are not yet due or which are being contested in good faith by proper proceedings diligently pursued and as to which adequate reserves have been established on the applicable Credit Parties’ books and records and a stay of enforcement of the Lien is in effect;

 

  (b)

Liens made or incurred in the ordinary course of business to secure the performance of bids, tenders, contracts (other than for the borrowing of money), leases, statutory obligations or surety and performance bonds;

 

  (c)

any construction, workers’, materialmen’s or other like Lien created by Applicable Law (in contrast with Liens voluntarily granted), arising in connection with construction or maintenance in the ordinary course of business, in respect of obligations which are not due or which are being contested in good faith by proper proceedings diligently pursued and as to which adequate reserves have been established on any Credit Parties’ books and records and a stay of enforcement of the Lien is in effect;

 

Schedule A - 17

  (d)

any Lien for Taxes not due or being contested in good faith by appropriate proceedings diligently pursued and as to which adequate reserves have been established on the applicable Credit Parties’ books and records and a stay of enforcement of the Lien is in effect;

 

  (e)

minor imperfections in title on real property that do not materially detract from the value of the real property subject thereto and do not materially impair any Credit Parties’ ability to carry on its business or Lender’s rights and remedies under the Loan Documents;

 

  (f)

restrictions, easements, rights-of-way, servitudes or other similar rights in land (including rights-of-way, and servitudes for railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light and power and telephone or telegraph or cable television conduits, poles, wires and cables) granted to or reserved by other Persons which in the aggregate do not materially impair the usefulness, in the operation of the business of any Credit Party, of the real property subject to the restrictions, easements, rights-of-way, servitudes or other similar rights in land granted to or reserved by other Persons and, in each case, which do not impair the use and operation of the business by the Credit Party or Lender’s rights and remedies under the Loan Documents;

 

  (g)

the rights reserved to or vested in any Person by the terms of any lease, licence, franchise, grant or permit held by any Credit Party or by any statutory provision, to terminate any such lease, licence, franchise, grant or permit, or to require annual or periodic payments as a condition to the continuance thereof;

 

  (h)

the reservations, limitations, provisos and conditions, if any, expressed in any original grants from the Crown;

 

  (i)

restrictive covenants affecting the use to which real property may be put, provided that the covenants are complied with and do not materially detract from the value of the real property concerned or materially impair its use in the operations of any Credit Party or impair Lender’s rights and remedies under the Loan Documents;

 

  (j)

Liens in favour of Lender created by the Loan Documents;

 

  (k)

Liens disclosed in Disclosure Schedule (5.2(e)) but only to the extent such Liens conform to their description in Disclosure Schedule (5.2(e)), and includes any extension or renewal thereof provided the amount secured thereby does not exceed the original amount secured immediately prior to the extension, renewal or refinancing and the scope of security creating the Lien is not extended;

 

  (l)

Purchase Money Liens securing Purchase Money Indebtedness to the extent permitted under Section 5.2(b);

 

  (m)

Liens in favour of Royal Bank of Canada in cash collateral limited to $100,000, to secure credit card liabilities and any obligations owing under any global payment transfer systems;

 

  (n)

Liens given to a public utility or any municipality or governmental or other public authority when required by such utility or other authority in connection with the operation of the business or the ownership of the assets of the Person, provided that such Liens do not reduce the value of the assets of the Person or materially interfere with their use in the operation of the business of the Person or impair Lender’s rights and remedies under the Loan Documents;

 

  (o)

servicing agreements, development agreements, site plan agreements, and other agreements with governmental entities pertaining to the use or development of any of the

 

Schedule A - 18

  assets of the Person, provided same are complied with and do not reduce the value of the assets of the Person or materially interfere with their use in the operation of the business of the Person including, without limitation, any obligations to deliver letters of credit and other security as required or impair Lender’s rights and remedies under the Loan Documents; and

 

  (p)

applicable municipal and other governmental restrictions, including municipal by-laws and regulations, affecting the use of land or the nature of any structures which may be erected thereon, provided such restrictions have been complied with and do not reduce the value of the assets of the Person or materially interfere with their use in the operation of the business of the Person or impair Lender’s rights and remedies under the Loan Documents.

“Permitted Restricted Payments” shall mean any payment, loan, contribution, or other transfer of funds or other property to any Shareholder of a Credit Party: (a) so long as no Default or Event of Default has occurred and is continuing or would arise as a result therefrom, and Borrower has provided a Compliance Certificate demonstrating the financial covenants required to be met pursuant to both Section 5.1(a) and Section 5.1(b) have been met and will continue to be met after the making of such payment, loan, contribution, or other transfer of funds or other property to any Shareholder; (b) to the extent such Shareholder is a Credit Party; or (c) which payment constitutes the payment of reasonable management, consulting or other fees for management or similar services made in the ordinary course of business, consistent with the compensation framework dated January 25, 2021, a copy of which has been provided to Lender.

“Person” shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, legal person, institution, public benefit corporation, entity or government (whether federal, provincial, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person’s successors and assigns.

“Plan” shall mean: (a) any employee pension benefit plan which any Credit Party sponsors or maintains or to which it makes or is making or is required to make contributions, and includes any pension or benefit plan regulated by the FSA or similar authority or otherwise subject to the PBSA; and (b) an employee pension benefit plan which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either: (a) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group, or (b) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group.

“PPSA” shall mean the Personal Property Security Act (or any successor statutes) as the same may, from time to time, be in effect in the Province of British Columbia; provided, that in the event that, by reason of mandatory provisions of Applicable Law, any or all of the attachment, perfection or priority of Lender’s security interest in any Collateral is governed by the Personal Property Security Act as in effect in a jurisdiction other than the Province of Ontario, the term “PPSA” shall mean the Personal Property Security Act or a similar act or statute as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to such attachment, perfection or priority and for purposes of definitions related to such provisions.

“Prepayment Fee” shall have the meaning assigned to it in Schedule D.

“Proceeds” shall mean “proceeds,” as such term is defined in the PPSA and, in any event, includes whatever is received or receivable upon the sale, exchange, collection or other disposition of the Collateral and, in any event shall include: (a) any and all proceeds of any insurance, indemnity, warranty or guarantee payable to Borrower or any other Credit Party from time to time with respect to any Collateral; (b) any and all payments (in any form whatsoever) made or due and payable to Borrower or any other Credit Party from time to time in connection with any requisition, confiscation, expropriation, seizure or forfeiture of any Collateral by any governmental body, authority, bureau or agency (or any person acting under colour of

 

Schedule A - 19

Governmental Authority); (c) any claim of Borrower or any other Credit Party against third parties (i) for past, present or future infringement of any Intellectual Property or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License; (d) any recoveries by Borrower or any other Credit Party against third parties with respect to any litigation or dispute concerning any Collateral; and (e) any and all other amounts from time to time paid or payable under or in connection with any Collateral, upon disposition or otherwise.

“Prohibited Transaction” means any prohibited transaction as defined in Section 4975 of the Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor.

“Projections” shall mean the projected consolidated and, when requested, consolidating, income statement, balance sheet and statement of cash flows of Credit Parties for any future period, including forecasted Capital Expenditures.

“Purchase Money Indebtedness” shall mean: (a) any Indebtedness incurred for the payment of all or any part of the purchase price of any fixed asset; (b) any Indebtedness incurred for the sole purpose of financing or refinancing all or any part of the purchase price of any fixed asset; and (c) any renewals, extensions or refinancings thereof (but not any increases in the principal amounts thereof outstanding at that time).

“Purchase Money Lien” shall mean any Lien upon any fixed assets which secures the Purchase Money Indebtedness related thereto but only if such Lien shall at all times be confined solely to the asset the purchase price of which was financed or refinanced through the incurrence of the Purchase Money Indebtedness secured by such Lien and only if such Lien secures only such Purchase Money Indebtedness.

“Real Property” shall have the meaning assigned to it in Section 3.15.

“Release” shall mean, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials in the indoor or outdoor environment by such Person, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water or property.

“Requirement of Law” shall mean as to any Person, the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person, and any Applicable Law or determination of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Restricted Payment” shall mean: (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets on or in respect of Borrower’s or any other Credit Party’s Shares; (b) any payment or distribution made in respect of any subordinated Indebtedness of Borrower or any other Credit Party in violation of any subordination or other agreement made in favour of Lender, but subject in all cases to the subordination, priority or intercreditor agreement with Lender; (c) any payment on account of the purchase, redemption, defeasance or other retirement of Borrower’s or any other Credit Party’s Shares or Indebtedness or any other payment, voluntary prepayment or distribution made in respect thereof, either directly or indirectly other than: (i) that arising under this Agreement, or (ii) interest and principal, when due without acceleration or modification of the amortization as in effect on the Closing Date, under Indebtedness (not including subordinated Indebtedness, payments of which shall be permitted only in accordance with the terms of the relevant subordination, priority or intercreditor agreement made in favour of Lender) described in Disclosure Schedule (5.2(b)) or otherwise permitted under Section 5.2(b)(vi); or (d) any payment, loan, contribution, or other transfer of funds or other property to any Shareholder of such Person which is not expressly and specifically permitted in this Agreement; provided, that no payment to Lender shall constitute a Restricted Payment.

 

Schedule A - 20

“Revolving Credit Advance” shall have the meaning assigned to it in Section 1.1(a).

“Revolving Credit Loan” shall mean at any time the sum of: (a) the aggregate amount of Revolving Credit Advances then outstanding; and (b) the amount of accrued but unpaid interest thereon.

“Revolving Credit Loan Borrowing Base” shall mean an amount equal to Subsection (a) of the definition of Borrowing Base less Subsection (c) of the definition of Borrowing Base.

“Revolving Credit Rate” shall have the meaning assigned to it in Section 1.5.

“Rupert Facility” means the facility located at and about 2748 Rupert Street, Vancouver, BC V5M 3T7.

“Sanctioned Person” means, at any time; (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC (including the OFAC SDN List), the United States Department of State, the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or any other relevant sanctions authority; (b) any Person located, organized or resident in a jurisdiction subject to any Sanctions; or (c) any Person owned or controlled by any such Person or Persons described in clauses (a) or (b) above.

“Sanctions” means all economic or financial sanctions, sectoral sanctions, secondary sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the United States government (including those administered by OFAC or the United States Department of State) or (b) the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or any other relevant sanctions authority with jurisdiction over any Credit Party or any of their respective subsidiaries or Affiliates.

“Shareholder” shall mean each holder of Shares of Borrower or any other Credit Party.

“Shares” shall mean all certificated and uncertificated shares, options, warrants, membership interests, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common shares, preferred shares, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) or “security” (as defined in the Securities Act (Ontario) or any other applicable Canadian provincial legislation or regulations thereunder).

“Subordinated Debt” means, without duplication, indebtedness for borrowed money incurred, assumed or guaranteed by any Credit Party which unless Lender agrees otherwise, is expressly postponed and subordinated in right of payment to the Obligations pursuant to a written postponement and subordination agreement in form and substance acceptable to Lender, acting reasonably.

“Subsidiary” shall mean, with respect to any Person: (a) any corporation of which an aggregate of more than 50% of the outstanding Shares having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Shares of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of 50% or more of such Shares whether by proxy, agreement, operation of law or otherwise; and (b) any partnership or limited liability company in which such Person or one or more Subsidiaries of such Person has an equity interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or manager or may exercise the powers of a general partner or manager.

 

Schedule A - 21

“Taxes” shall mean taxes (including goods and services taxes and applicable sales taxes), duties, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender.

“Term Loan” shall mean at any time the sum of: (a) the aggregate amount of Term Loan Advances then outstanding; and (b) the amount of accrued but unpaid interest thereon.

“Term Loan Advance” shall have the meaning assigned to it in Section 1.1(a).

“Term Loan Borrowing Base” shall mean an amount equal to Subsection (b) of the definition of Borrowing Base less Subsection (c) of the definition of Borrowing Base.

“Termination Date” shall mean the date on which the indefeasible payment in full of the Obligations has occurred and Lender has no further obligation to advance funds, or otherwise extend or continue any credit hereunder (whether due to the Maturity Date or otherwise pursuant to the terms hereof).

“Trademark License” shall mean rights under any written agreement now owned or hereafter acquired by any Person granting any right to use any Trademark or Trademark registration.

“Trademarks” shall mean all of the following now owned or hereafter acquired by any Person: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, Canada, any Province, State or Territory thereof, or any other country or any political subdivision thereof; and (b) all reissues, extensions or renewals thereof.

“Unused Line Fee” shall have the meaning assigned to it in Schedule D.

“US Dollar Interest Rate” shall mean 9.95% per annum.

“US Dollars” or “US$” shall mean the lawful currency of the United States of America.

“WEPPA Claims” means any claims made against the Credit Parties pursuant to the Wage Earner Protection Program Act, S.C. 2005, c. 47, s.1, as the same may be amended, restated or replaced from time to time.

 

Schedule A - 22

SCHEDULE B

LENDER’S AND BORROWER’S ADDRESSES FOR NOTICES

Lender’s Address:

25 King Street West, Suite 1700

Toronto, Ontario M5L 2A1

 

Attention:    Aaron Ehgoetz, Mark Wilk and Don Rogers
Email:   

[***Redacted – Personally Identifying Information***], [***Redacted – Personally

   Identifying Information***], and [***Redacted – Personally Identifying
   Information***]

Borrower’s Address:

2748 Rupert Street

Vancouver, BC V5M 3T7

 

Attention:    Chief Financial Officer
Email:    [***Redacted – Personally Identifying Information***]

Credit Parties’ Address:

c/o Borrower’s address above (unless otherwise specified below).

 

Schedule B - 1

SCHEDULE C

CASH MANAGEMENT SYSTEM

Borrower agrees to establish, and to maintain, until the Termination Date, the cash management system described below:

 

1.

No Credit Party: (a) shall (nor shall it permit any of its Subsidiaries to) open or maintain any deposit, chequing, operating or other bank account, or similar money handling account, with any bank or other financial institution except at the Blocked Account Banks or as permitted by Lender in its sole discretion and as identified in Attachment 1 hereto; and (b) shall close or permit to be closed any of the accounts identified in Attachment 1 without Lender’s prior written consent, and then only after such Credit Party has implemented agreements with a bank or financial institution acceptable to Lender.

 

2.

Commencing on the Closing Date and until the Termination Date, all monies (which term when used in this Agreement includes all cheques, bills of exchange and other payment instruments as well as cash) received by the Credit Parties, including, but not limited to, any receipts in payment of any Accounts or in respect of any insurance proceeds, whether or not a notice and direction has been sent to the Credit Parties’ Account Debtors, shall be received and held, and shall be deemed to be received and held, in trust for Lender and shall be, and shall be deemed to be, kept separate and apart from the Credit Parties’ own funds and immediately deposited by it on a daily basis in one or more blocked accounts set up for this purpose and listed in Attachment 1 hereto (collectively, the “Blocked Accounts”). The Credit Parties shall execute and deliver to Lender, blocked accounts or deposit control accounts agreements (collectively “Blocked Account Agreements”) in respect of all such accounts, the receipt of which is a condition precedent to any accommodation of credit hereunder.

 

3.

The Blocked Account Agreements shall provide that upon delivery of a notice to the Blocked Account Banks, in the form required by the Blocked Account Agreements (each an “Activation Notice”), at the sole discretion of Lender following the occurrence and during the continuance of an Event of Default, the Blocked Account Banks have no Liens upon, or right to set off against, the Disbursement Accounts (except for customary services charges), the items received for deposit therein, or the funds from time to time on deposit therein, that Lender has a security interest in the funds from time to time on deposit therein and that until receipt by the Blocked Account Banks of an Activation Notice, the Blocked Account Banks will comply only with the transfer, withdrawal and disbursement instructions of the Borrower and after receipt of an Activation Notice, the Blocked Account Banks will comply only with the transfer, withdrawal and disbursement instructions of Lender.

 

4.

Prior to the delivery of an Activation Notice, the Borrower and each other Credit Party shall be authorized to operate all accounts, including the Blocked Accounts. After the delivery of an Activation Notice:

 

  (a)

any funds that are transferred to Lender from the Blocked Accounts shall be credited against the Loan,

 

  (b)

the Borrowers shall make all of their payments (other than payments on the Loan) and disbursements only from the Disbursement Accounts; and

 

  (c)

each Credit Party and all of their affiliates, subsidiaries, officers, employees, agents and directors (each, a “Related Person”) shall, acting as trustee for Lender, receive, as the property of Lender (to the extent of the outstanding obligations of the Borrower hereunder), any monies, cheques, notes, drafts or any other payment which comes into the possession or under the control of a Credit Party or, in the case of any Related Person, comes into its

 

Schedule C - 1

  possession or under its control and is rightfully that of a Credit Party, and immediately upon receipt thereof where received by a Credit Party or upon becoming aware of the receipt thereof where received by a Related Person, such Credit Party shall deposit or shall cause the same to be deposited in the Disbursement Account or the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender. In no event shall the same be commingled with any of the funds of a Credit Party. Each Credit Party agrees to reimburse Lender on demand for any amounts owed or paid to the Blocked Account Banks by Lender regarding the Blocked Accounts or any other bank or Person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender’s payments to or indemnification of such bank or Person.

 

5.

Borrower may maintain, in its name, accounts (the “Disbursement Accounts”) at Blocked Account Banks into which Lender shall, from time to time, deposit proceeds of Advances made pursuant to Section 1.1 for use solely in accordance with the provisions of Section 1.3. All of the Disbursement Accounts as of the Closing Date are listed in Attachment 1 hereto.

 

4.

Upon the request of Lender, each Credit Party shall forward to Lender, on a daily basis, evidence of the deposit of all items of payment received by such Credit Party into the Blocked Accounts and copies of all such cheques and other items, together with a statement showing the application of those items relating to payments on Accounts to outstanding Accounts and a collection report with regard thereto in form and substance satisfactory to Lender.

 

Schedule C - 2

ATTACHMENT 1 TO SCHEDULE C

LIST OF BANK ACCOUNTS

[Omitted pursuant to Instruction 19 of Form 20-F]

 

Schedule C - 3

SCHEDULE D

FEES

 

1.

Unused Line Fee: [***].

 

2.

Facility Fee: [***]

 

3.

Collateral Monitoring Fee: [***]

 

4.

Prepayment Fee: [***]

 

5.

Field Examination Fees: Borrower will reimburse Lender for Lender’s reasonable charges in respect of audit reviews, Field Examinations and collateral examinations to the extent permitted hereunder, including the standard charges of the Lender’s field examiner, and all out-of-pocket expenses incurred in connection therewith and applicable taxes.

 

Schedule D - 1

6.

Appraisal Fees: Borrower will reimburse Lender for all reasonable out-of-pocket expenses incurred by Lender in connection with the appraisals of Inventory and Equipment conducted for Lender by an appraisal firm acceptable to Lender.

 

7.

Miscellaneous Fees: Borrower shall be liable for all of Lender’s reasonable out-of-pocket customary miscellaneous fees for activities undertaken by Lender, including additional uploads, amendments, waivers and other matters.

 

Schedule D - 2

SCHEDULE E

SCHEDULE OF DOCUMENTS

The obligation of Lender to make the initial Advances and extend other credit is subject to satisfaction of the condition precedent that Lender shall have received the following, each, unless otherwise specified below or the context otherwise requires, dated the Closing Date, in form and substance satisfactory to Lender and its counsel:

PRINCIPAL LOAN DOCUMENTS

 

1.

Loan Agreement. This Agreement duly executed by Borrower and the other Credit Parties party thereto.

 

2.

Borrowing Base Certificate. A Borrowing Base Certificate duly executed by an Authorized Officer of Borrower.

 

3.

Notice of Advance. An original Notice of Advance duly executed by an Authorized Officer of Borrower.

 

4.

Warrants. Common share purchase warrants, in a form satisfactory to Lender, to acquire 225,000 common shares in the capital of the Borrower for a period of 60 months, with an exercise price equal to 25% above the closing price as of the Closing Date, provided that the delivery of same shall be completed in accordance with, and subject to, Section 2.3 of this Agreement.

COLLATERAL DOCUMENTS

 

1.

Acknowledgement Copies of Financing Statements. Acknowledgement copies of proper financing statements and notices of recording under the PPSA duly filed in all jurisdictions as may be necessary or, in the opinion of Lender, desirable to perfect Lender’s Lien on the Collateral.

 

2.

Searches. Certified copies of PPSA searches or other evidence satisfactory to Lender, listing all effective financing statements and recordations which name Borrower and each other applicable Credit Party (under present name, any previous name or any trade or doing business name) as debtor and together with copies of such other financing statements.

 

3.

GSAs/Hypothecs. General security agreements and hypothecs of moveable property from each Credit Party granting a first priority Lien, subject to Permitted Encumbrances, in favour of Lender, in form and substance satisfactory to Lender in its sole, unfettered discretion (but not contradicting the terms hereof).

 

4.

Pledge of Shares. A pledge of all of the issued and outstanding shares of each direct and indirect Subsidiary of the Borrower, including as at the Closing Date, each of the Guarantors, together with the original share certificates representing such shares.

 

5.

Intellectual Property Documents. Agreements relating to the granting to Lender of a security interest in Intellectual Property of Borrower to the extent applicable in a form suitable for filing with the appropriate federal filing office.

 

6.

Other Recordings and Filings. Evidence of the completion of all other recordings and filings (including termination statements and other Lien release documentation) as may be necessary or, in the opinion of and at the request of Lender, desirable to perfect Lender’s Lien on the Collateral and ensure such Collateral is free and clear of other Liens (except Permitted Encumbrances).

 

Schedule E - 1

7.

Accounts Receivable Insurance. If any Credit Party obtains any accounts receivable insurance, an assignment of accounts receivable insurance in favour of Lender in a form satisfactory to Lender.

THIRD PARTY AGREEMENTS

 

1.

Landlord and Mortgagee Consents. Unless otherwise agreed to in writing by Lender, duly executed landlord (in form and substance satisfactory to Lender in its sole discretion), bailee, third party distributor and mortgagee waivers and consents from the landlords, bailees, third party distributors and mortgagees of all of Borrower’s leased or owned locations where Collateral is held, in each case, in form and substance satisfactory to Lender.

 

2.

Cash Management System. Duly executed Blocked Accounts Agreement and, if required by Lender, pledged account agreements in respect of the Disbursement Accounts as contemplated by Schedule C.

 

3.

Guarantees and Postponements. Guarantees and Postponements of Claim executed by the following each of the Guarantors.

OTHER DOCUMENTS

 

1.

Insurance Policies. Originals or copies of insurance policies described in Section 3.16, together with evidence showing loss payable or additional insured clauses or endorsements in favour of Lender.

 

2.

Existing Lease Agreements. Copies of any existing real property leases and equipment leases to which Borrower is a party and any other document or instrument evidencing or relating to existing Indebtedness of Borrower, together with all certificates, opinions, instruments, security documents and other documents relating thereto, all of which shall be satisfactory in form and substance to Lender, certified by an Authorized Officer of Borrower as true, correct and complete copies thereof.

 

3.

CRA Consent. Canada Revenue Agency (“CRA”) business consent form whereby each Credit Party requested by Lender provides its authorization and consent for Lender to communicate directly with CRA.

 

Schedule E - 2

SCHEDULE F

MATERIAL CONTRACTS

 

1.

Sub-Lease Agreement dated January 1, 2019 with Irene’s Bakery Ltd., in respect of the Victoria.

 

2.

The Lease Agreement with Hudson Retail Inc., (current location of the Victoria Butcher Shop & Restaurant)

 

3.

Industrial Lease with MPW Properties Partnership in respect of the Rupert Facility.

 

4.

dated January 22, 2020 with Nicola V.A. Nickel Inc. in respect of Mount Pleasant.

 

5.

The Lease Agreement dated August 31, 2020 with Traina Pacific, Inc. in respect of the Patterson Facility.

 

6.

Lease dated September 22, 2020 with Khanuja Investments Ltd. (new location of the Victoria Butcher Shop & Restaurant).

 

Schedule F - 1

EXHIBIT A

FORM OF NOTICE OF ADVANCE

(Letter to be typed on Borrower’s Letterhead)

[DATE]

Waygar Capital Inc.

25 King Street West, Suite 1700

Toronto, Ontario M5L 2A1

 

Attention:    Aaron Ehgoetz, Mark Wilk and Don Rogers
Email:   

[***Redacted – Personally Identifying Information***], [***Redacted – Personally Identifying

   Information***], and [***Redacted – Personally Identifying Information***]

BORROWING NOTICE

We refer to the loan agreement dated as of June 7, 2021 (as amended, restated, supplemented, replaced or otherwise modified from time to time, the “Agreement”; capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Agreement), among The Very Good Food Company Inc. (“Borrower”) and Waygar Capital Inc., as agent for Ninepoint Canadian Senior Debt Master Fund L.P. (“Lender”).

We hereby instruct and authorize Lender to make Revolving Credit Advances to our disbursement account(s), subject to and in accordance with the terms and provisions of the Agreement to the account numbers specified below and to charge Borrower’s loan account with each such Revolving Credit Advance(s).

Borrower hereby request an advance (the “Advance”) be made as follows:

 

A.

The date of Advance:             ______________________

 

B.

Type/amount of Advance:

Canadian Dollar Interest Rate based Advance (CAD$):     ______________________

US Dollar Interest Rate based Advance (US$):     ______________________

C. Proceeds of the Advance are to be directed as follows:

CAD$ #:                         ______________________

US$ #:                             ______________________

Borrower hereby confirms as follows:

 

(a)

Each of the representations and warranties made by each of the Credit Parties in or pursuant to the Agreement and the other Loan Documents are true and correct in all material respects on and

 

Exhibit A - 1

  as of the date hereof as if made on and as of such date, except as Lender may have otherwise agreed to herein or in a separate writing.

 

(b)

No Default has occurred as of the date hereof or will occur after the making of the Advance(s) requested hereunder.

DATED this ______ day of ______________________, 20___.

 

BORROWER:

 

THE VERY GOOD FOOD COMPANY INC.

By:  

 

 

Name:

Title:

 

Exhibit A - 2

EXHIBIT B

OTHER REQUIRED REPORTS AND INFORMATION

Nil

 

Exhibit B - 1

EXHIBIT C

FORM OF BORROWING BASE CERTIFICATE

(See Attached)

[Omitted pursuant to Instruction 19 of Form 20-F]

 

Exhibit C - 1

EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE

 

TO:

Waygar Capital Inc., as agent for Ninepoint Canadian Senior Debt Master Fund L.P. (“Lender”)

The undersigned, _________________ [TITLE of AUTHORIZED OFFICER], of The Very Good Food Company Inc. (“Borrower”), pursuant to the provisions of the loan agreement dated as of June 7, 2021, among, inter alia, Lender and Borrower (as amended, restated, supplemented, replaced or otherwise modified from time to time the “ Agreement”), DOES HEREBY CERTIFY in [his/her] capacity as an authorized officer of Borrower and not in [his/her] personal capacity that:

 

1.

The Financial Statements attached hereto fairly and accurately represent Credit Parties’ financial condition at the end of the particular accounting period set out in such Financial Statements, as well as Credit Parties’ operating results during such accounting period, subject to year-end audit adjustments;

 

2.

A review of such Financial Statements and of the activities of Credit Parties’ during the period covered by such Financial Statements has been made under my supervision with a view to determining whether Borrower and the Subsidiaries have fulfilled all of their obligations;

 

3.

From the commencement of the accounting period set out in such Financial Statements to the date hereof:

 

(a)

each of Credit Parties has fulfilled each of its respective obligations under each of the Loan Documents to which it is a party;

 

(b)

there has been no Default or Event of Default under the Agreement;

 

(c)

Borrower is not aware of any event or circumstance which could reasonably have or could reasonably have had a Material Adverse Effect;

 

(d)

the representations and warranties contained in the Agreement and the other Loan Documents are correct in all material respects on and as of the date hereof as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date and except to the extent that Lender has been notified in writing by Borrower that any representation or warranty is not correct and Lender has explicitly waived in writing compliance with such representation or warranty;

 

(e)

Credit Parties have been in full compliance with all covenants set out in the Agreement, including Financial Covenants as evidenced by the calculations attached hereto as Attachment 1 (but, for certainty, subject to the proviso at the end of Section 5.1);

 

(f)

no new Subsidiaries were formed or acquired since the end of the previous Fiscal Quarter [other than each of the following which have become Credit Parties in accordance with Section 3.7 or 5.2(a) of the Credit Agreement]: [If acquired or formed, indicate for each such Subsidiary, the date of the formation or acquisition];

 

(g)

no change in GAAP or in the application thereof has occurred since the date of the most recent audited annual Financial Statements of Borrower delivered to Lender [If a change has occurred, specify the details of the change and its effect on the accompanying Financial Statements]; and

[if any of the foregoing is incorrect, revise wording accordingly to include particulars of any variation.]

 

Exhibit D - 1

4.

Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Agreement.

IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate on behalf of Borrower as of the _______ day of _______________, 20___.

 

By:                                                                          
Name:
Title of Authorized Officer

 

Exhibit D - 2

ATTACHMENT “1”TO EXHIBIT D

 

FINANCIAL COVENANTS

 

COMPANY NAME    THE VERY GOOD FOOD COMPANY INC.
QUARTERLY CERTIFICATE                                                          20            

            A.∎

   

 

Exhibit D - 3

DISCLOSURE SCHEDULE (3.2)

CORPORATE NAMES

[Omitted pursuant to Item 19 of Form 20-F]

DISCLOSURE SCHEDULE (3.6)

REAL ESTATE; PROPERTY

[Omitted pursuant to Item 19 of Form 20-F]

DISCLOSURE SCHEDULE (3.7)

SHARES; AFFILIATES

[***]

Outstanding Warrants and Stock Options of The Very Good Food Company Inc.

Warrants

The following table summarizes information about warrants of The Very Good Food Company Inc.’s warrants that are outstanding and exercisable at June 1, 2021. Warrants are exercisable only for common shares, unless otherwise noted.:

[***]

Options

The following is a summary of the options that have been issued to directors, officers, employees and consultants of The Very Good Food Company Inc. pursuant to its stock option plan and are outstanding as at June 1, 2021.

[***]

DISCLOSURE SCHEDULE (3.9)

TAXES

Nil.

DISCLOSURE SCHEDULE (3.11)

PENSION PLANS

Nil.

DISCLOSURE SCHEDULE (3.12)

LITIGATION

Nil.

DISCLOSURE SCHEDULE (3.13)

MATERIAL INTELLECTUAL PROPERTY

Trademarks

[***]

Trade Secrets

[***]

DISCLOSURE SCHEDULE (3.15)

ENVIRONMENTAL MATTERS

Nil.

DISCLOSURE SCHEDULE (3.16)

INSURANCE

[Omitted pursuant to Instruction 19 of Form 20-F]

DISCLOSURE SCHEDULE (5.2(B))

INDEBTEDNESS

[Omitted pursuant to Instruction 19 of Form 20-F]

DISCLOSURE SCHEDULE (5.2(E))

LIENS

[Omitted pursuant to Instruction 19 of Form 20-F]

Exhibit 4.3

[***] = CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED AND/OR IS THE TYPE OF INFORMATION THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL, AND HAS BEEN MARKED WITH “[***]” TO INDICATE WHERE OMISSIONS HAVE BEEN MADE.

THE VERY GOOD FOOD COMPANY INC.

as the Corporation

and

COMPUTERSHARE TRUST COMPANY OF CANADA

as the Warrant Agent

 

 

 

WARRANT INDENTURE

Providing for the Issue of Warrants

 

 

 

Dated as of July 2, 2021

TABLE OF CONTENTS

 

         Page No.  

ARTICLE 1 INTERPRETATION

      1  

Section 1.1

   Definitions      1  

Section 1.2

   Gender and Number      5  

Section 1.3

   Headings, Etc.      5  

Section 1.4

   Day not a Business Day      5  

Section 1.5

   Time of the Essence      5  

Section 1.6

   Monetary References      5  

Section 1.7

   Applicable Law      5  

ARTICLE 2 ISSUE OF WARRANTS

      6  

Section 2.1

   Creation and Issue of Warrants      6  

Section 2.2

   Terms of Warrants      6  

Section 2.3

   Warrantholder not a Shareholder      6  

Section 2.4

   Warrants to Rank Pari Passu      7  

Section 2.5

   Form of Warrants, Warrant Certificates      7  

Section 2.6

   Book Entry Warrants      7  

Section 2.7

   Warrant Certificate      9  

Section 2.8

   Legends      10  

Section 2.9

   Register of Warrants      11  

Section 2.10

   Issue in Substitution for Warrant Certificates Lost, etc.      12  

Section 2.11

   Exchange of Warrant Certificates      12  

Section 2.12

   Transfer and Ownership of Warrants      13  

Section 2.13

   Cancellation of Surrendered Warrants      14  

ARTICLE 3 EXERCISE OF WARRANTS

      14  

Section 3.1

   Right of Exercise      14  

Section 3.2

   Warrant Exercise      14  

Section 3.3

   Prohibition on Exercise by U.S. Persons; Legended Certificates      16  

Section 3.4

   Transfer Fees and Taxes      17  

Section 3.5

   Warrant Agency      17  

Section 3.6

   Effect of Exercise of Warrant Certificates      18  

Section 3.7

   Partial Exercise of Warrants; Fractions      18  

Section 3.8

   Expiration of Warrants      19  

Section 3.9

   Accounting and Recording      19  

Section 3.10

   Securities Restrictions      19  

ARTICLE 4 CERTAIN ADJUSTMENTS

      19  

Section 4.1

   Certain Adjustments      19  

Section 4.2

   Certificate of Adjustment      23  

Section 4.3

   Entitlement to Common Shares on Exercise of Warrant      23  

Section 4.4

   No Adjustment for Certain Transactions      23  

Section 4.5

   Determination by Independent Firm      23  

Section 4.6

   Proceedings Prior to any Action Requiring Adjustment      23  

Section 4.7

   Notice of Special Matters      24  

Section 4.8

   No Action after Notice      24  

Section 4.9

   Other Action      24  

Section 4.10

   Protection of Warrant Agent      24  

Section 4.11

   Participation by Warrantholder      25  

ARTICLE 5 RIGHTS OF THE CORPORATION AND COVENANTS

      25  

Section 5.1

   General Covenants      25  

Section 5.2

   Warrant Agent’s Remuneration and Expenses      26  

Section 5.3

   Performance of Covenants by Warrant Agent      26  

Section 5.4

   Enforceability of Warrants      26  

ARTICLE 6 ENFORCEMENT

      26  

Section 6.1

   Suits by Registered Warrantholders      26  

Section 6.2

   Suits by the Corporation      26g  

Section 6.3

   Immunity of Shareholders, etc.      27  

Section 6.4

   Waiver of Default      27  

ARTICLE 7 MEETINGS OF REGISTERED WARRANTHOLDERS

      27  

Section 7.1

   Right to Convene Meetings      27  

Section 7.2

   Notice      27  

Section 7.3

   Chairman      28  

Section 7.4

   Quorum      28  

Section 7.5

   Power to Adjourn      28  

Section 7.6

   Show of Hands      28  

Section 7.7

   Poll and Voting      28  

Section 7.8

   Regulations      29  

Section 7.9

   Corporation and Warrant Agent May be Represented      29  

Section 7.10

   Powers Exercisable by Extraordinary Resolution      29  

Section 7.11

   Meaning of Extraordinary Resolution      30  

Section 7.12

   Powers Cumulative      31  

Section 7.13

   Minutes      31  

Section 7.14

   Instruments in Writing      31  

Section 7.15

   Binding Effect of Resolutions      31  

Section 7.16

   Holdings by Corporation Disregarded      31  

ARTICLE 8 SUPPLEMENTAL INDENTURES

      32  

Section 8.1

   Provision for Supplemental Indentures for Certain Purposes      32  

Section 8.2

   Successor Entities      32  

ARTICLE 9 CONCERNING THE WARRANT AGENT

      33  

Section 9.1

   Trust Indenture Legislation      33  

Section 9.2

   Rights and Duties of Warrant Agent      33  

Section 9.3

   Evidence, Experts and Advisers      33  

Section 9.4

   Documents, Monies, etc. Held by Warrant Agent      34  

Section 9.5

   Actions by Warrant Agent to Protect Interest      34  

Section 9.6

   Warrant Agent Not Required to Give Security      35  

Section 9.7

   Protection of Warrant Agent      35  

Section 9.8

   Replacement of Warrant Agent; Successor by Merger      36  

Section 9.9

   Acceptance of Agency      36  

Section 9.10

   Warrant Agent Not to be Appointed Receiver      36  

Section 9.11

   Warrant Agent Not Required to Give Notice of Default      36  

Section 9.12

   Anti-Money Laundering      37  

Section 9.13

   Compliance with Privacy Code      37  

Section 9.14

   Securities Exchange Commission Certification      38  

ARTICLE 10 GENERAL

      38  

Section 10.1

   Notice to the Corporation and the Warrant Agent      38  

Section 10.2

   Notice to Registered Warrantholders      39  

Section 10.3

   Ownership of Warrants      39  

Section 10.4

   Counterparts      39  

Section 10.5

   Satisfaction and Discharge of Indenture      40  

Section 10.6

   Provisions of Indenture and Warrants for the Sole Benefit of Parties and Registered Warrantholders      40  

Section 10.7

   Common Shares or Warrants Owned by the Corporation or its Subsidiaries—Certificate to be Provided      40  

Section 10.8

   Severability      40  

Section 10.9

   Force Majeure      41  

Section 10.10

   Assignment, Successors and Assigns      41  

Section 10.11

   Rights of Rescission and Withdrawal for Holders      41  

SCHEDULE “A” FORM OF WARRANT

      1  

SCHEDULE “B” EXERCISE NOTICE

      1  

SCHEDULE “C” FORM OF DECLARATION FOR REMOVAL OF LEGEND

      1  

WARRANT INDENTURE

THIS WARRANT INDENTURE is dated as of July 2, 2021.

BETWEEN:

THE VERY GOOD FOOD COMPANY INC., a corporation incorporated under the laws of the Province of British Columbia (the “Corporation”)

AND:

COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company existing under the laws of Canada and authorized to carry on business in all provinces of Canada (the “Warrant Agent”)

WHEREAS pursuant to the Underwriting Agreement (as defined herein) the Corporation is proposing to offer for sale 4,865,000 Units (as defined herein) in accordance with a short form prospectus filed with the securities regulatory authorities in the Provinces of British Columbia, Alberta, Saskatchewan, Ontario, New Brunswick and Nova Scotia at a price of $3.70 per Unit, with each such Unit comprised of one (1) Common Share (as defined herein) and one-half (0.5) of one (1) Warrant (as defined herein) (the “Offering”);

WHEREAS in connection with the Offering and the issuance of Units, the Corporation is proposing to issue up to a maximum of 2,797,375 Warrants (including up to an additional 364,875 Warrants issuable pursuant to the Over-Allotment Option (as defined herein)) pursuant to this Indenture (as defined herein);

AND WHEREAS pursuant to this Indenture, each Warrant shall, subject to adjustment, entitle the holder thereof to acquire one (1) Common Share (each, a “Warrant Share”) upon payment of the Exercise Price (as defined herein) prior to the Expiry Time (as defined herein) upon the terms and conditions herein set forth;

AND WHEREAS all acts and deeds necessary have been done and performed to make the Warrants, when created and issued as provided in this Indenture, legal, valid and binding upon the Corporation with the benefits and subject to the terms of this Indenture;

AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not by the Warrant Agent;

NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Corporation hereby appoints the Warrant Agent as warrant agent to hold the rights, interests and benefits contained herein for and on behalf of those persons who from time to time become the holders of Warrants issued pursuant to this Indenture and the parties hereto agree as follows:

ARTICLE 1

INTERPRETATION

Section 1.1 Definitions.

In this Indenture, including the recitals and schedules hereto, and in all indentures supplemental hereto:

 

“Adjustment Period” means the period from the Effective Date up to and including the Expiry Time;

“Applicable Legislation” means any statute of Canada or a province thereof, and the regulations under any such named or other statute, relating to warrant indentures or to the rights, duties and obligations of warrant agents under warrant indentures, to the extent that such provisions are at the time in force and applicable to this Indenture;

“Auditors” means KPMG LLP, Chartered Accountants, or such other firm of chartered accountants duly appointed as auditors of the Corporation, from time to time;

“Authenticated” means (a) with respect to the issuance of a Warrant Certificate, one which has been duly signed by the Corporation or on which the signatures of the Corporation have been printed, lithographed or otherwise mechanically reproduced and authenticated by signature of an authorized officer of the Warrant Agent, and (b) with respect to the issuance of an Uncertificated Warrant, one in respect of which the Warrant Agent has completed all Internal Procedures such that the particulars of such Uncertificated Warrant as required by Section 2.7 are entered in the register of holders of Warrants, “Authenticate”, “Authenticating” and “Authentication” have the appropriate correlative meanings;

“Book Entry Participants” or “Participants” means institutions that participate directly or indirectly in the Depository’s book entry registration system for the Warrants;

“Book Entry Warrants” means Warrants that are to be held only by or on behalf of the Depository;

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in Canada, a legal holiday in British Columbia or Ontario or any day on which the TSXV is authorized or required by law or other governmental action to close;

“CDS” means CDS Clearing and Depository Services Inc.;

“CDS Global Warrants” means Warrants representing all or a portion of the aggregate number of Warrants issued in the name of the Depository and represented by an Uncertificated Warrant, or if requested by the Depository or the Corporation, by a Warrant Certificate;

“CDSX” means the settlement and clearing system of CDS for equity and debt securities in Canada;

“Closing” means July 2, 2021, being the closing date of the Offering;

“Common Shares” means, subject to Article 4, fully paid and non-assessable common shares in the capital of the Corporation as presently constituted;

“Counsel” means a barrister and/or solicitor or a firm of barristers and/or solicitors retained by the Warrant Agent or retained by the Corporation, which may or may not be counsel for the Corporation;

“Current Market Price” of the Common Shares at any date means: (i) the weighted average of the trading price per Common Share for each day there was a closing price for the twenty (20) consecutive Trading Days ending three (3) days prior to such date on the TSXV or if on such date the Common Shares are not listed on the TSXV, on such stock exchange upon which such Common Shares are listed and as selected by the directors; or (ii) if such Common Shares are not listed on any stock exchange then on such over-the-counter market as may be selected for such purpose by the directors of the Corporation;

“Depository” means CDS or such other person as is designated in writing by the Corporation to act as depository in respect of the Warrants;

 

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“Dividends” means any dividends paid by the Corporation;

“DRS Advice” means a Direct Registration System advice evidencing ownership of securities in the Warrant Agent’s or any of its affiliates’ book-based registration system;

“Effective Date” means the date of this Indenture;

“Exchange Rate” means the number of Warrant Shares subject to the right of purchase under each Warrant;

“Exercise Date” means, in relation to a Warrant, the Business Day on which such Warrant is validly exercised or deemed to be validly exercised in accordance with Article 3 hereof;

“Exercise Notice” has the meaning set forth in Section 3.2(1);

“Exercise Price” at any time means the price at which a Warrant Share may be purchased by the exercise of a Warrant, which is initially $4.60 per Warrant Share, payable in immediately available Canadian funds, subject to adjustment in accordance with the provisions of Section 4.1;

“Expiry Date” means January 2, 2023;

“Expiry Time” means 4:30 p.m. (Vancouver time) on the Expiry Date or such earlier time on the Expiry Date as may be required by the Depository pursuant to their internal procedures;

“Extraordinary Resolution” has the meaning set forth in Section 7.11(1);

“Internal Procedures” means in respect of the making of any one or more entries to, changes in or deletions of any one or more entries in the register (including without limitation, original issuance or registration of transfer of ownership) based on the Warrant Agent’s then current internal procedures customary for such entry, change or deletion;

“Issue Date” means the date of the Closing (or the date of the Over-Allotment Closing, as applicable);

“Offering” has the meaning set forth in the preambles hereto;

“Over-Allotment Closing” means the closing date of the Over-Allotment Option;

“Over-Allotment Option” means the over-allotment option granted to the Underwriter under the Underwriting Agreement pursuant to which the Underwriter may purchase up to an additional 729,750 Units;

“person” means an individual, body corporate, partnership, trust, warrant agent, executor, administrator, legal representative or any unincorporated organization;

“register” means the one set of records and accounts maintained by the Warrant Agent pursuant to Section 2.9;

“Registered Warrantholders” means the persons who are registered owners of Warrants as such names appear on the register, and for greater certainty, shall include the Depository as well as the holders of Uncertificated Warrants appearing on the register of the Warrant Agent;

“Regulation S” means Regulation S as promulgated by the SEC under the U.S. Securities Act;

“SEC” means the United States Securities and Exchange Commission;

 

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“Shareholders” means holders of Common Shares;

“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder;

“this Warrant Indenture”, “this Indenture”, “this Agreement”, “hereto” “herein”, “hereby”, “hereof” and similar expressions mean and refer to this Indenture and any indenture, deed or instrument supplemental hereto; and the expressions “Article”, “Section”, “subsection” and “paragraph” followed by a number, letter or both mean and refer to the specified article, section, subsection or paragraph of this Indenture;

“Trading Day” means, with respect to the TSXV, a day on which such exchange is open for the transaction of business and with respect to another exchange or an over-the-counter market means a day on which such exchange or market is open for the transaction of business;

“TSXV” means the TSX Venture Exchange;

“Uncertificated Warrant” means any Warrant which is not evidenced by a Warrant Certificate;

“Underwriter” means Canaccord Genuity Corp.;

“Underwriting Agreement” means the underwriting agreement dated June 18, 2021 between the Corporation and the Underwriter;

“United States” means the United States of America, its territories and possessions, any state of the United States, and the District of Columbia;

“Units” means units of the Corporation, with each such Unit entitling the holder thereof to one (1) Common Share and one-half (0.5) of one (1) Warrant;

“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended;

“U.S. Person” has the meaning set forth in Rule 902(k) of Regulation S;

“U.S. Securities Act” means the United States Securities Act of 1933, as amended;

“U.S. Warrantholder” means any Registered Warrantholder that is a U.S. Person, was offered Warrants (or Units of which the Warrants comprised a part), placed its order to acquire the Warrants (or Units) from within the United States, or otherwise acquired Warrants in the United States or for the account or benefit of any U.S. Person or person in the United States;

“Warrant Agency” means the principal office of the Warrant Agent in the City of Vancouver, British Columbia or such other place as may be designated in accordance with Section 3.5;

“Warrant Agent” means Computershare Trust Company of Canada, in its capacity as warrant agent of the Warrants, or its successors from time to time;

“Warrant Certificate” means a certificate, substantially in the form set forth in Schedule “A” hereto or such other form as may be approved by the Corporation and the Warrant Agent, to evidence those Warrants that will be evidenced by a certificate;

“Warrant Shares” has the meaning set forth in the recitals to this Indenture;

“Warrantholders”, or “holders” without reference to Warrants, means the warrantholders as and in respect of Warrants registered in the name of the Depository and includes owners of Warrants who beneficially

 

- 4 -

hold securities entitlements in respect of the Warrants through a Book Entry Participant or means, at a particular time, the persons entered in the register hereinafter mentioned as holders of Warrants outstanding at such time;

“Warrantholders’ Request” means an instrument signed in one or more counterparts by Registered Warrantholders entitled to acquire in the aggregate not less than 50% of the aggregate number of Warrant Shares which could be acquired pursuant to all Warrants then unexercised and outstanding, requesting the Warrant Agent to take some action or proceeding specified therein;

“Warrants” means the Common Share purchase warrants created by and authorized by and issuable under this Indenture, to be issued and countersigned hereunder as a Warrant Certificate and /or Uncertificated Warrant held through the book entry registration system of the Depository on a no certificate issued basis, each entitling the holder or holders thereof to purchase one (1) Common Share (subject to adjustment as herein provided) at the Exercise Price prior to the Expiry Time and, where the context so requires, also means the warrants issued and Authenticated hereunder, whether by way of Warrant Certificate or Uncertificated Warrant; and

“written order of the Corporation”, “written request of the Corporation”, “written consent of the “Corporation” and “certificate of the Corporation” mean, respectively, a written order, request, consent and certificate signed in the name of the Corporation by any two duly authorized signatories of the Corporation and may consist of one or more instruments so executed.

Section 1.2 Gender and Number.

Words importing the singular number or masculine gender shall include the plural number or the feminine or neuter genders, and vice versa.

Section 1.3 Headings, Etc.

The division of this Indenture into Articles and Sections, the provision of a Table of Contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture or of the Warrants.

Section 1.4 Day not a Business Day.

If any day on or before which any action or notice is required to be taken or given hereunder is not a Business Day, then such action or notice shall be required to be taken or given on or before the requisite time on the next succeeding day that is a Business Day.

Section 1.5 Time of the Essence.

Time shall be of the essence in this Indenture and each Warrant.

Section 1.6 Monetary References.

Whenever any amounts of money are referred to herein, such amounts shall be deemed to be in lawful money of Canada unless otherwise expressed.

Section 1.7 Applicable Law.

This Indenture, the Warrants, the Warrant Certificates or the DRS Advices (including all documents relating thereto, which by common accord have been and will be drafted in English) shall be construed in accordance with the laws of the Province of British Columbia, and the federal laws of Canada applicable therein and

 

- 5 -

shall be treated in all respects as British Columbia contracts. Each of the parties hereto, which shall include the Warrantholders, irrevocably attorns to the exclusive jurisdiction of the courts of the Province of British Columbia with respect to all matters arising out of this Indenture and the transactions contemplated herein.

ARTICLE 2

ISSUE OF WARRANTS

Section 2.1 Creation and Issue of Warrants.

A maximum of 2,797,375 Warrants (subject to adjustment as herein provided) are hereby created and authorized to be issued on the Issue Date in accordance with the terms and conditions hereof. By written order of the Corporation, the Warrant Agent shall Authenticate and deliver Warrants in certificated or uncertificated form or DRS Advices pursuant to Section 2.5 to Registered Warrantholders and record the name of the Registered Warrantholders on the Warrant register. Registration of interests in Warrants held by the Depository may be evidenced by a position appearing on the register for Warrants of the Warrant Agent for an amount representing the aggregate number of such Warrants outstanding from time to time.

Section 2.2 Terms of Warrants.

 

(1)

Subject to the applicable conditions for exercise set out in Article 3 having been satisfied and subject to adjustment in accordance with Section 4.1, each Warrant shall entitle each Warrantholder thereof, upon exercise at any time after the Issue Date and prior to the Expiry Time, to acquire one (1) Warrant Share upon payment of the Exercise Price.

 

(2)

No fractional Warrants shall be issued or otherwise provided for hereunder and Warrants may only be exercised in a sufficient number to acquire whole numbers of Warrant Shares. Any fractional Warrants shall be rounded down to the nearest whole number and no consideration shall be paid for any such fractional Warrant.

 

(3)

Each Warrant shall entitle the holder thereof to such other rights and privileges as are set forth in this Indenture.

 

(4)

The number of Warrant Shares which may be purchased pursuant to the Warrants and the Exercise Price therefor shall be adjusted upon the events and in the manner specified in Section 4.1.

 

(5)

Neither the Corporation nor the Warrant Agent shall have any obligation to deliver Warrant Shares upon the exercise of any Warrant if the person to whom such shares are to be delivered is a resident of a country or political subdivision thereof in which the Warrant Shares may not lawfully be issued pursuant to applicable securities laws. The Corporation or the Warrant Agent may require any person to provide proof of an applicable exemption from such securities laws to the Corporation and Warrant Agent before Warrant Shares are delivered pursuant to the exercise of any Warrant.

Section 2.3 Warrantholder not a Shareholder.

Except as may be specifically provided herein, nothing in this Indenture or in the holding of a Warrant Certificate, entitlement to a Warrant or otherwise, shall, in itself, confer or be construed as conferring upon a Warrantholder any right or interest whatsoever as a Shareholder, including, but not limited to, the right to vote at, to receive notice of, or to attend, meetings of Shareholders or any other proceedings of the Corporation, or the right to Dividends and other allocations.

 

- 6 -

Section 2.4 Warrants to Rank Pari Passu.

All Warrants shall rank equally and without preference over each other, whatever may be the actual date of issue thereof.

Section 2.5 Form of Warrants, Warrant Certificates.

 

(1)

The Warrants may be issued in both certificated and uncertificated form. All Warrants issued in certificated form shall be evidenced by a Warrant Certificate (including all replacements issued in accordance with this Indenture), substantially in the form and bearing the applicable legends as set out in Schedule “A” hereto, which shall be dated as of the Issue Date, shall bear such distinguishing letters and numbers as the Corporation may, with the approval of the Warrant Agent, prescribe, and shall be issuable in any denomination excluding fractions. Warrants issued in uncertificated form may be evidenced by a DRS Advice. All Warrants issued to the Depository may be in either a certificated or uncertificated form, such uncertificated form being evidenced by a book position on the register of Warrantholders to be maintained by the Warrant Agent in accordance with Section 2.6.

 

(2)

Each Warrantholder by purchasing such Warrant acknowledges and agrees that the terms and conditions set forth in the form of the Warrant Certificate set out in Schedule “A” hereto shall apply to all Warrants and Warrantholders regardless of whether such Warrants are issued in certificated or uncertificated form or whether such Warrantholders are Registered Warrantholders or owners of Warrants who beneficially hold security entitlements in respect of the Warrants through a Depository.

Section 2.6 Book Entry Warrants.

 

(1)

Reregistration of beneficial interests in and transfers of Warrants held by the Depository shall be made only through the book entry registration system and no Warrant Certificates shall be issued in respect of such Warrants except where physical certificates evidencing ownership in such securities are required or as set out herein or as may be requested by the Depository, as determined by the Corporation, from time to time. Except as provided in this Section 2.6, owners of beneficial interests in any CDS Global Warrants shall not be entitled to have Warrants registered in their names and shall not receive or be entitled to receive Warrants in definitive form or to have their names appear in the register referred to in Section 2.9 herein. Notwithstanding any terms set out herein, Warrants held in the name of the Depository having any legend set forth in Section 2.8 herein and may only be held in the form of Uncertificated Warrants with the prior consent of the Warrant Agent and in accordance Internal Procedures of the Warrant Agent.

 

(2)

Notwithstanding any other provision in this Indenture, no CDS Global Warrants may be exchanged in whole or in part for Warrants registered, and no transfer of any CDS Global Warrants in whole or in part may be registered, in the name of any person other than the Depository for such CDS Global Warrants or a nominee thereof unless:

 

  (a)

the Depository notifies the Corporation that it is unwilling or unable to continue to act as depository in connection with the Book Entry Warrants and the Corporation is unable to locate a qualified successor;

 

  (b)

the Corporation determines that the Depository is no longer willing, able or qualified to properly discharge its responsibilities as holder of the CDS Global Warrants and the Corporation is unable to locate a qualified successor;

 

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  (c)

the Depository ceases to be a clearing agency or otherwise ceases to be eligible to be a depository and the Corporation is unable to locate a qualified successor;

 

  (d)

the Corporation determines that the Warrants shall no longer be held as Book Entry Warrants through the Depository;

 

  (e)

such right is required by Applicable Legislation, as determined by the Corporation and the Corporation’s Counsel;

 

  (f)

the Warrant is to be Authenticated to or for the account or benefit of a person in the United States or a U.S. Person; or

 

  (g)

such registration is effected in accordance with the internal procedures of the Depository and the Warrant Agent, following which, Warrants for those holders requesting the same shall be registered and issued to the beneficial owners of such Warrants or their nominees as directed by the holder. The Corporation shall provide a certificate executed by an officer of the Corporation giving notice to the Warrant Agent of the occurrence of any event outlined in this Section 2.6 (2)(a) – (g).

 

(3)

Subject to the provisions of this Section 2.6, any exchange of CDS Global Warrants for Warrants which are not CDS Global Warrants may be made in whole or in part in accordance with the provisions of Section 2.11, mutatis mutandis. All such Warrants issued in exchange for a CDS Global Warrant or any portion thereof shall be registered in such names as the Depository for such CDS Global Warrants shall direct and shall be entitled to the same benefits and be subject to the same terms and conditions (except insofar as they relate specifically to CDS Global Warrants) as the CDS Global Warrants or portion thereof surrendered upon such exchange.

 

(4)

Every Warrant that is Authenticated upon registration or transfer of a CDS Global Warrant, or in exchange for or in lieu of a CDS Global Warrant or any portion thereof, whether pursuant to this Section 2.6, or otherwise, shall be Authenticated in the form of, and shall be, a CDS Global Warrant, unless such Warrant is registered in the name of a person other than the Depository for such CDS Global Warrant or a nominee thereof.

 

(5)

Notwithstanding anything to the contrary in this Indenture, subject to Applicable Legislation, the CDS Global Warrant will be issued as an Uncertificated Warrant, unless otherwise requested in writing by the Depository or the Corporation.

 

(6)

The rights of beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through the book entry registration system shall be limited to those established by applicable law and agreements between the Depository and the Book Entry Participants and between such Book Entry Participants and the beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through the book entry registration system, and such rights must be exercised through a Book Entry Participant in accordance with the rules and procedures of the Depository.

 

(7)

Notwithstanding anything herein to the contrary, neither the Corporation nor the Warrant Agent nor any agent thereof shall have any responsibility or liability for:

 

  (a)

the electronic records maintained by the Depository relating to any ownership interests or any other interests in the Warrants or the depository system maintained by the Depository, or payments made on account of any ownership interest or any other interest of any person in any Warrant represented by an electronic position in the book entry registration system (other than the Depository or its nominee);

 

- 8 -

  (b)

maintaining, supervising or reviewing any records of the Depository or any Book Entry Participant relating to any such interest; or

 

  (c)

any advice or representation made or given by the Depository or those contained herein that relate to the rules and regulations of the Depository or any action to be taken by the Depository on its own direction or at the direction of any Book Entry Participant.

 

(8)

The Corporation may terminate the application of this Section 2.6 in its sole discretion in which case all Warrants shall be evidenced by Warrant Certificates registered in the name of a person other than the Depository.

Section 2.7 Warrant Certificate.

 

(1)

For Warrants issued in certificated form, the form of certificate representing the Warrants shall be substantially as set out in Schedule “A” hereto or such other form as is authorized from time to time by the Warrant Agent. Each Warrant Certificate shall be Authenticated on behalf of the Warrant Agent. Each Warrant Certificate shall be signed by any two duly authorized signatories of the Corporation; whose signature shall appear on the Warrant Certificate and may be printed, lithographed or otherwise mechanically reproduced thereon and, in such event, certificates so signed are as valid and binding upon the Corporation as if it had been signed manually. Any Warrant Certificate which has two signatures duly executed by the Corporation as hereinbefore provided shall be valid notwithstanding that one or more of the persons whose signature is printed, lithographed or mechanically reproduced no longer holds office at the date of issuance of such Warrant Certificate. The Warrant Certificates may be engraved, printed or lithographed, or partly in one form and partly in another, as the Warrant Agent may determine.

 

(2)

The Warrant Agent shall Authenticate Uncertificated Warrants (whether upon original issuance, exchange, registration of transfer, partial payment, or otherwise) by completing its Internal Procedures and the Corporation shall, and hereby acknowledges that it shall, thereupon be deemed to have duly and validly issued such Uncertificated Warrants under this Indenture. Such Authentication shall be conclusive evidence that such Uncertificated Warrant has been duly issued hereunder and that the holder or holders are entitled to the benefits of this Indenture. The register shall be final and conclusive evidence as to all matters relating to Uncertificated Warrants with respect to which this Indenture requires the Warrant Agent to maintain records or accounts. In case of differences between the register at any time and any other time the register at the later time shall be controlling, absent manifest error and such Uncertificated Warrants are binding on the Corporation.

 

(3)

Any Warrant Certificate validly issued in accordance with the terms of this Indenture in effect at the time of issue of such Warrant Certificate shall, subject to the terms of this Indenture and Applicable Legislation, validly entitle the holder to acquire Warrant Shares, notwithstanding that the form of such Warrant Certificate may not be in the form currently required by this Indenture.

 

(4)

No Warrant shall be considered issued and shall be valid or obligatory or shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by the Warrant Agent. Authentication by the Warrant Agent, including by way of entry on the register, shall not be construed as a representation or warranty by the Warrant Agent as to the validity of this Indenture or of such Warrant Certificates or Uncertificated Warrants (except the due Authentication thereof) or as to the performance by the Corporation of its obligations under this Indenture and the Warrant Agent shall in no respect be liable or answerable for the use made of the Warrants or any of them or of the consideration thereof. Authentication by the Warrant Agent shall be conclusive evidence as against the Corporation that the Warrants so Authenticated have been duly issued hereunder and that the holder thereof is entitled to the benefits of this Indenture.

 

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(5)

No Warrant Certificate shall be considered issued and Authenticated or, if Authenticated, shall be obligatory or shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by the signature by or on behalf of the Warrant Agent substantially in the form of the Warrant set out in Schedule “A” hereto. Such Authentication on any such Warrant Certificate shall be conclusive evidence that such Warrant Certificate is duly Authenticated and is valid and a binding obligation of the Corporation and that the holder is entitled to the benefits of this Indenture.

 

(6)

No Uncertificated Warrant shall be considered issued and shall be obligatory or shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by entry on the register of the particulars of the Uncertificated Warrant. Such entry on the register of the particulars of an Uncertificated Warrant shall be conclusive evidence that such Uncertificated Warrant is a valid and binding obligation of the Corporation and that the holder is entitled to the benefits of this Indenture.

Section 2.8 Legends.

 

(1)

Neither the Warrants nor the Warrant Shares have been or will be registered under the U.S. Securities Act or under any United States state securities laws. Warrant Certificates originally issued to, or for the benefit or account of, a U.S. Warrantholder and each Warrant Certificate or DRS Advice issued in exchange therefor or in substitution thereof shall bear or be deemed to bear the following legends or such variations thereof as the Corporation may prescribe from time to time:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE VERY GOOD FOOD COMPANY INC. (THE “CORPORATION”) (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH LOCAL LAWS AND REGULATIONS, (D) IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (E) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (D)(2) OR (E) ABOVE, A LEGAL OPINION OR SUCH OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.

provided that, if the Warrants are being sold outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, this legend may be removed by the transferor providing a declaration to the Warrant Agent in the form set forth in Schedule “C” attached hereto or as the Warrant Agent or the Corporation may prescribe from time to time, and if required by the Warrant Agent, including an opinion of counsel, of recognised standing reasonably satisfactory to the Corporation and the Warrant Agent, that the proposed transfer may be effected without

 

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registration under the U.S. Securities Act; provided further, that if the Warrants are being sold pursuant to Rule 144 under the U.S. Securities Act, if available, the legend may be removed by delivering to the Corporation and the Warrant Agent an opinion of counsel of recognized standing or such other evidence in form and substance reasonably satisfactory to the Corporation and the Warrant Agent, acting reasonably, to the effect that the legend is no longer required under applicable requirements of the U.S. Securities Act.

The Warrant Agent shall be entitled to request any other documents that it may require in accordance with its internal policies for the removal of the legend set forth above.

 

(2)

Each Warrant Certificate originally issued to, or for the benefit or account of, a U.S. Warrantholder shall bear the following warning language or such variations thereof as the Corporation may prescribe from time to time:

“THESE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THESE WARRANTS MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON OR A PERSON IN THE UNITED STATES UNLESS THESE WARRANTS AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THESE WARRANTS HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LEGISLATION OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.”

 

(3)

Notwithstanding any other provisions of this Indenture, in processing and registering transfers of Warrants, no duty or responsibility whatsoever shall rest upon the Warrant Agent to determine the compliance by any transferor or transferee with the terms of the legend contained in Section 2.8(1) or (2) or with the applicable securities laws or regulations, including, without limitation, Regulation S, and the Warrant Agent shall be entitled to assume that all transfers are legal and proper.

Section 2.9 Register of Warrants.

 

(1)

The Warrant Agent shall maintain records and accounts concerning the Warrants, whether certificated or uncertificated, which shall contain the information called for below with respect to each Warrant, together with such other information as may be required by law or as the Warrant Agent may elect to record. All such information shall be kept in one set of accounts and records which the Warrant Agent shall designate (in such manner as shall permit it to be so identified as such by an unaffiliated party) as the register of the holders of Warrants. The information to be entered for each account in the register of Warrants at any time shall include (without limitation):

 

  (a)

the name and address of the Registered Warrantholder, the date of Authentication thereof and the number of Warrants;

 

  (b)

whether such Warrant is a Warrant Certificate or an Uncertificated Warrant and, if a Warrant Certificate, the unique number or code assigned to and imprinted thereupon and, if an Uncertificated Warrant, the unique number or code assigned thereto if any;

 

  (c)

whether such Warrant has been cancelled; and

 

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  (d)

a register of transfers in which all transfers of Warrants and the date and other particulars of each transfer shall be entered.

The register shall be available for inspection by the Corporation or any Warrantholder during the Warrant Agent’s regular business hours on a Business Day and upon payment to the Warrant Agent of its reasonable fees. Any Warrantholder exercising such right of inspection shall first provide an affidavit in form satisfactory to the Corporation and the Warrant Agent stating the name and address of the Warrantholder and agreeing not to use the information therein except in connection with an effort to call a meeting of Warrantholders or to influence the voting of Warrantholders at any meeting of Warrantholders.

 

(2)

Once an Uncertificated Warrant has been Authenticated, the information set forth in the register with respect thereto at the time of Authentication may be altered, modified, amended, supplemented or otherwise changed only to reflect exercise or proper instructions to the Warrant Agent from the holder as provided herein, except that the Warrant Agent may act unilaterally to make purely administrative changes internal to the Warrant Agent and changes to correct errors. Each person who becomes a holder of an Uncertificated Warrant, by his, her or its acquisition thereof shall be deemed to have irrevocably (i) consented to the foregoing authority of the Warrant Agent to make such minor error corrections and (ii) agreed to pay to the Warrant Agent, promptly upon written demand, the full amount of all loss and expense (including without limitation reasonable legal fees of the Corporation and the Warrant Agent plus interest, at an appropriate then prevailing rate of interest to the Warrant Agent), sustained by the Corporation or the Warrant Agent as a proximate result of such error if but only if and only to the extent that such present or former holder realized any benefit as a result of such error and could reasonably have prevented, forestalled or minimized such loss and expense by prompt reporting of the error or avoidance of accepting benefits thereof whether or not such error is or should have been timely detected and corrected by the Warrant Agent; provided, that no person who is a bona fide purchaser shall have any such obligation to the Corporation or to the Warrant Agent.

Section 2.10 Issue in Substitution for Warrant Certificates Lost, etc.

 

(1)

If any Warrant Certificate becomes mutilated or is lost, destroyed or stolen, the Corporation, subject to applicable law, shall issue and thereupon the Warrant Agent shall certify and deliver, a new Warrant Certificate of like tenor, and bearing the same legend, if applicable, as the one mutilated, lost, destroyed or stolen in exchange for and in place of and upon cancellation of such mutilated Warrant Certificate, or in lieu of and in substitution for such lost, destroyed or stolen Warrant Certificate, and the substituted Warrant Certificate shall be in a form approved by the Warrant Agent and the Warrants evidenced thereby shall be entitled to the benefits hereof and shall rank equally in accordance with its terms with all other Warrants issued or to be issued hereunder.

 

(2)

The applicant for the issue of a new Warrant Certificate pursuant to this Section 2.10 shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issuance thereof, furnish to the Corporation and to the Warrant Agent such evidence of ownership and of the loss, destruction or theft of the Warrant Certificate so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Warrant Agent, in their sole discretion, and such applicant shall also be required to furnish an indemnity and surety bond in amount and form satisfactory to the Corporation and the Warrant Agent, in their sole discretion, and shall pay the reasonable charges of the Corporation and the Warrant Agent in connection therewith.

Section 2.11 Exchange of Warrant Certificates.

 

(1)

Any one or more Warrant Certificates representing any number of Warrants may, upon compliance with the reasonable requirements of the Warrant Agent (including compliance with applicable

 

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  securities laws), be exchanged for one or more other Warrant Certificates representing the same aggregate number of Warrants, and bearing the same legend, if applicable, as represented by the Warrant Certificate or Warrant Certificates so exchanged.

 

(2)

Warrant Certificates may be exchanged only at the Warrant Agency or at any other place that is designated by the Corporation with the approval of the Warrant Agent. Any Warrant Certificate from the holder (or such other instructions, in form satisfactory to the Warrant Agent), tendered for exchange shall be surrendered to the Warrant Agency and cancelled by the Warrant Agent.

 

(3)

Warrant Certificates exchanged for Warrant Certificates that bear the legend set forth in Section 2.8(1) or (2) shall bear the same legend.

Section 2.12 Transfer and Ownership of Warrants.

 

(1)

The Warrants may only be transferred on the register kept by the Warrant Agent at the Warrant Agency by the holder or its legal representatives or its attorney duly appointed by an instrument in writing in form and execution satisfactory to the Warrant Agent only upon (a) in the case of a Warrant Certificate, surrendering to the Warrant Agent at the Warrant Agency the Warrant Certificates representing the Warrants to be transferred together with a duly executed transfer form as set forth in Schedule “A” attached hereto and (b) in the case of Book Entry Warrants, in accordance with procedures prescribed by the Depository under the book entry registration system, (c) in the case of Uncertificated Warrants or DRS Advices, surrendering to the Warrant Agent at the Warrant Agency, DRS Advices representing the Warrants to be transferred together with a duly executed form of transfer as set forth in Schedule “A”, and (d) upon compliance with:

 

  (i)

the conditions herein;

 

  (ii)

such reasonable requirements as the Warrant Agent may prescribe; and

 

  (iii)

all applicable securities laws and requirements of regulatory authorities;

and such transfer shall be duly noted in such register by the Warrant Agent. Upon compliance with such requirements, the Warrant Agent shall issue to the transferee of a Warrant Certificate, a Warrant Certificate and to the transferee of an Uncertificated Warrant or a DRS Advice, an Uncertificated Warrant or a DRS Advice, or the Warrant Agent shall Authenticate and deliver a Warrant Certificate upon request that part of the CDS Global Warrant be certificated. Transfers within the systems of the Depository are not the responsibility of the Warrant Agent and will not be noted on the register maintained by the Warrant Agent.

 

(2)

If a Warrant Certificate tendered for transfer bears the legend set forth in Section 2.8(1), the Warrant Agent shall not register such transfer unless the transferor has provided the Warrant Agent with the Warrant Certificate and (A) the transfer is made to the Corporation or (B) a declaration to the effect set forth in Schedule “C” to this Warrant Indenture, or in such other form as the Corporation may from time to time prescribe, is delivered to the Warrant Agent, and if required by the Warrant Agent, the transferor provides an opinion of counsel of recognized standing, reasonably satisfactory to the Corporation and the Warrant Agent, or (C) the transfer is made pursuant to the exemption from the registration requirements of the U.S. Securities Act provided by (i) Rule 144A thereunder or (ii) Rule 144 thereunder, in either case, in accordance with any applicable state securities or “blue sky” laws, or (D) the transfer is made in another transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws; provided that, it has prior to any transfer pursuant to Sections 2.12(2)(C)(ii) or 2.12(2)(D) furnished to the Corporation an opinion of counsel or other evidence, in either case in form and substance reasonably satisfactory to the Corporation and the Warrant Agent, acting reasonably, to such effect.

 

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(3)

Subject to the provisions of this Indenture, Applicable Legislation and applicable law, the Warrantholder shall be entitled to the rights and privileges attaching to the Warrants, and the issue of Warrant Shares by the Corporation upon the exercise of Warrants in accordance with the terms and conditions herein contained shall discharge all responsibilities of the Corporation and the Warrant Agent with respect to such Warrants and neither the Corporation nor the Warrant Agent shall be bound to inquire into the title of any such holder.

Section 2.13 Cancellation of Surrendered Warrants.

All Warrant Certificates surrendered pursuant to Article 3 shall be cancelled by the Warrant Agent and upon such circumstances all such Uncertificated Warrants shall be deemed cancelled and so noted on the register by the Warrant Agent. Upon request by the Corporation, the Warrant Agent shall furnish to the Corporation a cancellation certificate identifying the Warrant Certificates so cancelled, the number of Warrants evidenced thereby, the number of Warrant Shares, if any, issued pursuant to such Warrants and the details of any Warrant Certificates issued in substitution or exchange for such Warrant Certificates cancelled.

ARTICLE 3

EXERCISE OF WARRANTS

Section 3.1 Right of Exercise.

Subject to the provisions hereof, each Registered Warrantholder may exercise the right conferred on such holder to subscribe for and purchase one (1) Warrant Share for each Warrant after the Issue Date and prior to the Expiry Time and in accordance with the conditions herein.

Section 3.2 Warrant Exercise.

 

(1)

Other than Warrants held by the Depository, Registered Warrantholders of Warrant Certificates or DRS Advices who wish to exercise the Warrants held by them in order to acquire Warrant Shares must complete the exercise notice (the “Exercise Notice”) attached to the Warrant Certificate(s) or DRS Advice which form is attached hereto as Schedule “B”, which may be amended by the Corporation with the consent of the Warrant Agent and the Corporation, if such amendment does not, in the reasonable opinion of the Corporation and the Warrant Agent, which may be based on the advice of Counsel, materially and adversely affect the rights, entitlements and interests of the Warrantholders, and deliver such certificate(s), the executed Exercise Notice and a certified cheque, bank draft or money order payable to or to the order of the Corporation for the aggregate Exercise Price to the Warrant Agent at the Warrant Agency, who shall, in turn, promptly provide notice to the Corporation. The Warrants represented by a Warrant Certificate shall be deemed to be surrendered upon personal delivery of such certificate, Exercise Notice and aggregate Exercise Price or, if such documents are sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent at the office referred to above. The Warrants represented by a Warrant Certificate or evidenced by a DRS Advice shall be deemed to be surrendered upon personal delivery of such certificate or DRS Advice, Exercise Notice and Exercise Price or, if such documents are sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent at the Warrant Agency.

 

(2)

In addition to completing the Exercise Notice attached to the Warrant Certificate(s), or DRS Advice, a Warrantholder must provide any other information, certifications or other material required by the Exercise Notice to be delivered in connection with the exercise of Warrants.

 

(3)

A Registered Warrantholder of Uncertificated Warrants evidenced by a security entitlement in respect of Warrants must complete the Exercise Notice and deliver the executed Exercise Notice

 

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  and a certified cheque, bank draft or money order payable to or to the order of the Corporation for the aggregate Exercise Price to the Warrant Agent at the Warrant Agency, who shall, in turn, promptly provide notice to the Corporation. The Uncertificated Warrants shall be deemed to be surrendered upon receipt of the Exercise Notice and aggregate Exercise Price or, if such documents are sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent at the office referred to above.

 

(4)

A beneficial owner of Uncertificated Warrants evidenced by a security entitlement in respect of Warrants in the book entry registration system who desires to exercise his or her Warrants must do so by causing a Book Entry Participant to deliver to the Depository on behalf of the entitlement holder, notice of the owner’s intention to exercise Warrants in a manner acceptable to the Depository. Forthwith upon receipt by the Depository of such notice, as well as payment for the aggregate Exercise Price, the Depository shall deliver to the Warrant Agent confirmation of its intention to exercise Warrants (a “Confirmation”) in a manner acceptable to the Warrant Agent and the Corporation, including by electronic means through a book based registration system, including CDSX. An electronic exercise of the Warrants initiated by the Book Entry Participant through a book based registration system, including CDSX, shall constitute a representation to both the Corporation and the Warrant Agent that the beneficial owner at the time of exercise of such Warrants (a) is not in the United States; (b) is not a U.S. Person and is not exercising such Warrants on behalf of a U.S. Person or a person in the United States; (c) did not acquire the Warrants in the United States or on behalf of, or for the account or benefit of a U.S. Person or a person in the United States; (d) did not receive an offer to exercise the Warrants in the United States; and (e) did not execute or deliver the notice of the beneficial owner’s intention to exercise such Warrants in the United States. If the CDS Participant is not able to make or deliver the foregoing representations by initiating the electronic exercise of the Warrants, then such Warrants shall be withdrawn from the book based registration system, including CDSX by the CDS Participant and an individually registered Warrant Certificate shall be issued by the Warrant Agent to such beneficial owner or CDS Participant and the exercise procedures set forth in Section 3.2(1) shall be followed.

 

(5)

Payment representing the aggregate Exercise Price must be provided to the appropriate office of the Book Entry Participant in a manner acceptable to it. A notice in form acceptable to the Book Entry Participant and payment from such beneficial holder should be provided to the Book Entry Participant sufficiently in advance so as to permit the Book Entry Participant to deliver notice and payment to the Depository and for the Depository in turn to deliver notice and payment to the Warrant Agent prior to the Expiry Time, who shall, in turn, promptly provide notice to the Corporation. The Depository will initiate the exercise by way of the Confirmation and forward the aggregate Exercise Price electronically to the Warrant Agent and the Warrant Agent will execute the exercise by issuing to the Depository through the book entry registration system the Warrant Shares to which the exercising Warrantholder is entitled pursuant to the exercise. Any expense associated with the exercise process will be for the account of the entitlement holder exercising the Warrants and/or the Book Entry Participant exercising the Warrants on its behalf.

 

(6)

By causing a Book Entry Participant to deliver notice to the Depository, a Warrantholder shall be deemed to have irrevocably surrendered his or her Warrants so exercised and appointed such Book Entry Participant to act as his or her exclusive settlement agent with respect to the exercise and the receipt of Warrant Shares in connection with the obligations arising from such exercise.

 

(7)

Any notice which the Depository determines to be incomplete, not in proper form or not duly executed shall for all purposes be void and of no force and effect and the exercise to which it relates shall be considered for all purposes not to have been exercised thereby. A failure by a Book Entry Participant to exercise or to give effect to the settlement thereof in accordance with the

 

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  Warrantholder’s instructions will not give rise to any obligations or liability on the part of the Corporation or Warrant Agent to the Book Entry Participant or the Warrantholder.

 

(8)

The Exercise Notice referred to in this Section 3.2 shall be signed by the Registered Warrantholder, or its executors or administrators or other legal representatives or an attorney of the Registered Warrantholder, duly appointed by an instrument in writing satisfactory to the Warrant Agent but such Exercise Notice need not be executed by the Depository.

 

(9)

Any exercise referred to in this Section 3.2 shall require that the entire Exercise Price for Warrant Shares subscribed for must be paid at the time of subscription and such Exercise Price and original Exercise Notice executed by the Registered Warrantholder or the Confirmation from the Depository must be received by the Warrant Agent and the Corporation prior to the Expiry Time.

 

(10)

Warrants may only be exercised pursuant to this Section 3.2 by or on behalf of a Registered Warrantholder, as applicable, who makes the certifications set forth on the Exercise Notice set out in Schedule “B” or as provided herein.

 

(11)

If the form of Exercise Notice set forth in the Warrant Certificate or DRS Advice shall have been amended, the Corporation shall cause the amended Exercise Notice to be forwarded to all Registered Warrantholders.

 

(12)

Exercise Notices and Confirmations must be delivered to the Warrant Agent at any time during the Warrant Agent’s actual business hours on any Business Day prior to the Expiry Time. Any Exercise Notice or Confirmations received by the Warrant Agent after business hours on any Business Day other than the Expiry Date will be deemed to have been received by the Warrant Agent on the next following Business Day.

 

(13)

Any Warrant with respect to which a Confirmation or Exercise Notice is not received by the Warrant Agent before the Expiry Time shall be deemed to have expired and become void and all rights with respect to such Warrants shall terminate and be cancelled.

Section 3.3 Prohibition on Exercise by U.S. Persons; Legended Certificates.

 

(1)

Subject to Section 3.3(2), (i) Warrants may not be exercised within the United States or by or on behalf of any U.S. Person; and (ii) no Warrant Shares issued upon exercise of Warrants may be delivered to any address in the United States.

 

(2)

Notwithstanding Section 3.3(1), Warrants which bear the legend set forth in Section 2.8(1) may be exercised in the United States or by or on behalf of a U.S. Person, and Warrant Shares issued upon exercise of any such Warrants may be delivered to an address in the United States, provided that either (a) the person exercising the Warrants (i) is an original U.S. purchaser who purchased the Warrants in the original offering of such Warrants pursuant to Rule 144A under the U.S. Securities Act, (ii) is a “qualified institutional buyer” as defined in rule 144A under the U.S. Securities Act and an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act, and (iii) and confirms, as of the date of exercise, each of the representations, warranties, certifications and agreements made by it in connection with its acquisition of such Warrants as though such representations, warranties, certifications and agreements were made on the date thereof and in respect of the acquisition of the Warrant Shares issuable upon exercise of the Warrants; or (b) the person exercising the Warrants provides in form and substance reasonably satisfactory to the Corporation and Warrant Agent a legal opinion or such other evidence which confirms that issuance of Warrant Shares upon exercise of any such Warrants is in compliance with the applicable state laws and the U.S. Securities Act.

 

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(3)

Certificates representing Warrant Shares issued upon the exercise of Warrants which bear the legend set forth in Section 2.8(1) or which are issued and delivered pursuant to Section 3.3(2) shall bear the following legend:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE VERY GOOD FOOD COMPANY INC. (THE “CORPORATION”) (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH LOCAL LAWS AND REGULATIONS, (D) IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (E) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (D)(2) OR (E) ABOVE, A LEGAL OPINION OR SUCH OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.”

provided that, if the Warrant Shares are being sold outside the United States in accordance with Rule 904 of Regulation S, this legend may be removed by the transferor providing a declaration to the Corporation’s transfer agent in the form set forth in Schedule “C” attached hereto or as the Corporation’s transfer agent or the Corporation may prescribe from time to time, and if required by the Corporation’s transfer agent, an opinion of counsel, of recognised standing or such other evidence reasonably satisfactory to the Corporation and the Corporation’s transfer agent, that the proposed transfer may be effected without registration under the U.S. Securities Act.

Section 3.4 Transfer Fees and Taxes.

If any of the Warrant Shares subscribed for are to be issued to a person or persons other than the Registered Warrantholder, the Registered Warrantholder shall execute the form of transfer and will comply with such reasonable requirements as the Warrant Agent may stipulate and will pay to the Corporation or the Warrant Agent on behalf of the Corporation, all applicable transfer or similar taxes and the Corporation will not be required to issue or deliver certificates or DRS Advices evidencing Warrant Shares unless or until such Warrantholder shall have paid to the Corporation or the Warrant Agent on behalf of the Corporation, the amount of such tax or shall have established to the satisfaction of the Corporation and the Warrant Agent that such tax has been paid or that no tax is due.

Section 3.5 Warrant Agency.

To facilitate the exchange, transfer or exercise of Warrants and compliance with such other terms and conditions hereof as may be required, the Corporation has appointed the Warrant Agency, as the agency at which Warrants may be surrendered for exchange or transfer or at which Warrants may be exercised and

 

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the Warrant Agent has accepted such appointment. The Corporation may from time to time designate alternate or additional places as the Warrant Agency (subject to the Warrant Agent’s prior approval) and will give notice to the Warrant Agent of any proposed change of the Warrant Agency. Branch registers shall also be kept at such other place or places, if any, as the Corporation, with the approval of the Warrant Agent, may designate. The Warrant Agent will from time to time when requested to do so by the Corporation or any Registered Warrantholder, upon payment of the Warrant Agent’s reasonable charges, furnish a list of the names and addresses of Registered Warrantholders showing the number of Warrants held by each such Registered Warrantholder.

Section 3.6 Effect of Exercise of Warrant Certificates.

 

(1)

Upon the exercise of Warrants Certificates pursuant to and in compliance with Section 3.2 and subject to Section 3.3 and Section 3.4, the Warrant Shares to be issued pursuant to the Warrants exercised shall be deemed to have been issued and the person or persons to whom such Warrant Shares are to be issued shall be deemed to have become the holder or holders of such Warrant Shares on the Exercise Date, provided the documents are received in good order, unless the register shall be closed on such date, in which case the Warrant Shares subscribed for shall be deemed to have been issued and such person or persons deemed to have become the holder or holders of record of such Warrant Shares, on the date on which such register is reopened. It is hereby understood that in order for persons to whom Warrant Shares are to be issued, to become holders of Warrant Shares on record on the Exercise Date, beneficial holders must commence the exercise process sufficiently in advance so that the Warrant Agent is in receipt of all items of exercise at least one Business Day prior to such Exercise Date.

 

(2)

Within three Business Days following the Exercise Date with respect to a Warrant, the Warrant Agent on behalf of the Corporation shall use commercially reasonable efforts to deliver or cause to be delivered or mailed to the person or persons in whose name or names the Warrant is registered or, if so specified in writing by the holder, cause to be delivered to such person or persons at the Warrant Agency where the Warrant Certificate was surrendered, a certificate or certificates or the DRS Advices for the appropriate number of Warrant Shares subscribed for, or any other appropriate evidence of the issuance of Warrant Shares to such person or persons in respect of Warrant Shares issued under the book entry registration system.

Section 3.7 Partial Exercise of Warrants; Fractions.

 

(1)

The holder of any Warrants may exercise his right to acquire a number of Warrant Shares less than the aggregate number which the holder is entitled to acquire. In the event of any exercise of a number of Warrants less than the number which the holder is entitled to exercise, the holder of Warrants upon such exercise shall, in addition, be entitled to receive, without charge therefor, a new Warrant Certificate(s), bearing the same legend, if applicable, or other appropriate evidence of Warrants, in respect of the balance of the Warrants held by such holder and which were not then exercised.

 

(2)

Notwithstanding anything herein contained including any adjustment provided for in Section 4.1, the Corporation shall not be required, upon the exercise of any Warrants, to issue fractions of Warrant Shares. Warrants may only be exercised in a sufficient number to acquire whole numbers of Warrant Shares. Any fractional Warrant Shares shall be rounded down to the nearest whole number and the holder of such Warrants shall not be entitled to any compensation in respect of any fractional Warrant Shares which is not issued.

 

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Section 3.8 Expiration of Warrants.

Immediately after the Expiry Time, all rights under any Warrant in respect of which the right of acquisition provided for herein shall not have been exercised shall cease and terminate and each Warrant shall be void and of no further force or effect.

Section 3.9 Accounting and Recording.

 

(1)

The Warrant Agent shall promptly account to the Corporation with respect to Warrants exercised, and shall promptly forward to the Corporation (or into an account or accounts of the Corporation with the bank or trust company designated by the Corporation for that purpose), all monies received by the Warrant Agent on the subscription of Warrant Shares through the exercise of Warrants. All such monies and any securities or other instruments, from time to time received by the Warrant Agent, shall be received in trust for, and shall be segregated and kept apart by the Warrant Agent, the Warrantholders and the Corporation as their interests may appear

 

(2)

The Warrant Agent shall record the particulars of Warrants exercised, which particulars shall include the names and addresses of the persons who become holders of Warrant Shares on exercise and the Exercise Date, in respect thereof. The Warrant Agent shall provide such particulars in writing to the Corporation within five Business Days of any request by the Corporation therefor.

Section 3.10 Securities Restrictions.

Notwithstanding anything herein contained, Warrant Shares will be issued upon exercise of a Warrant only in compliance with the securities laws of any applicable jurisdiction.

ARTICLE 4

CERTAIN ADJUSTMENTS

Section 4.1 Certain Adjustments.

The subscription rights in effect under the Warrants for Common Shares issuable upon the exercise of the Warrants shall be subject to adjustment from time to time as follows:

 

  (a)

if, at any time during the Adjustment Period, the Corporation shall:

 

  (i)

subdivide, re-divide or change its outstanding Common Shares into a greater number of Common Shares;

 

  (ii)

reduce, combine or consolidate its outstanding Common Shares into a lesser number of Common Shares; or

 

  (iii)

issue Common Shares or securities exchangeable for, or convertible into, Common Shares to all or substantially all of the holders of Common Shares by way of stock Dividend or other distribution (other than as a Dividend paid in the ordinary course or a distribution of Common Shares upon exercise of warrants or incentive stock options);

(any of such events in Section 4.1(a)(i), (ii) or (iii) being called a “Common Share Reorganization”) then the Exercise Price shall be adjusted as of the effect on the effective date or record date of such subdivision, re-division, change, reduction, combination, consolidation or distribution, as the case may be, shall in the case of the events referred to

 

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  in (i) or (iii) above be decreased in proportion to the number of outstanding Common Shares resulting from such subdivision, re-division, change or distribution, or shall, in the case of the events referred to in (ii) above, be increased in proportion to the number of outstanding Common Shares resulting from such reduction, combination or consolidation by multiplying the Exercise Price in effect immediately prior to such effective date or record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares outstanding as of the effective date or record date after giving effect to such Common Share Reorganization (including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Share that would have been outstanding had such securities been exchanged for or converted into Common Shares on such record date or effective date). Such adjustment shall be made successively whenever any event referred to in this Section 4.1(a) shall occur. Upon any adjustment of the Exercise Price pursuant to Section 4.1(a), the Exchange Rate shall be contemporaneously adjusted by multiplying the number of Common Shares theretofore obtainable on the exercise thereof by a fraction of which the numerator shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such adjustment;

 

  (b)

if and whenever at any time during the Adjustment Period, the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all the holders of its outstanding Common Shares entitling them, for a period expiring not more than 90 days and not less than 21 days after such record date, to subscribe for or purchase Common Shares (or securities convertible or exchangeable into Common Shares) at a price per Common Share (or having a conversion or exchange price per Common Share) less than 95% of the Current Market Price on such record date (a “Rights Offering”), the Exercise Price shall be adjusted immediately after such record date so that it shall equal the amount determined by multiplying the Exercise Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by the Current Market Price, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase or into which the convertible or exchangeable securities so offered are convertible or exchangeable; any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that no such rights or warrants are exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or, if any such rights or warrants are exercised, to the Exercise Price which would then be in effect based upon the number of Common Shares (or securities convertible or exchangeable into Common Shares) actually issued upon the exercise of such rights or warrants, as the case may be. Upon any adjustment of the Exercise Price pursuant to this Section 4.1(b), the Exchange Rate will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exchange Rate in effect on such record date by a fraction, of which the numerator shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such adjustment. Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or

 

- 20 -

  record dates referred to in this Section 4.1(b) are fixed within a period of 25 Trading Days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates;

 

  (c)

if and whenever at any time during the Adjustment Period the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of (i) securities of any class, whether of the Corporation or any other entity (other than Common Shares), (ii) rights, options or warrants to subscribe for or purchase Common Shares (or other securities convertible into or exchangeable for Common Shares), other than pursuant to a Rights Offering; (iii) evidences of its indebtedness or (iv) any property or other assets then, in each such case, the Exercise Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Exercise Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price on such record date, less the excess, if any, of the fair market value on such record date, as determined by the Corporation (whose determination shall be conclusive), of such securities or other assets so issued or distributed over the fair market value of any consideration received therefor by the Corporation from the holders of the Common Shares, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price; and Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that such distribution is not so made, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed. Upon any adjustment of the Exercise Price pursuant to this Section 4.1(c), the Exchange Rate will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exchange Rate in effect on such record date by a fraction, of which the numerator shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such adjustment;

 

  (d)

If and whenever at any time during the Adjustment Period, there is a reclassification of the Common Shares or a capital reorganization of the Corporation other than as described in Section 4.1(a) or a consolidation, amalgamation, arrangement or merger of the Corporation with or into any other body corporate, trust, partnership or other entity, or a sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to any other body corporate, trust, partnership or other entity, any Registered Warrantholder who has not exercised its right of acquisition prior to the effective date of such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance, upon the exercise of such right thereafter, shall be entitled to receive upon payment of the Exercise Price and shall accept, in lieu of the number of Common Shares that prior to such effective date the Registered Warrantholder would have been entitled to receive, the number of shares or other securities or property of the Corporation or of the body corporate, trust, partnership or other entity resulting from such reclassification, capital reorganization, merger, amalgamation or consolidation, or to which such sale or conveyance may be made, as the case may be, that such Registered Warrantholder would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance, if, on the effective date thereof, as the case may be, the Registered Warrantholder had been the registered holder of the number of Common Shares to which prior to such effective date it was entitled to acquire upon the exercise of the Warrants. If determined appropriate by the Warrant Agent, relying on advice of Counsel, to give effect to or to evidence the

 

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  provisions of this Section 4.1(d), the Corporation, its successor, or such purchasing body corporate, partnership, trust or other entity, as the case may be, shall, prior to or contemporaneously with any such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, sale or conveyance, enter into an indenture which shall provide, to the extent possible, for the application of the provisions set forth in this Indenture with respect to the rights and interests thereafter of the Registered Warrantholders to the end that the provisions set forth in this Indenture shall thereafter correspondingly be made applicable, as nearly as may reasonably be, with respect to any shares, other securities or property to which a Registered Warrantholder is entitled on the exercise of its acquisition rights thereafter. Any indenture entered into between the Corporation and the Warrant Agent pursuant to the provisions of this Section 4.1(d) shall be a supplemental indenture entered into pursuant to the provisions of Article 8 hereof. Any indenture entered into between the Corporation, any successor to the Corporation or such purchasing body corporate, partnership, trust or other entity and the Warrant Agent shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 4.1 and which shall apply to successive reclassifications, capital reorganizations, amalgamations, consolidations, mergers, sales or conveyances.

 

  (e)

in any case in which this Section 4.1 shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the Registered Warrantholder of any Warrant exercised after the record date and prior to completion of such event the additional Common Shares issuable by reason of the adjustment required by such event before giving effect to such adjustment; provided, however, that the Corporation shall deliver to such Registered Warrantholder an appropriate instrument evidencing such Registered Warrantholder’s right to receive such additional Common Shares upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares declared in favour of holders of record of Common Shares on and after the relevant date of exercise or such later date as such Registered Warrantholder would, but for the provisions of this Section 4.1(e), have become the holder of record of such additional Common Shares pursuant to Section 4.1;

 

  (f)

in any case in which Section 4.1(a)(iii), Section 4.1(b) or Section 4.1(c) require that an adjustment be made to the Exercise Price, no such adjustment shall be made if the Registered Warrantholders of the outstanding Warrants receive, subject to any required stock exchange or regulatory approval, the rights or warrants referred to in Section 4.1(a)(iii), Section 4.1(b) or the shares, rights, options, warrants, evidences of indebtedness or assets referred to in Section 4.1(c), as the case may be, in such kind and number as they would have received if they had been holders of Common Shares on the applicable record date or effective date, as the case may be, by virtue of their outstanding Warrant having then been exercised into Common Shares at the Exercise Price in effect on the applicable record date or effective date, as the case may be;

 

  (g)

the adjustments provided for in this Section 4.1 are cumulative, and shall, in the case of adjustments to the Exercise Price be computed to the nearest whole cent and shall apply to successive subdivisions, re-divisions, reductions, combinations, consolidations, distributions, issues or other events resulting in any adjustment under the provisions of this Section 4.1 provided that, notwithstanding any other provision of this Section, no adjustment of the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price then in effect; provided, however,

 

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  that any adjustments which by reason of this Section 4.1(g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and

 

  (h)

after any adjustment pursuant to this Section 4.1, the term “Common Shares” where used in this Indenture shall be interpreted to mean securities of any class or classes which, as a result of such adjustment and all prior adjustments pursuant to this Section 4.1, the Registered Warrantholder is entitled to receive upon the exercise of his Warrant, and the number of Common Shares indicated by any exercise made pursuant to a Warrant shall be interpreted to mean the number of Common Shares or other property or securities a Registered Warrantholder is entitled to receive, as a result of such adjustment and all prior adjustments pursuant to this Section 4.1, upon the full exercise of a Warrant.

Section 4.2 Certificate of Adjustment.

The Corporation shall from time to time immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.1, deliver a certificate of the Corporation to the Warrant Agent specifying the nature of the event requiring the same and the amount of the adjustment or readjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate shall be supported by a certificate of the Corporation’s Auditors verifying such calculation. The Warrant Agent shall rely, and shall be protected in so doing, upon the certificate of the Corporation or of the Corporation’s Auditor and any other document filed by the Corporation pursuant to this Article 4 for all purposes.

Section 4.3 Entitlement to Common Shares on Exercise of Warrant.

All Common Shares or shares of any class or other securities, which a Registered Warrantholder is at the time in question entitled to receive on the exercise of its Warrant, whether or not as a result of adjustments made pursuant to this Article 4, shall, for the purposes of the interpretation of this Indenture, be deemed to be Warrant Shares which such Registered Warrantholder is entitled to acquire pursuant to such Warrant.

Section 4.4 No Adjustment for Certain Transactions.

Notwithstanding anything in this Article 4, no adjustment shall be made in the acquisition rights attached to the Warrants if the issue of Common Shares is being made pursuant to this Indenture or in connection with (a) any share incentive plan or restricted share plan or share purchase plan in force from time to time for directors, officers, employees, consultants or other service providers of the Corporation; or (b) the satisfaction of existing instruments issued at the date hereof.

Section 4.5 Determination by Independent Firm.

In the event of any question arising with respect to the adjustments provided for in this Article 4 such question shall be conclusively determined by an independent firm of chartered public accountants (which may be the Auditors) as selected by the Corporation who shall have access to all necessary records of the Corporation, and such determination shall be binding upon the Corporation, the Warrant Agent, all holders and all other persons interested therein.

Section 4.6 Proceedings Prior to any Action Requiring Adjustment.

As a condition precedent to the taking of any action which would require an adjustment in any of the acquisition rights pursuant to any of the Warrants, including the number of Warrant Shares which are to be received upon the exercise thereof, the Corporation shall take any action which may, in the opinion of Counsel, be necessary in order that the Corporation has unissued and reserved in its authorized capital and

 

- 23 -

may validly and legally issue as fully paid and non- assessable all the Warrant Shares which the holders of such Warrants are entitled to receive on the full exercise thereof in accordance with the provisions hereof.

Section 4.7 Notice of Special Matters.

The Corporation covenants with the Warrant Agent that, so long as any Warrant remains outstanding, it will give notice to the Warrant Agent and to the Registered Warrantholders of its intention to fix a record date that is prior to the Expiry Date for any matter for which an adjustment may be required pursuant to Section 4.1. Such notice shall specify the particulars of such event and the record date for such event, provided that the Corporation shall only be required to specify in the notice such particulars of the event as shall have been fixed and determined on the date on which the notice is given. The notice shall be given in each case not less than 14 days prior to such applicable record date. If notice has been given and the adjustment is not then determinable, the Corporation shall promptly, after the adjustment is determinable, file with the Warrant Agent a computation of the adjustment and give notice to the Registered Warrantholders of such adjustment computation.

Section 4.8 No Action after Notice.

The Corporation covenants with the Warrant Agent that it will not close its transfer books or take any other corporate action which might deprive the Registered Warrantholder of the opportunity to exercise its right of acquisition pursuant thereto during the period of 14 days after the giving of the certificate or notices set forth in Section 4.2 and Section 4.7.

Section 4.9 Other Action.

If the Corporation, after the date hereof, shall take any action affecting the Common Shares other than action described in Section 4.1, which in the reasonable opinion of the directors of the Corporation would materially affect the rights of Registered Warrantholders, the Exercise Price and/or Exchange Rate, the number of Warrant Shares which may be acquired upon exercise of the Warrants shall be adjusted in such manner and at such time, by action of the directors, acting reasonably and in good faith, in their sole discretion as they may determine to be equitable to the Registered Warrantholders in the circumstances, provided that no such adjustment will be made unless any requisite prior approval of any stock exchange on which the Common Shares are listed for trading has been obtained.

Section 4.10 Protection of Warrant Agent.

The Warrant Agent shall not:

 

  (a)

at any time be under any duty or responsibility to any Registered Warrantholder to determine whether any facts exist which may require any adjustment contemplated by Section 4.1, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making the same;

 

  (b)

be accountable with respect to the validity or value (or the kind or amount) of any Warrant Shares or of any other securities or property which may at any time be issued or delivered upon the exercise of the rights attaching to any Warrant;

 

  (c)

be responsible for any failure of the Corporation to issue, transfer or deliver Warrant Shares or certificates for the same upon the surrender of any Warrants for the purpose of the exercise of such rights or to comply with any of the covenants contained in this Article; and

 

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  (d)

incur any liability or be in any way responsible for the consequences of any breach on the part of the Corporation of any of the representations, warranties or covenants herein contained or of any acts of the directors, officers, employees, agents or servants of the Corporation.

Section 4.11 Participation by Warrantholder.

No adjustments shall be made pursuant to this Article 4 if the Registered Warrantholders are entitled to participate in any event described in this Article 4 on the same terms, mutatis mutandis, as if the Registered Warrantholders had exercised their Warrants prior to, or on the effective date or record date of, such event and any such participation will be subject to the prior approval of the TSXV, if applicable.

ARTICLE 5

RIGHTS OF THE CORPORATION AND COVENANTS

Section 5.1 General Covenants.

The Corporation covenants with the Warrant Agent that so long as any Warrants remain outstanding:

 

  (a)

it will reserve and keep available a sufficient number of Common Shares for the purpose of enabling it to satisfy its obligations to issue Warrant Shares upon the exercise of the Warrants;

 

  (b)

it will cause the Warrant Shares from time to time acquired pursuant to the exercise of the Warrants to be duly and validly issued and delivered in accordance with the Warrants and the terms hereof;

 

  (c)

all Warrant Shares which shall be issued upon exercise of the right to acquire provided for herein shall be fully paid and non-assessable, free and clear of all encumbrances;

 

  (d)

it will use reasonable commercial efforts to maintain its existence and carry on its business in the ordinary course;

 

  (e)

it will use reasonable commercial efforts to ensure that all Common Shares outstanding or issuable from time to time (including without limitation the Warrant Shares issuable on the exercise of the Warrants) continue to be or are listed for trading on the TSXV (or such other recognized Canadian stock exchange acceptable to the Corporation), provided that this clause shall not be construed as limiting or restricting the Corporation from completing a consolidation, amalgamation, arrangement, takeover bid or merger that would result in the Common Shares ceasing to be listed for trading on the TSXV, so long as the holders of Common Shares receive securities of an entity which is listed on a stock exchange in Canada, or cash, or the holders of the Common shares have approved the transaction in accordance with the requirements of applicable corporate and securities laws and the policies of the TSXV;

 

  (f)

it will make all requisite filings under applicable Canadian securities laws including those necessary to remain a reporting issuer not in default in each of the provinces and other Canadian jurisdictions where it is or becomes a reporting issuer;

 

  (g)

it will carry out all of the acts or things to be done by it as required by this Indenture; and

 

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  (h)

it will promptly notify the Warrant Agent and the Warrantholders in writing of any default under the terms of this Warrant Indenture which remains unrectified for more than five days following its occurrence.

Section 5.2 Warrant Agent’s Remuneration and Expenses.

The Corporation covenants that it will pay to the Warrant Agent from time to time reasonable remuneration for its services hereunder and will pay or reimburse the Warrant Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Warrant Agent in the administration or execution of its duties hereby created (including the reasonable compensation and the disbursements of its Counsel and all other advisers and assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Warrant Agent hereunder shall be finally and fully performed. Any amount owing hereunder and remaining unpaid after 30 days from the invoice date will bear interest at the then current rate charged by the Warrant Agent against unpaid invoices and shall be payable upon demand. This Section shall survive the resignation or removal of the Warrant Agent and/or the termination of this Indenture.

Section 5.3 Performance of Covenants by Warrant Agent.

If the Corporation shall fail to perform any of its covenants contained in this Indenture, then the Corporation will notify the Warrant Agent in writing of such failure and upon receipt by the Warrant Agent of such notice, the Warrant Agent may notify the Registered Warrantholders of such failure on the part of the Corporation and may itself perform any of the covenants capable of being performed by it but, subject to Section 9.2, shall be under no obligation to perform said covenants or to notify the Registered Warrantholders of such performance by it. All sums expended or advanced by the Warrant Agent in so doing shall be repayable as provided in Section 5.2. No such performance, expenditure or advance by the Warrant Agent shall relieve the Corporation of any default hereunder or of its continuing obligations under the covenants herein contained.

Section 5.4 Enforceability of Warrants.

The Corporation covenants and agrees that it is duly authorized to create and issue the Warrants to be issued hereunder and that the Warrants, when issued and Authenticated as herein provided, will be valid and enforceable against the Corporation in accordance with the provisions hereof and the terms hereof and that, subject to the provisions of this Indenture, the Corporation will cause the Warrant Shares from time to time acquired upon exercise of Warrants issued under this Indenture to be duly and validly issued and delivered in accordance with the terms of this Indenture.

ARTICLE 6

ENFORCEMENT

Section 6.1 Suits by Registered Warrantholders.

All or any of the rights conferred upon any Registered Warrantholder by any of the terms of this Indenture may be enforced by the Registered Warrantholder by appropriate proceedings but without prejudice to the right which is hereby conferred upon the Warrant Agent to proceed in its own name to enforce each and all of the provisions herein contained for the benefit of the Registered Warrantholders.

Section 6.2 Suits by the Corporation.

The Corporation shall have the right to enforce full payment of the Exercise Price of all Warrant Shares issued by the Warrant Agent to a Registered Warrantholder hereunder and shall be entitled to demand such payment from the Registered Warrantholder or alternatively to instruct the Warrant Agent to cancel the

 

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share certificates representing such Warrant Shares and amend the securities register of the Corporation accordingly.

Section 6.3 Immunity of Shareholders, etc.

The Warrant Agent and the Warrantholders hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any incorporator or any past, present or future shareholder, trustee, employee, director, officer or agent of the Corporation or any successor entity on any covenant, agreement, representation or warranty by the Corporation herein.

Section 6.4 Waiver of Default.

Upon the happening of any default hereunder:

 

  (a)

the Registered Warrantholders of not less than 51% of the Warrants then outstanding shall have power (in addition to the powers exercisable by Extraordinary Resolution) by requisition in writing to instruct the Warrant Agent to waive any default hereunder and the Warrant Agent shall thereupon waive the default upon such terms and conditions as shall be prescribed in such requisition; or

 

  (b)

the Warrant Agent shall have power to waive any default hereunder upon such terms and conditions as the Warrant Agent may deem advisable, on the advice of Counsel, if, in the Warrant Agent’s opinion, based on the advice of Counsel, the same shall have been cured or adequate provision made therefor;

provided that no delay or omission of the Warrant Agent or of the Registered Warrantholders to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein and provided further that no act or omission either of the Warrant Agent or of the Registered Warrantholders in the premises shall extend to or be taken in any manner whatsoever to affect any subsequent default hereunder of the rights resulting therefrom.

ARTICLE 7

MEETINGS OF REGISTERED WARRANTHOLDERS

Section 7.1 Right to Convene Meetings.

The Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the Corporation or of a Warrantholders’ Request and upon being indemnified and funded to its reasonable satisfaction by the Corporation or by the Registered Warrantholders signing such Warrantholders’ Request against the costs which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Registered Warrantholders. If the Warrant Agent fails to so call a meeting within seven days after receipt of such written request of the Corporation or within 30 days after receipt of such Warrantholders’ Request and the indemnity and funding given as aforesaid, the Corporation or such Registered Warrantholders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Vancouver, British Columbia or at such other place as may be approved or determined by the Warrant Agent and the Corporation. Any meeting held pursuant to this Article 7 may be done through a virtual or electronic meeting platform, subject to the Warrant Agent’s capabilities at the time.

Section 7.2 Notice.

At least 21 days’ prior written notice of any meeting of Registered Warrantholders shall be given to the Registered Warrantholders in the manner provided for in Section 10.2 and a copy of such notice shall be sent by mail to the Warrant Agent (unless the meeting has been called by the Warrant Agent) and to the

 

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  Corporation (unless the meeting has been called by the Corporation). Such notice shall state the time when and the place where the meeting is to be held, shall state briefly the general nature of the business to be transacted thereat and shall contain such information as is reasonably necessary to enable the Registered Warrantholders to make a reasoned decision on the matter, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Section 7.2.

Section 7.3 Chairman.

An individual (who need not be a Registered Warrantholder) designated in writing by the Warrant Agent shall be chairman of the meeting and if no individual is so designated, or if the individual so designated is not present within fifteen minutes from the time fixed for the holding of the meeting, the Registered Warrantholders present in person or by proxy shall choose an individual present to be chairman.

Section 7.4 Quorum.

Subject to the provisions of Section 7.11, at any meeting of the Registered Warrantholders a quorum shall consist of Registered Warrantholder(s) present in person or by proxy and entitled to purchase at least 25% of the aggregate number of Warrant Shares which may be acquired pursuant to all the then outstanding Warrants. If a quorum of the Registered Warrantholders shall not be present within thirty minutes from the time fixed for holding any meeting, the meeting, if summoned by Registered Warrantholders or on a Warrantholders’ Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day, in which case it shall be adjourned to the next following Business Day) at the same time and place and no notice of the adjournment need be given. Any business may be brought before or dealt with at an adjourned meeting which might have been dealt with at the original meeting in accordance with the notice calling the same. No business shall be transacted at any meeting unless a quorum is present at the commencement of business. At the adjourned meeting the Registered Warrantholders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened, notwithstanding that they may not be entitled to acquire at least 25% of the aggregate number of Warrant Shares which may be acquired pursuant to all then outstanding Warrants.

Section 7.5 Power to Adjourn.

The chairman of any meeting at which a quorum of the Registered Warrantholders is present may, with the consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe.

Section 7.6 Show of Hands.

Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on an Extraordinary Resolution shall be given in the manner hereinafter provided. At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact.

Section 7.7 Poll and Voting.

 

(1)

On every Extraordinary Resolution, and on any other question submitted to a meeting and after a vote by show of hands when demanded by the chairman or by one or more of the Registered Warrantholders acting in person or by proxy and entitled to acquire in the aggregate at least 5% of the aggregate number of Warrant Shares which may be acquired pursuant to all the Warrants then outstanding, a poll shall be taken in such manner as the chairman shall direct. Questions other than

 

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  those required to be determined by Extraordinary Resolution shall be decided by a majority of the votes cast on the poll.

 

(2)

On a show of hands, every person who is present and entitled to vote, whether as a Registered Warrantholder or as proxy for one or more absent Registered Warrantholders, or both, shall have one vote. On a poll, each Registered Warrantholder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each Warrant then held or represented by it. A proxy need not be a Registered Warrantholder. The chairman of any meeting shall be entitled, both on a show of hands and on a poll, to vote in respect of the Warrants, if any, held or represented by him.

Section 7.8 Regulations.

 

(1)

The Warrant Agent, or the Corporation with the approval of the Warrant Agent, may from time to time make and from time to time vary such regulations as it shall think fit for the setting of the record date for a meeting for the purpose of determining Registered Warrantholders entitled to receive notice of and to vote at the meeting.

 

(2)

Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any meeting as a Registered Warrantholder, or be entitled to vote or be present at the meeting in respect thereof (subject to Section 7.9), shall be Registered Warrantholders or proxies of Registered Warrantholders.

Section 7.9 Corporation and Warrant Agent May be Represented.

The Corporation and the Warrant Agent, by their respective directors, officers, agents, and employees and the Counsel for the Corporation and for the Warrant Agent may attend any meeting of the Registered Warrantholders.

Section 7.10 Powers Exercisable by Extraordinary Resolution.

In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the Registered Warrantholders at a meeting shall, subject to the provisions of Section 7.11 and any requisite approval of the TSXV, have the power exercisable from time to time by Extraordinary Resolution:

 

  (a)

to agree to any modification, abrogation, alteration, compromise or arrangement of the rights of Registered Warrantholders or the Warrant Agent in its capacity as warrant agent hereunder (subject to the Warrant Agent’s prior consent, acting reasonably) or on behalf of the Registered Warrantholders against the Corporation whether such rights arise under this Indenture or otherwise;

 

  (b)

to amend, alter or repeal any Extraordinary Resolution previously passed or sanctioned by the Registered Warrantholders;

 

  (c)

to direct or to authorize the Warrant Agent, subject to Section 9.2(2) hereof, to enforce any of the covenants on the part of the Corporation contained in this Indenture or to enforce any of the rights of the Registered Warrantholders in any manner specified in such Extraordinary Resolution or to refrain from enforcing any such covenant or right;

 

  (d)

to waive, and to direct the Warrant Agent to waive, any default on the part of the Corporation in complying with any provisions of this Indenture either unconditionally or upon any conditions specified in such Extraordinary Resolution;

 

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  (e)

to restrain any Registered Warrantholder from taking or instituting any suit, action or proceeding against the Corporation for the enforcement of any of the covenants on the part of the Corporation in this Indenture or to enforce any of the rights of the Registered Warrantholders;

 

  (f)

to direct any Registered Warrantholder who, as such, has brought any suit, action or proceeding to stay or to discontinue or otherwise to deal with the same upon payment of the costs, charges and expenses reasonably and properly incurred by such Registered Warrantholder in connection therewith;

 

  (g)

to assent to any change in or omission from the provisions contained in this Indenture or any ancillary or supplemental instrument which may be agreed to by the Corporation, and to authorize the Warrant Agent to concur in and execute any ancillary or supplemental indenture embodying the change or omission;

 

  (h)

with the consent of the Corporation, such consent not to be unreasonably withheld, to remove the Warrant Agent or its successor in office and to appoint a new warrant agent or warrant agents to take the place of the Warrant Agent so removed; and

 

  (i)

to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or otherwise, and with holders of any shares or other securities of the Corporation.

Section 7.11 Meaning of Extraordinary Resolution.

 

(1)

The expression “Extraordinary Resolution” when used in this Indenture means, subject as hereinafter provided in this Section 7.11 and in Section 7.14, a resolution proposed at a meeting of Registered Warrantholders duly convened for that purpose and held in accordance with the provisions of this Article 7 at which there are present in person or by proxy Registered Warrantholders holding at least 25% of the aggregate number of Warrant Shares that may be acquired on exercise of the outstanding Warrants and passed by the affirmative votes of Registered Warrantholders holding not less than 66 2/3% of the aggregate number of Warrant Shares that may be acquired on exercise of the outstanding Warrants at the meeting and voted on the poll upon such resolution.

 

(2)

If, at the meeting at which an Extraordinary Resolution is to be considered, Registered Warrantholders holding at least 25% of the aggregate number of Warrant Shares that may be acquired on exercise of the outstanding Warrants are not present in person or by proxy within 30 minutes after the time appointed for the meeting, then the meeting, if convened by Registered Warrantholders or on a Warrantholders’ Request, shall be dissolved; but in any other case it shall stand adjourned to such day, being not less than 15 or more than 60 days later, and to such place and time as may be appointed by the chairman. Not less than 14 days’ prior notice shall be given of the time and place of such adjourned meeting in the manner provided for in Section 10.2. Such notice shall state that at the adjourned meeting the Registered Warrantholders present in person or by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Registered Warrantholders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in Section 7.11(1) shall be an Extraordinary Resolution within the meaning of this Indenture notwithstanding that Registered Warrantholders entitled to acquire at least 25% of the aggregate number of Warrant Shares which may be acquired pursuant to all the then outstanding Warrants are not present in person or by proxy at such adjourned meeting.

 

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(3)

Subject to Section 7.14, votes on an Extraordinary Resolution shall always be given on a poll and no demand for a poll on an Extraordinary Resolution shall be necessary.

Section 7.12 Powers Cumulative.

Any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Registered Warrantholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Registered Warrantholders to exercise such power or powers or combination of powers then or thereafter from time to time.

Section 7.13 Minutes.

Minutes of all resolutions and proceedings at every meeting of Registered Warrantholders shall be made and duly recorded in the books of the Corporation and such minutes as aforesaid, if signed by the chairman or the secretary of the meeting at which such resolutions were passed or proceedings had shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken shall be deemed to have been duly passed and taken.

Section 7.14 Instruments in Writing.

All actions which may be taken and all powers that may be exercised by the Registered Warrantholders at a meeting held as provided in this Article 7 may also be taken and exercised by Registered Warrantholders holding at least 66 2/3% of the aggregate number of the then outstanding Warrants by an instrument in writing signed in one or more counterparts by such Registered Warrantholders in person or by attorney duly appointed in writing, and the expression “Extraordinary Resolution” when used in this Indenture shall include an instrument so signed.

Section 7.15 Binding Effect of Resolutions.

Every resolution and every Extraordinary Resolution passed in accordance with the provisions of this Article 7 at a meeting of Registered Warrantholders shall be binding upon all the Warrantholders, whether present at or absent from such meeting, and every instrument in writing signed by Registered Warrantholders in accordance with Section 7.14 shall be binding upon all the Warrantholders, whether signatories thereto or not, and each and every Warrantholder and the Warrant Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and instrument in writing.

Section 7.16 Holdings by Corporation Disregarded.

In determining whether Registered Warrantholders holding Warrants evidencing the entitlement to acquire the required number of Warrant Shares are present at a meeting of Registered Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, Extraordinary Resolution, Warrantholders’ Request or other action under this Indenture, Warrants owned legally or beneficially by the Corporation or its affiliates shall be disregarded in accordance with the provisions of Section 10.7.

 

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ARTICLE 8

SUPPLEMENTAL INDENTURES

Section 8.1 Provision for Supplemental Indentures for Certain Purposes.

From time to time, the Corporation (when authorized by action of the directors of the Corporation) and the Warrant Agent may, subject to the provisions hereof and subject to compliance with applicable securities laws and the prior approval of the TSXV, if required, and they shall, when so directed in accordance with the provisions hereof, execute and deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes:

 

  (a)

setting forth any adjustments resulting from the application of the provisions of Article 4;

 

  (b)

adding to the provisions hereof such additional covenants and enforcement provisions as, in the opinion of Counsel, are necessary or advisable in the premises, provided that the same are not in the opinion of the Warrant Agent, relying on the advice of Counsel, prejudicial to the interests of the Registered Warrantholders;

 

  (c)

giving effect to any Extraordinary Resolution passed as provided in Section 7.11;

 

  (d)

making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder or for the purpose of obtaining a listing or quotation of the Warrants on any stock exchange or quotation system, provided that such provisions are not, in the opinion of the Warrant Agent, relying on the advice of Counsel, prejudicial to the interests of the Registered Warrantholders;

 

  (e)

adding to or altering the provisions hereof in respect of the transfer of Warrants, making provision for the exchange of Warrants, and making any modification in the form of the Warrant Certificates which does not affect the substance thereof;

 

  (f)

modifying any of the provisions of this Indenture, including relieving the Corporation from any of the obligations, conditions or restrictions herein contained, provided that such modification or relief shall be or become operative or effective only if, in the opinion of the Warrant Agent, relying on the advice of Counsel, such modification or relief in no way prejudices any of the rights of the Registered Warrantholders or of the Warrant Agent, and provided further that the Warrant Agent may in its sole discretion decline to enter into any such supplemental indenture which in its opinion may not afford adequate protection to the Warrant Agent when the same shall become operative;

 

  (g)

providing for the issuance of additional Warrants hereunder, including Warrants in excess of the number set out in Section 2.1 and any consequential amendments hereto as may be required by the Warrant Agent relying on the advice of Counsel; and

 

  (h)

for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective or inconsistent provisions, errors, mistakes or omissions herein, provided that in the opinion of the Warrant Agent, relying on the advice of Counsel, the rights of the Warrant Agent and of the Registered Warrantholders are in no way prejudiced thereby.

Section 8.2 Successor Entities.

In the case of the consolidation, amalgamation, arrangement, merger or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to or with another entity (“successor entity”),

 

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the successor entity resulting from such consolidation, amalgamation, arrangement, merger or transfer (if not the Corporation) shall expressly assume, by supplemental indenture satisfactory in form to the Warrant Agent and executed and delivered to the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Indenture to be performed and observed by the Corporation.

ARTICLE 9

CONCERNING THE WARRANT AGENT

Section 9.1 Trust Indenture Legislation.

 

(1)

If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail.

 

(2)

The Corporation and the Warrant Agent agree that each will, at all times in relation to this Indenture and any action to be taken hereunder, observe and comply with and be entitled to the benefits of Applicable Legislation.

Section 9.2 Rights and Duties of Warrant Agent.

 

(1)

In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Warrant Agent shall exercise that degree of care, diligence and skill that a reasonably prudent warrant agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Warrant Agent from liability for its own gross negligence, wilful misconduct, bad faith or fraud under this Indenture.

 

(2)

The obligation of the Warrant Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Warrant Agent or the Registered Warrantholders hereunder shall be conditional upon the Registered Warrantholders furnishing, when required by notice by the Warrant Agent, sufficient funds to commence or to continue such act, action or proceeding and an indemnity reasonably satisfactory to the Warrant Agent to protect and to hold harmless the Warrant Agent and its officers, directors, employees and agents, against the costs, charges and expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Warrant Agent to expend or to risk its own funds or otherwise to incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid.

 

(3)

The Warrant Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Registered Warrantholders, at whose instance it is acting to deposit with the Warrant Agent the Warrants Certificates held by them, for which Warrants the Warrant Agent shall issue receipts.

 

(4)

Every provision of this Indenture that by its terms relieves the Warrant Agent of liability or entitles it to rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation.

Section 9.3 Evidence, Experts and Advisers.

 

(1)

In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Corporation shall furnish to the Warrant Agent such additional evidence of compliance with any provision hereof, and in such form, as may be prescribed by Applicable Legislation or as the Warrant Agent may reasonably require by written notice to the Corporation.

 

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(2)

In the exercise of its rights and duties hereunder, the Warrant Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed in statutory declarations, opinions, reports, written requests, consents, or orders of the Corporation, certificates of the Corporation or other evidence furnished to the Warrant Agent pursuant to a request of the Warrant Agent, provided that such evidence complies with Applicable Legislation and that the Warrant Agent complies with Applicable Legislation and that the Warrant Agent examines the same and determines that such evidence complies with the applicable requirements of this Indenture.

 

(3)

Whenever it is provided in this Indenture or under Applicable Legislation that the Corporation shall deposit with the Warrant Agent resolutions, certificates, reports, opinions, requests, orders or other documents, it is intended that the truth, accuracy and good faith on the effective date thereof and the facts and opinions stated in all such documents so deposited shall, in each and every such case, be conditions precedent to the right of the Corporation to have the Warrant Agent take the action to be based thereon.

 

(4)

The Warrant Agent may employ or retain such Counsel, accountants, appraisers or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any Counsel, and shall not be responsible for any misconduct or negligence on the part of any such experts or advisers who have been appointed with due care by the Warrant Agent.

 

(5)

The Warrant Agent may act and rely and shall be protected in acting and relying in good faith on the opinion or advice of or information obtained from any Counsel, accountant, appraiser, engineer or other expert or adviser, whether retained or employed by the Corporation or by the Warrant Agent, in relation to any matter arising in the administration of the agency hereof.

Section 9.4 Documents, Monies, etc. Held by Warrant Agent.

Until released in accordance with this Indenture, any funds received hereunder shall be kept in segregated records of the Warrant Agent and the Warrant Agent shall place the funds in segregated trust accounts of the Warrant Agent at one or more of the Canadian Chartered Banks listed in Schedule 1 of the Bank Act (Canada) (“Approved Bank”). All amounts held by the Warrant Agent pursuant to this Agreement shall be held by the Warrant Agent for the Corporation and the delivery of the funds to the Warrant Agent shall not give rise to a debtor-creditor or other similar relationship. The amounts held by the Warrant Agent pursuant to this Agreement are at the sole risk of the Corporation and, without limiting the generality of the foregoing, the Warrant Agent shall have no responsibility or liability for any diminution of the funds which may result from any deposit made with an Approved Bank pursuant to this Section 9.4, including any losses resulting from a default by the Approved Bank or other credit losses (whether or not resulting from such a default). The parties hereto acknowledge and agree that the Warrant Agent will have acted prudently in depositing the funds at any Approved Bank, and that the Warrant Agent is not required to make any further inquiries in respect of any such bank. The Warrant Agent may hold cash balances constituting part or all of such monies and need not, invest same; the Warrant Agent shall not be liable to account for any profit to any parties to this Indenture or to any other person or entity.

Section 9.5 Actions by Warrant Agent to Protect Interest.

The Warrant Agent shall have power to institute and to maintain such actions and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Registered Warrantholders.

 

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Section 9.6 Warrant Agent Not Required to Give Security.

The Warrant Agent shall not be required to give any bond or security in respect of the execution of the agency and powers of this Indenture or otherwise in respect of the premises.

Section 9.7 Protection of Warrant Agent.

By way of supplement to the provisions of any law for the time being relating to the Warrant Agent it is expressly declared and agreed as follows:

 

  (a)

the Warrant Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Warrant Certificates or the DRS Advices (except the representation contained in Section 9.9 or in the authentication of the Warrant Agent on the Warrant Certificates) or be required to verify the same, but all such statements or recitals are and shall be deemed to be made by the Corporation;

 

  (b)

nothing herein contained shall impose any obligation on the Warrant Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto;

 

  (c)

the Warrant Agent shall not be bound to give notice to any person or persons of the execution hereof;

 

  (d)

the Warrant Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Corporation of any of its covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Corporation;

 

  (e)

the Corporation hereby indemnifies and agrees to hold harmless the Warrant Agent, its affiliates, their officers, directors, employees, agents, successors and assigns (the “Indemnified Parties”) from and against any and all liabilities whatsoever, losses, damages, penalties, claims, demands, actions, suits, proceedings, costs, charges, assessments, judgments, expenses and disbursements, including reasonable legal fees and disbursements of whatever kind and nature which may at any time be imposed on or incurred by or asserted against the Indemnified Parties, or any of them, whether at law or in equity, in any way caused by or arising, directly or indirectly, in respect of any act, deed, matter or thing whatsoever made, done, acquiesced in or omitted in or about or in relation to the execution of the Indemnified Parties’ duties, or any other services that Warrant Agent may provide in connection with or in any way relating to this Indenture. The Corporation agrees that its liability hereunder shall be absolute and unconditional regardless of the correctness of any representations of any third parties and regardless of any liability of third parties to the Indemnified Parties, and shall accrue and become enforceable without prior demand or any other precedent action or proceeding; provided that the Corporation shall not be required to indemnify the Indemnified Parties in the event of the gross negligence, wilful misconduct, bad faith or fraud of the Warrant Agent, and this provision shall survive the resignation or removal of the Warrant Agent or the termination or discharge of this Indenture; and

 

  (f)

notwithstanding the foregoing or any other provision of this Indenture: (i) any liability of the Warrant Agent shall be limited, in the aggregate, to the amount of annual retainer fees paid by the Corporation to the Warrant Agent under this Indenture in the twelve (12) months immediately prior to the Warrant Agent receiving the first notice of the claim; and (ii) the Warrant Agent shall not be liable under any circumstances whatsoever, whether

 

- 35 -

  such losses or damages are foreseeable or unforeseeable, for any (a) breach by any other party of securities law or other rule of any securities regulatory authority, (b) lost profits or (c) special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or damages.

Section 9.8 Replacement of Warrant Agent; Successor by Merger.

 

(1)

The Warrant Agent may resign its agency and be discharged from all further duties and liabilities hereunder, subject to this Section 9.8, by giving to the Corporation not less than 60 days’ prior notice in writing or such shorter prior notice as the Corporation may accept as sufficient. The Registered Warrantholders by Extraordinary Resolution shall have power at any time to remove the existing Warrant Agent and to appoint a new warrant agent. In the event of the Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Corporation shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Registered Warrantholders; failing such appointment by the Corporation, the retiring Warrant Agent or any Registered Warrantholder may apply to a judge of the Province of British Columbia on such notice as such judge may direct, for the appointment of a new warrant agent; but any new warrant agent so appointed by the Corporation or by the Court shall be subject to removal as aforesaid by the Registered Warrantholders. Any new warrant agent appointed under any provision of this Section 9.8 shall be an entity authorized to carry on the business of a trust company in the Province of British Columbia and, if required by the Applicable Legislation for any other provinces, in such other provinces. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Warrant Agent hereunder.

 

(2)

Upon the appointment of a successor warrant agent, the Corporation shall promptly notify the Registered Warrantholders thereof in the manner provided for in Section 10.2.

 

(3)

Any Warrant Certificates Authenticated but not delivered by a predecessor Warrant Agent may be Authenticated by the successor Warrant Agent in the name of the successor Warrant Agent.

 

(4)

Any corporation into which the Warrant Agent may be merged or consolidated or amalgamated, or any corporation resulting therefrom to which the Warrant Agent shall be a party, or any corporation succeeding to substantially the corporate trust business of the Warrant Agent shall be the successor to the Warrant Agent hereunder without any further act on its part or any of the parties hereto, provided that such corporation would be eligible for appointment as successor Warrant Agent under Section 9.8(1).

Section 9.9 Acceptance of Agency.

The Warrant Agent hereby accepts the agency in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth.

Section 9.10 Warrant Agent Not to be Appointed Receiver.

The Warrant Agent and any person related to the Warrant Agent shall not be appointed a receiver, a receiver and manager or liquidator of all or any part of the assets or undertaking of the Corporation.

Section 9.11 Warrant Agent Not Required to Give Notice of Default.

The Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the

 

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terms hereof; nor shall the Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify the default desired to be brought to the attention of the Warrant Agent and in the absence of any such notice the Warrant Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Warrant Agent to determine whether or not the Warrant Agent shall take action with respect to any default.

Section 9.12 Anti-Money Laundering.

 

(1)

The Corporation hereby represents to the Warrant Agent that any account to be opened by, or interest to be held by the Warrant Agent in connection with this Indenture, for or to the credit of such party, either (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case such party hereto agrees to complete and execute forthwith a declaration in the Warrant Agent’s prescribed form as to the particulars of such third party.

 

(2)

The Warrant Agent shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Warrant Agent, in its sole judgment, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering, anti-terrorist or economic sanctions legislation, regulation or guideline. Further, should the Warrant Agent, in its sole judgment, determine at any time that its acting under this Indenture has resulted in its being in non-compliance with any applicable anti-money laundering, anti-terrorist or economic sanctions legislation, regulation or guideline, then it shall have the right to resign on ten (10) days written notice to the other parties to this Indenture, provided (i) that the Warrant Agent’s written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances are rectified to the Warrant Agent’s satisfaction within such ten (10) day period, then such resignation shall not be effective.

Section 9.13 Compliance with Privacy Code.

The Corporation acknowledges that the Warrant Agent may, in the course of providing services hereunder, collect or receive financial and other personal information about such parties and/or their representatives, as individuals, or about other individuals related to the subject matter hereof, and use such information for the following purposes:

 

  (a)

to provide the services required under this Indenture and other services that may be requested from time to time;

 

  (b)

to help the Warrant Agent manage its servicing relationships with such individuals;

 

  (c)

to meet the Warrant Agent’s legal and regulatory requirements; and

 

  (d)

if Social Insurance Numbers are collected by the Warrant Agent, to perform tax reporting and to assist in verification of an individual’s identity for security purposes.

The Corporation acknowledges and agrees that the Warrant Agent may receive, collect, use and disclose personal information provided to it or acquired by it in the course of its acting as agent hereunder for the purposes described above and, generally, in the manner and on the terms described in its Privacy Code, which the Warrant Agent shall make available on its website, www.computershare.com, or upon request, including revisions thereto. The Warrant Agent may transfer personal information to other companies in or outside of Canada that provide data processing and storage or other support in order to facilitate the services it provides.

 

- 37 -

Further, the Corporation agrees that it shall not provide or cause to be provided to the Warrant Agent any personal information relating to an individual who is not a party to this Indenture unless that party has assured itself that such individual understands and has consented to the aforementioned uses and disclosures.

Section 9.14 Securities Exchange Commission Certification.

The Corporation confirms that as at the date of execution of this Agreement it does not have a class of securities registered pursuant to Section 12 of the U.S. Exchange Act and does not have a reporting obligation pursuant to Section 15(d) of the U.S. Exchange Act.

The Corporation covenants that in the event that (i) any class of its securities shall become registered pursuant to Section 12 of the U.S. Exchange Act or Corporation shall incur a reporting obligation pursuant to Section 15(d) of the U.S. Exchange Act, or (ii) any such registration or reporting obligation shall be terminated by the Corporation in accordance with the U.S. Exchange Act, the Corporation shall promptly deliver to the Warrant Agent an officers’ certificate (in a form provided by the Warrant Agent notifying the Warrant Agent of such registration or termination and such other information as the Warrant Agent may require at the time. The Corporation acknowledges that Warrant Agent is relying upon the foregoing representation and covenants in order to meet certain SEC obligations with respect to those clients of the Warrant Agent who are required to file reports under the U.S. Exchange Act.

ARTICLE 10

GENERAL

Section 10.1 Notice to the Corporation and the Warrant Agent.

 

(1)

Unless herein otherwise expressly provided, any notice to be given hereunder to the Corporation or the Warrant Agent shall be deemed to be validly given if delivered, sent by registered letter, postage prepaid or if faxed or emailed:

 

  (a)

If to the Corporation:

The Very Good Food Company Inc.

2748 Rupert Street,

Vancouver, BC V6C 3H1

 

Attention: [***Redacted – Personally Identifying Information***]

Email Address: [***Redacted – Personally Identifying Information***]

 

  (b)

If to the Warrant Agent:

Computershare Trust Company of Canada

3rd Floor, 510 Burrard Street

Vancouver, British Columbia V6C 3B9

 

Attention: [***Redacted – Personally Identifying Information***]

Email Address: [***Redacted – Personally Identifying Information***]

and any such notice delivered in accordance with the foregoing shall be deemed to have been received and given on the date of delivery or, if mailed, on the fifth Business Day following the date of mailing such notice or, if faxed, on the next Business Day following the date of transmission.

 

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(2)

The Corporation or the Warrant Agent, as the case may be, may from time to time notify the other in the manner provided in Section 10.1(1) of a change of address which, from the effective date of such notice and until changed by like notice, shall be the address of the Corporation or the Warrant Agent, as the case may be, for all purposes of this Indenture.

 

(3)

If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any notice to be given to the Warrant Agent or to the Corporation hereunder could reasonably be considered unlikely to reach its destination, such notice shall be valid and effective only if it is delivered to the named officer of the party to which it is addressed, as provided in Section 10.1(1), or given by facsimile, email or other means of prepaid, transmitted and recorded communication.

Section 10.2 Notice to Registered Warrantholders.

 

(1)

Unless otherwise provided herein, notice to the Registered Warrantholders under the provisions of this Indenture shall be valid and effective if delivered or sent by ordinary prepaid post addressed to such holders at their post office addresses appearing on the register hereinbefore mentioned and shall be deemed to have been effectively received and given on the date of delivery or, if mailed, on the third Business Day following the date of mailing such notice. In the event that Warrants are held in the name of the Depository, a copy of such notice shall also be sent by electronic communication to the Depository and shall be deemed received and given on the day it is so sent.

 

(2)

If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any notice to be given to the Registered Warrantholders hereunder could reasonably be considered unlikely to reach its destination, such notice shall be valid and effective only if it is delivered to such Registered Warrantholders to the address for such Registered Warrantholders contained in the register maintained by the Warrant Agent or such notice may be given, at the Corporation’s expense, by means of publication in the Globe and Mail, National Edition, or any other English language daily newspaper or newspapers of general circulation in Canada, in each two successive weeks, the first such notice to be published within 5 business days of such event, and any so notice published shall be deemed to have been received and given on the latest date the publication takes place.

Section 10.3 Ownership of Warrants.

The Corporation and the Warrant Agent may deem and treat the Registered Warrantholders as the absolute owner thereof for all purposes, and the Corporation and the Warrant Agent shall not be affected by any notice or knowledge to the contrary except where the Corporation or the Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. The receipt of any such Registered Warrantholder of the Warrant Shares which may be acquired pursuant thereto shall be a good discharge to the Corporation and the Warrant Agent for the same and neither the Corporation nor the Warrant Agent shall be bound to inquire into the title of any such holder except where the Corporation or the Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction.

Section 10.4 Counterparts.

This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution they shall be deemed to be dated as of the date hereof. Delivery of an executed copy of the Indenture by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Indenture as of the date hereof.

 

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Section 10.5 Satisfaction and Discharge of Indenture.

Upon the earlier of:

 

  (a)

the date by which there shall have been delivered to the Warrant Agent for exercise or cancellation all Warrants theretofore Authenticated hereunder, in the case of Warrant Certificates (or such other instructions, in a form satisfactory to the Warrant Agent), in the case of Uncertificated Warrants, or by way of standard processing through the book entry system in the case of a CDS Global Warrant; and

 

  (b)

the Expiry Time;

and if all certificates or other entry on the register representing Warrant Shares required to be issued in compliance with the provisions hereof have been issued and delivered hereunder or to the Warrant Agent in accordance with such provisions, this Indenture shall cease to be of further effect and the Warrant Agent, on demand of and at the cost and expense of the Corporation and upon delivery to the Warrant Agent of a certificate of the Corporation stating that all conditions precedent to the satisfaction and discharge of this Indenture have been complied with, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. Notwithstanding the foregoing, the indemnities provided to the Warrant Agent by the Corporation hereunder shall remain in full force and effect and survive the termination of this Indenture.

Section 10.6 Provisions of Indenture and Warrants for the Sole Benefit of Parties and Registered Warrantholders.

Nothing in this Indenture or in the Warrants, expressed or implied, shall give or be construed to give to any person other than the parties hereto and the Registered Warrantholders, as the case may be, any legal or equitable right, remedy or claim under this Indenture, or under any covenant or provision herein or therein contained, all such covenants and provisions being for the sole benefit of the parties hereto and the Registered Warrantholders.

Section 10.7 Common Shares or Warrants Owned by the Corporation or its Subsidiaries—Certificate to be Provided.

For the purpose of disregarding any Warrants owned legally or beneficially by the Corporation or its affiliates in Section 7.16, the Corporation shall provide to the Warrant Agent, from time to time, a certificate of the Corporation setting forth as at the date of such certificate:

 

  (a)

the names (other than the name of the Corporation) of the Registered Warrantholders which, to the knowledge of the Corporation, are owned by or held for the account of the Corporation or its affiliates; and

 

  (b)

the number of Warrants owned legally or beneficially by the Corporation or its affiliates;

and the Warrant Agent, in making the computations in Section 7.16 shall be entitled to rely on such certificate without any additional evidence.

Section 10.8 Severability.

If, in any jurisdiction, any provision of this Indenture or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision will, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions

 

- 40 -

of this Indenture and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other parties or circumstances.

Section 10.9 Force Majeure.

No party shall be liable to the other, or held in breach of this Indenture, if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of act of God, riots, terrorism, acts of war, epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not limited to, mechanical, electronic or communication interruptions, disruptions or failures). Performance times under this Indenture shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section 10.9.

Section 10.10 Assignment, Successors and Assigns.

Neither of the parties hereto may assign its rights or interest under this Indenture, except as provided in Section 9.8 in the case of the Warrant Agent, or as provided in Section 8.2 in the case of the Corporation. Subject thereto, this Indenture shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

Section 10.11 Rights of Rescission and Withdrawal for Holders.

Should a holder of Warrants exercise any legal, statutory, contractual or other right of withdrawal or rescission that may be available to it, and the holder’s funds which were paid on exercise have already been released to the Corporation by the Warrant Agent, the Warrant Agent shall not be responsible for ensuring the exercise is cancelled and a refund is paid back to the holder. In such cases, the holder shall seek a refund directly from the Corporation and subsequently, the Corporation, upon surrender to the Corporation or the Warrant Agent of any underlying Warrant Shares or other securities that may have been issued, or such other procedure as agreed to by the parties hereto, shall instruct the Warrant Agent in writing, to cancel the exercise transaction and any such underlying Warrant Shares or other securities on the register, which may have already been issued upon the Warrant exercise. In the event that any payment is received from the Corporation by virtue of the holder being a shareholder for such Warrants that were subsequently rescinded, such payment must be returned to the Corporation by such holder. The Warrant Agent shall not be under any duty or obligation to take any steps to ensure or enforce the return of the funds pursuant to this Section 10.11, nor shall the Warrant Agent be in any other way responsible in the event that any payment is not delivered or received pursuant to this Section 10.11. Notwithstanding the foregoing, in the event that the Corporation provides the refund to the Warrant Agent for distribution to the holder, the Warrant Agent shall return such funds to the holder as soon as reasonably practicable, and in so doing, the Warrant Agent shall incur no liability with respect to the delivery or non-delivery of any such funds.

[signature page follows.]

 

- 41 -

IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers in that behalf as of the date first written above.

 

THE VERY GOOD FOOD COMPANY INC.
By:  

/s/ Mitchell Scott

  Name: Mitchell Scott
  Title: Chief Executive Officer
By:  

/s/ Kamini Hitkari

  Name: Kamini Hitkari
  Title: Chief Financial Officer
COMPUTERSHARE TRUST COMPANY OF CANADA
By:  

/s/ Brian Howarth

  Name: Brian Howarth
  Title: Corporate Trust Officer
By:  

/s/ Jennifer Lesley Wong

  Name: Jennifer Lesley Wong
  Title: Professional, Corporate Trust

 

- 42 -

SCHEDULE “A”

FORM OF WARRANT

THE WARRANTS EVIDENCED HEREBY ARE EXERCISABLE AT OR BEFORE 4:30 P.M. (VANCOUVER TIME) ON JANUARY 2, 2023, AFTER WHICH TIME THE WARRANTS EVIDENCED HEREBY SHALL BE DEEMED TO BE VOID AND OF NO FURTHER FORCE OR EFFECT.

For Warrants sold pursuant to Rule 144A under the U.S. Securities Act, also include the following legend:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE VERY GOOD FOOD COMPANY INC. (THE “CORPORATION”) (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH LOCAL LAWS AND REGULATIONS, (D) IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (E) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (D)(2) OR (E) ABOVE, A LEGAL OPINION OR SUCH OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.

 

A- 1

WARRANT

To acquire Common Shares of

THE VERY GOOD FOOD COMPANY INC.

(incorporated pursuant to the laws of the Province of British Columbia)

 

Warrant Certificate No.    Certificate for Warrants, each entitling the holder to acquire one (1) Common Share (subject to adjustment as provided for in the Warrant Indenture (as defined below)
  

CUSIP 88340B133

 

ISIN CA8830B1334

THIS IS TO CERTIFY THAT, for value received,

 

 

(the “Warrantholder”) is the registered holder of the number of common share purchase warrants (the “Warrants”) of The Very Good Food Company Inc. (the “Corporation”) specified above, and is entitled, on exercise of these Warrants upon and subject to the terms and conditions set forth herein and in the Warrant Indenture, to purchase at any time before 4:30 p.m. (Vancouver time) (the “Expiry Time”) on January 2, 2023 (the “Expiry Date”) one fully paid and non-assessable common share without par value in the capital of the Corporation as constituted on the date hereof (a “Common Share”) for each Warrant subject to adjustment in accordance with the terms of the Warrant Indenture.

The Warrants evidenced hereby are exercisable at or before the Expiry Time on the Expiry Date after which time the Warrants evidenced hereby shall be deemed to be void and of no further force or effect.

The right to purchase Common Shares may only be exercised by the Warrantholder within the time set forth above by:

 

(a)

duly completing and executing the exercise notice (the “Exercise Notice”) attached hereto; and

 

(b)

surrendering this warrant certificate (the “Warrant Certificate”), with the Exercise Notice to the Warrant Agent at the principal office of the Warrant Agent, in the city of Vancouver, British Columbia, together with a certified cheque, bank draft or money order in the lawful money of Canada payable to or to the order of the Corporation in an amount equal to the purchase price of the Common Shares so subscribed for.

The surrender of this Warrant Certificate, the duly completed Exercise Notice and payment as provided above will be deemed to have been effected only on personal delivery thereof to, or if sent by mail or other means of transmission on actual receipt thereof by, the Warrant Agent at its principal office as set out above.

Subject to adjustment thereof in the events and in the manner set forth in the Warrant Indenture hereinafter referred to, the exercise price payable for each Common Share upon the exercise of Warrants shall be $4.60 per Common Share (the “Exercise Price”).

Certificates for the Common Shares subscribed for will be mailed to the persons specified in the Exercise Notice at their respective addresses specified therein or, if so specified in the Exercise Notice, delivered to such persons at the office where this Warrant Certificate is surrendered. If fewer Common Shares are

 

A- 2

purchased than the number that can be purchased pursuant to this Warrant Certificate, the holder hereof will be entitled to receive without charge a new Warrant Certificate in respect of the balance of the Warrants not then exercised. No fractional Common Shares will be issued upon exercise of any Warrant and no cash or other consideration will be paid in lieu of fractional shares.

This Warrant Certificate evidences Warrants of the Corporation issued or issuable under the provisions of a warrant indenture (which indenture together with all other instruments supplemental or ancillary thereto is herein referred to as the “Warrant Indenture”) dated as of July 2, 2021 between the Corporation and Computershare Trust Company of Canada, as Warrant Agent, to which Warrant Indenture reference is hereby made for particulars of the rights of the holders of Warrants, the Corporation and the Warrant Agent in respect thereof and the terms and conditions on which the Warrants are issued and held, all to the same effect as if the provisions of the Warrant Indenture were herein set forth, to all of which the holder, by acceptance hereof, assents. The Corporation will furnish to the holder, on request and without charge, a copy of the Warrant Indenture. All capitalized terms not otherwise defined herein shall have the meaning ascribed to such term in the Warrant Indenture.

On presentation at the principal office of the Warrant Agent as set out above, subject to the provisions of the Warrant Indenture and on compliance with the reasonable requirements of the Warrant Agent, one or more Warrant Certificates may be exchanged for one or more Warrant Certificates entitling the holder thereof to purchase in the aggregate an equal number of Common Shares as are purchasable under the Warrant Certificate(s) so exchanged.

Neither the Warrants nor the Common Shares issuable upon exercise hereof have been or will be registered under the U.S. Securities Act, or any U.S. state securities laws, and the Warrants originally issued in the United States or to, or for the account or benefit of, a U.S. Person or a person in the United States are, and any Common Shares issued upon exercise of such Warrants will be, “restricted securities” within the meaning of Rule 144(a)(3) of the U.S. Securities Act. These Warrants may not be exercised in the United States or by or on behalf of, or for the account or benefit of, a U.S. Person or a person in the United States unless (i) the exercise thereof has been registered under the U.S. Securities Act and applicable state securities laws or (ii) one or more exemption(s) from such registration requirements is available and the requirements set forth in the Exercise Notice have been satisfied. “United States” and “U.S. Person” have the meanings given to them in Regulation S under the U.S. Securities Act.

The Warrant Indenture contains provisions for the adjustment of the Exercise Price payable for each Common Share upon the exercise of Warrants and the number of Common Shares issuable upon the exercise of Warrants in the events and in the manner set forth therein.

The Warrant Indenture also contains provisions binding on all holders of Warrants outstanding thereunder to resolutions passed at meetings of holders of Warrants held in accordance with the provisions of the Warrant Indenture and instruments in writing signed by Warrantholders of Warrants entitled to purchase a specific majority of the Common Shares that can be purchased pursuant to such Warrants.

Nothing contained in this Warrant Certificate, the Warrant Indenture or elsewhere shall be construed as conferring upon the holder hereof any right or interest whatsoever as a holder of Common Shares or any other right or interest except as herein and in the Warrant Indenture expressly provided. In the event of any discrepancy between anything contained in this Warrant Certificate and the terms and conditions of the Warrant Indenture, the terms and conditions of the Warrant Indenture shall govern.

Warrants may only be transferred in compliance with the conditions of the Warrant Indenture on the register to be kept by the Warrant Agent in Vancouver, British Columbia, or such other registrar as the Corporation, with the approval of the Warrant Agent, may appoint at such other place or places, if any, as may be designated, upon surrender of this Warrant Certificate to the Warrant Agent or other registrar accompanied by a written instrument of transfer in form and execution satisfactory to the Warrant Agent or other registrar

 

A- 3

and upon compliance with the conditions prescribed in the Warrant Indenture and with such reasonable requirements as the Warrant Agent or other registrar may prescribe and upon the transfer being duly noted thereon by the Warrant Agent or other registrar. Time is of the essence hereof.

This Warrant Certificate will not be valid for any purpose until it has been countersigned by or on behalf of the Warrant Agent from time to time under the Warrant Indenture.

The parties hereto have declared that they have required that these presents and all other documents related hereto be in the English language. Les parties aux présentes déclarent qu’elles ont exigé que la présente convention, de même que tous les documents s’y rapportant, soient rédigés en anglais.

IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate to be duly executed as of July 2, 2021.

 

THE VERY GOOD FOOD COMPANY INC.
By:  

 

  Authorized Signatory
By:  

 

  Authorized Signatory

Countersigned and Registered by:

COMPUTERSHARE TRUST COMPANY OF CANADA

 

By:  

 

  Authorized Signatory

 

A- 4

FORM OF TRANSFER

To: Computershare Trust Company of Canada

FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers to

 

 

(print name and address) the Warrants represented by this Warrants Certificate or DRS Advice and hereby irrevocable constitutes and appoints ___________________________ as its attorney with full power of substitution to transfer the said securities on the appropriate register of the Warrant Agent.

In the case of a warrant certificate that contains a U.S. restrictive legend, the undersigned hereby represents, warrants and certifies that (one (only) of the following must be checked):

 

☐    (A)    the transfer is being made only to the Corporation;
☐    (B)    the transfer is being made outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, and in compliance with any applicable local securities laws and regulations and the holder has provided herewith the Declaration for Removal of Legend attached as Schedule “C” to the Warrant Indenture, or
☐    (C)    the transfer is being made within the United States or to, or for the account or benefit of, U.S. Persons, in accordance with a transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws and the undersigned has furnished to the Corporation and the Warrant Agent an opinion of counsel of recognized standing in form and substance reasonably satisfactory to the Corporation and the Warrant Agent to such effect.

In the case of a warrant certificate that does not contain a U.S. restrictive legend, if the proposed transfer is to, or for the account or benefit of a U.S. Person or to a person in the United States, the undersigned hereby represents, warrants and certifies that the transfer of the Warrants is being completed pursuant to an exemption from the registration requirements of the U.S. Securities Act and any applicable state securities laws, in which case the undersigned has furnished to the Corporation and the Warrant Agent an opinion of counsel of recognized standing or such other evidence in form and substance reasonably satisfactory to the Corporation and the Warrant Agent to such effect.

 

☐

If transfer is to a U.S. Person, check this box.

 

A- 5

DATED this ________ day of __________________, ________.

 

SPACE FOR GUARANTEES OF SIGNATURES (BELOW)

 

 

Guarantor’s Signature/Stamps

   

)

)

)

)

)

)

)

)

)

)

)

   

 

 

 

Signature of Transferor

 

 

Name of Transferor

REASON FOR TRANSFER – For US Residents only (where the individual(s) or corporation receiving the securities is a US resident). Please select only one (see instructions below).

 

☐ Gift    ☐ Estate    ☐ Private Sale    ☐ Other (or no change in ownership)

Date of Event (Date of gift, death or sale):    Value per Warrant on the date of event:

 

                                                 $   

☐ CAD OR

   

☐ USD

CERTAIN REQUIREMENTS RELATING TO TRANSFERS – READ CAREFULLY

The signature(s) of the transferor(s) must correspond with the name(s) as written upon the face of this certificate(s) or the DRS Advice, in every particular, without alteration or enlargement, or any change whatsoever. All securityholders or a legally authorized representative must sign this form. The signature(s) on this form must be guaranteed in accordance with the transfer agent’s then current guidelines and requirements at the time of transfer. Notarized or witnessed signatures are not acceptable as guaranteed signatures. As at the time of closing, you may choose one of the following methods (although subject to change in accordance with industry practice and standards):

 

•  

Canada and the USA: A Medallion Signature Guarantee obtained from a member of an acceptable Medallion Signature Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks, savings banks, credit unions, and all broker dealers participate in a Medallion Signature Guarantee Program. The Guarantor must affix a stamp bearing the actual words “Medallion Guaranteed”, with the correct prefix covering the face value of the certificate.

 

•  

Canada: A Signature Guarantee obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust. The Guarantor must affix a stamp bearing the actual words “Signature Guaranteed”, sign and print their full name and alpha numeric signing number. Signature Guarantees are not accepted from Treasury Branches, Credit Unions or Caisse Populaires unless they are members of a Medallion Signature Guarantee Program. For corporate holders, corporate signing resolutions, including certificate of incumbency, are also required to accompany the transfer, unless there is a “Signature & Authority to Sign Guarantee” Stamp affixed to the

 

A- 6

 

transfer (as opposed to a “Signature Guaranteed” Stamp) obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a Medallion Signature Guarantee with the correct prefix covering the face value of the certificate.

 

•  

Outside North America: For holders located outside North America, present the certificates(s) or the DRS Advice and/or document(s) that require a guarantee to a local financial institution that has a corresponding Canadian or American affiliate which is a member of an acceptable Medallion Signature Guarantee Program. The corresponding affiliate will arrange for the signature to be over-guaranteed.

OR

The signature(s) of the transferor(s) must correspond with the name(s) as written upon the face of this certificate(s), in every particular, without alteration or enlargement, or any change whatsoever. The signature(s) on this form must be guaranteed by an authorized officer of Royal Bank of Canada, Scotia Bank or TD Canada Trust whose sample signature(s) are on file with the transfer agent, or by a member of an acceptable Medallion Signature Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed signatures are not acceptable as guaranteed signatures. The Guarantor must affix a stamp bearing the actual words: “SIGNATURE GUARANTEED”, “MEDALLION GUARANTEED” OR “SIGNATURE & AUTHORITY TO SIGN GUARANTEE”, all in accordance with the transfer agent’s then current guidelines and requirements at the time of transfer. For corporate holders, corporate signing resolutions, including certificate of incumbency, will also be required to accompany the transfer unless there is a “SIGNATURE & AUTHORITY TO SIGN GUARANTEE” Stamp affixed to the Form of Transfer obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a “MEDALLION GUARANTEED” Stamp affixed to the Form of Transfer, with the correct prefix covering the face value of the certificate.

REASON FOR TRANSFER – FOR US RESIDENTS ONLY

Consistent with US IRS regulations, Computershare is required to request cost basis information from US securityholders. Please indicate the reason for requesting the transfer as well as the date of event relating to the reason. The event date is not the day in which the transfer is finalized, but rather the date of the event which led to the transfer request (i.e. date of gift, date of death of the securityholder, or the date the private sale took place).

 

A- 7

SCHEDULE “B”

EXERCISE NOTICE

 

TO:

THE VERY GOOD FOOD COMPANY INC.

 

AND

TO: Computershare Trust Company of Canada

510 Burrard Street, 3rd Floor

Vancouver, BC V6C 3B9

The undersigned holder of the Warrants evidenced by this Warrant Certificate or the DRS Advice hereby exercises the right to acquire _______________ (A) Common Shares of The Very Good Food Company Inc.

 

Exercise Price Payable:   

 

   ((A) multiplied by $4.60, subject to adjustment)

The undersigned hereby exercises the right of such holder to be issued, and hereby subscribes for, Common Shares that are issuable pursuant to the exercise of such Warrants on the terms specified in such Warrant Certificate or the DRS Advice and in the Warrant Indenture.

The undersigned acknowledges that the undersigned is aware that the Common Shares received on exercise may be subject to restrictions on resale under applicable securities laws.

Any capitalized term in this Warrant Certificate that is not otherwise defined herein, shall have the meaning ascribed thereto in the Warrant Indenture.

The undersigned represents, warrants and certifies as follows (one (only) of the following must be checked):

(A) the undersigned holder at the time of exercise of the Warrants (i) is not in the United States, (ii) is not a U.S. Person , (iii) is not exercising the Warrants for the account or benefit of a U.S. Person or a person in the United States, (iv) did not receive an offer to exercise the Warrants within the United States, (v) did not execute or deliver this exercise notice in the United States, and (vi) delivery of the underlying Common Shares will not be to an address in the United States; OR

(B) the undersigned holder (a) is the original purchaser of the Warrants pursuant to Rule 144A under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), as part of the Corporation’s offering of Units of which the Warrants comprised a part, and at the time of such acquisition was a U.S. Person or was in the United States (or was acting on behalf of, or for the account or benefit of, a U.S. Person or a person in the United States), and (b) confirms, as of the date of hereof, each of the representations, warranties, certifications and agreements made by it in connection with its acquisition of such Warrants, including, without limitation, its status as a “qualified institutional buyer” within the meaning of Rule 144A under the U.S. Securities Act, as though such representations, warranties, certifications and agreements were made on the date hereof and in respect of the acquisition of the Common Shares issuable upon exercise of the Warrants being exercised, and the undersigned further represents and warrants that on the date hereof it is an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act; OR

 

B- 1

(C) the undersigned holder has delivered to the Corporation and the Corporation’s transfer agent an opinion of counsel (which will not be sufficient unless it is in form and substance reasonably satisfactory to the Corporation and Warrant Agent) or such other evidence reasonably satisfactory to the Corporation and Warrant Agent to the effect that with respect to the Common Shares to be delivered upon exercise of the Warrants, the issuance of such securities has been registered under the U.S. Securities Act, or an exemption from such registration requirements is available.

It is understood that the Corporation and Computershare Trust Company of Canada may require evidence to verify the foregoing representations.

 

Notes:  (1)    

Certificates will not be registered or delivered to an address in the United States unless Box B or C above is checked.

 

  (2)

If Box C above is checked, holders are encouraged to consult with the Corporation and the Warrant Agent in advance to determine that the legal opinion tendered in connection with the exercise will be satisfactory in form and substance to the Corporation and the Warrant Agent.

“United States” and “U.S. Person” are as defined in Rule 902 of Regulation S under the U.S. Securities Act.

 

B- 2

The undersigned hereby irrevocably directs that the said Common Shares be issued, registered and delivered as follows:

 

Name(s) in Full and Social

Insurance Number(s)

(if applicable)

   

Address(es)

   

Number of Common

Shares

 

   

 

   

 

 

   

 

   

 

 

   

 

   

 

 

   

 

   

 

Please print full name in which certificates representing the Common Shares are to be issued. If any Common Shares are to be issued to a person or persons other than the registered holder, the registered holder must pay to the Warrant Agent all eligible transfer taxes or other government charges, if any, and the Form of Transfer must be duly executed.

Once completed and executed, this Exercise Notice must be mailed or delivered to Computershare Trust Company of Canada, c/o General Manager, Corporate Trust.

DATED this ________ day of __________________, ________.

 

 

 

Witness

   

)

)

)

)

)

)

)

)

)

)

)

)

)

   

 

 

 

(Signature of Warrantholder, to be the same as appears on the face of this Warrant Certificate or DRS Advice)

 

 

Name of Registered Warrantholder

 

☐

Please check if the certificates representing the Common Shares are to be delivered at the office where this Warrant Certificate is surrendered, failing which such certificates will be mailed to the address set out above. Certificates or the DRS Advice will be delivered or mailed as soon as practicable after the surrender of this Warrant Certificate or the DRS Advice to the Warrant Agent.

 

B- 3

☐

Please check ONLY if you are not a U.S. purchaser and you wish to receive a DRS Advice IN LIEU OF physical certificate(s) representing the Common Shares:

ISSUE COMMON SHARES BY WAY OF A DRS ADVICE IN LIEU OF PHYSICAL CERTIFICATES

 

B- 4

SCHEDULE “C”

FORM OF DECLARATION FOR REMOVAL OF LEGEND

 

TO:

Computershare Trust Company of Canada

Computershare Investor Services

as registrar and transfer agent for the Warrants and Common Shares issuable upon exercise of the Warrants of The Very Good Food Company Inc. (the “Corporation”).

The undersigned (a) acknowledges that the sale of __________________ share purchase warrants of the Corporation, represented by certificate number ___________________, to which this declaration relates, is being made in reliance on Rule 904 of Regulation S (“Regulation S”) under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) and (b) certifies that (1) it is not an affiliate of the Corporation (as defined in Rule 405 under the U.S. Securities Act), (2) the offer of such securities was not made to a person in the United States and either (A) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer was outside the United States, or (B) the transaction was executed on or through the facilities of the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or another “designated offshore securities market” and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, (3) neither the seller nor any affiliate of the seller nor any person acting on any of their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities, (4) the sale is bona fide and not for the purpose of “washing off” the resale restrictions imposed because the securities are “restricted securities” (as such term is defined in Rule 144(a)(3) under the U.S. Securities Act), (5) the seller does not intend to replace the securities sold in reliance on Rule 904 of the U.S. Securities Act with fungible unrestricted securities, and (6) the sale was not a transaction, or part of a series of transactions which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the U.S. Securities Act. Terms used herein have the meanings given to them by Regulation S.

DATED this ________ day of __________________, 20___.

 

[Name of Seller]
By:  

 

  Name:
  Title:

 

C- 1

Exhibit 4.4

[***] = CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED AND/OR IS THE TYPE OF INFORMATION THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL, AND HAS BEEN MARKED WITH “[***]” TO INDICATE WHERE OMISSIONS HAVE BEEN MADE.

THE VERY GOOD FOOD COMPANY INC.

as the Corporation

and

COMPUTERSHARE TRUST COMPANY OF CANADA

as the Warrant Agent

 

 

 

WARRANT INDENTURE

Providing for the Issue of Warrants

 

 

 

Dated as of December 4, 2020

TABLE OF CONTENTS

 

         Page No.  

ARTICLE 1 INTERPRETATION

      1  

Section 1.1

   Definitions      1  

Section 1.2

   Gender and Number      5  

Section 1.3

   Headings, Etc      5  

Section 1.4

   Day not a Business Day      5  

Section 1.5

   Time of the Essence      5  

Section 1.6

   Monetary References      5  

Section 1.7

   Applicable Law      6  

ARTICLE 2 ISSUE OF WARRANTS

      6  

Section 2.1

   Creation and Issue of Warrants      6  

Section 2.2

   Terms of Warrants      6  

Section 2.3

   Warrantholder not a Shareholder      6  

Section 2.4

   Warrants to Rank Pari Passu      7  

Section 2.5

   Form of Warrants, Warrant Certificates      7  

Section 2.6

   Book Entry Warrants      7  

Section 2.7

   Warrant Certificate      9  

Section 2.8

   Legends      10  

Section 2.9

   Register of Warrants      11  

Section 2.10

   Issue in Substitution for Warrant Certificates Lost, etc.      12  

Section 2.11

   Exchange of Warrant Certificates      13  

Section 2.12

   Transfer and Ownership of Warrants      13  

Section 2.13

   Cancellation of Surrendered Warrants      14  

ARTICLE 3 EXERCISE OF WARRANTS

      14  

Section 3.1

   Right of Exercise      14  

Section 3.2

   Warrant Exercise      14  

Section 3.3

   Prohibition on Exercise by U.S. Persons; Legended Certificates      16  

Section 3.4

   Transfer Fees and Taxes      17  

Section 3.5

   Warrant Agency      18  

Section 3.6

   Effect of Exercise of Warrant Certificates      18  

Section 3.7

   Partial Exercise of Warrants; Fractions      18  

Section 3.8

   Expiration of Warrants      19  

Section 3.9

   Accounting and Recording      19  

Section 3.10

   Securities Restrictions      19  

ARTICLE 4 CERTAIN ADJUSTMENTS

      19  

Section 4.1

   Certain Adjustments      19  

Section 4.2

   Certificate of Adjustment      23  

Section 4.3

   Entitlement to Common Shares on Exercise of Warrant      23  

Section 4.4

   No Adjustment for Certain Transactions      23  

Section 4.5

   Determination by Independent Firm      23  

Section 4.6

   Proceedings Prior to any Action Requiring Adjustment      24  

Section 4.7

   Notice of Special Matters      24  

Section 4.8

   No Action after Notice      24  

Section 4.9

   Other Action      24  

Section 4.10

   Protection of Warrant Agent      24  

Section 4.11

   Participation by Warrantholder      25  

ARTICLE 5 RIGHTS OF THE CORPORATION AND COVENANTS

      25  

Section 5.1

   General Covenants      25  

Section 5.2

   Warrant Agent’s Remuneration and Expenses      26  

Section 5.3

   Performance of Covenants by Warrant Agent      26  

Section 5.4

   Enforceability of Warrants      26  

ARTICLE 6 ENFORCEMENT

      26  

Section 6.1

   Suits by Registered Warrantholders      26  

Section 6.2

   Suits by the Corporation      27  

Section 6.3

   Immunity of Shareholders, etc.      27  

Section 6.4

   Waiver of Default      27  

ARTICLE 7 MEETINGS OF REGISTERED WARRANTHOLDERS

      27  

Section 7.1

   Right to Convene Meetings      27  

Section 7.2

   Notice      28  

Section 7.3

   Chairman      28  

Section 7.4

   Quorum      28  

Section 7.5

   Power to Adjourn      28  

Section 7.6

   Show of Hands      28  

Section 7.7

   Poll and Voting      29  

Section 7.8

   Regulations      29  

Section 7.9

   Corporation and Warrant Agent May be Represented      29  

Section 7.10

   Powers Exercisable by Extraordinary Resolution      29  

Section 7.11

   Meaning of Extraordinary Resolution      30  

Section 7.12

   Powers Cumulative      31  

Section 7.13

   Minutes      31  

Section 7.14

   Instruments in Writing      31  

Section 7.15

   Binding Effect of Resolutions      31  

Section 7.16

   Holdings by Corporation Disregarded      32  

ARTICLE 8 SUPPLEMENTAL INDENTURES

      32  

Section 8.1

   Provision for Supplemental Indentures for Certain Purposes      32  

Section 8.2

   Successor Entities      33  

ARTICLE 9 CONCERNING THE WARRANT AGENT

      33  

Section 9.1

   Trust Indenture Legislation      33  

Section 9.2

   Rights and Duties of Warrant Agent      33  

Section 9.3

   Evidence, Experts and Advisers      34  

Section 9.4

   Documents, Monies, etc. Held by Warrant Agent      34  

Section 9.5

   Actions by Warrant Agent to Protect Interest      35  

Section 9.6

   Warrant Agent Not Required to Give Security      35  

Section 9.7

   Protection of Warrant Agent      35  

Section 9.8

   Replacement of Warrant Agent; Successor by Merger      36  

Section 9.9

   Acceptance of Agency      36  

Section 9.10

   Warrant Agent Not to be Appointed Receiver      37  

Section 9.11

   Warrant Agent Not Required to Give Notice of Default      37  

Section 9.12

   Anti-Money Laundering      37  

Section 9.13

   Compliance with Privacy Code      37  

Section 9.14

   Securities Exchange Commission Certification      38  

ARTICLE 10 GENERAL

      38  

Section 10.1

   Notice to the Corporation and the Warrant Agent      38  

Section 10.2

   Notice to Registered Warrantholders      39  

Section 10.3

   Ownership of Warrants      39  

Section 10.4

   Counterparts      40  

Section 10.5

   Satisfaction and Discharge of Indenture      40  

Section 10.6

   Provisions of Indenture and Warrants for the Sole Benefit of Parties and Registered Warrantholders      40  

Section 10.7

   Common Shares or Warrants Owned by the Corporation or its Subsidiaries—Certificate to be Provided      40  

Section 10.8

   Severability      41  

Section 10.9

   Force Majeure      41  

Section 10.10

   Assignment, Successors and Assigns      41  

Section 10.11

   Rights of Rescission and Withdrawal for Holders      41  

SCHEDULE “A” FORM OF WARRANT

      1  

SCHEDULE “B” EXERCISE NOTICE

      1  

SCHEDULE “C” FORM OF DECLARATION FOR REMOVAL OF LEGEND

      1  

WARRANT INDENTURE

THIS WARRANT INDENTURE is dated as of December 4, 2020.

BETWEEN:

THE VERY GOOD FOOD COMPANY INC., a corporation incorporated under the laws of the Province of British Columbia (the “Corporation”)

AND:

COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company existing under the laws of Canada and authorized to carry on business in all provinces of Canada (the “Warrant Agent”)

WHEREAS pursuant to the Underwriting Agreement (as defined herein) the Corporation is proposing to offer for sale 3,286,000 Units (as defined herein) in accordance with a short form prospectus filed with the securities regulatory authorities in the Provinces of British Columbia, Alberta, Saskatchewan, Ontario, New Brunswick and Nova Scotia at a price of $3.50 per Unit, with each such Unit comprised of one (1) Common Share (as defined herein) and one-half (0.5) of one (1) Warrant (as defined herein) (the “Offering”);

WHEREAS in connection with the Offering and the issuance of Units, the Corporation is proposing to issue up to a maximum of 1,889,450 Warrants (including up to an additional 246,450 Warrants issuable pursuant to the Over-Allotment Option (as defined herein)) pursuant to this Indenture (as defined herein);

AND WHEREAS pursuant to this Indenture, each Warrant shall, subject to adjustment, entitle the holder thereof to acquire one (1) Common Share (each, a “Warrant Share”) upon payment of the Exercise Price (as defined herein) prior to the Expiry Time (as defined herein) upon the terms and conditions herein set forth;

AND WHEREAS all acts and deeds necessary have been done and performed to make the Warrants, when created and issued as provided in this Indenture, legal, valid and binding upon the Corporation with the benefits and subject to the terms of this Indenture;

AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not by the Warrant Agent;

NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Corporation hereby appoints the Warrant Agent as warrant agent to hold the rights, interests and benefits contained herein for and on behalf of those persons who from time to time become the holders of Warrants issued pursuant to this Indenture and the parties hereto agree as follows:

ARTICLE 1

INTERPRETATION

Section 1.1 Definitions.

In this Indenture, including the recitals and schedules hereto, and in all indentures supplemental hereto:

 

“Adjustment Period” means the period from the Effective Date up to and including the Expiry Time;

“Applicable Legislation” means any statute of Canada or a province thereof, and the regulations under any such named or other statute, relating to warrant indentures or to the rights, duties and obligations of warrant agents under warrant indentures, to the extent that such provisions are at the time in force and applicable to this Indenture;

“Auditors” means Dale Matheson Carr-Hilton Labonte LLP, Chartered Accountants, or such other firm of chartered accountants duly appointed as auditors of the Corporation, from time to time;

“Authenticated” means (a) with respect to the issuance of a Warrant Certificate, one which has been duly signed by the Corporation or on which the signatures of the Corporation have been printed, lithographed or otherwise mechanically reproduced and authenticated by signature of an authorized officer of the Warrant Agent, and (b) with respect to the issuance of an Uncertificated Warrant, one in respect of which the Warrant Agent has completed all Internal Procedures such that the particulars of such Uncertificated Warrant as required by Section 2.7 are entered in the register of holders of Warrants, “Authenticate”, “Authenticating” and “Authentication” have the appropriate correlative meanings;

“Book Entry Participants” or “Participants” means institutions that participate directly or indirectly in the Depository’s book entry registration system for the Warrants;

“Book Entry Warrants” means Warrants that are to be held only by or on behalf of the Depository;

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in Canada, a legal holiday in British Columbia or Ontario or any day on which the CSE is authorized or required by law or other governmental action to close;

“CDS” means CDS Clearing and Depository Services Inc.;

“CDS Global Warrants” means Warrants representing all or a portion of the aggregate number of Warrants issued in the name of the Depository and represented by an Uncertificated Warrant, or if requested by the Depository or the Corporation, by a Warrant Certificate;

“CDSX” means the settlement and clearing system of CDS for equity and debt securities in Canada;

“Closing” means December 4, 2020, being the closing date of the Offering;

“Common Shares” means, subject to Article 4, fully paid and non-assessable common shares in the capital of the Corporation as presently constituted;

“Counsel” means a barrister and/or solicitor or a firm of barristers and/or solicitors retained by the Warrant Agent or retained by the Corporation, which may or may not be counsel for the Corporation;

“CSE” means the Canadian Securities Exchange;

“Current Market Price” of the Common Shares at any date means: (i) the weighted average of the trading price per Common Share for each day there was a closing price for the twenty (20) consecutive Trading Days ending three (3) days prior to such date on the CSE or if on such date the Common Shares are not listed on the CSE, on such stock exchange upon which such Common Shares are listed and as selected by the directors; or (ii) if such Common Shares are not listed on any stock exchange then on such over-the-counter market as may be selected for such purpose by the directors of the Corporation;

 

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“Depository” means CDS or such other person as is designated in writing by the Corporation to act as depository in respect of the Warrants;

“Dividends” means any dividends paid by the Corporation;

“DRS Advice” means a Direct Registration System advice evidencing ownership of securities in the Warrant Agent’s or any of its affiliates’ book-based registration system;

“Effective Date” means the date of this Indenture;

“Exchange Rate” means the number of Warrant Shares subject to the right of purchase under each Warrant;

“Exercise Date” means, in relation to a Warrant, the Business Day on which such Warrant is validly exercised or deemed to be validly exercised in accordance with Article 3 hereof;

“Exercise Notice” has the meaning set forth in Section 3.2(1);

“Exercise Price” at any time means the price at which a Warrant Share may be purchased by the exercise of a Warrant, which is initially $4.50 per Warrant Share, payable in immediately available Canadian funds, subject to adjustment in accordance with the provisions of Section 4.1;

“Expiry Date” means June 4, 2022;

“Expiry Time” means 4:30 p.m. (Vancouver time) on the Expiry Date or such earlier time on the Expiry Date as may be required by the Depository pursuant to their internal procedures;

“Extraordinary Resolution” has the meaning set forth in Section 7.11(1);

“Internal Procedures” means in respect of the making of any one or more entries to, changes in or deletions of any one or more entries in the register (including without limitation, original issuance or registration of transfer of ownership) based on the Warrant Agent’s then current internal procedures customary for such entry, change or deletion;

“Issue Date” means the date of the Closing (or the date of the Over-Allotment Closing, as applicable);

“Offering” has the meaning set forth in the preambles hereto;

“Over-Allotment Closing” means the closing date of the Over-Allotment Option;

“Over-Allotment Option” means the over-allotment option granted to the Underwriter under the Underwriting Agreement pursuant to which the Underwriter may purchase up to an additional 492,900 Units;

“person” means an individual, body corporate, partnership, trust, warrant agent, executor, administrator, legal representative or any unincorporated organization;

“register” means the one set of records and accounts maintained by the Warrant Agent pursuant to Section 2.9;

“Registered Warrantholders” means the persons who are registered owners of Warrants as such names appear on the register, and for greater certainty, shall include the Depository as well as the holders of Uncertificated Warrants appearing on the register of the Warrant Agent;

 

- 3 -

“Regulation S” means Regulation S as promulgated by the SEC under the U.S. Securities Act;

“SEC” means the United States Securities and Exchange Commission;

“Shareholders” means holders of Common Shares;

“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder;

“this Warrant Indenture”, “this Indenture”, “this Agreement”, “hereto” “herein”, “hereby”, “hereof” and similar expressions mean and refer to this Indenture and any indenture, deed or instrument supplemental hereto; and the expressions “Article”, “Section”, “subsection” and “paragraph” followed by a number, letter or both mean and refer to the specified article, section, subsection or paragraph of this Indenture;

“Trading Day” means, with respect to the CSE, a day on which such exchange is open for the transaction of business and with respect to another exchange or an over-the-counter market means a day on which such exchange or market is open for the transaction of business;

“Uncertificated Warrant” means any Warrant which is not evidenced by a Warrant Certificate;

“Underwriter” means Canaccord Genuity Corp.;

“Underwriting Agreement” means the underwriting agreement dated November 18, 2020 between the Corporation and the Underwriter;

“United States” means the United States of America, its territories and possessions, any state of the United States, and the District of Columbia;

“Units” means units of the Corporation, with each such Unit entitling the holder thereof to one (1) Common Share and one-half (0.5) of one (1) Warrant;

“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended;

“U.S. Person” has the meaning set forth in Rule 902(k) of Regulation S;

“U.S. Securities Act” means the United States Securities Act of 1933, as amended;

“U.S. Warrantholder” means any Warrantholder that is a U.S. Person, was offered Warrants (or Units of which the Warrants comprised a part), placed its order to acquire the Warrants (or Units) from within the United States, or otherwise acquired Warrants in the United States or for the account or benefit of any U.S. Person or person in the United States;

“Warrant Agency” means the principal office of the Warrant Agent in the City of Vancouver, British Columbia or such other place as may be designated in accordance with Section 3.5;

“Warrant Agent” means Computershare Trust Company of Canada, in its capacity as warrant agent of the Warrants, or its successors from time to time;

“Warrant Certificate” means a certificate, substantially in the form set forth in Schedule “A” hereto or such other form as may be approved by the Corporation and the Warrant Agent, to evidence those Warrants that will be evidenced by a certificate;

“Warrant Shares” has the meaning set forth in the recitals to this Indenture;

 

- 4 -

“Warrantholders”, or “holders” without reference to Warrants, means the warrantholders as and in respect of Warrants registered in the name of the Depository and includes owners of Warrants who beneficially hold securities entitlements in respect of the Warrants through a Book Entry Participant or means, at a particular time, the persons entered in the register hereinafter mentioned as holders of Warrants outstanding at such time;

“Warrantholders’ Request” means an instrument signed in one or more counterparts by Registered Warrantholders entitled to acquire in the aggregate not less than 50% of the aggregate number of Warrant Shares which could be acquired pursuant to all Warrants then unexercised and outstanding, requesting the Warrant Agent to take some action or proceeding specified therein;

“Warrants” means the Common Share purchase warrants created by and authorized by and issuable under this Indenture, to be issued and countersigned hereunder as a Warrant Certificate and /or Uncertificated Warrant held through the book entry registration system of the Depository on a no certificate issued basis, each entitling the holder or holders thereof to purchase one (1) Common Share (subject to adjustment as herein provided) at the Exercise Price prior to the Expiry Time and, where the context so requires, also means the warrants issued and Authenticated hereunder, whether by way of Warrant Certificate or Uncertificated Warrant; and

“written order of the Corporation”, “written request of the Corporation”, “written consent of the “Corporation” and “certificate of the Corporation” mean, respectively, a written order, request, consent and certificate signed in the name of the Corporation by any two duly authorized signatories of the Corporation and may consist of one or more instruments so executed.

Section 1.2 Gender and Number.

Words importing the singular number or masculine gender shall include the plural number or the feminine or neuter genders, and vice versa.

Section 1.3 Headings, Etc.

The division of this Indenture into Articles and Sections, the provision of a Table of Contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture or of the Warrants.

Section 1.4 Day not a Business Day.

If any day on or before which any action or notice is required to be taken or given hereunder is not a Business Day, then such action or notice shall be required to be taken or given on or before the requisite time on the next succeeding day that is a Business Day.

Section 1.5 Time of the Essence.

Time shall be of the essence in this Indenture and each Warrant.

Section 1.6 Monetary References.

Whenever any amounts of money are referred to herein, such amounts shall be deemed to be in lawful money of Canada unless otherwise expressed.

 

- 5 -

Section 1.7 Applicable Law.

This Indenture, the Warrants, the Warrant Certificates or the DRS Advices (including all documents relating thereto, which by common accord have been and will be drafted in English) shall be construed in accordance with the laws of the Province of British Columbia, and the federal laws of Canada applicable therein and shall be treated in all respects as British Columbia contracts. Each of the parties hereto, which shall include the Warrantholders, irrevocably attorns to the exclusive jurisdiction of the courts of the Province of British Columbia with respect to all matters arising out of this Indenture and the transactions contemplated herein.

ARTICLE 2

ISSUE OF WARRANTS

Section 2.1 Creation and Issue of Warrants.

A maximum of 1,889,450 Warrants (subject to adjustment as herein provided) are hereby created and authorized to be issued on the Issue Date in accordance with the terms and conditions hereof. By written order of the Corporation, the Warrant Agent shall Authenticate and deliver Warrants in certificated or uncertificated form or DRS Advices pursuant to Section 2.5 to Registered Warrantholders and record the name of the Registered Warrantholders on the Warrant register. Registration of interests in Warrants held by the Depository may be evidenced by a position appearing on the register for Warrants of the Warrant Agent for an amount representing the aggregate number of such Warrants outstanding from time to time.

Section 2.2 Terms of Warrants.

 

(1)

Subject to the applicable conditions for exercise set out in Article 3 having been satisfied and subject to adjustment in accordance with Section 4.1, each Warrant shall entitle each Warrantholder thereof, upon exercise at any time after the Issue Date and prior to the Expiry Time, to acquire one (1) Warrant Share upon payment of the Exercise Price.

 

(2)

No fractional Warrants shall be issued or otherwise provided for hereunder and Warrants may only be exercised in a sufficient number to acquire whole numbers of Warrant Shares. Any fractional Warrants shall be rounded down to the nearest whole number and no consideration shall be paid for any such fractional Warrant.

 

(3)

Each Warrant shall entitle the holder thereof to such other rights and privileges as are set forth in this Indenture.

 

(4)

The number of Warrant Shares which may be purchased pursuant to the Warrants and the Exercise Price therefor shall be adjusted upon the events and in the manner specified in Section 4.1.

 

(5)

Neither the Corporation nor the Warrant Agent shall have any obligation to deliver Warrant Shares upon the exercise of any Warrant if the person to whom such shares are to be delivered is a resident of a country or political subdivision thereof in which the Warrant Shares may not lawfully be issued pursuant to applicable securities laws. The Corporation or the Warrant Agent may require any person to provide proof of an applicable exemption from such securities laws to the Corporation and Warrant Agent before Warrant Shares are delivered pursuant to the exercise of any Warrant.

Section 2.3 Warrantholder not a Shareholder.

Except as may be specifically provided herein, nothing in this Indenture or in the holding of a Warrant Certificate, entitlement to a Warrant or otherwise, shall, in itself, confer or be construed as conferring upon a Warrantholder any right or interest whatsoever as a Shareholder, including, but not limited to, the right to

 

- 6 -

vote at, to receive notice of, or to attend, meetings of Shareholders or any other proceedings of the Corporation, or the right to Dividends and other allocations.

Section 2.4 Warrants to Rank Pari Passu.

All Warrants shall rank equally and without preference over each other, whatever may be the actual date of issue thereof.

Section 2.5 Form of Warrants, Warrant Certificates.

 

(1)

The Warrants may be issued in both certificated and uncertificated form. All Warrants issued in certificated form shall be evidenced by a Warrant Certificate (including all replacements issued in accordance with this Indenture), substantially in the form and bearing the applicable legends as set out in Schedule “A” hereto, which shall be dated as of the Issue Date, shall bear such distinguishing letters and numbers as the Corporation may, with the approval of the Warrant Agent, prescribe, and shall be issuable in any denomination excluding fractions. Warrants issued in uncertificated form may be evidenced by a DRS Advice. All Warrants issued to the Depository may be in either a certificated or uncertificated form, such uncertificated form being evidenced by a book position on the register of Warrantholders to be maintained by the Warrant Agent in accordance with Section 2.6.

 

(2)

Each Warrantholder by purchasing such Warrant acknowledges and agrees that the terms and conditions set forth in the form of the Warrant Certificate set out in Schedule “A” hereto shall apply to all Warrants and Warrantholders regardless of whether such Warrants are issued in certificated or uncertificated form or whether such Warrantholders are Registered Warrantholders or owners of Warrants who beneficially hold security entitlements in respect of the Warrants through a Depository.

Section 2.6 Book Entry Warrants.

 

(1)

Reregistration of beneficial interests in and transfers of Warrants held by the Depository shall be made only through the book entry registration system and no Warrant Certificates shall be issued in respect of such Warrants except where physical certificates evidencing ownership in such securities are required or as set out herein or as may be requested by the Depository, as determined by the Corporation, from time to time. Except as provided in this Section 2.6, owners of beneficial interests in any CDS Global Warrants shall not be entitled to have Warrants registered in their names and shall not receive or be entitled to receive Warrants in definitive form or to have their names appear in the register referred to in Section 2.9 herein. Notwithstanding any terms set out herein, Warrants held in the name of the Depository having any legend set forth in Section 2.8 herein and may only be held in the form of Uncertificated Warrants with the prior consent of the Warrant Agent and in accordance Internal Procedures of the Warrant Agent.

 

(2)

Notwithstanding any other provision in this Indenture, no CDS Global Warrants may be exchanged in whole or in part for Warrants registered, and no transfer of any CDS Global Warrants in whole or in part may be registered, in the name of any person other than the Depository for such CDS Global Warrants or a nominee thereof unless:

 

  (a)

the Depository notifies the Corporation that it is unwilling or unable to continue to act as depository in connection with the Book Entry Warrants and the Corporation is unable to locate a qualified successor;

 

- 7 -

  (b)

the Corporation determines that the Depository is no longer willing, able or qualified to properly discharge its responsibilities as holder of the CDS Global Warrants and the Corporation is unable to locate a qualified successor;

 

  (c)

the Depository ceases to be a clearing agency or otherwise ceases to be eligible to be a depository and the Corporation is unable to locate a qualified successor;

 

  (d)

the Corporation determines that the Warrants shall no longer be held as Book Entry Warrants through the Depository;

 

  (e)

such right is required by Applicable Legislation, as determined by the Corporation and the Corporation’s Counsel;

 

  (f)

the Warrant is to be Authenticated to or for the account or benefit of a person in the United States or a U.S. Person; or

 

  (g)

such registration is effected in accordance with the internal procedures of the Depository and the Warrant Agent, following which, Warrants for those holders requesting the same shall be registered and issued to the beneficial owners of such Warrants or their nominees as directed by the holder. The Corporation shall provide a certificate executed by an officer of the Corporation giving notice to the Warrant Agent of the occurrence of any event outlined in this Section 2.6 (2)(a) – (g).

 

(3)

Subject to the provisions of this Section 2.6, any exchange of CDS Global Warrants for Warrants which are not CDS Global Warrants may be made in whole or in part in accordance with the provisions of Section 2.11, mutatis mutandis. All such Warrants issued in exchange for a CDS Global Warrant or any portion thereof shall be registered in such names as the Depository for such CDS Global Warrants shall direct and shall be entitled to the same benefits and be subject to the same terms and conditions (except insofar as they relate specifically to CDS Global Warrants) as the CDS Global Warrants or portion thereof surrendered upon such exchange.

 

(4)

Every Warrant that is Authenticated upon registration or transfer of a CDS Global Warrant, or in exchange for or in lieu of a CDS Global Warrant or any portion thereof, whether pursuant to this Section 2.6, or otherwise, shall be Authenticated in the form of, and shall be, a CDS Global Warrant, unless such Warrant is registered in the name of a person other than the Depository for such CDS Global Warrant or a nominee thereof.

 

(5)

Notwithstanding anything to the contrary in this Indenture, subject to Applicable Legislation, the CDS Global Warrant will be issued as an Uncertificated Warrant, unless otherwise requested in writing by the Depository or the Corporation.

 

(6)

The rights of beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through the book entry registration system shall be limited to those established by applicable law and agreements between the Depository and the Book Entry Participants and between such Book Entry Participants and the beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through the book entry registration system, and such rights must be exercised through a Book Entry Participant in accordance with the rules and procedures of the Depository.

 

(7)

Notwithstanding anything herein to the contrary, neither the Corporation nor the Warrant Agent nor any agent thereof shall have any responsibility or liability for:

 

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  (a)

the electronic records maintained by the Depository relating to any ownership interests or any other interests in the Warrants or the depository system maintained by the Depository, or payments made on account of any ownership interest or any other interest of any person in any Warrant represented by an electronic position in the book entry registration system (other than the Depository or its nominee);

 

  (b)

maintaining, supervising or reviewing any records of the Depository or any Book Entry Participant relating to any such interest; or

 

  (c)

any advice or representation made or given by the Depository or those contained herein that relate to the rules and regulations of the Depository or any action to be taken by the Depository on its own direction or at the direction of any Book Entry Participant.

 

(8)

The Corporation may terminate the application of this Section 2.6 in its sole discretion in which case all Warrants shall be evidenced by Warrant Certificates registered in the name of a person other than the Depository.

Section 2.7 Warrant Certificate.

 

(1)

For Warrants issued in certificated form, the form of certificate representing the Warrants shall be substantially as set out in Schedule “A” hereto or such other form as is authorized from time to time by the Warrant Agent. Each Warrant Certificate shall be Authenticated on behalf of the Warrant Agent. Each Warrant Certificate shall be signed by any two duly authorized signatories of the Corporation; whose signature shall appear on the Warrant Certificate and may be printed, lithographed or otherwise mechanically reproduced thereon and, in such event, certificates so signed are as valid and binding upon the Corporation as if it had been signed manually. Any Warrant Certificate which has two signatures duly executed by the Corporation as hereinbefore provided shall be valid notwithstanding that one or more of the persons whose signature is printed, lithographed or mechanically reproduced no longer holds office at the date of issuance of such Warrant Certificate. The Warrant Certificates may be engraved, printed or lithographed, or partly in one form and partly in another, as the Warrant Agent may determine.

 

(2)

The Warrant Agent shall Authenticate Uncertificated Warrants (whether upon original issuance, exchange, registration of transfer, partial payment, or otherwise) by completing its Internal Procedures and the Corporation shall, and hereby acknowledges that it shall, thereupon be deemed to have duly and validly issued such Uncertificated Warrants under this Indenture. Such Authentication shall be conclusive evidence that such Uncertificated Warrant has been duly issued hereunder and that the holder or holders are entitled to the benefits of this Indenture. The register shall be final and conclusive evidence as to all matters relating to Uncertificated Warrants with respect to which this Indenture requires the Warrant Agent to maintain records or accounts. In case of differences between the register at any time and any other time the register at the later time shall be controlling, absent manifest error and such Uncertificated Warrants are binding on the Corporation.

 

(3)

Any Warrant Certificate validly issued in accordance with the terms of this Indenture in effect at the time of issue of such Warrant Certificate shall, subject to the terms of this Indenture and Applicable Legislation, validly entitle the holder to acquire Warrant Shares, notwithstanding that the form of such Warrant Certificate may not be in the form currently required by this Indenture.

 

(4)

No Warrant shall be considered issued and shall be valid or obligatory or shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by the Warrant Agent. Authentication by the Warrant Agent, including by way of entry on the register, shall not be construed as a representation or warranty by the Warrant Agent as to the validity of this Indenture

 

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  or of such Warrant Certificates or Uncertificated Warrants (except the due Authentication thereof) or as to the performance by the Corporation of its obligations under this Indenture and the Warrant Agent shall in no respect be liable or answerable for the use made of the Warrants or any of them or of the consideration thereof. Authentication by the Warrant Agent shall be conclusive evidence as against the Corporation that the Warrants so Authenticated have been duly issued hereunder and that the holder thereof is entitled to the benefits of this Indenture.

 

(5)

No Warrant Certificate shall be considered issued and Authenticated or, if Authenticated, shall be obligatory or shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by the signature by or on behalf of the Warrant Agent substantially in the form of the Warrant set out in Schedule “A” hereto. Such Authentication on any such Warrant Certificate shall be conclusive evidence that such Warrant Certificate is duly Authenticated and is valid and a binding obligation of the Corporation and that the holder is entitled to the benefits of this Indenture.

 

(6)

No Uncertificated Warrant shall be considered issued and shall be obligatory or shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by entry on the register of the particulars of the Uncertificated Warrant. Such entry on the register of the particulars of an Uncertificated Warrant shall be conclusive evidence that such Uncertificated Warrant is a valid and binding obligation of the Corporation and that the holder is entitled to the benefits of this Indenture.

Section 2.8 Legends.

 

(1)

Neither the Warrants nor the Warrant Shares have been or will be registered under the U.S. Securities Act or under any United States state securities laws. Warrant Certificates originally issued to, or for the benefit or account of, a U.S. Warrantholder and each Warrant Certificate or DRS Advice issued in exchange therefor or in substitution thereof shall bear or be deemed to bear the following legends or such variations thereof as the Corporation may prescribe from time to time:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE VERY GOOD FOOD COMPANY INC. (THE “CORPORATION”) (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH LOCAL LAWS AND REGULATIONS, (D) IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (E) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (D)(2) OR (E) ABOVE, A LEGAL OPINION OR SUCH OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.

 

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provided that, if the Warrants are being sold outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, this legend may be removed by the transferor providing a declaration to the Warrant Agent in the form set forth in Schedule “C” attached hereto or as the Warrant Agent or the Corporation may prescribe from time to time, and if required by the Warrant Agent, including an opinion of counsel, of recognised standing reasonably satisfactory to the Corporation and the Warrant Agent, that the proposed transfer may be effected without registration under the U.S. Securities Act; provided further, that if the Warrants are being sold pursuant to Rule 144 under the U.S. Securities Act, if available, the legend may be removed by delivering to the Corporation and the Warrant Agent an opinion of counsel of recognized standing or such other evidence in form and substance reasonably satisfactory to the Corporation and the Warrant Agent, acting reasonably, to the effect that the legend is no longer required under applicable requirements of the U.S. Securities Act.

The Warrant Agent shall be entitled to request any other documents that it may require in accordance with its internal policies for the removal of the legend set forth above.

 

(2)

Each Warrant Certificate originally issued to, or for the benefit or account of, a U.S. Warrantholder shall bear the following warning language or such variations thereof as the Corporation may prescribe from time to time:

“THESE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THESE WARRANTS MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON OR A PERSON IN THE UNITED STATES UNLESS THESE WARRANTS AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THESE WARRANTS HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LEGISLATION OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.”

 

(3)

Notwithstanding any other provisions of this Indenture, in processing and registering transfers of Warrants, no duty or responsibility whatsoever shall rest upon the Warrant Agent to determine the compliance by any transferor or transferee with the terms of the legend contained in Section 2.8(1) or (2) or with the applicable securities laws or regulations, including, without limitation, Regulation S, and the Warrant Agent shall be entitled to assume that all transfers are legal and proper.

Section 2.9 Register of Warrants

 

(1)

The Warrant Agent shall maintain records and accounts concerning the Warrants, whether certificated or uncertificated, which shall contain the information called for below with respect to each Warrant, together with such other information as may be required by law or as the Warrant Agent may elect to record. All such information shall be kept in one set of accounts and records which the Warrant Agent shall designate (in such manner as shall permit it to be so identified as such by an unaffiliated party) as the register of the holders of Warrants. The information to be entered for each account in the register of Warrants at any time shall include (without limitation):

 

  (a)

the name and address of the Registered Warrantholder, the date of Authentication thereof and the number of Warrants;

 

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  (b)

whether such Warrant is a Warrant Certificate or an Uncertificated Warrant and, if a Warrant Certificate, the unique number or code assigned to and imprinted thereupon and, if an Uncertificated Warrant, the unique number or code assigned thereto if any;

 

  (c)

whether such Warrant has been cancelled; and

 

  (d)

a register of transfers in which all transfers of Warrants and the date and other particulars of each transfer shall be entered.

The register shall be available for inspection by the Corporation or any Warrantholder during the Warrant Agent’s regular business hours on a Business Day and upon payment to the Warrant Agent of its reasonable fees. Any Warrantholder exercising such right of inspection shall first provide an affidavit in form satisfactory to the Corporation and the Warrant Agent stating the name and address of the Warrantholder and agreeing not to use the information therein except in connection with an effort to call a meeting of Warrantholders or to influence the voting of Warrantholders at any meeting of Warrantholders.

 

(2)

Once an Uncertificated Warrant has been Authenticated, the information set forth in the register with respect thereto at the time of Authentication may be altered, modified, amended, supplemented or otherwise changed only to reflect exercise or proper instructions to the Warrant Agent from the holder as provided herein, except that the Warrant Agent may act unilaterally to make purely administrative changes internal to the Warrant Agent and changes to correct errors. Each person who becomes a holder of an Uncertificated Warrant, by his, her or its acquisition thereof shall be deemed to have irrevocably (i) consented to the foregoing authority of the Warrant Agent to make such minor error corrections and (ii) agreed to pay to the Warrant Agent, promptly upon written demand, the full amount of all loss and expense (including without limitation reasonable legal fees of the Corporation and the Warrant Agent plus interest, at an appropriate then prevailing rate of interest to the Warrant Agent), sustained by the Corporation or the Warrant Agent as a proximate result of such error if but only if and only to the extent that such present or former holder realized any benefit as a result of such error and could reasonably have prevented, forestalled or minimized such loss and expense by prompt reporting of the error or avoidance of accepting benefits thereof whether or not such error is or should have been timely detected and corrected by the Warrant Agent; provided, that no person who is a bona fide purchaser shall have any such obligation to the Corporation or to the Warrant Agent.

Section 2.10 Issue in Substitution for Warrant Certificates Lost, etc.

 

(1)

If any Warrant Certificate becomes mutilated or is lost, destroyed or stolen, the Corporation, subject to applicable law, shall issue and thereupon the Warrant Agent shall certify and deliver, a new Warrant Certificate of like tenor, and bearing the same legend, if applicable, as the one mutilated, lost, destroyed or stolen in exchange for and in place of and upon cancellation of such mutilated Warrant Certificate, or in lieu of and in substitution for such lost, destroyed or stolen Warrant Certificate, and the substituted Warrant Certificate shall be in a form approved by the Warrant Agent and the Warrants evidenced thereby shall be entitled to the benefits hereof and shall rank equally in accordance with its terms with all other Warrants issued or to be issued hereunder.

 

(2)

The applicant for the issue of a new Warrant Certificate pursuant to this Section 2.10 shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issuance thereof, furnish to the Corporation and to the Warrant Agent such evidence of ownership and of the loss, destruction or theft of the Warrant Certificate so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Warrant Agent, in their sole discretion, and such applicant shall also be required to furnish an indemnity and surety bond in amount and form

 

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  satisfactory to the Corporation and the Warrant Agent, in their sole discretion, and shall pay the reasonable charges of the Corporation and the Warrant Agent in connection therewith.

Section 2.11 Exchange of Warrant Certificates.

 

(1)

Any one or more Warrant Certificates representing any number of Warrants may, upon compliance with the reasonable requirements of the Warrant Agent (including compliance with applicable securities laws), be exchanged for one or more other Warrant Certificates representing the same aggregate number of Warrants, and bearing the same legend, if applicable, as represented by the Warrant Certificate or Warrant Certificates so exchanged.

 

(2)

Warrant Certificates may be exchanged only at the Warrant Agency or at any other place that is designated by the Corporation with the approval of the Warrant Agent. Any Warrant Certificate from the holder (or such other instructions, in form satisfactory to the Warrant Agent), tendered for exchange shall be surrendered to the Warrant Agency and cancelled by the Warrant Agent.

 

(3)

Warrant Certificates exchanged for Warrant Certificates that bear the legend set forth in Section 2.8(1) or (2) shall bear the same legend.

Section 2.12 Transfer and Ownership of Warrants.

 

(1)

The Warrants may only be transferred on the register kept by the Warrant Agent at the Warrant Agency by the holder or its legal representatives or its attorney duly appointed by an instrument in writing in form and execution satisfactory to the Warrant Agent only upon (a) in the case of a Warrant Certificate, surrendering to the Warrant Agent at the Warrant Agency the Warrant Certificates representing the Warrants to be transferred together with a duly executed transfer form as set forth in Schedule “A” attached hereto and (b) in the case of Book Entry Warrants, in accordance with procedures prescribed by the Depository under the book entry registration system, (c) in the case of Uncertificated Warrants or DRS Advices, surrendering to the Warrant Agent at the Warrant Agency, DRS Advices representing the Warrants to be transferred together with a duly executed form of transfer as set forth in Schedule “A”, and (d) upon compliance with:

 

  (i)

the conditions herein;

 

  (ii)

such reasonable requirements as the Warrant Agent may prescribe; and

 

  (iii)

all applicable securities laws and requirements of regulatory authorities;

and such transfer shall be duly noted in such register by the Warrant Agent. Upon compliance with such requirements, the Warrant Agent shall issue to the transferee of a Warrant Certificate, a Warrant Certificate and to the transferee of an Uncertificated Warrant or a DRS Advice, an Uncertificated Warrant or a DRS Advice, or the Warrant Agent shall Authenticate and deliver a Warrant Certificate upon request that part of the CDS Global Warrant be certificated. Transfers within the systems of the Depository are not the responsibility of the Warrant Agent and will not be noted on the register maintained by the Warrant Agent.

 

(2)

If a Warrant Certificate tendered for transfer bears the legend set forth in Section 2.8(1), the Warrant Agent shall not register such transfer unless the transferor has provided the Warrant Agent with the Warrant Certificate and (A) the transfer is made to the Corporation or (B) a declaration to the effect set forth in Schedule “C” to this Warrant Indenture, or in such other form as the Corporation may from time to time prescribe, is delivered to the Warrant Agent, and if required by the Warrant Agent, the transferor provides an opinion of counsel of recognized standing, reasonably satisfactory to the Corporation and the Warrant Agent, or (C) the transfer is made pursuant to the exemption

 

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  from the registration requirements of the U.S. Securities Act provided by (i) Rule 144A thereunder or (ii) Rule 144 thereunder, in either case, in accordance with any applicable state securities or “blue sky” laws, or (D) the transfer is made in another transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws; provided that, it has prior to any transfer pursuant to Sections 2.12(2)(C)(ii) or 2.12(2)(D) furnished to the Corporation an opinion of counsel or other evidence, in either case in form and substance reasonably satisfactory to the Corporation and the Warrant Agent, acting reasonably, to such effect.

 

(3)

Subject to the provisions of this Indenture, Applicable Legislation and applicable law, the Warrantholder shall be entitled to the rights and privileges attaching to the Warrants, and the issue of Warrant Shares by the Corporation upon the exercise of Warrants in accordance with the terms and conditions herein contained shall discharge all responsibilities of the Corporation and the Warrant Agent with respect to such Warrants and neither the Corporation nor the Warrant Agent shall be bound to inquire into the title of any such holder.

Section 2.13 Cancellation of Surrendered Warrants.

All Warrant Certificates surrendered pursuant to Article 3 shall be cancelled by the Warrant Agent and upon such circumstances all such Uncertificated Warrants shall be deemed cancelled and so noted on the register by the Warrant Agent. Upon request by the Corporation, the Warrant Agent shall furnish to the Corporation a cancellation certificate identifying the Warrant Certificates so cancelled, the number of Warrants evidenced thereby, the number of Warrant Shares, if any, issued pursuant to such Warrants and the details of any Warrant Certificates issued in substitution or exchange for such Warrant Certificates cancelled.

ARTICLE 3

EXERCISE OF WARRANTS

Section 3.1 Right of Exercise.

Subject to the provisions hereof, each Registered Warrantholder may exercise the right conferred on such holder to subscribe for and purchase one (1) Warrant Share for each Warrant after the Issue Date and prior to the Expiry Time and in accordance with the conditions herein.

Section 3.2 Warrant Exercise.

 

(1)

Other than Warrants held by the Depository, Registered Warrantholders of Warrant Certificates or DRS Advices who wish to exercise the Warrants held by them in order to acquire Warrant Shares must complete the exercise notice (the “Exercise Notice”) attached to the Warrant Certificate(s) or DRS Advice which form is attached hereto as Schedule “B”, which may be amended by the Corporation with the consent of the Warrant Agent and the Corporation, if such amendment does not, in the reasonable opinion of the Corporation and the Warrant Agent, which may be based on the advice of Counsel, materially and adversely affect the rights, entitlements and interests of the Warrantholders, and deliver such certificate(s), the executed Exercise Notice and a certified cheque, bank draft or money order payable to or to the order of the Corporation for the aggregate Exercise Price to the Warrant Agent at the Warrant Agency, who shall, in turn, promptly provide notice to the Corporation. The Warrants represented by a Warrant Certificate shall be deemed to be surrendered upon personal delivery of such certificate, Exercise Notice and aggregate Exercise Price or, if such documents are sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent at the office referred to above. The Warrants represented by a Warrant Certificate or evidenced by a DRS Advice shall be deemed to be surrendered upon personal delivery of such certificate or DRS Advice, Exercise Notice and Exercise Price or, if such documents are

 

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  sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent at the Warrant Agency.

 

(2)

In addition to completing the Exercise Notice attached to the Warrant Certificate(s), or DRS Advice, a Warrantholder must provide any other information, certifications or other material required by the Exercise Notice to be delivered in connection with the exercise of Warrants.

 

(3)

A Registered Warrantholder of Uncertificated Warrants evidenced by a security entitlement in respect of Warrants must complete the Exercise Notice and deliver the executed Exercise Notice and a certified cheque, bank draft or money order payable to or to the order of the Corporation for the aggregate Exercise Price to the Warrant Agent at the Warrant Agency, who shall, in turn, promptly provide notice to the Corporation. The Uncertificated Warrants shall be deemed to be surrendered upon receipt of the Exercise Notice and aggregate Exercise Price or, if such documents are sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent at the office referred to above.

 

(4)

A beneficial owner of Uncertificated Warrants evidenced by a security entitlement in respect of Warrants in the book entry registration system who desires to exercise his or her Warrants must do so by causing a Book Entry Participant to deliver to the Depository on behalf of the entitlement holder, notice of the owner’s intention to exercise Warrants in a manner acceptable to the Depository. Forthwith upon receipt by the Depository of such notice, as well as payment for the aggregate Exercise Price, the Depository shall deliver to the Warrant Agent confirmation of its intention to exercise Warrants (a “Confirmation”) in a manner acceptable to the Warrant Agent and the Corporation, including by electronic means through a book based registration system, including CDSX. An electronic exercise of the Warrants initiated by the Book Entry Participant through a book based registration system, including CDSX, shall constitute a representation to both the Corporation and the Warrant Agent that the beneficial owner at the time of exercise of such Warrants (a) is not in the United States; (b) is not a U.S. Person and is not exercising such Warrants on behalf of a U.S. Person or a person in the United States; (c) did not acquire the Warrants in the United States or on behalf of, or for the account or benefit of a U.S. Person or a person in the United States; (d) did not receive an offer to exercise the Warrants in the United States; and (e) did not execute or deliver the notice of the beneficial owner’s intention to exercise such Warrants in the United States. If the CDS Participant is not able to make or deliver the foregoing representations by initiating the electronic exercise of the Warrants, then such Warrants shall be withdrawn from the book based registration system, including CDSX by the CDS Participant and an individually registered Warrant Certificate shall be issued by the Warrant Agent to such beneficial owner or CDS Participant and the exercise procedures set forth in Section 3.2(1) shall be followed.

 

(5)

Payment representing the aggregate Exercise Price must be provided to the appropriate office of the Book Entry Participant in a manner acceptable to it. A notice in form acceptable to the Book Entry Participant and payment from such beneficial holder should be provided to the Book Entry Participant sufficiently in advance so as to permit the Book Entry Participant to deliver notice and payment to the Depository and for the Depository in turn to deliver notice and payment to the Warrant Agent prior to the Expiry Time, who shall, in turn, promptly provide notice to the Corporation. The Depository will initiate the exercise by way of the Confirmation and forward the aggregate Exercise Price electronically to the Warrant Agent and the Warrant Agent will execute the exercise by issuing to the Depository through the book entry registration system the Warrant Shares to which the exercising Warrantholder is entitled pursuant to the exercise. Any expense associated with the exercise process will be for the account of the entitlement holder exercising the Warrants and/or the Book Entry Participant exercising the Warrants on its behalf.

 

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(6)

By causing a Book Entry Participant to deliver notice to the Depository, a Warrantholder shall be deemed to have irrevocably surrendered his or her Warrants so exercised and appointed such Book Entry Participant to act as his or her exclusive settlement agent with respect to the exercise and the receipt of Warrant Shares in connection with the obligations arising from such exercise.

 

(7)

Any notice which the Depository determines to be incomplete, not in proper form or not duly executed shall for all purposes be void and of no force and effect and the exercise to which it relates shall be considered for all purposes not to have been exercised thereby. A failure by a Book Entry Participant to exercise or to give effect to the settlement thereof in accordance with the Warrantholder’s instructions will not give rise to any obligations or liability on the part of the Corporation or Warrant Agent to the Book Entry Participant or the Warrantholder.

 

(8)

The Exercise Notice referred to in this Section 3.2 shall be signed by the Registered Warrantholder, or its executors or administrators or other legal representatives or an attorney of the Registered Warrantholder, duly appointed by an instrument in writing satisfactory to the Warrant Agent but such Exercise Notice need not be executed by the Depository.

 

(9)

Any exercise referred to in this Section 3.2 shall require that the entire Exercise Price for Warrant Shares subscribed for must be paid at the time of subscription and such Exercise Price and original Exercise Notice executed by the Registered Warrantholder or the Confirmation from the Depository must be received by the Warrant Agent and the Corporation prior to the Expiry Time.

 

(10)

Warrants may only be exercised pursuant to this Section 3.2 by or on behalf of a Registered Warrantholder, as applicable, who makes the certifications set forth on the Exercise Notice set out in Schedule “B” or as provided herein.

 

(11)

If the form of Exercise Notice set forth in the Warrant Certificate or DRS Advice shall have been amended, the Corporation shall cause the amended Exercise Notice to be forwarded to all Registered Warrantholders.

 

(12)

Exercise Notices and Confirmations must be delivered to the Warrant Agent at any time during the Warrant Agent’s actual business hours on any Business Day prior to the Expiry Time. Any Exercise Notice or Confirmations received by the Warrant Agent after business hours on any Business Day other than the Expiry Date will be deemed to have been received by the Warrant Agent on the next following Business Day.

 

(13)

Any Warrant with respect to which a Confirmation or Exercise Notice is not received by the Warrant Agent before the Expiry Time shall be deemed to have expired and become void and all rights with respect to such Warrants shall terminate and be cancelled.

Section 3.3 Prohibition on Exercise by U.S. Persons; Legended Certificates

 

(1)

Subject to Section 3.3(2), (i) Warrants may not be exercised within the United States or by or on behalf of any U.S. Person; and (ii) no Warrant Shares issued upon exercise of Warrants may be delivered to any address in the United States.

 

(2)

Notwithstanding Section 3.3(1), Warrants which bear the legend set forth in Section 2.8(1) may be exercised in the United States or by or on behalf of a U.S. Person, and Warrant Shares issued upon exercise of any such Warrants may be delivered to an address in the United States, provided that either (a) the person exercising the Warrants (i) is an original U.S. purchaser who purchased the Warrants in the original offering of such Warrants pursuant to Rule 144A under the U.S. Securities Act, (ii) is a “qualified institutional buyer” as defined in rule 144A under the U.S. Securities Act and an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the U.S.

 

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  Securities Act, and (iii) and confirms, as of the date of exercise, each of the representations, warranties, certifications and agreements made by it in connection with its acquisition of such Warrants as though such representations, warranties, certifications and agreements were made on the date thereof and in respect of the acquisition of the Warrant Shares issuable upon exercise of the Warrants; or (b) the person exercising the Warrants provides in form and substance reasonably satisfactory to the Corporation and Warrant Agent a legal opinion or such other evidence which confirms that issuance of Warrant Shares upon exercise of any such Warrants is in compliance with the applicable state laws and the U.S. Securities Act.

 

(3)

Certificates representing Warrant Shares issued upon the exercise of Warrants which bear the legend set forth in Section 2.8(1) or which are issued and delivered pursuant to Section 3.3(2) shall bear the following legend:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE VERY GOOD FOOD COMPANY INC. (THE “CORPORATION”) (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH LOCAL LAWS AND REGULATIONS, (D) IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (E) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (D)(2) OR (E) ABOVE, A LEGAL OPINION OR SUCH OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.”

provided that, if the Warrant Shares are being sold outside the United States in accordance with Rule 904 of Regulation S, this legend may be removed by the transferor providing a declaration to the Corporation’s transfer agent in the form set forth in Schedule “C” attached hereto or as the Corporation’s transfer agent or the Corporation may prescribe from time to time, and if required by the Corporation’s transfer agent, an opinion of counsel, of recognised standing or such other evidence reasonably satisfactory to the Corporation and the Corporation’s transfer agent, that the proposed transfer may be effected without registration under the U.S. Securities Act.

Section 3.4 Transfer Fees and Taxes.

If any of the Warrant Shares subscribed for are to be issued to a person or persons other than the Registered Warrantholder, the Registered Warrantholder shall execute the form of transfer and will comply with such reasonable requirements as the Warrant Agent may stipulate and will pay to the Corporation or the Warrant Agent on behalf of the Corporation, all applicable transfer or similar taxes and the Corporation will not be required to issue or deliver certificates or DRS Advices evidencing Warrant Shares unless or until such

 

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Warrantholder shall have paid to the Corporation or the Warrant Agent on behalf of the Corporation, the amount of such tax or shall have established to the satisfaction of the Corporation and the Warrant Agent that such tax has been paid or that no tax is due.

Section 3.5 Warrant Agency.

To facilitate the exchange, transfer or exercise of Warrants and compliance with such other terms and conditions hereof as may be required, the Corporation has appointed the Warrant Agency, as the agency at which Warrants may be surrendered for exchange or transfer or at which Warrants may be exercised and the Warrant Agent has accepted such appointment. The Corporation may from time to time designate alternate or additional places as the Warrant Agency (subject to the Warrant Agent’s prior approval) and will give notice to the Warrant Agent of any proposed change of the Warrant Agency. Branch registers shall also be kept at such other place or places, if any, as the Corporation, with the approval of the Warrant Agent, may designate. The Warrant Agent will from time to time when requested to do so by the Corporation or any Registered Warrantholder, upon payment of the Warrant Agent’s reasonable charges, furnish a list of the names and addresses of Registered Warrantholders showing the number of Warrants held by each such Registered Warrantholder.

Section 3.6 Effect of Exercise of Warrant Certificates.

 

(1)

Upon the exercise of Warrants Certificates pursuant to and in compliance with Section 3.2 and subject to Section 3.3 and Section 3.4, the Warrant Shares to be issued pursuant to the Warrants exercised shall be deemed to have been issued and the person or persons to whom such Warrant Shares are to be issued shall be deemed to have become the holder or holders of such Warrant Shares on the Exercise Date, provided the documents are received in good order, unless the register shall be closed on such date, in which case the Warrant Shares subscribed for shall be deemed to have been issued and such person or persons deemed to have become the holder or holders of record of such Warrant Shares, on the date on which such register is reopened. It is hereby understood that in order for persons to whom Warrant Shares are to be issued, to become holders of Warrant Shares on record on the Exercise Date, beneficial holders must commence the exercise process sufficiently in advance so that the Warrant Agent is in receipt of all items of exercise at least one Business Day prior to such Exercise Date.

 

(2)

Within three Business Days following the Exercise Date with respect to a Warrant, the Warrant Agent on behalf of the Corporation shall use commercially reasonable efforts to deliver or cause to be delivered or mailed to the person or persons in whose name or names the Warrant is registered or, if so specified in writing by the holder, cause to be delivered to such person or persons at the Warrant Agency where the Warrant Certificate was surrendered, a certificate or certificates or the DRS Advices for the appropriate number of Warrant Shares subscribed for, or any other appropriate evidence of the issuance of Warrant Shares to such person or persons in respect of Warrant Shares issued under the book entry registration system.

Section 3.7 Partial Exercise of Warrants; Fractions.

 

(1)

The holder of any Warrants may exercise his right to acquire a number of Warrant Shares less than the aggregate number which the holder is entitled to acquire. In the event of any exercise of a number of Warrants less than the number which the holder is entitled to exercise, the holder of Warrants upon such exercise shall, in addition, be entitled to receive, without charge therefor, a new Warrant Certificate(s), bearing the same legend, if applicable, or other appropriate evidence of Warrants, in respect of the balance of the Warrants held by such holder and which were not then exercised.

 

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(2)

Notwithstanding anything herein contained including any adjustment provided for in Section 4.1, the Corporation shall not be required, upon the exercise of any Warrants, to issue fractions of Warrant Shares. Warrants may only be exercised in a sufficient number to acquire whole numbers of Warrant Shares. Any fractional Warrant Shares shall be rounded down to the nearest whole number and the holder of such Warrants shall not be entitled to any compensation in respect of any fractional Warrant Shares which is not issued.

Section 3.8 Expiration of Warrants.

Immediately after the Expiry Time, all rights under any Warrant in respect of which the right of acquisition provided for herein shall not have been exercised shall cease and terminate and each Warrant shall be void and of no further force or effect.

Section 3.9 Accounting and Recording.

 

(1)

The Warrant Agent shall promptly account to the Corporation with respect to Warrants exercised, and shall promptly forward to the Corporation (or into an account or accounts of the Corporation with the bank or trust company designated by the Corporation for that purpose), all monies received by the Warrant Agent on the subscription of Warrant Shares through the exercise of Warrants. All such monies and any securities or other instruments, from time to time received by the Warrant Agent, shall be received in trust for, and shall be segregated and kept apart by the Warrant Agent, the Warrantholders and the Corporation as their interests may appear

 

(2)

The Warrant Agent shall record the particulars of Warrants exercised, which particulars shall include the names and addresses of the persons who become holders of Warrant Shares on exercise and the Exercise Date, in respect thereof. The Warrant Agent shall provide such particulars in writing to the Corporation within five Business Days of any request by the Corporation therefor.

Section 3.10 Securities Restrictions.

Notwithstanding anything herein contained, Warrant Shares will be issued upon exercise of a Warrant only in compliance with the securities laws of any applicable jurisdiction.

ARTICLE 4

CERTAIN ADJUSTMENTS

Section 4.1 Certain Adjustments

The subscription rights in effect under the Warrants for Common Shares issuable upon the exercise of the Warrants shall be subject to adjustment from time to time as follows:

 

  (a)

if, at any time during the Adjustment Period, the Corporation shall:

 

  (i)

subdivide, re-divide or change its outstanding Common Shares into a greater number of Common Shares;

 

  (ii)

reduce, combine or consolidate its outstanding Common Shares into a lesser number of Common Shares; or

 

  (iii)

issue Common Shares or securities exchangeable for, or convertible into, Common Shares to all or substantially all of the holders of Common Shares by way of stock Dividend or other distribution (other than as a Dividend paid in the ordinary course

 

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  or a distribution of Common Shares upon exercise of warrants or incentive stock options);

(any of such events in Section 4.1(a)(i), (ii) or (iii) being called a “Common Share Reorganization”) then the Exercise Price shall be adjusted as of the effect on the effective date or record date of such subdivision, re-division, change, reduction, combination, consolidation or distribution, as the case may be, shall in the case of the events referred to in (i) or (iii) above be decreased in proportion to the number of outstanding Common Shares resulting from such subdivision, re-division, change or distribution, or shall, in the case of the events referred to in (ii) above, be increased in proportion to the number of outstanding Common Shares resulting from such reduction, combination or consolidation by multiplying the Exercise Price in effect immediately prior to such effective date or record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares outstanding as of the effective date or record date after giving effect to such Common Share Reorganization (including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Share that would have been outstanding had such securities been exchanged for or converted into Common Shares on such record date or effective date). Such adjustment shall be made successively whenever any event referred to in this Section 4.1(a) shall occur. Upon any adjustment of the Exercise Price pursuant to Section 4.1(a), the Exchange Rate shall be contemporaneously adjusted by multiplying the number of Common Shares theretofore obtainable on the exercise thereof by a fraction of which the numerator shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such adjustment;

 

  (b)

if and whenever at any time during the Adjustment Period, the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all the holders of its outstanding Common Shares entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase Common Shares (or securities convertible or exchangeable into Common Shares) at a price per Common Share (or having a conversion or exchange price per Common Share) less than 95% of the Current Market Price on such record date (a “Rights Offering”), the Exercise Price shall be adjusted immediately after such record date so that it shall equal the amount determined by multiplying the Exercise Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by the Current Market Price, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase or into which the convertible or exchangeable securities so offered are convertible or exchangeable; any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that no such rights or warrants are exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or, if any such rights or warrants are exercised, to the Exercise Price which would then be in effect based upon the number of Common Shares (or securities convertible or exchangeable into Common Shares) actually issued upon the exercise of such rights or

 

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  warrants, as the case may be. Upon any adjustment of the Exercise Price pursuant to this Section 4.1(b), the Exchange Rate will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exchange Rate in effect on such record date by a fraction, of which the numerator shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such adjustment. Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or record dates referred to in this Section 4.1(b) are fixed within a period of 25 Trading Days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates;

 

  (c)

if and whenever at any time during the Adjustment Period the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of (i) securities of any class, whether of the Corporation or any other entity (other than Common Shares), (ii) rights, options or warrants to subscribe for or purchase Common Shares (or other securities convertible into or exchangeable for Common Shares), other than pursuant to a Rights Offering; (iii) evidences of its indebtedness or (iv) any property or other assets then, in each such case, the Exercise Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Exercise Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price on such record date, less the excess, if any, of the fair market value on such record date, as determined by the Corporation (whose determination shall be conclusive), of such securities or other assets so issued or distributed over the fair market value of any consideration received therefor by the Corporation from the holders of the Common Shares, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price; and Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that such distribution is not so made, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed. Upon any adjustment of the Exercise Price pursuant to this Section 4.1(c), the Exchange Rate will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exchange Rate in effect on such record date by a fraction, of which the numerator shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such adjustment;

 

  (d)

If and whenever at any time during the Adjustment Period, there is a reclassification of the Common Shares or a capital reorganization of the Corporation other than as described in Section 4.1(a) or a consolidation, amalgamation, arrangement or merger of the Corporation with or into any other body corporate, trust, partnership or other entity, or a sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to any other body corporate, trust, partnership or other entity, any Registered Warrantholder who has not exercised its right of acquisition prior to the effective date of such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance, upon the exercise of such right thereafter, shall be entitled to receive upon payment of the Exercise Price and shall accept, in lieu of the number of Common Shares that prior to such effective date the Registered Warrantholder would have been entitled to receive, the number of shares or other securities or property of the Corporation or of the body corporate, trust, partnership or other entity resulting from such reclassification, capital reorganization, merger, amalgamation or consolidation, or to which

 

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  such sale or conveyance may be made, as the case may be, that such Registered Warrantholder would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance, if, on the effective date thereof, as the case may be, the Registered Warrantholder had been the registered holder of the number of Common Shares to which prior to such effective date it was entitled to acquire upon the exercise of the Warrants. If determined appropriate by the Warrant Agent, relying on advice of Counsel, to give effect to or to evidence the provisions of this Section 4.1(d), the Corporation, its successor, or such purchasing body corporate, partnership, trust or other entity, as the case may be, shall, prior to or contemporaneously with any such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, sale or conveyance, enter into an indenture which shall provide, to the extent possible, for the application of the provisions set forth in this Indenture with respect to the rights and interests thereafter of the Registered Warrantholders to the end that the provisions set forth in this Indenture shall thereafter correspondingly be made applicable, as nearly as may reasonably be, with respect to any shares, other securities or property to which a Registered Warrantholder is entitled on the exercise of its acquisition rights thereafter. Any indenture entered into between the Corporation and the Warrant Agent pursuant to the provisions of this Section 4.1(d) shall be a supplemental indenture entered into pursuant to the provisions of Article 8 hereof. Any indenture entered into between the Corporation, any successor to the Corporation or such purchasing body corporate, partnership, trust or other entity and the Warrant Agent shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 4.1 and which shall apply to successive reclassifications, capital reorganizations, amalgamations, consolidations, mergers, sales or conveyances.

 

  (e)

in any case in which this Section 4.1 shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the Registered Warrantholder of any Warrant exercised after the record date and prior to completion of such event the additional Common Shares issuable by reason of the adjustment required by such event before giving effect to such adjustment; provided, however, that the Corporation shall deliver to such Registered Warrantholder an appropriate instrument evidencing such Registered Warrantholder’s right to receive such additional Common Shares upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares declared in favour of holders of record of Common Shares on and after the relevant date of exercise or such later date as such Registered Warrantholder would, but for the provisions of this Section 4.1(e), have become the holder of record of such additional Common Shares pursuant to Section 4.1;

 

  (f)

in any case in which Section 4.1(a)(iii), Section 4.1(b) or Section 4.1(c) require that an adjustment be made to the Exercise Price, no such adjustment shall be made if the Registered Warrantholders of the outstanding Warrants receive, subject to any required stock exchange or regulatory approval, the rights or warrants referred to in Section 4.1(a)(iii), Section 4.1(b) or the shares, rights, options, warrants, evidences of indebtedness or assets referred to in Section 4.1(c), as the case may be, in such kind and number as they would have received if they had been holders of Common Shares on the applicable record date or effective date, as the case may be, by virtue of their outstanding Warrant having then been exercised into Common Shares at the Exercise Price in effect on the applicable record date or effective date, as the case may be;

 

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  (g)

the adjustments provided for in this Section 4.1 are cumulative, and shall, in the case of adjustments to the Exercise Price be computed to the nearest whole cent and shall apply to successive subdivisions, re-divisions, reductions, combinations, consolidations, distributions, issues or other events resulting in any adjustment under the provisions of this Section 4.1 provided that, notwithstanding any other provision of this Section, no adjustment of the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price then in effect; provided, however, that any adjustments which by reason of this Section 4.1(g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and

 

  (h)

after any adjustment pursuant to this Section 4.1, the term “Common Shares” where used in this Indenture shall be interpreted to mean securities of any class or classes which, as a result of such adjustment and all prior adjustments pursuant to this Section 4.1, the Registered Warrantholder is entitled to receive upon the exercise of his Warrant, and the number of Common Shares indicated by any exercise made pursuant to a Warrant shall be interpreted to mean the number of Common Shares or other property or securities a Registered Warrantholder is entitled to receive, as a result of such adjustment and all prior adjustments pursuant to this Section 4.1, upon the full exercise of a Warrant.

Section 4.2 Certificate of Adjustment

The Corporation shall from time to time immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.1, deliver a certificate of the Corporation to the Warrant Agent specifying the nature of the event requiring the same and the amount of the adjustment or readjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate shall be supported by a certificate of the Corporation’s Auditors verifying such calculation. The Warrant Agent shall rely, and shall be protected in so doing, upon the certificate of the Corporation or of the Corporation’s Auditor and any other document filed by the Corporation pursuant to this Article 4 for all purposes.

Section 4.3 Entitlement to Common Shares on Exercise of Warrant.

All Common Shares or shares of any class or other securities, which a Registered Warrantholder is at the time in question entitled to receive on the exercise of its Warrant, whether or not as a result of adjustments made pursuant to this Article 4, shall, for the purposes of the interpretation of this Indenture, be deemed to be Warrant Shares which such Registered Warrantholder is entitled to acquire pursuant to such Warrant.

Section 4.4 No Adjustment for Certain Transactions.

Notwithstanding anything in this Article 4, no adjustment shall be made in the acquisition rights attached to the Warrants if the issue of Common Shares is being made pursuant to this Indenture or in connection with (a) any share incentive plan or restricted share plan or share purchase plan in force from time to time for directors, officers, employees, consultants or other service providers of the Corporation; or (b) the satisfaction of existing instruments issued at the date hereof.

Section 4.5 Determination by Independent Firm.

In the event of any question arising with respect to the adjustments provided for in this Article 4 such question shall be conclusively determined by an independent firm of chartered public accountants (which may be the Auditors) as selected by the Corporation who shall have access to all necessary records of the Corporation, and such determination shall be binding upon the Corporation, the Warrant Agent, all holders and all other persons interested therein.

 

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Section 4.6 Proceedings Prior to any Action Requiring Adjustment.

As a condition precedent to the taking of any action which would require an adjustment in any of the acquisition rights pursuant to any of the Warrants, including the number of Warrant Shares which are to be received upon the exercise thereof, the Corporation shall take any action which may, in the opinion of Counsel, be necessary in order that the Corporation has unissued and reserved in its authorized capital and may validly and legally issue as fully paid and non- assessable all the Warrant Shares which the holders of such Warrants are entitled to receive on the full exercise thereof in accordance with the provisions hereof.

Section 4.7 Notice of Special Matters.

The Corporation covenants with the Warrant Agent that, so long as any Warrant remains outstanding, it will give notice to the Warrant Agent and to the Registered Warrantholders of its intention to fix a record date that is prior to the Expiry Date for any matter for which an adjustment may be required pursuant to Section 4.1. Such notice shall specify the particulars of such event and the record date for such event, provided that the Corporation shall only be required to specify in the notice such particulars of the event as shall have been fixed and determined on the date on which the notice is given. The notice shall be given in each case not less than 14 days prior to such applicable record date. If notice has been given and the adjustment is not then determinable, the Corporation shall promptly, after the adjustment is determinable, file with the Warrant Agent a computation of the adjustment and give notice to the Registered Warrantholders of such adjustment computation.

Section 4.8 No Action after Notice.

The Corporation covenants with the Warrant Agent that it will not close its transfer books or take any other corporate action which might deprive the Registered Warrantholder of the opportunity to exercise its right of acquisition pursuant thereto during the period of 14 days after the giving of the certificate or notices set forth in Section 4.2 and Section 4.7.

Section 4.9 Other Action.

If the Corporation, after the date hereof, shall take any action affecting the Common Shares other than action described in Section 4.1, which in the reasonable opinion of the directors of the Corporation would materially affect the rights of Registered Warrantholders, the Exercise Price and/or Exchange Rate, the number of Warrant Shares which may be acquired upon exercise of the Warrants shall be adjusted in such manner and at such time, by action of the directors, acting reasonably and in good faith, in their sole discretion as they may determine to be equitable to the Registered Warrantholders in the circumstances, provided that no such adjustment will be made unless any requisite prior approval of any stock exchange on which the Common Shares are listed for trading has been obtained.

Section 4.10 Protection of Warrant Agent.

The Warrant Agent shall not:

 

  (a)

at any time be under any duty or responsibility to any Registered Warrantholder to determine whether any facts exist which may require any adjustment contemplated by Section 4.1, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making the same;

 

  (b)

be accountable with respect to the validity or value (or the kind or amount) of any Warrant Shares or of any other securities or property which may at any time be issued or delivered upon the exercise of the rights attaching to any Warrant;

 

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  (c)

be responsible for any failure of the Corporation to issue, transfer or deliver Warrant Shares or certificates for the same upon the surrender of any Warrants for the purpose of the exercise of such rights or to comply with any of the covenants contained in this Article; and

 

  (d)

incur any liability or be in any way responsible for the consequences of any breach on the part of the Corporation of any of the representations, warranties or covenants herein contained or of any acts of the directors, officers, employees, agents or servants of the Corporation.

Section 4.11 Participation by Warrantholder.

No adjustments shall be made pursuant to this Article 4 if the Registered Warrantholders are entitled to participate in any event described in this Article 4 on the same terms, mutatis mutandis, as if the Registered Warrantholders had exercised their Warrants prior to, or on the effective date or record date of, such event and any such participation will be subject to the prior approval of the CSE, if applicable.

ARTICLE 5

RIGHTS OF THE CORPORATION AND COVENANTS

Section 5.1 General Covenants.

The Corporation covenants with the Warrant Agent that so long as any Warrants remain outstanding:

 

  (a)

it will reserve and keep available a sufficient number of Common Shares for the purpose of enabling it to satisfy its obligations to issue Warrant Shares upon the exercise of the Warrants;

 

  (b)

it will cause the Warrant Shares from time to time acquired pursuant to the exercise of the Warrants to be duly and validly issued and delivered in accordance with the Warrants and the terms hereof;

 

  (c)

all Warrant Shares which shall be issued upon exercise of the right to acquire provided for herein shall be fully paid and non-assessable, free and clear of all encumbrances;

 

  (d)

it will use reasonable commercial efforts to maintain its existence and carry on its business in the ordinary course;

 

  (e)

it will use reasonable commercial efforts to ensure that all Common Shares outstanding or issuable from time to time (including without limitation the Warrant Shares issuable on the exercise of the Warrants) continue to be or are listed and posted for trading on the CSE (or such other recognized Canadian stock exchange acceptable to the Corporation), provided that this clause shall not be construed as limiting or restricting the Corporation from completing a consolidation, amalgamation, arrangement, takeover bid or merger that would result in the Common Shares ceasing to be listed and posted for trading on the CSE, so long as the holders of Common Shares receive securities of an entity which is listed on a stock exchange in Canada, or cash, or the holders of the Common shares have approved the transaction in accordance with the requirements of applicable corporate and securities laws and the policies of the CSE;

 

  (f)

it will make all requisite filings under applicable Canadian securities laws including those necessary to remain a reporting issuer not in default in each of the provinces and other Canadian jurisdictions where it is or becomes a reporting issuer;

 

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  (g)

it will carry out all of the acts or things to be done by it as required by this Indenture; and

 

  (h)

it will promptly notify the Warrant Agent and the Warrantholders in writing of any default under the terms of this Warrant Indenture which remains unrectified for more than five days following its occurrence.

Section 5.2 Warrant Agent’s Remuneration and Expenses.

The Corporation covenants that it will pay to the Warrant Agent from time to time reasonable remuneration for its services hereunder and will pay or reimburse the Warrant Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Warrant Agent in the administration or execution of its duties hereby created (including the reasonable compensation and the disbursements of its Counsel and all other advisers and assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Warrant Agent hereunder shall be finally and fully performed. Any amount owing hereunder and remaining unpaid after 30 days from the invoice date will bear interest at the then current rate charged by the Warrant Agent against unpaid invoices and shall be payable upon demand. This Section shall survive the resignation or removal of the Warrant Agent and/or the termination of this Indenture.

Section 5.3 Performance of Covenants by Warrant Agent.

If the Corporation shall fail to perform any of its covenants contained in this Indenture, then the Corporation will notify the Warrant Agent in writing of such failure and upon receipt by the Warrant Agent of such notice, the Warrant Agent may notify the Registered Warrantholders of such failure on the part of the Corporation and may itself perform any of the covenants capable of being performed by it but, subject to Section 9.2, shall be under no obligation to perform said covenants or to notify the Registered Warrantholders of such performance by it. All sums expended or advanced by the Warrant Agent in so doing shall be repayable as provided in Section 5.2. No such performance, expenditure or advance by the Warrant Agent shall relieve the Corporation of any default hereunder or of its continuing obligations under the covenants herein contained.

Section 5.4 Enforceability of Warrants.

The Corporation covenants and agrees that it is duly authorized to create and issue the Warrants to be issued hereunder and that the Warrants, when issued and Authenticated as herein provided, will be valid and enforceable against the Corporation in accordance with the provisions hereof and the terms hereof and that, subject to the provisions of this Indenture, the Corporation will cause the Warrant Shares from time to time acquired upon exercise of Warrants issued under this Indenture to be duly and validly issued and delivered in accordance with the terms of this Indenture.

ARTICLE 6

ENFORCEMENT

Section 6.1 Suits by Registered Warrantholders.

All or any of the rights conferred upon any Registered Warrantholder by any of the terms of this Indenture may be enforced by the Registered Warrantholder by appropriate proceedings but without prejudice to the right which is hereby conferred upon the Warrant Agent to proceed in its own name to enforce each and all of the provisions herein contained for the benefit of the Registered Warrantholders.

 

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Section 6.2 Suits by the Corporation.

The Corporation shall have the right to enforce full payment of the Exercise Price of all Warrant Shares issued by the Warrant Agent to a Registered Warrantholder hereunder and shall be entitled to demand such payment from the Registered Warrantholder or alternatively to instruct the Warrant Agent to cancel the share certificates representing such Warrant Shares and amend the securities register of the Corporation accordingly.

Section 6.3 Immunity of Shareholders, etc.

The Warrant Agent and the Warrantholders hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any incorporator or any past, present or future shareholder, trustee, employee, director, officer or agent of the Corporation or any successor entity on any covenant, agreement, representation or warranty by the Corporation herein.

Section 6.4 Waiver of Default.

Upon the happening of any default hereunder:

 

  (a)

the Registered Warrantholders of not less than 51% of the Warrants then outstanding shall have power (in addition to the powers exercisable by Extraordinary Resolution) by requisition in writing to instruct the Warrant Agent to waive any default hereunder and the Warrant Agent shall thereupon waive the default upon such terms and conditions as shall be prescribed in such requisition; or

 

  (b)

the Warrant Agent shall have power to waive any default hereunder upon such terms and conditions as the Warrant Agent may deem advisable, on the advice of Counsel, if, in the Warrant Agent’s opinion, based on the advice of Counsel, the same shall have been cured or adequate provision made therefor;

provided that no delay or omission of the Warrant Agent or of the Registered Warrantholders to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein and provided further that no act or omission either of the Warrant Agent or of the Registered Warrantholders in the premises shall extend to or be taken in any manner whatsoever to affect any subsequent default hereunder of the rights resulting therefrom.

ARTICLE 7

MEETINGS OF REGISTERED WARRANTHOLDERS

Section 7.1 Right to Convene Meetings.

The Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the Corporation or of a Warrantholders’ Request and upon being indemnified and funded to its reasonable satisfaction by the Corporation or by the Registered Warrantholders signing such Warrantholders’ Request against the costs which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Registered Warrantholders. If the Warrant Agent fails to so call a meeting within seven days after receipt of such written request of the Corporation or within 30 days after receipt of such Warrantholders’ Request and the indemnity and funding given as aforesaid, the Corporation or such Registered Warrantholders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Vancouver, British Columbia or at such other place as may be approved or determined by the Warrant Agent and the Corporation.

 

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Section 7.2 Notice.

At least 21 days’ prior written notice of any meeting of Registered Warrantholders shall be given to the Registered Warrantholders in the manner provided for in Section 10.2 and a copy of such notice shall be sent by mail to the Warrant Agent (unless the meeting has been called by the Warrant Agent) and to the Corporation (unless the meeting has been called by the Corporation). Such notice shall state the time when and the place where the meeting is to be held, shall state briefly the general nature of the business to be transacted thereat and shall contain such information as is reasonably necessary to enable the Registered Warrantholders to make a reasoned decision on the matter, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Section 7.2.

Section 7.3 Chairman.

An individual (who need not be a Registered Warrantholder) designated in writing by the Warrant Agent shall be chairman of the meeting and if no individual is so designated, or if the individual so designated is not present within fifteen minutes from the time fixed for the holding of the meeting, the Registered Warrantholders present in person or by proxy shall choose an individual present to be chairman.

Section 7.4 Quorum.

Subject to the provisions of Section 7.11, at any meeting of the Registered Warrantholders a quorum shall consist of Registered Warrantholder(s) present in person or by proxy and entitled to purchase at least 25% of the aggregate number of Warrant Shares which may be acquired pursuant to all the then outstanding Warrants. If a quorum of the Registered Warrantholders shall not be present within thirty minutes from the time fixed for holding any meeting, the meeting, if summoned by Registered Warrantholders or on a Warrantholders’ Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day, in which case it shall be adjourned to the next following Business Day) at the same time and place and no notice of the adjournment need be given. Any business may be brought before or dealt with at an adjourned meeting which might have been dealt with at the original meeting in accordance with the notice calling the same. No business shall be transacted at any meeting unless a quorum is present at the commencement of business. At the adjourned meeting the Registered Warrantholders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened, notwithstanding that they may not be entitled to acquire at least 25% of the aggregate number of Warrant Shares which may be acquired pursuant to all then outstanding Warrants.

Section 7.5 Power to Adjourn.

The chairman of any meeting at which a quorum of the Registered Warrantholders is present may, with the consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe.

Section 7.6 Show of Hands.

Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on an Extraordinary Resolution shall be given in the manner hereinafter provided. At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact.

 

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Section 7.7 Poll and Voting.

 

(1)

On every Extraordinary Resolution, and on any other question submitted to a meeting and after a vote by show of hands when demanded by the chairman or by one or more of the Registered Warrantholders acting in person or by proxy and entitled to acquire in the aggregate at least 5% of the aggregate number of Warrant Shares which may be acquired pursuant to all the Warrants then outstanding, a poll shall be taken in such manner as the chairman shall direct. Questions other than those required to be determined by Extraordinary Resolution shall be decided by a majority of the votes cast on the poll.

 

(2)

On a show of hands, every person who is present and entitled to vote, whether as a Registered Warrantholder or as proxy for one or more absent Registered Warrantholders, or both, shall have one vote. On a poll, each Registered Warrantholder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each Warrant then held or represented by it. A proxy need not be a Registered Warrantholder. The chairman of any meeting shall be entitled, both on a show of hands and on a poll, to vote in respect of the Warrants, if any, held or represented by him.

Section 7.8 Regulations.

 

(1)

The Warrant Agent, or the Corporation with the approval of the Warrant Agent, may from time to time make and from time to time vary such regulations as it shall think fit for the setting of the record date for a meeting for the purpose of determining Registered Warrantholders entitled to receive notice of and to vote at the meeting.

 

(2)

Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any meeting as a Registered Warrantholder, or be entitled to vote or be present at the meeting in respect thereof (subject to Section 7.9), shall be Registered Warrantholders or proxies of Registered Warrantholders.

Section 7.9 Corporation and Warrant Agent May be Represented.

The Corporation and the Warrant Agent, by their respective directors, officers, agents, and employees and the Counsel for the Corporation and for the Warrant Agent may attend any meeting of the Registered Warrantholders.

Section 7.10 Powers Exercisable by Extraordinary Resolution.

In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the Registered Warrantholders at a meeting shall, subject to the provisions of Section 7.11 and any requisite approval of the CSE, have the power exercisable from time to time by Extraordinary Resolution:

 

  (a)

to agree to any modification, abrogation, alteration, compromise or arrangement of the rights of Registered Warrantholders or the Warrant Agent in its capacity as warrant agent hereunder (subject to the Warrant Agent’s prior consent, acting reasonably) or on behalf of the Registered Warrantholders against the Corporation whether such rights arise under this Indenture or otherwise;

 

  (b)

to amend, alter or repeal any Extraordinary Resolution previously passed or sanctioned by the Registered Warrantholders;

 

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  (c)

to direct or to authorize the Warrant Agent, subject to Section 9.2(2) hereof, to enforce any of the covenants on the part of the Corporation contained in this Indenture or to enforce any of the rights of the Registered Warrantholders in any manner specified in such Extraordinary Resolution or to refrain from enforcing any such covenant or right;

 

  (d)

to waive, and to direct the Warrant Agent to waive, any default on the part of the Corporation in complying with any provisions of this Indenture either unconditionally or upon any conditions specified in such Extraordinary Resolution;

 

  (e)

to restrain any Registered Warrantholder from taking or instituting any suit, action or proceeding against the Corporation for the enforcement of any of the covenants on the part of the Corporation in this Indenture or to enforce any of the rights of the Registered Warrantholders;

 

  (f)

to direct any Registered Warrantholder who, as such, has brought any suit, action or proceeding to stay or to discontinue or otherwise to deal with the same upon payment of the costs, charges and expenses reasonably and properly incurred by such Registered Warrantholder in connection therewith;

 

  (g)

to assent to any change in or omission from the provisions contained in this Indenture or any ancillary or supplemental instrument which may be agreed to by the Corporation, and to authorize the Warrant Agent to concur in and execute any ancillary or supplemental indenture embodying the change or omission;

 

  (h)

with the consent of the Corporation, such consent not to be unreasonably withheld, to remove the Warrant Agent or its successor in office and to appoint a new warrant agent or warrant agents to take the place of the Warrant Agent so removed; and

 

  (i)

to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or otherwise, and with holders of any shares or other securities of the Corporation.

Section 7.11 Meaning of Extraordinary Resolution.

 

(1)

The expression “Extraordinary Resolution” when used in this Indenture means, subject as hereinafter provided in this Section 7.11 and in Section 7.14, a resolution proposed at a meeting of Registered Warrantholders duly convened for that purpose and held in accordance with the provisions of this Article 7 at which there are present in person or by proxy Registered Warrantholders holding at least 25% of the aggregate number of Warrant Shares that may be acquired on exercise of the outstanding Warrants and passed by the affirmative votes of Registered Warrantholders holding not less than 66 2/3% of the aggregate number of Warrant Shares that may be acquired on exercise of the outstanding Warrants at the meeting and voted on the poll upon such resolution.

 

(2)

If, at the meeting at which an Extraordinary Resolution is to be considered, Registered Warrantholders holding at least 25% of the aggregate number of Warrant Shares that may be acquired on exercise of the outstanding Warrants are not present in person or by proxy within 30 minutes after the time appointed for the meeting, then the meeting, if convened by Registered Warrantholders or on a Warrantholders’ Request, shall be dissolved; but in any other case it shall stand adjourned to such day, being not less than 15 or more than 60 days later, and to such place and time as may be appointed by the chairman. Not less than 14 days’ prior notice shall be given of the time and place of such adjourned meeting in the manner provided for in Section 10.2. Such notice shall state that at the adjourned meeting the Registered Warrantholders present in person or

 

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  by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Registered Warrantholders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in Section 7.11(1) shall be an Extraordinary Resolution within the meaning of this Indenture notwithstanding that Registered Warrantholders entitled to acquire at least 25% of the aggregate number of Warrant Shares which may be acquired pursuant to all the then outstanding Warrants are not present in person or by proxy at such adjourned meeting.

 

(3)

Subject to Section 7.14, votes on an Extraordinary Resolution shall always be given on a poll and no demand for a poll on an Extraordinary Resolution shall be necessary.

Section 7.12 Powers Cumulative.

Any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Registered Warrantholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Registered Warrantholders to exercise such power or powers or combination of powers then or thereafter from time to time.

Section 7.13 Minutes.

Minutes of all resolutions and proceedings at every meeting of Registered Warrantholders shall be made and duly recorded in the books of the Corporation and such minutes as aforesaid, if signed by the chairman or the secretary of the meeting at which such resolutions were passed or proceedings had shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken shall be deemed to have been duly passed and taken.

Section 7.14 Instruments in Writing.

All actions which may be taken and all powers that may be exercised by the Registered Warrantholders at a meeting held as provided in this Article 7 may also be taken and exercised by Registered Warrantholders holding at least 66 2/3% of the aggregate number of the then outstanding Warrants by an instrument in writing signed in one or more counterparts by such Registered Warrantholders in person or by attorney duly appointed in writing, and the expression “Extraordinary Resolution” when used in this Indenture shall include an instrument so signed.

Section 7.15 Binding Effect of Resolutions.

Every resolution and every Extraordinary Resolution passed in accordance with the provisions of this Article 7 at a meeting of Registered Warrantholders shall be binding upon all the Warrantholders, whether present at or absent from such meeting, and every instrument in writing signed by Registered Warrantholders in accordance with Section 7.14 shall be binding upon all the Warrantholders, whether signatories thereto or not, and each and every Warrantholder and the Warrant Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and instrument in writing.

 

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Section 7.16 Holdings by Corporation Disregarded.

In determining whether Registered Warrantholders holding Warrants evidencing the entitlement to acquire the required number of Warrant Shares are present at a meeting of Registered Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, Extraordinary Resolution, Warrantholders’ Request or other action under this Indenture, Warrants owned legally or beneficially by the Corporation or its affiliates shall be disregarded in accordance with the provisions of Section 10.7.

ARTICLE 8

SUPPLEMENTAL INDENTURES

Section 8.1 Provision for Supplemental Indentures for Certain Purposes.

From time to time, the Corporation (when authorized by action of the directors of the Corporation) and the Warrant Agent may, subject to the provisions hereof and subject to compliance with applicable securities laws and the prior approval of the CSE, if required, and they shall, when so directed in accordance with the provisions hereof, execute and deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes:

 

  (a)

setting forth any adjustments resulting from the application of the provisions of Article 4;

 

  (b)

adding to the provisions hereof such additional covenants and enforcement provisions as, in the opinion of Counsel, are necessary or advisable in the premises, provided that the same are not in the opinion of the Warrant Agent, relying on the advice of Counsel, prejudicial to the interests of the Registered Warrantholders;

 

  (c)

giving effect to any Extraordinary Resolution passed as provided in Section 7.11;

 

  (d)

making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder or for the purpose of obtaining a listing or quotation of the Warrants on any stock exchange or quotation system, provided that such provisions are not, in the opinion of the Warrant Agent, relying on the advice of Counsel, prejudicial to the interests of the Registered Warrantholders;

 

  (e)

adding to or altering the provisions hereof in respect of the transfer of Warrants, making provision for the exchange of Warrants, and making any modification in the form of the Warrant Certificates which does not affect the substance thereof;

 

  (f)

modifying any of the provisions of this Indenture, including relieving the Corporation from any of the obligations, conditions or restrictions herein contained, provided that such modification or relief shall be or become operative or effective only if, in the opinion of the Warrant Agent, relying on the advice of Counsel, such modification or relief in no way prejudices any of the rights of the Registered Warrantholders or of the Warrant Agent, and provided further that the Warrant Agent may in its sole discretion decline to enter into any such supplemental indenture which in its opinion may not afford adequate protection to the Warrant Agent when the same shall become operative;

 

  (g)

providing for the issuance of additional Warrants hereunder, including Warrants in excess of the number set out in Section 2.1 and any consequential amendments hereto as may be required by the Warrant Agent relying on the advice of Counsel; and

 

  (h)

for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective or inconsistent provisions, errors,

 

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  mistakes or omissions herein, provided that in the opinion of the Warrant Agent, relying on the advice of Counsel, the rights of the Warrant Agent and of the Registered Warrantholders are in no way prejudiced thereby.

Section 8.2 Successor Entities.

In the case of the consolidation, amalgamation, arrangement, merger or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to or with another entity (“successor entity”), the successor entity resulting from such consolidation, amalgamation, arrangement, merger or transfer (if not the Corporation) shall expressly assume, by supplemental indenture satisfactory in form to the Warrant Agent and executed and delivered to the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Indenture to be performed and observed by the Corporation.

ARTICLE 9

CONCERNING THE WARRANT AGENT

Section 9.1 Trust Indenture Legislation.

 

(1)

If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail.

 

(2)

The Corporation and the Warrant Agent agree that each will, at all times in relation to this Indenture and any action to be taken hereunder, observe and comply with and be entitled to the benefits of Applicable Legislation.

Section 9.2 Rights and Duties of Warrant Agent.

 

(1)

In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Warrant Agent shall exercise that degree of care, diligence and skill that a reasonably prudent warrant agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Warrant Agent from liability for its own gross negligence, wilful misconduct, bad faith or fraud under this Indenture.

 

(2)

The obligation of the Warrant Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Warrant Agent or the Registered Warrantholders hereunder shall be conditional upon the Registered Warrantholders furnishing, when required by notice by the Warrant Agent, sufficient funds to commence or to continue such act, action or proceeding and an indemnity reasonably satisfactory to the Warrant Agent to protect and to hold harmless the Warrant Agent and its officers, directors, employees and agents, against the costs, charges and expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Warrant Agent to expend or to risk its own funds or otherwise to incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid.

 

(3)

The Warrant Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Registered Warrantholders, at whose instance it is acting to deposit with the Warrant Agent the Warrants Certificates held by them, for which Warrants the Warrant Agent shall issue receipts.

 

(4)

Every provision of this Indenture that by its terms relieves the Warrant Agent of liability or entitles it to rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation.

 

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Section 9.3 Evidence, Experts and Advisers.

 

(1)

In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Corporation shall furnish to the Warrant Agent such additional evidence of compliance with any provision hereof, and in such form, as may be prescribed by Applicable Legislation or as the Warrant Agent may reasonably require by written notice to the Corporation.

 

(2)

In the exercise of its rights and duties hereunder, the Warrant Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed in statutory declarations, opinions, reports, written requests, consents, or orders of the Corporation, certificates of the Corporation or other evidence furnished to the Warrant Agent pursuant to a request of the Warrant Agent, provided that such evidence complies with Applicable Legislation and that the Warrant Agent complies with Applicable Legislation and that the Warrant Agent examines the same and determines that such evidence complies with the applicable requirements of this Indenture.

 

(3)

Whenever it is provided in this Indenture or under Applicable Legislation that the Corporation shall deposit with the Warrant Agent resolutions, certificates, reports, opinions, requests, orders or other documents, it is intended that the truth, accuracy and good faith on the effective date thereof and the facts and opinions stated in all such documents so deposited shall, in each and every such case, be conditions precedent to the right of the Corporation to have the Warrant Agent take the action to be based thereon.

 

(4)

The Warrant Agent may employ or retain such Counsel, accountants, appraisers or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any Counsel, and shall not be responsible for any misconduct or negligence on the part of any such experts or advisers who have been appointed with due care by the Warrant Agent.

 

(5)

The Warrant Agent may act and rely and shall be protected in acting and relying in good faith on the opinion or advice of or information obtained from any Counsel, accountant, appraiser, engineer or other expert or adviser, whether retained or employed by the Corporation or by the Warrant Agent, in relation to any matter arising in the administration of the agency hereof.

Section 9.4 Documents, Monies, etc. Held by Warrant Agent.

Until released in accordance with this Indenture, any funds received hereunder shall be kept in segregated records of the Warrant Agent and the Warrant Agent shall place the funds in segregated trust accounts of the Warrant Agent at one or more of the Canadian Chartered Banks listed in Schedule 1 of the Bank Act (Canada) (“Approved Bank”). All amounts held by the Warrant Agent pursuant to this Agreement shall be held by the Warrant Agent for the Corporation and the delivery of the funds to the Warrant Agent shall not give rise to a debtor-creditor or other similar relationship. The amounts held by the Warrant Agent pursuant to this Agreement are at the sole risk of the Corporation and, without limiting the generality of the foregoing, the Warrant Agent shall have no responsibility or liability for any diminution of the funds which may result from any deposit made with an Approved Bank pursuant to this Section 9.4, including any losses resulting from a default by the Approved Bank or other credit losses (whether or not resulting from such a default). The parties hereto acknowledge and agree that the Warrant Agent will have acted prudently in depositing the funds at any Approved Bank, and that the Warrant Agent is not required to make any further inquiries in respect of any such bank. The Warrant Agent may hold cash balances constituting part or all of such monies and need not, invest same; the Warrant Agent shall not be liable to account for any profit to any parties to this Indenture or to any other person or entity.

 

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Section 9.5 Actions by Warrant Agent to Protect Interest.

The Warrant Agent shall have power to institute and to maintain such actions and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Registered Warrantholders.

Section 9.6 Warrant Agent Not Required to Give Security.

The Warrant Agent shall not be required to give any bond or security in respect of the execution of the agency and powers of this Indenture or otherwise in respect of the premises.

Section 9.7 Protection of Warrant Agent.

By way of supplement to the provisions of any law for the time being relating to the Warrant Agent it is expressly declared and agreed as follows:

 

  (a)

the Warrant Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Warrant Certificates or the DRS Advices (except the representation contained in Section 9.9 or in the authentication of the Warrant Agent on the Warrant Certificates) or be required to verify the same, but all such statements or recitals are and shall be deemed to be made by the Corporation;

 

  (b)

nothing herein contained shall impose any obligation on the Warrant Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto;

 

  (c)

the Warrant Agent shall not be bound to give notice to any person or persons of the execution hereof;

 

  (d)

the Warrant Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Corporation of any of its covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Corporation;

 

  (e)

the Corporation hereby indemnifies and agrees to hold harmless the Warrant Agent, its affiliates, their officers, directors, employees, agents, successors and assigns (the “Indemnified Parties”) from and against any and all liabilities whatsoever, losses, damages, penalties, claims, demands, actions, suits, proceedings, costs, charges, assessments, judgments, expenses and disbursements, including reasonable legal fees and disbursements of whatever kind and nature which may at any time be imposed on or incurred by or asserted against the Indemnified Parties, or any of them, whether at law or in equity, in any way caused by or arising, directly or indirectly, in respect of any act, deed, matter or thing whatsoever made, done, acquiesced in or omitted in or about or in relation to the execution of the Indemnified Parties’ duties, or any other services that Warrant Agent may provide in connection with or in any way relating to this Indenture. The Corporation agrees that its liability hereunder shall be absolute and unconditional regardless of the correctness of any representations of any third parties and regardless of any liability of third parties to the Indemnified Parties, and shall accrue and become enforceable without prior demand or any other precedent action or proceeding; provided that the Corporation shall not be required to indemnify the Indemnified Parties in the event of the gross negligence, wilful misconduct, bad faith or fraud of the Warrant Agent, and this provision shall survive the resignation or removal of the Warrant Agent or the termination or discharge of this Indenture; and

 

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  (f)

notwithstanding the foregoing or any other provision of this Indenture: (i) any liability of the Warrant Agent shall be limited, in the aggregate, to the amount of annual retainer fees paid by the Corporation to the Warrant Agent under this Indenture in the twelve (12) months immediately prior to the Warrant Agent receiving the first notice of the claim; and (ii) the Warrant Agent shall not be liable under any circumstances whatsoever, whether such losses or damages are foreseeable or unforeseeable, for any (a) breach by any other party of securities law or other rule of any securities regulatory authority, (b) lost profits or (c) special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or damages.

Section 9.8 Replacement of Warrant Agent; Successor by Merger.

 

(1)

The Warrant Agent may resign its agency and be discharged from all further duties and liabilities hereunder, subject to this Section 9.8, by giving to the Corporation not less than 60 days’ prior notice in writing or such shorter prior notice as the Corporation may accept as sufficient. The Registered Warrantholders by Extraordinary Resolution shall have power at any time to remove the existing Warrant Agent and to appoint a new warrant agent. In the event of the Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Corporation shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Registered Warrantholders; failing such appointment by the Corporation, the retiring Warrant Agent or any Registered Warrantholder may apply to a judge of the Province of British Columbia on such notice as such judge may direct, for the appointment of a new warrant agent; but any new warrant agent so appointed by the Corporation or by the Court shall be subject to removal as aforesaid by the Registered Warrantholders. Any new warrant agent appointed under any provision of this Section 9.8 shall be an entity authorized to carry on the business of a trust company in the Province of British Columbia and, if required by the Applicable Legislation for any other provinces, in such other provinces. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Warrant Agent hereunder.

 

(2)

Upon the appointment of a successor warrant agent, the Corporation shall promptly notify the Registered Warrantholders thereof in the manner provided for in Section 10.2.

 

(3)

Any Warrant Certificates Authenticated but not delivered by a predecessor Warrant Agent may be Authenticated by the successor Warrant Agent in the name of the successor Warrant Agent.

 

(4)

Any corporation into which the Warrant Agent may be merged or consolidated or amalgamated, or any corporation resulting therefrom to which the Warrant Agent shall be a party, or any corporation succeeding to substantially the corporate trust business of the Warrant Agent shall be the successor to the Warrant Agent hereunder without any further act on its part or any of the parties hereto, provided that such corporation would be eligible for appointment as successor Warrant Agent under Section 9.8(1).

Section 9.9 Acceptance of Agency

The Warrant Agent hereby accepts the agency in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth.

 

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Section 9.10 Warrant Agent Not to be Appointed Receiver.

The Warrant Agent and any person related to the Warrant Agent shall not be appointed a receiver, a receiver and manager or liquidator of all or any part of the assets or undertaking of the Corporation.

Section 9.11 Warrant Agent Not Required to Give Notice of Default.

The Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify the default desired to be brought to the attention of the Warrant Agent and in the absence of any such notice the Warrant Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Warrant Agent to determine whether or not the Warrant Agent shall take action with respect to any default.

Section 9.12 Anti-Money Laundering.

 

(1)

The Corporation hereby represents to the Warrant Agent that any account to be opened by, or interest to be held by the Warrant Agent in connection with this Indenture, for or to the credit of such party, either (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case such party hereto agrees to complete and execute forthwith a declaration in the Warrant Agent’s prescribed form as to the particulars of such third party.

 

(2)

The Warrant Agent shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Warrant Agent, in its sole judgment, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering, anti-terrorist or economic sanctions legislation, regulation or guideline. Further, should the Warrant Agent, in its sole judgment, determine at any time that its acting under this Indenture has resulted in its being in non-compliance with any applicable anti-money laundering, anti-terrorist or economic sanctions legislation, regulation or guideline, then it shall have the right to resign on ten (10) days written notice to the other parties to this Indenture, provided (i) that the Warrant Agent’s written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances are rectified to the Warrant Agent’s satisfaction within such ten (10) day period, then such resignation shall not be effective.

Section 9.13 Compliance with Privacy Code.

The Corporation acknowledges that the Warrant Agent may, in the course of providing services hereunder, collect or receive financial and other personal information about such parties and/or their representatives, as individuals, or about other individuals related to the subject matter hereof, and use such information for the following purposes:

 

  (a)

to provide the services required under this Indenture and other services that may be requested from time to time;

 

  (b)

to help the Warrant Agent manage its servicing relationships with such individuals;

 

  (c)

to meet the Warrant Agent’s legal and regulatory requirements; and

 

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  (d)

if Social Insurance Numbers are collected by the Warrant Agent, to perform tax reporting and to assist in verification of an individual’s identity for security purposes.

The Corporation acknowledges and agrees that the Warrant Agent may receive, collect, use and disclose personal information provided to it or acquired by it in the course of its acting as agent hereunder for the purposes described above and, generally, in the manner and on the terms described in its Privacy Code, which the Warrant Agent shall make available on its website, www.computershare.com, or upon request, including revisions thereto. The Warrant Agent may transfer personal information to other companies in or outside of Canada that provide data processing and storage or other support in order to facilitate the services it provides.

Further, the Corporation agrees that it shall not provide or cause to be provided to the Warrant Agent any personal information relating to an individual who is not a party to this Indenture unless that party has assured itself that such individual understands and has consented to the aforementioned uses and disclosures.

Section 9.14 Securities Exchange Commission Certification.

The Corporation confirms that as at the date of execution of this Agreement it does not have a class of securities registered pursuant to Section 12 of the U.S. Exchange Act and does not have a reporting obligation pursuant to Section 15(d) of the U.S. Exchange Act.

The Corporation covenants that in the event that (i) any class of its securities shall become registered pursuant to Section 12 of the U.S. Exchange Act or Corporation shall incur a reporting obligation pursuant to Section 15(d) of the U.S. Exchange Act, or (ii) any such registration or reporting obligation shall be terminated by the Corporation in accordance with the U.S. Exchange Act, the Corporation shall promptly deliver to the Warrant Agent an officers’ certificate (in a form provided by the Warrant Agent notifying the Warrant Agent of such registration or termination and such other information as the Warrant Agent may require at the time. The Corporation acknowledges that Warrant Agent is relying upon the foregoing representation and covenants in order to meet certain SEC obligations with respect to those clients of the Warrant Agent who are required to file reports under the U.S. Exchange Act.

ARTICLE 10

GENERAL

Section 10.1 Notice to the Corporation and the Warrant Agent.

 

(1)

Unless herein otherwise expressly provided, any notice to be given hereunder to the Corporation or the Warrant Agent shall be deemed to be validly given if delivered, sent by registered letter, postage prepaid or if faxed or emailed:

 

  (a)

If to the Corporation:

The Very Good Food Company Inc.

1701 Douglas St #6

Victoria, BC

V6W2G7

Attention: [***Redacted – Personally Identifying Information***]

Email Address: [***Redacted – Personally Identifying Information***]

 

  (b)

If to the Warrant Agent:

 

- 38 -

Computershare Trust Company of Canada

3rd Floor, 510 Burrard Street

Vancouver, British Columbia V6C 3B9

Attention: [***Redacted – Personally Identifying Information***]

Email Address: [***Redacted – Personally Identifying Information***]

and any such notice delivered in accordance with the foregoing shall be deemed to have been received and given on the date of delivery or, if mailed, on the fifth Business Day following the date of mailing such notice or, if faxed, on the next Business Day following the date of transmission.

 

(2)

The Corporation or the Warrant Agent, as the case may be, may from time to time notify the other in the manner provided in Section 10.1(1) of a change of address which, from the effective date of such notice and until changed by like notice, shall be the address of the Corporation or the Warrant Agent, as the case may be, for all purposes of this Indenture.

 

(3)

If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any notice to be given to the Warrant Agent or to the Corporation hereunder could reasonably be considered unlikely to reach its destination, such notice shall be valid and effective only if it is delivered to the named officer of the party to which it is addressed, as provided in Section 10.1(1), or given by facsimile, email or other means of prepaid, transmitted and recorded communication.

Section 10.2 Notice to Registered Warrantholders.

 

(1)

Unless otherwise provided herein, notice to the Registered Warrantholders under the provisions of this Indenture shall be valid and effective if delivered or sent by ordinary prepaid post addressed to such holders at their post office addresses appearing on the register hereinbefore mentioned and shall be deemed to have been effectively received and given on the date of delivery or, if mailed, on the third Business Day following the date of mailing such notice. In the event that Warrants are held in the name of the Depository, a copy of such notice shall also be sent by electronic communication to the Depository and shall be deemed received and given on the day it is so sent.

 

(2)

If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any notice to be given to the Registered Warrantholders hereunder could reasonably be considered unlikely to reach its destination, such notice shall be valid and effective only if it is delivered to such Registered Warrantholders to the address for such Registered Warrantholders contained in the register maintained by the Warrant Agent or such notice may be given, at the Corporation’s expense, by means of publication in the Globe and Mail, National Edition, or any other English language daily newspaper or newspapers of general circulation in Canada, in each two successive weeks, the first such notice to be published within 5 business days of such event, and any so notice published shall be deemed to have been received and given on the latest date the publication takes place.

Section 10.3 Ownership of Warrants.

The Corporation and the Warrant Agent may deem and treat the Registered Warrantholders as the absolute owner thereof for all purposes, and the Corporation and the Warrant Agent shall not be affected by any notice or knowledge to the contrary except where the Corporation or the Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. The receipt of any such Registered Warrantholder of the Warrant Shares which may be acquired pursuant thereto shall be a good discharge to

 

- 39 -

the Corporation and the Warrant Agent for the same and neither the Corporation nor the Warrant Agent shall be bound to inquire into the title of any such holder except where the Corporation or the Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction.

Section 10.4 Counterparts.

This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution they shall be deemed to be dated as of the date hereof. Delivery of an executed copy of the Indenture by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Indenture as of the date hereof.

Section 10.5 Satisfaction and Discharge of Indenture.

Upon the earlier of:

 

  (a)

the date by which there shall have been delivered to the Warrant Agent for exercise or cancellation all Warrants theretofore Authenticated hereunder, in the case of Warrant Certificates (or such other instructions, in a form satisfactory to the Warrant Agent), in the case of Uncertificated Warrants, or by way of standard processing through the book entry system in the case of a CDS Global Warrant; and

 

  (b)

the Expiry Time;

and if all certificates or other entry on the register representing Warrant Shares required to be issued in compliance with the provisions hereof have been issued and delivered hereunder or to the Warrant Agent in accordance with such provisions, this Indenture shall cease to be of further effect and the Warrant Agent, on demand of and at the cost and expense of the Corporation and upon delivery to the Warrant Agent of a certificate of the Corporation stating that all conditions precedent to the satisfaction and discharge of this Indenture have been complied with, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. Notwithstanding the foregoing, the indemnities provided to the Warrant Agent by the Corporation hereunder shall remain in full force and effect and survive the termination of this Indenture.

Section 10.6 Provisions of Indenture and Warrants for the Sole Benefit of Parties and Registered Warrantholders.

Nothing in this Indenture or in the Warrants, expressed or implied, shall give or be construed to give to any person other than the parties hereto and the Registered Warrantholders, as the case may be, any legal or equitable right, remedy or claim under this Indenture, or under any covenant or provision herein or therein contained, all such covenants and provisions being for the sole benefit of the parties hereto and the Registered Warrantholders.

Section 10.7 Common Shares or Warrants Owned by the Corporation or its Subsidiaries—Certificate to be Provided.

For the purpose of disregarding any Warrants owned legally or beneficially by the Corporation or its affiliates in Section 7.16, the Corporation shall provide to the Warrant Agent, from time to time, a certificate of the Corporation setting forth as at the date of such certificate:

 

- 40 -

  (a)

the names (other than the name of the Corporation) of the Registered Warrantholders which, to the knowledge of the Corporation, are owned by or held for the account of the Corporation or its affiliates; and

 

  (b)

the number of Warrants owned legally or beneficially by the Corporation or its affiliates;

and the Warrant Agent, in making the computations in Section 7.16 shall be entitled to rely on such certificate without any additional evidence.

Section 10.8 Severability

If, in any jurisdiction, any provision of this Indenture or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision will, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Indenture and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other parties or circumstances.

Section 10.9 Force Majeure

No party shall be liable to the other, or held in breach of this Indenture, if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of act of God, riots, terrorism, acts of war, epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not limited to, mechanical, electronic or communication interruptions, disruptions or failures). Performance times under this Indenture shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section 10.9.

Section 10.10 Assignment, Successors and Assigns

Neither of the parties hereto may assign its rights or interest under this Indenture, except as provided in Section 9.8 in the case of the Warrant Agent, or as provided in Section 8.2 in the case of the Corporation. Subject thereto, this Indenture shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

Section 10.11 Rights of Rescission and Withdrawal for Holders

Should a holder of Warrants exercise any legal, statutory, contractual or other right of withdrawal or rescission that may be available to it, and the holder’s funds which were paid on exercise have already been released to the Corporation by the Warrant Agent, the Warrant Agent shall not be responsible for ensuring the exercise is cancelled and a refund is paid back to the holder. In such cases, the holder shall seek a refund directly from the Corporation and subsequently, the Corporation, upon surrender to the Corporation or the Warrant Agent of any underlying Warrant Shares or other securities that may have been issued, or such other procedure as agreed to by the parties hereto, shall instruct the Warrant Agent in writing, to cancel the exercise transaction and any such underlying Warrant Shares or other securities on the register, which may have already been issued upon the Warrant exercise. In the event that any payment is received from the Corporation by virtue of the holder being a shareholder for such Warrants that were subsequently rescinded, such payment must be returned to the Corporation by such holder. The Warrant Agent shall not be under any duty or obligation to take any steps to ensure or enforce the return of the funds pursuant to this Section 10.11, nor shall the Warrant Agent be in any other way responsible in the event that any payment is not delivered or received pursuant to this Section 10.11. Notwithstanding the foregoing, in the event that the Corporation provides the refund to the Warrant Agent for distribution to the holder, the Warrant Agent shall return such funds to the holder as soon as reasonably practicable, and in so doing, the Warrant Agent shall incur no liability with respect to the delivery or non-delivery of any such funds.

 

- 41 -

[signature page follows.]

 

- 42 -

IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers in that behalf as of the date first written above.

 

THE VERY GOOD FOOD COMPANY INC.
By:  

/s/ Mitchell Scott

  Name: Mitchell Scott
  Title: Chief Executive Officer
By:  

/s/ Kamini Hitkari

  Name: Kamini Hitkari
  Title: Chief Financial Officer
COMPUTERSHARE TRUST COMPANY OF CANADA
By:  

/s/ Brian Howarth

  Name: Brian Howarth
  Title: Corporate Trust Officer
By:  

/s/ Jennifer Lesley Wong

  Name: Jennifer Lesley Wong
  Title: Professional, Corporate Trust

 

- 43 -

SCHEDULE “A”

FORM OF WARRANT

THE WARRANTS EVIDENCED HEREBY ARE EXERCISABLE AT OR BEFORE 4:30 P.M. (VANCOUVER TIME) ON JUNE 4, 2022, AFTER WHICH TIME THE WARRANTS EVIDENCED HEREBY SHALL BE DEEMED TO BE VOID AND OF NO FURTHER FORCE OR EFFECT.

For Warrants sold pursuant to Rule 144A under the U.S. Securities Act, also include the following legend:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE VERY GOOD FOOD COMPANY INC. (THE “CORPORATION”) (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH LOCAL LAWS AND REGULATIONS, (D) IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (E) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (D)(2) OR (E) ABOVE, A LEGAL OPINION OR SUCH OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.

 

A- 1

WARRANT

To acquire Common Shares of

THE VERY GOOD FOOD COMPANY INC.

(incorporated pursuant to the laws of the Province of British Columbia)

 

Warrant Certificate No.    Certificate for Warrants, each entitling the holder to acquire one (1) Common Share (subject to adjustment as provided for in the Warrant Indenture (as defined below)
  

CUSIP 88340B125

 

ISIN CA88340B1250

THIS IS TO CERTIFY THAT, for value received,

 

(the “Warrantholder”) is the registered holder of the number of common share purchase warrants (the “Warrants”) of The Very Good Food Company Inc. (the “Corporation”) specified above, and is entitled, on exercise of these Warrants upon and subject to the terms and conditions set forth herein and in the Warrant Indenture, to purchase at any time before 4:30 p.m. (Vancouver time) (the “Expiry Time”) on June 4, 2022 (the “Expiry Date”) one fully paid and non-assessable common share without par value in the capital of the Corporation as constituted on the date hereof (a “Common Share”) for each Warrant subject to adjustment in accordance with the terms of the Warrant Indenture.

The Warrants evidenced hereby are exercisable at or before the Expiry Time on the Expiry Date after which time the Warrants evidenced hereby shall be deemed to be void and of no further force or effect.

The right to purchase Common Shares may only be exercised by the Warrantholder within the time set forth above by:

 

(a)

duly completing and executing the exercise notice (the “Exercise Notice”) attached hereto; and

 

(b)

surrendering this warrant certificate (the “Warrant Certificate”), with the Exercise Notice to the Warrant Agent at the principal office of the Warrant Agent, in the city of Vancouver, British Columbia, together with a certified cheque, bank draft or money order in the lawful money of Canada payable to or to the order of the Corporation in an amount equal to the purchase price of the Common Shares so subscribed for.

The surrender of this Warrant Certificate, the duly completed Exercise Notice and payment as provided above will be deemed to have been effected only on personal delivery thereof to, or if sent by mail or other means of transmission on actual receipt thereof by, the Warrant Agent at its principal office as set out above.

Subject to adjustment thereof in the events and in the manner set forth in the Warrant Indenture hereinafter referred to, the exercise price payable for each Common Share upon the exercise of Warrants shall be $4.50 per Common Share (the “Exercise Price”).

Certificates for the Common Shares subscribed for will be mailed to the persons specified in the Exercise Notice at their respective addresses specified therein or, if so specified in the Exercise Notice, delivered to such persons at the office where this Warrant Certificate is surrendered. If fewer Common Shares are

 

A- 2

purchased than the number that can be purchased pursuant to this Warrant Certificate, the holder hereof will be entitled to receive without charge a new Warrant Certificate in respect of the balance of the Warrants not then exercised. No fractional Common Shares will be issued upon exercise of any Warrant and no cash or other consideration will be paid in lieu of fractional shares.

This Warrant Certificate evidences Warrants of the Corporation issued or issuable under the provisions of a warrant indenture (which indenture together with all other instruments supplemental or ancillary thereto is herein referred to as the “Warrant Indenture”) dated as of December 4, 2020 between the Corporation and Computershare Trust Company of Canada, as Warrant Agent, to which Warrant Indenture reference is hereby made for particulars of the rights of the holders of Warrants, the Corporation and the Warrant Agent in respect thereof and the terms and conditions on which the Warrants are issued and held, all to the same effect as if the provisions of the Warrant Indenture were herein set forth, to all of which the holder, by acceptance hereof, assents. The Corporation will furnish to the holder, on request and without charge, a copy of the Warrant Indenture. All capitalized terms not otherwise defined herein shall have the meaning ascribed to such term in the Warrant Indenture.

On presentation at the principal office of the Warrant Agent as set out above, subject to the provisions of the Warrant Indenture and on compliance with the reasonable requirements of the Warrant Agent, one or more Warrant Certificates may be exchanged for one or more Warrant Certificates entitling the holder thereof to purchase in the aggregate an equal number of Common Shares as are purchasable under the Warrant Certificate(s) so exchanged.

Neither the Warrants nor the Common Shares issuable upon exercise hereof have been or will be registered under the U.S. Securities Act, or any U.S. state securities laws, and the Warrants originally issued in the United States or to, or for the account or benefit of, a U.S. Person or a person in the United States are, and any Common Shares issued upon exercise of such Warrants will be, “restricted securities” within the meaning of Rule 144(a)(3) of the U.S. Securities Act. These Warrants may not be exercised in the United States or by or on behalf of, or for the account or benefit of, a U.S. Person or a person in the United States unless (i) the exercise thereof has been registered under the U.S. Securities Act and applicable state securities laws or (ii) one or more exemption(s) from such registration requirements is available and the requirements set forth in the Exercise Notice have been satisfied. “United States” and “U.S. Person” have the meanings given to them in Regulation S under the U.S. Securities Act.

The Warrant Indenture contains provisions for the adjustment of the Exercise Price payable for each Common Share upon the exercise of Warrants and the number of Common Shares issuable upon the exercise of Warrants in the events and in the manner set forth therein.

The Warrant Indenture also contains provisions binding on all holders of Warrants outstanding thereunder to resolutions passed at meetings of holders of Warrants held in accordance with the provisions of the Warrant Indenture and instruments in writing signed by Warrantholders of Warrants entitled to purchase a specific majority of the Common Shares that can be purchased pursuant to such Warrants.

Nothing contained in this Warrant Certificate, the Warrant Indenture or elsewhere shall be construed as conferring upon the holder hereof any right or interest whatsoever as a holder of Common Shares or any other right or interest except as herein and in the Warrant Indenture expressly provided. In the event of any discrepancy between anything contained in this Warrant Certificate and the terms and conditions of the Warrant Indenture, the terms and conditions of the Warrant Indenture shall govern.

Warrants may only be transferred in compliance with the conditions of the Warrant Indenture on the register to be kept by the Warrant Agent in Vancouver, British Columbia, or such other registrar as the Corporation, with the approval of the Warrant Agent, may appoint at such other place or places, if any, as may be designated, upon surrender of this Warrant Certificate to the Warrant Agent or other registrar accompanied by a written instrument of transfer in form and execution satisfactory to the Warrant Agent or other registrar

 

A- 3

and upon compliance with the conditions prescribed in the Warrant Indenture and with such reasonable requirements as the Warrant Agent or other registrar may prescribe and upon the transfer being duly noted thereon by the Warrant Agent or other registrar. Time is of the essence hereof.

This Warrant Certificate will not be valid for any purpose until it has been countersigned by or on behalf of the Warrant Agent from time to time under the Warrant Indenture.

The parties hereto have declared that they have required that these presents and all other documents related hereto be in the English language. Les parties aux présentes déclarent qu’elles ont exigé que la présente convention, de même que tous les documents s’y rapportant, soient rédigés en anglais.

IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate to be duly executed as of December 4, 2020.

 

THE VERY GOOD FOOD COMPANY INC.
By:  

 

  Authorized Signatory
By:  

 

  Authorized Signatory

Countersigned and Registered by:

COMPUTERSHARE TRUST COMPANY OF CANADA

 

By:  

 

  Authorized Signatory

 

A- 4

FORM OF TRANSFER

To: Computershare Trust Company of Canada

FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers to

 

 

(print name and address) the Warrants represented by this Warrants Certificate or DRS Advice and hereby irrevocable constitutes and appoints ___________________________ as its attorney with full power of substitution to transfer the said securities on the appropriate register of the Warrant Agent.

In the case of a warrant certificate that contains a U.S. restrictive legend, the undersigned hereby represents, warrants and certifies that (one (only) of the following must be checked):

 

☐    (A)    the transfer is being made only to the Corporation;
☐    (B)    the transfer is being made outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, and in compliance with any applicable local securities laws and regulations and the holder has provided herewith the Declaration for Removal of Legend attached as Schedule “C” to the Warrant Indenture, or
☐    (C)    the transfer is being made within the United States or to, or for the account or benefit of, U.S. Persons, in accordance with a transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws and the undersigned has furnished to the Corporation and the Warrant Agent an opinion of counsel of recognized standing in form and substance reasonably satisfactory to the Corporation and the Warrant Agent to such effect.

In the case of a warrant certificate that does not contain a U.S. restrictive legend, if the proposed transfer is to, or for the account or benefit of a U.S. Person or to a person in the United States, the undersigned hereby represents, warrants and certifies that the transfer of the Warrants is being completed pursuant to an exemption from the registration requirements of the U.S. Securities Act and any applicable state securities laws, in which case the undersigned has furnished to the Corporation and the Warrant Agent an opinion of counsel of recognized standing or such other evidence in form and substance reasonably satisfactory to the Corporation and the Warrant Agent to such effect.

☐     If transfer is to a U.S. Person, check this box.

 

A- 5

DATED this ________ day of __________________, ________.

 

SPACE FOR GUARANTEES OF SIGNATURES (BELOW)

 

 

 

Guarantor’s Signature/Stamps

   

)

)

)

)

)

)

)

)

)

)

)

   

 

 

 

 

 

Signature of Transferor

 

Name of Transferor

REASON FOR TRANSFER – For US Residents only (where the individual(s) or corporation receiving the securities is a US resident). Please select only one (see instructions below).

☐ Gift     ☐ Estate ☐ Private Sale    ☐ Other (or no change in ownership)

Date of Event (Date of gift, death or sale):    Value per Warrant on the date of event:

 

LOGO

CERTAIN REQUIREMENTS RELATING TO TRANSFERS – READ CAREFULLY

The signature(s) of the transferor(s) must correspond with the name(s) as written upon the face of this certificate(s) or the DRS Advice, in every particular, without alteration or enlargement, or any change whatsoever. All securityholders or a legally authorized representative must sign this form. The signature(s) on this form must be guaranteed in accordance with the transfer agent’s then current guidelines and requirements at the time of transfer. Notarized or witnessed signatures are not acceptable as guaranteed signatures. As at the time of closing, you may choose one of the following methods (although subject to change in accordance with industry practice and standards):

 

  •  

Canada and the USA: A Medallion Signature Guarantee obtained from a member of an acceptable Medallion Signature Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks, savings banks, credit unions, and all broker dealers participate in a Medallion Signature Guarantee Program. The Guarantor must affix a stamp bearing the actual words “Medallion Guaranteed”, with the correct prefix covering the face value of the certificate.

 

  •  

Canada: A Signature Guarantee obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust. The Guarantor must affix a stamp bearing the actual words “Signature Guaranteed”, sign and print their full name and alpha numeric signing number. Signature Guarantees are not accepted from Treasury Branches, Credit Unions or Caisse Populaires unless they are members of a Medallion Signature Guarantee Program. For corporate holders, corporate signing resolutions, including certificate of incumbency, are also required to accompany the transfer, unless there is a “Signature & Authority to Sign Guarantee” Stamp affixed to the

 

A- 6

 

transfer (as opposed to a “Signature Guaranteed” Stamp) obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a Medallion Signature Guarantee with the correct prefix covering the face value of the certificate.

 

  •  

Outside North America: For holders located outside North America, present the certificates(s) or the DRS Advice and/or document(s) that require a guarantee to a local financial institution that has a corresponding Canadian or American affiliate which is a member of an acceptable Medallion Signature Guarantee Program. The corresponding affiliate will arrange for the signature to be over- guaranteed.

OR

The signature(s) of the transferor(s) must correspond with the name(s) as written upon the face of this certificate(s), in every particular, without alteration or enlargement, or any change whatsoever. The signature(s) on this form must be guaranteed by an authorized officer of Royal Bank of Canada, Scotia Bank or TD Canada Trust whose sample signature(s) are on file with the transfer agent, or by a member of an acceptable Medallion Signature Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed signatures are not acceptable as guaranteed signatures. The Guarantor must affix a stamp bearing the actual words: “SIGNATURE GUARANTEED”, “MEDALLION GUARANTEED” OR “SIGNATURE & AUTHORITY TO SIGN GUARANTEE”, all in accordance with the transfer agent’s then current guidelines and requirements at the time of transfer. For corporate holders, corporate signing resolutions, including certificate of incumbency, will also be required to accompany the transfer unless there is a “SIGNATURE & AUTHORITY TO SIGN GUARANTEE” Stamp affixed to the Form of Transfer obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a “MEDALLION GUARANTEED” Stamp affixed to the Form of Transfer, with the correct prefix covering the face value of the certificate.

REASON FOR TRANSFER – FOR US RESIDENTS ONLY

Consistent with US IRS regulations, Computershare is required to request cost basis information from US securityholders. Please indicate the reason for requesting the transfer as well as the date of event relating to the reason. The event date is not the day in which the transfer is finalized, but rather the date of the event which led to the transfer request (i.e. date of gift, date of death of the securityholder, or the date the private sale took place).

 

A- 7

SCHEDULE “B”

EXERCISE NOTICE

 

TO:

THE VERY GOOD FOOD COMPANY INC.

 

AND TO:

Computershare Trust Company of Canada

510 Burrard Street, 3rd Floor

Vancouver, BC V6C 3B9

The undersigned holder of the Warrants evidenced by this Warrant Certificate or the DRS Advice hereby exercises the right to acquire _______________ (A) Common Shares of The Very Good Food Company Inc.

 

Exercise Price Payable:   

 

     ((A) multiplied by $4.50, subject to adjustment)

The undersigned hereby exercises the right of such holder to be issued, and hereby subscribes for, Common Shares that are issuable pursuant to the exercise of such Warrants on the terms specified in such Warrant Certificate or the DRS Advice and in the Warrant Indenture.

The undersigned acknowledges that the undersigned is aware that the Common Shares received on exercise may be subject to restrictions on resale under applicable securities laws.

Any capitalized term in this Warrant Certificate that is not otherwise defined herein, shall have the meaning ascribed thereto in the Warrant Indenture.

The undersigned represents, warrants and certifies as follows (one (only) of the following must be checked):

(A)the undersigned holder at the time of exercise of the Warrants (i) is not in the United States, (ii) is not a U.S. Person , (iii) is not exercising the Warrants for the account or benefit of a U.S. Person or a person in the United States, (iv) did not receive an offer to exercise the Warrants within the United States, (v) did not execute or deliver this exercise notice in the United States, and (vi) delivery of the underlying Common Shares will not be to an address in the United States; OR

(B)the undersigned holder (a) is the original purchaser of the Warrants pursuant to Rule 144A under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), as part of the Corporation’s offering of Units of which the Warrants comprised a part, and at the time of such acquisition was a U.S. Person or was in the United States (or was acting on behalf of, or for the account or benefit of, a U.S. Person or a person in the United States), and (b) confirms, as of the date of hereof, each of the representations, warranties, certifications and agreements made by it in connection with its acquisition of such Warrants, including, without limitation, its status as a “qualified institutional buyer” within the meaning of Rule 144A under the U.S. Securities Act, as though such representations, warranties, certifications and agreements were made on the date hereof and in respect of the acquisition of the Common Shares issuable upon exercise of the Warrants being exercised, and the undersigned further represents and warrants that on the date hereof it is an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act; OR

 

B- 1

(C)the undersigned holder has delivered to the Corporation and the Corporation’s transfer agent an opinion of counsel (which will not be sufficient unless it is in form and substance reasonably satisfactory to the Corporation and Warrant Agent) or such other evidence reasonably satisfactory to the Corporation and Warrant Agent to the effect that with respect to the Common Shares to be delivered upon exercise of the Warrants, the issuance of such securities has been registered under the U.S. Securities Act, or an exemption from such registration requirements is available.

It is understood that the Corporation and Computershare Trust Company of Canada may require evidence to verify the foregoing representations.

Notes: (1) Certificates will not be registered or delivered to an address in the United States unless Box B or C above is checked.

 

  (2)

If Box C above is checked, holders are encouraged to consult with the Corporation and the Warrant Agent in advance to determine that the legal opinion tendered in connection with the exercise will be satisfactory in form and substance to the Corporation and the Warrant Agent.

“United States” and “U.S. Person” are as defined in Rule 902 of Regulation S under the U.S. Securities Act.

 

B- 2

The undersigned hereby irrevocably directs that the said Common Shares be issued, registered and delivered as follows:

 

Name(s) in Full and Social

Insurance Number(s)

(if applicable)

  

Address(es)

  

Number of Common Shares

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

Please print full name in which certificates representing the Common Shares are to be issued. If any Common Shares are to be issued to a person or persons other than the registered holder, the registered holder must pay to the Warrant Agent all eligible transfer taxes or other government charges, if any, and the Form of Transfer must be duly executed.

Once completed and executed, this Exercise Notice must be mailed or delivered to Computershare Trust Company of Canada, c/o General Manager, Corporate Trust.

DATED this ________ day of __________________, ________.

 

 

 

Witness

   

)

)

)

)

)

)

)

)

)

)

)

)

)

   

 

 

(Signature of Warrantholder, to be the same as appears on the face of this Warrant Certificate or DRS Advice)

 

 

Name of Registered Warrantholder

 

☐

Please check if the certificates representing the Common Shares are to be delivered at the office where this Warrant Certificate is surrendered, failing which such certificates will be mailed to the address set out above. Certificates or the DRS Advice will be delivered or mailed as soon as practicable after the surrender of this Warrant Certificate or the DRS Advice to the Warrant Agent.

 

B- 3

☐

Please check ONLY if you are not a U.S. purchaser and you wish to receive a DRS Advice IN LIEU OF physical certificate(s) representing the Common Shares:

ISSUE COMMON SHARES BY WAY OF A DRS ADVICE IN LIEU OF PHYSICAL CERTIFICATES

 

B- 4

SCHEDULE “C”

FORM OF DECLARATION FOR REMOVAL OF LEGEND

 

TO:

Computershare Trust Company of Canada

Computershare Investor Services

as registrar and transfer agent for the Warrants and Common Shares issuable upon exercise of the Warrants of The Very Good Food Company Inc. (the “Corporation”).

The undersigned (a) acknowledges that the sale of __________________ share purchase warrants of the Corporation, represented by certificate number ___________________, to which this declaration relates, is being made in reliance on Rule 904 of Regulation S (“Regulation S”) under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) and (b) certifies that (1) it is not an affiliate of the Corporation (as defined in Rule 405 under the U.S. Securities Act), (2) the offer of such securities was not made to a person in the United States and either (A) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer was outside the United States, or (B) the transaction was executed on or through the facilities of the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or another “designated offshore securities market” and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, (3) neither the seller nor any affiliate of the seller nor any person acting on any of their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities, (4) the sale is bona fide and not for the purpose of “washing off” the resale restrictions imposed because the securities are “restricted securities” (as such term is defined in Rule 144(a)(3) under the U.S. Securities Act), (5) the seller does not intend to replace the securities sold in reliance on Rule 904 of the U.S. Securities Act with fungible unrestricted securities, and (6) the sale was not a transaction, or part of a series of transactions which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the U.S. Securities Act. Terms used herein have the meanings given to them by Regulation S.

DATED this ________ day of __________________, 20___.

 

[Name of Seller]
By:  

 

  Name:
  Title:

 

C- 1

Exhibit 8.1

Subsidiaries of The Very Good Food Company Inc.

The following is a list of subsidiaries of the Company, omitting subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary in reliance on Instruction 8 of the exhibit requirements set forth in Form 20-F.

 

Name

   

Where Incorporated

   

Percentage Ownership

The Very Good Butcher Inc.

    British Columbia, Canada    100%

1218158 B.C. Ltd.

    British Columbia, Canada    100%

1218169 B.C. Ltd.

    British Columbia, Canada    100%

VGFC Holdings LLC

    Delaware, USA    100%

The Cultured Nut Inc.

    British Columbia, Canada    100%

Lloyd-James Marketing Group Inc.

    British Columbia, Canada    100%

Exhibit 12.1

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dela Salem, certify that:

 

  1.

I have reviewed this annual report on Form 20-F of The Very Good Food Company Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

  4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

 

  (a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b)

Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (c)

Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

  5.

I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

 

  (a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

  (b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: May 26, 2022

 

/s/ Dela Salem

Dela Salem

Interim Co-Chief Executive Officer and

Interim Chief Financial Officer

(Principal Executive Officer and Principal

Financial Officer)

Exhibit 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Very Good Food Company Inc. (the “Company”) on Form 20-F for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dela Salem, Interim Co-Chief Executive Officer and Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

  (1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  (2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 26, 2022

 

/s/ Dela Salem

Dela Salem
Interim Co-Chief Executive Officer and Interim Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.

Exhibit 15.1

CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM

We consent to use of our report dated May 26, 2022, with respect to the consolidated financial statements of The Very Good Food Company Inc. (the “Company”) as at and for the year ended December 31, 2019 which is included in this Annual Report on Form 20-F of The Very Good Food Company Inc. for the fiscal year ended December 31, 2021.

We also consent to the incorporation by reference of such report in the registration statement (No. 333-261149) on Form S-8 of the Company.

/s/ DMCL LLP

Chartered Professional Accountants

Vancouver, Canada

May 26, 2022

Exhibit 99.4
 
The Very Good Food Company | 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (Expressed in Canadian dollars)
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
 
As at
   
Notes
     
December 31, 2020
    
December 31, 2019
  
Assets
 
Current assets
 
Cash and cash equivalents
             $ 25,084,083     $ 405,610  
Accounts receivable
      5        449,583       72,844  
Inventory
      6        1,195,535       55,923  
Prepaids and deposits
      7        1,887,035       82,653  
Due from related parties
      14        —         24,280  
             
 
 
    
 
 
  
Total current assets
            
 
28,616,236
 
  
 
641,310
 
Right-of-use
assets
      8        5,046,597       393,400  
Property and equipment
      9        740,728       309,509  
Deposits
      7, 24        779,036       —    
             
 
 
    
 
 
  
Total assets
            
$
35,182,597
 
  
$
1,344,219
 
             
 
 
    
 
 
  
Liabilities and shareholders’ equity (deficiency)
 
Current liabilities
                          
Accounts payable and accrued liabilities
      10      $ 1,871,728     $ 232,306  
Deferred revenue
               102,239       7,576  
Current portion of lease liabilities
      11        146,935       135,325  
Loans payable and other financing
      12        —         31,181  
Current portion of convertible debentures
      13        —         329,099  
             
 
 
    
 
 
  
Total current liabilities
            
 
2,120,902
 
  
 
735,487
 
Lease liabilities
      11        5,389,352       257,147  
Loan payable
      12        30,000       —    
Convertible debentures
      13        —         692,166  
             
 
 
    
 
 
  
Total liabilities
            
 
7,540,254
 
  
 
1,684,800
 
             
 
 
    
 
 
  
Shareholders’ equity (deficiency)
 
Share capital
      15        39,335,150       2,245,422  
Equity reserves
      16, 17        5,009,980       272,894  
Subscriptions received and receivable
      15        8,250       —    
Accumulated other comprehensive income
               6,660       —    
Deficit
               (16,717,697 )      (2,858,897 ) 
             
 
 
    
 
 
  
Total shareholders’ equity (deficiency)
            
 
27,642,343
 
  
 
(340,581
) 
             
 
 
    
 
 
  
Total liabilities and shareholders’ equity (deficiency)
            
$
35,182,597
 
  
$
1,344,219
 
             
 
 
    
 
 
  
Nature and continuance of operations (Note 1)
Commitments (Notes 11 and 24)
Events after the reporting period (Note 27)
Approved and authorized for issue by Board of Directors on April 26, 2021
 
/s/ Mitchell Scott
 
 
/s/ Dela Salem
Director
 
 
Director
The accompanying notes are an integral part of these consolidated financial statements
 
1
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
Consolidated Statements of Net Loss and Comprehensive Loss
(Expressed in Canadian dollars)
 
Years ended
   
Notes
     
December 31, 2020
    
December 31, 2019
  
                 
(Reclassified – Note 3)
  
Revenue
       $ 4,636,838     $ 999,797  
Procurement expense
      8,9,22        (3,809,732 )      (1,169,583 ) 
Fulfilment expense
      8,9,22        (1,907,621 )      (170,617 ) 
General and administrative expense
      8,9,22        (7,084,795 )      (1,622,541 ) 
Marketing and investor relations expense
      22        (3,243,210 )      (64,445 ) 
Research and development expense
      8,22        (477,750 )      (125,680 ) 
     
 
 
    
 
 
  
Operating loss
      
 
(11,886,270
) 
  
 
(2,153,069
) 
Finance expense
      18        (1,842,853 )      (173,268 ) 
Other expense
      19        (129,677 )      (15,207 ) 
     
 
 
    
 
 
  
Net loss
      
 
(13,858,800
) 
  
 
(2,341,544
) 
Other comprehensive income
 
Foreign currency translation gain
         6,660       —    
     
 
 
    
 
 
  
Comprehensive loss
      
$
(13,852,140
) 
  
$
(2,341,544
) 
     
 
 
    
 
 
  
Loss per share – basic and diluted
      
$
(0.21
) 
  
$
(0.06
) 
     
 
 
    
 
 
  
Weighted average number of shares outstanding – basic and diluted
      
 
66,388,474
 
  
 
36,330,356
 
     
 
 
    
 
 
  
The accompanying notes are an integral part of these consolidated financial statements
 
2
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
Consolidated Statements of Changes in Equity (Deficiency)
(Expressed in Canadian dollars)
 
    
Number of
common shares
     
Share capital
    
Equity reserves
    
Share
subscriptions
received
(receivable)
    
Accumulated other
comprehensive
income
     
Deficit
    
Total
shareholders’
equity (deficiency)
  
Balance at January 1, 2019
      30,000,000      $ 83     $ —       $ —       $ —        $ (517,353)     $ (517,270 ) 
Issuance of units for cash
      12,332,002        1,849,800       —         —         —          —         1,849,800  
Issuance of units for services
      3,183,337        405,539       71,961       —         —          —         477,500  
Share issuance costs
      —          (10,000 )      —         —         —          —         (10,000 ) 
Share-based compensation
      —          —         200,933       —         —          —         200,933  
Net loss for the year
      —          —         —         —         —          (2,341,544 )      (2,341,544 ) 
  
 
 
     
 
 
    
 
 
    
 
 
    
 
 
     
 
 
    
 
 
  
Balance at December 31, 2019
   
 
45,515,339
 
   
 
2,245,422
 
  
 
272,894
 
  
 
—  
 
  
 
—  
 
   
 
(2,858,897
) 
  
 
(340,581
) 
Issuance of common shares and units for cash
      26,808,076        26,887,650       —         —         —          —         26,887,650  
Issuance of common shares and units for finders’ fees
      432,000        332,910       134,190       —         —          —         467,100  
Share issuance costs
      —          (5,576,272 )      2,638,247       —         —          —         (2,938,025 ) 
Issuance of common shares pursuant to the exercise of stock options
      2,358,167        989,522       (375,146 )      (6,250 )      —          —         608,126  
Issuance of common shares and units pursuant to the exercise of warrants
      13,369,876        11,680,958       (812,007 )      (5,000 )      —          —         10,863,951  
Issuance of common shares pursuant to the conversion of convertible debentures
      7,494,716        1,873,222       —         —         —          —         1,873,222  
Issuance of units for services
      166,670        21,241       3,760       —         —          —         25,001  
Issuance of common shares for services
      39,263        65,978       —         —         —          —         65,978  
Issuance of warrants for services
      —          —         367,554       —         —          —         367,554  
Issuance of common shares for debt settlement
      456,325        814,519       —         —         —          —         814,519  
Share-based compensation
      —          —         2,780,488       —         —          —         2,780,488  
Subscriptions received
      —          —         —         19,500       —          —         19,500  
Foreign currency translation gain
      —          —         —         —         6,660        —         6,660  
Net loss for the year
      —          —         —         —         —          (13,858,800 )      (13,858,800 ) 
  
 
 
     
 
 
    
 
 
    
 
 
    
 
 
     
 
 
    
 
 
  
Balance at December 31, 2020
   
 
96,640,432
 
   
$
39,335,150
 
  
$
5,009,980
 
  
$
8,250
 
  
$
6,660
 
   
$
(16,717,697
) 
  
$
27,642,343
 
  
 
 
     
 
 
    
 
 
    
 
 
    
 
 
     
 
 
    
 
 
  
The accompanying notes are an integral part of these consolidated financial statements
 
3
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
 
Years ended
   
December 31, 2020
    
December 31, 2019
  
Operating activities
 
Net loss for the year
    $ (13,858,800 )    $ (2,341,544 ) 
Adjustments for
non-cash
items:
     
Finance expense
      1,842,853       173,268  
Depreciation
      425,276       161,583  
Lease concessions
      (16,800 )      —    
Loss on termination of lease
      7,533       —    
Share-based compensation
      2,780,488       200,933  
Shares, units and warrants issued for services
      458,533       477,500  
Impairment of property and equipment
      —         11,405  
Changes in
non-cash
working capital items:
     
Accounts receivable
      (376,739 )      (61,285 ) 
Inventory
      (1,120,057 )      (53,423 ) 
Prepaids and deposits
      (1,804,382 )      (64,439 ) 
Accounts payable and accrued liabilities
      1,882,671       47,608  
Deferred revenue
      94,663       7,576  
Due from related parties
      24,280       8,295  
  
 
 
    
 
 
  
Net cash and cash equivalents used in operating activities
   
 
(9,660,481
) 
  
 
(1,432,523
) 
  
 
 
    
 
 
  
Investing activities
 
Purchase of property and equipment
      (564,437 )      (281,921 ) 
  
 
 
    
 
 
  
Net cash and cash equivalents used in investing activities
   
 
(564,437
) 
  
 
(281,921
) 
  
 
 
    
 
 
  
Financing activities
 
Proceeds from the issuance of common shares and units for cash, net of issuance costs
      24,416,725       1,839,800  
Proceeds from the exercise of warrants
      10,863,951       —    
Proceeds from the exercise of stock options
      608,126       —    
Proceeds from subscriptions received
      19,500       —    
Proceeds from loans payable
      499,129       127,344  
Repayments of loans payable
      (490,309 )      (162,203 ) 
Proceeds from loan payable to related parties
      400,000       33,000  
Repayment of loan payable to related parties
      (400,000 )      (123,996 ) 
Payments of lease liabilities
      (163,811 )      (163,290 ) 
Payments of lease deposits
      (779,036 )      —    
Proceeds from convertible debentures
      —         585,116  
Interest paid
      (73,288 )      (29,598 ) 
  
 
 
    
 
 
  
Net cash and cash equivalents provided by financing activities
   
 
34,900,987
 
  
 
2,106,173
 
  
 
 
    
 
 
  
Effect of foreign exchange rate changes on cash and cash equivalents
      2,404       —    
Increase in cash and cash equivalents
      24,678,473       391,729  
Cash and cash equivalents, beginning of year
      405,610       13,881  
  
 
 
    
 
 
  
Cash and cash equivalents, end of year
   
$
25,084,083
 
  
$
405,610
 
  
 
 
    
 
 
  
Cash and cash equivalents are consisted of:
 
Cash
    $ 24,019,083     $ 405,610  
Redeemable guaranteed investment certificate (“GIC”)
      1,000,000       —    
Restricted redeemable GIC
      65,000       —    
  
 
 
    
 
 
  
Total cash and cash equivalents
   
$
25,084,083
 
  
$
405,610
 
  
 
 
    
 
 
  
Supplemental cash flow disclosures (Note 20)
The accompanying notes are an integral part of these consolidated financial statements
 
4

The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
1.
Nature and continuance of operations
The Very Good Food Company Inc. (the “
Company
”) was incorporated on December 27, 2016, under the laws of the province of British Columbia, Canada. The Company is an emerging plant-based food technology company that designs, develops, produces, distributes and sells a variety of plant-based meats and other food alternatives. To date, the Company has developed a core product line under The Very Good Butchers brand. The Company changed its name from The Very Good Butchers Inc. to The Very Good Food Company Inc. on October 1, 2019. Effective June 18, 2020, the Company’s common shares commenced trading on the Canadian Securities Exchange (the “
CSE
”) under the symbol “VERY”. Effective July 27, 2020, the Company’s shares commenced trading on the Frankfurt Stock Exchange (the “
FSE
”) under the symbol “0SI”. Effective October 14, 2020, the Company’s shares commenced trading on the OTC QB Market (the “
OTCQB
”) under the symbol “VRYYF”. Subsequent to the year end, effective March 17, 2021, the Company’s shares commenced trading on the TSX Venture Exchange (“
TSXV
”). The Company ceased trading on the CSE on March 16, 2021.
The Company’s registered and records office are located at Suite 409 – 221 West Esplanade, North Vancouver, British Columbia, BC V7M 3J3.
These consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future.
For the year ended December 31, 2020, the Company generated a net loss of $13,858,800 (2019 - $2,341,544) and negative cash flows from operations of $9,660,481 (2019 - $1,432,523). The Company expects to incur further losses in the development of its business and has significant capital projects planned. The continued operations of the Company are dependent on future profitable operations, management’s ability to manage costs, and raising additional equity or debt. Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due is uncertain. As a result of these conditions, management has concluded, in making its going concern assessment, that there are material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern.
These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.
Covid-19
Estimation Uncertainty
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“
COVID-19
”) a global pandemic. This has resulted in governments worldwide, including the Canadian government, to enact emergency measures to combat the spread of the virus. These measures, which include social distancing, the implementation of travel bans, and closures of
non-essential
businesses, have caused material disruption to businesses globally, resulting in an economic slowdown. As at December 31, 2020, we have not observed any material impairments of our assets or a significant change in the fair value of assets, due to the
COVID-19
pandemic.
The situation is dynamic and the ultimate duration and magnitude of the impact of
COVID-19
on the economy and the financial effect on our business, financial position and operating results remain unknown at this time. These impacts could include the ability of the Company to raise capital, the impairment in the value of our long-lived assets, or potential future decreases in revenue or the profitability of our ongoing and future operations. The Company is closely monitoring the impact of the pandemic on all aspects of its business.
 
5
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
2.
Basis of Presentation and Measurement
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“
IFRS
”) as issued by the International Accounting Standards Board (“
IASB
”) and interpretations of the International Financial Reporting Interpretations Committee (“
IFRIC
”). The consolidated statements of the Company for the year ended December 31, 2020, were authorized for issue by the Board of Directors on April 26, 2021.
Basis of presentation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: The Very Good Butchers Inc., 1218169 B.C. Ltd. and 1218158 B.C. Ltd., companies incorporated on July 31, 2019 in the province of British Columbia, Canada, and VGFC Holdings LLC, a company incorporated on July 7, 2020 in the state of Delaware, U.S.A. All inter-company balances and transactions have been eliminated on consolidation.
These consolidated financial statements have been prepared on an accrual basis and are based on historical costs. The presentation and functional currency of the Company is the Canadian dollar. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation have been included.
The Company structures its consolidated statements of net loss and comprehensive loss on a functional basis. For that purpose, the Company defines cost of sales as procurement expense and gross profit as revenues less procurement expense.
Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the Company to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities and contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Actual results may differ from these judgements, estimates and assumptions.
The determination of the ability of the Company to continue as a going concern is a key area of judgment applied in the preparation of the consolidated financial statements as discussed above in note 1. Amortization of
right-of-use
assets and property and equipment are dependent upon the estimated useful lives, which are determined through the exercise of judgment. The assessment of any indicators of impairment of these assets is dependent upon judgments that take into account factors such as economic and market conditions and the useful lives of assets.
Information on significant areas of uncertainty and critical estimates in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements relate to the following:
Share-based compensation
The Company utilizes the Black-Scholes Option Pricing Model (“
Black-Scholes
”) to estimate the fair value of stock options and warrants granted to directors, officers, employees and service providers. The use of Black-Scholes requires management to make various estimates and assumptions that impact
 
6
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
2.
Basis of Presentation and Measurement
(continued)
 
the value assigned to the stock options including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options. Any changes in these assumptions could have a material impact on the share-based compensation calculation value. See also notes 16 and 17.
Carrying value of inventory
The Company records valuation adjustments for inventory by comparing the inventory cost to its net realizable value. The process requires the use of estimates and assumptions related to future market demand, costs and prices. Such assumptions are reviewed and may have a significant impact on the valuation adjustments for inventory.
 
7
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
3.
Change in Presentation of Expenditures
Effective for the year ended December 31, 2020, the Company elected to change the presentation of its consolidated statements of net loss and comprehensive loss. The Company believes that the revised presentation provides more useful and relevant financial information to users of the consolidated financial statements.
Management has applied the change in presentation retrospectively. The consolidated statement of net loss and comprehensive loss for the year ended December 31, 2019, has been reclassified to conform with the presentation adopted in the current period. The following is a summary of the impacts to the consolidated statement net loss and comprehensive loss for the year ended December 31, 2019:
 
Consolidated Statement of Net Loss
and Comprehensive Loss
   
December 31, 2019

(As previously
reported)
     
Functional
presentation
reclassifications
     
December 31, 2019

(As reclassified)
  
Costs of sales
    $ (685,963 )     $ 685,963      $ —    
Procurement expense
      —          (1,169,583 )       (1,169,583 ) 
Fulfilment expense
      —          (170,617 )       (170,617 ) 
Advertising and promotion
      (43,571 )       43,571        —    
Bank charges
      (4,895 )       4,895        —    
Bad debt expense
      (7,734 )       7,734        —    
Depreciation
      (161,583 )       161,583        —    
Insurance
      (8,081 )       8,081        —    
Meals and entertainment
      (12,426 )       12,426        —    
Office and administration
      (118,176 )       118,176        —    
Professional fees
      (976,768 )       976,768        —    
Rent
      (46,815 )       46,815        —    
Repairs and maintenance
      (35,132 )       35,132        —    
Research and development
      (106,021 )       106,021        —    
Selling costs
      (98,138 )       98,138        —    
Share-based compensation
      (200,933 )       200,933        —    
Small tools and supplies
      (87,708 )       87,708        —    
Telephone and utilities
      (15,365 )       15,365        —    
Travel
      (87,005 )       87,005        —    
Wages and benefits
      (460,354 )       460,354        —    
General and administrative expense
      —          (1,622,541 )       (1,622,541 ) 
Marketing and investor relations expense
      —          (64,445 )       (64,445 ) 
Research and development expense
      —          (125,680 )       (125,680 ) 
Financing expense
      (173,268 )       —          (173,268 ) 
Other expense
      (11,405 )       (3,802 )       (15,207 ) 
 
8
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
Cash and cash equivalents
Cash and cash equivalents is comprised of cash deposits and highly liquid investments that are readily convertible into known amounts of cash with original maturities of three months or less.
Inventory
Inventory consists primarily of finished goods, packaging and restaurant supplies and raw materials. Inventory is measured at the lower of cost and net realizable value. Inventory costs include direct labor and certain overhead expenses such as
in-bound
shipping and handling costs incurred to bring the inventory to its present location and conditions. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. If the Company determines that the estimated net realizable value of its inventory is less than the carrying value of such inventory, it records a charge to procurement expense.
Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, due to related parties, accounts payable and accrued liabilities, loans payable, and convertible debentures.
The Company follows the requirements of IFRS 9,
Financial Instruments (
“
IFRS 9
”). IFRS 9 utilizes a model for recognition and measurement of financial instruments in a single, forward-looking “expected loss” impairment model.
 
 
(i)
Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is required to be classified in one of the following categories: amortized cost; fair value through other comprehensive income (“
FVOCI
”); or fair value through profit or loss (“
FVTPL
”).
All financial instruments are measured at fair value on initial recognition. Measurement in subsequent periods depends on the classification of the financial instrument. Transaction costs are included in the initial carrying amount of financial instruments except for financial instruments classified as FVTPL in which case transaction costs are expensed as incurred.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:
 
  •  
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
 
  •  
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:
 
  •  
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
 
  •  
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
 
9
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in Other Comprehensive Income (“
OCI
”). This election is made on an
investment-by-investment
basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
Financial assets: Subsequent measurement and gains and losses
 
  •  
Financial assets at FVTPL: These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in net loss.
 
  •  
Financial assets at amortized cost: These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in the consolidated statement of net loss and comprehensive loss. Any gain or loss on derecognition is recognized in net loss.
 
  •  
Debt investments at FVOCI: These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in net loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to net loss.
 
  •  
Equity investments at FVOCI: These assets are subsequently measured at fair value. Dividends are recognized as income in net loss and unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to net loss.
Financial liabilities
Financial liabilities are classified as other liabilities at amortized cost or FVTPL. A financial liability is classified as FVTPL if it is classified as
held-for-trading,
it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in net loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense, foreign exchange gains and losses, or gains and losses on derecognition are recognized in net loss.
 
 
(ii)
Derecognition
Financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Company enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position but retains
 
1
0
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.
Financial liabilities
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any
non-cash
assets transferred or liabilities assumed) is recognized in net loss.
 
 
(iii)
Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
 
 
(iv)
Impairment
Financial assets and contract assets
The Company recognizes loss allowances for expected credit losses (“
ECL
”) on:
 
  •  
financial assets measured at amortized cost;
 
  •  
debt investments measured at FVOCI; and
 
  •  
contract assets (as defined in IFRS 15).
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
The Company measures loss allowances on amounts receivable at an amount equal to lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when:
 
  •  
the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held); or
 
  •  
the financial asset is more than 90 days past due.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the entity expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
 
1
1
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
Presentation of allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.
Write-off
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the
write-off.
However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.
 
 
(v)
Fair values
Fair value measurements recognized in the consolidated statement of financial position must be categorized in accordance with the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are expensed when incurred. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in net loss.
Depreciation is calculated on a straight-line method to allocate their cost less their residual values over the following estimated useful lives:
 
Class of property and equipment
    Useful lives in years  
Restaurant and production equipment
      5 years  
Furniture and fixtures
      5 years  
Computer equipment and software
      1 year  
Leasehold improvements
     
 Term of lease, or estimated useful life of specific
improvements if shorter		  
 
Vehicles
      5 years  
Impairment of
non-financial
assets
At each reporting period, the Company assesses whether there are indicators of impairment for its
non-financial
assets. If indicators exist, the Company determines if the recoverable amount of the asset or cash generating unit (“
CGU
”) is greater than its carrying amount. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets.
 
1
2
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
If the carrying amount exceeds the recoverable amount, the asset or CGU is recorded at its recoverable amount with the reduction recognized in profit or loss. The recoverable amount is the greater of the value in use or fair value less costs to sell. Fair value is the amount the asset could be sold for in an arm’s length transaction. The value in use is the present value of the estimated future cash flows of the asset from its continued use. The fair value less costs to sell considers the continued development of a property and market transactions in a valuation model.
Impairments are reversed in subsequent periods when there has been an increase in the recoverable amount of a previously impaired asset or CGU and these reversals are recognized in profit or loss. The recovery is limited to the original carrying amount less depreciation, if any, that would have been recorded had the asset not been impaired.
 
 
Leases
At inception of a contract, the Company assesses whether a contract is or contains a lease based on the definition of a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has the right to control an identified asset if it obtains substantially all of its economic benefits and either
pre-determines
or directs how and for what purpose the asset is used.
The Company recognizes a
right-of-use
asset and lease liability at the lease commencement date. The
right-of-use
assets are initially measured at the amount of the lease liability plus initial direct costs incurred by the lessee. Adjustments may also be required for lease incentives, payments at or prior to commencement and restoration obligations.
The
right-of-use
assets are depreciated to the earlier of the end of the useful life of the
right-of-use
asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease, or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Lease payments included in the measurement of the lease obligation, when applicable, may comprise fixed payments, variable payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise price under a purchase, extension or termination option that the Company is reasonably certain to exercise. The lease liability is subsequently measured at amortized cost using the effective interest rate method. It is remeasured when there are changes in the following: i) the lease term; ii) the Company’s assessment of whether it will exercise a purchase option; iii) a change in an index or a change in the rate used to determine the payments; and iv) amounts expected to be payable under residual value guarantees.
Some of the Company’s leases contain extension options. The Company assesses at lease commencement whether it is reasonably certain to exercise the extension options. The Company reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and
right-of-use
assets recognized.
Unit financing
In a unit financing where the Company issues common shares with an attached warrant, the warrants issued to investors and any warrants issued to brokers are accounted for as follows:
The fair value of investor warrants is measured based on the unit price paid by the investor compared to the fair value of the common shares on the issuance date. If the unit price is greater than the common share price, the excess is considered the fair value of the investor warrant. If the unit price is less than
 
1
3
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
the common share price, no fair value is assigned to the warrant. The fair value of the common shares is recognized in share capital and the fair value of the investor warrants is recognized in reserves.
The fair value of broker warrants is measured and recognized on the date of issuance, using the Black-Scholes option pricing model. The fair value is recognized as a share issuance cost with a corresponding increase in equity reserves.
Share-based compensation
The Company grants stock options to acquire common shares of the Company to directors, officers, employees and consultants. An individual is classified as an employee when the individual is an employee for legal or tax purposes, or provides services similar to those performed by an employee.
The grant date fair value of share-based compensation awards granted to employees is recognized as share-based compensation expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and
non-market
vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and
non-market
performance conditions at the vesting date. For share-based compensation awards with
non-vesting
conditions, the grant date fair value of the share-based compensation is measured to reflect such conditions and there is no
true-up
for differences between expected and actual outcomes.
Where equity instruments are granted to parties other than employees, they are recorded by reference to the fair value of the services received. If the fair value of the services received cannot be reliably estimated, the Company measures the services received by reference to the fair value of the equity instruments granted, measured at the date the counterparty renders service.
All equity-settled share-based compensations are reflected in equity reserves, unless exercised. Upon exercise, shares are issued from treasury and the amount reflected in equity reserves is credited to share capital, adjusted for any consideration paid.
Revenue recognition
The Company generates revenue from the sale of vegan meats through a storefront, a vegan restaurant, public markets, wholesale arrangements and online eCommerce sales. The time between invoicing and when payment is due is not significant and none of the Company’s contracts contain a significant financing component.
The Company follows IFRS 15,
Revenue from Contracts with Customers
(“
IFRS 15
”), to recognize its revenue. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15 the Company’s accounting policy for revenue recognition is as follows: i) identify the contract with the customer; ii) identify the performance obligation(s) in the contract; iii) determine the transaction price; iv) allocate the transaction price to the performance obligation(s); and (v) recognize revenue when (or as) performance obligation(s) are satisfied.
For storefront, restaurant and public market sales, revenue is recognized immediately upon providing the customer with the product. For wholesale arrangements and online eCommerce sales, revenue is recognized when delivery has occurred and there is no unfulfilled obligation that could affect the customer’s acceptance. These criteria are generally met at the time the product leaves the Company’s premises as at that point, control has passed to the customer. For online eCommerce sales where consideration is received before the service is provided, the Company accounts for those pending sales as deferred revenue. Revenue is measured based on the price specified in the Company’s invoice provided to the customer. The Company does not have any multiple-element revenue arrangements. Revenue is presented net of discounts and sales and other related taxes.
 
1
4
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
The Company routinely offers sales discounts and promotions through various programs to its customers and consumers. These programs include rebates, temporary on shelf price reductions, off invoice discounts, retailer advertisements, product coupons and other trade activities. Provision for discounts and incentives are recorded in the same period in which the related revenues are recognized. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
Procurement expense
Procurement expense consist of the purchase price of the raw material and inventory packaging, inbound shipping charges, director labor and other attributable overhead expenses incurred in the procurement and manufacturing of the Company’s finished goods. Inbound shipping charges from suppliers are included in inventory and recognized as procurement expense upon the sale of product to customer. Procurement expense also include expenses associated with storefront and restaurant operations, including food costs, direct labor and other attributable overhead expenses.
Fulfilment expense
Fulfilment expense include third-party fulfilment cost for picking and packing of orders, fulfilment packaging costs, direct fulfilment labor, merchant processing fees, outbound shipping and freight costs and warehousing fees.
General and administrative expense
General and administrative expense are primarily comprised of administrative expenses,
non-production
salaries, wages and benefits, including associated share-based compensation not directly associated with other functions,
non-production
rent expense, depreciation and amortization expense on non-production assets and other
non-production
operating expenses. Administrative expenses include the expenses related to management, accounting, legal, information technology, and other support functions.
Research and development expense
Research and development expense are primarily incurred to develop new products as well as enhancing existing products for the Company. These costs consist of material and ingredients used for research and development, research and development staff cost including wages, salaries and benefits, including associated share-based compensation and depreciation on research and development assets.
Income taxes
Current income tax:
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax:
Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end
 
1
5
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.
Functional and presentation currency
The Company’s reporting currency is the Canadian dollar. The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and its Canadian subsidiaries is the Canadian dollar, while the functional currency of its US subsidiary is the US dollar. Transactions denominated in currencies other than the functional currency are translated using the exchange rate in effect on the transaction date or at the annual average rate. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange in effect at the consolidated statement of financial position date.
Non-monetary
items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in the consolidated statement of net loss and comprehensive loss.
For purposes of consolidation, the assets and liabilities of foreign operations with functional currencies other than the Canadian dollar are translated to Canadian dollars using the rate of exchange in effect at the financial statement date. Revenue and expenses of the foreign operations are translated to Canadian dollars at exchange rates at the date of the transactions. Foreign currency differences resulting from translation of the accounts of foreign operations are recognized directly in other comprehensive income and are accumulated in accumulated other comprehensive income as a separate component of shareholders’ equity.
Loss per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. Since the Company has a loss in all periods presented, the potential effect of share options and warrants has not been included in this calculation as they would be anti-dilutive.
Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there
 
1
6
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
4.
Significant accounting policies
(continued)
 
is a transfer of resources or obligations between related parties. Related party transactions are recognized and measured at the amounts agreed between the parties.
Government grants
The Company classifies forgivable loans from the government as a government grant when there is a reasonable assurance that the Company will meet the terms for forgiveness on the loan. If this threshold is not met, the Company classifies forgivable loans as other liabilities, measured initially at fair value in accordance with IFRS 9.
Government grants and assistance are recognized as a reduction in the related expense in the period in which there is reasonable assurance that the grant or assistance has become receivable and all conditions, if any, have been or will be satisfied.
The Company applied for
COVID-19
financial relief in Canada under the Canada Emergency Wage Subsidy (“
CEWS
”) program and the Canada Emergency Business Account program (“
CEBA
”) funded by the Government of Canada. The CEWS and CEBA programs are relief programs launched by the Canadian federal government to qualifying employers to subsidize payroll costs and provide financing relief during the
COVID-19
pandemic.
The qualified amounts received under the CEWS program are
non-repayable,
and a portion of the amounts received under the CEBA program are
non-repayable
if the loan is repaid by December 31, 2022 (see Note 12). During the year ended December 31, 2020, the Company recognized the CEWS proceeds as a reduction of general and administrative expense of $21,299 and of research and development expense of $4,309. In addition, the Company recognized the forgivable portion of the CEBA loan as a reduction of financing expense of $10,000.
During the year ended December 31, 2020, amendments to IFRS 16, Leases which exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the
COVID-19
pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to
COVID-19-related
rent concessions that reduce lease payments due on or before June 30, 2021. The Company adopted this amendment during the year ended December 31, 2020, however it did not have a material impact to the Company’s consolidated financial statements.
Accounting standards issued but not yet effective
Several new standards, and amendments to standards and interpretations, are not yet effective for the year ended December 31, 2020, and have not been applied in preparing these consolidated financial statements. None are currently considered by the Company to be significant or likely to have a material impact on future financial statements.
 
17

The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
5.
Accounts receivable
 
    
As at December 31
  
    
2020
     
2019
  
Accrued interest receivable
    $ 282      $ —    
GST receivable
      366,561        34,633  
Trade accounts receivable
      82,740        38,211  
  
 
 
     
 
 
  
  
$
449,583
 
   
$
72,844
 
  
 
 
     
 
 
  
Trade accounts receivable is recorded net of an allowance for doubtful accounts of $39,917 (2019 – $6,579).
 
6.
Inventory
Inventory consisted primarily of raw materials, packaging and restaurant supplies and finished goods which were either at the retail location, warehouse, storage space or held with third party distributors.
 
    
As at December 31
  
    
2020
     
2019
  
Raw materials
    $ 320,346      $ 25,057  
Packaging and restaurant supplies
      333,728        8,050  
Finished goods
      541,461        22,816  
  
 
 
     
 
 
  
  
$
1,195,535
 
   
$
55,923
 
  
 
 
     
 
 
  
Included in finished goods inventory at December 31, 2020, was $12,053 (2019 – $nil) of depreciation expense related to property and equipment and $7,502 (2019 – $nil) related to
right-of-use
assets used in production.
 
7.
Prepaids and deposits
 
    
As at December 31
  
    
2020
     
2019
  
Lease deposits (Notes 24 and 27(a))
    $ 940,760      $ —    
Security deposits
      1,293,272        26,312  
Prepaid expenses
      432,039        56,341  
  
 
 
     
 
 
  
     2,666,071      82,653  
Less: current portion of prepaids and deposits
      (1,887,035 )       (82,653 ) 
  
 
 
     
 
 
  
Deposits
   
$
779,036
 
   
$
—  
 
  
 
 
     
 
 
  
 
1
8
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
8.
Right-of-use
assets
 
    
Right-of-use

building
     
Right-of-use

equipment
     
Right-of-use

vehicle
     
Total
  
Cost
   


  


  


  


Balance, January 1, 2019
    $ 77,659      $ 58,634      $ —        $ 136,293  
Additions
      212,196        189,513        —          401,709  
Transferred to property and equipment
      —          (31,840)        —          (31,840)  

  
 
 
     
 
 
     
 
 
     
 
 
  
Balance, December 31, 2019
      289,855        216,307        —          506,162  
Additions
      4,990,752        5,989        23,767        5,020,508  
Early termination of leases
      —          (71,179)        —          (71,179)  

  
 
 
     
 
 
     
 
 
     
 
 
  
Balance, December 31, 2020
   
$
5,280,607
 
   
$
151,117
 
   
$
23,767
 
   
$
5,455,491
 

  
 
 
     
 
 
     
 
 
     
 
 
  
Accumulated Depreciation
   


  


  


  


Balance, January 1, 2019
    $ —        $ (13,363)      $ —        $ (13,363)  
Depreciation
      (68,827)        (42,997)        —          (111,824)  
Transferred to property and equipment
      —          12,425        —          12,425  

  
 
 
     
 
 
     
 
 
     
 
 
  
Balance, December 31, 2019
      (68,827)        (43,935)        —          (112,762)  
Depreciation
      (275,439)        (41,072)        (5,485)        (321,996)  
Early termination of leases
      —          23,940        —          23,940  
Foreign exchange translation adjustment
      1,924        —          —          1,924  

  
 
 
     
 
 
     
 
 
     
 
 
  
Balance, December 31, 2020
   
$
(342,342
) 
   
$
(61,067
) 
   
$
(5,485
) 
   
$
(408,894
) 

  
 
 
     
 
 
     
 
 
     
 
 
  
Carrying amounts
   


  


  


  


Balance, December 31, 2019
    $ 221,028      $ 172,372      $ —        $ 393,400  

  
 
 
     
 
 
     
 
 
     
 
 
  
Balance, December 31, 2020
   
$
4,938,265
 
   
$
90,050
 
   
$
18,282
 
   
$
5,046,597
 

  
 
 
     
 
 
     
 
 
     
 
 
  
Depreciation of
right-of-use
assets included in the consolidated financial statements is split as follows:
 
    
As at and for the year ended December 31
  
    
2020
     
2019
  
Consolidated statements of financial position
   


  


Included in inventory
    $ 7,502      $ —    

  
 
 
     
 
 
  
Consolidated statements of net loss and comprehensive loss
   


  


Included in procurement expense
    $ 102,398      $ 111,824  
Included in fulfilment expense
      12,226        —    
Included in general and administrative expense
      199,870        —    

  
 
 
     
 
 
  

  
$
314,494
 
   
$
11,824
 

  
 
 
     
 
 
  
 
19
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
9.
Property and equipment
 
    
Restaurant,
production,
and R&D
equipment
    
Furniture

and

fixtures
    
Computer

equipment

and
software
    
Leasehold

improvements
    
Vehicle
    
Total
  
Cost
 
At January 1, 2019
    $ 1,071     $ 10,102     $ 10,160     $ 29,705     $ —       $ 51,038  
Additions
      196,449       7,928       11,250       40,731       61,222       317,580  
Transferred from
right-of-use
assets
      19,415       —         —         —         —         19,415  
Impairment
      (21,422)       —         —         —         —         (21,422)  

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
At December 31, 2019
      195,513       18,030       21,410       70,436       61,222       366,611  
Additions
      169,210       107,112       86,460       182,713       8,559       554,054  

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
At December 31, 2020
   
$
364,723
 
  
$
125,142
 
  
$
107,870
 
  
$
253,149
 
  
$
69,781
 
  
$
920,665
 

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Accumulated depreciation and impairment
 
At January 1, 2019
    $ 1,791     $ (2,790)     $ (10,160)     $ (6,201)     $ —       $ (17,360)  
Depreciation
      (22,855)       (3,323)       (3,715)       (13,744)       (6,122)       (49,759)  
Impairment
      10,017       —         —         —         —         10,017  

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
At December 31, 2019
      (11,047)       (6,113)       (13,875)       (19,945)       (6,122)       (57,102)  
Depreciation
      (52,887)       (4,353)       (20,332)       (32,378)       (12,885)       (122,835)  

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
At December 31, 2020
   
$
(63,934
) 
  
$
(10,466
) 
  
$
(34,207
) 
  
$
(52,323
) 
  
$
(19,007
) 
  
$
(179,937
) 

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net book value
 
At December 31, 2019
    $ 184,466     $ 11,917     $ 7,535     $ 50,491     $ 55,100     $ 309,509  

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
At December 31, 2020
   
$
300,789
 
  
$
114,676
 
  
$
73,663
 
  
$
200,826
 
  
$
50,774
 
  
$
740,728
 

  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
As at December 31, 2020, a total of $81,000 of furniture and fixtures and $63,557 of leasehold improvements related to property and equipment under construction, and no depreciation has been recognized. The Company will begin recognizing depreciation once the underlying assets are ready for their intended use.
Depreciation of property and equipment included in the consolidated financial statements is split as follows:
 
    
As at and for the year ended December 31
  
    
2020
     
2019
  
Consolidated statements of financial position
   


  


Included in inventory
    $ 12,053      $ —    
Consolidated statements of net loss and comprehensive loss
   


  


Included in procurement expense
    $ 76,132      $ 39,921  
Included in fulfilment expense
      244        —    
Included in general and administrative expense
      30,822        8,707  
Included in research and development expense
      3,584        1,131  

  
 
 
     
 
 
  

  
$
110,782
 
   
$
49,759
 

  
 
 
     
 
 
  
 
2
0
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
10.
Accounts payables and accrued liabilities
 
    
As at December 31
  
    
2020
     
2019
  
Accounts payable
    $  1,173,048      $ 160,626  
Accrued liabilities
      698,680        71,680  
    
 
 
     
 
 
  
    
$
1,871,728
 
   
$
232,306
 
    
 
 
     
 
 
  
 
11.
Lease liabilities
Lease liabilities consist of leases for retail, production and distribution facilities, equipment and a vehicle. The leases have been discounted using weighted average interest rates ranging between 7.0% and 12.5% as estimated incremental borrowing rates of the Company for similar assets.
 

 
  
As at December 31
 
 
  
2020
 
Balance, beginning of year
   
$
392,472
 
Additions
      5,020,509  
Lease payments
      (163,811 ) 
Early termination of leases
      (39,706 ) 
Lease concessions
      (16,800 ) 
Interest expense
      345,958  
Foreign exchange translation adjustment
      (2,335 ) 
    
 
 
  
Balance, end of year
   
$
 5,536,287
 
    
 
 
  
Less: current portion of lease liabilities
      (146,935 ) 
    
 
 
  
Lease liabilities
   
$
5,389,352
 
    
 
 
  
On September 22, 2020, the Company terminated 17 lease agreements and purchased the related leased equipment for $79,118. The difference between the related lease liabilities and
right-of-use-assets
of $7,533 was recognized as a loss on termination of leases.
The Company’s future minimum lease payments for the leases for retail, production and distribution facilities, equipment and vehicle are as follows:
 
Fiscal year ending:
   
Retail and
production
facilities
     
Equipment
     
Vehicle
     
Total
  
December 31, 2021
   
$
767,682
 
   
$
53,004
 
   
$
8,435
 
   
$
829,121
 
December 31, 2022
   
 
859,956
 
   
 
4,200
 
   
 
8,078
 
   
 
872,234
 
December 31, 2023
   
 
826,611
 
   
 
2,100
 
   
 
8,078
 
   
 
836,789
 
December 31, 2024
   
 
819,034
 
   
 
—  
 
   
 
311
 
   
 
819,345
 
December 31, 2025
   
 
834,295
 
   
 
—  
 
   
 
—  
 
   
 
834,295
 
December 31, 2026 and thereafter
   
 
7,787,053
 
   
 
—  
 
   
 
—  
 
   
 
7,787,053
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Total lease payments
   
 
11,894,631
 
   
 
59,304
 
   
 
24,902
 
   
 
11,978,837
 
Amounts representing interest over the term of the leases
   
 
(6,434,532
) 
   
 
(2,681
) 
   
 
(5,337
) 
   
 
(6,442,550
) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Present value of net lease payments
   
 
5,460,099
 
   
 
56,623
 
   
 
19,565
 
   
 
5,536,287
 
Less: Current portion
   
 
(90,697
) 
   
 
(50,657
) 
   
 
(5,581
) 
   
 
(146,935
) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Long-term portion
   
$
5,369,402
 
   
$
5,966
 
   
$
 13,984
 
   
$
5,389,352
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Further information about our leases facilities is provided in Note 24 Commitments.
 
2
1
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
12.
Loans payable and other financing
 
    
As at December 31
  
    
2020
     
2019
  
Balance, beginning of year
   
$
31,181
 
   
$
66,040
 
    
 
 
     
 
 
  
Additions
      499,129        127,344  
Interest expense
      61,558        29,598  
Repayments
      (551,868 )       (191,801 ) 
Forgiveness of loan
      (10,000 )       —    
    
 
 
     
 
 
  
Balance, end of year
   
 
30,000
 
   
 
31,181
 
Less: current portion of loans payable and other financing
      —          (31,181 ) 
    
 
 
     
 
 
  
Loan payable
   
$
30,000
 
   
$
—  
 
    
 
 
     
 
 
  
 
  a)
On January 15, 2018, the Company entered into a loan agreement for proceeds of $56,550, net of an origination fee of $3,450. The loan was interest bearing at 23.08% per annum, payable monthly, secured against the Company’s net assets with personal guarantees from the CEO and a director, and matured and was repaid on January 13, 2020.
 
  b)
On July 30, 2018, the Company entered into a future receivables sale agreement, whereby the Company agreed to remit a daily payment equal to 15% of future sales up to $19,350 in consideration for proceeds of $15,000. The Company’s obligations under the agreement were secured against the Company’s assets. During the year ended December 31, 2019, the Company fulfilled the remaining obligations of $5,514 under the future receivables sale agreement.
 
  c)
On October 2, 2018, the Company entered into a future receivables sale agreement, whereby the Company agreed to remit a daily payment equal to 15% of future sales up to $22,704 in consideration for proceeds of $17,600. The Company’s obligations under the agreement were secured against the Company’s assets. During the year ended December 31, 2019, the Company fulfilled the remaining obligations of $22,704 under the future receivables sale agreement.
 
  d)
On April 15, 2019, the Company entered into a loan agreement for proceeds of $37,344, net of an original issue discount of $11,087 and an origination fee of $1,556. The loan was interest bearing at 68% per annum, with payments of $480 required on each business day, secured against the Company’s net assets with personal guarantees from the CEO and a director and due on September 4, 2019. During the year ended December 31, 2019, the Company repaid $49,987, representing the principal balance of the loan of $37,344 and interest of $12,643.
 
  e)
On March 20, 2019, the Company entered into a future receivables sale agreement, whereby the Company agreed to remit a daily payment equal to 15% of future sales up to $64,500 in consideration for proceeds of $50,000. The Company’s obligations under the agreement were secured against the Company’s assets. On January 21, 2020, the Company entered into a new future receivables sale agreement with the lender, whereby the remaining balance of $10,277 was renewed and increased to $64,500 in consideration for an additional proceeds $37,183. On September 29, 2020, the Company fulfilled the obligations under the future receivables sale agreement.
 
  f)
On July 1, 2019, the Company entered into a loan agreement for the purchase of a vehicle. The loan was
non-interest
bearing, secured against the purchased vehicle, and matured on May 1, 2020. Pursuant to the loan agreement, the Company made a down payment of $15,000 on July 1, 2019, and made 10 monthly instalments of $4,000.
 
2
2
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
12.
Loans payable and other financing (continued)
 
  g)
On January 20, 2020, the Company entered into a Business Loan and Security Agreement for net proceeds of $42,720, net of an original issue discount of $12,460 and an origination fee of $1,780. Pursuant to the agreement, the Company was required to make 113 payments of $504 on each business day until fully repaid. The loan was secured against the Company’s net assets and matured on July 6, 2020.
 
  h)
On May 12, 2020, the Company entered into a Capital Agreement, whereby the Company agreed to remit a daily payment equal to 17% of future sales up to $181,900 in consideration for proceeds of $170,000. The Company’s obligations under the agreement were secured against the Company’s assets. On August 27, 2020, the Company fulfilled the obligations under the Capital Agreement.
 
  i)
During the year ended December 31, 2020, the Company entered into revenue share agreements, whereby the Company agreed to remit a daily payment at rates ranging between 8% and 11% of future sales up to a total of $235,406 in consideration for proceeds totaling $209,226. The Company’s obligations under the agreement were secured against the Company’s assets. During the year ended December 31, 2020, the Company received cash-back credits totaling $6,262 from the lender pursuant to the agreements, which has been netted against the related interest expense incurred. On September 1, 2020, the Company fulfilled the obligations under the Revenue Share Agreements.
 
  j)
During the year ended December 31, 2020, the Company received a loan totaling $40,000 from its bank under CEBA funded by the Government of Canada. The loan is interest free and may be repaid any time before December 31, 2022, at which time if unpaid, the remaining balance will convert to a
3-year
term loan at an interest rate of 5% per annum. If the Company repays the loan prior to December 31, 2022, there will be loan forgiveness of 25% of the loan, up to $
10,000
. During the year ended December 31, 2020, the Company recognized $10,000 as forgiveness of loan as it is reasonably certain that the Company will repay the loan before December 31, 2022 and the loan proceeds have been used during the period.
 
13.
Convertible debentures
The Company’s convertible debentures outstanding as at December 31, 2020, are as follows:
 
    
Opening
     
Interest and

accretion expense
     
Conversion
     
Total
  
a)
    $ 602,252      $ 53,668      $ (655,920)      $ —    
b)
      329,099        30,663        (359,762)        —    
c)
      89,914        2,626        (92,540)        —    
  
 
 
     
 
 
     
 
 
     
 
 
  
  
$
1,021,265
 
   
$
86,957
 
   
$
(1,108,222
) 
   
$
—  
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
  a)
During the year ended December 31, 2018, the Company issued $351,000 in convertible debentures; incurring financing costs of $31,113 for a net amount of $319,887. On January 11, 2019, the Company completed an additional financing of $249,000 in convertible debentures from the same lender; incurring financing costs of $20,284 for a net amount of $228,716. The debentures were unsecured, accrued simple interest at 6% per annum and had an original maturity date of November 30, 2021. The convertible debentures automatically converted at the earlier of:
 
  (i)
Qualified financing conversion – if the Company raises gross proceeds of at least $2,000,000, other than convertible notes.
 
  (ii)
Liquidity event – if the Company sells shares or assets, which triggers a change in control.
 
  (iii)
Maturity date – November 30, 2021.
 
2
3
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
13.
Convertible debentures
(continued)
 
As the number of common shares to be issued were variable, the convertible debentures were accounted for as a financial liability. The financing costs had been netted against the principal balance of the debentures and were accreted over the term of the debentures using the effective interest method. During the year ended December 31, 2020, the Company recognized interest and accretion expense of $53,668 (2019 – $41,031).
During the year ended December 31, 2020, the convertible debentures were converted into 5,084,394 common shares as a result of the completion of a qualified financing. The difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion of $615,000, was recorded as a finance expense during the year ended December 31, 2020.
 
  b)
On June 20, 2019, the Company completed a financing of convertible debentures in the principal amount of $300,000, which bore compound interest at 1.5% per month, and originally matured on December 31, 2019. In connection with the issuance of the debentures, the Company paid a finders’ fee of $30,000 and received a net amount of $270,000. On December 5, 2019, the Company entered into an amending agreement whereby the maturity date was extended to June 30, 2020. These debentures became convertible if the Company undergoes a change of control, amalgamation, merger or other business combination resulting in a “going public transaction”, or in the process of any such transaction raises funds in excess of $2,000,000 as part of the Company’s “going public transaction” (“
Qualified Financing
”).
As the number of common shares to be issued were variable, the convertible debentures were accounted for as a financial liability. The convertible debentures were accreted up over the payment term using the effective interest method. During the year ended December 31, 2020, the Company recognized interest and accretion expense of $30,663 (2019 – $59,099).
During the year ended December 31, 2020, the convertible debentures were converted into 1,692,995 common shares as a result of the completion of a Qualified Financing. The difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion of $63,000, was recorded as a finance expense during the year ended December 31, 2020.
 
  c)
During the year ended December 31, 2019, the Company entered into convertible promissory notes totalling $86,400, of which $75,000 were received for cash and $11,400 in consideration for consulting fees. The debentures had the same terms as the convertible debentures described in a) above.
During the year ended December 31, 2020, the Company recognized interest expense totalling $2,626 (2019 – $3,514).
During the year ended December 31, 2020, the convertible promissory notes were converted into 717,327 common shares as a result of the completion of a qualified financing. The difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion of $87,000, was recorded as a finance expense during the year ended December 31, 2020.
 
2
4
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
14.
Related party balances and transactions
Related party balances
 
    
As at December 31
  
    
2020
     
2019
  
Due from the Chief Executive Officer (“
CEO
”) and Director
    $ —        $ 18,722  
Due from the Chief Research and Development Officer (“
CRADO
”), and Director
      —          5,558  
  
 
 
     
 
 
  
Due from related parties*
    $ —        $ 24,280  
  
 
 
     
 
 
  
Due to the former Chief Financial Officer (“
former CFO
”), included in accounts payable and accrued liabilities*
    $ —        $ 3,413  
  
 
 
     
 
 
  
Prepaid professional fees for the former CFO, included in prepaids and deposits
    $ —        $ 5,815  
  
 
 
     
 
 
  
 
*
The amounts due to (from) related parties are unsecured,
non-interest
bearing and have no fixed terms of repayment.
On February 11, 2020, the Company entered into a loan agreement with the CEO and the CRADO of the Company (the “
Lenders
”), whereby the Lenders agreed to loan the Company up to a maximum aggregate loan amount of $1,200,000 (the “
Principal
”), in three equal tranches of $400,000. The outstanding amount of the Principal matures on May 11, 2021, and bears interest from and after the date of each advance until repayment at the rate of 0.67% per month, simple interest. The Company also executed a general security agreement with the Lenders, which creates a security interest over all present and after acquired property of the Company. The Company received one tranche of $400,000 on February 11, 2020. On June 22, 2020, the Company repaid the principal balance of $400,000 and interest of $11,728.
Related party transactions
The Company’s key management personnel have the authority and responsibility for planning, directing, and controlling the activities of the Company and consists of the Company’s executive management team and directors. Compensation was as follows:
 
    
Year ended December 31
  
    
2020
     
2019
  
Salaries incurred to key management personnel*
    $ 1,564,966      $ 95,027  
Professional fees incurred to the former CFO**
      159,437        84,844  
Share-based compensation
      676,078        179,227  
  
 
 
     
 
 
  
  
$
2,400,481
 
   
$
359,098
 
  
 
 
     
 
 
  
 
*
The balance for the year ended December 31, 2020, includes $287,230 paid by the issuance of a total of 165,000 warrants, which have exercise prices ranging between $1.51 per share and $7.60 per share, with expiry dates ranging between August 13, 2021, and December 21, 2021.
**
The balance for the year ended December 31, 2020, includes $25,001 paid by the issuance of 166,670 units. Each unit consists of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances.
 
2
5
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
15.
Share capital
Authorized share capital
Unlimited number of common shares without par value.
Share subdivision
On June 20, 2019, the Company completed a
non-cash
subdivision of the existing 3,000,000 shares into 30,000,000 common shares.
All share and per share amounts in these consolidated financial statements have been retroactively adjusted to reflect the share subdivision.
Issued share capital during the year ended December 31, 2020
 
  a)
On June 17, 2020, the Company completed its Initial Public Offering (the “
Offering
”) consisting of 16,100,000 common shares for gross proceeds of $4,025,000. The Company paid the agent a commission of $241,500 and issued the agent a finder’s fee of 322,000 common shares with a fair value of $80,500. The Company also issued to the agent 1,288,000 warrants with a fair value of $176,242, exercisable to purchase common shares at a price of $0.25 per common share until June 17, 2021 (the “
Agent’s Warrants
”). In connection with the Offering, the Company also incurred other share issuance costs of $213,366.
 
  b)
On June 17, 2020, the Company issued 7,494,716 common shares with a fair value of $1,873,222 pursuant to the conversion of $1,108,222 of convertible debentures and related accrued interest, resulting in a loss on settlement of convertible debt of $765,000 (Note 13).
 
  c)
On July 10, 2020, the Company issued 408,459 common shares with a fair value of $694,375 pursuant to the settlement of $102,113 owing to a vendor, resulting in a loss on settlement of payables of $592,262.
 
  d)
On August 7, 2020, the Company completed a prospectus offering of 6,555,000 units at $1.30 per unit for gross proceeds of $8,521,500. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $2.00 until February 7, 2022. The Company paid the agent a commission of $679,312 and issued the agent a finder’s fee of 80,000 units with a fair value of $120,800, which consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022. The Company also issued 522,548 warrants with a fair value of $528,092, exercisable to acquire one unit at $1.30 per unit until February 7, 2022 (the “
Broker’s Warrants
”). Each unit consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022. In connection with the prospectus offering, the Company also incurred other share issuance costs of $240,041.
 
  e)
On August 13, 2020, the Company completed a private placement of 88,462 units at $1.30 per unit for gross proceeds of $115,001. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $2.00 until February 13, 2022.
 
  f)
On October 22, 2020, the Company issued 47,866 common shares with a fair value of $120,144 pursuant to the settlement of $130,834 owing to a vendor, resulting in a gain on settlement of payables of $10,690.
 
2
6
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
15.
Share capital
(continued)
 
  g)
On December 4, 2020, the Company completed a prospectus offering of 3,778,900 units at $3.50 per unit for gross proceeds of $13,226,150. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $4.50 until June 4, 2022. The Company paid the agent a commission of $1,037,078 and issued the agent a finder’s fee of 30,000 units with a fair value of $265,800, which consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.50 until June 4, 2022. The Company also issued 296,308 Broker’s Warrants with a fair value of $1,933,778, exercisable to acquire one unit at $3.50 per unit until June 4, 2022. Each unit consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.50 until June 4, 2022. In connection with the prospectus offering, the Company also incurred other share issuance costs of $386,982.
 
  h)
On December 4, 2020, the Company completed a private placement of 285,714 units at $3.50 per unit for gross proceeds of $999,999. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $4.50 until June 4, 2022. In connection with the private placement, the Company incurred share issuance costs of $139,746.
 
  i)
During the year ended December 31, 2020, the Company issued a total of 2,341,500 common shares pursuant to the exercise of stock options at $0.25 per share and 16,667 common shares pursuant to the exercise of stock options at $1.74 per share for an aggregate gross proceeds of $614,376 of which $6,250 was received subsequent to December 31, 2020.
 
  j)
During the year ended December 31, 2020, the Company issued a total of 12,895,190 common shares pursuant to the exercise of warrants with exercise prices ranging between $0.25 per share and $4.50 per share for gross proceeds of $10,251,859 of which $5,000 was received subsequent to December 31, 2020.
 
  k)
During the year ended December 31, 2020, the Company issued 474,686 units pursuant to the exercise of Broker’s Warrants at $1.30 per share for gross proceeds of $617,092. Each unit consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022.
 
  l)
During the year ended December 31, 2020, pursuant to an executive management services agreement entered on July 15, 2019 with the former CFO, director and executive consultant of the Company, the Company issued 166,670 units with a fair value of $25,001, of which $3,760 was allocated to warrants. Each unit issued was comprised of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances.
 
  m)
During the year ended December 31, 2020, the Company issued a total of 39,263 common shares for marketing services with a fair value of $65,978.
 
  n)
During the year ended December 31, 2020, the Company received subscriptions of $19,500 pursuant to the exercise of warrants in January 2021 (Note 27(e)).
Issued share capital during the year ended December 31, 2019
 
  o)
On July 31, 2019, the Company closed a private placement of 12,332,002 units for gross proceeds of $1,849,800. Each unit issued was comprised of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances. The warrants were all exercised during the year ended December 31, 2020.
 
27

The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
15.
Share capital
(continued)
 
  p)
On August 19, 2019, pursuant to a consultancy agreement entered on January 1, 2019, the Company issued 3,000,000 units with a fair value of $450,000, of which $67,814 was allocated to warrants. Each unit issued was comprised of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances. The warrants were all exercised during the year ended December 31, 2020.
 
  q)
During the year ended December 31, 2019, pursuant to a management services agreement entered on July 15, 2019, with the former CFO of the Company, the Company issued a total of 183,337 units with a fair value of $27,500, of which $4,147 was allocated to warrants. Each unit issued was comprised of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances. The warrants were all exercised during the year ended December 31, 2020.
 
16.
Warrants
The following table summarizes information about the warrants at December 31, 2020 and 2019, and the changes for the years then ended:
 
    
Number of warrants
     
Weighted average
exercise price
  
Warrants outstanding, December 31, 2018
      —        $ —    
Issued
      7,757,670        0.30  
    
 
 
     
 
 
  
Warrants outstanding, December 31, 2019
      7,757,670        0.30  
Issued
      8,501,573        1.91  
Exercised
      (13,369,876 )       0.81  
    
 
 
     
 
 
  
Warrants outstanding, December 31, 2020
   
 
2,889,367
 
   
$
3.70
 
    
 
 
     
 
 
  
The Company’s warrants are exercisable only for common shares, unless otherwise noted. The following table summarizes information about warrants outstanding and exercisable at December 31, 2020:
 
Exercise price
   
Expiry date
     
Warrants outstanding
    
Weighted average

remaining contracted life
(years)
  
$ 1.60
      August 13, 2021        45,000       0.62  
$ 1.51
      October 6, 2021        60,000       0.76  
$ 7.60
      December 21, 2021        60,000       0.97  
$ 1.30
      February 7, 2022        47,862 *      1.10  
$ 2.00
      February 7, 2022        656,733       1.10  
$ 2.00
      February 13, 2022        44,232       1.12  
$ 3.50
      June 4, 2022        296,308 **      1.42  
$ 4.50
      June 4, 2022        1,679,232       1.42  
             
 
 
          
             
 
2,889,367
 
        
             
 
 
          
 
*
Exercisable to acquire one unit at $1.30 per unit until February 7, 2022. Each unit consists of
one
common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022.
**
Exercisable to acquire one unit at $3.50 per unit until June 4, 2022. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.50 until
June 4, 2022.
During the year ended
December 31, 2020
, the Company granted 500,000 warrants with a fair value of $80,324 to an agent for financial advisory services, which was recognized in marketing and investor relations expenses. The warrants are exercisable at a price of $0.25 per common share at any time after the volume weighted average price of the common shares is equal to or exceeds $0.62 until December 17, 2021 (the “
Advisory Warrants
”).
 
28
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
16.
Warrants
(continued)
 
During the year ended
December 31, 2020
, the Company issued a total of 165,000 warrants to key management personnel with a fair value of $287,230. The warrants issued have exercise prices ranging between $1.51 per share and $7.60 per share and expiry dates ranging between August 13, 2021 and December 21, 2021.
The fair value of warrants issued for services discussed above and share issuance costs (note 15) was estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
 
    
Year ended December 31
  
    
2020
    
2019
  
Risk-free interest rate
      0.26 %      1.57 % 
Dividend yield
      0 %      0 % 
Expected volatility
      147 %      150 % 
Expected life (years)
      1.28       1.0  
Forfeiture rate
      0 %      0 % 
Expected annualized volatility was determined through the comparison of historical share price volatilities used by similar publicly listed companies in similar industries.
 
17.
Stock options
On December 31, 2019, the Company’s Board of Directors approved a stock incentive plan in accordance with the policies of the CSE. The Board of Directors is authorized to grant options to directors, officers, consultants or employees to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price will not be less than $0.10 per share and the market price of the common shares on the trading day immediately preceding the date of the grant, less applicable discounts permitted by the CSE. The options that may be granted under this plan must be exercisable for over a period of not exceeding 5 years.
The following table summarizes the continuity of the Company’s stock options at December 31, 2020 and 2019, and the changes for the years then ended:
 
    
Number of options
     
Weighted average
exercise price
  
Outstanding, December 31, 2018
      —        $ —    
Granted
      1,513,500        0.25  

  
 
 
     
 
 
  
Outstanding, December 31, 2019
      1,513,500        0.25  
Granted
      4,792,806        1.18  
Exercised
      (2,358,167 )       0.26  
Cancelled or forfeited
      (95,500 )       0.37  

  
 
 
     
 
 
  
Outstanding, December 31, 2020
      3,852,639      $ 1.39  

  
 
 
     
 
 
  
Exercisable, December 31, 2020
      2,995,267      $ 0.52  

  
 
 
     
 
 
  
The options granted during the year ended December 31, 2019, vested immediately. The options granted during the year ended December 31, 2020, generally vest in 2 to 5 equal instalments over vesting periods ranging between 3 months and 16 months.
The weighted average share price at the date of exercise for share options exercised in 2020 was $6.96.
 
29
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
17.
Stock options
(continued)
 
Additional information regarding stock options outstanding as at December 31, 2020, is as follows:
 
Exercise price
   
Stock options
outstanding*
     
Stock options exercisable
     
Expiry date
$ 9.07
      5,000        —        December 7, 2023
$ 0.25
      1,009,000        1,009,000      December 31, 2024
$ 0.25
      1,262,500        1,262,500      January 1, 2025
$ 0.25
      325,000        305,000      June 17, 2025
$ 1.31
      110,000        73,333      June 24, 2025
$ 1.56
      50,000        33,333      August 7, 2025
$ 1.65
      30,000        10,000      September 4, 2025
$ 1.70
      5,506        —        September 17, 2025
$ 1.68
      250,000        166,667      September 21, 2025
$ 1.60
      100,000        33,333      October 7, 2025
$ 1.74
      33,333        16,667      October 13, 2025
$ 4.65
      522,300        85,434      November 24, 2025
$ 8.86
      150,000        —        December 5, 2025

  
 
 
     
 
 
     

  
 
3,852,639
 
   
 
2,995,267
 
   

  
 
 
     
 
 
     
 
*
The weighted average remaining life of options outstanding is 4.30 years.
Share-based compensation expense is determined using the Black-Scholes option pricing model. During the year ended December 31, 2020, the Company recognized share-based compensation expense of $2,780,488 (2019 – $200,933) in equity reserves, of which $614,927 (2019 – $179,227) pertains to directors and officers of the Company. The weighted average fair value of options granted during the year ended December 31, 2020, was $1.13 (2019 – $0.13) per share. Weighted average assumptions used in calculating the fair value of share-based compensation expense are as follows:
 
    
Year ended December 31
  
    
2020
    
2019
  
Risk-free interest rate
      1.25 %      1.68 % 
Dividend yield
      0 %      0 % 
Expected volatility
      145 %      150 % 
Expected life (years)
      5.0       5.0  
Forfeiture rate
      0 %      0 % 
Expected annualized volatility was determined through the comparison of historical share price volatilities used by similar publicly listed companies in similar industries.
At December 31, 2020, there was $2,519,228 (2019 – $nil) of unrecognized share-based compensation related to unvested stock options.
 
3
0
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
18.
Finance expense
Finance expense is comprised of the following:
 
    
Year ended December 31
  
    
2020
     
2019
  
Loss on settlement of payables (Note 15 (c))
    $ 592,262      $ —    
Interest on finance lease obligations (Note 11)
      345,958        42,777  
Interest and accretion on short term loans (Note 12)
      61,558        29,598  
Interest and accretion on convertible debentures (Note 13)
      86,957        103,644  
Finance cost on settlement of convertible debt (Note 13)
      765,000        —    
Interest and accretion on related party loan (Note 14)
      11,728        —    
Forgiveness of loan (Note 12 (j))
      (10,000 )       —    
Gain on settlement of debt (Note 15 (f))
      (10,690 )       —    
Other interest
      80        —    
Other interest income
      —          (2,751 ) 
    
 
 
     
 
 
  
    
$
1,842,853
 
   
$
173,268
 
    
 
 
     
 
 
  
 
19.
Other expense
Other expense is comprised of the following:
 
    
Year ended December 31
  
    
2020
     
2019
  
Pre-construction
costs*
    $ 129,677      $ 3,802  
Impairment of property and equipment (Note 9)
      —          11,405  
    
 
 
     
 
 
  
    
$
129,677
 
   
$
15,207
 
    
 
 
     
 
 
  
 
*
Pre-construction
costs consist of conceptual design and preliminary engineering expenditures incurred on
building-out
its Mount Pleasant facility (Note 24(e)) and Rupert facility (Note 24(k)). These costs did not meet the capitalization criteria as set out in IAS 16,
Property, Plant and Equipment
.
 
20.
Supplemental cash flow disclosures
 
    
Year ended December 31
  
    
2020
     
2019
  
Adoption of IFRS 16, Leases
    $ —        $ 77,659  
Fair value of Agent’s Warrants and corporate finance fee warrants
      2,638,247        —    
Issuance of shares for debt settlement
      814,519        —    
Issuance of shares pursuant to the conversion of convertible debentures
      1,873,222        —    
Issuance of units for finders’ fees
      467,100        —    
Property and equipment purchase in accounts payable
      25,276        35,659  
ROU assets reclassified to property and equipment
      —          19,415  
ROU assets acquired through leases
      5,020,509        401,709  
    
 
 
     
 
 
  
    
$
10,839,083
 
   
$
534,442
 
    
 
 
     
 
 
  
 
3
1
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
21.
Financial instruments and financial risk management
Fair value measurements
At December 31, 2020 the carrying value of the Company’s cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities, and loans payable, all of which are carried at amortized cost, approximate their fair value given their short-term nature.
The Company does not have any financial instruments measured at fair value in the consolidated statement of financial position.
Financial risk management
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
The following is an analysis of the contractual maturities of the Company’s
non-derivative
financial liabilities as at December 31, 2020:
 
December 31, 2020
  
Within 1 year
 
  
Between 1–2 years
 
  
More than 2 years
 
Accounts payable and accrued liabilities
    $ 1,871,728      $ —        $ —    
Loans payable
      —          30,000        —    
Lease liabilities
 
 
146,935
 
 
 
212,877
 
 
 
5,176,475
 
    
 
 
     
 
 
     
 
 
  
    
$
2,018,663
 
   
$
242,877
 
   
$
5,176,475
 
    
 
 
     
 
 
     
 
 
  
Interest risk
The Company’s exposure to interest risk relates to its investment of surplus cash and cash equivalents, including restricted and unrestricted short-term investments. The Company may invest surplus cash in highly liquid investments with short terms to maturity and would accumulate interest at prevailing rates for such investments. At December 31, 2020, the Company had cash and cash equivalents of $25,084,083 and a 1% change in interest rates would increase or decrease interest income by approximately $250,000.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, security deposits and receivables. The carrying amount of cash and cash equivalents, security deposits, and trade and other receivables represent the maximum exposure to credit risk, and as at December 31, 2020, this amounted to $26,826,938.
The Company’s cash and cash equivalents are held through large Canadian financial institutions and no losses have been incurred in relation to these items. The Company’s receivables are comprised of trade accounts receivable and GST receivable. At December 31, 2020 the Company has $43,153 in trade accounts receivable outstanding over 60 days, of which the Company has recognized an allowance for doubtful accounts of $39,917.
Concentration of credit risk
Concentration of credit risk is the risk of reliance upon a select number of customers which significantly impact the financial performance of the Company. The Company recorded sales from 3 wholesale distributors of the Company representing 18% of total revenue during the year ended December 31, 2020. Of the Company’s trade receivables outstanding at December 31, 2020, 81% are held with 3 customers of the Company.
 
3
2
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
21.
Financial instruments and financial risk management
(continued)
 
Liquidity risk
Liquidity risk is the risk that the Company will not be able to pay financial instrument liabilities as they come due. The Company manages its liquidity risk by reviewing on an ongoing basis its capital requirements. As at December 31, 2020, the Company has $25,084,083 of cash and cash equivalents. The Company is obligated to pay accounts payable and accrued liabilities and the current portion of the lease liabilities with a carrying amount of $2,018,663 (see also note 1).
Foreign Currency Risk
The Company is exposed to foreign currency risk on fluctuations related to cash, accounts payable and accrued liabilities, and deferred revenue that are denominated in US dollars. As at December 31, 2020, a 10% appreciation of the Canadian dollar relative to the US dollar would have increased net financial assets by approximately $102,312 (December 31, 2019 – $nil). A 10% depreciation of the Canadian dollar relative to the US dollar would have had the equal but opposite effect.
Price Risk
The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices of raw materials to determine the appropriate course of action to be taken by the Company.
 
22.
Employee benefit expense
The breakdown of the wages and salaries costs within the consolidated statements of net loss and comprehensive loss for the years ending December 31, 2020, and 2019, are as follows:
 
    
Year ended December 31
  
    
2020
     
2019
  
Included in procurement expense
   


  


Wages and salaries
    $ 1,139,362      $ 562,740  
Share-based compensation
      296,384        11,749  
Included in fulfilment expense
   


  


Wages and salaries
      70,578        —    
Share-based compensation
      27,307        —    
Included in general and administrative expense
   


  


Wages and salaries
      2,176,732        149,317  
Share-based compensation
      2,370,059        179,227  
Included in marketing and investor relations expense
   


  


Share-based compensation
      3,982        1,328  
Included in research and development expense
   


  


Wages and salaries
      287,864        82,018  
Share-based compensation
      82,756        8,629  

  
 
 
     
 
 
  
Total employee benefit expense
   
$
6,455,024
 
   
$
995,008
 

  
 
 
     
 
 
  
 
3
3
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
23.
Capital management
The Company manages its capital structure and adjusts it based on the funds available to the Company in order to maintain operations. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company defines capital that it manages as shareholders’ equity and debt. The Company has historically relied on debt and more recently the equity markets to fund its activities. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable to ensure optimal capital structure to reduce cost of capital. The Company is not currently subject to externally imposed capital requirements.
 
24.
Commitments
Finance leases
 
  a)
On December 22, 2017, the Company entered into a lease agreement for retail and storage space located at
6-1701
Douglas Street, Victoria, BC. The lease is for a
5-year
term, commencing on August 1, 2017 and expiring on July 31, 2022. The base rent due under the lease agreement is $1,252 per month during the first year and increases each subsequent year. For years
2-5,
the monthly rent payable is equal to the current monthly minimum rent multiplied by the annual increase of the Consumer Price Index (“
CPI
”) for the current lease year just ended over the previous lease year. CPI is defined as the consumer price index for the Greater Victoria Area issued by any bureau of statistics for the Government of Canada. The Company will also pay additional rent equivalent to
4
% of the Company’s gross retail sales, excluding sales from wholesale orders, in excess of $2,000,000 per annum.
 
  b)
On January 1, 2019, the Company entered into a
sub-lease
agreement for kitchen and retail space located at 2527 Government Street, Victoria, BC. The lease is for a
4.5-year
term, expiring on June 30, 2023. The base rent due under the
sub-lease
agreement is $3,950 per month for the period from January 1 to June 30, 2019, $4,350 per month for the period from July 1, 2019 to June 30, 2020, $4,600 per month for the period from July 1, 2020 to June 30, 2021, $4,800 per month for the period from July 1, 2021 to June 30, 2022, and $5,050 per month for the period from July 1, 2022 to June 30, 2023.
Also, in relation to the January 1, 2019
sub-lease
agreement, the Company entered into a rental agreement for the use of fixtures and equipment located at 2527 Government Street, Victoria, BC. The lease is for a
4.5-year
term, expiring on June 30, 2023. The rent due under the rental agreement is $250 per month for the period from January 1, 2019 to June 30, 2020, $300 per month for the period from July 1, 2020 to June 30, 2021, and $350 per month for the period from July 1, 2021 to June 30, 2023.
 
  c)
On January 9, 2019, the Company entered into a lease agreement for restaurant production equipment. The lease is for a
3-year
term, expiring on January 9, 2022. The Company is required to make 36 monthly payments of $1,858. At the expiration of the lease, the Company shall have the option to purchase the equipment for $10.
 
  d)
On January 9, 2019, the Company entered into a lease agreement for restaurant production equipment. The lease is for a
3-year
term, expiring on January 9, 2022. The Company is required to make 36 monthly payments of $2,232.
 
  e)
On January 22, 2020, the Company entered into a lease agreement for a facility located in the Mount Pleasant area of Vancouver, BC, which commences September 1, 2020 for a
10-year
term. The facility will house the Company’s second restaurant, along with space for research and
 
3
4
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
24.
Commitments
(continued)
 
 
development, and offices. Pursuant to the lease agreement, the annual base rent is $332,832 per annum for years
1-3,
$348,434 per annum for years
4-6,
and $369,236 per annum for years
7-10.
The Company paid a security deposit of $246,237, which will be applied towards the rent due for each of the 3rd, 13th, and 25th months of the term, with the balance being held as a security deposit. As at December 31, 2020, a balance of $232,242 is included in prepaids and deposits. Of this amount, $43,502 (Note 7) is presented as current asset and the remaining balance as
non-current
asset. The lease agreement includes an option to renew for two consecutive five-year periods.
 
  f)
On April 8, 2020, the Company entered into a lease agreement for storage space located in Victoria, BC. The lease is for 2 years and 16 days, commencing on April 15, 2020 and expiring on April 30, 2022. The base rent due under the lease agreement is $1,445 per month during the first year and $1,576 per month during the second year.
 
  g)
On June 4, 2020, the Company entered into agreements for the purchase of production equipment. Pursuant to the purchase agreements, the Company is required to pay 30% deposit of the purchase price totaling $454,848, and the balance is due in 60 equal payments totaling $19,974 per month at an annual interest rate of 5%, starting from the date of the delivery. As at December 31, 2020, the equipment has not been delivered and the deposits of $454,848 are included in prepaids and deposits.
 
  h)
On August 31, 2020, the Company entered into a lease agreement for a production and distribution facility located in Patterson, California, which commenced on September 1, 2020. The term of this lease is for 5 years and 7 months, expiring on February 28, 2026, with 2 options to extend the term of the lease, each for an additional term of 5 years. Pursuant to the lease agreement, the annual base rent is US$24,743 per month starting April 1, 2021 and no rent is required for the period from September 1, 2020 to March 31, 2021. The base rent is to be adjusted by 3% on the 1st of April of each year commencing from April 1, 2021. The Company paid a security deposit of $410,189 (US$321,659) which is included in prepaids and deposits.
 
  i)
On September 8, 2020, the Company entered into a lease agreement for the storage space located in Victoria, BC. The lease is for 1 year and 7 months, commencing on October 1, 2020 and expiring on April 30, 2022. The base rent due under the lease agreement is $5,082 per month during the first year and $5,544 per month during the remaining term.
 
  j)
On September 22, 2020, the Company entered into a lease agreement for a facility located in the Victoria, BC, which commences January 1, 2021 for a
10-year
term. The facility will house the Company’s third restaurant. Pursuant to the lease agreement, the annual base rent is $44,975 per annum for years
1-2,
$47,545 per annum for years
3-4,
$50,115 per annum for years
5-6,
$51,400 per annum for years
7-8,
and $52,685 per annum for year
9-10.
The lease agreement includes an option to renew for two consecutive five-year periods. The Company paid a security deposit of $12,256 which is included in prepaids and deposits.
 
  k)
On November 11, 2020, the Company entered into a lease agreement for the Rupert facility located in Vancouver, BC, for an initial
10-year
term with renewal options for two additional
5-year
terms. The facility comprises several units of approximately 45,000 square feet of production, refrigeration, warehousing, R&D and office space. Pursuant to the agreement, the lease commences June 1, 2021 with early possession permitted between January 11, 2021 and March 1, 2021. The annual base rent is $870,061 per annum for years 1 to 2, $948,546 per annum for years 3 to 4, $993,875 per annum in years 5 to 7, $1,039,204 per annum in years 8 to 9, and $1,084,533 per annum in year 10. The Company paid a security deposit of $222,249 which is included in prepaids and deposits.
 
3
5
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
24.
Commitments
(continued)
 
Operating leases
As at December 31, 2020, the Company did not have any future payments required under
non-cancellable
operating leases contracted for but not capitalized in the financial statements.
 
25.
Segmented Information
The Company’s chief operating decision makers currently review the operating results of the Company as a single reportable operating segment – being the manufacture and distribution of vegan meats.
The Company operates in two geographic regions: Canada and the United States. The following is a summary of the Company’s activities by geographic region for the years ended December 31, 2020 and 2019:
 
    
Canada
     
United States
     
Total
  
Total
non-current
assets as at December 31, 2020
    $ 3,407,364      $ 3,158,997     
$
6,566,361
 
Revenues for the year ended December 31, 2020
    $ 4,003,507      $ 633,331     
$
4,636,838
 
    
 
 
     
 
 
     
 
 
  
Total
non-current
assets as at December 31, 2019
    $ 702,909      $ —       
$
702,909
 
Revenues for the year ended December 31, 2019
    $ 999,797      $ —       
$
999,797
 
    
 
 
     
 
 
     
 
 
  
 
26.
Income taxes
A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:
 
 
  
Year ended December 31
 
 
  
2020
 
 
2019
 
Net loss
    $ (13,858,000 )    $ (2,341,544 ) 
Statutory tax rate
      27 %      11 % 
    
 
 
    
 
 
  
Expected income tax recovery at the statutory tax rate
      (2,730,000 )      (258,000 ) 
Non-deductible
items and other
      324,000       29,000  
Non-deductible share-based compensation
  
 
548,000
 
 
 
—  
 
Share issue costs
      (487,000 )      (9,000 ) 
Effect of change in statutory tax rates
      (1,291,000 )      —    
Change in recognized deferred assets
      3,636,000       238,000  
    
 
 
    
 
 
  
Income tax recovery
   
$
—  
 
  
$
—  
 
    
 
 
    
 
 
  
The significant components of deferred income tax assets and liabilities as at December 31, 2020 and 2019 are as follows:
 
    
As at December 31
  
    
2020
     
2019
  
Non-capital
loss carry-forwards
    $ 3,321,000      $ 311,000  
Share issuance costs
      549,000        9,000  
Property and equipment, and leases
      63,000        (23,000 ) 
    
 
 
     
 
 
  
       3,933,000        297,000  
Unrecognized deferred tax asset
      (3,933,000 )       (297,000 ) 
    
 
 
     
 
 
  
Net deferred income tax assets
   
$
—  
 
   
$
—  
 
    
 
 
     
 
 
  
 
3
6
The Very Good Food Company |
Consolidated Financial Statements December 2020 and 2019
 
26.
Income taxes
(continued)
 
As at December 31, 2020, the Company has
non-capital
loss carry forward of $12,304,000 (2019 – $2,327,000) in Canada that are available to reduce income otherwise taxable in future years. The
non-capital
losses will expire, if not used, starting in 2036.
 
27.
Events after the reporting period
 
  a)
On February 1, 2021, the Company entered into a lease agreement for a warehouse facility located in Victoria, BC. The lease is for a
5-year
term commencing February 1, 2021 and expiring on January 31, 2026. The facility comprises approximately
6,288
square feet of warehousing space. Pursuant to the lease agreement, the annual base rent is $
94,320
per annum for years
1-2,
and $
100,608
per annum for years
3-5.
The Company paid a security deposit of $60,784, plus GST, which is included in prepaids and deposits at December 31, 2020.
 
  b)
On February 24, 2021, the Company completed the acquisition of The Cultured Nut Inc. pursuant to a share purchase agreement. In consideration for the acquisition, the Company issued 139,676 common shares, paid $1,000,000 and agreed to pay $1,000,000 upon the successful achievement of certain milestones related to the integration of The Cultured Nut Inc.’s business over a 12 month period.
 
  c)
On March 11, 2021, the Company completed the acquisition of Lloyd-James Marketing Group Inc. pursuant to a share purchase agreement. In consideration for the acquisition, the Company issued 62,329 common shares, paid $325,000 and agreed to pay $350,000 upon the successful achievement of certain milestones related to the achievement of specific sales targets during the fiscal period ended December 31, 2021.
 
  d)
Subsequent to December 31, 2020, the Company issued a total of 99,167 common shares pursuant to the exercise of stock options with exercise prices ranging between $0.25 per share and $1.74 per share for gross proceeds of $209,118.
 
  e)
Subsequent to December 31, 2020, the Company issued a total of 350,183 common shares and 273,867 units pursuant to the exercise of warrants with exercise prices ranging between $1.30 per share and $4.50 per share for gross proceeds of $2,201,983 of which $19,500 was received at December 31, 2020. Each unit consisted of one common share and
one-half
of one warrant with exercise prices ranging between $2.00 and $4.50 with terms ranging until between February 7, 2022, and June 4, 2022.
 
  f)
Subsequent to December 31, 2020, the Company granted a total of
4,580,000
stock options. The stock options granted have exercise prices ranging between $
5.72
per share and $
7.10
per share and expiry dates ranging between January 4, 2024 and January 29, 2026.
 
  g)
Subsequent to December 31, 2020, the Company issued a total of 34,303 common shares for marketing services.
 
  h)
Subsequent to December 31, 2020,
120,000
unvested stock options were cancelled due to the departure of three employees.
 
37
The Very Good Food Company Inc. 2748 Rupert Street, Vancouver, BC, V5M 3T7 Canada 1.855.526.9254 hello@verygoodfood
213892-001
.com www.verygoodfood.com
 

The Very Good Food Company | 2021 Annual Report

Exhibit 99.3

MANAGEMENT’S

DISCUSSION AND ANALYSIS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

TABLE OF CONTENTS

 

FORWARD-LOOKING INFORMATION

      2  

BASIS OF PRESENTATION

      3  

OUR BUSINESS

      4  

CORPORATE OVERVIEW

      5  

OUR STRATEGIC PROGRESS

      7  

COVID-19

      11  

FINANCIAL PERFORMANCE REVIEW

      12  

QUARTERLY RESULTS

      18  

NON-IFRS FINANCIAL MEASURES

      19  

CAPITAL MANAGEMENT

      21  

OFF-BALANCE SHEET AGREEMENTS

      24  

FINANCIAL RISK MANAGEMENT

      24  

RELATED PARTY TRANSACTIONS

      27  

EVENTS AFTER THE REPORTING PERIOD

      27  

CRITICAL ACCOUNTING ESTIMATES

      27  

ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

      29  

RISKS AND UNCERTAINTIES

      29  

BOARD APPROVAL

      29  

DISCLOSURE CONTROLS AND PROCEDURES

      29  

INTERNAL CONTROLS OVER FINANCIAL REPORTING

      29  

The Very Good Food Company  |  Management’s Discussion and Analysis

 

FORWARD-LOOKING INFORMATION

The following management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of The Very Good Food Company Inc. (“VERY GOOD”, “Company”, “we”, “us” or “our”), constitutes management’s review of the factors that affected the Company’s financial and operational performance for the year ended December 31, 2021.

This MD&A contains “forward-looking information” within the meaning of applicable securities laws in Canada and “forward-looking statements” within the meaning of United States Private Securities Litigation Reform Act of 1995, including Section 21E of the Securities Exchange Act of 1934, as amended (collectively referred to as “forward-looking information”). Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances. Any such forward-looking information may be identified by words such as “proposed”, “expects”, “intends”, “may”, “will”, and similar expressions.

This forward-looking information includes, but is not limited to, statements relating to: the Company’s business strategy and growth plans; the Company’s capital expenditures and operations; the Company’s plans to lower throughput and headcount at some locations, manage inventory levels and implement initiatives, such as temporarily pausing non-critical capital expenditures and lowering selling, general and administrative (“SG&A”) spending, to manage both short and long-term liquidity and establish a path towards profitability; the Company’s intended transition from a focus on top line growth to balancing top line growth and profitability; future workforce reductions; the Company’s strategic review of its go-to market channels and the potential outcome of such review; the Company’s focus on the wholesale and food service channels; management’s belief that the initiatives being implemented will allow the Company to manage both its short-term and long-term liquidity and increase its cash runway; management’s efforts to evaluate ways to support the business with as little dilution as possible; the scale and timing of the anticipated production capacity increases at its production facilities; the continued strong and increasing demand for VERY GOOD’s products; the appeal and attributes of the Company’s products including taste and nutritional content and their ability to compete; trends and growth expectations in the plant-based industry; planned product innovation and the benefits VERY GOOD expects to derive from any new product launches; wholesale expansion and specifically, VERY GOOD’s U.S. retail expansion and the number of stores VERY GOOD’s products are expected to be in; viability of VERY GOOD’s eCommerce channel; plans for potential future expansion into foodservice and meal kit delivery services; the function of eCommerce as a brand awareness tool; and the impact of the COVID-19 pandemic on VERY GOOD’s business.

Forward-looking information is based on the Company’s opinions, estimates and assumptions in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company currently believes are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct.

Certain assumptions with respect to, the Company’s ability to successfully implement the cost improvement initiatives and measures and achieve their intended benefits, the availability of sufficient financing on reasonable terms to fund VERY GOOD’s capital and operating requirements; the Company’s ability to remain listed on The Nasdaq Stock Market LLC (“Nasdaq”); the impact of COVID-19; continued growth of the popularity of plant-based foods and, in particular, vegan meat alternatives; the continued strong demand for VERY GOOD’s products; no material deterioration in general business and economic conditions; no material fluctuations of interest rates and foreign exchange rates; the successful placement of VERY GOOD’s products in retail stores and eCommerce viability; the availability of sufficient financing on reasonable terms to fund VERY GOOD’s capital and operating requirements, VERY GOOD’s ability to successfully enter new markets and manage its international expansion, VERY GOOD’s ability to increase production capacity and obtain the necessary production equipment, the availability of labour as well as the accuracy of construction schedules and cost estimates for the commissioning of production lines at VERY GOOD’s Rupert and Patterson facilities and the timely receipt of required permits, VERY GOOD’s relationship with its suppliers, distributors and third-party logistics providers, and the Company’s ability to position VERY GOOD competitively, are all material assumptions made in preparing forward-looking information and management’s expectations.

Forward-looking information is based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as of the date such statements are made and is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information. These risks, uncertainties and other factors include, but are not limited to, those set forth under the “Risks and Uncertainties” section of this MD&A. If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. Accordingly, readers should not place undue reliance on forward-looking information.

The forward-looking information contained in this MD&A represents the Company’s expectations as of March 31, 2022 and is subject to change after such date. VERY GOOD disclaims any intent or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

 

2

The Very Good Food Company  |  Management’s Discussion and Analysis

 

BASIS OF PRESENTATION

The following MD&A is intended to help the reader understand the financial condition and results of the operations of The Very Good Food Company Inc. and constitutes management’s review of the factors that affected the Company’s financial and operating performance for the year ended December 31, 2021. This MD&A has been prepared in compliance with the requirements of National Instrument 51-102 - Continuous Disclosure Obligations. This MD&A should be read in conjunction with the audited annual consolidated financial statements of the Company for the years ended December 31, 2021 and 2020 together with the notes thereto, prepared in accordance with International Financial Reporting Standards (“IFRS”). The results for the year ended December 31, 2021 are not necessarily indicative of the results that may be expected for any future period.

Some of the financial measures we provide in this MD&A are non-IFRS financial measures that have no standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. See “Non-IFRS Financial Measures”, starting on page 20 for more information on the Company’s non-IFRS financial measures and reconciliations thereof.

All amounts in this MD&A are expressed in Canadian dollars, except where otherwise indicated. All references to the Company include its subsidiaries, on a consolidated basis. The information contained in this MD&A, including forward-looking statements, is current as of March 31, 2022 unless otherwise stated.

Additional information regarding the Company is available on the SEDAR website for Canadian regulatory filings at www.sedar.com; the EDGAR website for U.S. regulatory filings with the U.S. Securities and Exchange Commission (the “SEC”) at www.sec.gov; and on the Company’s website at www.verygoodfood.com. Our reference to our website is an inactive textual reference only and accordingly, information contained on the Company’s website shall not be deemed to be a part of this MD&A or incorporated by reference herein.

 

3

The Very Good Food Company  |  Management’s Discussion and Analysis

 

2021 HIGHLIGHTS

Financial Highlights

 

     
      Three months ended
December 31		      Year ended December 31  
         
      2021      2020      2021      2020  

Revenue by channel

                                    

eCommerce

    $ 3,340,107      $ 1,438,931      $ 9,277,750      $ 3,382,458  

Wholesale

      781,363        255,276        2,429,072        840,490  

Butcher Shop, Restaurant and Other

      177,452        142,475        551,961        413,890  
         
     $ 4,298,922      $ 1,836,682      $ 12,258,783      $ 4,636,838  

Gross Profit(1)

    $ 1,653,262      $ 260,472      $ 3,398,851      $ 827,106  

Gross Margin(1)

      38%        14%        28%        18%  

Net Loss

    $ (13,330,908)      $ (5,813,13)      $ (54,559,923)      $ (13,858,80)  

Adjusted EBITDA(1) 

    $ (5,014,266)      $ (3,279,266)      $ (24,253,335)      $ (8,344,117)  

Loss per share – basic and diluted

      $    (0.12)        $    (0.06)        $    (0.53)        $    (0.21)  

Weighted average number of shares outstanding – basic and diluted

      115,381,279        89,689,807        103,401,995        66,388,474  

(1) See “Non-IFRS Financial Measures” starting on page 20 for more information on Non-IFRS financial measures and reconciliations thereof to the nearest comparable measures under IFRS.

OUR BUSINESS

VERY GOOD is an emerging plant-based food technology company that designs, develops, produces, distributes and sells a variety of plant-based meat, cheese and other food alternatives.

The Company was incorporated on December 27, 2016, under the laws of the province of British Columbia, Canada under its original name “The Very Good Butchers Inc.” The Company changed its name to “The Very Good Food Company Inc.” on October 1, 2019. The Company’s head office is located at 2748 Rupert Street, Vancouver, BC, V5M 3T7 and its registered and records office is located at 800 – 885 West Georgia Street, Vancouver, BC, V6C 3H1.

The common shares in the capital of the Company (the” Common Shares”) trade on the TSX Venture Exchange (the “TSXV”) under the symbol “VERY.V”, the Frankfurt Stock Exchange under the simple “OSI”, and the Nasdaq Capital Market under the “VGFC”.

Nasdaq Listing Notification

On January 11, 2022, VERY GOOD received notification from the Listing Qualifications Department of Nasdaq that, for the previous 30 consecutive business days, the bid price of the Common Shares had closed below the minimum US$1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). The Nasdaq notification has no immediate effect on the listing of the Common Shares. VERY GOOD is also listed on the TSXV and the notification does not affect the Company’s compliance status with such listing.

Under Nasdaq rule 5810(c)(3)(A), VERY Good has until July 11, 2022 to regain compliance with the Bid Price Rule. If at any time over this period the bid price of the Common Shares close at US$1.00 per Common Share or more for a minimum of 10 consecutive business days, VERY GOOD will regain compliance, unless Nasdaq exercises its discretion to extend this 10-day compliance period.

 

4

The Very Good Food Company  |  Management’s Discussion and Analysis

 

In the event the Company does not regain compliance, the Company may be eligible for an additional compliance period of 180 calendar days. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards of the Nasdaq Capital Market, with the exception of the Bid Price Rule, and will need to provide written notice of its intention to cure the deficiency during this second compliance period. If the Company does not qualify for the additional compliance period, then the Common Shares will be subject to delisting, at which time the Company may appeal the delisting determination to a Nasdaq Hearings Panel.

Operational and Liquidity Update

On March 16th, 2022 VERY GOOD announced we are temporarily lowering production throughput and headcount at some locations, to manage inventory levels, and implementing initiatives, such as pausing non-critical capital expenditures and lowering general and administrative expenses, to manage both short and long-term liquidity and establish a path towards profitability.

VERY GOOD is also implementing additional cost improvement measures, as we transition from a focus on top line growth, to a focus of balancing top line growth and profitability. As part of this shift, VERY expects to further right-size our workforce across multiple business functions as we streamline operations.

VERY GOOD is currently reviewing its “go-to market” channels. Digital marketing costs to acquire new customers have increased over the past year, largely related to structural changes of the largest digital and social platforms and as such we are reviewing our online strategy and marketing expenditures to optimize our ROI. As such, we expect our growth will slow down in the near-term in this channel. VERY GOOD will continue to focus on the wholesale and food service channels, particularly in the US, which the Company views as critical to realizing our vision to scale.

VERY GOOD experienced a greater than expected cash burn as the company scaled our operation to meet our growth targets. The initiatives we are implementing, including pausing non-critical capital expenditures and significantly lowering general and administrative spending, will allow the Company to manage both short-term and long-term liquidity and increase our cash runway. Management will continue to evaluate ways to support the business with as little dilution as possible. As disclosed in Note 1 of the Company’s consolidated financial statements, there are material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern.

CORPORATE OVERVIEW

Our Business Model

As at December 31, 2021, the Company’s product portfolio consisted of 24 products: 19 products developed under The Very Good Butchers brand and five products developed under The Very Good Cheese Co. brand. As at December 31, 2021, our products were produced in four leased facilities located in Victoria, BC, Canada (the “Victoria Facility”), Vancouver, BC, Canada (the “Rupert Facility”) and Esquimalt, BC, Canada (the “Fairview Facility”), and Patterson, California, United States (the “Patterson Facility”). In November 2021, the Patterson Facility started its initial production by producing Taco Stuff’er, one of our most popular products, on commercial kitchen grade equipment.

In May 2021, VERY GOOD introduced our new brand, The Very Good Cheese Co., and our lineup of five new plant-based cheese products. These new SKUs consist of: “Bold Cheddah”, a white cheddar style vegan cheese; “Cheedah”, a medium cheddar style vegan cheese; “Dill’ish”, a garlic and dill-havarti style vegan cheese; “Goud AF*”, a smoky gouda style vegan cheese; and “Pepper Jack”, a monterey jack style vegan cheese. These newly announced plant-based cheeses follow the Company’s completed acquisition of The Cultured Nut.

VERY GOOD introduced its new gluten-free and soy-free Butcher’s Select product line initially consisting of five SKUs in July 2021. The Butcher’s Select product range comprises a premium line of sausages, burgers and meatballs that is gluten-free, soy-free and Non-GMO verified. The Butcher’s Select product line will diversify VERY’s portfolio of plant-based meats and position The Very Good Butchers brand in the alternative meat substitute category where products are created to directly simulate their animal-based counterparts and which has been largely dominated by Beyond Meat and Impossible Foods. In October 2021, VERY GOOD announced two additions to the Butcher’s Select product: Butcher’s Select Spicy Meatballs and The Very Good Steak.

We distribute and sell our products in all 10 provinces and three territories in Canada and 50 states in the United States through three main revenue channels: (1) eCommerce, (2) Wholesale (including Food Service), and (3) our butcher shop and restaurant located in Victoria, BC

 

5

The Very Good Food Company  |  Management’s Discussion and Analysis

 

(the “Victoria Flagship Store”) (collectively, the “Distribution Network”). VERY GOOD established an e-commerce presence in the UK during the year, but that has since been paused as the company focuses on growing its North American sales.

 

(1)

eCommerce – Our eCommerce Store, accessible through the Company’s website and Amazon US, sells VERY GOOD’s products both individually and in boxed sets. In addition, we offer a monthly subscription service which allows customers to receive monthly boxed sets at a discount over a selected period of time. As at the end of fiscal 2021, the Company had over 1,937 active subscribers across Canada and the United States compared to 800 active subscribers at the end of fiscal 2020. We are currently reviewing our on-line strategy and marketing expenditures related to the e-commerce business to optimize ROI.

For fiscal 2021, the Company shipped 100,473 eCommerce orders, which represents a year-over-year improvement of 149%. eCommerce revenue increased $5,895,292 (174%) in fiscal 2021, compared to fiscal 2020.

 

     Year ended

    eCommerce

   

December 31, 2021

$9,277,750

   

December 31, 2020          

$ 3,382,458     

See “Our Strategic Progress” section for further details.

 

(2)

Wholesale – VERY GOOD has experienced strong demand for its products in the wholesale channel and continues to market its products to a number of large retailers in both Canada and the United States. During fiscal 2021, Canadian wholesale accounts included, but were not limited to, national grocery store chains such as Whole Foods Markets, Thrifty Foods (Sobeys), Save-On-Foods, Fresh St. Market, Choices Markets, IGA, and Farmboy; as well as smaller independent grocers. The Company launched into U.S. retail in August 2021 with retailers including, but not limited to, Wegman’s, Harmon’s, PCC, Earth Fare, Erewhon and Metro Markets. The Company had approximately 4,847 retail distribution points (being the number of retails stores multiplied by the number of products SKUs) and 1,395 stores in Canada and United States as at December 31, 2021. As at March 31, 2022, the Company had approximately 5,539 retail distribution points in 1,651 stores across North America. Wholesale revenue increased $1,588,582 (189%) in fiscal 2021, compared to fiscal 2020.

 

     Year ended

    Wholesale

   

December 31, 2021

$2,429,072

   

December 31, 2020          

$840,490     

See “Our Strategic Progress” section for further details.

 

(3)

Victoria Flagship Store – The Victoria Flagship Store is the brick and mortar of our Distribution Network. Designed as a flagship store to showcase our products, serve as a test kitchen and be utilized as a key marketing and branding tool, the Victoria Flagship Store also retails a small offering of plant-based dairy and cheese alternatives made by local artisan companies. Our second flagship store, based in Vancouver, BC (the “Mount Pleasant Flagship Store”), is currently under review.

 

6

The Very Good Food Company  |  Management’s Discussion and Analysis

 

See “Our Strategic Progress” section for further details.

Our Strategy

Our strategy is grounded in our mission and purpose, our pride in establishing and maintaining strong relationships with our customers through differentiated products, and our commitment to long-term profitable growth. We believe that our key strategic choices position us to create competitive advantages by offering the right mix of products, creating strong customer awareness and engagement, implementing reliable production at scale, while optimizing our geographic reach and fulfilment:

 

 

Scale production and distribution

   

 

Strengthen brand awareness

and consumer engagement

 

  

 

Launch new products

and gain market share

 

   

 

Growth

       

●   Build operational scalability and expand production competencies to meet consumer demand

 

●   Increase distribution capabilities to drive greater market share capture across Canada and the United States

 

●   Expand into U.S. retail increasing the number of retail distribution points

   

●   Deepen brand awareness by encouraging people to consciously make lifestyle choices that affect and contribute to their wellbeing and that of the planet

 

●   Own consumer relationships by providing the right mix of products at the right price, in the right channels, supported by a brand purpose that consumers can embrace

  

●   Capitalize on strong R&D capabilities and specialized knowledge of plant-based protein ingredients to expand our range of innovative and delicious product portfolio with a wholesome nutritional profile

 

●   Invest in technology to support growth and continued development of new innovative products

   

●   Continue to  expand in the Canadian and U.S. markets.

OUR STRATEGIC PROGRESS

Production Capacity

Increased production capacity enables us to expand our points of distribution within our wholesale network and take advantage of potential food service opportunities. Our ability to reliably produce enough product to consistently fulfill orders is an important factor in securing listings with large grocery store chains.

As at December 31, 2021, VERY GOOD had four leased production facilities. We entered into two new food production facility leases during fiscal year 2020 for the Rupert Facility and the Patterson Facility. Through the acquisition of The Cultured Nut Inc. (the “Cultured Nut”) in February 2021, VERY GOOD took over the lease of the Fairview Facility.

 

 

Rupert Facility

   

 

●   Location: Vancouver, BC, Canada

●   Size: 45,000 square feet

●   Current annual production capacity: 1.2 million kgs

●   Potential annual production capacity : 16.8 million kgs

●   Potential number of production lines: 2

●   Capital expenditures (including tenant improvements) spent to-date, including expected 2022 amounts: $20-25 million

 

7

The Very Good Food Company  |  Management’s Discussion and Analysis

 

   
    

●   Start date of food production: May 2021

   
Patterson Facility   

●   Location: Patterson, California, United States

●   Size: 25,000 square feet (with first right of refusal on an additional 25,000 square feet)

●   Current annual production capacity: 199,000 kgs

●   Potential annual production capacity : 44.7 million Kgs1

●   Potential number of production lines: 3-4

●   Expected future capital expenditures – $nil for 2022

●   Start date of food production: 2021 (via Commercial kitchen equipment)

   
Victoria Facility   

●   Location: Victoria, BC, Canada

●   Size: 3,000 square feet

●   Current annual production capacity: 150,000 kgs

●   Potential annual production capacity: 623,690 kgs1

●   Commercial kitchen equipment

●   Start date of food production: 2019

   
Fairview Facility   

●   Location: Esquimalt, BC, Canada

●   Size: 3,000 square feet

●   Current annual production capacity: 24,500 kgs

●   Potential annual production capacity: 226,796 kgs1

●   Capital expenditures spent to-date (including tenant improvements), including expected 2022 amounts: $34,000

●   Commercial kitchen equipment

●   Start date of food production: 2019

1Estimates of potential production are based on VERY GOOD’s expectations

Rupert Facility

To address near-term demand, VERY GOOD signed a lease for the Rupert Facility, which was already built-out as a food production facility, in November 2020 and took possession in January 2021. The Rupert Facility comprises approximately 45,000 square feet of production, refrigeration, warehousing, R&D and office space, and we expect it to be capable of producing up to 37 million pounds of annualized product to be phased in 2022. VERY GOOD commissioned its first production line at the Rupert Facility (“Rupert Line 1”) in April 2021 and saleable production began in June 2021. The second production line at the Rupert Facility is planned to be commissioned in 2023.

Patterson Facility

To support the expansion of our U.S. operations and the introduction of new products into the market, VERY GOOD signed a lease for the Patterson Facility in August 2020. The Patterson Facility comprises approximately 25,000 square feet of production space, with the option to lease an additional 25,000 square feet, and was expected to be capable of producing up to 98.5 million pounds of product per year if three to four production lines were commissioned successfully. In September 2021, the Company began food production on commercial-grade kitchen equipment in order to fast-track the production of Taco Stuff’er, one of the VERY GOOD’s most in-demand SKUs. Testing of Taco Stuff’er on this commercial-grade kitchen equipment was completed in November 2021 with saleable production starting shortly thereafter.

 

8

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Victoria Facility

The Victoria Facility produces our existing SKUs that have not yet been scaled at one of our larger facilities, as well as new products in development on a smaller scale to test in the market.

Fairview Facility

Through the acquisition of The Cultured Nut, VERY GOOD took over the lease of the Fairview Facility. The Fairview Facility produces our Very Good Cheese SKUs as well as other plant-based cheese products in development.

Developing Innovative Products

We have a team of scientists and food technology experts at the Rupert Facility working on developing innovative new plant-based products and continuously improving the taste and texture of our product lines.

In May 2021, VERY GOOD announced its new brand, The Very Good Cheese Co., and its lineup of five new plant-based cheese products. These new SKUs consist of: “Bold Cheddah”, a white cheddar style vegan cheese; “Cheedah”, a medium cheddar style vegan cheese; “Dill’ish”, a garlic and dill-havarti style vegan cheese; “Goud AF*”, a smoky gouda style vegan cheese; and “Pepper Jack”, a monterey jack style vegan cheese. These newly announced plant-based cheeses follow the Company’s completed acquisition of The Cultured Nut. The Very Good Cheese Co. products were made available in the United States and Canada in June 2021 through our eCommerce Store and we expect that they will be available in Canadian retail stores and U.S. wholesale in 2022.

VERY GOOD announced its new gluten-free and soy-free Butcher’s Select product line initially consisting of five SKUs in July 2021. The Butcher’s Select product range comprises a premium line of sausages, burgers and meatballs that is gluten-free, soy-free and Non-GMO verified. The Butcher’s Select product line will diversify VERY GOOD’s portfolio of plant-based meats and position The Very Good Butchers brand in the alternative meat substitute category where products are created to directly simulate their animal-based counterparts and which has been largely dominated by Beyond Meat and Impossible Foods.

The highly anticipated Butcher’s Select products were made available via limited release on our eCommerce Store (www.verygoodbutchers.com) in August 2021. Starting in early Q4 2021, all Butcher’s Select products were available from our eCommerce Store. The retail rollout of the Butcher’s Select product line kicked off in September 2021 with Butcher’s Select products on the shelves of several retail locations in North America, with additional retailers planned to be added in 2022.

Butcher’s Select Mmm...Meatballs won the prestigious NEXTY award in the Best New Frozen Product category in September 2021. The NEXTY Awards are a biannual awards program created to recognize the pinnacle of excellence in the natural products industry, elevating impactful brands and products that inspire a healthy, sustainable future for people and the planet.

In October 2021, VERY GOOD announced two additions to the Butcher’s Select product: Butcher’s Select Spicy Meatballs and The Very Good Steak. The original plant-based meatballs entered the market as an alternative to not only plant-based, but also traditional meat products in the natural food space. The Very Good Butchers Steak will compete in a nascent segment of the plant-based meat alternative category by tackling more sophisticated whole meat muscle products such as strip loin and fillets.

In early 2022, VERY GOOD announced the introduction of two new plant-based ground meats, A Cut Above Pork, and A Cut Above Beef which introduce our offerings into a new subcategory of refrigerated plant-based meats.

Expansion of Wholesale Distribution

We continue our efforts to expand our Canadian and United States wholesale distribution as part of our strategic focus to meet demand and increase customer awareness resulting in revenue growth.

Canadian Wholesale Distribution

VERY GOOD continued its coast-to-coast expansion in Canada through its wholesale distribution partnership with Horizon Grocery + Wellness, through which the Company signed on with Save-On-Foods in August 2021, Western Canada’s largest grocery retailer, to carry The Very Good Butchers products in 184 of its retail stores across Canada. Save-on-Foods is the owner of several well-established banners

 

9

The Very Good Food Company  |  Management’s Discussion and Analysis

 

including its namesake Save-On-Foods stores as well as PriceSmart Foods, Urban Fare and Bulkley Valley Wholesale. Save-on-Foods is stocking The Very Good Butchers’ top five SKUs including The Very Good Burger, Smokin’ Bangers, Taco Stuff’er, Very Good Pepperoni and the Very Good Dog in 177 of its retail stores and seven Urban Fare locations across Canada.

In September 2021, the Company announced it has further expanded its product offering within Sobeys’s retail network. Our popular The Very Good Butchers product line is now available for the first time in Québec at Rachelle Béry health food stores, and online throughout the Greater Toronto Area via Voilà by Sobeys’ online home delivery service.

As of December 31, 2021, The Very Good Butcher’s products were in 973 retail stores across Canada compared to 275 in the prior year, with major retailers including Whole Foods Markets, Thrifty Foods (Sobeys), Fresh St. Market, Choices Markets, IGA, and Farmboy; as well as smaller independent grocers.

US Wholesale Distribution

Wholesale retail distribution in the United States is a pivotal component of our 2022 and future growth strategy. VERY GOOD entered into a new partnership with Boulder, Colorado-based natural food and beverage brokerage, Green Spoon Sales (“Green Spoon”), in May 2021 to accelerate the Company’s reach into grocery and retail across the United States. VERY GOOD also signed on with the U.S. distribution arm of United Natural Foods (“UNFI”) later that same month, the largest publicly traded wholesale distributor of health and specialty foods in North America. In Q2 2021, the Company announced a wholesale distribution agreement with KeHE Distributors, LLC (“KeHE”) a top pure play U.S. wholesale food distributor of natural, organic, speciality and fresh food brands across North America. These valued distribution partners have relationships with major grocers including Harmons Grocery, Erewhon Organic Grocer, Sprouts Farmers Market, Whole Foods, Thrive Market and Associated Food Stores.

On September 14, 2021, VERY GOOD announced it is further expanding its U.S. retail presence with Earth Fare, a U.S. based health and wellness supermarket retailer. Starting in November 2021, VERY GOOD’s Very Good Butchers/Original and its Butchers Select its newest gluten-free and soy-free product line, will be rolled out into all 23 of Earth Fare’s locations in states including North Carolina, South Carolina, Florida, Tennessee, Virginia, Georgia, Ohio and Michigan. Other wholesale accounts include, but are not limited to, Wegman’s, Raley’s, Harmon’s, PCC, Earth Fare, Erewhon and Metro Markets.

As of December 31, 2021, VERY GOOD’s products were placed in 422 U.S. stores across 26 states; bringing the total number of stores across North America to 1,395.

eCommerce

eCommerce has been a key channel for VERY GOOD supporting our speed to market strategy and building brand awareness for our products. In June 2021, the Company launched an Amazon U.S. storefront and in August 2021, the Company launched its UK eCommerce website allowing UK-based customers to order VERY GOOD’s Butcher Boxes. Both initiatives have recently been paused.

VERY GOOD is currently reviewing its e-commerce channel. Digital marketing costs to acquire new customers have increased over the past year, largely related to structural changes of the largest digital and social platforms and as such we are reviewing our online strategy and marketing expenditures to optimize our ROI. As such, we expect our growth will slow down in the near-term in this channel. We are committed to finding alternative initiatives to support our e-commerce business profitably.

Food Service

Entering the food service industry is a natural growth opportunity for VERY GOOD as the brand continues to earn positive recognition. Establishing ourselves in this channel will provide another key growth area for the company and will allow us to respond to numerous inquiries and interest in this segment. As a first step, we have recently hired a Director of Food Services.

Strategic Warehousing and Logistics Partnerships

Establishing hubs across North America is a critical step in building out our North American expansion strategy, reducing shipping costs, and enhancing customer relationships through faster delivery times. In the latter part of 2020, the Company signed agreements with three strategically located 3PL providers (“3PL”) in North America to increase speed of delivery to customers and reduce associated shipping

 

10

The Very Good Food Company  |  Management’s Discussion and Analysis

 

costs for its eCommerce orders. The 3PL provider facilities’ centralized locations provide VERY GOOD with the capabilities of reaching anywhere in North America in two to three days via ground transportation. All three providers pick, pack and ship for our eCommerce Store orders and wholesale palletize for retail orders.

Victoria Flagship Store

In October 2021, we opened our new Victoria Flagship Store in downtown Victoria, BC. The new Victoria Flagship Store has an outdoor patio and a larger footprint than our previous butcher shop and accommodates a higher volume of customers.

Mount Pleasant Flagship Store and R&D Innovation Centre

In January 2020, the Company signed a lease for the Mount Pleasant Flagship Store and took possession in September 1, 2020. Plans for the Mount Pleasant Flagship Store included a second flagship store with a retail front featuring our butcher shop and restaurant concept including a test kitchen and R&D innovation centre. The Company is working with the City of Vancouver on the obtaining the required construction permits, the receipt of which have been significantly delayed. As at December 31, 2021, a total of $1 million has been spent on the Mount Pleasant Flagship Store and an estimated $4.5 million is required to complete the facility. However, as of March 31, 2022, the opening of the Mount Pleasant Flagship Store has been delayed indefinitely and the project is undergoing review.

Financings

In June 2021, the Company entered into a senior secured credit facility (the “Credit Facility”) with Waygar Capital Inc. (“Waygar Capital”), as agent for Ninepoint Canadian Senior Debt Master Fund L.P. The Credit Facility consists of a $20 million revolving line of credit and a $50 million senior secured asset backed term loan. All amounts drawn are subject to specific borrowing requirements and under the Credit Facility will pay interest at a rate of 9.95% per annum and will be repaid in full upon maturity. The Credit Facility has a term of 24 months with an option to renew, upon mutual consent, for another 12 months and is secured by a first-priority security interest on substantially all of VERY GOOD’s assets (refer to Note 12 of consolidated financial statements). The amount we may draw under the term loan at any given time is tied to a prescribed proportion of the appraised value of our eligible equipment from time to time. Only certain equipment may be financed, and no value is given for equipment installation costs. As at December 31, 2021, a total of $6,333,356 is outstanding under the Credit Facility, net of an unamortized discount of $133,725, and $38,565 is outstanding for interest and $2,135 is outstanding for unused line fee, which is included in accounts payable and accrued liabilities.

In July 2021, the Company completed its bought deal prospectus offering in Canada (the “July 2021 Offering”) consisting of 5,594,750 units (the “July 2021 Units”) at a price of $3.70 per July 2021 Unit for total gross proceeds of $20,700,575. Each July 2021 Unit consisted of one Common Share and one-half of one common share purchase warrant (each whole warrant, a “July 2021 Warrant”), with each July 2021 Warrant entitling the holder to purchase one additional Common Share at a price of $4.60 per July 2021 Warrant until January 2, 2023.

In October 2021, the Company completed a U.S. registered direct offering (the “October 2021 Offering” and together with the July 2021 Offering, the “2021 Offerings”) with certain institutional investors for the purchase and sale of approximately 15,000,000 units of the Company (the “October 2021 Units” and together with the July 2021 Units, the “Units”) at a price of U.S.$2.00 per October 2021 Unit for total gross proceeds of US$30,000,000. Each October 2021 Unit consisted of one Common Share and one-half of one common share purchase warrant (each whole warrant, an “October 2021 Warrant” and together with the July 2021 Warrants, the “Warrants”), with each October 2021 Warrant entitling the holder to purchase one additional Common Share at a price of U.S.$2.35 per October 2021 Warrant until October 19, 2026.

COVID-19

Along with businesses globally, VERY GOOD is subject to the continuing risk that COVID-19, and its current and/or any future variants, may impact our results of operations or financial condition through disruptions to our operations including as a result of disruptions in our supply chain and distribution network, temporary production suspensions at our production facilities, reduced productivity of our team members or new indoor dining restrictions.

We continue to utilize and refine our health and safety protocols to ensure the health and wellness of our employees and to reduce risk within our facilities and mitigate the direct impacts of COVID-19 including the implementation of a company-wide vaccination policy to mandate COVID-19 vaccination in our facilities as a key element of our safety protocols to maintain a safe work environment. We have

 

11

The Very Good Food Company  |  Management’s Discussion and Analysis

 

required compliance with such policy for all of our team members since December 2021, subject to any special exceptions or other approved reasonable accommodations.

In 2021, our operations were affected by indirect impacts of COVID-19 through delays in the delivery of production equipment and in the approval of building permits for both the Rupert Facility and the Mount Pleasant Flagship Store as well as the tightening of the local labour markets in the areas surrounding the Rupert Facility and the Patterson Facility which made it more challenging to secure the personnel needed to staff operations from time to time. We also encountered challenges posed by unstable supply chains caused by port congestion, freight equipment shortages, higher freight rates and fluctuating prices of raw materials. Moreover, in 2021, our Victoria Flagship Store faced mandated COVID-19 closures and restrictions for in-restaurant dining. In addition, we incurred increased costs to implement additional health safety measures, including our mandatory vaccination policy.

COVID-19 continues to have an impact on the global economy, leading to increased inflation and ongoing uncertainty due to the risk of a re-emergence of the virus. As such, the extent of the impact of COVID-19 on future periods will depend on future developments, all which are uncertain and cannot be predicted, including the duration or resurgence of the pandemic, government responses and health and safety measures or directives put in place by public health authorities and sustained pressure on global supply chains causing supply and demand imbalances. See “Risk Factors’’.

FINANCIAL PERFORMANCE REVIEW

Selected Financial Information

 

           
     

Three months

ended

December 31,

       

Three months

ended

December 31,

        Year ended
December 31,		        Year ended
December 31,		        Year ended   
December 31,   
           
      2021        2020        2021        2020        2019   

Revenue

      $4,298,922          $1,836,682          $12,258,783          $4,636,838          $999,797    

Procurement expense

      (2,645,660)          (1,576,210)          (8,859,932)          (3,809,732)          (1,169,583)  

Gross profit(3)

      $1,653,262          $260,472          $3,398,851          $827,106          $(169,786)  

Gross margin(3)

      38%          14%          28%          18%          (17%)  

Fulfilment expense

      (4,434,376)          (778,122)          (10,267,444)          (1,907,621)          (170,617)  

General and administrative expense

      (8,630,775)          (3,858,273)          (32,129,489)          (7,084,795)          (1,622,541)  

Marketing and investor relations expense

      (4,371,771)          (973,853)          (11,276,537)          (3,243,210)          (64,445)  

Research and development expense

      (525,873)          (210,018)          (1,974,530)          (477,750)          (125,680)  

Pre-production expense

      (345,965)          -          (3,214,797)          -          -  

Operating loss

      (16,655,498)          (5,559,794)          (55,463,946)          (11,886,270)          (2,153,069)  

Finance expense

      (1,172,470)          (148,014)          (3,024,451)          (1,842,853)          (173,268)  

Other income (expense)

      53,948          (105,323)          (514,638)          (129,677)          (15,207)  

Change in fair value of derivative liabilities(1)

      7,922,647          -          7,922,647          -          -  

Impairment of goodwill (2)

      (3,479,535)          -          (3,479,535)          -          -  
           

Net loss

      $(13,330,908)          $(5,813,131)          $(54,559,923)          $(13,858,800)          $(2,341,544)  

Adjusted general and administrative expense(3)

      $5,741,337          $2,154,691          $14,114,252          $4,484,044          $1,434,607  

Adjusted EBITDA(3)

      $(5,014,266)          $(3,279,266)          $(24,253,335)          $(8,344,117)          $(1,328,260)  

(1) On October 19, 2021, the Company issued 7,500,000 common share purchase warrants with an exercise price of US$2.35. Due to the variable nature of the proceeds from exercise of these warrants, the Company recognized a derivative liability of $11,864,649 at the issuance date. The fair value of these liabilities will be revalued at the end of every reporting period and the change in fair value will be reported in profit or loss as a gain or loss on derivative financial instruments.

(2) During the year ended December 31, 2021, the Company recorded an impairment of goodwill of $3,479,535 on the basis that synergies originally expected from integration with its acquisitions of The Cultured Nut Inc. and Lloyd-James Marketing Group Inc. have not materialized.

 

12

The Very Good Food Company  |  Management’s Discussion and Analysis

 

(3) See “Non-IFRS Financial Measures” starting on page 20 for more information on Non-IFRS financial measures and reconciliations thereof.

Revenue

Revenue by geographic region

 

             
     

Three months
ended December

31,

     

Three months
ended

September 30,

      Three months
ended December
31,		      Year ended
December 31,		      Year ended
December 31,		      Year ended  
December 31,  		  
             
      2021      2021      2020      2021      2020      2019    

Canada

      $1,802,495        $1,633,112        $1,349,314        $6,352,640        $4,003,507        $999,797    

United States

      2,494,344        899,400        487,367        5,900,475        633,331        -    

United Kingdom

      2,083        3,585        -        5,668        -        -    
             

Total

      $4,298,922        $2,536,097        $1,836,681        $12,258,783        $4,636,838        $999,797    
Revenue by channel

 

         
             
     

Three months
ended December

31,

     

Three months
ended

September 30,

      Three months
ended December
31,		      Year ended
December 31,		      Year ended
December 31,		      Year ended  
December 31,  		  
             
      2021      2021      2020      2021      2020      2019    

eCommerce

      $3,340,107        $1,546,146        $1,438,931        $9,277,750        $3,382,458        $225,121    

Wholesale

      781,363        846,749        255,276        2,429,072        840,490        156,137    

Butcher Shop & Restaurant and Other

      177,452        143,202        142,475        551,961        413,890        618,539    
             

Total

      $  4,298,922        $  2,536,097        $  1,836,682        $  12,258,783        $  4,636,838        $  999,797    

Three Months Ended December 31, 2021 compared to September 30, 2021

Revenue increased $1,762,825 (70%) to $4,298,922 in Q4 2021, compared to $2,536,097 in Q3 2021. VERY GOOD shipped 35,823 eCommerce orders in Q4 compared to 17,546 in the previous quarter due to the popularity of its seasonal products, in particular the Stuffed Beast. Wholesale revenue experienced a slight decrease in Q4 2021 by $65,386 (8%) from $846,749 in Q3 2021 as a result of seasonal trends towards the end of the quarter. eCommerce revenue increased dramatically by $1,793,961 (116%) from $1,546,146 in Q3 2021 due to seasonal on-line promotions, in particular our Stuffed Beast.

Three Months Ended December 31, 2021 compared to December 31, 2020

Revenue increased $2,462,240 (134%) to $4,298,922 in Q4 2021, compared to $1,836,682 in the same period in fiscal 2020. The growth in revenue was driven by an increase of $1,901,176 in eCommerce sales and $526,087 in wholesale revenue due to the Company’s scaling of production and distribution to meet demand in both sales channels. Of the increase in revenue, $2,006,977 was attributed to United States sales from the launch into U.S. retail in the third quarter of 2021, which is a key growth market for the Company.

Year Ended December 31, 2021 compared to December 31, 2020

Revenue increased $7,621,945 (164%) to $12,258,783 in fiscal 2021, compared to $4,636,838 in the same period in fiscal 2020. The growth in revenue was primarily driven by an increase of $5,895,292 in eCommerce sales and $1,588,582 in wholesale revenue due to the Company’s scaling of production and distribution to meet demand in both sales channels. Of the increase in revenue, $5,267,144 was attributed to United States sales due to the Company’s strategic focus on the United States market as a key growth opportunity for the future.

 

13

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Procurement expense

Procurement expense consists of the cost of raw materials, supplies and inventory packaging, inbound shipping charges, employee wages and benefits, and other attributable overhead expenses incurred in the procurement and manufacturing of the Company’s finished goods. Procurement expense also includes expense associated with the Butcher Shop & Restaurant including food costs, direct labour and other attributable overhead expenses.

Three Months Ended December 31, 2021 compared to September 30, 2021

Procurement expense increased $586,456 (28%) to $2,645,660 in Q4 2021, compared to $2,059,204 in Q3 2021. The increase in procurement expense was due to more units being sold in Q4 2021 compared to the previous quarter

Three Months Ended December 31, 2021 compared to December 31, 2020

Procurement expense increased $1,069,450 (68%) to $2,645,660 in Q4 2021, compared to $1,576,210 in Q4 2020. The increase in procurement expense was primarily driven by increased sales from the Company ramping up production and distribution to meet demand for its products.

Year Ended December 31, 2021 compared to December 31, 2020

Procurement expense increased $5,050,200 (133%) to $8,859,932 in fiscal 2021, compared to $3,809,732 in fiscal 2020. The increase in procurement expense was primarily driven by higher sales from the Company ramping up production and distribution to meet demand for its products as well as $470,190 in higher share-based compensation expense incurred for operational employees.

Gross profit

Gross profit is a Non-IFRS measure. Gross profit consists of revenue less procurement expense. See “Non-IFRS Financial Measures” on page 20 for more information on management’s use of gross profit and a reconciliation thereof.

Three Months Ended December 31, 2021 compared to September 30, 2021

Gross profit was $1,653,262 or 38% of revenue in Q4 2021, compared to $476,893 or 19% of revenue in Q3 2021, for which the improvement was largely due to the ramp up of the Rupert facility.

Three Months Ended December 31, 2021 compared to December 31, 2020

Gross profit was $1,653,262 or 38% of revenue in Q4 2021, compared to gross profit of $260,472 or 14% for the same period in fiscal 2020 for which the improvement was largely due to the ramp up in the Rupert facility.

Year Ended December 31, 2021 compared to December 31, 2020

 

14

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Gross profit was $3,398,851 or 28% of revenue in fiscal 2021, compared to gross profit of $827,106 or 18% in fiscal 2020 due to the operational efficiencies related to the ramp up of production at the Rupert and Patterson facilities.

Fulfilment expense

Fulfilment expense represents third-party fulfilment costs for picking and packing of inventory into orders, fulfilment packaging costs, direct fulfilment labor, outbound shipping and freight, and warehousing costs.

Three Months Ended December 31, 2021 compared to September 30, 2021

Fulfilment expense increased $2,629,917 (146%) to $4,434,376 in Q4 2021, compared to $1,804,459 in Q3 2021. Fulfilment expenses increased due to an increase in the number of eCommerce orders shipped as well as additional costs related to the adverse effect of the atmospheric river (flooding) that BC experienced in November 2021 and warehouse scarcity. During Q4 2021, VERY GOOD shipped 35,823 eCommerce orders compared to 17,546 in the previous quarter due to the popularity of its seasonal products.

Three Months Ended December 31, 2021 compared to December 31, 2020

Fulfilment expense increased $3,656,254 (470%) to $4,434,376 in Q4 2021, compared to $778,122 in Q4 2020. The increase in fulfilment expense was primarily driven by higher eCommerce sales shipped as well as additional costs related to the adverse effect of the atmospheric river (flooding) that BC experienced in November 2021 and warehouse scarcity. During Q4 2021, 145,167 units were sold in our eCommerce channel compared to 105,874 during the same period in fiscal 2020.

Year Ended December 31, 2021 compared to December 31, 2020

Fulfilment expense increased $8,359,823 (438%) to $10,267,444 in fiscal 2021, compared to $1,907,621 in fiscal 2020. The increase in fulfilment expense was primarily driven by higher sales in our eCommerce channel as well as other supply chain issues related to COVID-19 and the atmospheric river (flooding) that BC experienced in Q4 2021 2021 and warehouse scarcity. During the year ended December 31, 2021, 559,458 units were sold in our eCommerce channel compared to 319,682 units respectively during fiscal 2020.

General and administrative expense and adjusted general and administrative expense

General and administrative expense are primarily comprised of administrative expenses, selling expenses, salaries, wages and benefits, including associated share-based compensation not directly associated with other functions, non-production rent expense, depreciation and amortization expense on non-production assets and other non-production operating expenses. Administrative expenses include the expenses related to management, accounting, legal, information technology, and other support functions.

Adjusted general and administrative expense is a Non-IFRS measure calculated as total general and administrative expense less share-based compensation and depreciation. See “Non-IFRS Financial Measures” on page 20 for more information on management’s use of adjusted general and administrative expense and a reconciliation thereof.

Three Months Ended December 31, 2021 compared to September 30, 2021

General and administrative expense increased $1,541,498 (22%) to $8,630,775 in Q4 2021, compared to $7,089,277 in Q3 2021. Excluding share-based compensation and depreciation expense, adjusted general and administrative expense increased $1,777,813 (45%) to $5,741,337 in Q4 2021 compared to $3,963,524 in Q3 2021. The increase in adjusted general and administrative expense was primarily driven by increases in insurance fees of $484,187 due to increases in director and officer insurance, legal and professional fees of $387,636 due to additional regulatory and filing matters including services related to the Company’s Nasdaq listing, accounting and audit fees of $355,540 due to the accrual of 2021 audit fees, and salaries and wages of $1,853,870 due to annual bonuses.

 

15

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Three Months Ended December 31, 2021 compared to December 31, 2020

General and administrative expense increased $4,772,502 (124%) to $8,630,775 in Q4 2021 compared to $3,858,273 in Q4 2020. Excluding share-based compensation and depreciation expense, adjusted general and administrative expense increased $3,586,646 (166%) in Q4 2021, compared to $2,154,364 in Q4 2020. The increase in adjusted general and administrative expense was primarily driven by increased insurance fees of $578,215 due to increases in director and officer insurance, wages and benefits of $1,963,715 due to annual bonuses, filing and listing fees of $290,841 related to the Company’s Nasdaq listing, legal and professional fees of $857,673 due to additional regulatory and filing matters including services related to the Company’s Nasdaq listing, and accounting and audit fees of $294,480 due to the accrual of 2021 audit fees.

Year Ended December 31, 2021 compared to December 31, 2020

General and administrative expense increased $25,044,694 (353%) to $32,129,489 in fiscal 2021, compared to $7,084,795 in fiscal 2020. Excluding share-based compensation and depreciation expense, adjusted general and administrative expense increased $9,630,208 (215%) in fiscal 2021 compared to $4,484,044 in fiscal 2020. The increase in adjusted general and administrative expense is driven by an increase in wages and benefits of $4,470,302 and recruitment expense of $359,438, due to expansion of the management and sales team to support planned growth, legal and professional fees of $1,572,677 due to additional advisory fees, executive recruitment services, and additional regulatory and filing matters including services related to the Company’s Nasdaq listing, insurance fees of $854,139 due to increases in director and officer insurance, filing and listing fees of $719,323 related to the Company’s Nasdaq listing, software license and subscription fees of $514,446 as the Company implements a new enterprise resource planning (“ERP”) system to support manufacturing and growth and purchases additional software subscriptions to support the increased headcount, general office expenses such as small equipment, repairs and maintenance, property tax, insurance, and consumables of $1,086,621 due to the higher volume of business activities, and travel expenses of $250,060 as COVID-19 restrictions began to ease in the latter half of 2021.

Marketing and investor relations expense

Three Months Ended December 31, 2021 compared to September 30, 2021

Marketing and investor relations expense increased $2,193,006 (101%) to $4,371,771 in Q4 2021, compared to $2,178,765 in Q3 2021. The increase in marketing and investor relations expense was mainly due to an increase of $905,701 in marketing expenses related to a change in service providers in Canada who assist with digital marketing initiatives to raise brand awareness, increase eCommerce traffic and conversion resulting in lower customer acquisition fees, $906,063 relating to other marketing expenses such as content creation, online advertising and brand strategy development; investor relations expense increased by $306,369 to support the October 2021 Offering.

Three Months Ended December 31, 2021 compared to December 31, 2020

Marketing and investor relations expense increased $3,397,918 (349%) to $4,371,771 in Q4 2021, compared to $973,853 in Q4 2020. The increase in marketing and investor relations expense was mainly due to the increase of $3,312,217 in digital marketing initiatives to raise brand awareness and increase eCommerce traffic and conversion as well as an increase of $278,779 in wages and benefits and $115,808 in share-based compensation due to the expansion of the marketing team to support sales growth.

Year Ended December 31, 2021 compared to December 31, 2020

Marketing and investor relations expense increased $8,033,327 (248%) to $11,276,537 in fiscal 2021, compared to $3,243,210 in fiscal 2020 mainly due to an increase in digital marketing initiatives of $6,416,848, wages and benefits of $764,068 and share-based compensation expense of $856,481 for the same reasons mentioned above.

Pre-production expense

 

16

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Pre-production expense includes wages and benefits, right-of-use assets and property and equipment depreciation expense and other operating expense related to the commissioning of the Rupert Facility, the Patterson Facility, the Mount Pleasant and the newly located Victoria Flagship Stores which are not yet in operation. These type of expenses will be included as part of procurement expense once these sites are in operation.

Three Months Ended December 31, 2021 compared to September 30, 2021

Pre-production expense decreased $981,044 (74%) to $345,965 in Q4 2021, compared to $1,327,009 in Q3 2021. Pre-production expense decreased as scaling of existing and new SKU’s, including Butchers Select wound down and products were commercially launched.

Three Months Ended December 31, 2021 compared to December 31, 2020

Pre-production expense was $345,965 in Q4 2021, compared to $nil in Q4 2020 due to the Company not taking possession of the Rupert Facility until January 2021.

Year Ended December 31, 2021 compared to December 31, 2020

Pre-production expense was $3,214,797 in fiscal 2021, compared to $nil in fiscal 2020 due to the Company not taking possession of the Rupert Facility until January 2021.

Impairment of Goodwill

In accordance with our annual testing for impairment of cash-generating units that were acquired in a business combination, we determined based on analysis conducted in the fourth quarter in comparison to the original forecasts that the goodwill associated with the acquisition of The Cultured Nut of $2,422,086 and for Lloyd-James of $1,056,619 is impaired. With respect to The Culture Nut, the success of the cheese products was significantly below the original forecasts made at the time of acquisition and the products under development at the time of acquisition were also determined to have a lack of innovation as compared to original expectations. With respect to Lloyd James, the cost savings in terms of brokerage fees associated with the acquisition were significantly below the original forecasts, particularly as the sales team was build out as well as the fact any relationships associated with the acquisition did not result in viable acquisition targets as expected.

Selected Annual Financial and Balance Sheet Information

 

 
As at and for the year ended December 31  
      2021                               2020                               2019  

  Revenue

      $   12,258,783        $   4,636,838        $   999,797  
       

  Net loss

      $  (54,559,923)        $  (13,858,800)        $  (2,341,544)  

  Loss per share (basic and diluted)

      $   (0.53)        $   (0.21)        $   (0.06)  
       

  Weighted average number of shares outstanding (basic and diluted)

      103,401,995        66,388,474        36,330,356  

  Total cash and cash equivalents

      $   21,975,653        $ 25,084,083        $  25,084,083  

  Total assets

      78,344,267        35,182,597        1,344,219  
       

  Total non-current financial liabilities

      22,239,063        5,419,352        949,313  

  Total liabilities

      38,167,940        7,540,254        1,684,800  
       

  Share capital

      84,751,366        39,335,150        2,245,422  

  Deficit

      $  (71,277,620)        $  (16,717,697)        $  (2,858,897)  

Total assets

 

17

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Total assets increased $43,161,670 to $78,344,267 as at December 31, 2021 from $35,182,597 as at December 31, 2020; primarily due to the increase in right-of-use assets of $11,612,905; and in property and equipment of $14,709,880 at the Rupert Facility; an increase in inventory of $7,278,720; and deposits on equipment of $2,166,488. As of December 31, 2021, the Company had cash and cash equivalents of $21,975,653. As discussed above under “Our Business—Operational and Liquidity Update”, the Company has experienced a greater than expected cash burn in the last several months as the Company scaled its operations to meet its growth targets, which has reduced its cash position and has strained its short-term liquidity.

Total liabilities

Total liabilities increased $30,627,686 to $38,167,940 as at December 31, 2021 from $7,540,254 as at December 31, 2020; primarily due to an increase of $12,078,106 in lease liabilities relating to right-of-use assets including the Rupert Facility and an increase in accounts payable and accrued liabilities of $6,237,433 from the ramp-up of operations and financing costs related to the closing of the Credit Facility. The Company also had $4,577,081 in advances on the Credit Facility and recorded $1,048,000 in contingent consideration liabilities related the acquisition of The Cultured Nut and Lloyd-James Marketing Group Inc. (“Lloyd James”).

Share Capital

Share capital increased $45,416,216 to $84,751,366 at December 31, 2021, compared to $39,335,150 as at December 31, 2020; primarily due to $57,778,775 for the issuance of units, $2,401,483 for the issuance of units for common share purchase warrant exercised and $1,156,437 for Common Shares issued for the acquisition of The Cultured Nut and Lloyd-James, partially offset by $6,595,296 in share issue costs related to the 2021 Offerings and $11,864,649 related to the derivative liability on common share purchase warrant denominated in U.S. dollars.

QUARTERLY RESULTS

The following table presents certain unaudited financial information for each of the eight quarters up to and including the quarter ended December 31, 2021. The information has been derived from our unaudited quarterly condensed interim consolidated financial statements.

 

                                                                                   
   
     Three Months Ended  
     

December 31,

2021

     

September 30,

2021

     

June 30,

2021

     

March 31,

2021

  

  Revenue

      $4,298,922        $2,536,097        $2,780,681        $2,643,083  
         

  Net loss

      $(13,330,908)        $(13,699,706)        $(12,500,733)        $(15,028,576)  

  Comprehensive loss

      $(13,334,419)        $(13,724,506)        $(12,496,272)        $(15,024,102)  
         

  Loss per share (basic and diluted)

      $(0.12)        $(0.13)        $(0.13)        $(0.15)  

  Number of eCommerce orders

      35,823        17,546        24,025        23,181  

 

                                                                                   
   
     Three Months Ended  
     

December 31,

2020

        September 30,
2020 (1)		     

        June 30,

2020

     

      March 31,

2020

  

  Revenue

      $1,836,682       $1,373,814        $1,087,790        $338,553  
         

  Net loss and comprehensive loss

      $(5,813,132)       $(4,497,107)        $(2,418,655)        $(1,129,986)  

 

18

The Very Good Food Company  |  Management’s Discussion and Analysis

 

                                                                                   
         

  Loss per share (basic and diluted)

      $(0.06)        $(0.06)        $(0.05)        $(0.02)  

  Number of eCommerce orders

                    13,580                               13,107                      11,194                      2,441  

Revenue has increased over the last eight quarters, other than Q3 2021 when revenues decreased slightly due to an increase in digital marketing costs to acquire new customers that increased largely related to structural changes of the largest digital and social platforms and negatively impacted sales. The sales growth has been achieved in both the eCommerce and wholesale channels in Canada and the United States. The Company began making significant efforts to increase its production capacity in H2 2020 with the addition of the Patterson Facility. Ramp-up continued throughout 2021 with the addition of the Rupert Facility in January 2021, the commissioning of Rupert Line 1 in April 2021, commercial production on Rupert Line 1 in June 2021. The Company also partnered with new 3PL providers to more effectively extend their reach in North America. The Company plans to continue investment in its existing production and infrastructure as needed to meet sales demand on a go-forward basis. The Company also incurred higher general and administration expense to build out its teams in Victoria, Vancouver and California to support this growth with the hiring of employees, increased office expense, recruitment fees, information technology and licensing cost. High marketing cost necessary to support the on-line business in combination with financing costs associated with our various financings have also had a significant drag on our profitability. Further fluctuations in net loss have been impacted by the timing and amount of share-base compensation expense related to the fair value of stock options (“Options”) and common share purchase warrants granted. After investing heavily in the infrastructure build-out required to support our business as a public company in Canada and in the United States, the Company announced that was shifting to finding opportunities to maximize our efficiency and leverage in general and administrative expenses. See also “Our Business—Operational and Liquidity Update” above.

NON-IFRS FINANCIAL MEASURES

Non-IFRS financial measures are metrics used by management that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.

Adjusted EBITDA

Management defines adjusted EBITDA as net loss before finance expense, tax, depreciation and amortization, share-based compensation and other non-cash items, including impairment of goodwill, loss on disposal of equipment, loss on termination of leases, finance expense and shares, units and warrants issued for services. Management believes adjusted EBITDA is a useful financial metric to assess its operating performance because it adjusts for items that either do not relate to the Company’s underlying business performance or that are items that are not reasonably likely to recur.

 

             
     

 

Three months ended

December 31,

     

Three months ended

September 30,

     

Three months ended

December 31,

      Year ended December
31,		      Year ended December
31,		      Year ended December
31,		  
             
      2021      2021      2020      2021      2020      2019  

Net loss as reported

      $(13,330,908)        $(13,699,706)        $(5,813,132)        $(54,559,923)        $(13,858,800)        $(2,341,544)  
             

Adjustments:

                                                      

Depreciation

      480,272        616,111        153,295        1,938,035        425,276        161,583  
             

Impairment of goodwill

      3,479,535        -        -        3,479,535        -        -  

Loss on disposal of equipment

      -        10,255        -        32,816        -        -  
             

Loss on termination of lease1

      -        -        -        (1,600)        7,533        -  

Finance expense

      1,157,411        1,102,858        148,014        3,024,451        1,842,853        173,268  
             

Share-based compensation

      3,199,424        3,796,458        1,951,150        21,605,880        2,780,488        200,933  

 

19

The Very Good Food Company  |  Management’s Discussion and Analysis

 

                                                                                                                                                                                                                             
             

    Shares, units and warrants issued for services

        -          -          281,407          227,471          458,533          477,500  

    Adjusted EBITDA

        $(5,014,266)          $(8,174,024)          $(3,279,266)          $(24,253,335)          $(8,344,117)          $(1,328,260)  

1 On September 22, 2020, the Company terminated 17 lease agreements and purchased the related leased equipment for $79,118. The difference between the related lease liabilities and right-of-use-assets of $7,533 was recognized as a loss on termination of leases. During the years ended December 31, 2021,and 2020, the Company terminated 2 lease agreements and recognized a $1,600 gain on termination of leases.

Gross Profit and Gross Margin

Management utilizes gross profit and gross margin to provide a representation of performance in the period, which are determined by deducting procurement expense from revenue.

 

             
      Three months ended
December 31,		     

Three months ended

September 30,

      Three months ended
December 31,		      Year ended December
31,		      Year ended December
31,		      Year ended December
31,		  
      2021      2021      2020      2021      2020      2019  

    Revenue

      $4,298,922        $2,536,097        $1,836,682        $12,258,783        $4,636,838        $999,797  
             

    Procurement expense

      (2,645,660)        (2,059,204)        (1,576,210)        (8,859,932)        (3,809,732)        (1,169,583)  

    Gross profit

      $1,653,262        $476,893        $260,472        $3,398,851        827,106        $(169,786)  
             

    Gross margin

      38%        19%        14%        28%        18%        (17%)  

Adjusted General and Administrative Expense

Management defines adjusted general and administrative expense as general and administrative expense excluding non-cash items such as share-based compensation and depreciation expense. Management believes adjusted general and administrative expense provides useful information as it represents the corporate costs to operate the business excluding any non-cash items.

 

             
     Three months ended
December 31,		    

Three months ended

September 30,

     Three months ended
December 31,		     Year ended December
31,		     Year ended December
31,		     Year ended December
31,		  
     2021     2021     2020     2021     2020     2019  

    General and administrative expense

     $(8,630,775)       $(7,089,277)       $(3,858,273)       $(32,129,489)       $(7,084,795)       $(1,622,541)  
             

    Adjustments:

                                                

    Share-based compensation

     2,808,617       3,043,998       1,605,184       17,740,461       2,370,059       179,227  
             

    Depreciation

     80,821       81,755       98,398       274,776       230,692       8,707  

    Adjusted general and administrative expense

     $(5,741,337)       $(3,963,524)       $(2,154,691)       $(14,114,252)       $(4,484,044)       $(1.434.607)  

 

20

The Very Good Food Company  |  Management’s Discussion and Analysis

 

CAPITAL MANAGMENT

The following table summarizes our cash flows as at December 31, 2021 and 2020:

 

   
      Year ended December 31  
     
      2021                                   2020  

  Operating activities

      $(41,926,328)        $(9,660,481)  

  Investing activities

      (16,654,732)        (564,437)  

  Financing activities

      55,491,329        34,900,987  

  Effect of foreign exchange on cash and cash equivalents

      (18,699)        2,404  

  Net changes in cash and cash equivalents

      $(3,108,430)        $24,678,473  

Operating activities

Net cash used in operating activities for fiscal 2021 was $41,926,328 compared to $9,660,481 in the prior year due to a greater net loss in 2021 of $54,559,923 and an increase in non-cash working capital of $9,851,446, which was primarily offset by non-cash share-based compensation of $21,605,880. The increase in working capital was largely due to an increase in inventory and prepaids and deposits of $5,751,293 and $3,191,325, respectively, which was offset by an increase in accounts payable of $1,815,833. During fiscal 2020, net cash used in operating activities was $9,660,481 resulting from the net loss for period of $13,858,800, partially offset by non-cash share-based compensation of $2,780,488. In addition, non-cash working capital increased by $1,299,564, again, largely related to an increase in inventory and prepaids.

Investing activities

Net cash used in investing activities for fiscal 2021 was $16,654,732 primarily attributed to capital expenditures and leasehold improvements incurred for the commissioning of the Rupert Facility. In addition, the Company paid $1,315,694 (net of cash acquired) for the acquisition of The Cultured Nut and Lloyd-James combined. During fiscal, 2020, net cash used in investing activities was $564,437 relating to capital expenditures for the restaurant and production equipment to expand production.

Financing activities

Net cash received from financing activities for fiscal 2021 was $55,491,329 mainly due to $52,713,503 from the issuance of units, $2,401,483 received from the exercise of common share purchase warrants and $120,599 received from the exercise of options; this was partially offset by payments of lease liabilities of $1,591,300, repayment of loans payable and other liabilities of $902,863, and deferred financing cost of $2,262,039. During fiscal 2020, net cash received from financing activities was $34,900,987 as at result of net proceeds from the issuance of common shares pursuant to our initial public offering in Canada (the “Canadian IPO”) and additional financings during the year, $10,863,951 received from proceeds from the exercise of common share purchase warrants, $608,126 received from the exercise of options and $1,007,315 incurred for various deposits, loans and lease liabilities and interest paid.

During the year ended December 31, 2021, the Company received a total of $4,577,081 pursuant to the Credit Facility and recognized the net present value of the credit facility fee payable of $2,288,965, including a present value discount of $231,035. During the year ended December 31, 2021, the Company recognized interest and accretion expense on the credit facility fee payable of $97,310 and interest expense of $180,522 related to the revolving credit facility and term loan. The Company also incurred an unused line of credit fee of $19,454. As at December 31, 2021, 2021, $38,565 is outstanding for interest and $2,135 is outstanding for unused line of credit fees, which are included in accounts payable and accrued liabilities. The Company incurred debt financing costs totalling $5,303,563, which will be amortized over the term of the Credit Facility at the effective interest rate. During the year ended December 31, 2021, the Company

 

21

The Very Good Food Company  |  Management’s Discussion and Analysis

 

recognized accretion expense of the deferred financing costs of $1,378,820. As at December 31, 2021, the remaining carrying value of the deferred financing costs was $3,924,743.

Prospectus Offerings Use of Proceeds

On June 17, 2020, the Company completed the Canadian IPO consisting of 16,100,000 [units/Common Shares] at $0.25 per [unit/Common Share] for gross proceeds of $4,025,000. The following table provides an update on the anticipated use of proceeds raised, along with amounts expended.

 

     
     

 

Proposed Use of Proceeds

     

 

Approximate Use of Proceeds

to December 31, 2021

  

  Build out of Mount Pleasant (less tenant improvement allowance)

      $1,147,000        $1,020,000  

  Direct research and development expenses

      150,000        150,000  

  General corporate & other working capital

      2,231,000        2,481,000  

  Offering expenses and underwriter fees

      497,000        374,000  

  Total

      $4,025,000        $4,025,000  

On August 7, 2020, the Company closed an agreement with Canaccord Genuity Corp. pursuant to which they agreed to purchase, on a bought deal basis , 6,555,000 units at a price of $1.30 per unit for gross proceeds Company of $8,521,500. The following table provides an update on the anticipated use of proceeds raised in the financing, along with amounts expended.

 

     
     

 

Proposed Use of Proceeds

     

 

Approximate Use of Proceeds

to December 31, 2021

  

  Expansion to the United States

      $3,500,000        $3,500,000  

  Direct research and development expenses

      750,000        750,000  

  Accretive acquisitions

      1,500,000        1,325,000  

  General corporate & other working capital

      1,739,780        2,148,000  

  Offering expenses and underwriter fee

      1,031,720        798,500  

Total

      $8,521,500        $8,521,500  

On December 4, 2020, the Company closed an agreement with Canaccord Genuity Corp. pursuant to which they agreed to purchase, on a bought deal basis, 3,778,900 units at a price of $3.50 per unit for gross proceeds of $13,226,150. The following table provides an update on the anticipated use of proceeds raised in the financing, along with amounts expended.

 

     
     

 

Proposed Use of Proceeds

     

 

Approximate Use of Proceeds

to December 31, 2021

  

  Commencement of operations at Rupert Facility

      $10,000,000        $10,000,000  

 

22

The Very Good Food Company  |  Management’s Discussion and Analysis

 

  General corporate & other working capital

      1,918,058        1,928,148  

  Offering expenses and underwriter fee

      1,308,092        1,298,002  

  Total

                                   $13,226,150                                                           $13,226,150  

On July 2, 2021, the Company closed the July 2021 Offering with Canaccord Genuity Corp. pursuant to which they agreed to purchase, on a bought deal basis, 5,594,750 July 2021 Units at a price of $3.70 per July 2021 Unit for gross proceeds of $20,700,575. The following table provides an update on the anticipated use of proceeds raised in the July 2021 Offering, along with amounts expended.

 

     
     

 

Proposed Use of Proceeds

     

 

Approximate Use of Proceeds

to December 31, 2021

  

  Commencement of operations at Patterson Facility

      $9,750,000        $1,079,000  

  U.S. eCommerce & wholesale expansion efforts

      3,000,000        3,000,000  

  International eCommerce launches

      2,000,000        158,000  

  General corporate & other working capital

      4,501,535        14,141,575  

  Offering expenses and underwriter fee

      1,449,040        2,322,000  

  Total

      $20,700,575        $20,700,575  

On October 19, 2021, the Company closed the October 2021 Offering with certain U.S. institutional investors for the purchase and sale of an aggregate of 15,000,000 October 2021 Units at a price of U.S.$2.00 per October 2021 Unit for gross proceeds of $37,078,200 (U.S.$30,000,000). The following table provides an update on the anticipated use of proceeds raised in the October 2021 Offering, along with amounts expended.

 

     
     

 

Proposed Use of Proceeds

     

 

Approximate Use of Proceeds
to December 31, 2021

  

  Scale operations

      $12,977,370        $2,473,267  

  Expand geographical reach

      3,337,038        -  

  Accretive acquisitions within plant-based food sector

      3,707,820        -  

  Research & development

      3,089,850        300,338  

  Marketing initiatives

      4,325,790        2,840,845  

  General corporate & other working capital

      7,415,640        7,415,640  

  Offering expenses and underwriter fee

      2,224,692        $2,742,958  

Total

      $37,078,200        $15,773,048  

OUTSTANDING COMMON SHARES, OPTIONS, AND WARRANTS

The Company is authorized to issue an unlimited number of Common Shares. The table below outlines the number of issued and outstanding Common Shares, common share purchase warrants and Options as at the dates indicated.

 

       
      As at March 31,    As at December 31,    As at December 31,

 

23

The Very Good Food Company  |  Management’s Discussion and Analysis

 

       
                                         2022                                         2021                                             2020  

  Common Shares

      118,503,464        118,498,464        96,640,432  

  Warrants

      13,064,081        13,663,058        2,889,367  

  Options

      7,442,230        8,512,206        3,852,639  

Common Shares

Common Shares increased by 21.9 million during fiscal 2021 primarily due to the following transactions:

 

  ●  

20.6 million Common Shares and units issued for cash in the 2021 Offerings;

 

  ●  

0.8 million Common Shares and units issued for common share purchase warrants exercised;

 

  ●  

0.2 million Common Shares issued for acquisitions;

 

  ●  

0.2 million Common Shares issued for Options exercised; and

 

  ●  

0.1 million Common Shares and units issued for finder’s fees and for services.

Warrants

Common share purchase warrants increased by 10.8 million during fiscal 2021 primarily due to the following transactions:

 

  ●  

exercise of 0.8 million broker and agent common share purchase warrants, including units exercisable for both Common Shares and common share purchase warrants;

issuance of 0.1 million common share purchase warrants resulting from the exercise of the foregoing units;

 

  ●  

0.1 million expired common share purchase warrants;

 

  ●  

issuance of 0.2 million common share purchase warrants to Waygar Capital related to the Credit Facility;

 

  ●  

issuance of 3.2 million July 2021 Warrants; and

 

  ●  

issuance of 8.0 million October 2021 Warrants.

Options

Options increased by 4.7 million during fiscal 2021 due to the following transactions:

 

  ●  

5.4 million Options granted to directors, officers, employees and consultants;

 

  ●  

0.2 million Options exercised; and

 

  ●  

0.5 million Options cancelled.

OFF-BALANCE SHEET AGREEMENTS

The Company does not have any off-balance sheet arrangements such as obligations under guaranteed contracts, a retained or contingent interest in assets transferred to an unconsolidated entity, any obligation under derivative instruments or any obligation under a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company or engages in leasing or hedging services with the Company.

FINANCIAL RISK MANAGEMENT

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Contractual Obligations and Material Cash Requirements

The following is an analysis of the contractual maturities of the Company’s non-derivative financial liabilities and material cash requirements as at December 31, 2021. As at December 31, 2021, the Company has $21,975,653 (2020 – $25,084,083) of cash and cash equivalents. The Company is obligated to pay accounts payable and accrued liabilities, the current portion of the lease liabilities, and the current portion of loans payable and other liabilities with a carrying amount of $10,906,738 (2020 - $2,018,663) and contingent consideration of $1,048,000 within the next year. The Company is currently exploring several external financing alternatives that could take a variety of forms including debt and equity and may include proceeds from option or warrant exercises to meet these obligations in addition to obligations arising from our on-going business operations.

 

  December 31, 2021    Within 1 year      Between 1 -2 years      More than 2 years  

  Accounts payable and accrued liabilities

      $          8,109,161        $                –        $                –  

 

24

The Very Good Food Company  |  Management’s Discussion and Analysis

 

                                                              

  Loans payable and other liabilities

                       1,151,945                           5,181,411                                         –  

  Financing arrangements

      815,654        298,103        –  

  Lease liabilities

      849,935        912,090        15,852,368  

  Contingent consideration on acquisitions1

     1,048,000        –        –  
       $  11,974,695        $  6,391,604        $15,852,368  

* See Note 11 of the consolidated financial statements for an analysis of the future minimum lease payments of the lease liabilities due in more than 2 years.

 

                                                              
  December 31, 2020    Within 1 year      Between 1 -2 years      More than 2 years  

  Accounts payable and accrued liabilities

      $        1,871,728        $            –        $            –  

  Loans payable

      –        30,000        –  

  Lease liabilities

      146,935        212,877        5,176,475  
       $        2,018,663        $        242,877        $        5,176,475  

1 Contingent on the successful achievement of certain milestones related to the integration of The Cultured Nut and Lloyd-James over a 12-month period from the acquisition dates of February 23, 2021 and March 11, 2021, respectively. As of the date of filing of this MD&A, the contingent payments have not been paid.

Interest Risk

The Company’s exposure to interest risk relates to its investment of surplus cash and cash equivalents, including restricted and unrestricted short-term investments. The Company may invest surplus cash in highly liquid investments with short terms to maturity and would accumulate interest at prevailing rates for such investments. At December 31, 2021, the Company had cash and cash equivalents of $21,975,653 (2020 - $25,084,083) and a 1% change in interest rates would increase or decrease interest income by approximately $220,000 (2020 - $250,000).

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, security deposits, accounts receivable and loan to related party. The carrying amount of cash and cash equivalents, security deposits, accounts receivables and loan to related party represent the maximum exposure to credit risk, and as at December 31, 2021, this amounted to $27,833,734 (2020 - $26,826,938).

The Company’s cash and cash equivalents are held through large Canadian financial institutions and no losses have been incurred in relation to these items. The Company’s receivables are comprised of trade accounts receivable and GST receivable. At December 31, 2021, the Company has $90,822 (2020 - $43,153) in trade accounts receivable outstanding over 60 days, of which the Company has recognized an allowance for doubtful accounts of $41,350 (2020 - $39,917).

Concentration of Credit Risk

Concentration of credit risk is the risk of reliance upon a select number of customers which significantly impact the financial performance of the Company. The Company recorded sales from three wholesale distributors of the Company representing 12% (2020 - 18%) of total revenue during the year ended December 31, 2021. Of the Company’s trade receivables outstanding at December 31, 2021 and December 31, 2020, 58% and 81% are held with five customers and three customers of the Company, respectively.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to pay financial instrument liabilities as they come due. The Company manages its liquidity risk by reviewing on an ongoing basis its capital requirements.

To date, the Company has been able to rely on the public equity markets and private debt to provide the necessary capital for it to maintain existing operations and fund expansion opportunities. The Company manages its capital structure and adjusts based on the funds available to the company. The Company’s board of directors (“Board of Directors”) does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.

 

25

The Very Good Food Company  |  Management’s Discussion and Analysis

 

With the change in the sentiment in the public equity markets in recent months, we are making some significant pivots in our strategy to adapt to this new environment. The Company is transitioning from a focus on top line growth, to a focus of balancing top line growth and profitability. As discussed in “Our Business—Operational and Liquidity Update” above, we announced that we are temporarily lowering production throughput and headcount to manage inventory levels, and implementing initiatives such as pausing non-critical capital expenditures and lowering general and administrative expenditures, to manage both short and long-term liquidity and to establish a path towards profitability. As of December 31, 2021, the Company had cash and cash equivalents of $21,975,653. The Company has experienced a greater than expected cash burn in the last several months as the Company scaled its operations to meet its growth targets, which has reduced its cash position and has strained its short-term liquidity. As of the date of this MD&A, we believe we have sufficient cash on hand and available liquidity to meet our future operating expenses and finance our capital expenditure and debt service requirements for approximately the next 3 to 5 months. The Company is currently evaluating financing options that will minimize dilution in order to extend its cash runway.

Foreign Currency Risk

The Company is exposed to foreign currency risk on fluctuations related to cash, accounts receivable, accounts payable and accrued liabilities, and deferred revenue that are denominated in U.S. dollars. As at December 31, 2021, a 10% appreciation of the Canadian dollar relative to the U.S. dollar would have increased net financial assets by approximately $1,398,296 (2020 – $102,312). A 10% depreciation of the Canadian dollar relative to the U.S. dollar would have had the equal but opposite effect.

Commodity Price Risk

The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices of raw materials to determine the appropriate course of action to be taken by the Company.

Equity Price Risk

In recent years, securities markets have experienced extremes in price and volume volatility. The market price of securities of many early-stage companies, among others, have experienced fluctuations in price which may not necessarily be related to the operating performance, underlying asset values or prospects of such companies. It may be anticipated that any market for the Common Shares will be subject to market trends generally and the value of the Common Shares on a stock exchange may be affected by such volatility.

Fair Value of Financial Instruments

At December 31, 2021, the carrying value of the Company’s cash and cash equivalents, accounts receivable, loan to related party, deposits, accounts payable and accrued liabilities, and loans payable and other liabilities, all of which are carried at amortized cost, approximate their fair value given their short-term nature or discount rate applied.

The Company does not have any financial instruments measured at fair value in the consolidated statement of financial position, except for its contingent consideration, which was estimated at fair value as part of the purchase price allocations in note 9 of the consolidated financial statements and for which there has been no change in fair value to December 31, 2021, and derivative liabilities, which was estimated at fair value using the Black-Scholes option pricing model.

 

26

The Very Good Food Company  |  Management’s Discussion and Analysis

 

RELATED PARTY TRANSACTIONS

The Company’s key management personnel have the authority and responsibility for planning, directing, and controlling the activities of the Company and consists of the Company’s executive management team and directors. Compensation was as follows:

 

   
      Year ended December 31,  
     
      2021                          2020  

Salaries incurred to key management personnel(1)

      $ 2,219,695        $1,564,966  

Professional fees incurred to the former CFO(2)

       -        159,437  

Directors fees

      47,385        -  

Share-based compensation

      12,207,690        676,078  

Total related party transactions

      $14,474,770        $2,400,481  

(1) The balance for the year ended December 31, 2020, includes $287,230 paid by the issuance of a total of 165,000 common share purchase warrants, which have exercise prices ranging between $1.51 and $7.60 per common share purchase warrant, with expiry dates ranging between August 13, 2021, and December 21, 2021.

(2) The balance for the year ended December 31, 2020, includes $25,001 paid by the issuance of 166,670 units. Each unit consists of one Common Share and one-half of a common share purchase warrant exercisable at a price of $0.30 per common share purchase warrant for a period of 12 months from issuance, subject to early acceleration in certain circumstances.

The following is a summary of the significant related party balances:

 

   
      Year ended December 31,  
     
      2021                  2020  

Due from the Chief Research and Development Officer (“CRDO”), and Director

      $410,268        -  

On February 11, 2020, the Company entered into a loan agreement with its Chief Executive Officer (“CEO”), Mitchell Scott, and its Chief Research & Development Officer (“CRDO”), James Davison (the “Lenders”), whereby the Lenders agreed to loan the Company up to a maximum aggregate loan amount of $1,200,000 (the “Principal”), in three equal tranches of $400,000. The outstanding amount of the Principal had a maturity date of May 11, 2021, and bore interest from and after the date of each advance until repayment at the rate of 0.67% per month, simple interest. The Company also executed a general security agreement with the Lenders, which created a security interest over all present and after acquired property of the Company. The Company received one tranche of $400,000 on February 11, 2020. On June 22, 2020, the Company repaid the principal balance of $400,000 and interest of $11,728.

On November 16, 2021, the Company entered into loan agreements with its CEO and its CRDO to provide individual loans in the amounts of $750,000 and $500,000 to the CEO and CRDO, respectively (collectively, the “Loans”). With the express consent of the CEO and CRDO, the Loans were amended on November 23, 2021 such that all accrued principal and interest under the CEO Loan was immediately due and payable and the CRDO Loan is due and payable within 60 days. Until repayment, the Loans continue to bear interest at a rate of 9% per annum, payable monthly, and, if for any reason a Loan is not paid in full on or before January 18, 2022, the Loan will be secured by certain financial assets commencing on such date. The CEO Loan of $750,000 was repaid in full as at December 31, 2021 and the Company received interest of $2,772. The CRDO Loan provides for scheduled repayments prior to maturity. As at December 31, 2021, the CRDO repaid $89,732 and the Company accrued interest of $5,314 which was included in accounts receivable.

On February 4, 2022, the Company entered into a Share Pledge Agreement (“Pledge Agreement”) with the CRDO whereby the CRDO pledged 1,000,000 common shares of the Company (“Pledged Shares”). As of the filing date of these consolidated financial statements, the Pledge Shares have not been disposed of by the Company and the balance of the CDRO Loan remains outstanding.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the consolidated financial statements in accordance with IFRS requires the Company to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities and contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period. The Company’s management reviews these

 

27

The Very Good Food Company  |  Management’s Discussion and Analysis

 

estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Actual results may differ from these judgements, estimates and assumptions. While our significant accounting policies are more fully described in our annual consolidated financial statements, we believe that the following accounting policies and estimates are critical to our business operations and understanding our financial results.

The following are the key judgements and sources of estimation uncertainty that we believe could have the most significant impact on the amounts recognized in our consolidated financial statements.

The determination of the ability of the Company to continue as a going concern is a key area of judgment applied in the preparation of the consolidated financial statements as discussed above in note 1 of the consolidated financial statements. Amortization of right-of-use assets and property and equipment are dependent upon the estimated useful lives, which are determined through the exercise of judgment. The assessment of any indicators of impairment of these assets is dependent upon judgments that take into account factors such as economic and market conditions and the useful lives of assets.

Share-based compensation

The Company utilizes the Black-Scholes Option Pricing Model (“Black-Scholes”) to estimate the fair value of Options and common share purchase warrants granted to directors, officers, employees and service providers. The use of Black-Scholes requires management to make various estimates and assumptions that impact the value assigned to the Options including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the Options. Any changes in these assumptions could have a material impact on the share-based compensation calculation value.

Business combinations

Judgment is used in determining whether an acquisition is a business combination or an asset acquisition and assessing whether the amounts paid on achievement of milestones represents contingent consideration or compensation for post-acquisition services. Contingent consideration that is classified as a liability is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Accounting for acquisitions requires estimates with respect to the fair value of the assets acquired and liabilities assumed.

Impairment of non-financial assets

The Company assesses impairment of non-financial assets such as goodwill, right-of-use assets, and property and equipment. In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit (“CGU”) based on expected future cash flows. When measuring expected future cash flows, management makes assumptions about future growth of profits which relate to future events and circumstances. Actual results could vary from these estimated future cash flows. Estimation uncertainty relates to assumptions about future operating results and the application of an appropriate discount rate.

Goodwill is subject to impairment testing on an annual basis. However, if indicators of impairment are present, the Company will review goodwill for impairment when such indicators arise. In addition, at each reporting period, the Company reviews whether there are indicators that the recoverable amount of long-lived assets may be less than their carrying amount.

At year end, the company determined that the goodwill associated with both The Cultured Nut and Lloyd James acquisitions was impaired and goodwill of $2,422,916 and $1,056,619 respectively was expensed. Goodwill and long-lived assets are reviewed for impairment by determining the recoverable amount of each CGU or groups of CGUs to which the goodwill or long-lived assets relate. Management estimated at year end that the recoverable amount of the CGUs based on value-in-use (“VIU”) was nil. The VIU calculations are based on expected future cash flows. When measuring expected future cash flows, management makes key assumptions about future growth of profits which relate to future events and circumstances. Estimation uncertainty relates to assumptions about future operating results and the application of an appropriate discount rate. Actual results could vary from these estimates which may cause significant adjustments to the Company’s goodwill or long-lived assets in subsequent reporting periods.

 

28

The Very Good Food Company  |  Management’s Discussion and Analysis

 

Leases

The lease liability and right-of-use asset valuation is based on the present value of the lease payments over the lease term. The lease term is determined as the non-cancellable term of the lease, which may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company applies judgment in evaluating whether it is reasonably certain whether or not to exercise the option to extend or terminate the lease, and any modifications to the lease term will result in the revaluation of the lease. The present value of the lease payments is dependent on the Company’s estimate of its incremental borrowing rates.

ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

The following IFRS standards have been recently issued by the IASB. Pronouncements that are irrelevant or not expected to have a significant impact have been excluded.

Amendments to IAS 1: Classification of Liabilities as Current or Non-Current

The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating the potential impact of this amendment on the Company’s consolidated financial statements.

Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract

The amendment specifies that the “cost of fulfilling” a contract comprises the “costs that relate directly to the contract”. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022, with early application permitted. The Company evaluated the potential impact of this amendment and is expecting minimal impact to the Company’s consolidated financial statements.

RISKS AND UNCERTAINTIES

VERY GOOD is subject to a number of risks and uncertainties related to its businesses that may have adverse effects on its results of operations and financial position. Details on some of these can be found in VERY GOOD’s most recent Annual Information Form (“AIF”) filed with Canadian securities regulatory authorities at www.sedar.com and with the SEC at www.sec.gov. Readers should carefully review and evaluate these risk factors together with all of the other information contained in this discussion and analysis. Furthermore, it should be noted that the risk factors described in the AIF are not the only risk factors facing VERY GOOD and it may be subject to risks and uncertainties not described therein or that it is not presently aware of or that it may currently deem insignificant.

BOARD APPROVAL

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. The Audit Committee meets periodically with management and annually with the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company.

The Board of Directors of the Company has approved the financial statements and the disclosure contained in this MD&A.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. Management is responsible for establishing adequate policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; (ii) are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made in accordance with authorisations of management and the Board of Directors; and (iii) are designed to provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

The Company determined that a material weakness in internal control over financial reporting existed as of December 31, 2021 as a result of misstatements identified by the Company’s auditors during their audit of the consolidated financial statements as of and for the year then ended. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected on a timely basis. The material weakness resulted from a lack of review of journal entries and insufficient management review of accounts and balances in the preparation of the consolidated financial statements. The misstatements were corrected in the December 2021 consolidated financial statements and there is no material effect on previously issued financial statements

The Company plans to remediate this matter during 2022, including designing and operating enhanced management review controls over accounts and balances as part of the financial close process in future periods. Successful remediation requires further assessment of the skills and resources in the Company’s finance function as well as an evaluation of the Company’s financial close process.

CONTROLS CERTIFICATION

As at December 31, 2021, the Company was a ‘venture issuer’, as such term is defined under National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”). In connection with listing on the Nasdaq on October 13, 2021, the Company became a non-venture issuer. As this is the first financial period after becoming a non-venture issuer, the Company is filing certificates in the form of Form 52-109F1 – IPO/RTO Certification of Annual Filings Following an Initial Public Offering, Reverse Takeover or Becoming a Non-Venture Issuer for this period (the “Non-Venture Certificates”). The Non-Venture Certificates do not include representations relating

 

29

The Very Good Food Company  |  Management’s Discussion and Analysis

 

to the establishment and maintenance of disclosure controls and procedures and internal controls over financial reporting, as defined in NI 52-109. However, the CEO and interim CFO did ensure that processes were in place to provide them with sufficient knowledge to support the representations they made in the Non-Venture Certificates.

 

30

The Very Good Food Company |
2021 Annual Report
Exhibit 99.2
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(Expressed in Canadian dollars)

            
   
KPMG LLP
   
Telephone
  
(604) 691-3000
   
Chartered Professional Accountants
   
Fax
  
(604) 691-3031
   
PO Box 10426 777 Dunsmuir Street
   
Internet
  
www.kpmg.ca
   
Vancouver BC V7Y 1K3
         
   
Canada
         
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
The Very Good Food Company Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of The Very Good Food Company Inc. (and subsidiaries) (the Company) as of December 31, 2021 and 2020, the related consolidated statements of net loss and comprehensive loss, change in equity (deficiency), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by International Accounting Standards Board.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses and has negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

The Very Good Food Company Inc
Page 2
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2020.
Vancouver, Canada
March 31, 2022
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
                                 
  As at
  
    
   
Notes
  
    
   
    December 31, 2021
    
    
   
    December 31, 2020
  
             
  Assets
                                   
Current assets
                                   
             
Cash and cash equivalents
                   $  21,975,653            $  25,084,083  
             
Accounts receivable
        4          2,101,842            449,583  
             
Inventory
        5          8,474,255            1,195,535  
             
Prepaids and deposits
        6          8,640,286            1,887,035  
             
Loan to related party
        14          410,268            -  
             
  Total current assets
                
 
41,602,304
 
       
 
28,616,236
 
             
Right-of-use
assets
        7          16,659,502            5,046,597  
             
Property and equipment
        8          15,450,608            740,728  
             
Prepaids and deposits
        6          707,110            779,036  
             
Deferred financing costs
        12          3,924,743            -  
             
  Total assets
       
 
          $  78,344,267            $  35,182,597  
             
  Liabilities and shareholders’ equity
                                   
             
Current liabilities
                                   
             
Accounts payable and accrued liabilities
        10          $   8,109,161            $    1,871,728  
             
Deferred revenue
                   32,137            102,239  
             
Current portion of lease liabilities
        11          849,935            146,935  
             
Current portion of loans payable and other liabilities
        12          1,947,642            -  
             
Contingent considerations
        9,22          1,048,000            -  
             
Derivative liabilities
        15          3,942,002            -  
             
  Total current liabilities
                
 
15,928,877
 
       
 
2,120,902
 
             
Lease liabilities
        11          16,764,458            5,389,352  
             
Loans payable and other liabilities
        12          5,474,605            30,000  
             
  Total liabilities
       
 
          38,167,940            7,540,254  
             
  Shareholders’ equity
                                   
             
Share capital
        16          84,751,366            39,335,150  
             
Equity reserves
                   26,719,047            5,009,980  
             
Subscription received and receivable
                   (3,750)            8,250  
             
Accumulated other comprehensive (loss) income
                   (12,716)            6,660  
             
Deficit
       
 
          (71,277,620)            (16,717,697)  
             
  Total shareholders’ equity
       
 
       
 
40,176,327
 
       
 
27,642,343
 
             
  Total liabilities and shareholders’ equity
       
 
          $  78,344,267            $  35,182,597  
             
  Nature of operations and going concern uncertainty (Note 1)
                                   
             
  Commitments (Notes 11 and 25)
                                   
             
  Events after the reporting period (Notes 14, 17 and 18)
                                   
Approved and authorized for issue by Board of Directors on March 31, 2022
 
             
“Mitchell Scott”
  
                    
   
“Dela Salem”
     
Director        Director     
The accompanying notes are an integral part of these consolidated financial statements
 
2
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
Consolidated Statements of Net Loss and Comprehensive Loss
(Expressed in Canadian dollars)
 
 
         
Notes
         
December 31, 2021   
       
December 31, 2020    
             
  Revenue
                       $    12,258,783              $    4,636,838    
             
  Procurement expense
          7, 8, 23            (8,859,932)            (3,809,732)  
             
  Fulfilment expense
          7, 8, 23            (10,267,444)            (1,907,621)  
             
  General and administrative expense
             7, 8, 23               (32,129,489)               (7,084,795)  
             
  Marketing and investor relations expense
          23            (11,276,537)            (3,243,210)  
             
  Research and development expense
          7, 8, 23            (1,974,530)            (477,750)  
             
  Pre-production
expense
          23            (3,214,797)            -  
             
  Operating loss
                    
 
(55,463,946)
 
       
 
(11,886,270)
 
             
  Finance expense
          19            (3,024,451)            (1,842,853)  
             
  Other expense
          20            (514,638)            (129,677)  
             
  Change in fair value of derivative liabilities
          15            7,922,647            -  
             
  Impairment of goodwill
          9            (3,479,535)            -  
             
  Net loss
                       (54,559,923)            (13,858,800)  
             
  Foreign currency translation (loss) income
       
 
 
 
          (19,376)            6,660  
             
  Total comprehensive loss
       
 
 
 
       
 
$(54,579,299)
 
       
 
$(13,852,140)
 
             
  Loss per share - basic and diluted
       
 
 
 
       
 
$    (0.53)
 
       
 
$
 
  
(0.21)
 
             
  Weighted average number of shares outstanding - basic and diluted
       
 
 
 
       
 
103,401,995
 
       
 
66,388,474
 
The accompanying notes are an integral part of these consolidated financial statements
 
3
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
Consolidated Statements of Changes in Equity (Deficiency)
(Expressed in Canadian dollars except share amounts)
 
                                     
               
Balance at January 1, 2020
   
 
45,515,339
 
   
$
2,245,422
 
   
$
272,894
 
   
$
–
 
   
$
–
 
   
$
(2,858,897)
 
   
$
(340,581)
 
               
Issuance of common shares and units for cash
   
 
26,808,076
 
   
 
26,887,650
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
26,887,650
 
               
Issuance of common shares and units for finders’ fees
   
 
432,000
 
   
 
332,910
 
   
 
134,190
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
467,100
 
               
Share issuance costs
   
 
-
 
   
 
(5,576,272)
 
   
 
2,638,247
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(2,938,025)
 
               
Issuance of common shares pursuant to the exercise of stock options
   
 
2,358,167
 
   
 
989,522
 
   
 
(375,146)
 
   
 
(6,250)
 
   
 
-
 
   
 
-
 
   
 
608,126
 
               
Issuance of common shares and units pursuant to the exercise of warrants
   
 
13,369,876
 
   
 
11,680,958
 
   
 
(812,007)
 
   
 
(5,000)
 
   
 
-
 
   
 
-
 
   
 
10,863,951
 
               
Issuance of common shares pursuant to the conversion of convertible debentures
   
 
7,494,716
 
   
 
1,873,222
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
1,873,222
 
               
Issuance of units for services
   
 
166,670
 
   
 
21,241
 
   
 
3,760
 
   
 
-
 
   
 
–
 
   
 
–
 
   
 
25,001
 
               
Issuance of common shares for services
   
 
39,263
 
   
 
65,978
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
65,978
 
               
Issuance of warrants for services
   
 
-
 
   
 
-
 
   
 
367,554
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
367,554
 
               
Issuance of shares for debt settlement
   
 
456,325
 
   
 
814,519
 
   
 
-
 
   
 
-
 
   
 
–
 
   
 
–
 
   
 
814,519
 
               
Share-based compensation
   
 
-
 
   
 
-
 
   
 
2,780,488
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
2,780,488
 
               
Subscription received
   
 
-
 
   
 
-
 
   
 
-
 
   
 
19,500
 
   
 
-
 
   
 
-
 
   
 
19,500
 
               
Foreign currency translation gain
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
6,660
 
   
 
-
 
   
 
6,660
 
               
Net loss for the year
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
–
 
   
 
(13,858,800)
 
   
 
(13,858,800)
 
               
Balance at December 31, 2020
   
 
96,640,432
 
   
$
39,335,150
 
   
$
5,009,980
 
   
$
8,250
 
   
$
6,660
 
   
$
(16,717,697)
 
   
$
27,642,343
 
 
4
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
Consolidated Statements of Changes in Equity (Deficiency)
(Expressed in Canadian dollars except share amounts)
 
  
  
 
  
 
  
 
  
 
  
 
  
 
  
 
Balance at January 1, 2021
   
 
96,640,432
 
   
$
39,335,150
 
   
$
5,009,980
 
   
$
8,250
 
   
$
6,660
 
   
$
(16,717,697)
 
   
$
27,642,343
 
               
Issuance of units for cash
   
 
20,594,750
 
   
 
57,778,775
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
57,778,775
 
               
Allocation of proceeds to derivative liability
   
 
-
 
   
 
(11,864,649)
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(11,864,649)
 
               
Issuance of units for finders’ fees
   
 
30,000
 
   
 
88,680
 
   
 
25,920
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
114,600
 
               
Share issuance costs
   
 
-
 
   
 
(6,595,296)
 
   
 
1,415,424
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(5,179,872)
 
               
Issuance of common shares pursuant to the exercise of stock options
   
 
231,333
 
   
 
432,802
 
   
 
(314,703)
 
   
 
2,500
 
   
 
-
 
   
 
-
 
   
 
120,599
 
               
Issuance of common shares and units pursuant to the exercise of warrants
   
 
757,250
 
   
 
4,191,996
 
   
 
(1,776,013)
 
   
 
(14,500)
 
   
 
-
 
   
 
-
 
   
 
2,401,483
 
               
Issuance of common shares for services
   
 
42,694
 
   
 
227,471
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
227,471
 
               
Issuance of common shares for acquisitions
   
 
202,005
 
   
 
1,156,437
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
1,156,437
 
               
Issuance of warrants for loan
   
 
-
 
   
 
-
 
   
 
752,559
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
752,559
 
               
Share-based compensation
   
 
-
 
   
 
-
 
   
 
21,605,880
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
21,605,880
 
               
Foreign currency translation loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(19,376)
 
   
 
-
 
   
 
(19,376)
 
               
Net loss for the year
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(54,559,923)
 
   
 
(54,559,923)
 
               
Balance at December 31, 2021
   
 
118,498,464
 
   
$
84,751,366
 
   
$
26,719,047
 
   
$
(3,750)
 
   
$
(12,716)
 
   
$
(71,277,620)
 
   
$
40,176,327
 
The accompanying notes are an integral part of these consolidated financial statements
 
5
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
 
     
December 31, 2021   
  
December 31, 2020   
     
Operating activities
                 
     
Net loss for the year
      $(54,559,923)         $(13,858,800)    
     
Adjustments for items not affecting cash:
                 
     
Finance expense
      3,024,451       1,842,853  
     
Change in fair value of derivative liabilities
      (7,922,647)       -  
     
Depreciation
      1,938,058       425,276  
     
(Gain) loss on termination of lease
      (1,600)       7,533  
     
Lease concessions
      -       (16,800)  
     
Loss on disposal of equipment
      32,816       -  
     
Impairment of equipment
      101,077       -  
     
Impairment of goodwill
      3,479,535       -  
     
Share-based compensation
      21,605,880       2,780,488  
     
Shares, units and warrants issued for services
      227,471       458,533  
     
Changes in
non-cash
working capital items
                 
     
Accounts receivable
      (1,612,791)       (376,739)  
     
Inventory
      (6,871,350)       (1,120,057)  
     
Prepaids and deposits
      (4,995,707)       (1,804,382)  
     
Accounts payable and accrued liabilities
      3,698,504       1,882,671  
     
Deferred revenue
      (70,102)       94,663  
     
Due from related parties
      -       24,280  
     
Net cash and cash equivalents used in operating activities
   
 
(41,926,328)
 
  
 
(9,660,481)
 
     
Investing activities
                 
     
Cash paid for acquisitions, net of cash acquired
      (1,315,694)       -  
     
Purchase of property and equipment
      (12,021,319)       (564,437)  
     
Security deposits paid for property and equipment
      (2,840,116)       -  
     
Acquisition of
right-of-use
assets
      (67,335)       -  
     
Loans to related parties
      (1,250,000)       -  
     
Repayment received from loans to related parties
      839,732       -  
     
Net cash and cash equivalents used in investing activities
   
 
(16,654,732)
 
  
 
(564,437)
 
     
Financing activities
                 
     
Proceeds from the issuance of common shares and units for cash, net of issuance costs
      52,713,503       24,416,725  
     
Proceeds from the exercise of warrants
      2,401,483       10,863,951  
     
Proceeds from the exercise of stock options
      120,599       608,126  
     
Proceeds from subscriptions received
      -       19,500  
     
Proceeds from loans payable
      5,171,222       499,129  
     
Repayment of loans payable and other liabilities
      (902,863)       (490,309)  
     
Deferred financing costs paid
      (2,262,039)       -  
     
Proceeds from loan payable to related parties
      -       400,000  
     
Repayment of loan payable to related parties
      -       (400,000)  
     
Payments of lease liabilities
      (1,591,300)       (163,811)  
     
Payments of lease deposits
      -       (779,036)  
     
Interest paid
      (159,276)       (73,288)  
     
Net cash and cash equivalents provided by financing activities
   
 
55,491,329
 
  
 
34,900,987
 
     
Effects of exchange rate changes on cash and cash equivalents
   
 
(18,699)
 
  
 
2,404
 
     
(Decrease) increase in cash and cash equivalents
      (3,108,430)       24,678,473  
     
Cash and cash equivalents, beginning of year
      25,084,083       405,610  
     
Cash and cash equivalents, end of year
   
 
$ 21,975,653
 
  
 
$ 25,084,083
 
     
Cash and cash equivalents consist of:
                 
     
Cash
      $ 21,875,653       $ 24,019,083  
     
Redeemable guaranteed investment certificate (“
GIC
”)
      -       1,000,000  
     
Restricted redeemable GIC
      100,000       65,000  
     
Total cash and cash equivalents
   
 
$ 21,975,653
 
  
 
$ 25,084,083
 
Supplemental cash flow information (Note 21)
                  
The accompanying notes are an integral part of these consolidated financial statements
 
6
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
1.
Nature of operations and going concern uncertainty
The Very Good Food Company Inc. (the “
Company
”) was incorporated on December 27, 2016, under the laws of the province of British Columbia, Canada. The Company is an emerging plant-based food technology company that designs, develops, produces, distributes, and sells a variety of plant-based meats and other food alternatives. To date, the Company has developed a core product line under The Very Good Butchers brand. The Company changed its name from The Very Good Butchers Inc. to The Very Good Food Company Inc. on October 1, 2019.
Effective June 18, 2020, the Company’s common shares commenced trading on the Canadian Securities Exchange (the “
CSE
”) under the symbol “VERY”. Effective July 27, 2020, the Company’s shares commenced trading on the Frankfurt Stock Exchange under the symbol “0SI”. Effective October 14, 2020, the Company’s shares commenced trading on the OTC QB Market under the symbol “VRYYF”. Effective March 17, 2021, the Company’s shares commenced trading on the TSX Venture Exchange. The Company ceased trading on the CSE on March 16, 2021. Effective October 13, 2021, the Company’s common shares commenced trading on the Nasdaq Capital Market under the symbol “VGFC”.
The Company’s registered and records office are located at 800 – 885 West Georgia Street, Vancouver, British Columbia, BC V6C 3H1.
These consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future.
For the year ended December 31, 2021, the Company generated a net loss of $54,559,923 (2020 - $13,858,800) and negative cash flows from operations of $41,926,328 (2020 - $9,660,481). The Company expects to incur further losses in the development of its business and has significant capital projects planned. The continued operations of the Company are dependent on management’s ability to manage costs, raise additional equity or debt, and on future profitable operations. Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due is uncertain. Furthermore there can be no assurances that the Company will be able to raise funds through future debt or equity issuances. As a result of these conditions, management has concluded, in making its going concern assessment, that there are material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern.
These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.
Covid-19
Estimation Uncertainty
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“
COVID-19
”) a global pandemic. This has resulted in governments worldwide, including the Canadian government, to enact emergency measures to combat the spread of the virus. These measures, which include social distancing, the implementation of travel bans, and closures of
non-essential
businesses, have caused material disruption to businesses globally, resulting in an economic slowdown. As at December 31, 2021, the Company has not observed any material impairments of our assets or a significant change in the fair value of assets due to the
COVID-19
pandemic.
The situation is dynamic and the ultimate duration and magnitude of the impact of
COVID-19
on the economy and the financial effect on our business, financial position and operating results remain unknown at this time. These impacts could include the ability of the Company to raise capital, the impairment in the value of our long-lived assets, or potential future decreases in revenue or the profitability of our ongoing and future operations. The Company is closely monitoring the impact of the pandemic on all aspects of its business.
 
7
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
2.
Basis of presentation and measurement
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“
IFRS
”) as issued by the International Accounting Standards Board (“
IASB
”) and interpretations of the International Financial Reporting Committee (“
IFRIC
”). The consolidated statements of the Company for the year ended December 31, 2021, were authorized for issue by the Board of Directors on March 31, 2022.
Basis of presentation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: The Very Good Butchers Inc., 1218169 B.C. Ltd., 1218158 B.C. Ltd., The Cultured Nut Inc., and Lloyd-James Marketing Group Inc., companies incorporated in the province of British Columbia, Canada, and VGFC Holdings LLC, a company incorporated in the state of Delaware, U.S.A.
The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences. Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All inter-company balances and transactions have been eliminated on consolidation.
These consolidated financial statements have been prepared on an accrual basis and are based on historical costs. The presentation and functional currency of the Company is the Canadian dollar. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the financial statements have been included.
The Company structures its consolidated statements of net loss and comprehensive loss on a functional basis. For that purpose, the Company defines cost of sales as procurement expense and gross profit as revenues less procurement expense.
Critical accounting estimates and judgements
The preparation of these consolidated financial statements in accordance with IFRS requires the Company to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities and contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period. The Company’s management reviews these judgments, estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Actual results may differ from these judgements, estimates and assumptions.
Information on significant areas of judgement that have the most significant effect on the amounts recognized in the consolidated financial statements relate to the following:
The determination of the ability of the Company to continue as a going concern is a key area of judgment applied in the preparation of the consolidated financial statements as discussed above in note 1. Amortization of
right-of-use
assets and property and equipment are dependent upon the estimated useful lives, which are determined through the exercise of judgment. The assessment of any indicators of impairment of these assets is dependent upon judgments that take into account factors such as economic and market conditions and the useful lives of assets.
Information on significant areas of uncertainty and critical estimates in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements relate to the following:
 
8
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
2.
Basis of presentation and measurement
(continued)
Share-based compensation
The Company utilizes the Black-Scholes Option Pricing Model (“
Black-Scholes
”) to estimate the fair value of stock options and warrants granted to directors, officers, employees and service providers and to determine the fair value of its warrant derivative liability. The use of Black-Scholes requires management to make various estimates and assumptions that impact the value assigned to the stock options including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options. Any changes in these assumptions could have a material impact on the share-based compensation calculation value. See also notes 15 and 18.
Carrying value of inventory
The Company records valuation adjustments for inventory by comparing the inventory cost to its net realizable value. The process requires the use of estimates and assumptions related to future market demand, costs and prices. Such assumptions are reviewed periodically and may have a significant impact on the valuation adjustments for inventory.
Business combinations
Judgment is used in determining whether an acquisition is a business combination or an asset acquisition and assessing whether the amounts paid on achievement of milestones represents contingent consideration or compensation for post-acquisition services. Contingent consideration that is classified as a liability is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Accounting for acquisitions requires estimates with respect to the fair value of the assets acquired and liabilities assumed.
Impairment
The Company assesses impairment of
non-financial
assets such as goodwill,
right-of-use
assets, and property and equipment.
Goodwill is subject to impairment testing on an annual basis. However, if indicators of impairment are present, the Company will review goodwill for impairment when such indicators arise. In addition, at each reporting period, the Company reviews whether there are indicators that the recoverable amount of long-lived assets may be less than their carrying amount.
Goodwill and long-lived assets are reviewed for impairment by estimating the recoverable amount of each cash generating unit (“
CGU
”) or groups of CGUs to which the goodwill or long-lived assets relate. Management estimates the recoverable amount of the CGUs based on the higher of
value-in-use
(“
VIU
”) and fair value less costs of disposal (“
FVLCD
”). The VIU calculations are based on the present value of expected future cash flows. When measuring expected future cash flows, management makes key assumptions about future growth of profits which relate to future events and circumstances. Estimation uncertainty relates to assumptions about future operating results and the application of an appropriate discount rate. Actual results could vary from these estimates which may cause significant adjustments to the Company’s goodwill or long-lived assets in subsequent reporting periods.
Leases
The lease liability and
right-of-use
asset valuation is based on the present value of the lease payments over the lease term. The lease term is determined as the
non-cancellable
term of the lease, which may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company applies judgment in evaluating whether it is reasonably certain whether or not to exercise the option to extend or terminate the lease, and any modifications to the lease term will result in the revaluation of the lease. The present value of the lease payments is dependent on the Company’s estimate of its incremental borrowing rates.
 
9
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
The following significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements.
Cash and cash equivalents
Cash and cash equivalents is comprised of cash deposits and highly liquid investments that are readily convertible into known amounts of cash with original maturities of three months or less.
Inventory
Inventory consists primarily of finished goods, packaging and restaurant supplies and raw materials. Inventory is measured at the lower of cost and net realizable value. Inventory costs include direct labor and certain overhead expenses such as
in-bound
shipping and handling costs incurred to bring the inventory to its present location and conditions. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. If the Company determines that the estimated net realizable value of its inventory is less than the carrying value of such inventory, it records a charge to procurement expense.
Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, loan to related party, accounts payable and accrued liabilities, loans payable and derivative liabilities. All of the Company’s financial instruments are measured at amortized cost, with the exception of its derivative liabilities, which are measured at fair value through profit or loss.
(i) Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is required to be classified in one of the following categories: amortized cost; fair value through other comprehensive income (“
FVOCI
”); or fair value through profit or loss (“
FVTPL
”).
All financial instruments are measured at fair value on initial recognition. Measurement in subsequent periods depends on the classification of the financial instrument. Transaction costs are included in the initial carrying amount of financial instruments except for financial instruments classified as FVTPL in which case transaction costs are expensed as incurred.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:
 
 
●
  
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
 
●
  
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:
 
 
●
  
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
 
 
●
  
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
 
10
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in Other Comprehensive Income (“
OCI
”). This election is made on an
investment-by-investment
basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
Financial assets: Subsequent measurement and gains and losses
 
 
●
  
Financial assets at FVTPL: These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in net loss.
 
 
●
  
Financial assets at amortized cost: These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in the consolidated statement of net loss and comprehensive loss. Any gain or loss on derecognition is recognized in net loss.
 
 
●
  
Debt investments at FVOCI: These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in net loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to net loss.
 
 
●
  
Equity investments at FVOCI: These assets are subsequently measured at fair value. Dividends are recognized as income in net loss and unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to net loss.
Financial liabilities
Financial liabilities are classified as other liabilities at amortized cost or FVTPL. A financial liability is classified as FVTPL if it is classified as
held-for-trading,
it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in net loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense, foreign exchange gains and losses, or gains and losses on derecognition are recognized in net loss.
(ii) Derecognition
Financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Company enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position but retains
 
11
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.
Financial liabilities
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any
non-cash
assets transferred or liabilities assumed) is recognized in net loss.
(iii) Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
(iv) Impairment
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
The Company measures loss allowances on amounts receivable at an amount equal to lifetime expected credit losses (“
ECL
”). When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when:
 
 
●
  
the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held); or
 
 
●
  
the financial asset is more than 90 days past due.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the entity expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
 
12
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
Presentation of allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.
Write-off
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the
write-off.
However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.
(v) Fair values
Fair value measurements recognized in the consolidated statement of financial position must be categorized in accordance with the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are expensed when incurred. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in net loss.
Depreciation is calculated on a straight-line method to allocate their cost less their residual values over the following estimated useful lives:
 
  Class of property and equipment
   
Useful lives in years  
  Restaurant and production equipment    5 - 15 years  
  Furniture and fixtures    5 years  
  Computer equipment and software    1 – 2 years  
  Leasehold improvements    Term of lease, or estimated useful life of specific improvements if shorter  
  Vehicles    5 years or the estimated useful life of specific vehicle  
Impairment of
non-financial
assets
At each reporting period, the Company assesses whether there are indicators of impairment for its
non-financial
assets. If indicators exist, the Company determines if the recoverable amount of the asset or CGU is greater than its carrying amount. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets.
 
13
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
If the carrying amount exceeds the recoverable amount, the asset or CGU is recorded at its recoverable amount with the reduction recognized in profit or loss. The recoverable amount is the greater of the value in use or fair value less costs to sell. Fair value is the amount the asset could be sold for in an arm’s length transaction. The value in use is the present value of the estimated future cash flows of the asset from its continued use. The fair value less costs to sell considers the continued development of a property and market transactions in a valuation model.
Impairments are reversed in subsequent periods when there has been an increase in the recoverable amount of a previously impaired asset or CGU and these reversals are recognized in profit or loss. The recovery is limited to the original carrying amount less depreciation, if any, that would have been recorded had the asset not been impaired.
Leases
At inception of a contract, the Company assesses whether a contract is or contains a lease based on the definition of a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has the right to control an identified asset if it obtains substantially all of its economic benefits and either
pre-determines
or directs how and for what purpose the asset is used.
The Company recognizes a
right-of-use
asset and lease liability at the lease commencement date. The
right-of-use
assets are initially measured at the amount of the lease liability plus initial direct costs incurred by the lessee. Adjustments may also be required for lease incentives, payments at or prior to commencement and restoration obligations.
The
right-of-use
assets are depreciated to the earlier of the end of the useful life of the
right-of-use
asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease, or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Lease payments included in the measurement of the lease obligation, when applicable, may comprise fixed payments, variable payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise price under a purchase, extension or termination option that the Company is reasonably certain to exercise. The lease liability is subsequently measured at amortized cost using the effective interest rate method. It is remeasured when there are changes in the following: i) the lease term; ii) the Company’s assessment of whether it will exercise a purchase option; iii) a change in an index or a change in the rate used to determine the payments; and iv) amounts expected to be payable under residual value guarantees.
Some of the Company’s leases contain extension options. The Company assesses at lease commencement whether it is reasonably certain to exercise the extension options. The Company reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and
right-of-use
assets recognized.
Unit financing
In a unit financing where the Company issues common shares with an attached warrant, the warrants issued to investors and any warrants issued to brokers are accounted for as follows:
 
14
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
The fair value of investor warrants is measured based on the unit price paid by the investor compared to the fair value of the common shares on the issuance date. If the unit price is greater than the common share price, the excess is considered the fair value of the investor warrant. If the unit price is less than the common share price, no fair value is assigned to the warrant. The fair value of the common shares is recognized in share capital and the fair value of the investor warrants is recognized in reserves.
The fair value of investor warrants with an exercise price denominated in a foreign currency are accounted for as a derivative liability and the fair value is estimated using the Black-Scholes option pricing model on the date of issuance. The fair value is netted against the proceeds from issuance of the units.
The fair value of broker warrants is measured and recognized on the date of issuance, using the Black-Scholes option pricing model. The fair value is recognized as a share issuance cost with a corresponding increase in equity reserves.
Share-based compensation
The Company grants stock options to acquire common shares of the Company to directors, officers, employees and consultants. An individual is classified as an employee when the individual is an employee for legal or tax purposes, or provides services similar to those performed by an employee.
The grant date fair value of share-based compensation awards granted to employees is recognized as share-based compensation expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and
non-market
vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and
non-market
performance conditions at the vesting date. For share-based compensation awards with
non-vesting
conditions, the grant date fair value of the share-based compensation is measured to reflect such conditions and there is no
true-up
for differences between expected and actual outcomes.
Where equity instruments are granted to parties other than employees, they are recorded by reference to the fair value of the services received. If the fair value of the services received cannot be reliably estimated, the Company measures the services received by reference to the fair value of the equity instruments granted, measured at the date the counterparty renders service.
All equity-settled share-based compensations are reflected in equity reserves, unless exercised. Upon exercise, shares are issued from treasury and the amount reflected in equity reserves is credited to share capital, adjusted for any consideration paid.
Revenue recognition
The Company generates revenue from the sale of vegan meats through a storefront, a vegan restaurant, public markets, wholesale arrangements and online eCommerce sales. The time between invoicing and when payment is due is not significant and none of the Company’s contracts contain a significant financing component.
The Company follows IFRS 15,
Revenue from Contracts with Customers
(“
IFRS 15
”), to recognize its revenue. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15 the Company’s accounting policy for revenue recognition is as follows: i) identify the contract with the customer; ii) identify the performance obligation(s) in the contract; iii) determine the transaction price; iv) allocate the transaction price to the performance obligation(s); and (v) recognize revenue when (or as) performance obligation(s) are satisfied.
 
15
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
For storefront, restaurant and public market sales, revenue is recognized immediately upon providing the customer with the product. For wholesale arrangements and online eCommerce sales, revenue is recognized when delivery has occurred and there is no unfulfilled obligation that could affect the customer’s acceptance. These criteria are generally met at the time the product leaves the Company’s premises as at that point, control has passed to the customer. For online eCommerce sales where consideration is received before the service is provided, the Company accounts for those pending sales as deferred revenue. Revenue is measured based on the price specified in the Company’s invoice provided to the customer. The Company does not have any multiple-element revenue arrangements. Revenue is presented net of discounts and sales and other related taxes.
The Company routinely offers sales discounts and promotions through various programs to its customers and consumers. These programs include rebates, temporary on shelf price reductions, off invoice discounts, retailer advertisements, product coupons and other trade activities. Provision for discounts and incentives are recorded in the same period in which the related revenues are recognized. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
Procurement expense
Procurement expense consist of the purchase price of the raw material and inventory packaging, inbound shipping charges, director labour and other attributable overhead expenses incurred in the procurement and manufacturing of the Company’s finished goods. Inbound shipping charges from suppliers are included in inventory and recognized as procurement expense upon the sale of product to customer. Procurement expense also include expenses associated with storefront and restaurant operations, including food costs, direct labour and other attributable overhead expenses.
Fulfilment expense
Fulfilment expense include third-party fulfilment cost for picking and packing of orders, fulfilment packaging costs, direct fulfilment labour, merchant processing fees, outbound shipping and freight costs and warehousing fees.
General and administrative expense
General and administrative expense are primarily comprised of administrative expenses,
non-production
salaries, wages and benefits, including associated share-based compensation not directly associated with other functions,
non-production
rent expense, depreciation and amortization expense on non-production assets and other
non-production
operating expenses. Administrative expenses include the expenses related to management, accounting, legal, information technology, and other support functions.
Research and development expense
Research and development expense are primarily incurred to develop new products as well as enhancing existing products for the Company. These costs consist of material and ingredients used for research and development, research and development staff cost including wages, salaries and benefits, including associated share-based compensation and depreciation on research and development assets.
Income taxes
Current income tax:
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.
 
16
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax:
Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.
Functional and presentation currency
The Company’s reporting currency is the Canadian dollar. The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and its Canadian subsidiaries is the Canadian dollar, while the functional currency of its US subsidiary is the US dollar. Transactions denominated in currencies other than the functional currency are translated using the exchange rate in effect on the transaction date or at the annual average rate. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange in effect at the consolidated statement of financial position date.
Non-monetary
items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in the consolidated statement of net loss and comprehensive loss.
For purposes of consolidation, the assets and liabilities of foreign operations with functional currencies other than the Canadian dollar are translated to Canadian dollars using the rate of exchange in effect at the financial statement date. Revenue and expenses of the foreign operations are translated to Canadian dollars at exchange rates at the date of the transactions. Foreign currency differences resulting from translation of the accounts of foreign operations are recognized directly in other comprehensive income and are accumulated in accumulated other comprehensive income as a separate component of shareholders’ equity.
 
17
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
Loss per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. Since the Company has a loss in all periods presented, the potential effect of share options and warrants has not been included in this calculation as they would be anti-dilutive.
Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions are recognized and measured at the amounts agreed between the parties.
Government grants
The Company classifies forgivable loans from the government as a government grant when there is a reasonable assurance that the Company will meet the terms for forgiveness on the loan. If this threshold is not met, the Company classifies forgivable loans as other liabilities, measured initially at fair value in accordance with IFRS 9,
Financial Instruments
.
Government grants and assistance are recognized as a reduction in the related expense in the period in which there is reasonable assurance that the grant or assistance has become receivable and all conditions, if any, have been or will be satisfied.
The Company applied for
COVID-19
financial relief in Canada under the Canada Emergency Wage Subsidy (“
CEWS
”) program and the Canada Emergency Business Account program (“
CEBA
”) funded by the Government of Canada. The CEWS and CEBA programs are relief programs launched by the Canadian federal government to qualifying employers to subsidize payroll costs and provide financing relief during the
COVID-19
pandemic.
The qualified amounts received under the CEWS program are
non-repayable,
and a portion of the amounts received under the CEBA program are
non-repayable
if the loan is repaid by December 31, 2022 (see Note 12). During the year ended December 31, 2020, the Company recognized the CEWS proceeds as a reduction of general and administrative expense of $21,299 and of research and development expense of $4,309. In addition, the Company recognized the forgivable portion of the CEBA loan as a reduction of financing expense of $10,000.    
 
18
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
3.
Significant accounting policies
(continued)
Accounting standards issued but not yet effective
The following IFRS standards have been recently issued by the IASB. Pronouncements that are irrelevant or not expected to have a significant impact have been excluded.
Amendments to IAS 1: Classification of Liabilities as Current or
Non-Current
The amendment clarifies the requirements relating to determining if a liability should be presented as current or
non-current
in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or
non-current
is based on the contractual arrangements in place as at the reporting date and does not impact the amount tor timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating the potential impact of this amendment on the Company’s consolidated financial statements.
Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the “cost of fulfilling” a contract comprises the “costs that relate directly to the contract”. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022, with early application permitted. The Company evaluated the potential impact of this amendment and is expecting minimal to no impact to the Company’s consolidated financial statements.
 
4.
Accounts receivable
 
     
     
As at December 31,
2021
     
As at December 31,
2020
  
     
  GST receivable
   
 
$  1,588,641
 
   
 
$  366,561
 
     
  Trade accounts receivable
   
 
337,247
 
   
 
82,740
 
     
  Accrued interest receivable
      5,394     
 
282
 
  Other receivables
      170,560        -  
     
 
   
 
$  2,101,842
 
   
 
$  449,583
 
Trade accounts receivable is recorded net of an allowance for doubtful accounts of $41,350 (2020 - $39,917).
 
5.
Inventory
Inventory consisted primarily of raw materials, packaging and restaurant supplies and finished goods which were either at the retail location, warehouses, storage space or held with third party distributors.
 
     
     
As at December 31,
2021
     
As at December 31,
2020
  
     
  Raw materials
   
 
$  3,446,596
 
   
 
$     320,346
 
     
  Packaging and restaurant supplies
   
 
1,282,278
 
   
 
333,728
 
  Finished goods
   
 
3,745,381
 
   
 
541,461
 
     
 
   
 
$  8,474,255
 
   
 
$  1,195,535
 
Included in finished goods inventory at December 31, 2021, was $263,609 (2020 - $12,053) of depreciation expense related to property and equipment and $120,939 (2020 - $7,502) related to
right-of-use
assets used in production.
 
19
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
6.
Prepaids and deposits
 
     
     
As at December 31,
2021
     
As at December 31,
2020
  
     
  Prepaid expenses
   
 
$   5,234,416
 
   
 
$     432,039
 
     
  Security deposits
   
 
3,345,611
 
   
 
1,293,272
 
     
  Lease deposits (Notes 11 and 25)
   
 
767,369
 
   
 
940,760
 
     
 
   
 
9,347,396
 
   
 
2,666,071
 
     
  Less: current portion of prepaids and deposits
   
 
(8,640,286)
 
   
 
(1,887,035)
 
     
 
   
 
$      707,110
 
   
 
$    779,036
 
 
7.
Right-of-use
assets
 
         
     
Right-of-use
building
     
    Right-of-use
equipment
     
    Right-of-use
vehicle
     
Total
  
         
  Cost
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
         
  Balance, January 1, 2020
      $     289,855        $     216,307        $           -        $      506,162  
         
  Additions
      4,990,752        5,989        23,767        5,020,508  
         
  Early termination of lease
      -        (71,179)        -        (71,179)  
         
  Balance, December 31, 2020
      5,280,607        151,117        23,767        5,455,491  
         
  Additions
      11,081,620        1,847,264        33,157        12,962,041  
         
  Termination of lease
      (7,493)        (60,218)        (23,767)        (91,478)  
         
  Foreign exchange translation adjustment
      (22,245)        -        -        (22,245)  
         
  Balance, December 31, 2021
   
$  16,332,489
     
$  1,938,163
     
$       33,157
     
$  18,303,809
  
         
  Accumulated Depreciation
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
         
  Balance, January 1, 2020
      $  (68,827)        $  (43,935)        -        $  (112,762)  
         
  Depreciation
      (275,439)        (41,072)        (5,485)        (321,996)  
         
  Early termination of leases
      -        23,940        -        23,940  
         
  Foreign exchange translation adjustment
      1,924        -        -        1,924  
         
  Balance, December 31, 2020
      (342,342)        (61,067)        (5,485)        (408,894)  
         
  Depreciation
      (1,130,496)        (137,105)        (11,084)        (1,278,685)  
         
  Termination of leases
      2,366        36,131        5,942        44,439  
         
  Foreign exchange translation adjustment
      (1,167)        -        -        (1,167)  
         
  Balance, December 31, 2021
   
$  (1,471,639)
     
$  (162,041)
     
$  (10,627)
     
$  (1,644,307)
  
         
  Carrying amounts
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
         
  Balance, December 31, 2020
      $    4,938,265        $       90,050        $    18,282        $     5,046,597  
         
  Balance, December 31, 2021
   
$  14,860,850
     
$  1,776,122
     
$    22,530
     
$    16,659,502
  
 
The additions in
right-of-use
assets (building and equipment) during the year ended December 31, 2021, are primarily related to the Rupert Facility.
 
20
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
7.
Right-of-use
assets (continued)
Depreciation of
right-of-use
assets included in the consolidated financial statements is split as follows:
 
   
     
As at December 31,
  
     
     
2021
     
2020
  
     
  Consolidated statements of financial position
   
 
 
 
   
 
 
 
     
  Included in inventory
   
 
$120,939
 
   
 
$7,502
 
     
    
                  
   
     
Year ended December 31,
  
     
     
2021
     
2020
  
     
  Consolidated statements of net loss and comprehensive loss
                  
     
  Included in procurement expense
   
 
$371,135
 
   
 
$102,398
 
     
  Included in fulfilment expense
   
 
235,263
 
   
 
12,226
 
     
  Included in general and administrative expense
   
 
94,896
 
   
 
199,870
 
     
  Included in
pre-production
expense
   
 
456,452
 
   
 
-
 
     
 
   
 
$1,157,746
 
   
 
$314,494
 
 
8.
Property and equipment
 
             
     
Restaurant,
production, and
R&D equipment
     
Furniture
and
fixtures
     
Computer
equipment
and software
     
Leasehold
improvements
     
Vehicle
     
Total
  
 
  Cost
 
             
  At January 1, 2020
      $  195,513        $  18,030        $  21,410        $  70,436        $  61,222        $  366,611  
             
  Additions
      169,210        107,112        86,460        182,713        8,559        554,054  
             
  At December 31, 2020
      364,723        125,142        107,870        253,149        69,781        920,665  
             
  Additions
      9,848,607        568,659        403,656        4,863,197        206,760        15,890,879  
             
  Disposals
      (2,679)        -        -        -        (34,768)        (37,447)  
             
  At December 31, 2021
   
$10,210,651
     
$  693,801
     
$  511,526
     
$  5,116,346
     
$  241,773
     
$16,774,097
  
 
  Accumulated depreciation
 
             
  At January 1, 2020
      $  (11,047)        $  (6,113)        $  (13,875)        $  (19,945)        $(6,122)        $  (57,102)  
             
Depreciation
      (52,887)        (4,353)        (20,332)        (32,378)        (12,885)        (122,835)  
             
  At December 31, 2020
      (63,934)        (10,466)        (34,207)        (52,323)        (19,007)        (179,937)  
             
Depreciation
      (258,314)        (74,093)        (332,597)        (357,833)        (21,084)        (1,043,921)  
             
Disposals
      -        -        -        -        1,446        1,446  
             
Impairment
      (101,077)        -        -        -        -        (101,077)  
             
  At December 31, 2021
   
$(423,325)
     
$(84,559)
     
$(366,804)
     
$(410,156)
     
$(38,645)
     
$(1,323,489)
  
 
  Net book value
 
             
  At December 31, 2020
      $  300,789        $  114,676        $  73,663        $  200,826        $  50,774        $  740,728  
             
  At December 31, 2021
   
$    9,787,326
     
$   609,242
     
$  144,722
     
$  4,706,190
     
$  203,128
     
$  15,450,608
  
 
As at December 31, 2021, a total of $nil (2020 - $81,000) of furniture and fixtures, $4,492,196 (2020 - $nil) of production equipment, $264,060 (2020 - $63,557) of leasehold improvements and $78,497 (2020 - $nil) of vehicle was related to property and equipment under construction, and no depreciation has been recognized. The Company will begin recognizing depreciation once the underlying assets are ready for their intended use.
During the year ended December 31, 2021, the Company recognized an impairment of $101,077 related to production equipment that was no longer in use.
 
21
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
8.
Property and equipment (continued)
Depreciation of property and equipment included in the consolidated financial statements is split as follows:
 
   
     
As at December 31,
  
     
     
                    2021
     
                    2020
  
     
  Consolidated statements of financial position
   
 
 
 
   
 
 
 
     
  Included in inventory
   
 
$  263,609
 
   
 
$  12,053
 
     
                   
   
     
Year ended December 31,
  
     
     
2021
     
2020
  
     
  Consolidated statements of net loss and comprehensive loss
   
 
 
 
   
 
 
 
     
  Included in procurement expense
   
 
$  433,984
 
   
 
$  76,132
 
     
  Included in fulfilment expense
   
 
15,177
 
   
 
244
 
     
  Included in general and administrative expense
   
 
179,881
 
   
 
30,822
 
     
  Included in research and development expense
   
 
6,804
 
   
 
3,584
 
     
  Included in
pre-production
expense
   
 
144,466
 
   
 
-
 
     
 
   
 
$  780,312
 
   
 
$  110,782
 
 
9.
Acquisitions
The Cultured Nut Inc.
On February 23, 2021, the Company closed a share purchase agreement with the shareholders of The Cultured Nut Inc. (“
TCN
”) to purchase 100% of the issued and outstanding Class V Voting Shares, Class A
Non-Voting
Common Shares, Class D
Non-Voting
Common Shares and Class C
Non-Voting
Common Shares (collectively, the “
Shares
”). TCN, an artisan vegan cheese producer on the West Coast of Canada, with several innovative products including block style cheeses. In consideration for the acquisition of TCN, the Company agreed to pay the following:
 
 
●
  
$925,000 due on closing (paid);
 
●
  
139,676 common shares due on closing (issued);
 
●
  
$75,000 on August 30, 2021 (paid); and
 
●
  
Up to $1,000,000 contingent on the successful achievement of certain milestones related to the integration of TCN’s business over a
12-month
period.
The Company also agreed to pay an amount equal to the closing working capital of TCN, equal to the difference between the current assets and current liabilities on the date of acquisition. The Company incurred acquisition-related costs of $119,222, which have been included in other expense in the consolidated statement of net loss and comprehensive loss.
The purchase price allocation for the acquisition of TCN is summarized as follows:
 
   
  Acquisition consideration
        
   
  Cash
    $   1,000,000  
   
  Fair value of common shares
      790,566  
   
  Contingent consideration
      698,000  
   
  Working capital consideration
      36,219  
   
  Total acquisition consideration
   
$
  2,524,785
 
 
22
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
9.
Acquisitions
(continued)
 
   
  Fair value of TCN’s net assets acquired
        
   
Cash and cash equivalents
      $         3,895  
   
Accounts receivable
      14,218  
   
Inventory
      23,418  
   
Prepaids and deposits
      7,788  
   
Right-of-use
assets
      127,043  
   
Property and equipment
      65,851  
   
Goodwill
      2,422,916  
   
Accounts payable and accrued liabilities
      (12,801)  
   
Lease liabilities
      (127,543)  
   
  Total fair value of TCN’s net assets acquired
   
 
$    2,524,785
 
In accordance with the acquisition method of accounting, the acquisition cost has been allocated to the identifiable underlying assets acquired and liabilities assumed, based upon their estimated fair values at the date of acquisition.
The goodwill was attributable mainly to the expected synergies and future income and growth expected to be achieved from integrating TCN into the Company’s existing business. During the year ended December 31, 2021, the Company recorded an impairment of goodwill of $2,422,916 on the basis that such synergies from integration have not materialized to the extent initially expected and that the revenues from the cheese products under TCN that were acquired were significantly below the original forecasts made at the time of acquisition. The products under development at the time of acquisition were also determined to lack innovation as compared to original expectations.
Lloyd-James Marketing Group Inc.
On March 11, 2021, the Company closed a share purchase agreement with the sole shareholder of Lloyd-James Marketing Group Inc. (“
Lloyd-James
”) to purchase 100% of the issued and outstanding common shares (the “
Shares
”). Lloyd-James is a wholesale and food service broker who specializes in the plant-based food industry has a history of placement in large natural, speciality and conventional grocery retailers. In consideration for the acquisition of Lloyd-James, the Company agreed to pay the following:
 
 
●
  
$325,000 due on closing (paid);
 
●
  
62,329 common shares due on closing (issued); and
 
●
  
Up to $350,000 contingent on the successful achievement of certain milestones related to the integration of Lloyd-James business over a 12 month period.
The Company also agreed to pay an amount equal to the closing working capital of Lloyd-James, equal to the difference between the current assets and current liabilities on the date of acquisition. The Company incurred acquisition-related costs of $54,440, which have been included in other expense in the consolidated statement of net loss and comprehensive loss.
 
23
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
9.
Acquisitions
(continued)
The purchase price allocation for the acquisition of Lloyd-James is summarized as follows:
 
   
  Acquisition consideration
        
   
Cash
    $ 325,000  
   
Fair value of common shares
      365,871  
   
Contingent consideration
      350,000  
   
Working capital consideration
      25,648  
   
  Total acquisition consideration
   
$
1,066,519
 
 
   
  Fair value of Lloyd-James’s net assets acquired
        
   
Cash and cash equivalents
    $ 5,411  
   
Accounts receivable
      19,936  
   
Goodwill
      1,056,619  
   
Accounts payable and accrued liabilities
      (15,447)  
   
  Total fair value of Lloyd-James’s net assets acquired
   
$
  1,066,519
 
In accordance with the acquisition method of accounting, the acquisition cost has been allocated to the identifiable underlying assets acquired and liabilities assumed, based upon their estimated fair values at the date of acquisition.
The goodwill was attributable mainly to the skills and technical talent of Lloyd-James work force and the synergies expected to be achieved from integrating Lloyd-James into the Company’s existing business. During the year ended December 31, 2021, the Company recorded an impairment of goodwill of $1,056,619 on the basis that such synergies from integration have not materialized to the extent initially expected and that the cost savings, in terms of brokerage fees associated with the acquisition, were significantly below the original forecasts, particularly as the sales team was
built-out,
as well as the fact any relationships associated with the acquisition did not result in viable acquisition targets as expected.
 
10.
Accounts payables and accrued liabilities
 
     
     
As at December 31,
2021
     
As at December 31,
2020
  
     
  Accounts payable
   
$
5,077,613
 
    $ 1,173,048  
     
  Accrued liabilities
   
 
3,031,548
 
      698,680  
     
 
   
$
8,109,161
 
   
$
1,871,728
 
 
24
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
11.
Lease liabilities
Lease liabilities consist of leases for retail, production and distribution facilities, equipment and a vehicle. The leases have been discounted using weighted average interest rates ranging between 3.0% and 12.5% as estimated incremental borrowing rates of the Company for similar assets.
 
   
     
Year ended December 31,
  
     
     
2021
     
                            2020
  
     
  Balance, beginning of year
      $5,536,287     
 
$    392,472
 
     
Additions
      12,375,861        5,020,509  
     
Lease payments
      (1,591,300)        (163,811)  
     
Early termination of leases
      (24,552)        (39,706)  
     
Lease concessions
      -        (16,800)  
     
Interest expense
      1,340,492        345,958  
     
Foreign exchange translation adjustment
      (22,395)        (2,335)  
     
  Balance, end of year
      $17,614,393     
 
$  5,536,287
 
     
  Less: current portion of lease liabilities
   
 
(849,935)
 
      (146,935)  
     
  Lease liabilities
   
 
$16,764,458
 
   
 
$  5,389,352
 
On September 22, 2020, the Company terminated 17 lease agreements and purchased the related leased equipment for $79,118. The difference between the related lease liabilities and
right-of-use-assets
of $7,533 was recognized as a loss on termination of leases.
During the year ended December 31, 2021, the Company terminated 2 lease agreements and recognized a $1,600 of gain on termination of leases.
The Company’s future minimum lease payments for the leases for retail, warehouse, production facilities, equipment and vehicle are as follows:
 
  Fiscal year ending:
   
Retail, warehouse
and production
facilities
     
Equipment
     
Vehicle
     
Total
  
         
  December 31, 2022
      $    1,841,099        $    342,213        $    12,175        $    2,195,487  
         
  December 31, 2023
      1,859,082        329,567        12,175        2,200,824  
         
  December 31, 2024
      1,876,935        268,083        468        2,145,486  
         
  December 31, 2025
      1,894,002        225,395        -        2,119,397  
         
  December 31, 2026
      1,932,419        55,164        -        1,987,583  
         
  December 31, 2027 and thereafter
      19,006,706        -        -        19,006,706  
         
  Total lease payments
      28,410,243        1,220,422        24,818        29,655,483  
         
  Amounts representing interest over the term of the leases
      (11,920,295)        (119,199)        (1,596)        (12,041,090)  
         
  Present value of net lease payments
      16,489,948        1,101,223        23,222        17,614,393  
         
  Less: Current portion
      (550,077)        (288,849)        (11,009)        (849,935)  
         
  Long-term portion
      $   15,939,871        $   812,374        $   12,213        $   16,764,458  
Further information about our leases facilities is provided in Note 25 Commitments.
 
25
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
12.
Loans payable and other liabilities
 
  
  
CEBA loan Note
12(g)
 
  
Revolving line of
credit
Note 12(h)
 
  
Senior secured
term loan
Note 12(h)
 
  
Credit facility fee
liability Note
12(h)
 
  
Financing
arrangements
Notes 12(i) - (l)
 
  
Other loans
payable and
financing Notes
12(a) – (f)
 
  
Total
 
               
               
  Balance, January 1, 2020
      $    -        $    –        $    –        $    –        $    –        $    31,181     
$
 
 
 
31,181		  
               
  Additions
      40,000        –        –        –        –        459,129        499,129  
               
  Interest expense
      –        –        –        –        –        61,558        61,558  
               
  Repayments
      –        –        –        –        –        (551,868)        (551,868)  
               
  Forgiveness of loan
      (10,000)        –        –        –        –        –        (10,000)  
               
  Balance, December 31, 2020
      30,000        –        –        –        –        –        30,000  
               
  Additions
      -        2,451,720        2,125,361        2,520,000        1,389,081        –        8,486,162  
               
  Discount
      -        -        -        (231,035)        (32,729)        –        (263,764)  
               
  Accretion expense
      -        -        -        97,310        7,863        –        105,173  
               
  Repayments
      (30,000)        -        -        (630,000)        (275,324)        –        (935,324)  
               
  Balance, December 31, 2021
      -        2,451,720        2,125,361        1,756,275        1,088,891        –        7,422,247  
               
  Less: Current portion
      -        -        -        (1,151,945)        (795,697)        –        (1,947,642)  
               
  Long-term portion
   
 
$    -
 
   
 
$    2,451,720
 
   
 
$    2,125,361
 
   
 
$    604,330
 
   
 
$    293,194
 
   
 
$    –
 
   
$    5,474,605
 
 
  a)
On January 15, 2018, the Company entered into a loan agreement for proceeds of $56,550, net of an origination fee of $3,450. The loan was interest bearing at 23.08% per annum, payable monthly, secured against the Company’s net assets with personal guarantees from the CEO, and matured and was repaid on January 13, 2020.
 
  b)
On March 20, 2019, the Company entered into a future receivables sale agreement, whereby the Company agreed to remit a daily payment equal to 15% of future sales up to $64,500 in consideration for proceeds of $50,000. The Company’s obligations under the agreement were secured against the Company’s assets. On January 21, 2020, the Company entered into a new future receivables sales agreement with the lender, whereby the remaining balance of $10,277 was renewed and increased to $64,500 in consideration for an additional proceeds of $37,183. On September 29, 2020, the Company fulfilled the obligations under the future receivables sale agreement.
 
  c)
On July 1, 2019, the Company entered into a loan agreement for the purchase of a vehicle. The loan was
non-interest
bearing, secured against the purchased vehicle, and matured on May 1, 2020. Pursuant to the loan agreement, the Company made a down payment of $15,000 on July 1, 2019, and made 10 monthly instalments of $4,000.
 
  d)
On January 20, 2020, the Company entered into a Business Loan and Security Agreement for net proceeds of $42,720, net of an original issue discount of $12,460 and an origination fee of $1,780. Pursuant to the agreement, the Company was required to make 113 payments of $504 on each business day until fully repaid. The loan was secured against the Company’s net assets and matured on July 6, 2020.
 
  e)
On May 12, 2020, the Company entered into a Capital Agreement, whereby the Company agreed to remit a daily payment equal to 17% of future sales up to $181,900 in consideration for proceeds of $170,000. The Company’s obligations under the agreement were secured against the Company’s assets. On August 27, 2020, the Company fulfilled the obligations under the Capital Agreement.
 
  f)
During the year ended December 31, 2020, the Company entered into Revenue Share Agreements, whereby the Company agreed to remit a daily payment at rates ranging between 8% and 11% of future sales up to a total of $235,406 in consideration for proceeds totalling $209,226. The Company’s obligations under the agreement were secured against the Company’s assets. On September 1, 2020, the Company fulfilled the obligations under the Revenue Share Agreements.
 
26
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
12.
Loans payable and other liabilities
(continued)
 
  g)
During the year ended December 31, 2020, the Company received a loan totalling $40,000 from its bank under the Canada Emergency Business Account program (“
CEBA
”) funded by the Government of Canada. The loan is interest free and may be repaid any time before December 31, 2022, at which time if unpaid, the remaining balance will convert to a
3-year
term loan at an interest rate of 5% per annum. If the Company repays the loan prior to December 31, 2022, there will be loan forgiveness of 25% of the loan, up to $10,000. During the year ended December 31, 2020, the Company recognized $10,000 as forgiveness of loan as it was reasonably certain that the Company would repay the loan before December 31, 2022. During the year ended December 31, 2021, the Company repaid the loan of $30,000.
 
  h)
On June 7, 2021, the Company entered into a loan agreement (the “
Loan Agreement
”) for a senior secured credit facility (the “
Credit Facility
”) with Waygar Capital Inc. (the “
Agent
”), as agent for Ninepoint Canadian Senior Debt Master Fund L.P. (the “
Lender
”). The Credit Facility consists of a $20,000,000 revolving line of credit and a $50,000,000 senior secured asset term loan. All amounts drawn under the Credit Facility will incur interest at a rate of 9.95% per annum on the unpaid principal amount of outstanding advances, will be repaid in full upon maturity, and are secured by a first-priority security interest on substantially all of the Company’s assets. The revolving line of credit is also subject to an unused line fee of 1% per annum. The Credit Facility will become due on June 7, 2023, subject to the Company’s option to extend the maturity date for an additional 12 months on terms and conditions to be mutually agreed to between the Company and the Lender. In connection with the Loan Agreement, the Company issued 225,000 common share purchase warrants to the Agent with a fair value of $752,559, which are exercisable for one common share of the Company at a price of C$5.62 for a period of 60 months from the date of issuance. In addition, the Company agreed to pay a credit facility fee of $2,520,000 to the Agent, which is payable as follows: $210,000 payable within 5 days of closing (paid); $105,000 payable on or before July 7, 2021 (paid); $105,000 payable on or before August 8, 2021 (paid); $105,000 on or before September 8, 2021 (paid); $105,000 on or before October 5, 2021 (paid); $630,000 on or before June 6, 2022; $630,000 on or before June 8, 2022; and $630,000 on or before June 7, 2023. The Company also incurred other financing costs in cash of $2,262,039 in connection with the financing, consisting of a finder’s fee of $2,037,000 and legal and filing fees of $225,039.
 
   
During the year ended December 31, 2021, the Company received a total of $4,577,081 pursuant to the Credit Facility and recognized the net present value of the credit facility fee payable of $2,288,965, including a present value discount of $231,035.
 
   
During the year ended December 31, 2021, the Company recognized interest and accretion expense on the credit facility fee payable of $97,310 and interest expense of $180,522 related to the revolving credit facility and term loan. The Company also incurred an unused line of credit fee of $19,454. As at December 31, 2021, $38,565 is outstanding for interest and $2,135 is outstanding for unused line of credit fees, which are included in accounts payable and accrued liabilities.
 
   
The Company incurred debt financing costs totalling $5,303,563, which will be amortized over the term of the Credit Facility at the effective interest rate. During the year ended December 31, 2021, the Company recognized accretion expense of the deferred financing costs of $1,378,820. As at December 31, 2021, the remaining carrying value of the deferred financing costs was $3,924,743.
 
  i)
On January 28, 2021, the Company entered into an agreement for the purchase of production equipment for $569,214. Pursuant to the agreement, the Company paid a 35% deposit of the purchase price totalling $199,225, and the balance is due in 24 equal payments totalling $15,416 per month, starting from the date of the delivery. On September 27, 2021, the equipment was delivered and the deposit was capitalized in property and equipment. The loan is interest free, secured by the production equipment acquired, and was measured at a fair value of $354,853.
 
27
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
12.
Loans payable and other liabilities
(continued)
 
   
The carrying value of the loan payable will be accreted to the face value of $369,989 over the term of the loan. During the year ended December 31, 2021, the Company recognized accretion of the loan of $3,563 and made a repayment of $15,416. As at December 31, 2021, the carrying value of the loan payable was $343,000.
 
  j)
On January 28, 2021, the Company entered into an agreement for the purchase of production equipment for $629,358. Pursuant to the agreement, the Company paid a 35% deposit of the purchase price totalling $220,275, and the balance is due in 24 equal payments totalling $17,045 per month, starting from the date of the delivery. On September 22, 2021, the equipment was delivered and the deposit was capitalized in property and equipment. The loan is interest free, secured by the production equipment acquired, and was measured at a fair value of $392,133. The carrying value of the loan payable will be accreted to the face value of $409,083 over the term of the loan. During the year ended December 31, 2021, the Company recognized accretion of the loan of $4,154 and made a repayment of $17,045. As at December 31, 2021, the carrying value of the loan payable was $379,242.
 
  k)
On June 10, 2021, the Company entered into an agreement for the purchase of production equipment for $24,412. Pursuant to the agreement, the Company paid a 35% deposit of the purchase price totalling $8,544, and the balance is due in 24 equal payments totalling $661 per month, starting from the date of the delivery. On October 1, 2021, the equipment was delivered and the deposit was capitalized in property and equipment. The loan is interest free, secured by the production equipment acquired, and was measured at a fair value of $15,225. The carrying value of the loan payable will be accreted to the face value of $15,868 over the term of the loan. During the year ended December 31, 2021, the Company recognized accretion of the loan of $146 increasing the carrying value of the loan payable to $15,371.
 
  l)
On October 29, 2021, the Company refinanced its directors and officer insurance for $594,141 (US$478,500) The loan bears interest at 15.49% per annum, is secured by the insurance policies, and is repayable in 5 equal instalments of US$99,438. During the year ended December 31, 2021, the Company repaid $242,863 and, as at December 31, 2021, the carrying value of the loan payable was $351,278.
 
13.
Convertible debentures
 
  a)
During the year ended December 31, 2018, the Company issued $351,000 in convertible debentures; incurring financing costs of $31,113 for a net amount of $319,887. On January 11, 2019, the Company completed an additional financing of $249,000 in convertible debentures from the same lender; incurring financing costs of $20,284 for a net amount of $228,716. The debentures were unsecured, accrued simple interest at 6% per annum and had an original maturity date of November 30, 2021. The convertible debentures automatically converted at the earlier of:
 
  (i)
Qualified financing conversion – if the Company raises gross proceeds of at least $2,000,000, other than convertible notes.
 
  (ii)
Liquidity event – if the Company sells shares or assets, which triggers a change in control.
 
  (iii)
Maturity date – November 30, 2021.
 
   
As the number of common shares to be issued were variable, the convertible debentures were accounted for as a financial liability. The financing costs had been netted against the principal balance of the debentures and were accreted over the term of the debentures using the effective interest method. During the year ended December 31, 2020, the Company recognized interest and accretion expense of $53,668.
 
28
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
13.
Convertible debentures
(continued)
 
   
During the year ended December 31, 2020, the convertible debentures were converted into 5,084,394 common shares as a result of the completion of a qualified financing. The difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion of $615,000, was recorded as a finance expense during the year ended December 31, 2020.
 
  b)
On June 20, 2019, the Company completed a financing of convertible debentures in the principal amount of $300,000, which bore compound interest at 1.5% per month, and originally matured on December 31, 2019. In connection with the issuance of the debentures, the Company paid a finders’ fee of $30,000 and received a net amount of $270,000. On December 5, 2019, the Company entered into an amending agreement whereby the maturity date was extended to June 30, 2020. These debentures became convertible if the Company undergoes a change of control, amalgamation, merger or other business combination resulting in a “going public transaction”, or in the process of any such transaction raises funds in excess of $2,000,000 as part of the Company’s “going public transaction” (“
Qualified Financing
”).
 
   
As the number of common shares to be issued were variable, the convertible debentures were accounted for as a financial liability. The convertible debentures were accreted up over the payment term using the effective interest method. During the year ended December 31, 2020, the Company recognized interest and accretion expense of $30,663.
 
   
During the year ended December 31, 2020, the convertible debentures were converted into 1,692,995 common shares as a result of the completion of a Qualified Financing. The difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion of $63,000, was recorded as a finance expense during the year ended December 31, 2020.
 
  c)
During the year ended December 31, 2019, the Company entered into convertible promissory notes totalling $86,400, of which $75,000 were received for cash and $11,400 in consideration for consulting fees. The debentures had the same terms as the convertible debentures described in Note 13(a) above.
 
   
During the year ended December 31, 2020, the Company recognized interest expense totalling $2,626.
 
   
During the year ended December 31, 2020, the convertible promissory notes were converted into 717,327 common shares as a result of the completion of a qualified financing. The difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion of $87,000, was recorded as a finance expense during the year ended December 31, 2020.
 
14.
Related party balances and transactions
Related party balances
On February 11, 2020, the Company entered into a loan agreement with its Chief Executive Officer (“
CEO
”), Mitchell Scott, and its Chief Research & Development Officer (“
CRDO
”), James Davison (the “
Lenders
”), whereby the Lenders agreed to loan the Company up to a maximum aggregate loan amount of $1,200,000 (the “
Principal
”), in three equal tranches of $400,000. The outstanding amount of the Principal had a maturity date of May 11, 2021, and bore interest from and after the date of each advance until repayment at the rate of 0.67% per month, simple interest. The Company also executed a general security agreement with the Lenders, which created a security interest over all present and after acquired property of the Company. The Company received one tranche of $400,000 on February 11, 2020. On June 22, 2020, the Company repaid the principal balance of $400,000 and interest of $11,728.
 
29
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
14.
Related party balances and transactions
(continued)
On November 16, 2021, the Company entered into loan agreements with its CEO and its CRDO to provide individual loans in the amounts of $750,000 and $500,000 to the CEO and CRDO, respectively (collectively, the “
Loans
”). With the express consent of the CEO and CRDO, the Loans were amended on November 23, 2021 such that all accrued principal and interest under the CEO Loan was immediately due and payable and the CRDO Loan is due and payable within 60 days. Until repayment, the Loans continue to bear interest at a rate of 9% per annum, payable monthly, and, if for any reason a Loan is not paid in full on or before January 18, 2022, the Loan will be secured by certain financial assets commencing on such date. The CEO Loan of $750,000 was repaid in full as at December 31, 2021 and the Company received interest of $2,772. The CRDO Loan provides for scheduled repayments prior to maturity. As at December 31, 2021, the CRDO repaid $89,732 and the Company accrued interest of $5,314 which was included in accounts receivable.
On February 4, 2022, the Company entered into a Share Pledge Agreement (“
Pledge Agreement
”) with the CRDO whereby the CRDO pledged 1,000,000 common shares of the Company (“
Pledged Shares
”). As of the filing date of these consolidated financial statements, the Pledge Shares have not been disposed of by the Company and the balance of the CDRO Loan remains outstanding.
Related party transactions
The Company’s key management personnel have the authority and responsibility for planning, directing, and controlling the activities of the Company and consists of the Company’s executive management team and directors. Compensation was as follows:
 
   
     
Year ended December 31,
  
     
     
2021
     
                    2020
  
     
  Salaries incurred to key management personnel*
   
 
$    2,219,695
 
   
 
$  1,564,966
 
     
  Professional fees incurred to the former CFO**
   
 
-
 
   
 
159,437
 
     
  Directors’ fees
   
 
47,385
 
   
 
-
 
     
  Share-based compensation (Note 18)
   
 
12,207,690
 
   
 
676,078
 
     
 
   
 
$  14,474,770
 
   
 
$  2,400,481
 
* The balance for the year ended December 31, 2020, includes $287,230 paid by the issuance of a total of 165,000 warrants, which have exercise prices ranging between $1.51 per share and $7.60 per share, with expiry dates ranging between August 13, 2021, and December 21, 2021.
** The balance for the year ended December 31, 2020, includes $25,001 paid by the issuance of 166,670 units. Each unit consists of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances.
 
15.
Derivative Liabilities
On October 19, 2021, the Company issued 7,500,000 common share purchase warrants with an exercise price of US$2.35 and expiry date of October 19, 2026 (Note 16(d)). Due to the variable nature of the proceeds from exercise of these warrants, the Company recognized a derivative liability of $11,864,649 at the issuance date. The fair value of these liabilities will be revalued at the end of every reporting period and the change in fair value will be reported in profit or loss as a gain or loss on derivative financial instruments.    
 
   
     
Year ended December 31,
  
     
     
2021
     
                    2020
  
     
  Balance, beginning of year
      $     -        $    -  
     
  Additions
      11,864,649        -  
     
  Change in fair value of derivative liabilities
      (7,922,647)        -  
     
  Balance, end of year
   
 
$  3,942,002
 
   
 
$    -
 
 
15.
Derivative Liabilities (continued)
The Company determined the fair value for the purchase warrant derivative liabilities using the Black-Scholes option pricing model. The following table shows the assumptions used in the calculations:​​​​​​​
 
30
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
     
     
Issuance Date
     
December 31, 2021
  
     
  Risk-free interest rate
   
 
1.31%
 
   
 
1.25%
 
     
  Dividend yield
   
 
0%
 
   
 
0%
 
     
  Expected volatility
   
 
103%
 
   
 
101%
 
     
  Expected life (years)
      5.0        4.8  
     
  Forfeiture rate
      0%        0%  
 
16.
Share capital
Authorized share capital
Unlimited number of common shares without par value.
Issued share capital during the year ended December 31, 2021
 
  a)
On February 23, 2021, the Company issued 139,676 common shares with a fair value of $790,566 pursuant to a share purchase agreement to acquire TCN (Note 9).
 
  b)
On March 11, 2021, the Company issued 62,329 common shares with a fair value of $365,871 pursuant to a share purchase agreement to acquire Lloyd-James (Note 9).
 
  c)
On July 2, 2021, the Company completed its bought deal prospectus offering (the
“July Offering”
) consisting of 5,594,750 units of the Company (the “
Units
”) at a price of $3.70 per July Unit for total gross proceeds of $20,700,575. Each Unit consisted of one common share in the capital of the Company and
one-half
of one common share purchase warrant (each whole warrant, a “
Warrant
”), with each Warrant entitling the holder to purchase one additional common share at a price of $4.60 per Warrant until January 2, 2023.
 
   
The Company paid a commission of $1,449,040 and 391,632 compensation warrants of the Company (the “
Compensation Warrants
”), with a fair value of $758,742, being equal to 7% of the aggregate number of Units sold pursuant to the offering. Each Compensation Warrant entitles the holder to purchase one additional Unit of the Company (each a “
Compensation Unit
”) at a price of $3.70 per Compensation Unit until January 2, 2023. In addition, the Company also paid a corporate finance fee comprised of 30,000 Units, with a fair value of $114,600 to the agent. In connection with the Offering, the Company incurred other share issuance costs of $873,274.
 
  d)
On October 19, 2021, the Company closed a registered direct offering (the “
October
Offering
”) with certain institutional investors for the purchase and sale of an aggregate of 15,000,000 Units of the Company at a price of US$2.00 per Unit for gross proceeds to the Company of $37,078,200 (US$30,000,000). Each Unit was comprised of one common share of the Company and
one-half
of one Warrant.
 
   
Each Warrant entitles the holder thereof to purchase one common share at an exercise price of US$2.35, subject to adjustment in certain circumstances, until October 19, 2026. As the exercise price was denominated in a foreign currency, the amount of proceeds received by the Company from the exercise of these Warrants will be variable. As such, the 7,500,000 Warrants were treated as a derivate liability and the fair value of $11,864,649 at the issuance date was netted against the proceeds of $37,078,200 (Note 15).
 
   
The Company paid a commission of $2,224,692 (US$1,800,000) and 525,000 compensation warrants of the Company , with a fair value of $656,682,being equal to 3.5% of the aggregate number of Units sold pursuant to the October Offering. Each Compensation Warrant entitles the holder thereof to purchase one common share at an exercise price of US$2.50, subject to adjustment in certain circumstances, commencing on April 14, 2022 and expiring on April 14, 2025. In connection with the October Offering, the Company incurred other issuance costs of $518,266.
 
31
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
16.
Share capital
(continued)
 
  e)
During the year ended December 31, 2021, the Company issued a total of 188,000 common shares pursuant to the exercise of stock options at $0.25 per share, 33,333 common shares pursuant to the exercise of stock options at $1.74 per share and 10,000 common shares pursuant to the exercise of stock options at $1.31 per share for aggregate gross proceeds of $118,099 of which $3,750 was received subsequent to December 31, 2021. During the year ended December 31, 2021, the Company received $6,250 related to a stock option exercise which occurred during the year ended December 31, 2020.
 
  f)
During the year ended December 31, 2021, the Company issued a total of 483,383 common shares and 273,867 units pursuant to the exercise of warrants with exercise prices ranging between $1.30 per share and $4.50 per share for gross proceeds of $2,415,983, of which $19,500 was received as at December 31, 2020. Each unit consisted of one common share and
one-half
of one warrant with exercise prices ranging between $2.00 and $4.50 with terms ranging between February 7, 2022, and June 4, 2022. During the year ended December 31, 2021, the Company received $5,000 related to a warrant exercise which occurred during the year ended December 31, 2020.
 
  g)
During the year ended December 31, 2021, the Company issued a total of 42,694 common shares for marketing services with a fair value of $227,471.
Issued share capital during the year ended December 31, 2020
 
  h)
On June 17, 2020, the Company completed its Initial Public Offering (the “
Offering
”) consisting of 16,100,000 common shares for gross proceeds of $4,025,000. The Company paid the agent a commission of $241,500 and issued the agent a finder’s fee of 322,000 common shares with a fair value of $80,500. The Company also issued to the agent 1,288,000 warrants with a fair value of $176,242, exercisable to purchase common shares at a price of $0.25 per common share until June 17, 2021 (the “
Agent’s Warrants
”). In connection with the Offering, the Company also incurred other share issuance costs of $213,366.
 
  i)
On June 17, 2020, the Company issued 7,494,716 common shares with a fair value of $1,873,222 pursuant to the conversion of $1,108,222 of convertible debentures and related accrued interest, resulting in a loss on settlement of convertible debt of $765,000 (Note 13).
 
  j)
On July 10, 2020, the Company issued 408,459 common shares with a fair value of $694,375 pursuant to the settlement of $102,113 owing to a vendor, resulting in a loss on settlement of payables of $592,262.
 
  k)
On August 7, 2020, the Company completed a prospectus offering of 6,555,000 units at $1.30 per unit for gross proceeds of $8,521,500. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $2.00 until February 7, 2022. The Company paid the agent a commission of $679,312 and issued the agent a finder’s fee of 80,000 units with a fair value of $120,800, which consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022. The Company also issued 522,548 warrants with a fair value of $528,092, exercisable to acquire one unit at $1.30 per unit until February 7, 2022 (the “
Broker’s Warrants
”). Each unit consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022. In connection with the prospectus offering, the Company also incurred other share issuance costs of $240,041.
 
  l)
On August 13, 2020, the Company completed a private placement of 88,462 units at $1.30 per unit for gross proceeds of $115,001. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $2.00 until February 13, 2022.
 
  m)
On October 22, 2020, the Company issued 47,866 common shares with a fair value of $120,144 pursuant to the settlement of $130,834 owing to a vendor, resulting in a gain on settlement of payables of $10,690.
 
32
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
16.
Share capital
(continued)
 
  n)
On December 4, 2020, the Company completed a prospectus offering of 3,778,900 units at $3.50 per unit for gross proceeds of $13,226,150. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $4.50 until June 4, 2022. The Company paid the agent a commission of $1,037,078 and issued the agent a finder’s fee of 30,000 units with a fair value of $265,800, which consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.50 until June 4, 2022. The Company also issued 296,308 Broker’s Warrants with a fair value of $1,933,778, exercisable to acquire one unit at $3.50 per unit until June 4, 2022. Each unit consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.50 until June 4, 2022. In connection with the prospectus offering, the Company also incurred other share issuance costs of $386,982.
 
  o)
On December 4, 2020, the Company completed a private placement of 285,714 units at $3.50 per unit for gross proceeds of $999,999. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant entitling the holder to purchase one additional common share at $4.50 until June 4, 2022. In connection with the private placement, the Company incurred share issuance costs of $139,746.
 
  p)
During the year ended December 31, 2020, the Company issued a total of 2,341,500 common shares pursuant to the exercise of stock options at $0.25 per share and 16,667 common shares pursuant to the exercise of stock options at $1.74 per share for an aggregate gross proceeds of $614,376 of which $6,250 was received subsequent to December 31, 2020.
 
  q)
During the year ended December 31, 2020, the Company issued a total of 12,895,190 common shares pursuant to the exercise of warrants with exercise prices ranging between $0.25 per share and $4.50 per share for gross proceeds of $10,251,859 of which $5,000 was received subsequent to December 31, 2020.
 
  r)
During the year ended December 31, 2020, the Company issued 474,686 units pursuant to the exercise of Broker’s Warrants at $1.30 per share for gross proceeds of $617,092. Each unit consisted of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022.
 
  s)
During the year ended December 31, 2020, pursuant to an executive management services agreement entered on July 15, 2019 with the former CFO, director and executive consultant of the Company, the Company issued 166,670 units with a fair value of $25,001, of which $3,760 was allocated to warrants. Each unit issued was comprised of one common share and
one-half
of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances.
 
  t)
During the year ended December 31, 2020, the Company issued a total of 39,263 common shares for marketing services with a fair value of $65,978.
 
  u)
During the year ended December 31, 2020, the Company received subscriptions of $19,500 pursuant to the exercise of warrants in January 2021 (Note 16(f)).
 
33
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
17.
Warrants
The following table summarizes information about the warrants at December 31, 2021, and 2020, and the changes for the years then ended:
 
     
      Number of warrants      Weighted average exercise price  
     
  Warrants outstanding, December 31, 2019
      7,757,670        $    0.30  
     
Issued
      8,501,573        1.91  
     
Exercised
      (13,369,876)        0.81  
     
  Warrants outstanding, December 31, 2020
      2,889,367        3.70  
     
Issued
      11,590,941        3.47  
     
Exercised
      (757,250)        3.19  
     
Expired
      (60,000)        7.60  
     
  Warrants outstanding, December 31, 2021
   
13,663,058
     
$    3.51
  
 
The Company’s warrants are exercisable only for common shares, unless otherwise noted. The following table summarizes information about warrants outstanding and exercisable at December 31, 2021:
 
Exercise price
   
Expiry date
   
Warrants outstanding
  
Weighted average
remaining contracted life (years)    
       
$1.30
    February 7, 2022    12,862*   0.10****
       
$2.00
    February 7, 2022    541,883   0.10****
       
$2.00
    February 13, 2022    44,232   0.12****
       
$3.50
    June 4, 2022    57,441**   0.42
       
$4.50
    June 4, 2022    1,552,633   0.42
       
$3.70
    January 2, 2023    391,632***   1.01
       
$4.60
    January 2, 2023    2,812,375   1.01
       
US$2.50
    April 14, 2025    525,000   3.29
       
$5.62
    June 7, 2026    225,000   4.44
       
US$2.35
    October 19, 2026    7,500,000   4.80
       
           
13,663,058
     
* Exercisable to acquire one unit at $1.30 per unit until February 7, 2022. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant exercisable at $2.00 until February 7, 2022.
** Exercisable to acquire one unit at $3.50 per unit until June 4, 2022. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.50 until June 4, 2022.
*** Exercisable to acquire one unit at $3.70 per unit until January 2, 2023. Each unit consists of one common share and
one-half
of one warrant, with each whole warrant exercisable at $4.60 until January 2, 2023.
**** Expired subsequently
During the year ended December 31, 2020, the Company issued a total of 165,000 warrants to key management personnel with a fair value of $287,230. The warrants issued have exercise prices ranging between $1.51 per share and $7.60 per share and expiry dates ranging between August 13, 2021 and December 21, 2021. The fair value of warrants issued for services discussed above and as share issuance costs (Note 16) and debt issuance costs Note 12(h)) was estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:​​​​​​​
 
     
2021
     
                    2020
  
     
  Risk-free interest rate
      0.74%        0.26%  
     
  Dividend yield
      0%        0%  
     
  Expected volatility
      107%        147%  
     
  Expected life (years)
      2.88        1.28  
     
  Forfeiture rate
      0%        0%  
Expected annualized volatility was determined through the comparison of historical share price volatilities used by similar publicly listed companies in similar industries.
 
34
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
18.
Stock options
Pursuant to the Company’s stock incentive plan, the Board of Directors is authorized to grant options to directors, officers, consultants or employees to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price will not be less than $0.10 per share and the market price of the common shares on the trading day immediately preceding the date of the grant, less applicable discounts permitted by the
TSX-V.
The options that may be granted under this plan must be exercisable for over a period of not exceeding 5 years. The following table summarizes the continuity of the Company’s stock options at December 31, 2021, and 2020, and the changes for the years then ended:​​​​​​​
 
     
      Number of options      Weighted average exercise price   
     
  Outstanding, December 31, 2019
      1,513,500        $    0.25    
     
Granted
      4,792,806        1.18  
     
Exercised
      (2,358,167)        0.26  
     
Cancelled or forfeited
      (95,500)        0.37  
     
  Outstanding, December 31, 2020
      3,852,639        1.39  
     
Granted
      5,380,625        6.34  
     
Exercised
      (231,333)        0.51  
     
Cancelled or forfeited
      (489,725)        4.34  
     
  Outstanding, December 31, 2021
   
8,512,206
     
$    4.38          
     
  Exercisable, December 31, 2021
   
5,619,910
     
$    3.51          
The options granted during the year ended December 31, 2021, generally vest in 3 to 4 equal instalments over vesting periods ranging between 12 months and 18 months. The weighted average share price at the date of exercise for share options exercised during the year ended December 31, 2021, was $4.52 (2020 - $6.96). Additional information regarding stock options outstanding as at December 31, 2021, is as follows:​​​​​​​
 
Exercise price
   
Stock options outstanding*
   
Stock options exercisable
   
Expiry date
       
$4.65
    8,175    8,175    January 5, 2022**
       
$4.65
    16,800    16,800    February 4, 2022**
       
$7.03
    5,000    5,000    February 4, 2022**
       
$0.25
    7,000    7,000    February 13, 2022**
       
$0.25
    5,000    5,000    March 4, 2022***
       
$7.03
    5,000    5,000    March 4, 2022**
       
$1.68
    250,000    250,000    March 8, 2022**
       
$6.21
    250,000    250,000    March 8, 2022**
       
$7.03
    425,000    425,000    March 8, 2022**
       
$7.03
    16,667    16,667    March 10, 2022**
       
$7.10
    10,000    10,000    March 10, 2022**
       
$0.25
    3,000    3,000    March 20, 2022**
       
$3.41
    15,000    7,500    October 7, 2022
       
$9.07
    5,000    5,000    December 7, 2023
       
$6.21
    390,000    130,000    January 4, 2024
       
$7.10
    30,000    9,999    January 26, 2024
       
$7.03
    710,000    278,330    January 29, 2024
       
$6.73
    75,000    25,000    February 16, 2024
       
$5.72
    35,000    22,083    March 8, 2024
       
$3.70
    503,958    –    July 15, 2024
       
$0.25
    948,500    948,500    December 31, 2024
       
$0.25
    1,198,000    1,198,000    January 1, 2025
       
$0.25
    85,000    85,000    June 17, 2025
       
$1.31
    100,000    100,000    June 24, 2025
       
$1.56
    50,000    50,000    August 7, 2025
       
$1.65
    30,000    30,000    September 4, 2025
       
$1.70
    5,506    5,506    September 17, 2025
       
$1.60
    100,000    100,000    October 7, 2025
       
$4.65
    454,600    454,600    November 24, 2025
       
$8.86
    150,000    150,000    December 5, 2025
       
$7.03
    1,875,000    518,750    January 29, 2026
       
$6.21
    500,000    500,000    March 4, 2026
       
$3.70
    150,000    –    July 15, 2026
       
$3.41
    100,000    –    October 7, 2026
       
     
8,512,206
   
5,619,910
      
* The weighted average remaining life of options outstanding is 2.95 years.
** Expired subsequently
***Exercised subsequently
 
35
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
18.
Stock options (continued)
Share-based compensation expense is determined using the Black-Scholes option pricing model. During the year ended December 31, 2021, the Company recognized share-based compensation expense of $21,605,880 (2020 - $2,780,488) in equity reserves, of which $12,207,690 (2020 - $614,927) pertains to directors and officers of the Company. The weighted average fair value of options granted during the year ended December 31, 2021, was $4.54 (2020 - $1.13) per share. Weighted average assumptions used in calculating the fair value of share-based compensation expense are as follows:
 
     
             
Year ended December 31,
  
     
     
2021
     
2020
  
     
  Risk-free interest rate
   
 
0.42%
 
   
 
1.25%
 
     
  Dividend yield
   
 
0%
 
   
 
0%
 
     
  Expected volatility
   
 
116%
 
   
 
145%
 
     
  Expected life (years)
   
 
4.25
 
   
 
5.0
 
     
  Forfeiture rate
      0%        0%  
Expected annualized volatility was determined through the comparison of historical share price volatilities used by similar publicly listed companies in similar industries.
At December 31, 2021, there was $3,950,176 (2020 - $2,519,228) of unrecognized share-based compensation related to unvested stock options which will be recognized over 1.77 years.
 
19.
Finance expense
Finance expense is comprised of the following:
 
     
             
Year ended December 31,
  
     
     
2021
     
2020
  
     
  Loss on settlement of payables (Note 16(j))
   
 
$     -
 
   
 
$  592,262
 
     
  Interest on finance lease obligations (Note 11)
   
 
1,340,492
 
   
 
345,958
 
     
  Interest and accretion on loans and other liabilities (Note 12)
   
 
1,683,969
 
   
 
61,558
 
     
  Interest and accretion on convertible debentures (Note 13)
      -        86,957  
     
  Finance cost on settlement of convertible debt (Note 13)
      -        765,000  
     
  Interest and accretion on related party loan
      -        11,728  
     
  Forgiveness of loan (Note 12(g))
      -        (10,000)  
     
  Gain on settlement of debt (Note 16(m))
      -        (10,690)  
     
  Other income
      (10)        80  
     
 
   
 
$  3,024,451
 
   
 
$  1,842,853
 
 
36
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
20.
Other expense
Other expense is comprised of the following:
 
   
     
        Year ended December 31,  
  
     
     
2021
     
2020  
  
     
  Loss on disposal of equipment
   
 
$ 32,816
 
      $     -    
     
  Impairment of equipment (Note 8)
   
 
101,077
 
      -    
     
  Pre-construction
costs*
   
 
208,683
 
      129,677    
     
  Acquisition-related costs (Note 9)
   
 
173,662
 
      -    
     
  Gain on termination of lease (Note 11)
   
 
(1,600)
 
      -    
     
 
   
 
$514,638
 
      $129,677    
*Pre-construction
costs consist of conceptual design and preliminary engineering expenditures incurred on
building-out
its Mount Pleasant facility (Note 25(e)) and Rupert facility (Note 25(j)). These costs did not meet the capitalization criteria as set out in IAS 16,
Property, Plant and Equipment
.
 
21.
Supplemental cash flow disclosures
 
   
     
For the year ended December 31,
  
     
     
2021
     
2020
  
     
Fair value of Agent’s Warrants and corporate finance fee warrants
   
 
$  1,415,424
 
   
 
$  2,638,247
 
     
Fair value of warrants issued in connection with Loan Agreement
   
 
752,559
 
   
 
-
 
     
Issuance of common shares for acquisitions
   
 
1,156,437
 
   
 
-
 
     
Issuance of common shares pursuant to the conversion of convertible debentures
   
 
-
 
   
 
1,873,222
 
     
Issuance of share for debt settlement
   
 
-
 
   
 
814,519
 
     
Issuance of units for finders’ fees
   
 
114,600
 
   
 
467,100
 
     
Lease liabilities assumed from acquisition
   
 
(127,543)
 
   
 
-
 
     
Property and equipment purchases included in accounts payable and accrued liabilities
   
 
2,428,427
 
   
 
25,276
 
     
Property and equipment acquired through financing arrangements
   
 
729,749
 
   
 
 
 
     
ROU assets acquired through leases
   
 
12,248,318
 
   
 
5,020,509
 
     
ROU assets acquired through acquisition
   
 
127,043
 
   
 
-
 
 
37
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
22.
Financial instruments and financial risk management
Fair value measurements
At December 31, 2021, the carrying value of the Company’s cash and cash equivalents, accounts receivable, loan to related party, deposits, accounts payable and accrued liabilities, and loans payable and other liabilities, all of which are carried at amortized cost, approximate their fair value given their short-term nature or discount rate applied.
The Company does not have any financial instruments measured at fair value in the consolidated statement of financial position, except for its contingent consideration, which was estimated at fair value as part of the preliminary purchase price allocations in note 9 and for which there has been no change in fair value to December 31, 2021, and derivative liabilities, which was estimated at fair value using the Black-Scholes option pricing model (Note 15).
Financial risk management
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Interest risk
The Company’s exposure to interest risk relates to its investment of surplus cash and cash equivalents, including restricted and unrestricted short-term investments. The Company may invest surplus cash in highly liquid investments with short terms to maturity and would accumulate interest at prevailing rates for such investments. At December 31, 2021, the Company had cash and cash equivalents of $21,975,653 (2020 - $25,084,083) and a 1% change in interest rates would increase or decrease interest income by approximately $220,000 (2020 - $250,000).
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, security deposits, accounts receivable and loan to related party. The carrying amount of cash and cash equivalents, security deposits, trade and other receivables and loan to related party represent the maximum exposure to credit risk, and as at December 31, 2021, this amounted to $27,833,734 (2020 - $26,826,938).
The Company’s cash and cash equivalents are held through large Canadian financial institutions and no losses have been incurred in relation to these items. The Company’s receivables are comprised of trade accounts receivable and GST receivable. At December 31, 2021, the Company has $90,822 (2020 - $43,153) in trade accounts receivable outstanding over 60 days, of which the Company has recognized an allowance for doubtful accounts of $41,350 (2020 - $39,917).
 
38
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
22.
Financial instruments and financial risk management (continued)
Concentration of credit risk
Concentration of credit risk is the risk of reliance upon a select number of customers which significantly impact the financial performance of the Company. The Company recorded sales from 3 wholesale distributors of the Company representing 12% (2020 - 18%) of total revenue during the year ended December 31, 2021. Of the Company’s trade receivables outstanding at December 31, 2021 and December 31, 2020, 58% and 81% are held with 5 customers and 3 customers of the Company, respectively.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to pay financial instrument liabilities as they come due. The Company manages its liquidity risk by reviewing on an ongoing basis its capital requirements.
As at December 31, 2021, the Company has $21,975,653 (2020 – $25,084,083) of cash and cash equivalents. The Company is obligated to pay accounts payable and accrued liabilities, the current portion of the lease liabilities, and the current portion of loans payable and other liabilities with a carrying amount of $10,906,738 (2020 - $2,018,663) and contingent consideration of $1,048,000 within the next year (see also note 1).
The following is an analysis of the contractual maturities of the Company’s
non-derivative
financial instrument liabilities as at December 31, 2021 and 2020:

  December 31, 2021
   
Within 1 year
     
Between 1 - 2 years
     
More than 2 years*  
  
       
  Accounts payable and accrued liabilities
      $    8,109,161        $              –        $   –    
       
  Loans payable and other liabilities
   
 
1,151,945
 
   
 
5,181,411
 
   
 
–  
 
       
  Financing arrangements
   
 
815,654
 
   
 
298,103
 
   
 
–  
 
       
  Lease liabilities
   
 
849,935
 
   
 
912,090
 
   
 
15,852,368  
 
       
  Contingent consideration on acquisitions
      1,048,000        –        –    
       
 
    
$
 
11,974,695
 
    
$
 
6,391,604
 
   
 
$15,852,368  
 
 
*  See Note 11 for an analysis of the future minimum lease payments of the lease liabilities due in more than 2 years.
    
   
 
       
  December 31, 2020
   
Within 1 year
     
Between 1
-2
years
     
More than 2 years  
  
       
  Accounts payable and accrued liabilities
      $        1,871,728        $            –        $                –    
       
  Loans payable
      –        30,000        –    
       
  Lease liabilities
   
 
146,935
 
   
 
212,877
 
   
 
5,176,475  
 
       
 
   
 
$        2,018,663
 
   
 
$        242,877
 
   
 
$ 5,176,475  
 
Foreign Currency Risk
The Company is exposed to foreign currency risk on fluctuations related to cash, accounts receivable, accounts payable and accrued liabilities, and deferred revenue that are denominated in US dollars. As at December 31, 2021, a 10% appreciation of the Canadian dollar relative to the US dollar would have decreased the net foreign currency denominated financial assets and foreign exchange loss by approximately $1,398,296 (2020 – $102,312). A 10% depreciation of the Canadian dollar relative to the US dollar would have had the equal but opposite effect.
Price Risk
The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices of raw materials to determine the appropriate course of action to be taken by the Company.
 
39
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
23.
Employee benefit expense
The breakdown of the wages and salaries costs within the condensed interim consolidated statements of net loss and comprehensive loss for the years ending December 31, 2021, and 2020, are as follows:
 
   
     
Year ended December 31,
  
     
     
2021
     
2020
  
     
  Included in procurement expense
   
 
 
 
   
 
 
 
     
Wages and salaries
   
$
3,168,880
 
   
$
1,139,362
 
     
Share-based compensation
   
 
766,574
 
   
 
296,384
 
     
  Included in fulfilment expense
   
 
 
 
   
 
 
 
     
Wages and salaries
   
 
1,497,021
 
   
 
70,578
 
     
Share-based compensation
   
 
1,055,504
 
   
 
27,307
 
     
  Included in general and administrative expense
   
 
 
 
   
 
 
 
     
Wages and salaries
   
 
6,672,372
 
   
 
2,176,732
 
     
Share-based compensation
   
 
17,740,461
 
   
 
2,370,059
 
     
  Included in marketing and investor relations expense
   
 
 
 
   
 
 
 
     
Wages and salaries
   
 
764,068
 
   
 
-
 
     
Share-based compensation
   
 
860,463
 
   
 
3,982
 
     
  Included in research and development expense
   
 
 
 
   
 
 
 
     
Wages and salaries
   
 
902,061
 
   
 
287,864
 
     
Share-based compensation
   
 
663,625
 
   
 
82,756
 
     
  Included in
pre-production
expense
   
 
 
 
   
 
 
 
     
Wages and salaries
   
 
959,879
 
   
 
-
 
     
Share-based compensation
   
 
519,253
 
   
 
-
 
     
  Total employee benefit expense
   
$
35,570,161
 
   
$
6,455,024
   
 
24.
Capital management
The Company’s primary objectives when managing capital is to maintain a capital structure that allows financing options to the Company in order to benefit from potential opportunities as they arise. The Company manages its capital structure and adjusts it based on the funds available to the Company in order to maintain existing operations, fund expansion opportunities and continue as a going concern (Note 1). The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company is continually evaluating expansion opportunities both domestically and within certain international markets. Depending on the timing and scope of expansion opportunities identified by the Company, there will be a requirement for the investment of additional capital for the Company to continue to successfully execute on its growth strategy. Based on the ongoing analysis of potential growth opportunities, the Company is not able to currently quantify any specific
non-committed
future capital requirements. The Company has historically relied on debt and equity markets to fund its activities. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable to ensure optimal capital structure to reduce cost of capital. There were no changes to the Company’s approach to capital management during the year ended December 31, 2021.
The Company is subject to externally imposed capital requirement. Pursuant to the loan agreement as described in 12(h), the Company shall maintain a cash coverage ratio of not less than 2.50 to 1.00 as the end of each fiscal quarter. The cash coverage ratio shall mean the ratio of the following: (a) cash on hand as at the end of each fiscal quarter; to (b) (i) at the end of each fiscal quarter prior to the one year anniversary of the closing date of the loan agreement, interest expense of the Company during the most recent fiscal quarter multiplied by four, and (ii) at the end of each fiscal quarter from and after the one year anniversary of the closing date of the loan agreement, interest expense of the Company during for the immediately preceding four fiscal quarters.
 
40
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
25.
Commitments
 
  a)
On December 22, 2017, the Company entered into a lease agreement for retail and storage space located at
6-1701
Douglas Street, Victoria, BC. The lease is for a
5-year
term, commencing on August 1, 2017 and expiring on July 31, 2022. The base rent due under the lease agreement is $1,252 per month during the first year and increases each subsequent year. For years
2-5,
the monthly rent payable is equal to the current monthly minimum rent multiplied by the annual increase of the Consumer Price Index (“
CPI
”) for the current lease year just ended over the previous lease year. CPI is defined as the consumer price index for the Greater Victoria Area issued by any bureau of statistics for the Government of Canada. The Company will also pay additional rent equivalent to 4% of the Company’s gross retail sales, excluding sales from wholesale orders, in excess of $2,000,000 per annum. During the years ended December 31, 2021 and 2020, the Company did not pay additional rent as the gross retail sales, excluding sales from wholesale orders, were under $2,000,000 per annum.
 
  b)
On January 1, 2019, the Company entered into a
sub-lease
agreement for kitchen and retail space located at 2527 Government Street, Victoria, BC. The lease is for a
4.5-year
term, expiring on June 30, 2023. The remaining base rent due under the
sub-lease
agreement is $3,950 per month for the period from January 1 to June 30, 2019, $4,350 per month for the period from July 1, 2019 to June 30, 2020, $4,600 per month for the period from July 1, 2020 to June 30, 2021, $4,800 per month for the period from July 1, 2021 to June 30, 2022, and $5,050 per month for the period from July 1, 2022 to June 30, 2023.
 
   
Also, in relation to the January 1, 2019
sub-lease
agreement, the Company entered into a rental agreement for the use of fixtures and equipment located at 2527 Government Street, Victoria, BC. The lease is for a
4.5-year
term, expiring on June 30, 2023. The remaining rent due under the rental agreement is $250 per month for the period from January 1, 2019 to June 30, 2020, $300 per month for the period from July 1, 2020 to June 30, 2021, and $350 per month for the period from July 1, 2021 to June 30, 2023.
 
  c)
On January 9, 2019, the Company entered into a lease agreement for restaurant production equipment. The lease is for a
3-year
term, expiring on January 9, 2022. The Company is required to make 36 monthly payments of $1,858. At the expiration of the lease, the Company shall have the option to purchase the equipment for $10. On December 16, 2021, the Company purchased the equipment after all obligations under the lease agreement were satisfied.
 
  d)
On January 9, 2019, the Company entered into a lease agreement for restaurant production equipment. The lease is for a
3-year
term, expiring on January 9, 2022. The Company is required to make 36 monthly payments of $2,232. Subsequent to December 31, 2021, the Company purchased the equipment.
 
  e)
On January 22, 2020, the Company entered into a lease agreement for a facility located in the Mount Pleasant area of Vancouver, BC, which commenced September 1, 2020 for a
10-year
term. The facility will house the Company’s second restaurant, along with space for research and development, and offices. Pursuant to the lease agreement, the annual base rent is $332,832 per annum for years
1-3,
$348,434 per annum for years
4-6,
and $369,236 per annum for years
7-10.
The Company paid a security deposit of $246,237, which will be partially applied towards the rent due for each of the 3rd, 13th, and 25th months of the term, with the balance being held as a security deposit. As at December 31, 2021, a balance of $188,323 (2020 - $232,242) is included in prepaids and deposits. Of this amount, $44,418 (Note 6) is presented as a current asset and the remaining balance as a
non-current
asset. The lease agreement includes an option to renew for two consecutive five-year periods.
 
41
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
25. Commitments
(continued)
 
  f)
On April 8, 2020, the Company entered into a lease agreement for storage space located in Victoria, BC. The lease is for 2 years and 16 days, commencing on April 15, 2020 and expiring on April 30, 2022. The base rent due under the lease agreement is $1,445 per month during the first year and $1,576 per month during the second year. The Company paid a security deposit of $2,565. As at December 31, 2021, a balance of $2,565 (2020 - $2,565) is included in prepaids and deposits as a current asset.
 
  g)
On June 4, 2020, the Company entered into agreements for the lease of production equipment. Pursuant to the purchase agreements, the Company was required to pay a deposit of $519,344, and the balance is due in 60 equal payments totalling $19,305 per month at an annual interest rate of 5%, starting from the date of the delivery. During the year ended December 31, 2021, the equipment was delivered and the deposits were applied against the acquisition of the
right-of-use
assets.
 
  h)
On August 31, 2020, the Company entered into a lease agreement for a production and distribution facility located in Patterson, California, which commenced on September 1, 2020. The term of this lease is for 5 years and 7 months, expiring on February 28, 2026, with 2 options to extend the term of the lease, each for an additional term of 5 years. Pursuant to the lease agreement, the annual base rent is US$24,743 per month starting April 1, 2021 and no rent is required for the period from September 1, 2020 to June 30, 2021. The base rent is to be adjusted by 3% on the 1st of April of each year commencing from April 1, 2021. The Company paid a security deposit of US$321,659. As at December 31, 2021, a balance of $375,774 (US$296,916) (2020 - $410,189 (US$321,659)) is included in prepaids and deposits as a
non-current
asset.
 
  i)
On September 22, 2020, the Company entered into a lease agreement for a facility located in Victoria, BC, which commenced January 1, 2021 for a
10-year
term. The facility will house the Company’s third restaurant. Pursuant to the lease agreement, the annual base rent is $44,975 per annum for years
1-2,
$47,545 per annum for years
3-4,
$50,115 per annum for years
5-6,
$51,400 per annum for years
7-8,
and $52,685 per annum for year
9-10.
The lease agreement includes an option to renew for two consecutive five-year periods. The Company paid a security deposit of $12,256. As at December 31, 2021, a balance of $12,256 (2020 - $12,256) is included in prepaids and deposits as a current asset.
 
  j)
On November 11, 2020, the Company entered into a lease agreement for the Rupert facility located in Vancouver, BC, for an initial
10-year
term with renewal options for two additional
5-year
terms. The facility comprises several units of approximately 45,000 square feet of production, refrigeration, warehousing, R&D and office space. Pursuant to the agreement, the lease commences June 1, 2021, with early possession permitted between January 11, 2021 and March 1, 2021. The annual base rent is $870,061 per annum for years 1 to 2, $948,546 per annum for years 3 to 4, $993,875 per annum in years 5 to 7, $1,039,204 per annum in years 8 to 9, and $1,084,533 per annum in year 10. The Company paid a security deposit of $222,249. As at December 31, 2021, a balance of $111,536 (2020 - $222,249) is included in prepaids and deposits as a
non-current
asset.
 
  k)
On January 20, 2021, the Company entered into an agreement for the lease of production equipment. Pursuant to the agreement, the Company is required to pay 20% deposit of the purchase price totalling $196,514, and the balance is due in 36 equal payments totalling $22,845 per month at an annual interest rate of 3%, starting from the date of the delivery. As of December 31, 2021, the equipment has not been delivered and the deposit of $196,514 is included in prepaids and deposits.
 
42
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
25. Commitments
(continued)
 
  l)
On January 20, 2021, the Company entered into an agreement for the purchase of production equipment. Pursuant to the agreement, the Company is required to pay a total of $800,565, of which $160,113 was paid as a deposit, and the balance of $640,452 is due when installation is complete. As of December 31, 2021, the equipment has not been delivered and the deposit of $160,113 is included in prepaids and deposits.
 
  m)
On February 1, 2021, the Company entered into a lease agreement for a warehouse facility located in Victoria, BC. The lease is for a
5-year
term commencing February 1, 2021 and expiring on January 31, 2026. The facility comprises approximately 6,288 square feet of warehousing space. Pursuant to the lease agreement, the annual base rent is $94,320 per annum for years
1-2,
and $100,608 per annum for years
3-5.
The Company paid a security deposit of $63,823, which is included in prepaids and deposits as a
non-current
asset.
 
  n)
On March 12, 2021, the Company entered into agreement for the purchase of production equipment. Pursuant to the purchase agreement, the Company is required to pay 30% deposit of the purchase price totalling $164,930 at the order date, 20% of the purchase price totalling $109,953 60 days after the order date, 40% of the purchase price totalling $219,907 prior to shipment, and 10% of the purchase price totalling $54,977 30 days after shipment. As of December 31, 2021, the equipment has not been delivered and the deposit of $164,930 is included in prepaids and deposits.
 
  o)
On June 15, 2021, the Company entered into agreement for the purchase of production equipment. Pursuant to the purchase agreement, the Company is required to pay 30% deposit of the purchase price totalling $190,119 at the order date, and the balance of $443,610 is due when installation is complete. As of December 31, 2021, the equipment has not been delivered and the deposit of $190,119 is included in prepaids and deposits.
 
  p)
On June 21, 2021, the Company entered into agreement for the construction of leasehold improvements. Pursuant to the construction agreement, the Company is required to pay 20% deposit of the budgeted cost totalling $500,000, and the balance will be billed based on the progress of the construction. As of December 31, 2021, the construction has not been completed and the deposit of $500,000 is included in prepaids and deposits.
 
  q)
On June 29, 2021, the Company entered into an agreement for the lease of production equipment. Pursuant to the agreement, the Company is required to pay 20% deposit of the purchase price totalling $217,997, and the balance is due in 36 equal payments totalling $25,358 per month at an annual interest rate of 3%, starting from the date of the delivery. As of December 31, 2021, the equipment has not been delivered and the deposit of $217,997 is included in prepaids and deposits.
 
  r)
On December 7, 2021, the Company entered into agreement for the purchase of production equipment. Pursuant to the purchase agreement, the Company is required to pay 30% deposit of the purchase price totalling $169,799 at the order date, 30% of purchase price totalling $169,799 30 days after order date, 30% of purchase price totalling $169,799 upon factory acceptance testing and 10% totalling $56,600 30 days after shipment. As of December 31, 2021, the equipment has not been delivered and the deposit of $169,799 is included in prepaids and deposits.
 
  s)
On December 9, 2021, the Company entered into agreement for the purchase of production equipment. Pursuant to the purchase agreement, the Company is required to pay 30% deposit of the purchase price totalling $197,019 at the order date, 30% of purchase price totalling $197,019 90 days after order date, 30% of purchase price totalling $197,019 upon factory acceptance testing and 10% totalling $65,673 30 days after shipment. As of December 31, 2021, the equipment has not been delivered and the deposit of $197,019 is included in prepaids and deposits.
As at December 31, 2021, the Company did not have any future payments required under
non-cancellable
short-term or low value leases contracted for but not capitalized in the consolidated financial statements.
 
43
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
26.
Segmented Information
The Company’s chief operating decision makers currently review the operating results of the Company as a single reportable operating segment – being the manufacture and distribution of vegan meat and cheese alternatives. The Company operates in three geographic regions: Canada, the United States and the United Kingdom.
The following is a summary of the Company’s activities by geographic region as at December 31, 2021, and 2020:
 
     
Canada    
     
United States
     
United Kingdom 
   
                        Total
  
         
  Total
non-current
assets as at December 31, 2021
    
$  32,563,769
 
   
 
$  4,178,194
 
   
$    - 
   
 
$  36,741,963
 
         
  Total
non-current
assets as at December 31, 2020
      $  3,407,364        $  3,158,997      $    -       $  6,566,361  
         
  Revenues for the year ended December 31, 2021*
   
 
$  6,352,640
 
   
 
$  5,900,475
 
   
$ 5,668 
   
 
$  12,258,783
 
         
  Revenues for the year ended December 31, 2020*
      $  4,003,507        $  633,331      $    -       $  4,636,838    
* Geographical allocation is based on location the location of the customer.
The following is a summary of the Company’s revenues by revenue channel during the years ended December 31, 2021, and 2020:
 
     
Year ended
December 31, 2021
     
Year ended
December 31, 2020
  
     
  eCommerce
   
 
$9,277,750
 
   
 
$3,382,458
 
     
  Wholesale
   
 
2,429,072
 
   
 
840,490
 
     
  Butcher shop, restaurant and other
   
 
551,961
 
   
 
413,890
 
     
  Total
   
 
$12,258,783
 
   
 
$4,636,838
   
     
                   
 
27.
Income taxes
A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:
 
                   
     
                   
                Year ended December 31  
                             2021                              2020  
     
  Net loss
   
$
(54,559,923)
 
    $ (13,858,000)  
     
  Statutory tax rate
   
 
27%
 
      27%  
     
  Expected income tax recovery at the statutory tax rate
   
$
(14,731,000)
 
    $ (2,730,000)  
     
  Non-deductible
items and other
   
 
(1,518,000)
 
      324,000  
     
  Non-deductible share-based compensation
   
 
5,833,000
 
      548,000  
     
  Share issue costs
   
 
(1,368,000)
 
      (487,000)  
     
  Difference in foreign tax rates
   
 
133,000
 
      (1,291,000)    
     
  Change in recognized deferred assets
   
 
11,651,000
 
      3,636,000  
     
  Income tax recovery
   
$
–  
 
    $ –    
     
                   
 
The significant components of deferred income tax assets and liabilities as at December 31, 2021 and 2020 are as follows:
 
 
     
                   
     
                   
              As at December 31,  
                                 2021      2020  
     
  
Deferred tax assets (liabilities)
                  
     
Inventory
      $                      (104,000)      $ –    
     
Property and equipment
      104,000        –    
     
 Net deferred income tax assets (liabilities)
      $                                    –      $ –    
     
                   
     
                   
 
44
The Very Good Food Company  
|   Consolidated financial statements
For the Years Ended December 31, 2021 and 2020
 
27. Income taxes
(continued)
Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom:
 
                                                                               
     
                   
     
                   
     
As at December 31,
  
    
2021
     
2020
  
     
  
Non-capital
loss carry-forwards
   
$
46,259,000
 
   
$
12,275,000
 
     
  Deductible temporary differences
   
 
13,732,000
 
   
 
2,292,000
 
     
 
   
$
59,991,000
 
   
$
14,567,000
   
     
                   
Tax losses for which no deferred tax asset was recognised expire as follows:
 
                                                                               
     
                   
     
                   
    
2021
     
Expiry date
  
     
Non-capital
loss carry-forwards – Canada
   
$
46,259,000
 
   
 
2037-2041
 
     
                   
     
                   
     
                    
                  
     
                   
    
2020
     
Expiry date
  
     
  Non-capital
loss carry-forwards – Canada
   
$
12,275,000
 
   
 
2037-2040
   
     
                   
 
45
Exhibit 99.5
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of The Very Good Food Company Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of The Very Good Food Company Inc. (the “Company”) as of December 31, 2019, the related consolidated statements of comprehensive loss, changes in shareholders’ deficiency, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and its financial performance and its cash flows for the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the continued operations of the Company are dependent on future profitable operations, management’s ability to manage costs and the future availability of equity or debt financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ DMCL
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
We have served as the Company’s auditor since 2017
Vancouver, Canada
May 24, 2022

Exhibit 99.6

 

LOGO

The Very Good Food Company | 2020 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

TABLE OF CONTENTS

 

FORWARD-LOOKING INFORMATION

      2  

2020 HIGHLIGHTS

      3  

CORPORATE OVERVIEW

      5  

OUR STRATEGIC PROGRESS

      8  

OUTLOOK

      11  

FINANCIAL PERFORMANCE REVIEW

      15  

NON-GAAP FINANCIAL MEASURES

      16  

QUARTERLY RESULTS

      23  

CAPITAL MANAGEMENT

      24  

RELATED PARTY TRANSACTIONS

      29  

CRITICAL ACCOUNTING ESTIMATES

      30  

RISKS AND UNCERTAINITIES

      31  

The Very Good Food Company | Management’s Discussion and Analysis

 

FORWARD-LOOKING INFORMATION

The 2020 Annual Report of The Very Good Food Company Inc. (“VERY GOOD” or “the Company”), including this management’s discussion and analysis (“MD&A”), contains “forward-looking information” within the meaning of applicable securities laws in Canada. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances. Any such forward-looking information may be identified by words such as “proposed”, “expects”, “intends”, “may”, “will”, and similar expressions.

This forward-looking information includes, but is not limited to, statements relating to: the impact of the COVID-19 pandemic (‘’COVID-19’’) and its impacts on VERY GOOD’s business; the Company’s business strategy and growth plans; the Company’s capital expenditures and operations; anticipated production volume capacities of the production facilities; the Company’s ability to increase wholesale distribution in Canada and in the United States (“US”); VERY GOOD’s acquisition strategy; plans for, and the timing of, the launch of The Very Good Cheese Co. brand in the second quarter of 2021 and the Company’s new “Butcher’s Select” gluten-free line of products in the third quarter of 2021; expectations regarding the scaling of the Company’s retail network; the Company’s plans to obtain non-GMO certification for its products and sustainability certifications and be both carbon and plastic neutral in the future, and the closing of the proposed credit facility financing.

Forward-looking information is based on the Company’s opinions, estimates and assumptions in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company currently believes are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions in respect of the impact of COVID-19; no material deterioration in general business and economic conditions; no material fluctuations of interest rates and foreign exchange rates; continued strong demand for VERY GOOD’s products; the construction, costs, schedules, approvals and anticipated benefits of planned capital projects; the availability of sufficient financing on reasonable terms to fund capital requirements associated with existing operations and capital projects; the ability to obtain necessary equipment, production inputs and labour; the ability to retain senior management and other key personnel; the competitive environment conditions; the execution of the Company’s business strategy and growth plans and the impact thereof; future performance including future financial objectives are all material assumptions made in preparing forward-looking information and management’s expectations.

Forward-looking information is based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as of the date such statements are made and is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information. These risks, uncertainties and other factors include, but are not limited to, those set forth under the “Risks and Uncertainties” section of this MD&A. If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. Accordingly, readers should not place undue reliance on forward-looking information.

The forward-looking information contained in this MD&A represents the Company’s expectations as of April 26, 2021 and is subject to change after such date. The Company disclaims any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada.

 

2

The Very Good Food Company | Management’s Discussion and Analysis

 

BASIS OF PRESENTATION

The following MD&A is intended to help the reader understand the financial condition and results of the operations of The Very Good Food Company Inc. and constitutes management’s review of the factors that affected the Company’s financial and operating performance for the year ended December 31, 2020. This MD&A has been prepared in compliance with the requirements of National Instrument 51-102 - Continuous Disclosure Obligations. This discussion should be read in conjunction with the audited annual consolidated financial statements of the Company for the years ended December 31, 2020 and 2019 together with the notes thereto, prepared in accordance with International Financial Reporting Standards (“IFRS”). The results for the year ended December 31, 2020 are not necessarily indicative of the results that may be expected for any future period.

Some of the financial measures we provide in this MD&A are non-GAAP financial measures that have no standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. See “Non-GAAP Financial Measures”, starting on page 16, for more information on the Company’s non-GAAP financial measures and reconciliations thereof.

All amounts in this MD&A are expressed in Canadian dollars, except where otherwise indicated. All references to “we”, “us” or “our” refer to the Company, together with its subsidiaries, on a consolidated basis. The information contained in this MD&A, including forward-looking statements, is current as of April 26, 2021 unless otherwise stated.

Additional information regarding the Company is available on the SEDAR website for Canadian regulatory filings at www.sedar.com, and on the Company’s website at www.verygoodfood.com.

2020 HIGHLIGHTS

We use certain operational and financial metrics to measure our performance. These key metrics are highlighted below:

Operational Metrics

 

     Three months ended December 31      Year ended December 31  
     2020      2019      2020      2019  

For the period ended:

            

Production volume sold by channel (units)

            

eCommerce

      105,874        9,499        319,682        21,444  

Wholesale

      44,280        6,461        169,711        22,718  

Number of eCommerce orders

      13,580        1,511        40,322        4,357  

As at period end:

            

Production capacity (lbs)

            20,000        8,100  

Number of product SKUs manufactured

            14        13  

Number of wholesale distribution points(1)

            1,300        100  

 

(1) 

Wholesale distribution points are defined as the number of retail stores multiplied by the number of SKUs.

 

3

The Very Good Food Company | Management’s Discussion and Analysis

 

Financial Highlights

 

     Three months ended December 31     Year ended December 31  
     2020     2019     2020     2019  

Revenue by channel

         

eCommerce

    $  1,438,931     $ 118,721     $ 3,382,458     $ 225,121  

Wholesale

      255,276       56,841       840,490       156,137  

Butcher Shop, Restaurant and Other

      142,475       153,304       413,890       618,539  
  

 

 

    

 

 

    

 

 

    

 

 

  
   $ 1,836,682     $ 328,866     $ 4,636,838     $ 999,797  

Gross Profit(1)

    $ 260,472     $ (48,463 )    $ 827,106     $ (169,786 ) 

Gross Profit %

      14 %      (15 %)      18 %      (17 %) 

Adjusted Gross Profit(1)

    $ 676,709     $ 53,662     $ 1,500,796     $ 156,020  

Adjusted Gross Profit %(1)

      37 %      16 %      32 %      16 % 

Net Loss

    $ (5,813,132 )    $ (829,057 )    $ (13,858,800 )    $ (2,341,544 ) 

Adjusted EBITDA net loss(1) 

    $ (3,279,266 )    $ (579,836 )    $ (8,344,117 )   $ (1,328,260 ) 

Loss per share – basic and diluted

    $ (0.06 )    $ (0.02 )    $ (0.21 )    $ (0.06 ) 

Weighted average number of shares outstanding – basic and diluted

          66,388,474       36,330,356  

 

(1) 

See “Non-GAAP Financial Measures” on page 16 for more information on non-GAAP financial measures and reconciliations thereof.

OUR BUSINESS

The Very Good Food Company Inc. is an emerging plant-based food technology company that produces plant-based meat and other food products that are delicious while maintaining a wholesome nutritional profile.

The Company was incorporated on December 27, 2016, under the laws of the province of British Columbia, Canada under its original name The Very Good Butchers Inc. The Company changed its name to The Very Good Food Company Inc. on October 1, 2019. Our head office is located at 2748 Rupert Street, Vancouver, British Columbia (“BC”), V5M 3T7; registered and records office are located at Suite 409 – 221 West Esplanade, North Vancouver, BC, V7M 3J3.

The Company’s shares commenced trading on the Canadian Securities Exchange (the “CSE”) under the symbol “VERY” on June 18, 2020. During the year, the Company’s shares began trading on the Frankfurt Stock Exchange (the “FSE”) under the symbol “0SI” and on the OTC QB Market (the “OTCQB”) under the symbol “VRYYF” effective July 27, 2020 and October 14, 2020, respectively.

Effective March 17, 2021, the Company ceased trading on the CSE and commenced trading on the TSX Venture Exchange (the “TSXV”) under the symbol “VERY.V”.

 

4

The Very Good Food Company | Management’s Discussion and Analysis

 

CORPORATE OVERVIEW

 

LOGO

Our Business Model

As at December 31, 2020, the Company’s product portfolio consisted of 14 products developed under The Very Good Butchers brand. As at December 31, 2020, all of our products were produced in our Victoria Facility located in BC, Canada. As part of our strategy, we continue to focus on expanding our product portfolio and the number of production facilities – see “Our Strategic Progress” section for further details.

We distribute and sell our products in 10 provinces and three territories in Canada and 50 states in the US through three main revenue channels: (1) eCommerce, (2) Wholesale and (3) the Butcher Shop & Restaurant Flagship store (collectively, the “Distribution Network”) as described below.

 

(1)

eCommerce – Our eCommerce Store, accessible through the Company’s website, sells VERY GOOD’s products both individually and in boxed sets, along with a small variety of third-party products that complement our core offerings. In addition, we offer a monthly subscription service which allows customers to receive monthly boxed sets at a discount over a select period of time. As at December 31, 2020, the Company had over 800 active subscribers across Canada and in the US with new subscribers joining every day, the Company currently has over 2,000 active subscribers.

eCommerce sales allow us to capitalize on demand by shipping products directly to consumers and transforming demand into a recurring income stream via reorders and a subscription model. For the year ended December 31, 2020, the Company shipped 40,322 eCommerce orders. The Company monitors weekly orders versus inventory on hand and manages marketing efforts in lock step with production capacity.

 

     2020      2019  
eCommerce    $ 3,382,458      $ 225,121  

 

5

The Very Good Food Company | Management’s Discussion and Analysis

 

(2)

Wholesale – As at December 31, 2020, the Company had approximately 1,300 retail distribution points in Canada in 275 stores (the “Wholesale Accounts”). These Wholesale Accounts include national grocery store chains operating in BC including, but not limited to, Whole Foods Markets, Thrifty Foods (Sobeys), Fresh St. Market, Choices Markets, and IGA; as well as smaller independent grocers. VERY GOOD has experienced strong demand for its products in the wholesale channel and continues to market its products to a number of large retailers in both Canada and the US.

 

     2020      2019  

Wholesale

    $ 840,490    $ 156,137  

 

(3)

Butcher Shop & Restaurant Flagship Store – The Butcher Shop & Restaurant is the brick and mortar of our distribution network. Designed as a flagship store to showcase our products, serve as a test kitchen and be utilized as a key marketing and branding tool. The Butcher Shop & Restaurant also retails a small offering of plant-based dairy and cheese alternatives made by local artisan companies. Our second flagship store, based in Vancouver, BC (“Mount Pleasant”), is scheduled to open later in the fourth quarter of 2021. See “Our Strategic Progress” section for further details.

 

6

The Very Good Food Company | Management’s Discussion and Analysis

 

Our Strategy

Our strategy is grounded in our mission and purpose, our pride in establishing and maintaining strong relationships with our customers through differentiated products, and our commitment to long-term profitable growth.

Our key strategic choices position us to create competitive advantages by offering the right mix of products, creating strong customer awareness and engagement, implementing reliable production at scale, while optimizing our geographic reach and fulfilment:

 

Scale production and
distribution

   

Strengthen brand
awareness

and consumer
engagement

   

Launch new products

and gain market share

   

Global expansion

•  Build operational scalability and expand production competencies to meet consumer demand

 

•  Increase distribution capabilities to drive greater market share capture across Canada and the US

 

•  Expand into US retail increasing the number of distribution points

   

•  Deepen brand awareness by encouraging people to consciously make lifestyle choices that affect and contribute to their wellbeing and that of the planet

 

•  Own consumer relationships by providing the right mix of products at the right price, in the right channels, supported by a brand purpose that consumers can embrace

   

•  Capitalize on strong R&D capabilities and specialized knowledge of plant-based protein ingredients to expand our range of innovative and delicious product portfolio with a wholesome nutritional profile

 

•  Invest in technology to support growth and continued development of new innovative products

 

•  Maximize SKUs and sales velocity of leading products in the market

   

•  Continue to expand in the Canadian and US markets with future plans to launch products in the UK and Europe via eCommerce and retail

 

•  Execute on accretive acquisitions to further expand product categories and geographic regions

 

7

The Very Good Food Company | Management’s Discussion and Analysis

 

OUR STRATEGIC PROGRESS

Expanding Production Capacity

Increased production capacity enables us to start to meet the pent-up demand for our products, fulfill a larger number of eCommerce orders, expand our points of distribution within our wholesale network and take advantage of potential food service opportunities. Our ability to reliably produce enough product to consistently fulfill orders is an important factor in the recruitment of larger grocery chains.

Consistent with our growth strategy, we entered into two new food production facility leases during the fiscal year 2020, with the goal of ramping up our production capacity to meet growing demand and increasing the availability of our products to consumers not only in Canada and in the US, but also in Europe.

 

Rupert Facility

   

•  Location: Vancouver, BC, Canada

 

•  Size: 45,000 square feet

 

•  Potential annual production capacity: 37 million lbs

 

•  Number of production lines: 2

 

•  Estimated capital expenditure (including tenant improvements): $20-25 million

 

•  Start date of food production: April 2021

Patterson Facility

   

•  Location: Patterson, California, United States

 

•  Size: 25,000 square feet (with first right of refusal on an additional 25,000 square feet)

 

•  Potential annual production capacity: 98.5 million lbs

 

•  Number of production lines: 3-4

 

•  Expected capital expenditure: $30-50 million

 

•  Expected start date of food production: latter part of 2021

Rupert Facility

During the third quarter of 2020, a unique opportunity to address near-term demand was presented for an already built-out food production facility in Vancouver, BC (the “Rupert Facility”). The facility comprises approximately 45,000 square feet of production, refrigeration, warehousing, R&D and office space, and is expected to be capable of producing up to 37,000,000 lbs of annualized product to be phased in over the next year. The Company took possession of the lease in January 2021.

The Rupert Facility will have two production lines. The first line, Line 1, has been commissioned, tested and is currently producing product effective April 2021. Line 1 is expected to initially produce 7+ SKUs which are already being sold in the market. The second line is planned to start food production in Q4 2021 and is expected to produce at least another 6+ SKUs that are yet to be launched into the market.

Patterson Facility

To support the expansion of our US operations and the introduction of new products into the market, VERY GOOD signed a lease on August 31, 2020, for a 25,000 square foot production facility, with the option to lease an additional 25,000 square feet, located in Patterson, California (the “Patterson Facility”).

The Patterson Facility is strategically located on the same property as one of the Company’s third-party logistics providers such that product can be delivered for distribution by way of a short-haul forklift at minimal cost and time in transit. The Patterson Facility is also located on key shipping routes for ground transportation to wholesale clients and is in close proximity to key suppliers.

 

8

The Very Good Food Company | Management’s Discussion and Analysis

 

The Patterson Facility can accommodate up to three to four production lines allowing for potential capacity of up to 98,500,000 lbs of product per year. The Company recently recruited a capital projects manager and a plant manager, who have extensive experience in the food manufacturing industry in California, to oversee the Patterson Facility’s commissioning and operations. We plan to start food production in the latter part of 2021.

Victoria Facility

With continued growth in product demand, increasing production at the Victoria Facility was a high priority in 2020. Various initiatives to optimize and increase production were put in place such as effective production scheduling, labour retention and supply chain planning. The Company implemented an updated inventory management system in September 2020 which has streamlined inventory tracking and procurement. In addition, pending possession of additional warehouse space in Victoria at the beginning of 2021, the Company implemented a just-in-time inventory management system, which is expected to further increase capacity and improve eCommerce order wait times. The initiatives implemented to date resulted in an increase in weekly production volume to approximately 20,000 lbs per week as at December 31, 2020.

Expansion of Wholesale Distribution

We continued to expand our Canadian wholesale distribution points during the fiscal year 2020 as part of our strategic focus to meet demand and increase customer awareness resulting in revenue growth. As a result, we entered into several retail partnerships and have expanded our points of distribution in Canada 13 times in the past year.

Since the beginning of fiscal 2021, we have entered into an agreement with Quality Foods to distribute The Very Good Butchers brand, increasing VERY GOOD’s retail network by 14 locations. Quality Foods is a premier Vancouver Island, BC grocer that has operated as a community staple since 1986. In 2017, The Jim Pattison Group acquired the wholly-owned grocery chain and added it to their existing portfolio of brands which include boutique banners such as Urban Fare and larger Western banners like Save-on-Foods. In February 2021, Sobeys agreed to expand product placements into its top ten Safeway locations. Sobeys is Canada’s second-largest retailer; with over 1,500 stores operating under various banners of which 183 are Safeway locations.

To increase our wholesale retail distribution in the US, which is a key component of our 2021 growth strategy, the Company announced on April 14, 2021 that it has entered into a new partnership with Boulder, Colorado-based natural food and beverage brokerage, Green Spoon Sales (“Green Spoon”), to accelerate the Company’s reach into grocery and retail across the US. The partnership with Green Spoon is poised to significantly boost VERY GOOD’s wholesale retail distribution in the US.

Strategic Warehousing and Logistics Partnerships

Establishing hubs across North America is a critical step in building a scalable eCommerce business, reducing shipping costs, and enhancing customer relationships through faster delivery times.

In August 2020, the Company signed agreements with three strategically located third party logistics providers (“3PL”) in North America to increase speed of delivery to customers and reduce associated shipping costs for its eCommerce orders. The 3PL facilities’ centralized locations provide VERY GOOD with the capabilities of reaching anywhere in North America in 2-3 days via ground transportation. All three providers provide, pick, pack and ship for our eCommerce orders, increasing our online order fulfilment rate from 900 per week to 1,800 during the fourth quarter of 2020; and wholesale palletization for our retail orders.

We are currently exploring 3PL partnerships in Europe with plans to launch an eCommerce sales platform in the United Kingdom in the third quarter of 2021; and an online platform in the European Union late in the fourth quarter of 2021.

 

9

The Very Good Food Company | Management’s Discussion and Analysis

 

Mount Pleasant Flagship Store and R&D Innovation Centre

In January 2020, the Company signed a lease for an approximately 14,000 square feet space in Vancouver’s Mount Pleasant district (“Mount Pleasant”) and took possession on September 1, 2020. Mount Pleasant will be our second flagship store with a retail front featuring our Butcher Shop and Restaurant concept including a test kitchen and R&D innovation centre. The R&D innovation centre will include a smaller production line which will be used to test new products and produce product for sale. This investment in product innovation and development will allow for the rapid introduction of new creative products into the market in line with our growth strategy.

The design and layout for Mount Pleasant have been finalized. The Company is working with the City of Vancouver on the construction permits required. We anticipate welcoming our first customers to the Mount Pleasant flagship store in Q4 2021.

Victoria Flagship Store

In January 2021, we announced the launch of a new flagship Butcher Shop and Restaurant located in downtown Victoria, BC. The new flagship restaurant will have an outdoor patio and a larger footprint than our current butcher shop located in the Victoria Public Market and will accommodate a higher volume of customers while maintaining COVID-19 pandemic social distancing protocols. This Butcher Shop and Restaurant will be a template for the opening of additional flagship stores across strategic cities in North America. Improvements are underway and the new butcher shop is scheduled for an official opening in June 2021.

Strategic Acquisitions

Our acquisition strategy centers on assessing selective complementary assets with new superior product offerings creating the right mix of products for our customers, generating strong brand awareness, manufacturing or distribution capabilities, with North American or European footholds and the opportunity for large upside potential.

On February 24, 2021, in line with our acquisition strategy, the Company completed the acquisition of The Cultured Nut Inc. (the “Cultured Nut”), a highly popular artisan vegan cheese producer on the West Coast of Canada with current sales distribution in several online and grocery retailers including select Whole Foods Market stores. We plan to rebrand Cultured Nut’s product line under a new brand called The Very Good Cheese Co. which is expected to launch in the second quarter of 2021 through VERY GOOD’s eCommerce and wholesale distribution networks.

The acquisition was completed pursuant to a share purchase agreement with the shareholders of Cultured Nut for an aggregate purchase price of $3,000,000; comprised of an equity payment of $1,000,000 consisting of 139,676 VERY GOOD common shares at a deemed price of approximately C$7.16 per share and a cash portion of $2,000,000 of which $1,000,000 is contingent on the successful achievement of certain milestones related to the integration of the Cultured Nut’s business over a 12-month period.

On March 15, 2021, VERY GOOD completed the strategic acquisition of the Lloyd-James Marketing Group Inc. (“Lloyd-James”), a boutique wholesale and food service broker specializing in the plant-based food industry with a history of placement in large natural, speciality and conventional grocery retailers such as Sobeys, Metro, Loblaws and Walmart. Since 2019, Lloyd-James has played an integral role in the development of VERY GOOD’s retail distribution network into retailers such as Whole Foods Market, Sobeys, The Pattison Group and several others.

 

10

The Very Good Food Company | Management’s Discussion and Analysis

 

The acquisition was completed pursuant to a share purchase agreement with the sole shareholder of Lloyd-James for an aggregate purchase price of $1,075,000; comprised of an equity payment of $400,000 consisting of 62,329 VERY GOOD common shares at a deemed price of approximately $6.42 per share and a cash portion of $675,000 of which $350,000 is contingent on the successful achievement of certain milestones related to the achievement of specific sales targets during the fiscal period ended 2021.

Developing Innovative Products

We have a team of scientists and food technology experts in Vancouver working on developing innovative new plant-based products and continuously improving the taste and texture of our product line.

During the third quarter of 2020, we launched the retail rollout of The Very Good Pepperoni, an upscale adzuki bean-based pepperoni product for the use in pizzas, charcuterie, and many other creations; as well as The Very Good Dog, our plant-based version of the classic hot dog.

VERY GOOD is currently developing its new gluten-free Butcher’s Select product line which is expected to be introduced in the third quarter of 2021. The Butcher’s Select product range comprises extra meaty artisanal meats made with simple plant-based ingredients. These sausages, burgers and meatballs are gluten-free, soy-free and will be Non-GMO verified.

From the acquisition of The Cultured Nut, VERY GOOD will be launching The Very Good Cheese Co. brand in the second quarter of 2021 in the eCommerce channel with retail to follow. Of Cultured Nut’s seven products already in retail, VERY GOOD has selected four to relaunch in the summer with the remaining products to be reintroduced in 2022. Cultured Nut has an extensive R&D pipeline of over eight products new to the retail market which VERY GOOD will be performing readiness assessments on in the latter part of the year.

OUTLOOK

We are excited to see what we can achieve in 2021 with the launch of the Rupert Facility effectively adding 45,000 square feet of production space and enabling over 27 times current production capacity by the end of the year, allowing us to meet the growing demand for our products. On April 7, 2021, we announced the commissioning of our first production line - by butchering the very first bean - at the Rupert production facility. Food production is expected to commence at our Patterson Facility in California in the latter half of 2021 with the commissioning of its first large scale production line in the first quarter of 2022.

We are actively building and strengthening our leadership team with our recent acquisition of the Lloyd-James Marketing Group and recent appointments to the sales and marketing teams. We expect to scale our retail network from 275 retail stores and 1,300 points of distribution at the end of 2020 to a target of greater than 3,000 retail stores and 15,000 points of distribution by the end of 2021 in Canada and the US.

At the same time, we are also positioned to take advantage of the increase in online grocery shopping with our established eCommerce platforms in Canada and the US. With enhanced production capacity to meet customer demand, the launch of our US eCommerce website in the third quarter of 2020 and agreements with strategically located third party logistics providers that will reduce both order and shipment fulfilment times, we will have the capability to complete over 5,000 orders per week in 2021.

Our R&D team of food scientists and technology experts continue to focus on formalizing the next generation of plant-based products that are non-GMO certified. R&D will remain a core focus area for us in 2021 and beyond as we continue to create plant-based products with high-quality ingredients that deliver a healthier nutritional profile and taste great. In the third quarter of 2021, we expect to launch our new Butcher’s Select, gluten-free line of products including burgers, meatballs and sausages which will be distributed through both eCommerce and Wholesale channels in Canada and the US.

 

11

The Very Good Food Company | Management’s Discussion and Analysis

 

We will continue to drive towards sustainability, including regular evaluations of our sourcing and manufacturing and clean packaging that is both environmentally friendly and guarantees shelf life. We are also committed to continuous research, development, and improvement, working to achieve sustainability certifications and aiming to eventually be both carbon and plastic neutral. We are working on non-GMO certification of our products, which we are targeting to achieve starting in Q3 2021.

COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 a worldwide pandemic. COVID-19 has continued to spread globally and has had a significant impact on general economic conditions on a global scale.

We experienced a surge in demand in our eCommerce store early on in the COVID-19 pandemic due to consumer trends shifting toward eating at home as a result of social distancing restrictions. At the same time, we experienced a decline in our Victoria Butcher Shop business, as a result of government mandated closures for in-restaurant dining. Since March 2020, we have operated our Victoria Facility with stringent safety measures in place including the extensive use of personal protective equipment by our team members.

While some of these restrictions have been lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized, as at the date of this Management’s Discussion and Analysis, BC continues to experience a resurgence of COVID-19 which has led to renewed restrictions including a provincial order to suspend dine-in restaurant services which is currently in effect until May 26, 2021 and which may be extended further. As a result of this ‘’third wave’’, we may experience short-term or extended disruptions to our operations and could be required to temporarily suspend production as a result of an outbreak of COVID-19. Similarly, the ongoing production ramp-up and planned construction of line 2 at the Rupert Facility, construction at Mount Pleasant Facility and the opening of the new location of our Victoria Butcher Shop may be moderately or severely delayed as a result of COVID-19 related impacts. We could also be negatively affected if our suppliers, distributors or logistics providers experience disruptions within their operations.

 

12

The Very Good Food Company | Management’s Discussion and Analysis

 

KEY LEADERSHIP CHANGES AND APPOINTMENTS

Board of Directors

 

LOGO   

In December 2020, Bill Tolany, a past Whole Foods Market and Amazon executive, was appointed to VERY GOOD’s Board of Directors. Bill brings a wealth of experience in marketing and eCommerce strategies. Bill served as the Senior Director of Marketing at Whole Foods Market, where he was responsible for launching the company’s integrated marketing team and growing alternative commerce sales by hundreds of millions of dollars. Bill was then recruited by Amazon to join the company as Regional General Manager, where he helped lead the launch and expansion of Amazon Prime Now, Amazon’s transformative entry into local retail and ultra-fast delivery.

 

In connection with this appointment, Drew Bonnell stepped down from the Company as Director and Corporate Secretary effective December 4, 2020. Drew led VERY GOOD’s Initial Public Offering (“IPO”) and was instrumental in the growth of the Company to where it is today.

“The Bean Suite” (C-Suite)

   
LOGO   

As of January 2021, Ana Silva commenced her role with the Company as President. Ana was born and raised in Portugal, a culture where bringing people together over good food is foundational. Ana is a people-focused leader, excited to unlock the potential at VERY GOOD. Accelerating team and growth is her passion. She spent the past five years with Daiya Foods as CFO, when Daiya was ranked as the fastest growing plant-based company in North America and successfully sold for C$405 million.

LOGO   

Kamini Hitkari joined VERY GOOD as CFO on September 22, 2020. Kamini has held progressive roles in corporate finance since her PwC days, serving in top executive positions contributing to strategic M&A transactions of up to C$2.6 billion, scaling businesses and launching product lines for companies like Aurora Cannabis and HSBC Bank Canada.

 

13

The Very Good Food Company | Management’s Discussion and Analysis

 

“The Beantastics” (Leadership Team)

Kyle Marancos joined the team as Director of Marketing effective January 2021. Kyle has an extensive pedigree in the food and beverage industry where he spent the last six years as the Director of Marketing with Earth’s Own Food Company Inc., well known for their Happy Planet Products. Prior experience also includes twelve years working with Unilever, where he was the Senior Global Brand Development Manager for their Bertolli Brand.

In February 2021, the Company announced the appointment of Kevin Callaghan, a veteran sales executive in the plant-based food space, as its Director of Sales for US markets. Kevin has extensive experience in the plant-based food industry where he held senior roles with early rapid growth companies including Daiya.

Jordan James Rogers joined The VERY GOOD team as Director of Sales for Canada in March 2021. In his previous role as the founder of Lloyd-James Marketing Group Inc, Canada’s first natural and plant-based food brokerage, which was acquired by VERY GOOD on March 15, 2021.

 

14

The Very Good Food Company | Management’s Discussion and Analysis

 

FINANCIAL PERFORMANCE REVIEW

Effective for the year ended December 31, 2020, the Company elected to change its accounting policy for the presentation of expenses on its consolidated statements of net loss and comprehensive loss from the “nature of expense” method to the “function of expense” basis. The Company believes that the revised presentation provides more relevant financial information to users of the consolidated financial statements.

Management has applied the change in presentation retrospectively and the consolidated statement of net loss and comprehensive loss for the year ended December 31, 2019 was reclassified. Refer to Note 3 of the consolidated financial statements for further details.

Selected Financial Information

 

     Three months
ended
December 31		     Three months
ended
September 30		     Three months
ended
December 31		     Year ended
December 31		     Year ended
December 31		  
     2020     2020     2019     2020     2019  

Revenue

    $ 1,836,682     $ 1,373,814     $ 328,866     $ 4,636,838     $ 999,797  

Procurement expense

      (1,576,210 )      (1,085,675 )      (377,329 )      (3,809,732 )      (1,169,583 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross profit(1)

      260,472       288,139       (48,463 )      827,106       (169,786 ) 

Gross profit %(1)

      14 %      21 %      (15 %)      18 %      (17 %) 

Fulfilment expense

      (778,123 )      (637,905 )      (72,754 )      (1,907,621 )      (170,617 ) 

General and administrative expense

      (3,858,273 )      (1,890,707 )      (563,217 )      (7,084,795 )      (1,622,541 ) 

Marketing and investor relations expense

      (973,853 )      (1,365,552 )      (45,595 )      (3,243,210 )      (64,445 ) 

Research and development expense

      (210,018 )      (104,908 )      (101,337 )      (477,750 )      (125,680 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating loss

      (5,559,795 )      (3,710,933 )      (831,366 )      (11,886,270 )      (2,153,069 ) 

Finance (expense) income

      (148,014 )      (782,506 )      17,516       (1,842,853 )      (173,268 ) 

Other expense

      (105,323 )      (3,588 )      I15,207 )      (129,677 )      (15,207 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net loss

    $ (5,813,132 )    $ (4,497,027 )    $ (829,057 )    $ (13,858,800 )    $ (2,341,544 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted gross profit(1)

    $ 676,709     $ 370,507     $ 53,662     $ 1,500,796     $ 156,020  

Adjusted gross profit %(1)

      37 %      27 %      16 %      32 %      16 % 

Adjusted EBITDA loss(1)

    $ (3,279,266 )    $ (3,138,595 )    $ (579,836 )    $ (8,344,117 )    $ (1,328,260 ) 

 

(1) 

See “Non-GAAP Financial Measures” on page 16 for more information on non-GAAP financial measures and reconciliations thereof.

 

15

The Very Good Food Company | Management’s Discussion and Analysis

 

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure used by management that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management defines adjusted EBITDA as net loss before finance expense, tax, depreciation and amortization, share-based compensation and other one-time and non-cash items. Management believes adjusted EBITDA is a useful financial metric to assess its operating performance.

 

     Three months
ended
December 31		     Three months
ended
September 30		     Three months
ended
December 31		     Year ended
December 31		     Year ended
December 31		  
     2020     2020     2019     2020     2019  

Net loss as reported

    $ (5,813,132 )    $ (4,497,027 )    $ (829,057 )    $ (13,858,800 )    $ (2,341,544 ) 

Adjustments:

           

Depreciation

      153,295       117,265       50,803       425,276       161,583  

Loss on termination of lease

      —         7,533       —         7,533       —    

Finance expense (income)

      148,014       782,506       (17,515 )      1,842,853       173,268  

Share-based compensation

      1,951,150       379,326       200,933       2,780,488       200,933  

Shares, units and warrants issued for services

      281,407       71,802       15,000       458,533       477,500  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA loss

    $ (3,279,266 )    $ (3,138,595 )    $ (579,836 )    $ (8,344,117 )    $ (1,328,260 ) 

Gross profit and adjusted gross profit

Management utilizes adjusted gross profit to provide a representation of performance in the period by excluding the non-cash impact of share-based expense recognized in procurement expense during the period as well as The Butcher Shop & Restaurant related procurement costs. Management believes adjusted gross profit provides useful information as it represents gross profit for management purposes based on cost to procure and manufacture the Company’s finished goods excluding any non-cash items.

 

     Three months
ended
December 31		     Three months
ended
September 30		     Three months
ended
December 31		     Year ended
December 31		     Year ended
December 31		  
     2020     2020     2019     2020     2019  

Revenue

    $ 1,836,682     $ 1,373,814     $ 328,866     $ 4,636,838     $ 999,797  

Procurement expense

      (1,576,210 )      (1,085,675 )      (377,329 )      (3,809,732 )      (1,169,583 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross profit

      260,472       288,139       (48,463 )      827,106       (169,786 ) 

Adjustments:

           

The Butcher Shop & Restaurant procurement expense

      140,028       76,439       90,376       377,306       314,057  

Share-based compensation

      276,209       5,929       11,749       296,384       11,749  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted gross profit

    $ 676,709     $ 370,507     $ 53,662     $ 1,500,796     $ 156,020  

Adjusted gross profit %

      37 %      27 %      16 %      32 %      16 % 

 

16

The Very Good Food Company | Management’s Discussion and Analysis

 

Revenue

Revenue by geographic region

 

     Three months
ended
December 31		      Three months
ended
September 30		      Three months
ended
December 31		      Year ended
December 31		      Year ended
December 31		  
     2020      2020      2019      2020      2019  

Canada

    $ 1,349,314      $ 1,227,850      $ 328,866      $ 4,003,507      $ 999,797  

United States

      487,368        145,964        —          633,331        —    
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 1,836,682      $ 1,373,814      $ 328,866      $ 4,636,838      $ 999,797  

Revenue by channel

 

     Three months
ended
December 31		      Three months
ended
September 30		      Three months
ended
December 31		      Year ended
December 31		      Year ended
December 31		  
     2020      2020      2019      2020      2019  

eCommerce

    $ 1,438,931      $ 978,885      $ 118,721      $ 3,382,458      $ 225,121  

Wholesale

      255,276        310,443        56,841        840,490        156,137  

Butcher Shop & Restaurant and Other

      142,475        84,486        153,304        413,890        618,539  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 1,836,682      $ 1,373,814      $ 328,866      $ 4,636,838      $ 999,797  

Three Months Ended December 31, 2020 compared to September 30, 2020

Revenue increased $462,868 (34%) to $1,836,682 in the fourth quarter of 2020, compared to $1,373,814 in the previous quarter ended September 30, 2020. This increase was driven by $487,368 in US eCommerce sales compared to $145,964 in the previous quarter mainly due to the launch of our US eCommerce platform in July 2020, as well as holiday orders and promotional initiatives including Black Friday and Cyber Monday.

Three Months Ended December 31, 2020 compared to December 31, 2019

Revenue increased $1,507,816 (458%) to $1,836,682 in the fourth quarter of 2020, compared to $328,866 in the same period in fiscal 2019. The growth in revenue was driven by an increase of $1,320,210 in eCommerce sales and $198,435 in wholesale revenue due to the Company’s scaling of production and distribution through both of these sales channels. Of the increase in eCommerce revenue, $487,368 was attributed to US sales with the introduction of the Company’s US website in the third quarter of 2020. Wholesale revenue increased during the fourth quarter due to higher demand of our holiday products; in addition to agreements with new wholesale distributors during the latter half of the year.

Year Ended December 31, 2020 compared to December 31, 2019

Revenue increased $3,637,041 (364%) to $4,636,838 for the year ended December 31, 2020, compared to $999,797 in fiscal 2019. The increase in revenue was attributed to the Company’s continued focus on scaling production and distribution through both its eCommerce and wholesale sales channels. During fiscal 2020, average production capacity increased from 8,100 lbs per week to approximately 20,000 lbs per week resulting from our new 3PL logistics partnerships allowing for fulfilment of our sales orders at third party distribution centres and other programs to increase the production footprint at the Victoria Facility. eCommerce orders increased 825% from 4,357 orders in fiscal 2019 to 40,322 orders in fiscal 2020 primarily due to an increase in key marketing and sales initiatives to drive higher sales volume in both Canada and the US. Wholesale distribution points increased 1,200% from 100 in fiscal 2019 to 1,300 in fiscal 2020 with the addition of new retail banners.

 

17

The Very Good Food Company | Management’s Discussion and Analysis

 

Procurement expense

Procurement expense consists of the cost of raw materials, supplies and inventory packaging, inbound shipping charges, employee wages and benefits, and other attributable overhead expenses incurred in the procurement and manufacturing of the Company’s finished goods. Procurement expense also includes expense associated with the Butcher Shop & Restaurant including food costs, direct labor and other attributable overhead expenses.

Three Months Ended December 31, 2020 compared to September 30, 2020

Procurement expense increased $490,535 (45%) to $1,576,210 in the fourth quarter of 2020, compared to $1,085,675 in the previous quarter ended September 30, 2020. The increase in procurement expense was mainly attributed to higher share-based compensation expense of $270,280 incurred for new employees hired to support revenue growth as well as increased sales during the quarter.

Three Months Ended December 31, 2020 compared to December 31, 2019

Procurement expense increased $1,198,881 (318%) to $1,576,210 in the fourth quarter of 2020, compared to $377,329 in the same quarter in fiscal 2019. The increase in procurement expense was primarily driven by the Company ramping up production to support the distribution of its products; in addition to $264,460 in higher share-based compensation expense incurred for new employees hired for production.

Year Ended December 31, 2020 compared to December 31, 2019

Procurement expense increased $2,640,149 (226%) to $3,809,732 for the year ended December 31, 2020, compared to $1,169,583 in the same period in fiscal 2019 for the same reasons outlined above.

Gross profit and adjusted gross profit

Gross profit is a non-GAAP measure calculated as total revenue less procurement expense. See “Non-GAAP Financial Measures” on page 16 for more information on management’s use of adjusted gross profit and a reconciliations thereof.

Three Months Ended December 31, 2020 compared to September 30, 2020

Gross profit decreased $27,667 (10%) to $260,472 or 14% in the fourth quarter of 2020, compared to $288,139 or 21% in the previous quarter ended September 30, 2020. Excluding the Butcher Shop & Restaurant procurement expense and share-based compensation, adjusted gross profit was $676,709 or 37% in the fourth quarter of 2020, compared to $370,507 or 27% in the previous quarter ended September 30, 2020. The improvement in adjusted gross profit was primarily driven by increased sales volume achieved through maximizing the production footprint at the Victoria Facility.

Three Months Ended December 31, 2020 compared to December 31, 2019

Gross profit increased $308,935 (637%) to $260,472 or 14% in the fourth quarter of 2020, compared to gross loss of $48,463 or -15% for the same period in fiscal 2019. Excluding the Butcher Shop & Restaurant procurement expense and share-based compensation, adjusted gross profit was $676,709 or 37% in the fourth quarter of 2020, compared to $53,662 or 16% in the fourth quarter in 2019. The improvement in adjusted gross profit was primarily driven by increased sales volume achieved through maximizing the production footprint at the Victoria Facility.

 

18

The Very Good Food Company | Management’s Discussion and Analysis

 

Year Ended December 31, 2020 compared to December 31, 2019

Gross profit increased $996,892 (587%) to $827,106 or 18% for the year ended December 31, 2020, compared to gross loss of $169,786 or -17% in fiscal 2019. Excluding the Butcher Shop & Restaurant procurement expense and share-based compensation, adjusted gross profit was $1,500,796 or 32% for the year ended December 31, 2020, compared to $156,020 or 16% for fiscal 2019. The improvement in gross profit is for the same reasons outlined above.

Fulfilment expense

Fulfilment expense represents third-party fulfilment costs for picking and packing of inventory into orders, fulfilment packaging costs, direct fulfilment labor, outbound shipping and freight costs, and warehousing and shipping fees for customer orders.

Three Months Ended December 31, 2020 compared to September 30, 2020

Fulfilment expense increased $140,218 (22%) to $778,123 in the fourth quarter of 2020, compared to $637,905 in the previous quarter ended September 30, 2020. Fulfilment expense increased mainly due to higher outbound shipping costs and 3PL logistics services due to scaling of eCommerce and wholesale orders through marketing efforts.

Three Months Ended December 31, 2020 compared to December 31, 2019

Fulfilment expense increased $705,369 (970%) to $778,123 in the fourth quarter of 2020, compared to $72,754 in the same quarter in fiscal 2019. The increase in fulfilment expense was primarily driven by the ramp up of production and sales efforts to scale our eCommerce and wholesale orders. To support these efforts, the Company entered into agreements with three 3PL logistic service providers in Canada and the US to increase the production footprint at the Victoria Facility and improve order fulfilment speed. Shipping costs also increased due to higher carrier changes to improve eCommerce delivery times.

Year Ended December 31, 2020 compared to December 31, 2019

Fulfilment expense increased $1,737,004 (1,018%) to $1,907,621 for the year ended December 31, 2020, compared to $170,617 in the same period in fiscal 2019 for the same reasons outlined above.

General and administrative expense

General and administrative expense are primarily comprised of administrative expenses, salaries, wages and benefits, including associated share-based compensation not directly associated with other functions, non-production rent expense, depreciation and amortization expense on non-production assets and other non-production operating expenses. Administrative expenses include the expenses related to management, accounting, legal, information technology, and other support functions.

Three Months Ended December 31, 2020 compared to September 30, 2020

General and administrative expense increased $1,967,566 (104%) to $3,858,273 in the fourth quarter of 2020, compared to $1,890,707 in the previous quarter ended September 30, 2020. The increase in general and administrative expense is mainly attributed to higher share-based compensation expense of $1,234,573 because of stock option grants to new employees to create alignment with the aim of generating shareholder value.

 

19

The Very Good Food Company | Management’s Discussion and Analysis

 

Three Months Ended December 31, 2020 compared to December 31, 2019

General and administrative expense increased $3,295,056 (585%) to $3,858,273 in the fourth quarter of 2020, compared to $563,217 in the same period in fiscal 2019. Share-based compensation expense was higher by $1,416,887 compared to the same period in fiscal 2019 due to the introduction of an employee equity compensation program in fiscal 2020. Excluding share-based compensation, general and administrative expense increased $1,878,169 (489%) in the fourth quarter of 2020, compared to the same quarter in 2019. The increase is mainly attributable to higher salaries and wages expense as the Company hired key management and administrative positions to support its planned growth. The Company also incurred additional accounting and legal, and general office expenses due to the higher volume of business.

Year Ended December 31, 2020 compared to December 31, 2019

General and administrative expense increased $5,462,254 (337%) to $7,084,795 in 2020, compared to $1,622,541 in fiscal 2019. Share-based compensation expense was higher by $2,190,832 compared to the same period in fiscal 2019 due to the introduction of an employee equity compensation program in fiscal 2020. Excluding share-based compensation, general and administrative expense increased $3,271,422 (227%) in fiscal 2020, mainly attributable to higher salaries and wages expense of $2,370,059 as the Company continued to hire key management and administrative positions to support its planned growth. Higher legal, audit and professional fees of $395,262 were incurred in fiscal 2020 primarily due to the Company’s listing on the Canadian Securities Exchange and subsequent financings. The Company also incurred office rent expense, recruitment fees, information technology and licensing costs with the build out of the team in both Victoria and Vancouver, BC to support the next phase of growth.

Marketing and investor relations expense

Three Months Ended December 31, 2020 compared to September 30, 2020

Marketing and investor relations expense decreased $391,699 (29%) to $973,853 in the fourth quarter of 2020, compared to $1,365,552 in the previous quarter ended September 30, 2020. The decrease was primarily due to digital marketing campaigns and investor relations communications and awareness programs initiated in the previous quarter focused on building company and brand awareness.

Three Months Ended December 31, 2020 compared to December 31, 2019

Marketing and investor relations expense increased $928,258 (2,036%) to $973,853 in the fourth quarter of 2020, compared to $45,595 in the same quarter in fiscal 2019. The increase in marketing and investor relations expense was mainly due to the introduction of digital marketing campaigns for the eCommerce channel focused on customer acquisition as well as corporate investor relations communications and awareness initiatives in fiscal 2020.

Year Ended December 31, 2020 compared to December 31, 2019

Marketing and investor relations expense increased $3,178,765 (4,933%) to $3,243,210 for the year ended December 31, 2020, compared to $64,445 in fiscal 2019 for the same reasons above.

 

20

The Very Good Food Company | Management’s Discussion and Analysis

 

Research and development expense

Three Months Ended December 31, 2020 compared to September 30, 2020

Research and development expense increased $105,110 (100%) to $210,018 in the fourth quarter of 2020, compared to $104,908 in the previous quarter ended September 30, 2020. The increase in research and development expense was mainly attributed to additional salaries and wages expense including share-based compensation expense of $39,663 incurred to expand the R&D team for future product innovation and development.

Three Months Ended December 31, 2020 compared to December 31, 2019

Research and development expense increased $108,681 (107%) to $210,018 in the fourth quarter of 2020, compared to $101,337 in the same quarter in fiscal 2019. The increase in research and development expense was mainly attributed to additional salaries and wages expense including share-based compensation of $42,891 incurred to expand the R&D team for future product innovation and development.

Year Ended December 31, 2020 compared to December 31, 2019

Research and development expense increased $352,070 (280%) to $477,750 for the year ended December 31, 2020, compared to $125,680 in fiscal 2019 for the same reasons above.

Finance Expense

Three Months Ended December 31, 2020 compared to September 30, 2020

Finance expense decreased $634,492 (81%) to $148,014 in the fourth quarter of 2020, compared to $782,506 in the previous quarter ended September 30, 2020. The decrease in expense was due to the issuance of common shares in the prior quarter with a fair value of $694,375 pursuant to the settlement of $102,113 owing to a vendor resulting in a loss on settlement of debt of $592,262.

Three Months Ended December 31, 2020 compared to December 31, 2019

Finance expense increased $165,530 (945%) to $148,014 in the fourth quarter of 2020, compared to finance income of $17,516 in the same quarter in fiscal 2019. The increase was mainly attributed to interest expense on lease liabilities pertaining to right-of-use assets for the Rupert Facility, Patterson Facility and Mount Pleasant.

Year Ended December 31, 2020 compared to December 31, 2019

Finance expense increased $1,669,585 (964%) to $1,842,853 for the year ended December 31, 2020, compared to $173,268 in fiscal 2019. The increase in finance expense was mainly attributed to $765,000 in losses recognized for the difference between the fair value of the common shares issued and the carrying value of the convertible debentures at the time of conversion. The Company also incurred $592,262 for a loss on settlement of debt in the third quarter of 2020 as noted above and recognized $345,958 in interest expense on lease liabilities pertaining to right-of-use assets for the Rupert Facility, Patterson Facility and Mount Pleasant.

 

21

The Very Good Food Company | Management’s Discussion and Analysis

 

Other Expense

Three Months Ended December 31, 2020 compared to September 30, 2020

Other expense increased $101,735 (2,835%) to $105,323 in the fourth quarter of 2020, compared to $3,588 in the previous quarter ended September 30, 2020. The increase in other expense was mainly attributed to pre-construction costs for the Rupert Facility.

Three Months Ended December 31, 2020 compared to December 31, 2019

Other expense increased $90,116 (593%) to $105,323 in the fourth quarter of 2020, compared to $15,207 in the same quarter in fiscal 2019. The increase in other expense was mainly attributed to pre-construction costs for the Rupert Facility.

Year Ended December 31, 2020 compared to December 31, 2019

Other expense increased $114,470 (753%) to $129,677 for the year ended December 31, 2020, compared to $15,207 in fiscal 2019, for the same reasons above.

Selected Annual Financial Information

 

     As at and for the year ended December 31  
     2020      2019      2018  

Revenue

    $ 4,636,838      $ 999,797      $ 1,050,403  

Net loss

    $ (13,858,800 )     $ (2,341,544 )     $ (398,722 ) 

Loss per share (basic and diluted)

    $ (0.21 )     $ (0.06 )     $ (0.01 ) 

Weighted average number of shares outstanding (basic and diluted)

      66,388,474        36,330,356        30,000,000  
  

 

 

     

 

 

     

 

 

  

Total assets

    $ 35,182,597      $ 1,344,219      $ 125,103  

Total non-current financial liabilities

      5,419,352        949,313        338,761  

Total liabilities

      7,540,254        1,684,800        642,373  

Share capital

      39,335,150        2,245,422        83  

Deficit

    $ (16,717,697 )     $ (2,858,897 )     $ (517,353 ) 

Total assets

Total assets increased to $35,182,597 as at December 31, 2020 from $1,344,219 as at December 31, 2019; primarily from $35,888,802 in proceeds received for the issuance of units and exercise of warrants and stock options. Right-of-use assets also increased by $4,653,197 during the year as the Company continued to expand capacity at the Victoria Facility and leases acquired for the Rupert Facility, Patterson Facility and Mount Pleasant. As of December 31, 2020, the Company had cash and cash equivalents of $25,084,083.

 

22

The Very Good Food Company | Management’s Discussion and Analysis

 

Total liabilities

Total liabilities increased to $7,540,254 as at December 31, 2020 from $1,684,800 as at December 31, 2019; primarily due to an increase of $1,639,422 in accounts payable and accrued liabilities from the ramp-up of operations, and an increase of $5,143,815 in lease liabilities mainly pertaining to right-of-use assets including the Rupert Facility, Patterson Facility and Mount Pleasant. These increases were offset by a decrease of $1,021,265 in convertible debentures liability as a result of the conversion of all outstanding debentures into common shares from the completion of a qualified financing.

Share Capital

Share capital increased to $39,335,150 at the end of 2020, compared to $2,245,422 primarily due to the issuance of 26,808,076 common shares and 13,369,876 warrants exercised related to the IPO and various private placements during the year.

QUARTERLY RESULTS

The following table presents certain unaudited financial information for each of the eight quarters up to and including the quarter ended December 31, 2020. The information has been derived from our unaudited quarterly condensed interim consolidated financial statements.

 

2020

    Q1     Q2 (1)(2)     Q3 (2)     Q4     Year  

Revenue

    $ 338,552     $ 1,087,790     $ 1,373,814     $ 1,836,682     $ 4,636,838  

Net loss

    $ (1,129,986 )    $ (2,418,655 )    $ (4,497,027 )    $ (5,813,132 )    $ (13,858,800 ) 

Comprehensive loss

    $ (1,129,986 )    $ (2,418,655 )    $ (4,497,107 )    $ (5,806,392 )    $ (13,852,140 ) 

Loss per share (basic and diluted)

    $ (0.02 )    $ (0.05 )    $ (0.06 )    $ (0.06 )    $ (0.21 ) 

Number of eCommerce orders

      2,441       11,194       13,107       13,580       40,322  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)

The June 30, 2020 quarterly net loss and comprehensive loss has been restated to reflect an adjustment made at December 31, 2020 to record a finance expense of $765,000 related to the conversion of the Company’s convertible debentures in June 2020. As a result of the adjustment recorded, the net loss and comprehensive loss for the three month period ended June 30, 2020 has increased from $1,653,655 to $2,418,655 and the loss per share (basic and diluted) for the second quarter of 2020 has increased from $0.03 to $0.05.

(2)

The June 30, 2020 and September 30, 2020 quarterly revenue have been restated to reflect adjustments made at December 31, 2020 to reclass sales discounts and promotions through various programs that was previously recorded as advertising and promotion expense to a reduction of revenue. The reclassification of expense has no impact to net loss and comprehensive loss for the quarters. As a result of the adjustments recorded, revenue for the three month period ended June 30, 2020 has decreased from $1,100,816 to $1,087,790 and revenue for the three month period ended September 30, 2020 has decreased from $1,393,234 to $1,373,814.

 

2019

    Q1     Q2     Q3     Q4     Year  

Revenue

    $ 218,956     $ 222,054     $ 229,921     $ 328,866     $ 999,797  

Net loss and comprehensive loss

    $ (235,006 )    $ (246,740 )    $ (1,030,739 )    $ (829,059 )    $ (2,341,544 ) 

Loss per share (basic and diluted)

    $ (0.00 )    $ (0.01 )    $ (0.03 )    $ (0.02 )    $ (0.06 ) 

Number of eCommerce orders

      1,894       536       416       1,511       4,357  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

23

The Very Good Food Company | Management’s Discussion and Analysis

 

Revenues have increased over the last eight quarters. The sales growth has been mainly attributed to the increase in eCommerce where we have seen a growing demand for our products online. During the third quarter of 2020, the Company started selling products through its US eCommerce website where we have seen further revenue growth. Furthermore, the Company made significant efforts to increase production capacity in the second half of 2020 and parted with new 3PL partners that allowed for increased production footprint at the Victoria Facility. The increase in net loss and comprehensive loss is mainly attributed to the ramping up of production to support the distribution of the Company’s products as well as higher outbound shipping and 3PL logistic services due to the scaling of eCommerce and wholesale orders through marketing efforts. The Company also incurred higher general and administration expense due to the hiring of employees for expansion and increased office expense, recruitment fees, information technology and licensing cost with the build out of the teams in both Victoria and Vancouver to support its next phase growth.

CAPITAL MANAGEMENT

The Company’s primary objectives when managing capital is to maintain a capital structure that allows financing options to the Company in order to benefit from potential opportunities as they arise. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company defines capital that it manages as shareholders’ equity and debt. The Company has historically relied on debt and more recently the equity markets to fund its activities. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable to ensure optimal capital structure to reduce cost of capital.

The following table summarizes our cash flows for the years ended December 31, 2020, and 2019:

 

     Year ended December 31  
     2020      2019  

Operating activities

    $ (9,660,481 )     $ (1,432,523 ) 

Investing activities

      (564,437 )       (281,921 ) 

Financing activities

      34,900,987        2,106,173  

Effect of foreign exchange on cash and cash equivalents

      2,404        —    
  

 

 

     

 

 

  

Net changes in cash and cash equivalents

    $ 24,678,473      $ 391,729  
  

 

 

     

 

 

  

Operating activities

Net cash used in operating activities for the year ended December 31, 2020 was $9,660,481 as a result of the net loss for the period of $13,858,800 and an increase in non-cash working capital of $1,299,564; partially offset by non-cash expenses related to share-based compensation of $2,780,488, finance expense of $1,842,853, depreciation of $425,276, shares, units and warrants issued for services of $458,533. During the comparative period ending December 31, 2019, net cash used in operating activities was $1,432,523 as a result of the net loss for period of $2,341,544 and an increase in non-cash working capital of $115,668; partially offset by non-cash expenses related to shares and units issued for services of $477,500, share-based compensation of $200,933, finance expense of $173,268 and depreciation of $161,583.

 

24

The Very Good Food Company | Management’s Discussion and Analysis

 

Investing activities

Net cash used in investing activities for the year ended December 31, 2020 was $564,437 relating to capital expenditures for the restaurant and production equipment to expand production. During the comparative period ending December 31, 2019, net cash used in investing activities was $281,921 related to the restaurant and production equipment used in the Victoria Facility.

Financing activities

Net cash received from financing activities for the year ended December 31, 2020 was $34,900,987 as at result of net proceeds from the issuance of units pursuant to the IPO and additional financings, $10,863,951 received from proceeds from the exercise of warrants, $608,126 received from the exercise of stock options and $1,007,315 incurred for various deposits, loans and lease liabilities and interest paid. During the comparative period ended December 31, 2019, net cash received from financing activities was $2,106,173 as a result of proceeds from the issuance of units of $1,839,800 and proceeds received from convertible debt of $585,116; partially offset by payment of $318,743 for various loans and lease liabilities and interest paid.

Prospectus Offerings Use of Proceeds

On June 17, 2020, the Company completed its IPO consisting of 16,100,000 common shares at $0.25 per common share for proceeds of $4,025,000. The following table provides an update on the anticipated use of proceeds raised, along with amounts expended.

 

     Proposed Use of Proceeds      Approximate Use of Proceeds
to December 31, 2020		  

Build out of Mount Pleasant (less tenant improvement allowance)

    $ 1,147,000      $ 39,401  

Direct research and development expenses

      150,000        150,000  

General corporate & other working capital

      2,231,000        2,231,000  

Offering expenses and underwriter fees

      497,000        374,365  
  

 

 

     

 

 

  

Total

    $ 4,025,000      $ 2,794,766  
  

 

 

     

 

 

  

On August 7, 2020, the Company closed an agreement with Canaccord Genuity Corp. pursuant to which they agreed to purchase, on a bought deal basis (the “August Bought Deal”), 6,555,000 units at $1.30 per unit, for aggregate gross proceeds to the Company of $8,521,500. The following table provides an update on the anticipated use of proceeds raised in the financing, along with amounts expended.

 

     Proposed Use of Proceeds      Approximate Use of Proceeds
to December 31, 2020		  

Expansion to the United States

    $ 3,500,000      $ 423,560  

Direct research and development expenses

      750,000        138,519  

Accretive acquisitions

      1,500,000        —    

General corporate & other working capital

      1,739,780        1,739,780  

Offering expenses and underwriter fee

      1,031,720        798,552  
  

 

 

     

 

 

  

Total

    $ 8,521,500      $ 3,100,411  
  

 

 

     

 

 

  

 

25

The Very Good Food Company | Management’s Discussion and Analysis

 

On December 4, 2020, the Company closed an agreement with Canaccord Genuity Corp. pursuant to which they agreed to purchase, on a bought deal basis (the “December Bought Deal”), 3,778,900 units at $3.50 per unit, for aggregate gross proceeds to the Company of $13,226,150. The following table provides an update on the anticipated use of proceeds raised in the financing, along with amounts expended.

 

     Proposed Use of Proceeds      Approximate Use of Proceeds
to December 31, 2020		  

Commencement of operations at Rupert Facility

    $ 10,000,000      $ 1,263,857  

General corporate & other working capital

      1,918,058        1,918,058  

Offering expenses and underwriter fee

      1,308,092        1,298,002  
  

 

 

     

 

 

  

Total

    $ 13,226,150      $ 4,479,917  
  

 

 

     

 

 

  

Capital Resources

The Company is continually evaluating expansion opportunities both domestically and within certain international markets. Depending on the timing and scope of expansion opportunities identified by the Company, there will be a requirement for the investment of additional capital for the Company to continue to successfully execute on its growth strategy. Based on the ongoing analysis of potential growth opportunities, the Company is not able to currently quantify any specific non-committed future capital requirements.

On March 9, 2021, the Company announced that it has executed a non-binding term sheet (the “Term Sheet”) with a prominent institutional lender for a committed $70 million senior secured credit facility (the “Credit Facility”). Upon closing the proposed financing, VERY GOOD will have access to a senior secured $20 million revolving line of credit and a $50 million asset backed term loan. All amounts drawn under the Credit Facility will pay interest at a rate of 9.95% per annum and will be repaid in full upon maturity. The Credit Facility proposed will have a term of 24 months with an option to renew, upon mutual consent, for another 12 months and will be primarily secured by the Company’s current and planned production equipment.

OUTSTANDING SHARES, OPTIONS, AND WARRANTS

The Company is authorized to issue an unlimited number of common shares. The table below outlines the number of issued and outstanding common shares, warrants and options as at the dates indicated.

 

     As at April 26      As at December 31      As at December 31  
     2021      2020      2019  

Common shares

      97,599,957        96,640,432        45,515,339  

Warrants

      2,402,251        2,889,367        7,757,670  

Stock options

      8,213,472        3,852,639        1,513,500  

Common Shares

Common shares increased by 51.1 million during the year due to the following transactions:

 

  •  

16.1 million shares issued for the June 17, 2020 IPO

 

  •  

10.3 million shares issued for prospectus offerings on August 7, 2020 and December 4, 2020

 

  •  

0.4 million shares for private placements on August 13, 2020 and December 4, 2020

 

  •  

0.4 million shares for finder fees associated with the IPO, prospectus offerings and private placements

 

  •  

7.5 million shares issued pursuant to the conversion of convertible debentures

 

  •  

15.7 million shares for warrants and warrants exercised

 

  •  

0.2 million shares issued for executive management services with a former CFO

 

  •  

0.5 million shares issued for settlement of debt

 

26

The Very Good Food Company | Management’s Discussion and Analysis

 

Warrants

Warrants decreased 4.9 million from 7.8 million warrants in 2019 to 2.9 million warrants in 2020 due to:

 

  •  

13.4 million warrants exercised during the year

 

  •  

5.4 million warrants issued associated with the IPO, prospectus offerings and private placements

 

  •  

2.9 million warrants issued to agents associated with the IPO, prospectus offerings and private placements

 

  •  

0.2 million warrants issued for executive management services with a former CFO and COO

Stock Options

Stock Options increased 2.3 million during the year due to:

 

  •  

4.8 million stock options granted to directors, officers, employees and consultants

 

  •  

2.4 million stock options exercised during the year

 

  •  

0.1 million stock options cancelled or forfeited during the year

OFF-BALANCE SHEET AGREEMENTS

The Company does not have any off-balance sheet arrangements such as obligations under guarantee contracts, a retained or contingent interest in assets transferred to an unconsolidated entity, any obligation under derivative instruments or any obligation under a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company or engages in leasing or hedging services with the Company.

FINANCIAL RISK MANAGEMENT

The Company is exposed to varying degrees to a variety of financial related risks in the normal course of operations including interest rate risk, credit risk, liquidity risk, foreign currency risk, commodity price risk and economic dependence risk. The Board approves and monitors the risk management processes, inclusive of counterparty limits, controlling and reporting structures.

Interest Risk

The Company’s exposure to interest risk relates to its investment of surplus cash and cash equivalents, including restricted and unrestricted short-term investments. The Company may invest surplus cash in highly liquid investments with short terms to maturity and would accumulate interest at prevailing rates for such investments. At December 31, 2020, the Company had cash and cash equivalents of $25,084,083 and a 1% change in interest rates would increase or decrease interest income by $250,000.

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, security deposits and receivables. The Company’s cash and unrestricted short-term investments are held through large Canadian financial institutions and no losses have been incurred in relation to these items. The Company’s receivables are comprised of trade accounts receivable and a GST receivable. At December 31, 2020, the Company has $43,153 in trade accounts receivable outstanding over 60 days, of which the Company has recognized an allowance for doubtful accounts of $39,917. Of the total billed trade receivables at December 31, 2020, the Company has subsequently collected or has trade payables outstanding with the same customers representing 32.5% of the total balance. The carrying amount of cash and cash equivalents, security deposits and trade and other receivables represent the maximum exposure to credit risk, and as at December 31, 2020, this amounted to $26,826,938.

 

27

The Very Good Food Company | Management’s Discussion and Analysis

 

Concentration of Credit Risk

Concentration of credit risk is the risk of reliance upon a select number of customers which significantly impact the financial performance of the Company. The Company recorded sales from 3 wholesale distributors of the Company representing 18% of total revenue during the year ended December 31, 2020. Of the Company’s trade receivables outstanding at December 31, 2020, 81% are held with 3 customers of the Company.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by reviewing on an ongoing basis its capital requirements. As at December 31, 2020, the Company has $25,084,083 of cash and cash equivalents. The Company is obligated to pay accounts payable and accrued liabilities and the current portion of the lease liabilities with a carrying amount of $2,018,663.

The following are the contractual maturities of financial obligations:

 

Contractual Obligations as at December 31,
2020

    Carrying
amount		      Contractual
cash flow		      Less than
1 year		      1-3 years      4-5 years      More than
5 years		  

Accounts payables and accrued liabilities

    $ 1,871,728      $ 1,871,728      $ 1,871,728      $ —        $ —        $ —    

Loan payable

      30,000        30,000        —          30,000        —          —    

Lease liabilities

                  

Retail and production facilities

      5,460,099        11,894,631        767,682        1,686,567        1,653,329        7,787,053  

Equipment

      56,623        59,304        53,004        6,300        —          —    

Vehicles

      19,565        24,902        8,435        16,156        311        —    
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total Contractual Obligations

    $ 7,438,015      $ 13,880,565      $ 2,700,849      $ 1,739,023      $ 1,653,640      $ 7,787,053  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Foreign Currency Risk

The Company’s financial results are subject to volatility as a result of foreign exchange fluctuations. The Company has sales outside of Canada that are transacted in currencies other than Canadian dollar whereas the majority of its expenses are in Canadian dollar. As a result, fluctuation in the foreign exchange rate of these currencies can have a material impact on the financial condition and operating results.

The Company is exposed to foreign currency risk on fluctuations related to cash, accounts payable and accrued liabilities, and deferred revenue that are denominated in US dollars. As at December 31, 2020, a 10% appreciation of the Canadian dollar relative to the US dollar would have increased net financial assets by approximately $102,312 (December 31, 2019 – $nil). A 10% depreciation of the Canadian dollar relative to the US dollar would have had the equal but opposite effect.

Commodity Price Risk

The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices of raw materials to determine the appropriate course of action to be taken by the Company.

 

28

The Very Good Food Company | Management’s Discussion and Analysis

 

Equity Price Risk

In recent years, securities markets have experienced extremes in price and volume volatility. The market price of securities of many early stage companies, among others, have experienced fluctuations in price which may not necessarily be related to the operating performance, underlying asset values or prospects of such companies. It may be anticipated that any market for the Company’s shares will be subject to market trends generally and the value of the Company’s shares on a stock exchange may be affected by such volatility.

Fair Value of Financial Instruments

As at December 31, 2020 and 2019, the estimated fair values of cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities and loan payable approximated their respective carrying values due to their short-term nature.

RELATED PARTY TRANSACTIONS

The Company’s key management personnel have the authority and responsibility for planning, directing and controlling the activities of the Company and consists of the Company’s executive management and directors. Compensation expense was as follows:

 

     Year ended December 31  
     2020      2019  

Salaries incurred to key management personnel*

    $ ,564,966      $ 95,027  

Professional fees incurred to the former Chief Financial officer (“former CFO”)**

      159,437        84,844  

Share-based compensation

      676,078        179,227  
  

 

 

     

 

 

  
   $ 2,400,481      $ 359,098  
  

 

 

     

 

 

  

 

*

The balance for the year ended December 30, 2020 includes $287,230 paid by the issuance of a total of 165,000 warrants, which have exercise prices ranging between $1.51 per share and $7.60 per share, with expiry dates ranging between August 13, 2021, and December 21, 2021.

 

**

The balance for the year ended December 30, 2020 includes $25,001 paid by the issuance of 166,670 units. Each unit consists of one common share and one-half of share purchase warrant exercisable at a price of $0.30 per share for a period of 12 months from issuance, subject to early acceleration in certain circumstances.

The following is a summary of the significant related party balances:

 

     Year ended December 31  
     2020      2019  

Due from the Chief Executive Officer (“CEO”) and Director

    $ —        $ 18,722  

Due from the Chief Research and Development Officer (“CRADO”) , and Director

      —          5,558  

Due from related parties*

    $  —        $ 24,280  

Due to the former CFO, included in accounts payable and accrued liabilities*

    $ —        $ 3,413  

Prepaid professional fees for the former CFO, included in prepaids and deposits

    $ —        $ 5,815  

 

*

The amounts due to (from) related parties are unsecured, non-interest bearing and have no fixed terms of repayment.

 

29

The Very Good Food Company | Management’s Discussion and Analysis

 

On February 11, 2020, the Company entered into a loan agreement with the CEO and the CRADO of the Company (the “Lenders”), whereby the Lenders agreed to loan the Company up to a maximum aggregate loan amount of $1,200,000 (the “Principal”), in three equal tranches of $400,000. The outstanding amount of the Principal matures on May 11, 2021, and bears interest from and after the date of each advance until repayment at the rate of 0.67% per month, simple interest. The Company also executed a general security agreement with the Lenders, which creates a security interest over all present and after acquired property of the Company. The Company received one tranche of $400,000 on February 11, 2020. On June 22, 2020, the Company repaid the principal balance of $400,000 and interest of $11,728.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the annual consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

 

  •  

The inputs, including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options, used in calculating the fair value for share-based compensation expense included in comprehensive loss.

 

  •  

The valuation of shares and other equity instruments issued in non-cash transactions. When non-cash transactions are entered into with employees and those providing similar services, the non-cash transactions are measured at the fair value of the consideration given up using market prices.

 

  •  

Amortization of right-of-use assets and property and equipment are dependent upon the estimated useful lives, which are determined through the exercise of judgement. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

 

  •  

Inventory is carried at the lower of cost or net realizable value. The determination of net realizable value involves significant management judgement and estimates, including the estimation of future market demand, costs and prices.

CHANGES IN ACCOUNTING POLICIES

Effective for the year ended December 31, 2020, the Company elected to change its accounting policy for the presentation of expenses on its consolidated statements of net loss and comprehensive loss from the “nature of expense” method do the “function of expense” basis. The Company believes that the revised presentation provides more relevant financial information to users of the consolidated financial statements. Please refer to Note 3 of the consolidated financial statements for a summary of the impacts to the consolidated statement of net loss and comprehensive loss.

 

30

The Very Good Food Company | Management’s Discussion and Analysis

 

RISKS AND UNCERTAINITIES

Many factors could cause the Company’s actual results, performance and achievements to differ materially from those expressed or implied by the forward-looking information, including without limitation, the following factors, which are discussed in greater detail in our filings with Canadian regulatory authorities at www.sedar.com, including our Annual Information Form.

 

  •  

The global spread and unprecedented impact of COVID-19 continues to create significant volatility, uncertainty and economic disruption. The specific impacts that we may experience as a result of COVID-19 include disruptions to our operations and lost revenue if a significant number of our employees are asked to self-isolate and are unable to work or if we are required to temporarily suspend production as a result of an outbreak of COVID-19. Overall, the ongoing effects of COVID-19 could have a material adverse impacts on our business, results of operations, financial condition, and cash flows and may adversely impact the price of our Common Shares.

 

  •  

Any substantial delays in bringing the Rupert Facility up to full production on our current schedule will affect our production capacity, our ability to meet demand for our products and expand distribution, all of which would negatively impact our ability to achieve our growth goals, financial performance and the price of our Common Shares. Similarly, delays in the construction of Mount Pleasant will prevent us from opening our second flagship store and launching the innovation centre within our current timeframe. Further, our failure to successfully commission, or any substantial delays in our current schedule for commissioning the California Facility, will have a negative impact on our US expansion plans. Even if we are able to establish these facilities as planned and on schedule, we may not realize all of the operational and financial benefits we expect to receive.

 

  •  

We will require significant capital for the build-out and equipping of our Rupert Facility, Patterson Facility and Mount Pleasant, and for funding product development and innovation, potential acquisitions, marketing and other corporate initiatives. Unanticipated costs may also arise and our overall future capital requirements may vary due to the occurrence of unforeseen factors. We had negative cash flow from operating activities of $9,660,481 and $1,432,523 for the fiscal years ended December 31, 2020 and 2019, respectively, and will require additional equity or debt financing to operate and expand our business. If such financing is not available to us, or is not available on satisfactory terms, our ability to operate and expand our business or respond to competitive pressures would be curtailed or severely limited and we may need to delay, limit or disregard expansion plans, elements of our growth strategy or operations. Our inability to secure sufficient funding could have a material adverse effect on our business, financial condition, results of operations. In addition, the issuance of Common Shares pursuant to any equity financing may affect the value of our Common Shares and could result in dilution to our Shareholders.

 

  •  

We have experienced net losses since incorporation. For the fiscal years ended December 31, 2020 and 2019 we incurred net losses of $13,858,800 and $2,341,544, respectively. We anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest to expand our production capacity, increase our customer base, supplier and distributor network, hire additional employees, scale our R&D efforts and introduce new products in the market, pursue expansion to other jurisdictions, and ramp-up our marketing programs to build brand awareness. Our expansion efforts may prove more expensive than anticipated, and we may not succeed in increasing sales and margins sufficiently to offset the anticipated higher expenses. Accordingly, we may not be able to achieve or sustain profitability, and we may incur significant losses for the foreseeable future.

 

  •  

The loss of some or all of our management team or other key personnel, including the directors and managers of key functional areas, could negatively affect our ability to develop and pursue our growth strategy, which could adversely affect our business and financial condition. Any departures of senior management could also be viewed in a negative light by investors, which could cause the market price of our Common Shares to decline.

 

31

The Very Good Food Company | Management’s Discussion and Analysis

 

  •  

We face intense competition in the plant-based food industry as new entrants and more traditional food companies vie for market share in this rapidly evolving market. Most of our competitors are, and many of our potential competitors may be, larger, and may have greater brand recognition, greater presence in both the retail and online marketplace and access to greater financial, marketing and other resources. Therefore, these competitors may be able to devote greater resources to the marketing and sale of their products, generate greater brand recognition or adopt more aggressive pricing policies and distribution methods than we can. As a result, we may lose market share, which could reduce our revenue and adversely affect our results of operations. There is no assurance that we will continue to compete successfully against existing or future competitors.

 

  •  

A number of the ingredients in our products, such as vegetables, beans and vital wheat gluten derived from wheat flour, are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and pestilence which may reduce their available supply. We also compete with other food producers in the procurement of ingredients, and as consumer demand for plant-based protein products increases, this competition may increase. If supplies of quality ingredients are reduced or there is greater demand for such ingredients, we may not be able to obtain sufficient supply on favourable terms, or at all, or if we are unable to secure long-term supply agreements, this could impact our ability to meet demand for our products which may adversely affect our business, results of operations and financial condition.

 

  •  

There is risk in our ability to effectively scale production processes and effectively manage our supply chain requirements. If we do not accurately align our production capabilities and inventory supply with demand, our business, financial condition and results of operations may be materially adversely affected.

 

  •  

We have grown rapidly since inception and in particular since completing the IPO, which growth has placed significant demands on our management, financial, operational, and other resources. The anticipated growth and expansion of our business and our product offerings will continue to place considerable demands on our management and operations teams and require substantial additional resources to meet our needs, which may not be available in a cost-effective manner, or at all. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality product offerings, any of which could harm our business, brand, results of operations and financial condition.

 

  •  

Our acquisition strategy could require significant management attention, disrupt our business and harm our business, financial condition and results of operations. To pay for any such acquisitions, we would have to use cash, incur debt, or issue debt or equity securities, each of which may affect our financial condition or the value of our Common Shares and could result in dilution to our Shareholders.

 

  •  

Our use of third-party providers for fulfillment is subject to risks, including but not limited to, labour disruptions, human error and shipment delays. Any unanticipated changes in our third-party providers, such as a result of a strike or other stoppages, could result in logistical difficulties that could adversely impact deliveries and we may incur costs and expend resources in connection with such change.

 

  •  

We are subject to risks that affect the food industry in general, including the risks posed by food spoilage, accidental contamination, foodborne illness, product tampering, consumer product liability, and the potential costs and disruptions of a product recall. Any product safety issue could subject us to product liability and negligence claims, including consumer class action lawsuits, adverse publicity and government scrutiny, investigation or intervention, resulting in increased costs and decreased sales. Any claims brought against us may exceed or be outside the scope of our existing or future insurance policy coverage or limits. Any of these events could have a material adverse impact on our business, financial condition and results of operations.

 

  •  

Real or perceived quality or food safety concerns or failures to comply with applicable food regulations and requirements, whether or not ultimately based on fact and whether or not involving us (such as incidents involving our competitors), could cause negative publicity and reduced confidence in our Company, brand or products, or the industry as a whole, which could in turn harm our reputation and sales, and could materially adversely affect our business, financial condition and operating results.

 

32

The Very Good Food Company | Management’s Discussion and Analysis

 

  •  

Any loss of confidence on the part of consumers in the ingredients used in our products or in the safety and quality of our products would be difficult and costly to overcome. Issues regarding the safety of any of our products, regardless of the cause, may have a substantial and adverse effect on our brand, reputation and operating results.

 

  •  

We could be required to recall certain or a large portion of our products, including in the event of contamination or adverse test results or as a precautionary measure. A product recall could result in significant losses due to its costs, destruction of product inventory and lost sales due to the unavailability of the product or potential loss of current or new customers as a result of an adverse impact on our reputation.

 

  •  

We rely on unpatented proprietary expertise, recipes and formulations and other trade secrets to develop and maintain our competitive position. If we do not keep our trade secrets confidential, others may produce products with our recipes or formulations. Further, we currently own no patents or exclusive intellectual property rights in processes used for our products. As a result, our current and future competitors may be able to create and sell products similar to ours.

 

  •  

We rely on trademark registrations and common law trademark and copyright rights to protect the distinctiveness of our brand. Current and future trademarks not yet registered may not be approved, or may be refused, and ultimately not registered. Failure to protect our trademark rights could prevent us in the future from challenging third parties who use names and logos similar to our trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of our brand and products.

 

  •  

The products sold in our wholesale program are sold through food distributors who sell and deliver our products to retailers. The loss of one or more significant distributors, if we are unable to replace the distributor in a timely manner, could negatively affect our business, results of operations and financial condition.

 

  •  

Maintaining and enhancing our current brand image and awareness or any future brands we develop or acquire may require us to make investments in areas such as public relations and marketing. These investments may be substantial, and our efforts may not ultimately be successful.

 

  •  

Our brand image and reputation may be impacted by actions taken by our employees, product attributes (including food safety and quality assurance issues that may result in recalls) and negative commentary or reviews. Brand value is based on perceptions of subjective qualities, and any incident that erodes the loyalty of consumers, including adverse publicity, governmental investigation or litigation, could significantly reduce the value of our brand and adversely affect our business, results of operations and financial condition. Negative publicity about us, our brands or our products on social or digital media could seriously damage our brands and reputation.

 

  •  

Our facilities are vulnerable to disruption from natural disasters, extreme and/or unusual weather, global health crises and disease outbreaks (including COVID-19), and other unexpected events. These events could cause disruptions in our operations and those of our third-party partners, including our suppliers. Any such disruption or unanticipated event may cause significant interruptions or delays in our business and the reduction or loss of inventory may render us unable to fulfill customer orders in a timely manner, or at all which would adversely affect our business, results of operations and financial condition.

 

  •  

Our future growth depends, in part, on our expansion efforts outside of Canada. Failure to develop new markets outside of Canada (through our eCommerce store or otherwise) may harm our business, growth and results of operations and could cause the market price of our Common Shares to decline.

 

  •  

Our products are subject to regulations governing their labeling, marketing and advertising. If regulators determine that the labeling of any of our products is not in compliance with applicable law or regulations in Canada or other jurisdictions, we could be subject to civil remedies or penalties, such as fines, injunctions, recalls or seizures, warning letters, restrictions on the marketing or manufacturing of the products, or refusals to permit the import or export of products, as well as potential criminal sanctions. We could also become subject to third-party claims, because of any violations of, or liabilities under, such requirements, including any competitor or consumer challenges relating to compliance with such requirements. Such claims could include challenges to our label or labeling claims that, if successful, could require us to make labeling changes and/or pay monetary damages. Any change in labeling or packaging

 

33

The Very Good Food Company | Management’s Discussion and Analysis

 

 

requirements for our products may lead to an increase in costs or interruptions in production, either of which could adversely affect our operations and financial condition. New or revised government laws and regulations could result in additional compliance costs and, in the event of non-compliance, civil remedies, including fines, injunctions, withdrawals, recalls or seizures and confiscations, as well as potential criminal sanctions, any of which may adversely affect our business, results of operations and financial condition.

 

  •  

Our growth in part depends on our ability to develop and market new products and improvements to our existing products that appeal to consumer preferences. Failure to develop and successfully market and sell new products will inhibit our growth, sales and profitability.

 

  •  

Our success, and our ability to increase revenue and operate profitably, depends in part on our ability to acquire new customers and retain existing customers across our distribution channels. We may fail to acquire or retain customers due to a variety of factors including negative value and quality perceptions, a lack of new and relevant products or failure to deliver customers’ orders in a timely manner.

 

  •  

We could be affected by other adverse developments in the relationship with one or more large customers including the loss thereof, the reduction of purchasing levels or the cancellation of any business from large customers for an extended period of time which could have a material adverse effect on our business, financial condition and results of operations.

 

  •  

Our failure to properly price our products could have a material adverse effect on the Company’s financial condition and results of operations.

 

  •  

We are subject to employment, health and safety, cyber and data security, privacy, environmental, tax, advertising, competition and other laws, and regulation by government agencies such as Health Canada and the Canadian Food Inspection Agency who regulate various aspects of our products, including food safety standards, preventive controls plans, traceability and current good manufacturing practices. Failure by us to comply with applicable laws and regulations and permits and licenses could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our financial condition and results of operations.

 

  •  

The regulatory environment in which we operate could change significantly in the future. Enforcement of existing laws and regulations, changes in legal requirements and/or evolving interpretations of existing regulatory requirements may result in increased compliance costs and create other obligations, financial or otherwise, that could adversely affect our business, financial condition or results of operations.

 

  •  

The failure of our information technology systems to operate effectively could adversely affect our business. A disruption to our eCommerce business could reduce our eCommerce revenue, increase our costs, diminish our growth prospects, expose us to litigation, decrease customer confidence and damage our brand, and a material interruption to any of our computer systems could adversely affect our business or results of operations and our reputation. Any compromise of our security or accidental loss or theft of customer or employee data in our possession could result in a violation of applicable privacy and other laws, significant legal and financial exposure and damage to our reputation, which could adversely impact our business, financial condition, results of operations and the price of our Common Shares.

 

  •  

Litigation and other claims against us could result in unexpected expenses and liabilities, which could materially adversely affect our operations, our reputation and the market price of our Common Shares.

 

  •  

As climate change accelerates, its impacts are becoming more widespread and unpredictable. The incidence and impact of severe weather-related events, long term changes in weather patterns that lead to extreme weather and natural disasters including flooding and drought, may have a negative effect on

 

34

The Very Good Food Company | Management’s Discussion and Analysis

 

 

agricultural productivity, which may result in decreased availability or less favourable pricing for some or many of the ingredients in our products such as such as legumes and vegetables.

 

  •  

There is no guarantee that our insurance coverage will be sufficient, or that insurance proceeds will be paid to us on a timely basis. In addition, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure.

 

  •  

The issuance of additional Common Shares, or securities convertible into Common Shares, under any equity financing or pursuant to any equity-based compensation plans, may have a dilutive effect on the interests of Shareholders.

 

  •  

We lease all of our facilities and accordingly are subject to all of the risks associated with leasing, occupying and making tenant improvements to real property, including adverse demographic and competitive changes affecting the location of the property and changes in availability of and contractual terms for leasable commercial and retail space. We also have significant financial obligations under the leases we have entered into and if we are not able to meet our lease obligations, this could have a material adverse effect on our financial condition and business.

 

  •  

Consumer trends could change based on a number of possible factors, including economic factors and social trends. If consumer demand for our products decreases, our business and financial condition would suffer.

 

  •  

The global economy can be negatively impacted by a variety of factors such as the spread or fear of spread of contagious diseases (such as COVID-19), man-made or natural disasters, actual or threatened war, terrorist activities, political unrest, civil unrest, and other geopolitical uncertainty. Prolonged unfavourable economic conditions or uncertainty may have an adverse effect on our business and financial condition.

 

  •  

As we expand our operations, unions may attempt to organize all or part of our employee base. Responding to such organization attempts may divert the attention and efforts of management and employees and may have a negative financial impact on our business. Protracted and extensive work stoppages or labour disruptions such as strikes or lockouts could have a material adverse effect on our business, financial condition and results of operations.

 

  •  

If we obtain status as a Certified B Corporation our reputation could be harmed if we lose such status, whether by our choice or by our failure to meet B Lab’s certification requirements, if that change in status were to create a perception that we are more focused on financial performance and are no longer as committed to the values shared by Certified B Corporations.

 

  •  

If our ESG practices do not meet third-party benchmarks or scores we may lose investment from certain Shareholders and our business and reputation could be negatively impacted and the price of our Common Shares could be materially and adversely affected.

 

  •  

We are party to contracts, transactions and business relationships with various third parties, pursuant to which such third parties have performance, payment and other obligations to us. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, our rights and benefits in relation to our contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to us, or otherwise impaired.

 

  •  

Changes in accepted accounting principles and related accounting pronouncements, implementation guidelines or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported financial performance or financial condition in accordance with generally accepted accounting principles.

 

  •  

The market price of our Common Shares could be subject to significant fluctuations which could materially reduce the market price of our Common Shares regardless of our operating performance.

 

  •  

We cannot predict the size of future issuances of our Common Shares or the effect, if any, that future issuances and sales of our Common Shares will have on the market price of our Common Shares. Sales

 

35

The Very Good Food Company | Management’s Discussion and Analysis

 

 

of substantial amounts of our Common Shares, or the perception that such sales could occur, may adversely affect prevailing market prices for our Common Shares.

 

  •  

We currently expect to retain all available funds for use in the operation and growth of our business and do not anticipate paying any cash dividends in the foreseeable future.

BOARD APPROVAL

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. This Committee meets periodically with management and annually with the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company.

The Board of Directors of the Company has approved the financial statements and the disclosure contained in this MD&A.

CONTROLS CERTIFICATION

In connection with National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings (“NI 52-109”), the Chief Executive Officer and Chief Financial Officer, will file a Venture Issuer Basic Certificate with respect to the financial information contained in unaudited interim financial statements and the audited annual financial statements and respective accompanying Management’s Discussion and Analysis. The Venture Issuer Basic Certification does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI 52-109.

 

36

LOGO

The Very Good Food Company Inc. 2748 Rupert Street, Vancouver, BC, V5M 3T7 Canada 1.855.526.9254 hello@verygoodfood 213892-001 .com www.verygoodfood.com