Court File and Parties

COURT FILE NO.: CV-24-722044-00CL DATE: 20240613 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST IN BANKRUPTCY

RE: Indiva Limited et al., Applicants

BEFORE: Peter J. Osborne J.

COUNSEL: Mike Shakra, Thomas Gray and Milan Singh-Cheema, Counsel for the Applicants Lance Williams and Ashley Bowron, Counsel for SNDL Inc. (secured creditor and proposed DIP lender) Marc Wasserman, Martino Calvaruso and Tiffany Sun, Counsel for PricewaterhouseCoopers Inc. (PwC) Michael McTaggart, PwC, Proposed Court Appointed Monitor

HEARD: June 13, 2024

Endorsement

[1] The Applicants, Indiva Limited, Indiva Amalco Ltd., Indiva Inc., Vieva Canada Limited and 2639177 Ontario Inc., bring this Application for relief under the Companies' Creditors Arrangement Act (the "CCAA").

[2] Today, they seek first day relief in the form of an order: a. declaring that the Applicants are companies to which the CCAA applies; b. appointing PwC as Monitor; c. approving a DIP Facility up to a principal amount of $900,000; d. a stay of proceedings for an initial period of not more than 10 days; e. relief from securities law requirements to call an annual meeting of shareholders, and in respect of certain securities reporting obligations; and f. granting an Administration Charge up to a maximum of $400,000, a DIP Lender’s Charge up to a maximum of $900,000 plus interest, fees and expenses, and a Directors’ Charge in favour of the directors and officers up to a maximum amount of $765,000.

[3] The Applicants rely on the affidavit of Carmine Neil Marotta sworn June 12, 2024, together with Exhibits thereto, and the Pre-Filing Report of the Proposed Monitor. The relief sought today is fully supported by the existing senior secured creditor, SNDL Inc., which has agreed to provide additional DIP financing, and is recommended by the Proposed Monitor, who has consented to act as Monitor if so appointed.

[4] Defined terms in this Endorsement have the meaning given to them in the Application materials and/or the Pre-Filing Report, unless otherwise stated.

[5] Each of the Applicants is a Canadian company. Indiva Limited is a reporting issuer, the shares of which trade on the TSX Venture Exchange. It is the ultimate parent company of each of the other Applicants.

[6] The business of the Applicants focuses on the production and sale of cannabis products. It does not grow cannabis on-site. It produces and processes edible and extract cannabis products as well as packaging edibles and extracts for sale to consumers in the recreational market across Canada except the Yukon Territory.

[7] The company operates out of an owned processing facility in London, Ontario, and a rented head office facility in Ottawa, Ontario. Accordingly, Ontario is the appropriate venue for these CCAA proceedings.

[8] The Applicants are in a liquidity crisis. Absent the approval of the additional financing proposed to be made available under the DIP Facility, they cannot meet their obligations as they come due, with the result that this Application is brought on an urgent basis.

[9] Indiva has accrued a significant amount of invoices owing to third-party suppliers, and is in default of its obligations owing pursuant to its senior debt with SNDL, which obligations are guaranteed by other Applicants. As of March 31, 2024, the Company had total consolidated assets of approximately $37,814,286 and total consolidated liabilities of approximately $39,095,742, recognizing that the net realizable value of the assets may be less than the book value.

[10] Pursuant to loan facilities and corresponding promissory notes (as amended) with SNDL, Indiva received a non-revolving term loan facility in the principal amount of $11 million, the obligation for which was guaranteed by other Applicants and secured. When the original promissory note was amended and restated on October 4, 2021, Indiva received an additional advance totaling $8,500,000.

[11] On April 1, 2024, the Loan Parties and SNDL entered into an amending agreement which required, among other things, a repayment of the amount of $2 million by the Loan Parties to be deducted from the outstanding indebtedness, and the repayment of certain Tax Arrears owing to the CRA, in full by May 31, 2024.

[12] Indiva informed SNDL prior to the deadline that it would be unable to pay the Tax Arrears and SNDL subsequently agreed to extend the deadline for the repayment of those Tax Arrears to June 13, 2024. They have not been repaid today, SNDL has indicated that it is not prepared to further extend the deadline, and the Loan Parties cannot pay the Tax Arrears by the deadline of today’s date. That constitutes an event of default pursuant to the Amended Second A&R Promissory Note. As of today’s date, the principal outstanding pursuant to the Loan Facility is approximately $17,751,904.67.

[13] There are also unsecured obligations in the form of convertible debentures totaling in the aggregate approximately $4.655 million, and amounts owing to third-party suppliers and employees and others.

[14] I am satisfied that the Applicants are “debtor companies” as defined in the CCAA, which includes any company that is insolvent or has committed an act of bankruptcy within the meaning of the Bankruptcy and Insolvency Act (the "BIA"). The Applicants are corporations that collectively owe over $5 million in outstanding liabilities. They have delivered the documents and financial statements required by section 10(2) of the CCAA.

[15] Section 11.02(1) of the CCAA permits this Court to order a stay of proceedings for not more than 10 days, and section 11.001 provides that relief granted on an initial application shall be limited to relief that is reasonably necessary for the continued operations of the debtor company in the ordinary course of business during the initial 10-day period.

[16] A stay of proceedings is clearly necessary here if any form of restructuring process is to be successful, and the relief sought today is limited to what is reasonably necessary.

[17] PwC has consented to act as Monitor. That firm is a “trustee” as defined in subsection 2(1) of the BIA, and is qualified to act as Monitor. Its appointment as such will lend stability and assurance to the stakeholders of the Applicants. PwC is not subject to any of the restrictions set out in section 11.7(2) of the CCAA. Its appointment as Monitor is approved.

[18] Section 11.2(4) of the CCAA sets out a non-exhaustive list of criteria that the Court must consider in deciding whether to grant a DIP lender’s charge. Those criteria include the period during which the Applicants are expected to be subject to CCAA proceedings, how the Applicants’ business and financial affairs are to be managed during the proceedings, whether the Applicants’ management has the confidence of its major creditors, whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the Applicants, the nature and value of the Applicants’ property, whether any creditor would be materially prejudiced as a result of the security or charge, and whether the monitor supports the charge.

[19] DIP financing may be approved even if it potentially prejudices some creditors, as long as the prejudice is outweighed by the benefit to all stakeholders.

[20] It is important that an applicant meet the criteria in section 11.2(1) as well as those in section 11.2(4). (See CanWest Publishing Inc., Re, 2010 ONSC 222, at paras. 42-44 (“CanWest”)).

[21] I am satisfied that the Applicants are facing a liquidity crisis and the Cash Flow Statement appended to the Pre-Filing Report of the Proposed Monitor shows that financing even on an interim basis is required to fund these proceedings. I am satisfied that the proposed advances during the initial 10 day stay period are reasonably necessary for the continued operations of the Applicants during that short period.

[22] I observe that both the Proposed Monitor and SNDL as senior secured creditor are supportive of the DIP Facility, and corresponding charge. I also observe that the Proposed Monitor is of the view that the economic terms of the DIP Facility are appropriate, reasonable in the circumstances, and consistent with market rates and other terms. I specifically observe that the interest rate is relatively high, although only incrementally so as against the existing financing facility already in place. The DIP Facility and corresponding charge are approved.

[23] The Court has jurisdiction to grant an administration charge under section 11.52 of the CCAA. It is to consider: the size and complexity of the business being restructured, the proposed role of the beneficiaries of the charge, whether there is an unwarranted duplication of roles, whether the quantum of the proposed charge appears to be fair and reasonable, the position of the secured creditors likely to be affected by the charge, and the position of the Monitor. (See CanWest, at para. 54).

[24] The administration charge sought for the initial 10-day period meets this test and is appropriate. It is supported by the Proposed Monitor.

[25] The Court has jurisdiction to grant a directors’ charge under section 11.51 of the CCAA, provided notice is given to the secured creditors who are likely to be affected by it. To ensure the stability of the business during the restructuring period, the Applicants need the ongoing assistance of their directors and officers, who have considerable institutional knowledge and specialized expertise. They seek a priority directors’ charge, ranking subordinate to the administration charge.

[26] The Monitor supports the Applicants’ request for the directors’ charge. I am satisfied it is appropriate here.

[27] The directors’ charge is approved.

[28] The charges do not prime the security interest of any creditor not on notice of today’s hearing.

[29] Finally, I am satisfied that the proposed relief from calling an annual shareholders meeting and other reporting and filing obligations is appropriate in the circumstances, and compliance with those obligations would create and incur unnecessary expenses in circumstances where the Applicants are insolvent. I observe that stakeholders will have the benefit of a significant amount of financial and other information through this proceeding, and will have the benefit of oversight through the Court-appointed Monitor.

[30] The draft Initial Order is consistent with the Model Order of the Commercial List. The deviations therefrom reflect the particular circumstances of this case. I am satisfied that the draft Initial Order, as proposed, is appropriate.

[31] The comeback hearing shall take place on Friday, June, 21, 2024 at 9:30 AM via Zoom.

[32] The Initial Order is effective immediately and without the necessity of issuing and entering.

Osborne J.