Exhibit 10.23
 

 
LOAN TERMINATION AGREEMENT
 

Loan termination agreement dated January 18, 2016 (this “Agreement”) between
Gilla Inc. (the “Borrower”) and Sarasvati Investments Inc. (the “Lender”).
 
RECITALS
 
WHEREAS the Borrower and the Lender entered into a revolving credit facility
loan agreement (the “Revolving Credit Facility”), dated August 1, 2014 and
attached hereto as Schedule “A”;
 
WHEREAS the Borrower and the Lender mutually agree and with to terminate and
retire the Revolving Credit Facility with this Agreement;
 
WHEREAS the Borrower and the Lender entered into a new loan agreement dated the
date hereof to replace the Revolving Credit Facility with a term loan facility;
 
NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the Borrower and the
Lender agree as follows:
 
ARTICLE 1
TERMINATION OF REVOLVING CREDIT FACILITY
 
As of the date hereof, the Revolving Credit Facility is terminated and retired
in its entirety, and shall be of no further force or effect. Lender agrees to
execute such documents as reasonably requested by Borrower to evidence the
termination of the Revolving Credit Facility with full and complete repayment.
 
ARTICLE 2
WAIVER AND RELEASE
 
The Borrower and the Lender waive and release the other party from any and all
claims, actions and causes of action, whether known or unknown and whether in
law or in equity, that the waiving and releasing party may have against the
other party arising out of, or in connection with the Revolving Credit Facility.
 
ARTICLE 3
MISCELLANEOUS
 
Section 3.1       Entire Agreement
 
This Agreement, together with the Revolving Credit Facility, contain the entire
agreement between the Lender and the Borrower with respect to the matters hereof
and supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
 
 
 

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Section 3.2       Governing Law.
 
This Agreement shall be governed by and interpreted and enforced in accordance
with the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
 
Section 3.3       Counterparts.
 
This Agreement may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.  Delivery of an executed counterpart of this Agreement by electronic
means, including, without limitation, by facsimile transmission or by electronic
delivery in portable document format (“.pdf”) or tagged image file format
(“.tif”), shall constitute the valid and binding signature of such party with
the same effect as if it were an original signature endorsed on this Agreement.
 
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
indicated above.
 

 
GILLA INC.
 
By: /s/ J. Graham Simmonds
Authorized Signing Officer
     
SARASVATI INVESTMENTS INC.
 
By: /s/ Ashok Gautam
Authorized Signing Officer

 
 
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SCHEDULE “A”

[revolving credit facility loan agreement follows]

 
LOAN AGREEMENT

Loan agreement dated August 1, 2014 (this “Agreement”) between Gilla Inc. (the
“Borrower”) and Sarasvati Investments Inc. (the “Lender”).
 
RECITALS
 
WHEREAS the Borrower desires that the Lender make available a revolving credit
facility to the Borrower in the aggregate principal amount of $500,000;
 
AND WHEREAS the Lender is prepared to extend such a revolving credit facility to
the Borrower subject to the terms and conditions set out herein;
 
NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the Borrower and the
Lender agree as follows:
 
ARTICLE 1
INTERPRETATION
 
Section 1.1 Defined Terms.
 
As used in this Agreement, the following terms have the following meanings:
 
“Advance” means an extension of credit by the Lender to the Borrower pursuant to
this Agreement.
 
“Applicable Rate” means, at any given time, the greater of: (a) 15% per annum;
and (b) from the Closing Date up to and including the Maturity Date, the highest
interest rate per annum paid, or payable, by the Borrower to any arm’s length
commercial lender (or syndicate of lenders) pursuant to a financing arrangement
with such lender (or lenders) for the purposes set out in Section 2.3 on terms
and conditions equivalent to the terms and conditions of this Agreement.
 
“Borrower” means Gilla Inc. and its successors and permitted assigns.
 
“Business Day” means any day of the year, other than a Saturday, Sunday or any
day on which major banks are closed for business in Toronto, Ontario.
 
“Closing Date” means the date on which this Agreement becomes effective.
 
“Default” means an event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default.
 
“Event of Default” has the meaning specified in Section 6.1.
 
“Funded Debt” of any Person means (i) all indebtedness of such Person for or in
respect of, borrowed money, bankers acceptances, letters of credit or letters of
guarantee, (ii) all indebtedness of such Person for the deferred purchase price
of property or services represented by a note, bond, debenture or other evidence
of indebtedness, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement 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), (iv) all current liabilities of such Person represented by a
note, bond, debenture or other evidence of indebtedness, and (v) all obligations
under leases which have been or should be, in accordance with U.S. GAAP,
recorded as capital leases in respect of which such Person is liable as lessee.
 
 
 

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“U.S. GAAP” means generally accepted accounting principles in the United States,
as approved by the Financial Accounting Standards Board, as in effect from time
to time.
 
“Governmental Entity” means (i) any international, multinational, national,
federal, provincial, state, municipal, local or other governmental or public
department, central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) any subdivision or authority of any
of the above, (iii) any stock exchange and (iv) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority under
or for the account of any of the above.
 
“Indemnified Person” has the meaning specified in Section 7.4.
 
“Intercreditor and Subordination Agreement” means the intercreditor and
subordination agreement dated the date hereof among Gravitas Financial Inc., the
Lender and the Borrower, as amended, restated, amended and restated or replaced
from time to time.
 
“Lender” means Sarasvati Investments Inc. and its successors and assigns.
 
”Loan” means the revolving credit facility in the aggregate principal amount not
exceeding the Loan Limit to be made available to the Borrower by the Lender
under this Agreement for the purposes set out in Section 2.3.
 
“Loan Limit” means $500,000.
 
“Lien” means any mortgage, charge, pledge, hypothecation, security interest,
assignment, encumbrance, lien (statutory or otherwise), title retention
agreement or arrangement, restrictive covenant or other encumbrance of any
nature or any other arrangement or condition that in substance secures payment
or performance of an obligation.
 
“Loan Documents” means this Agreement, the Intercreditor and Subordination
Agreement, the Warrant, the Security Documents and all other documents to be
executed and delivered to the Lender by the Borrower pursuant to or in
connection with this Agreement.
 
“Material Adverse Effect” means a material adverse effect on the business,
operations, results of operations, prospects, assets, liabilities or financial
condition of the Borrower.
 
“Material Agreement” means any contract or agreement to which the Borrower is a
party or by which it is bound, the termination or cancellation of which (prior
to the scheduled termination date) could have a Material Adverse Effect.
 
“Maturity Date” means August 1, 2015.
 
 
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“Permitted Liens” means, in respect of any Person, any one or more of the
following:
 
(a)  
Liens for taxes, assessments or governmental charges or levies which are not
delinquent or the validity of which is being contested at the time by the Person
in good faith by proper legal proceedings if, in the Lender’s opinion, adequate
provision has been made for payment;

 
(b)  
inchoate or statutory Liens of contractors, subcontractors, mechanics, workers,
suppliers, materialmen, carriers and others in respect of construction,
maintenance, repair or operation of assets of the Person, provided that such
Liens are related to obligations not due or delinquent, are not registered
against title to any assets of the Person and in respect of which adequate
holdbacks are being maintained as required by applicable law or such Liens are
being contested in good faith by appropriate proceedings and in respect of which
there has been set aside a reserve (segregated to the extent required by U.S.
GAAP) in an adequate amount and provided further that such Liens do not, in the
Lender’s reasonable opinion, reduce the value of the asset so affected or
materially interfere with the use of such asset in the operation of the business
of the Person;

 
(c)  
the right reserved to or vested in any Governmental Entity by any statutory
provision or by the terms of any lease, licence, franchise, grant or permit of
the Person, to terminate any such lease, licence, franchise, grant or permit, or
to require annual or other payments as a condition to the continuance thereof;
and

 
(d)  
Liens in favour of the Lender created by the Security Documents.

 
“Person” means a natural person, partnership, corporation, joint stock company,
trust, unincorporated association, joint venture or other entity or Governmental
Entity and pronouns have a similarly extended meaning.
 
“Secured Inventory” means the secured inventory value and accounts due relating
to any inventory.
 
“Security” means, at any time, the security interest in favour of the Lender, in
those assets and properties of the Borrower securing its obligations under this
Agreement and the other Loan Documents to which it is a party.
 
"Security Agreement” means the security agreement dated the date hereof by the
Borrower in favour of the Lender.
 
“Security Documents” means the Security Agreement and any other security granted
to the Lender, as security for the obligations of the Borrower under this
Agreement and the other Loan Documents.
 
“Security Report” means a monthly security report, certified by the Borrower’s
management and deliverable at the end of each month until the Maturity Date,
indicating the outstanding Advances relative to the Secured Inventory value.
 
“Warrant” means the warrant granted by Borrower to Karen Gautam, containing
terms acceptable to Karen Gautam in its sole and reasonable discretion,
entitling Karen Gautam to purchase 250,000 common shares of the Borrower at an
exercise price equal to US$0.30, which warrant is to remain in effect from the
Closing Date until the date that is two (2) years following the Maturity Date.
 
 
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Section 1.2       Gender and Number.
 
Any reference in the Loan Documents to gender includes all genders and words
importing the singular number only include the plural and vice versa.
 
Section 1.3       Headings, etc.
 
The division of this Agreement into Articles and Sections and the insertion of
headings are for convenient reference only and are not to affect the
interpretation of this Agreement.
 
Section 1.4       Currency.
 
All references in the Loan Documents to dollars, unless otherwise specifically
indicated, are expressed in Canadian currency.
 
Section 1.5       Certain Phrases, etc.
 
In any Loan Document (i) (a) the words “including” and “includes” mean
“including (or includes) without limitation” and (b) the phrase “the aggregate
of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the
aggregate (or total or sum), without duplication, of”, and (ii) in the
computation of periods of time from a specified date to a later specified date,
unless otherwise expressly stated, the word “from” means “from and including”
and the words “to” and “until” each mean “to but excluding”.
 
Section 1.6       Accounting Terms.
 
All accounting terms not specifically defined in this Agreement shall be
interpreted in accordance with U.S. GAAP.
 
Section 1.7       Conflict.
 
The provisions of this Agreement prevail in the event of any conflict or
inconsistency between its provisions and the provisions of any of the other Loan
Documents.
 
ARTICLE 2
CREDIT FACILITY
 
Section 2.1       Availability.
 
(1)  
The Lender agrees, on the terms and subject to the conditions of this Agreement,
to make the Loan available from or after the Closing Date.

 
(2)  
The Loan shall be a revolving credit facility. For greater certainty, the
Borrower shall be entitled to obtain Advances under the Loan from time to time
and, subject to Section 2.5, repay all or any portion of the outstanding
Advances under the Loan from time to time; provided that the outstanding
Advances under the Loan shall not at any time exceed the Loan Limit.

 
 
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(3)  
The Lender shall maintain, in accordance with its usual practice, records
evidencing the amounts owing under this Agreement; and the information entered
into such records shall constitute conclusive evidence of such amounts owed
absent manifest error.

 
Section 2.2      Notice.
 
The Borrower shall provide written notice to the Lender ten (10) Business Days
prior to a proposed Advance.
 
Section 2.3      Purpose.
 
Advances shall be used by the Borrower for the exclusive purpose of purchasing
inventory (together with related costs) for sale in the Borrower’s, or any of
its subsidiaries’, ordinary course of business to the approved customers listed
in Schedule “A” hereto as such schedule may be amended or replaced from time to
time.

Section 2.4       Repayment of Principal, Interest Payments and Standby Fees.
 
(1)  
The principal amount of the outstanding Advances from time to time shall bear
interest at the Applicable Rate.

 
(2)  
Interest shall accrue daily and shall be calculated and payable monthly, in
arrears.

 
(3)  
a standby fee with respect to the unused portion of the Loan, calculated on a
daily basis as being the difference between the Loan Limit and the outstanding
Advances, multiplied by 3.5% and divided by 365 shall be payable in arrears on
the last day of each month.

 
(4)  
Subject to Section 6.2, the outstanding principal amount of the Advances
together with all accrued and unpaid interest thereon shall become due and
payable on the Maturity Date.

 
Section 2.5       Repayments.
 
The Borrower shall have the right and privilege of repaying the whole or any
portion of the Advances, without premium or penalty, at any time or times.
 
If any given Security Report indicates that the outstanding Advances is greater
than the Secured Inventory value, the Lender shall have five (5) Business Days
to request that the Borrower repay an amount up to the difference between the
outstanding Advances and the Secured Inventory. Upon the Lender’s request for
such repayment, the Borrower shall have five (5) Business Days to repay that
portion of the Advances.
 
 
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Section 2.6       Payments under this Agreement.
 
(1)  
Unless otherwise expressly provided in this Agreement or by the parties in
writing, the Borrower shall make any payment required to be made by it to the
Lender by depositing the amount of the payment to an account specified by the
Lender not later than 10:00 a.m. (Toronto time) on the date the payment is due.

 
(2)  
All amounts owed by the Borrower to the Lender, which are not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear interest
(both before and after default and judgment), from the date on which such amount
is due until such amount is paid in full, payable on demand, at a rate per annum
equal to the Applicable Rate, plus 2%

 
Section 2.7       Computations of Interest.
 
(1)  
All computations of interest shall be made by the Lender taking into account the
actual number of days occurring in the period for which such interest is
payable, on the basis of a year of 365 days.

 
(2)  
For purposes of the Interest Act (Canada), (i) whenever any interest or fee
under this Agreement is calculated using a rate based on a year of 365 days, the
rate determined pursuant to such calculation, when expressed as an annual rate,
is equivalent to (x) the applicable rate based on a year of 365 or 366 days, as
the case may be, (y) multiplied by the actual number of days in the calendar
year in which the period for which such interest or fee is payable (or
compounded) ends, and (z) divided by 365 or 366 days, as the case may be, (ii)
the principle of deemed reinvestment of interest does not apply to any interest
calculation under this Agreement, and (iii) the rates of interest stipulated in
this Agreement are intended to be nominal rates and not effective rates or
yields.

 
Section 2.8       Security Report.
 
The Borrower shall provide to the Lender a monthly security report (each a
“Security Report”), certified by the Borrower’s management and deliverable at
the end of each month until the Maturity Date, indicating the outstanding
Advances relative to the secured inventory value and accounts due relating to
any inventory (the “Secured Inventory”).
 
ARTICLE 3
CONDITIONS OF LENDING
 
Section 3.1       Conditions Precedent to First Advance.
 
The Lender shall have no obligation to make the first Advance hereunder unless
at the time of making such Advance the following terms and conditions shall have
been satisfied:
 
(a)  
the Lender has received, in form, substance, scope and dated a date satisfactory
to it and its counsel:

 
(i)  
an executed copy of each of the Loan Documents;

 
 
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(ii)  
evidence of registration of the Security Documents in such jurisdictions as the
Lender may reasonably require, including all required consents to obtain such
registrations; and

 
(b)  
the conditions precedent in Section 3.2 shall have been satisfied.

 
Section 3.2       Conditions Precedent to all Advances.
 
The Lender shall have no obligation to make the first Advance or any subsequent
Advance unless at the time of making each such Advance the following terms and
conditions shall have been satisfied:
 
(a)  
no Default or Event of Default has occurred or is continuing or would arise
immediately after giving effect to or as a result of the Advance;

 
(b)  
the Advance will not violate any applicable law, order or judgment;

 
(c)  
(i) the Advance is to be used for the purposes identified in Section 2.3; (ii)
the Borrower shall have provided the Lender with information reasonably
satisfactory to the Lender with respect to the proposed use of the Advance; and
(iii) the Lender, or its designate, shall have approved the proposed use of the
Advance;

 
(d)  
the representations and warranties of the Borrower contained in Article 4 are
true and correct on the date of the Advance as if such representations and
warranties were made on that date; and

 
(e)  
the Borrower shall have delivered an Advance request to the Lender in accordance
with the notice requirements provided in Section 2.2.

 
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
 
Section 4.1       Representations and Warranties.
 
The Borrower represents and warrants to the Lender, acknowledging and confirming
that the Lender is relying on such representations and warranties without
independent inquiry in entering into this Agreement and providing the Loan that:
 
(a) 
Incorporation and Qualification. The Borrower is a corporation duly
incorporated, organized and validly existing under the laws of the State of
Nevada. The Borrower is qualified, licensed or registered to carry on business
under the laws applicable to it in all jurisdictions in which such
qualification, licensing or registration is necessary or where failure to be so
qualified would have a Material Adverse Effect;

 
(b) 
Corporate Power. The Borrower has all requisite corporate power and authority to
(i) own, lease and operate its properties and assets and to carry on its
business as now being conducted by it, and (ii) enter into and perform its
obligations under the Loan Documents;

 
 
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(c) 
Conflict with Other Instruments. The execution and delivery by the Borrower and
the performance by it of its obligations under, and compliance with the terms,
conditions and provisions of, the Loan Documents will not (i) conflict with or
result in a breach of any of the terms or conditions of (t) its constating
documents, (u) any applicable law, rule or regulation, (v) any contractual
restriction binding on or affecting it or its properties, or (w) any judgment,
injunction, determination or award which is binding on it, or (ii) result in,
require or permit (x) the imposition of any Lien in, on or with respect to any
of its assets or property (except in favour of the Lender), (y) the acceleration
of the maturity of any Funded Debt binding on or affecting the Borrower, or (z)
any third party to terminate or acquire rights under any Material Agreement;

 
(d) 
Corporate Action, Governmental Approvals, etc. The execution and delivery of
each of the Loan Documents by the Borrower and the performance by the Borrower
of its obligations under the Loan Documents has been duly authorized by all
necessary corporate action including, without limitation, the obtaining of all
necessary shareholder consents. No authorization, consent, approval,
registration, qualification, designation, declaration or filing with any
Governmental Entity or other Person, is or was necessary in connection with the
execution, delivery and performance of obligations under the Loan Documents
except as are in full force and effect, unamended, at the date of this
Agreement;

 
(e) 
Execution and Binding Obligation. This Agreement and the other Loan Documents
have been duly executed and delivered by the Borrower and constitute legal,
valid and binding obligations of the Borrower enforceable against it in
accordance with its terms, subject only to any limitation under applicable laws
relating to (i) bankruptcy, insolvency, arrangement or creditors’ rights
generally, and (ii) the discretion that a court may exercise in the granting of
equitable remedies;

 
(f) 
Authorizations, etc. The Borrower possesses all authorizations, permits,
consents, registrations and approvals necessary to properly conduct its
businesses and to enter into and perform its obligations under the Loan
Documents and all such authorizations, permits, consents, registrations and
approvals are in good standing and in full force and effect;

 
(g) 
Ownership and Use of Property. Except for Permitted Liens, the Borrower has good
and marketable title to all the real and personal property reflected as assets
in its books and records. The Borrower owns, leases or has the lawful right to
use all of the assets necessary for the conduct of its businesses;

 
(h) 
Compliance with Laws. The Borrower is in compliance with all applicable laws,
judgments and orders and rulings, guidelines and decisions having force of law;

 
(i) 
No Default. The Borrower is not in violation of its constating documents, or any
shareholders’ agreement applicable to it or any Material Agreement; and

 
(j) 
No Material Adverse Agreements. The Borrower is not party to any agreement or
instrument or subject to any restriction (including any restriction set forth in
its constating documents, any shareholders’ agreement applicable to it or any
Material Agreement) which has or may have a Material Adverse Effect.

 
 
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Section 4.2       Survival of Representations and Warranties.
 
The representations and warranties in this Agreement and in any certificates or
documents delivered to the Lender shall not merge in or be prejudiced by and
shall survive each Advance and shall continue in full force and effect so long
as any amounts are owing by the Borrower to the Lender under this Agreement.
 
ARTICLE 5
COVENANTS OF THE BORROWER
 
Section 5.1       Affirmative Covenants.
 
So long as there remains any outstanding amount owing under the Loan or the
Lender has any obligation under this Agreement, the Borrower shall:
 
(a) 
Corporate Existence. Preserve and maintain its corporate existence;

 
(b) 
Compliance with Laws, etc. Comply with the requirements of all applicable laws,
judgments, orders, decisions, awards, Material Agreements and Loan Documents;

 
(c) 
Payment of Taxes and Claims. Pay when due, (i) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income, sales,
capital or profit or any other property belonging to, and (ii) all claims which,
if unpaid, might by law become a Lien upon the assets, except any such tax,
assessment, charge, levy or claim which is being contested in good faith and by
proper proceedings and in respect of which the Borrower has established adequate
reserves in accordance with U.S. GAAP or which are Permitted Liens;

 
(d) 
Keeping of Books. Keep proper books of record and account, in which full and
correct entries shall be made in respect of its business and operations;

 
(e) 
Ordinary Course. The Borrower shall conduct its business in a manner consistent
with past practices, and in the ordinary course of its normal day-to-day
operations; and

 
(f) 
Further Assurances. At its cost and expense, upon the reasonable request of the
Lender, execute and deliver or cause to be executed and delivered to the Lender
such further instruments, agreements and security documents and do and cause to
be done such further acts as may be necessary or proper in the reasonable
opinion of the Lender to carry out more effectually the provisions and purposes
of the Loan Documents.

 
Section 5.2       Negative Covenants.
 
So long as there remains any outstanding amount owing under the Loan or the
Lender has any obligation under this Agreement, the Borrower shall not create,
incur, assume or suffer to exist any Lien on any of its property or assets
covered by the Security other than Permitted Liens.
 
 
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ARTICLE 6
EVENTS OF DEFAULT
 
Section 6.1       Events of Default.
 
If any of the following events (each an “Event of Default”) occurs and is
continuing:
 
(a)  
the Borrower fails to pay any amount under the Loan, any interest thereon or any
other amounts due under any Loan Document when such amount becomes due and
payable;

 
(b)  
any representation or warranty or certification made or deemed to be made by the
Borrower or any of its respective directors or officers in any Loan Document
shall prove to have been incorrect when made or deemed to be made;

 
(c)  
the Borrower fails to perform, observe or comply with any other term, covenant
or agreement contained in any Loan Document to which it is a party and such
failure remains unremedied for thirty (30) days;

 
(d)  
any judgment or order for the payment of money in excess of $1,000,000 (or the
equivalent amount in any other currency) is rendered against the Borrower and
either (i) enforcement proceedings have been commenced by a creditor upon the
judgment or order, or (ii) there is any period of fifteen (15) consecutive days
during which a stay of enforcement of the judgment or order, by reason of a
pending appeal or otherwise, is not in effect; or

 
(e)  
the Borrower (i) becomes insolvent or generally not able to pay its debts as
they become due, (ii) admits in writing its inability to pay its debts generally
or makes a general assignment for the benefit of its creditors, (iii) institutes
or has instituted against it any proceeding seeking (x) to adjudicate it a
bankrupt or insolvent, (y) liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors
including any plan of compromise or arrangement or other corporate proceeding
involving or affecting its creditors, or (z) the entry of an order for relief or
the appointment of a receiver, trustee or other similar official for it or for
any substantial part of its properties and assets, and in the case of any such
proceeding instituted against it (but not instituted by it), either the
proceeding remains undismissed or unstayed for a period of forty-five (45) days,
or any of the actions sought in such proceeding (including the entry of an order
for relief against it or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its properties and
assets) occurs, or (iv) takes any corporate action to authorize any of the above
actions.

 
then the Lender may declare that the Loan, all accrued interest and fees and all
other amounts payable under this Agreement to be immediately due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by the Borrower.
 
 
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Section 6.2       Remedies Upon Default.
 
(1)  
Upon a declaration that the Loan is immediately due and payable pursuant to
Section 6.1, the Lender may commence such legal action or proceedings as it, in
its sole discretion, deems expedient, including, the commencement of enforcement
proceedings under the Loan Documents all without any additional notice,
presentation, demand, protest, notice of dishonour, entering into of possession
of any property or assets, or any other action or notice, all of which are
expressly waived by the Borrower.

 
(2)  
The rights and remedies of the Lender under the Loan Documents are cumulative
and are in addition to, and not in substitution for, any other rights or
remedies. Nothing contained in the Loan Documents with respect to the
indebtedness or liability of the Borrower to the Lender, nor any act or omission
of the Lender with respect to the Loan Documents or the Security shall in any
way prejudice or affect the rights, remedies and powers of the Lender under the
Loan Documents and the Security.

 
ARTICLE 7
MISCELLANEOUS
 
Section 7.1       Amendments, etc.
 
No amendment or waiver of any provision of any of the Loan Documents, nor
consent to any departure by the Borrower or any other Person from such
provisions, is effective unless in writing and approved by the Lender. Any
amendment, waiver or consent is effective only in the specific instance and for
the specific purpose for which it was given.
 
Section 7.2       Waiver.
 
(1)  
No failure on the part of the Lender to exercise, and no delay in exercising,
any right under any of the Loan Documents shall operate as a waiver of such
right; nor shall any single or partial exercise of any right under any of the
Loan Documents preclude any other or further exercise of such right or the
exercise of any other right.

 
(2)  
Except as otherwise expressly provided in this Agreement, the covenants,
representations and warranties shall not merge on and shall survive each Advance
and, notwithstanding such Advance or any investigation made by or on behalf of
any party, shall continue in full force and effect. The closing of this
transaction shall not prejudice any right of one party against any other party
in respect of anything done or omitted under this Agreement or in respect of any
right to damages or other remedies.

 
 
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Section 7.3       Notices, etc.
 
Any notice, direction or other communication to be given under this Agreement
shall, except as otherwise permitted, be in writing and given by delivering it
or sending it by facsimile or other similar form of recorded communication
addressed:
 
(a)  
to the Lender at:

 
33 Kennedy Park Road
Toronto, Ontario
M6P 3H2
Karen.gautam@gmail.com (with a copy to rajeevuofw@gmail.com)
 
(b)  
to the Borrower at:

 
110 Yonge Street, Suite 1602
Toronto, Ontario, M5C 1T4
graham@gillainc.com
 
Any such communication shall be deemed to have been validly and effectively
given if (i) personally delivered, on the date of such delivery if such date is
a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time),
otherwise on the next Business Day, (ii) transmitted by facsimile or similar
means of recorded communication on the Business Day following the date of
transmission. Any party may change its address for service from time to time by
notice given in accordance with the foregoing and any subsequent notice shall be
sent to the party at its changed address.
 
Section 7.4       Costs, Expenses and Indemnity.
 
(1)  
The Borrower shall, whether or not the transaction contemplated by this
Agreement is completed, indemnify and hold the Lender and its officers,
directors, employees and agents (each an “Indemnified Person”) harmless from,
and shall pay to such Indemnified Person on demand any amounts required to
compensate the Indemnified Person for, any cost, expense, claim or loss suffered
by, imposed on, or asserted against, the Indemnified Person as a result of, or
arising out of (i) the preparation, execution and delivery of, preservation of
rights under, enforcement of, or refinancing, renegotiation or restructuring of,
the Loan Documents and any related amendment, waiver or consent, (ii) a Default
(whether or not constituting a Default or an Event of Default), and (iii) any
proceedings brought by or against the Indemnified Person, or in which the
Indemnified Person otherwise participates, due to its entering into or being a
party to any of the Loan Documents, or by reason of its exercising or
performing, or causing the exercise or performance of, any right, power or
obligation under any of the Loan Documents, whether or not such proceedings are
directly related to the enforcement of any Loan Document, except to the extent
caused by the gross negligence or wilful misconduct of the Indemnified Person.

 
 
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(2)  
The Borrower shall pay to the Lender all reasonable costs and expenses
(including all legal fees and disbursements on a solicitor and own client basis)
incurred by the Lender in connection with this Agreement and the other Loan
Documents; provided that the aggregate amount payable by the Borrower to the
Lender, pursuant to this Section 7.4(2), shall not exceed $15,000.

 
Section 7.5       Successors and Assigns.
 
(1)  
This Agreement shall become effective when executed by the Borrower and the
Lender and after that time shall be binding upon and enure to the benefit of the
Borrower and the Lender and their respective successors and permitted assigns.

 
(2)  
The Borrower shall not have the right to assign its rights or obligations under
this Agreement or any interest in this Agreement without the prior consent of
the Lender, which consent may not be unreasonably withheld.

 
Section 7.6       Right of Set-off.
 
Upon the occurrence and during the continuance of any Event of Default, the
Lender is authorized at any time and from time to time, to the fullest extent
permitted by law (including general principles of common-law), to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by it to or for
the credit or the account of the Borrower against any and all of the obligations
of the Borrower under any of the Loan Documents, irrespective of whether or not
the Lender has made demand under any of the Loan Documents and although such
obligations may be unmatured or contingent. If an obligation is unascertained,
the Lender may, in good faith, estimate the obligation and exercise its right of
set-off in respect of the estimate, subject to providing the Borrower with an
accounting when the obligation is finally determined. The Lender shall promptly
notify the Borrower after any set-off and application is made by it, provided
that the failure to give notice shall not affect the validity of the set-off and
application. The rights of the Lender under this Section 7.6 are in addition to
other rights and remedies (including all other rights of set-off) which the
Lender may have.
 
Section 7.7       Entire Agreement
 
This Agreement, together with the Loan Documents, contain the entire agreement
between the Lender and the Borrower with respect to the matters hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
 
Section 7.8       Governing Law.
 
This Agreement shall be governed by and interpreted and enforced in accordance
with the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
 
Section 7.9       Counterparts.
 
This Agreement may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.  Delivery of an executed counterpart of this Agreement by electronic
means, including, without limitation, by facsimile transmission or by electronic
delivery in portable document format (“.pdf”) or tagged image file format
(“.tif”), shall constitute the valid and binding signature of such party with
the same effect as if it were an original signature endorsed on this Agreement.
 
 
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Section 7.10 Language.
 
The parties hereto acknowledge that they have required and are satisfied that
this Agreement and all communications to be delivered pursuant hereto be drawn
in the English language.
 
Section 7.11 Syndication.
 
The Borrower acknowledges that the Lender is acting for and on behalf of itself
and certain other Persons with respect to the establishment and maintenance of
the Loan and that, except for the Warrant, the Loan Documents shall be granted
in favour of and held by the Lender for and on behalf of itself and certain
other Persons.
 
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
indicated above.
 

 
GILLA INC.
 
By: /s/ J. Graham Simmonds                        
Authorized Signing Officer
 
 
SARASVATI INVESTMENTS INC.
 
By: /s/ Ashok Gautam                                  
Authorized Signing Officer

 
 
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SCHEDULE “A”
Approved Customers

[intentionally left blank]
 
 
 
 
 
 
 
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